of the value based purchasing performance of the hospital. The methods of risk adjustment used to determine the value based purchasing performance of hospitals does not adequately account for the chronic illness burden and severity of illness of Medicare beneficiaries. (4) Per case payment penalties for hospital acquired conditions under section 1886(d)(4)(D), as added by section 5001(c) of the Deficit Reduction Act of 2005, are duplicative with the payment penalties for hospital acquired conditions under section 1886(p) of the Social Security Act, as added by section 3008 of the Patient Protection and Affordable Care Act. (5) The payment penalties for hospital acquired conditions and readmissions and the payment penalties and bonuses for hospital value based purchasing should be restructured to be based on a comprehensive and clinically credible definition of potentially-avoidable outcomes, including potentially-avoidable complications, potentially-avoidable readmissions, potentially-avoidable return emergency room visits and post-acute case episode expenditures, be based on the risk adjusted comparison of the potentially-avoidable outcomes for a hospital to nationwide average rates and include both payment penalties and bonuses that are proportional to the actual financial impact of the potentially-avoidable outcomes. (6) The existing methods of risk adjustment used to determine the quality of care performance of hospitals under such sections 1886(p), 1886(q), 1886(o), and 1886(d)(4)(D) of the Social Security Act should be replaced by a methodology that is composed of exhaustive and mutually exclusive risk categories that are clinically credible and explicitly recognize the severity of illness and chronic illness burden of Medicare beneficiaries, thereby accounting for patient characteristics that may impact access to care. 2. Hospital outcomes (a) Payment adjustments for hospital outcomes Section 1886 of the Social Security Act ( 42 U.S.C. 1395ww ) is amended by adding at the end the following new subsection: