This bill amends title XVIII (Medicare) of the Social Security Act (SSAct) with respect to the hospital readmissions reduction program under the inpatient (hospital) prospective payment system (IPPS).

The Secretary of Health and Human Services, in determining a hospital's excess readmission ratio for purposes of making payments for discharges occurring during FY2016-FY2017, is required to make a risk adjustment to the ratio that takes into account both: (1) a hospital's proportion of inpatients who are full-benefit dual eligible individuals (eligible for both Medicare and Medicaid under SSAct title XIX), and (2) the socioeconomic status of patients served by the hospital.

The Secretary must base the risk adjustment under the readmission program for subsequent fiscal years on specified reports required by the Improving Medicare Post Acute Care Transformation Act of 2014 as well as a report the Medicare Payment Advisory Commission shall submit on the appropriateness of using a threshold of 30 days for readmissions under the program. The Administrator of the Centers for Medicare & Medicaid Services must then incorporate report recommendations in carrying out risk adjustments for discharges occurring in such fiscal years in order to ensure that the most vulnerable populations are not unfairly penalized by the program.

The Secretary shall consider the use of V or other International Classification of Diseases-related codes for potential exclusion of noncompliant patient cases when promulgating related regulations for FY2017.

The Secretary must: (1) assess whether to exclude from the calculation of excess readmissions any patients whose clinical conditions or diagnoses may require frequent hospitalizations; then (2) exclude, starting in FY2018, any relevant clinical conditions identified in the assessment recommendations when determining a hospital's publicly reported readmission rate and excess readmissions ratio.

The Secretary is directed to make a payment adjustment to subsection (d) hospitals necessary to ensure that the implementation of this Act does not result in any increase in aggregate expenditures under the IPPS.

(Generally, a subsection (d) hospital is an acute care hospital, particularly one that receives payment under the IPPS when providing covered inpatient services to eligible beneficiaries.)