SEC. 1103. INCORPORATING PRODUCTIVITY IMPROVEMENTS INTO MARKET BASKET UPDATES THAT DO NOT ALREADY INCORPORATE SUCH IMPROVEMENTS.

[a] Inpatient Acute Hospitals- Section- 1886[b][3][B] of the Social Security Act [42 U.S.C. 1395ww[b][3][B]] is amended--

[1] in clause [iii]--

[A] by striking '[iii] For purposes of this subparagraph,' and inserting '[iii][I] For purposes of this subparagraph, subject to the productivity adjustment described in subclause [II],'; and

[B] by adding at the end the following new subclause:

'[II] The productivity adjustment described in this subclause, with respect to an increase or change for a fiscal year or year or cost reporting period, or other annual period, is a productivity offset equal to the percentage change in the 10-year moving average of annual economy-wide private nonfarm business multi-factor productivity [as recently published before the promulgation of such increase for the year or period involved]. Except as otherwise provided, any reference to the increase described in this clause shall be a reference to the percentage increase described in subclause [I] minus the percentage change under this subclause.';

[2] in the first sentence of clause [viii][I], by inserting '[but not below zero]' after 'shall be reduced'; and

[3] in the first sentence of clause [ix][I]--

[A] by inserting '[determined without regard to clause [iii][II]' after 'clause [i]' the second time it appears; and

[B] by inserting '[but not below zero]' after 'reduced'.

[b] Skilled Nursing Facilities- Section- 1888[e][5][B] of such Act [42 U.S.C. 1395yy[e][5][B]] is amended by inserting 'subject to the productivity adjustment described in section 1886[b][3][B][iii][II]' after 'as calculated by the Secretary'.

[c] Long-Term Care Hospitals- 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:

'[3] PRODUCTIVITY ADJUSTMENT- In implementing the system described in paragraph [1] for discharges occurring during the rate year ending in 2010 or any subsequent rate year for a hospital, to the extent that an annual percentage increase factor applies to a base rate for such discharges for the hospital, such factor shall be subject to the productivity adjustment described in section 1886[b][3][B][iii][II].'.

[d] Inpatient Rehabilitation Facilities- The second sentence of section 1886[j][3][C] of the Social Security Act [42 U.S.C. 1395ww[j][3][C]] is amended by inserting '[subject to the productivity adjustment described in section 1886[b][3][B][iii][II]]' after 'appropriate percentage increase'.

[e] Psychiatric Hospitals- Section- 1886 of the Social Security Act [42 U.S.C. 1395ww] is amended by adding at the end the following new subsection:

'[o] Prospective Payment for Psychiatric Hospitals-

'[1] REFERENCE TO ESTABLISHMENT AND IMPLEMENTATION OF SYSTEM- For provisions related to the establishment and implementation of a prospective payment system for payments under this title for inpatient hospital services furnished by psychiatric hospitals [as described in clause [i] of subsection [d][1][B]] and psychiatric units [as described in the matter following clause [v] of such subsection], see section 124 of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999.

'[2] PRODUCTIVITY ADJUSTMENT- In implementing the system described in paragraph [1] for discharges occurring during the rate year ending in 2011 or any subsequent rate year for a psychiatric hospital or unit described in such paragraph, to the extent that an annual percentage increase factor applies to a base rate for such discharges for the hospital or unit, respectively, such factor shall be subject to the productivity adjustment described in section 1886[b][3][B][iii][II].'.

[f] Hospice Care- Subclause [VII] of section 1814[i][1][C][ii] of the Social Security Act [42 U.S.C. 1395f[i][1][C][ii]] is amended by inserting after 'the market basket percentage increase' the following: '[which is subject to the productivity adjustment described in section 1886[b][3][B][iii][II]]'.

[g] Effective Date- The amendments made by subsections [a], [b], [d], and [f] shall apply to annual increases effected for fiscal years beginning with fiscal year 2010.