Medicare Program; Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities-Update

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 411 and 489

[HCFA-1112-P]

RIN 0938-AJ93

Medicare Program; Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities—Update

AGENCY:

Health Care Financing Administration (HCFA), HHS.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

This proposed rule sets forth updates to the payment rates used under the prospective payment system (PPS) for skilled nursing facilities (SNFs), for fiscal year 2001. Furthermore, it specifically proposes changes to the SNF PPS case-mix methodology. Annual updates to the PPS rates are required by section 1888(e) of the Social Security Act, as amended by the Medicare, Medicaid and State Child Health Insurance Program Balanced Budget Refinement Act of 1999, related to Medicare payments and consolidated billing for SNFs. In addition, this proposed rule sets forth certain conforming revisions to the regulations that are necessary in order to implement amendments made to the Act by section 103 of the Medicare, Medicaid and State Child Health Insurance Program Balanced Budget Refinement Act of 1999.

DATES:

We will consider comments if we receive them at the appropriate address, as provided below, no later than 5 p.m. on June 9, 2000.

ADDRESSES:

Mail written comments (1 original and 3 copies) to the following address: Health Care Financing Administration, Department of Health and Human Services, Attention: HCFA-1112-P, P.O. Box 8013, Baltimore, MD 21244-8013.

If you prefer, you may deliver your written comments (1 original and 3 copies) to one of the following addresses:

Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201, or

Room C5-15-03, 7500 Security Boulevard, Baltimore, MD 21244-8150.

Because of staffing and resource limitations, we cannot accept comments by facsimile (FAX) transmission. In commenting, please refer to file code HCFA-1112-P. Comments received timely will be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, in Room 443-G of the Department's office at 200 Independence Avenue, SW., Washington, DC, on Monday through Friday of each week from 8:30 to 5 p.m. (phone: (202) 690-7061).

FOR FURTHER INFORMATION CONTACT:

Dana Burley, (410) 786-4547 or Sheila Lambowitz, (410) 786-7605 (for information related to the case-mix classification methodology).

John Davis, (410) 786-0008 (for information related to the Wage Index).

Bill Ullman, (410) 786-5667 (for information related to consolidated billing).

Steve Raitzyk, (410) 786-4599 (for information related to the facility-specific transition rates).

Bill Ullman, (410) 786-5667 and Susan Burris (410) 786-6655 (for general information).

SUPPLEMENTARY INFORMATION:

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document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the

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.

To assist readers in referencing sections contained in this document, we are providing the following table of contents.

Table of Contents

I. Background

A. Current System for Payment of Skilled Nursing Facility Services Under Part A of the Medicare Program

B. Requirements of the Balanced Budget Act of 1997 for Updating the Prospective Payment System for Skilled Nursing Facilities

C. The Medicare, Medicaid and State Child Health Insurance Program (SCHIP) Balanced Budget Refinement Act of 1999

D. Skilled Nursing Facility Prospective Payment—General Overview

1. Payment Provisions—Federal Rates

2. Payment Provisions—Transition Period

3. Payment Provisions—Facility-Specific Rate

II. Update of Payment Rates Under the Prospective Payment System for Skilled Nursing Facilities

A. Federal Prospective Payment System

1. Cost and Services covered by the Federal Rates

2. Methodology Used for the Calculation of the Federal Rates

B. Case-Mix Adjustment and Options

C. Wage Index Adjustment to Federal Rates

D. Updates to the Federal Rates

E. Relationship of RUG-III Classification System to Existing Skilled Nursing Facility Level-of-Care Criteria

III. Three-Year Transition Period

IV. The Skilled Nursing Facility Market Basket Index

A. Facility-Specific Rate Update Factor

B. Federal Rate Update Factor

V. Consolidated Billing

VI. Provisions of the Proposed Rule

VII. Collection of Information Requirements

VIII. Response to Comments

IX. Regulatory Impact Analysis

A. Background

B. Impact of this Proposed Rule

X. Federalism

Regulations Text

Technical Appendix A

A. Creation of the Analytic Sample

B. Characteristics of the Sample

C. Test and Validation Samples

D. Creation of Measure of Non-Therapy Ancillary Charges from SNF Claims

1. Cost-to-Charge Multiplier

E. Analysis and Findings—RUG-III Refinements

1. Costs for Beneficiaries Who Qualify for Both Extensive Services and Rehabilitation

2. Non-Therapy Ancillary Index Models

F. Model Performance

1. RUG-III CMI Adjustment

2. RUG-III (proposed, version 2001)

3. Weighted Index Model (WIM1)

4. Weighted Index Model 2 (WIM2)

5. Unweighted Index Model (UWIM)

G. RUG-III Medications Data

1. Creation of MDS-Based Cost Measures

2. RUG-Based Imputation Method

3. State and Year-Based Imputation Method

In addition, because of the many terms to which we refer by abbreviation in this rule, we are listing these abbreviations and their corresponding terms in alphabetical order below:

ADL—Activity of Daily Living

BBA—Balanced Budget Act of 1997

BBRA—Balanced Budget Refinement Act of 1999

BLS—(U.S.) Bureau of Labor Statistics

CPI—Consumer Price Index

HCFA— Health Care Financing Administration

HCPCS—HCFA Common Procedure Coding System

IFC—Interim Final Rule with Comments

MDS—Minimum Data Set

MSA—Metropolitan Statistical Area

PPI—Producer Price Index

PPS—Prospective Payment System

PRM—Provider Reimbursement Manual

RUG—Resource Utilization Group

SCHIP—State Child Health Insurance Program

SNF—Skilled Nursing Facility

I. Background

A. Current System for Payment of Skilled Nursing Facility Services Under Part A of the Medicare Program

Section 4432 of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) mandated the implementation of a per diem prospective payment system (PPS) for skilled nursing facilities (SNFs), covering all costs (routine, ancillary, and capital) of covered SNF services furnished to beneficiaries under Part A of the Medicare program, effective for cost reporting periods beginning on or after July 1, 1998. The SNF PPS payment methodology features a case-mix adjustment that utilizes data from the comprehensive assessment process required for every SNF beneficiary in order to group them clinically in terms of their degree of resource intensity. The case-mix adjustment is designed to ensure that the amount of the PPS per diem payment is appropriate to the individual beneficiary's actual condition, and is sufficient to purchase the full range of care and services that a beneficiary with a particular clinical profile would typically be expected to require. We are setting forth this proposed rule in accordance with section 1888(e)(4)(H)(ii) of the Social Security Act (the Act), which requires us to publish each year in the

Federal Register

any changes in the case-mix classification system that we use to make the case-mix adjustment. Although we are not proposing any other changes in the overall PPS payment methodology at present, we are nonetheless including a detailed discussion of the overall payment methodology in section I.C. below, in order to provide a context for the proposed changes to the case-mix classification system. In addition, we are incorporating revisions based on the Medicare, Medicaid and State Child Health Insurance Program (SCHIP) Balanced Budget Refinement Act of 1999 (BBRA). Major elements of the system were implemented in an interim final rule that was published in the

Federal Register

on May 12, 1998 (63 FR 26252), and in a final rule that was published in the

Federal Register

on July 30, 1999 (64 FR 41644). These elements are discussed in greater detail in section I.C. below, and include:

•

Rates:

Per diem Federal rates were established for urban and rural areas using allowable costs from fiscal year (FY) 1995 cost reports. These rates also included an estimate of the cost of services that, before July 1, 1998, had been paid under Part B but furnished to Medicare beneficiaries in a SNF during a Part A covered stay. Rates are case-mix adjusted using a refined classification system (Resource Utilization Groups, version III (RUG-III)) based on beneficiary assessments (using the Minimum Data Set (MDS) 2.0). The proposed refinement to the RUG classification system is based on critical analysis which examined various options to account more precisely for the variation in non-therapy ancillary services in our payments and the care needs of medically complex patients. The proposed RUG refinement includes the addition of new categories and incorporation of an ancillary index, as discussed in further detail in section II.B. In addition, the Federal rates are adjusted by the hospital wage index to account for geographic variation in wages. At this time, data for the FY 2001 hospital wage index is not yet available; therefore, the index applied in this proposed rule is the same index used in the July 30, 1999 update notice. We will be updating the wage index in the final rule using the latest hospital wage data. Further, the rates are adjusted annually using an SNF market basket index. Lastly, as a result of section 101 of the BBRA, for SNF services furnished on or after April 1, 2000, and before the later of October 1, 2000, or implementation by the Secretary of Health and Human Services of a refined RUG system, per diem adjusted payments are increased by 20 percent for 15 RUGs falling under categories for Extensive Services, Special Care, Clinically Complex, High Rehabilitation and Medium Rehabilitation. This 20 percent increase serves solely as a temporary, interim adjustment to the payment rates and RUG-III classification system as published in the final rule of July 30, 1999, until we have had the opportunity to implement the case-mix refinements proposed in this rule. At that point, the temporary adjustment afforded by the 20 percent increase will no longer be applicable, as payment will be made in accordance with the newly-refined RUGs. The RUG-III groups to which this adjustment applies are: SE3, SE2, SE1, SSC, SSB, SSA, CC2, CC1, CB2, CB1, CA2, CA1, RHC, RMC and RMB. In addition, for FY 2001 and FY 2002, the adjusted Federal per diem payment to a facility is increased by 4 percent in each year, calculated exclusive of the 20 percent RUG rate increase.

•

Transition:

The SNF PPS includes a 3-year, phased transition that blends a facility-specific payment rate with the Federal case-mix adjusted rate. The blend used changes for each cost reporting period after a facility migrates to the new system. For most facilities, the facility-specific rate is based on allowable costs from FY 1995. As a result of section 102 of the BBRA of 1999, SNFs may elect immediate transition to the Federal rate on or after December 15, 1999 for cost reporting periods beginning on or after January 1, 2000. There is no such election for cost reporting periods beginning before January 1, 2000. SNFs may elect immediate transition up to 30 days after the start of their cost reporting period.

•

Coverage:

The PPS statute did not change Medicare's fundamental requirements for SNF coverage. However, because RUG-III classification is based, in part, on the beneficiary's need for skilled nursing care and therapy, we have attempted where possible to coordinate claims review procedures with the outputs of beneficiary assessment and RUG-III classifying activities. For example, we believe that when an initial Medicare required (5-day) assessment, properly completed, places the beneficiary in one of the upper RUG-III classifications that we designate as representing a covered level of SNF care (see section II.E. of this preamble), this provides the basis for us to assume that the beneficiary needed such care upon admission and at least up until the assessment reference date for the initial Medicare-required assessment. We will, however, continue to make individual review determinations for claims of those individuals who classify in one of the lower RUG-III categories.

•

Consolidated Billing:

The statute includes a billing provision that requires a SNF to submit consolidated Medicare bills for its beneficiaries for virtually all services that are covered under either Part A or Part B. The statute excludes a small list of services (primarily those of physicians and certain other types of practitioners). As discussed later in this preamble, section 103 of the BBRA has identified certain additional services for exclusion, effective April 1, 2000.

As noted above, an interim final rule implementing the SNF PPS was published in the

Federal Register

on May 12, 1998, for which the comment period was initially scheduled to close on July 13, 1998. A subsequent notice extended the public comment period for an additional 60 days (July 13, 1998, (63 FR 37498)), and a second notice reopened the comment period for another 30 days (November 27, 1998 (63 FR 65561)). In addition, a correction notice was published October 5, 1998 (63 FR 53301) that made a number of

minor technical and editorial corrections to the interim final rule. In the July 30, 1999, final rule we responded to the public comments received on the interim final rule and made a number of modifications in the regulation. This final rule was followed by a correction notice published on November 4, 1999 (64 FR 60122), which made a technical correction to the final rule's preamble. Also on July 30, 1999, we issued an update notice (64 FR 41684), followed by a correction notice published on October 5, 1999 (64 FR 54031). We have also issued several Program Memoranda on claims processing and billing under the SNF PPS that are available on the SNF PPS home page at the HCFA website on the Internet, at the following location: <www.hcfa.gov/Medicare/snfpps.htm>

B. Requirements of the Balanced Budget Act of 1997 for Updating the Prospective Payment System for Skilled Nursing Facilities

As described above, section 1888(e)(4)(H) of the Act requires that we publish in the

Federal Register

:

1. The unadjusted Federal per diem rates to be applied to days of covered SNF services furnished during the FY.

2. The case-mix classification system to be applied with respect to these services during the FY.

3. The factors to be applied in making the area wage adjustment with respect to these services.

In addition, in the July 30, 1999 final rule, we indicated that we would announce any changes to the guidelines for Medicare level of care determinations related to Part A SNF services or to the RUG-III classifications.

This proposed rule updates the rates as mandated by the Medicare statute.

C. The Medicare, Medicaid and State Child Health Insurance Program (SCHIP) Balanced Budget Refinement Act of 1999

As a result of enactment of the BBRA, there are several new provisions that result in adjustments to the PPS for SNFs. The following highlights the major provisions involving the PPS for SNFs:

Temporary Increase in Payment for Certain High Cost Residents

As noted previously, section 101 of the BBRA provides for a temporary, 20 percent increase in the per diem adjusted payment rates for 15 specified RUGs, falling under categories for Extensive Services, Special Care, Clinically Complex, High Rehabilitation and Medium Rehabilitation. The specific RUG-III groups to which this adjustment applies are: SE3, SE2, SE1, SSC, SSB, SSA, CC2, CC1, CB2, CB1, CA2, CA1, RHC, RMC, and RMB. The statute provides that the 20 percent increase takes effect with SNF services that are furnished on or after April 1, 2000, and continues until the later of October 1, 2000, or implementation by the Secretary of a refined RUG system. Thus, the 20 percent increase serves solely as a temporary, interim adjustment to the payment rates and RUG-III classification system as published in the final rule of July 30, 1999, until we have implemented the case-mix refinements that we now propose elsewhere in this document, which we expect to accomplish by October 1, 2000. Once we have implemented the case-mix refinements, the temporary adjustment afforded by the 20 percent increase will no longer be applicable, as we will then make payment in accordance with the newly-refined RUGs.

For FY 2001 and FY 2002, section 101 of the BBRA also provides for an across-the-board increase in the adjusted Federal per diem payment rates by 4 percent in each year, calculated exclusive of the 20 percent RUG rate increase discussed above. Unlike the 20 percent increase, which is targeted at certain particular RUG-III groups, this 4 percent increase will apply equally to all RUG groups.

Election For Immediate Transition to Federal Rate

As noted earlier, under section 102 of the BBRA, all SNFs may now elect to bypass the transition and be paid based upon 100 percent of the Federal rate. This election applies to cost reporting periods beginning on or after January 1, 2000. There is no such election for cost reporting periods beginning before January 1, 2000. SNFs may make this election beginning on or after December 15, 1999 and up to 30 days after the start of their cost reporting periods. An election to bypass the transition is effective for all subsequent periods and cannot be rescinded once it is effective. Further information can be found in Program Memorandum A-99-53.

Special Payment Adjustment for Certain SNFs

Section 155 of the BBRA provides that PPS payments to certain SNF providers located in Baldwin or Mobile County, Alabama, will be based on 100 percent of their facility specific rates for cost reporting periods that begin in FY 2000 or FY 2001. In addition, it requires that the facility specific portion of their payment rate be calculated using data from their cost reporting period beginning in FY 1998. In order to be eligible for this special payment, a SNF must meet the following criteria: began participation in the Medicare program before January 1, 1995; have at least 80 percent of the total inpatient days of the facility in the cost reporting period beginning in FY 1998 comprised of persons entitled to Medicare; and, be located in Baldwin or Mobile County, Alabama.

Special SNF PPS Payment Provisions for SNFs with Certain Types of Patient Populations

Section 105 of the BBRA adds paragraph (12) to section 1888(e) of the Act and permits certain SNFs to receive 50 percent of the facility specific rate and 50 percent of the Federal per diem rate, effective from November 29, 1999, until September 30, 2001. In order to be eligible, a SNF must: have been certified as an SNF under Medicare prior to July 1, 1992; be a hospital-based facility; and, in the cost reporting period beginning in FY 1998, have had a patient population, eligible for Part A benefits, of which at least 60 percent were “immuno-compromised secondary to an infectious disease,” with “specific diagnoses specified by the Secretary.” The statute gives the Secretary the authority to specify the diagnosis associated with this provision, and we believe the legislative history provides some guidance concerning the application of this provision. The House Ways and Means Committee report (H. Rep. 106-436, Part 1 at 47) indicates that this provision is directed at facilities that serve “* * * very specialized patients * * * whose medical conditions are not well-accounted for in the RUG classification system.” The Senate Finance Committee Report (S. Rep. 106-199 at 8) indicates the need to study “* * * alternative payment methods for skilled nursing facilities that specialize in providing care to extremely high cost, chronically ill populations * * *” such as “a facility that exclusively specializes in caring for AIDS patients * * *” In light of this general Congressional intent, we believe that the scope of this provision should be limited and propose that this provision be applied to human immunodeficiency virus (HIV) as coded in ICD-9-CM with the following code: 042.

Provision for Part B Add-Ons for Facilities Participating in the Nursing Home Case-Mix and Quality (NHCMQ) Demonstration Project

Under prior law, section 1888(e)(3) of the Act provided for an add-on to the

payment rates for Part B services furnished during the course of a Part A covered stay for those facilities that did not participate in the demonstration that preceded SNF PPS. However, the Act did not provide for a similar add-on for facilities that did participate in the demonstration project. Therefore, section 104 of the BBRA amended section 1888(e)(3) to provide that SNFs that had participated in the Nursing Home Case Mix and Quality Demonstration (NHCMQ) project are eligible for the inclusion of a Part B add-on amount in their facility specific PPS rates. This provision is effective as if included in the enactment of the BBA and, therefore, applies to all cost reporting periods subject to the PPS transition.

For the purpose of computing facility specific rates, the base year for providers participating in the NHCMQ demonstration project is calendar year 1997 rather than FY 1995 (which is the base year for SNFs not participating in the demonstration project). Therefore, the Part B add-on amounts for the demonstration SNFs will be calculated using data from the appropriate periods in 1997. Because of the time period necessary for us to compute these amounts, existing Part B data from 1995 will be updated for inflation and used as the bases for payment on an interim basis until we can develop the final amounts using the 1997 data, at which point earlier payments will be adjusted to reflect the correct data.

Exclusion of Certain Additional Services from the SNF PPS Bundle and Consolidated Billing

The original SNF PPS legislation in the BBA identified several service categories that were excluded from the SNF consolidated billing requirement, as well as from the bundled Part A payment made under the SNF PPS itself. Effective with services furnished on or after April 1, 2000, section 103(a) of the BBRA has amended section 1888(e)(2)(A) to exclude certain additional types of services from the consolidated billing requirement, thus allowing these services to be billed separately to Part B. Section 103(b) of the BBRA has also amended section 1888(e)(4)(G) to provide for a corresponding proportional reduction in Part A SNF payments, beginning with FY 2001. We discuss these additional excluded service categories in section V. of this preamble, on consolidated billing.

D. Skilled Nursing Facility Prospective Payment—General Overview

The Medicare SNF PPS was implemented for cost reporting periods beginning on or after July 1, 1998. Under the PPS, SNFs are paid through per diem prospective case-mix adjusted payment rates applicable to all covered SNF services. These payment rates cover all the costs of furnishing covered skilled nursing services (that is, routine, ancillary, and capital-related costs) other than costs associated with approved educational activities. Covered SNF services include posthospital SNF services for which benefits are provided under Part A and all items and services that, before July 1, 1998, had been paid under Part B (other than physician and certain other services specifically excluded under the BBA) but furnished to Medicare beneficiaries in a SNF during a Part A covered stay. (For a complete discussion of these provisions, see the May 12, 1998 interim final rule (63 FR 26252)).

1. Payment Provisions—Federal Rate

The statute sets forth a fairly prescriptive methodology for calculating the amount of payment under the SNF PPS. The PPS utilizes per diem Federal payment rates based on mean SNF costs in a base year updated for inflation to the first effective period of the PPS. We developed the Federal payment rates using allowable costs from hospital-based and freestanding SNF cost reports for reporting periods beginning in FY 1995. The data used in developing the Federal rates also incorporate an estimate of the amounts that would be payable under Part B for covered SNF services to individuals who were receiving Part A covered services in an SNF. In developing the rates for the initial period, we updated costs to the first effective year of PPS (15-month period beginning July 1, 1998) using a SNF market basket index, and standardized for facility differences in case-mix and for geographic variations in wages. Providers that received “new provider” exemptions from the routine cost limits were excluded from the database used to compute the Federal payment rates. In addition, costs related to payments for exceptions to the routine cost limits were excluded from the database used to compute the Federal rates. In accordance with the formula prescribed in the BBA, we set the Federal rates at a level equal to the weighted mean of freestanding costs plus 50 percent of the difference between the freestanding mean and weighted mean of all SNF costs (hospital-based and freestanding) combined. We compute and apply separately the payment rates for facilities located in urban and rural areas. In addition, we adjust the portion of the Federal rate attributable to wage related costs by a wage index.

The Federal rate also incorporates adjustments to account for facility case-mix using a classification system that accounts for the relative resource utilization of different patient types. This classification system, RUG-III, utilizes beneficiary assessment data (from the Minimum Data Set or MDS) completed by SNFs to assign beneficiaries into one of 178 groups. The May 12, 1998 interim final rule (63 FR 26252) has a complete and detailed description of the original (44 group) RUG-III classification system. A detailed discussion of the proposed changes to the RUG classification system is found in Section II.B. of this proposed rule.

The Federal rates reflected in this notice update the rates in the July 30, 1999 update notice (64 FR 41684) by a factor equal to the SNF market basket index minus 1 percentage point. According to section 1888(e)(4)(E)(ii) of the Act, for FYs 2001 and 2002, we will update the rate by adjusting the current rates by the SNF market basket change minus 1 percentage point. For subsequent FYs, we will adjust the rates by the applicable SNF market basket change.

2. Payment Provisions—Transition Period

Beginning with a provider's first cost reporting period beginning on or after July 1, 1998, there is a transition period covering three cost reporting periods. During the transition period, SNFs receive a payment rate comprising a blend between the Federal rate and a facility-specific rate based on each facility's FY 1995 cost report. Under section 1888(e)(2)(E)(ii) of the Act, SNFs that received their first payment from Medicare on or after October 1, 1995 receive payment according to the Federal rates only.

For SNFs subject to transition, the composition of the blended rate varies depending on the year of transition. For the first cost reporting period beginning on or after July 1, 1998, we make payment based on 75 percent of the facility-specific rate and 25 percent of the Federal rate. In the next cost reporting period, the rate consists of 50 percent of the facility-specific rate and 50 percent of the Federal rate. In the following cost reporting period, the rate consists of 25 percent of the facility-specific rate and 75 percent of the Federal rate. For all subsequent cost

reporting periods, we base payments entirely on the Federal rates.

As noted earlier, in accordance with section 102 of the BBRA, SNFs that would otherwise be subject to the statutory three-year, phased transition from facility-specific to Federal rates, may elect to bypass the transition and go directly to the full Federal rate. This amendment applies to elections made on or after December 15, 1999, except that no election will be effective for a cost reporting period beginning before January 1, 2000; an election is effective for a cost reporting period beginning no earlier than 30 days before the date of the election.

3. Payment Provisions—Facility-Specific Rate

For most facilities, we compute the facility-specific payment rate utilized for the transition using the allowable costs of SNF services for cost reporting periods beginning in FY 1995 (cost reporting periods beginning on or after October 1, 1994 and before October 1, 1995). Included in the facility-specific per diem rate is an estimate of the amount that would be payable under Part B for covered SNF services furnished during FY 1995 to individuals who were beneficiaries of the facility and receiving Part A covered services. The facility-specific rate, in contrast to the Federal rates, includes amounts paid to SNFs for exceptions to the routine cost limits. In addition, we also take into account “new provider” exemptions from the routine cost limits, but only to the extent that routine costs do not exceed 150 percent of the routine cost limit.

We update the facility-specific rate for each cost reporting period after FY 1995 to the first cost reporting period beginning on or after July 1, 1998 (the initial period of the PPS) by a factor equal to the SNF market basket percentage increase minus 1 percentage point. For FYs 1998 and 1999, we updated this rate by a factor equal to the SNF market basket increase minus 1 percentage point, and in each subsequent year, we will update it by the applicable SNF market basket increase.

Appeals Rights

In enacting SNF PPS, Congress imposed limitations on the rights of SNFs to appeal their new payment rates (section 1888(e)(8) of the Social Security Act). Similar to the hospital PPS, the new SNF system begins with a transition period, wherein a portion of the payment rates (that is, the facility-specific rate) is based upon the facilities' costs in a base period (cost reporting periods beginning in 1995). The facility-specific portion of the rate phases out over the course of a three year cost reporting transition period, after which the SNFs will be paid on a fully Federal rate. The statutory language removes the Federal portion of the rate from administrative and judicial review, while allowing for a limited review of the facility-specific portion of the rate related to an SNFs Part A historical costs from the 1995 base year. The language of the interim final rule with comment and the Medicare Provider Reimbursement Manual (PRM) contemplate situations where adjustments are made to the reimbursement amounts allowable in the base year that are used to set the facility-specific portion of a provider's PPS rate. Adjustments may be made in the cost report settlement process and/or providers may have appealed specific cost report adjustments. Where adjustments are made to the base year costs either through final settlement of the cost report or as a result of an appeal of the base year Notice of Program Reimbursement (NPR), such adjustments may be applied to the facility-specific portion of the PPS rate for any cost years that are open or are within the time periods subject to reopening under the regulations at 42 CFR 405.1885. Additionally, providers may challenge the facility-specific portion of their rates by appealing the facility-specific rate notice they receive from their fiscal intermediary before the start of SNF PPS. The fiscal intermediaries will apply any adjustments resulting from a successful challenge to this rate notice to all open transition years. Providers may also challenge their facility-specific rates by appealing their transition year NPRs. Adjustments obtained through a NPR challenge will only be applied to the year under appeal. Moreover, in accordance with the judicial review prohibitions contained in section 1888(e)(8)(B) of the Act, all reviews of facility-specific rates are limited to challenges relating to specific Medicare Part A costs in the base year.

II. Update of Payment Rates Under the Prospective Payment System for Skilled Nursing Facilities

A. Federal Prospective Payment System

This rule sets forth a proposed schedule of Federal prospective payment rates applicable to Medicare Part A SNF services beginning October 1, 2000. The schedule incorporates per diem Federal rates designed to provide Part A payment for all costs of services furnished to a beneficiary of an SNF during a Medicare-covered stay.

1. Cost and Services Covered by the Federal Rates

The Federal rates apply to all costs (that is, routine, ancillary, and capital related costs) of covered SNF services other than costs associated with operating approved educational activities as defined in § 413.85. Under section 1888(e)(2) of the Act, covered SNF services include posthospital SNF services for which benefits are provided under Part A (the hospital insurance program), as well as all items and services (other than those services excluded by statute) that, before July 1, 1998, were paid under Part B (the supplementary medical insurance program) but furnished to Medicare beneficiaries in a SNF during a Part A covered stay. (These excluded service categories are discussed in greater detail in section V.B.2. of the May 12, 1998 interim final rule (63 FR 26295-97). Also, as mentioned previously, section 103 of the BBRA has identified certain additional types of services for exclusion from the SNF PPS bundle, and has provided for a corresponding proportional reduction in Part A SNF payments beginning with FY 2001.).

2. Methodology Used for the Calculation of the Federal Rates

The methodology to compute the unadjusted Federal rates incorporates several changes since we published the final rule on July 30, 1999 (64 FR 41684). First, to facilitate the incorporation of our proposed refinement to the case mix classification system, we are creating a new component of the payment rates to account for non-therapy ancillary services. This component is being created by moving the non-therapy ancillary costs used in establishing the nursing case-mix component of the payment rates to a separate component. For the payment rates associated with urban areas, 43.4 percent of the nursing case mix component is related to non-therapy ancillary services (including Part B services). For the payment rates associated with rural areas, 42.7 percent of the nursing case mix component is related to non-therapy ancillary services (including Part B services). These percentages were previously identified in a

Federal Register

notice dated November 27, 1998 (63 FR 65561). This new component of the payment rates is presented in Tables 1 and 2 of this proposed rule.

In addition, in accordance with section 103 of the BBRA, the Federal rates will be adjusted to reflect the

exclusion of certain items and services from consolidated billing, as explained previously. The complexity and time necessary for computing the numeric adjustment itself does not allow us to present it in this proposed rule. However, we describe the general methodology that we plan to use later in this preamble (in the discussion of the PPS Rate Tables). As required by the statute, the rates are updated using the latest market basket percentage minus 1 percentage point. For a complete description of the multi-step process, see the May 12, 1998 interim final rule. In addition, based on section 101 of the BBRA, we have provided for a 4 percent increase in the adjusted Federal rate for FY 2001. This 4 percent adjustment is not reflected in the rate tables (Tables 1, 2, 5, and 6 of this proposed rule). In accordance with the statute, it is applied after all adjustments (wage and case-mix). See the example in Section III; Table 9, of this proposed rule.

The SNF market basket is used to adjust each per diem component of the Federal rates forward to reflect cost increases occurring between the midpoint of the Federal FY beginning October 1, 1999 and the midpoint of the Federal FY beginning October 1, 2000, and ending September 30, 2001, to which the payment rates apply. In accordance with section 1888(e)(4)(B) of the Act, the payment rates are updated between FY 2000 and FY 2001 by a factor equivalent to the annual market basket index percentage increase minus 1 percentage point. This factor is equal to 1.01833. Tables 1 and 2 below reflect the updated components of the unadjusted Federal rates.

Table 1.—Unadjusted Federal Rate Per Diem: Urban

Rate component

Nursing

case-mix

Medical

ancillary

Therapy

case-mix

Therapy

non-case mix

Non-case-

mix

Per Diem Amount

$64.49

$49.45

$85.79

$11.32

$58.25

Table 2.—Unadjusted Federal Rate Per Diem: Rural

Rate component

Nursing

case-mix

Medical

ancillary

Therapy

case-mix

Therapy

non-case mix

Non-case-

mix

Per Diem Amount

$62.50

$46.58

$99.11

$12.10

$59.32

B. Case-Mix Adjustment and Options

As required by the BBA, HCFA must publish the SNF PPS case-mix classification methodology applicable for the next Federal FY before August 1 of each year. This proposed rule discusses options for refinements to the RUG-III system, describes ongoing research and analyses, shares the initial results that we propose be incorporated into the Medicare PPS system effective October 1, 2000, and solicits comments from all interested parties. During the next 60 days, comments will be reviewed and considered, additional analyses will be conducted, and final decisions will be made on the need for, and types of, RUG-III refinements to be implemented. A final rule will then be promulgated before August 1, 2000.

Research Goals

We commissioned a study to review the RUG-III classification system with particular emphasis on the care needs of medically complex Medicare beneficiaries and the variation in non-therapy ancillary services within RUG-III categories. This project is a major priority for us, the provider industry, and others. The initial research identified potential refinements to the system that we propose to implement effective October 1, 2000.

A key part of this research was the exploration of potential refinements to the Extensive Services category. Previous research showed that the Extensive category is associated with the highest per diem non-therapy ancillary costs of any of the RUG-III categories. The research also indicated that, while the Extensive Services category did capture a disproportionate share of high cost beneficiaries, there was considerable variance in costs within this category as well as within other categories. In the current project, additional studies were conducted to extend the analysis of non-therapy ancillary costs and within-group variance to other RUG-III categories.

The researchers focused on the following analyses to identify options, and the results were used to develop the proposed RUG-III refinements discussed in this rule:

1. Evaluate the ability of the current RUG-III system to predict variance in drug, respiratory or other non-therapy ancillary costs.

2. Evaluate the ability of specific MDS items to predict variance in non-therapy ancillary costs, and identify the MDS items most closely associated with differences in non-therapy ancillary costs.

3. Design/test potential refinements to the RUG-III methodology.

A detailed description of the methodology used to conduct these analyses is included in the Technical Appendix A to this proposed rule.

Data Sources

Since ensuring the equity and accuracy of the SNF PPS has been, and continues to be, a major HCFA priority, the studies were initiated shortly after the introduction of the new payment system. In fact, the research was conducted before actual PPS claims and acuity data became available. For this reason, the analyses described here were conducted using a large cross-linked research data base that included clinical assessment data collected from the Federally-mandated MDS, drug information, our claims data, and organizational data on nursing home providers. The data sets used in the analyses are described below:

Minimum Data Set (MDS)

MDS data were collected from 6 states: Kansas, Maine, Mississippi, Ohio, South Dakota, and Texas. (As explained in Technical Appendix A, we were unable to utilize data from a seventh state, New York, due to that state's use of an all-inclusive payment rate.) These states were selected because the MDS data had been collected and used for rate-setting purposes prior to the start of the Medicare SNF PPS (either through the HCFA Case-Mix Demonstration Project or for state Medicaid payment systems), and provided a greater number of MDS records over a longer period of time than available from any other source. In addition, previous demonstration

project reliability studies and state validation activities indicated a generally high level of data accuracy.

MDS data used in this study were for calendar years 1995, 1996 and 1997 (except for Texas, where data were only available for 1997), and included assessments for Medicare beneficiaries, Medicaid recipients and private pay patients. While some states required MDS assessments for all beneficiaries admitted to the SNF regardless of the length of stay, most of the assessments were prepared following the Federal guidelines in effect at the time; that is, assessments required by day 14 of the SNF admission.

MDS Drug Data

Facilities participating in the HCFA Case-Mix Demonstration project submitted medications data as part of their MDS assessments. In addition, several of the states, including Maine, South Dakota, and Ohio, required the medications data with every MDS, regardless of payor source. The medications reported on the MDSs were collected from seven states, the six states used for this study, plus New York (see Technical Appendix A for details on the use of New York data).

Up to 18 medications administered during the assessment reference period can be reported on an MDS record. The MDS drug data were cleansed and verified through a combination of manual examination (by either a clinical pharmacist or physician) and computerized reclassification of National Drug Codes (NDC). The data were then ordered into therapeutic groups for easier analysis.

SNF Claims

All SNF Medicare claims spanning the years 1995 through 1997 were downloaded from the HCFA Data Center and matched to MDS files. The files were constructed so that there are multiple observations per SNF stay if multiple MDS assessments were performed.

Staff Time Measurement (STM) Study Data

This analysis incorporated HCFA STM Study data (combined 1995 and 1997). The May 12, 1998 interim final rule described the STM Study, and the methodology used to incorporate the STM data into Medicare PPS rate-setting. These data were used to impute staff time costs for the observations used in this study.

On-Line Survey Certification and Reporting System (OSCAR) Data

The OSCAR data provide facility-level information, such as the results from annual survey inspections and information regarding facility type. OSCAR data from 1991 through 1998 were linked serially into a longitudinal file. The analytic database constructed for this research has been merged to this longitudinal OSCAR file through the linking of facility identifiers, using the OSCAR information from the survey dates closest to the MDS assessment data.

Case Mix Research Findings

While maintaining the general structure of RUG-III, we found that the two most viable ways to refine the system are by adding new categories and end splits to the system, and by developing a new index system to reflect the variation of non-therapy ancillary service costs. Adoption of these refinements will add additional groups to the case-mix system, somewhat increasing its complexity. This proposed change also may introduce some initial uncertainty for providers, who would have to become familiar with the refined system and modify existing operational and support systems.

In evaluating a particular change, we first identified the drawbacks of that change (for example, added complexity of the RUG-III model and time and effort required by providers, contractors, and beneficiaries to assimilate the change). Then, to evaluate the overall desirability of the potential change, we weighed these drawbacks against the benefits, such as the expected improvement in payment and clinical accuracy. In addition, we evaluated potential refinements in terms of possible incentives and disincentives related to access, quality and cost-effectiveness of SNF care. We incorporated this analysis into our evaluation of potential RUG-III refinements.

After careful review and extensive analysis, we then identified several possible RUG-III refinements that will improve the accuracy of SNF PPS payments. One such refinement is the development of new categories for beneficiaries who qualify for both the RUG-III Rehabilitation and Extensive Services categories. As expected, our analyses indicated that ancillary costs were much higher for Medicare beneficiaries in the Extensive Services category than for those in other categories. There are also a significant number of beneficiaries who would classify into the Extensive Services category based on clinical conditions but who, because they are also receiving rehabilitation services, classify into one of the Rehabilitation categories instead (due to the hierarchical logic of the RUG-III classification system). These beneficiaries carry with them the same non-therapy ancillary costs associated with their complex clinical needs even though they are classified into a RUG-III Rehabilitation category.

The high costs for beneficiaries in the Extensive Services category suggest that the payment rate for Extensive Services should be increased. However, increasing the payment rate without further adjustments could adversely affect provider incentives to provide therapy to beneficiaries requiring Extensive Services. Therefore, we expanded the scope of the proposed refinement to include a new category for beneficiaries who qualify for both Extensive Services and a RUG-III Rehabilitation category.

Our research findings showed little or no correlation between the groups within the Extensive Services category (that is, SE1, SE2, SE3) and the level of rehabilitation services used. For this reason, the structure for the new hierarchy level proposed here would mirror that of the existing Rehabilitation categories. Thus, we would add to the current RUG-III model fourteen (14) new “Rehabilitation and Extensive Services” sub-categories that use the same Rehabilitation sub-category and ADL splits as the current system (See Table 4 for the proposed RUG-III structure).

The second component of the proposed refinement is the development of a separate “non-therapy ancillary” index based on clinical variables on the MDS. We tested MDS items to identify clinical conditions and services that are predictive of non-therapy ancillary costs. First, we analyzed each MDS variable independently, and identified all MDS items that had a significant positive relationship (at the 5 percent level) with per diem non-therapy ancillary costs. Next, we identified combinations of MDS items that were associated with significant cost differences. We then evaluated variables for clinical validity and potential incentive effects. For example, we rejected consideration of indwelling catheters as case-mix adjustors due to the potential negative incentive factors associated with their use in the index. See Table 3 for a list of MDS items that were found to be associated with significant differences in ancillary costs.

Once we identified the critical predictive variables, we investigated a

number of index model approaches. We developed weighted and unweighted versions of a non-therapy ancillary index. Both versions improved the variance prediction of the case-mix system. The unweighted index model assigns a non-therapy ancillary level based on a count of the variables (selected MDS items) associated with non-therapy ancillary costs. Under the weighted index model, different weights are assigned to the selected MDS items based on the difference in costs associated with the item. In this study, the researchers assigned the weights based on quantitative analysis of the data. With both indices, thresholds were determined to form subgroups which vary logically in cost. However, these cost variations relate to the research data base, and need to be verified against the national MDS/Medicare claims data base.

The grouping logic used for the refined RUG-III is very similar to that currently used. The same 108 MDS items that are used to classify beneficiaries into the 44 RUG-III groups will be used to classify beneficiaries into the refined RUG-III subcategories in either the unweighted or weighted index models. It is only at the last level of classification that additional MDS items are considered. The MDS items used for the last step of classification include some of the 108 items that are used for the first level of classification in addition to some others, either alone or in combinations.

The last step to grouping using the unweighted index model (UWIM) that we are proposing is based on a count of clinical variables, up to a maximum of 11. There are 11 “domains,” some of which are comprised of multiple MDS clinical variables. The clinical conditions and services that define the domains are shown in Table 3. Within a domain, any one clinical variable, or combination of variables, satisfies the criteria for being included in the count for classification into one of the refined RUG-III groups. For example, the first domain is “Parenteral/IV feeding with greater than 76 percent total calories.” In order for the domain to be counted for determining the final step in RUG-III classification in the UWIM, the MDS items K5a and K6a must be coded to reflect the receipt by the beneficiary of at least 76 percent of total nutrition received via parenteral or IV feeding in the previous 7 days.

Other domains are comprised of many more MDS items than the parenteral/IV feeding domain. An example of this is the domain entitled, “Oxygen and either pneumonia or respiratory infection with fever, or pneumonia or respiratory infection, chronic obstructive pulmonary disease, congestive heart failure, coronary artery disease with shortness of breath.” This domain will only count once toward classification even though it is possible for a beneficiary to have values for all of these clinical conditions. As soon as the grouper software identifies that one combination of MDS items' values is present on the MDS that satisfies this domain, it will credit the case with a count of 1 in addition to whatever other domain criteria are satisfied by the MDS.

The identified clinical variables are used for classification of every Medicare MDS in the Clinically Complex category and above, regardless of the other qualifying conditions and services reported on the MDS. This means that a beneficiary who has a count of 2 of the relevant clinical variables, will classify into the “3” level of the particular refined RUG-III subcategory for which he or she qualifies. As described above, the “3” level signifies a count of 1 or 2 of the clinical variables used for determining the non-therapy ancillary end split.

For example, a beneficiary who has pneumonia, an ADL sum score of 8, dehydration, a fever, and a surgical wound that requires twice daily dressing changes, will classify to the Special Care category. Within the Special Care category, the ADL score of 8 will classify this beneficiary into the “SC” subcategory. The count of the items that are used to make the final classification is 2, as the pneumonia and the wound care with dressing changes are the two clinical variables that will affect classification of this beneficiary to the SC3 group.

Table

3.—

MDS Items Associated With Differences in Ancillary Charges—Refined Variable List Following Clinical Input

MDS items

domains

Percent of sample

Regression

coefficient

Standard error

t-Statistic

Parenteral/IV with >76 percent total calories

1

153.97

14.63

10.53

Tracheostomy

1

109.87

16.57

6.63

Suctioning

2

106.76

10.23

10.43

IV Medication

15

77.33

3.71

20.86

Oxygen and either pneumonia or resp. inf. with fever, or pneumonia or resp. inf., COPD, CHF, CAD with SOB

44

26.42

2.60

10.17

Pneumonia

10

25.64

4.06

6.32

Tube feeding with >76 percent total calories

6

23.21

4.33

5.36

Respiratory Infection

7

18.81

4.87

3.87

Application of dressing with/with-out topical medication and presence of ulcers or other skin lesions/ wounds

5

13.38

5.15

2.60

Skin wound/ulcer care

25

7.01

2.77

2.53

Stage 4 Pressure Ulcer

4

6.87

3.09

2.22

Notes:

N = 8,087 (Based on analysis of test sample only—20 percent of observations)

Data Source:

Medicare MDS and SNF Claims Data 1995-1997, excluding ME, OH, SD.

Using the selected MDS items, we calculated a non-therapy ancillary index score for each MDS and classified them to the appropriate non-therapy ancillary level. We are including a more detailed description of the non-therapy ancillary index methodology in Technical Appendix A.

An index model can differ with respect to the RUG-III categories to which the model is applied. Two options that we considered were to apply the index model only to the Extensive Services category (including beneficiaries in rehabilitation who also qualify for Extensive Services) or to apply the index option to a broader group of RUG-III categories. The research indicated very little difference in ancillary costs for beneficiaries in the

Impaired Cognition, Behavior and Physical Function categories. Differences in ancillary costs were identified within the Rehabilitation, Clinically Complex, Special Care, and Extensive Services groups. For this reason, we propose to apply the non-therapy ancillary index model to all residents in the Clinically Complex category or above (where over 90 percent of Medicare patients fall). In addition, we propose to apply a single non-therapy ancillary index factor to each of the lower levels of the RUG-III model (that is, Impaired Cognition, Behavior, and Physical Function).

Index models can also be applied differently across RUG-III levels. The most straightforward method is to apply a fixed dollar amount for each level of the index. In this case, the add-on for a non-therapy ancillary index score of 3 would be the same regardless of the beneficiary's RUG-III group. Separate indices can also be calculated for each level of the hierarchy. In this case, the dollar amount of the non-therapy ancillary index level of 3 would be different for beneficiaries in different levels of the RUG-III hierarchy, for example, clinically complex, special care, rehabilitation, etc. Separate indices are more appropriate when there is significant inter-group variance. Using the research data base, we found significant variation. In projecting rates for both the UWIM (Tables 5 and 6) and WIM 2 (Technical Appendix A, Tables 6.1 and 6.2) models, we calculated separate index values for each of the 8 proposed hierarchy levels. This approach will be analyzed and evaluated using the national PPS/MDS data base.

Finally, index models can also differ with respect to the number of non-therapy ancillary index groups that are used. Six groups were developed for the weighted index model. Four groups were used for the unweighted model. The weighted index model performs slightly better than its unweighted counterpart. However, it adds a significant level of complexity both in terms of the number of additional RUG-III variations and the addition of a new type of MDS scoring methodology based on cost instead of clinical criteria. In addition, as stated above, the weighted index model break points are not representative of national ancillary costs.

On the other hand, the unweighted index model relies on a count of MDS items to differentiate among index levels, an approach similar to that used currently in RUG-III for classification into the Extensive Services category. At this phase of our analysis, we have concluded that the added complexity of the weighted model offsets any benefits gained. Therefore, we are proposing the unweighted non-therapy ancillary index model that will be applied to the combined Rehabilitation/Extensive Services, Rehabilitation, Extensive Services, Special Care and Clinically Complex categories of the RUG-III hierarchy.

Adopting a new Extensive Services with Rehabilitation category and adding a non-therapy ancillary index component will require modifications to the naming conventions used to identify each RUG-III group. Based on these recommendations, we have updated the RUG-III structure to incorporate the proposed refinements, as displayed in Table 4. These proposed RUG-III groups are based upon the existing 3 digit RUG-III coding structure, but will designate the non-therapy ancillary level as well as the RUG-III category.

The first letter of the RUG-III code defines the hierarchy level. First, a new hierarchy level is being added to recognize beneficiaries needing a combination of Extensive and Rehabilitation Services. The codes used to reflect the hierarchy level are also being expanded to identify separately each level of Rehabilitation (that is, Ultra High, Very High, High, Medium and Low) either in combination with Extensive Services or separately.

RUG Code—First letter

Hierarchy

Code

Extensive with Rehabilitation:

Ultra High

J

Very High

K

High

L

Medium

M

Low

N

Rehabilitation:

Ultra High

U

Very High

V

High

W

Medium

X

Low

Y

Extensive Services

E

Special Services

S

Clinically Complex

C

Impaired Cognition

I

Behavior

B

Reduced Physical Function

P

The second letter of the proposed RUG-III coding structure is an alpha character that indicates the final group assigned after the RUG-III end-splits (that is, ADLs, depression, restorative nursing) have been calculated.

The third digit of the proposed RUG-III coding structure will indicate the non-therapy ancillary index level. In the unweighted non-therapy ancillary model, there are 4 levels determined by the number of MDS non-therapy ancillary qualifying items (See Table 4 for the complete list of qualifiers.)

Index

level

Number qualifiers met

5

6 or more.

4

3-5.

3

1-2.

2

0.

1

Regular—for impaired cognition behavior and physical function categories.

For example, under the current RUG-III model, a beneficiary whose MDS reflects an ADL sum score of 11, a tracheostomy, suctioning, pneumonia, IV medications and receipt of 380 minutes per week of physical therapy, would group into the RHB rehabilitation group.

In the refined RUG-III model with the unweighted non-therapy ancillary index, this beneficiary would group into the LB4 group with the first digit, L, indicating a combination of Extensive Services and High Rehabilitation, the second digit, B, indicating the ADL level of 11, and the third digit, 4, indicating the non-therapy ancillary level for a beneficiary with 4 qualifiers. See Table 4 for a crosswalk from the current RUG-III groups to the new groups.

In Example 2, we will show the proposed classification for a beneficiary who receives no rehabilitation services. This beneficiary is a quadriplegic, who has an ADL sum score of 17, a stage 4 pressure ulcer, treatment for the pressure ulcer, pneumonia, and daily respiratory therapy. This beneficiary currently classifies into the Special Care category, into the SSC group. In the refined classification system he or she will group into the SA4 group, showing that he or she is in the Special Care category, with an ADL sum score of 17-18, and 3-5 of the MDS non-therapy ancillary qualifiers.

A naming convention has also been established for the weighted model. The first 2 digits are the same as for the unweighted model. The third digit, the non-therapy ancillary indicator, uses alpha characters A through F, with “F” as the lowest ancillary level.

Table 4.—RUG Refinement Crosswalk

Current

RUG-III

group

Description of category

Non-therapy

ancillary split

Refined

RUG-III

group

Rehab: At least 720 minutes/week in 1 disciplines, one discipline at least 5 days/week

Extensive: At least one of the following: IV feeding in last 7 days, IV medications in last 14 days, suctioning in last 14 days, tracheostomy care in last 14 days, ventilator/respirator in last 14 days

ADL Sum Score: 16-18

6

JA5

3-5

JA4

1-2

JA3

0

JA2

Rehabilitation: As above for ultra high rehabilitation

Extensive: As above

ADL Sum Score: 9-15

6

JB5

3-5

JB4

1-2

JB3

0

JB2

Rehabilitation: As above for ultra high rehabilitation

Extensive: As above

ADL Sum Score: 7-8

6

JC5

3-5

JC4

1-2

JC3

0

JC2

Rehabilitation: At least 500 minutes/week. At least one discipline 5 days/week

Extensive: As above

ADL Sum Score: 16-18

6

KA5

3-5

KA4

1-2

KA3

0

KA2

Rehabilitation: As above for Very High Rehabilitation

Extensive: As above

ADL Sum Score: 9-15

6

KB5

3-5

KB4

1-2

KB3

0

KB2

Rehabilitation: As above for Very High Rehabilitation

Extensive: As above

ADL Sum Score: 7-8

6

KC5

3-5

KC4

1-2

KC3

0

KC2

Rehabilitation: High Rehabilitation: At least 325 minutes/week. One discipline at least 5 times/week

Extensive: As above.

ADL Sum Score: 13-18

6

LA5

3-5

LA4

1-2

LA3

0

LA2

Rehabilitation: As above for High Rehabilitation

Extensive: As above

ADL Sum Score: 8-12

6

LB5

3-5

LB4

1-2

LB3

0

LB2

Rehabilitation: As above for High Rehabilitation

Extensive: As above

ADL Sum Score: 7

6

LC5

3-5

LC4

1-2

LC3

0

LC2

Rehabilitation: Medium Rehabilitation: At least 150 minutes/week. Must have therapy on 5 days, any discipline combination

Extensive: As above

ADL Sum Score: 15-18

6

MA5

3-5

MA4

1-2

MA3

0

MA2

Rehabilitation: As above for Medium Rehabilitation

Extensive: As above

ADL Sum Score: 8-14

6

MB5

3-5

MB4

1-2

MB3

0

MB2

Rehabilitation: As above for Medium Rehabilitation

Extensive: As above

ADL Sum Score: 7

6

MC5

3-5

1-2

0

MC4

MC3

MC2

Rehabilitation: Low Rehabilitation: At least 45 minutes/week on at least 3 days/week. Nursing Rehabilitation therapy must be provided in two activities, for 15 minutes, 6 days/week

Extensive: As above

ADL Sum Score: 14-18

6

NA5

3-5

1-2

0

NA4

NA3

NA2

Rehabilitation: As above for Low Rehabilitation

Extensive: As above.

ADL Sum Score: 7-13

6

NB5

3-5

1-2

0

NB4

NB3

NB2

ULTRA HIGH RUC

Rehabilitation: At least 720 minutes/week in at least 2 therapy disciplines. At least one discipline must be provided at least 5 days/week

ADL Sum Score: 16-18

6

UA5

3-5

1-2

0

UA4

UA3

UA2

RUB

Rehabilitation: As above for Ultra High Rehabilitation

ADL Sum Score: 9-15

6

UB5

3-5

1-2

0

UB4

UB3

UB2

RUA

Rehabilitation: As above for Ultra High Rehabilitation

ADL Sum Score: 4-8

6

UC5

3-5

1-2

0

UC4

UC3

UC2

RVC

Rehabilitation: Very High Rehabilitation: At least 500 minutes/week. One discipline at least 5 days/week

ADL Sum Score: 16-18

6

VA5

3-5

1-2

0

VA4

VA3

VA2

RVB

Rehabilitation: As above for Very High Rehabilitation

ADL Sum Score: 9-15

6

VB5

3-5

1-2

0

VB4

VB3

VB2

Rehabilitation: As above for Very High Rehabilitation

ADL Sum Score: 4-8

6

VC5

3-5

1-2

0

VC4

VC3

VC2

RHC

Rehabilitation: High Rehabilitation: At least 325 minutes/week and at least one discipline 5 days/week

ADL Sum Score: 13-18

6

WA5

3-5

1-2

0

WA4

WA3

WA2

RHB

Rehabilitation: As above for High Rehabilitation

ADL Sum Score: 8-12

6

WB5

3-5

1-2

0

WB4

WB3

WB2

RHA

Rehabilitation: As above for High Rehabilitation

ADL Sum Score: 4-7

6

WC5

3-5

1-2

0

WC4

WC3

WC2

RMC

Rehabilitation: At least 150 minutes/week and at least 5 days/week in one therapy discipline

6

3-5

1-2

0

XA5

XA4

XA3

XA2

RMB

Rehabilitation: As above for Medium Rehabilitation

ADL Sum Score: 8-14

6

XB5

3-5

1-2

0

XB4

XB3

XB2

RMA

Rehabilitation: As above for Medium Rehabilitation

ADL Sum Score: 4-7

6

XC5

3-5

XC4

1-2

XC3

0

XC2

RLB

Rehabilitation: Low Rehabilitation: At least 45 minutes/week on at least 3 days/week. Nursing rehabilitation therapy must be provided in two activities, for 15 minutes, 6 days/week

ADL Sum Score: 14-18

6

YA5

3-5

YA4

1-2

YA3

0

YA2

RLA

Rehabilitation: As above for Low Rehabilitation

ADL Sum Score: 4-13

6

YB5

3-5

YB4

1-2

YB3

0

YB2

SE3

EXTENSIVE SERVICES—(if ADL <7, beneficiary classifies to Special Care)

6

EA5

IV feeding in the past 7 days (K5a)

IV medications in the past 14 days (P1ac)

Suctioning in the past 14 days (P1ai)

Tracheostomy care in the last 14 days (P1aj)

Ventilator/respirator in the last 14 days (P1al)

ADL Sum Score: 7-18

3-5

EA4

Qualification for the EA, EB, EC levels is dependent on ADL score and additional clinical qualifiers identified in the Special Care and Clinically Complex criteria. No change from the current RUG-III system

1-2

EA3

0

EA2

SE2

Extensive Services: As above

ADL Sum Score: 7-18

6

EB5

3-5

EB4

1-2

EB3

0

EB2

SE1

Extensive Services: As above

ADL Sum Score: 7-18

6

EC5

3-5

EC4

1-2

EC3

0

EC2

SSC

SPECIAL CARE—(if ADL

<

7 beneficiary classifies to Clinically Complex)

6

SA5

Multiple Sclerosis (I1w) and an ADL score of 10 or higher

Quadriplegia (I1z) and an ADL score of 10 or higher

Cerebral Palsy (I1s) and an ADL score of 10 or higher

Respiratory therapy (P1bdA must = 7 days)

Ulcers, pressure or stasis; 2 or more of any stage (M1a,b,c,d)

and

treatment (M5a, b,c,d,e,g,h)

Ulcers, pressure; any stage 3 or 4 (M2a)

and

treatment (M5a,b,c,d,e,g,h)

Radiation therapy (P1ah)

Surgical, Wounds (M4g)

and

treatment (M5f,g,h)

Open Lesions (M4c)

and

treatment (M5f,g,h)

Tube Fed (K5b) and Aphasia (I1r)

and

feeding accounts for at least 51 percent of daily calories (K6a = 3 or 4) OR at least 26 percent of daily calories and 501cc daily intake (K6b = 2,3,4 or 5)

Fever (J1h) with Dehydration (J1c), Pneumonia (Ie2),Vomiting (J1o) or Weight loss (K 3a)

Fever (J1h) with Tube Feeding (K5b)

and

, as above, (K6a = 3 or 4) &/or (K6b = 2,3,4, or 5)

ADL Sum Score: 17-18

3-5

SA4

1-2

0

SA3

SA2

SSB

Special Care: As above

ADL Sum Score: 15-16

6

SB5

3-5

1-2

0

SB4

SB3

SB2

SSA

Special Care: As above

ADL Sum Score: 7-14

6

SC5

3-5

1-2

0

SC4

SC3

SC2

CC2

CLINICALLY COMPLEX—

6

CA5

Burns (M4b)

Coma (B1)

and

Not awake (N1 = d)

and

completely ADL dependent (G1aa, G1ba, G1ha, G1ia = 4 or 8)

Septicemia (I2g)

Pneumonia (I2e)

Foot/Wounds (M6b,c)

and

treatment (M6f)

Internal Bleed (J1j)

Dialysis (P1ab)

Tube Fed (K5b) and feeding accounts for: at least 51% of daily calories (K6a = 3 or 4) OR 26 percent of daily calories and 501cc daily intake (K6b = 2, 3, 4 or 5)

Dehydration (J1c)

Oxygen therapy (P1ag)

Transfusions (P1ak)

Hemiplegia (I1v)

and

an ADL score or 10 or higher

Chemotherapy (P1aa)

No. Of Days in last 14 there were Physician Visits and order changes:

visits

>

= 1 days and order changes

>

= 4 days; or visits

>

= 2 days and order changes on

>

= 2 days

Diabetes mellitus (I1a)

and

injections on 7 days (O3

>

= 7)

ADL Sum Score: 17-18

Positive for Signs of Depression

3-5

CA4

CC1

Clinically Complex: As above

ADL Sum Score: 17-18

6

CB5

No signs of depression

3-5

1-2

0

CB4

CB3

CB2

CB2

Clinically Complex: As above

6

CC5

ADL Sum Score: 12-16

Positive for Signs for Depression

3-5

CC4

1-2

0

CC3

CC2

CB1

Clinically Complex: As above

6

CD5

ADL Sum Score: 12-16

3-5

CD4

No signs of depression

1-2

0

CD3

CD2

CA2

Clinically Complex: As above

6

CE5

ADL Sum Score: 4-11

Positive for Signs of Depression

3-5

1-2

1

CE4

CE3

CE2

CA1

Clinically Complex: As above

6

CF5

ADL Sum Score: 4-11

No Signs of Depression

3-5

CF4

1-2

0

CF3

CF2

IB2

Impaired Cognition: Score on MDS2.0 Cognitive Performance Scale >= 3

IA1

Receiving Nursing rehabilitation therapy in two activities, for 15 minutes, 6 days/week

ADL Sum Score: 6-10

IB1

Impaired Cognition: Score on MDS2.0 Cognitive Performance Scale >= 3

ADL Sum Score: 6-1

IB1

IA2

Impaired Cognition: Score on MDS2.0 Cognitive Performance Scale >= 3

IC1

Receiving Nursing rehabilitation therapy in two activities, for 15 minutes, 6 days/week

ADL Sum Score: 4-5

IA1

Impaired Cognition: Score on MDS2.0 Cognitive Performance Scale >= 3

ADL Sum Score: 4-5

ID1

BB2

BEHAVIOR ONLY

BA1

Coded on MDS 2.0 items: 4+ days a week—wandering, physical or verbal abuse, inappropriate behavior or resists care; or hallucinations, or delusions checked

Receiving Nursing rehabilitation therapy in two activities, for 15 minutes, 6 days/week

ADL Sum Score: 6-10

BB1

Behavior: As above

No nursing rehabilitation received

ADL Sum Score: 6-10

BB1

BA2

Behavior: As above

Nursing Rehabilitation received, at level described above

ADL Sum Score: 4-5

BC1

BA1

Behavior: As above

No nursing rehabilitation received

ADL Sum Score: 4-5

BD1

PE2

Physical Function Impaired

Nursing Rehabilitation received, at level described above

ADL Sum Score:16-18

PA1

PE1

Physical Function Impaired

ADL Sum Score: 16-18

PB1

PD2

Physical Function Impaired

Nursing Rehabilitation received, at level described above

ADL Sum Score:11-15

PC1

PD1

Physical Function Impaired

ADL Sum Score: 11-15

PD1

PC2

Physical Function Impaired

Nursing Rehabilitation received, at level described above

ADL Sum Score: 9-10

PE1

PC1

Physical Function Impaired

ADL Sum Score: 9-10

PF1

PB2

Physical Function Impaired

Nursing Rehabilitation received, at level described above

ADL Sum Score: 6-8

PG1

PB1

Physical Function Impaired

ADL Sum Score: 6-8

PH1

PA2

Physical Function Impaired

Nursing Rehabilitation received, at level described above

ADL Sum Score: 4-5

PI1

PA1

Physical Function Impaired

ADL Sum Score: 4-5

PJ1

BC1

(

(1)

)

BC1

1

Default Code

Additional Research Plans

As noted above, we performed the RUG-III refinement analyses on a research data base rather than on PPS Medicare claims and MDS data. The research data base was appropriate and extremely useful in testing hypotheses, and identifying areas where refinements could be introduced. However, research data always have limitations, and HCFA and contractor staff have identified several areas of concern. Fortunately, since actual PPS claims and MDS data are now available, we are already conducting additional analyses of the unweighted and weighted models to address these concerns and validate the research findings.

For this proposed rule, we have developed Tables 5 and 6 to illustrate the application of the proposed refinement to the RUG-III classification system on the FY 2001 Federal per diem rates. In addition, for comparison purposes, we have developed rate tables for the WIM2 model that are shown in Technical Appendix A (Tables 6.1 and 6.2). However, in reviewing these tables, it is important to recognize the following limitations:

The nursing index is a critical factor in accurately calibrating the system to link payment to acuity levels. The nursing indices shown in Tables 5 through 6 assume that the distribution of the actual Medicare population is the same as the distribution of the research data base. We are now reworking these calculations using national PPS data to ensure accurate calibration of the system.

Using the actual PPS data base also adjusts for a second data limitation: the extent to which MDS data reflects short stay patients. The research data base utilized MDS assessments from 1995 through 1997, a period when MDSs were often not completed for beneficiaries who were in a SNF for less than 14 days. By contrast, the PPS data base includes short-stay beneficiaries, and we will take any special needs of this population into account by using actual PPS data to validate the initial findings.

In addition, the methodology used to adjust non-therapy ancillary charges to cost used the older, non-therapy ancillary charges and facility cost-to-charge ratios. In developing the PPS data base, we will use PPS claims data and the latest available cost-to-charge ratios.

Using the smaller research data base, it was not always possible to obtain a

large number of observations in some of the RUG-III groups to fully determine ancillary costs with the necessary level of precision. For that small number of RUG-III groups, the researchers imputed ancillary costs, and applied these imputed costs to the non-therapy ancillary index used in the rate-setting projections. Using the national PPS data base will allow better differentiation between the non-therapy ancillary index levels for the new, combined Rehabilitation and Extensive Services categories, particularly in index levels 2 and 3 of the unweighted model (and B and C of the weighted model.) (See Tables 5 and 6 for the UWIM model and Technical Appendix A Tables 6.1 and 6.2 for the WIM2 model.)

Finally, we will continue the process of identifying possible negative incentives associated with MDS items used in the non-therapy ancillary index. We will carefully evaluate each item before incorporating it into the final index. Then, we will develop methods to monitor coding practices and to identify changes in coding patterns for use in medical review, quality assurance and program integrity activities. We will issue clarifications, through Program Memoranda and other appropriate means, of MDS requirements needed to maintain the integrity of the RUG-III system.

Using the national PPS data base, we will recalculate the distribution of the beneficiary population across RUG-III categories, including the proposed combined Rehabilitation and Extensive Services category. Then, we will perform the necessary analyses and sensitivity tests to compare the results with those derived from the research data base. We will reevaluate program options (for example, unweighted vs. weighted non-therapy ancillary index, etc.) based on the additional analyses, and modify the proposed refinements as needed. We expect these final analyses to be available in late Spring 2000, and we plan to incorporate them in the final rule to be issued before August 1, 2000.

PPS Rate Tables

We are confident that the additional analyses based on national data will confirm the need for refinements in the RUG-III model by adding the new combined Extensive and Rehabilitation Service groups and by creating a new non-therapy ancillary index. However, it is very likely the values of some of the model components (for example, average ancillary cost by RUG-III group, frequency distribution by RUG-III group, relative weights, etc.) will be further refined through use of the national data base. For this reason, it is important to understand that the values contained in these tables will likely change in the final rule.

While we are confident that these research findings are based on sound methodology, it is certainly possible that additional testing will identify new issues or support variations of the models to those presented here. We remain open to suggestions during the comment period and will carefully evaluate the validation analyses before proceeding to final rulemaking. To illustrate the impact of these proposed changes based on the best data currently available, we have developed rate Tables 5 and 6 using the unweighted model. (For an additional discussion of the weighted model, including a schedule of rates, see Technical Appendix A.) These projections should not be viewed as final nursing indices, non-therapy ancillary indices, or payment rates.

Further, as noted above, we based the non-therapy ancillary indices on the mean adjusted derived cost (that is, charges adjusted by facility ancillary cost-to-charge ratios) of non-therapy ancillary services. Mean costs were calculated separately for each of the eight proposed levels of the RUG-III hierarchy. For the research data base, we used the cost-to-charge ratio applicable to the service date of the claim. For the follow up analyses using actual PPS claims data, we are using the most recent available cost-to-charge ratio. We expect that using the newer cost-to-charges ratios will enhance the accuracy of the calculations. However, due to the lag time between SNF PPS claims submission and cost report processing, it is impossible to match the claims service dates perfectly with the cost report period used for the cost-to-charge ratios. For the SNF PPS data base, we are proposing to use approximately 9 months of claims data starting from January 1, 1999, the date almost all providers became subject to PPS. The cost reports for calendar year 1999 are not due until April 2000.

Finally, the research findings in this proposed rule include the use of “imputed” data in situations where the cell size (for example, number of records meeting the criteria for a specific RUG-III group, etc.) was too small for accurate measurement. When using the national data base, we expect that the relevant data cells will be adequately populated and that all analyses used in developing the final rule will be based on actual rather than imputed data.

These tables reflect two adjustments in particular. First, our nursing and therapy staff time indices (combined 1995 and 1997 staff time data) currently used to establish PPS rates have been adjusted to reflect the new combined Extensive Services with Rehabilitation categories. Second, we have adjusted the nursing case mix component of the rate to remove the non-therapy ancillary component that is part of the current nursing index used in PPS rate-setting. We will need to adjust one or both of these components based on the additional analyses.

We integrated these proposed refinements into the rate-setting methodology, and we list the estimated per diem Federal rates for 178 separate RUG-III classification groups in Tables 5 and 6. We list the case-mix adjusted payment rates separately for urban and rural SNFs (178 each), with the corresponding case-mix index values. These tables list the rates in total and by component. The application of the wage index, described later in this section, is the final adjustment applied to the projected Federal rates in these tables.

In accordance with section 101 of the BBRA, we will make a four percent upward adjustment to the adjusted per diem Federal rate for FY 2001. This estimated adjustment is shown in Table 9.

Finally, these projected rates do not reflect the BBRA requirement (section 103) to reduce the Part A SNF payment rates to account for those services that are newly excluded from consolidated billing and, thus, will be separately billable to Part B by the supplier. As mentioned in section II.A.2. above, because of the complexity of the process and the amount of time needed to implement this requirement, we are unable at present to adjust the proposed rates to reflect this. However, we will make these adjustments prospectively in the final rule establishing payment rates for FY 2001, using the methodology described below.

In order to compute the level of this adjustment, we propose to determine the per diem amount of allowed charges associated with the specific HCPCS codes identified in the statute (and later in this rule) using the same 1995 data on Part B services used in establishing the Federal rates. These data are described in detail in section II.A.2.b of the May 12, 1998 interim final rule (63 FR 26251) and final rule (64 FR 41644) associated with the implementation of the SNF PPS. The per diem amount will be subtracted from the non-therapy ancillary component of the Federal rates shown in Tables 5 and 6 of this rule. We expect this adjustment to be minimal.

Summary of Proposed RUG-III Refinements

Based on the research described here, we are proposing the addition of new RUG-III groups to recognize the needs of Medicare beneficiaries with both heavy medical and rehabilitation needs and the development of an unweighted index model that would account more precisely for the variation in non-therapy ancillary services. Since the research shows substantial ancillary cost variation in the Rehabilitation and Extensive Services, Rehabilitation, Extensive Services, Special Care, and Clinically Complex categories, we have proposed four ancillary index levels to capture variation in ancillary costs accurately. Since beneficiaries in the Impaired Cognition, Behavior, and Physical Function categories exhibited a much smaller ancillary cost variation, we calculated a single ancillary add-on amount. The ancillary add-on amounts were calculated separately for each of the eight proposed RUG-III categories.

The refinements will achieve important improvements in the PPS model, and allow for more accurate payment rates. In addition, after further analysis and review of public comments, we may adjust these proposed refinements further to reflect actual PPS experience.

Collection of Medication Data

In the interim final rule published in the

Federal Register

on May 12, 1998, we stated that we would require facilities to complete and include MDS Section U with their Medicare MDS submissions beginning October 1, 1999. Subsequently, in the final rule published in the

Federal Register

on July 30, 1999, we announced a delay of that requirement and stated our intention to require completion of Section U beginning October 1, 2000. However, we are currently unable to implement the collection of medication data on the MDS beginning October 1, 2000. Accordingly, we will not require completion and submission of Section U of the MDS beginning October 1, 2000, as we had planned. We are currently examining issues related to the implementation of this requirement and we plan to address this matter when we implement the SNF PPS payment update for FY 2001.

BILLING CODE 4120-03-U

EP10AP00.000

EP10AP00.001

EP10AP00.002

EP10AP00.003

EP10AP00.004

EP10AP00.005

EP10AP00.006

EP10AP00.007

EP10AP00.008

EP10AP00.009

EP10AP00.010

EP10AP00.011

EP10AP00.012

EP10AP00.013

EP10AP00.014

EP10AP00.015

EP10AP00.016

EP10AP00.017

BILLING CODE 4120-03-C

C. Wage Index Adjustment to Federal Rates

Section 1888(e)(4)(G)(ii) of the Act requires that we provide for adjustments to the Federal rates to account for differences in area wage levels using an “appropriate” wage index as determined by the Secretary. In addition, it is our intent to evaluate a wage index based specifically on SNF data once it becomes available. The SNF wage data are currently being collected and evaluated to determine if we can utilize them in the future. If a wage index based on SNF data is developed, we will publish it for comment. However, in the interim, many commenters urged us to incorporate the latest wage data available. We continue to believe that, until a wage index based on SNF wage data is collected and analyzed, the hospital wage index's wage data provide the best available measure of comparable wages that should be paid by SNFs. We believe, since hospitals and SNFs compete in the same labor market area, that the use of this index's wage data results in an appropriate adjustment to the labor portion of SNF costs based on an appropriate wage index, as required under section 1888(e) of the Act.

For rates addressed in this proposed rule, we are using wage index values that are based on hospital wage data from cost reporting periods beginning in FY 1996, the same wage data as used to compute the FY 2000 wage index values for the inpatient hospital PPS. We will incorporate updated wage data in the final rule for the FY 2001 SNF PPS update.

The computation of the wage index is similar to past years in that we incorporate the latest data and methodology used to construct the hospital wage index (see the discussion in the May 12, 1998 interim final rule (63 FR 26274)). The wage index adjustment is applied to the labor-related portion of the Federal rate, which is 77.663 percent of the total rate. The schedule of Federal rates below shows the Federal rates by labor-related and non-labor-related components.

As discussed above and in the interim final rule, until an appropriate wage index based specifically on SNF data is available, we will use the latest available hospital wage index data in making annual updates to the payment rates. In making these annual updates, section 1888(e)(4)(G)(ii) of the Act requires that the application of this wage index be made in a manner that does not result in aggregate payments that are greater or less than would otherwise be made in the absence of the wage adjustment. In this third PPS year (Federal rates effective October 1, 2000), we are updating the wage index applicable to SNF payments using the most recent hospital wage data and applying an adjustment to fulfill the budget neutrality requirement. This requirement will be met by multiplying each of the per diem rate components by the ratio of the volume weighted mean wage adjustment factor (using the wage index from the previous year) to the volume weighted mean wage adjustment factor, using the wage index for the FY beginning October 1, 2000. The same volume weights are used in both the numerator and denominator and will be derived from 1997 Medicare Provider Analysis and Review File (MedPAR) data. The wage adjustment factor used in this calculation is defined as the labor share of the rate component multiplied by the wage index plus the non-labor share. The budget neutrality factor for FY 2001 is multiplied by each of the Federal rate components. This factor will be established when the updated wage data for the FY 2001 hospital wage index is available and set forth in the final rule establishing the FY 2001 SNF PPS rates.

Table 7.—Case-Mix Adjusted Federal Rates for Urban SNFs by Labor and Non-Labor Component

[In dollars]

RUG III category

Labor

related

Non-labor

related

Total

federal

rate

JA5

544.64

156.64

701.28

JA4

391.79

112.68

504.47

JA3

331.88

95.45

427.33

JA2

331.88

95.45

427.33

JB5

528.61

152.03

680.64

JB4

375.76

108.07

483.83

JB3

315.85

90.84

406.69

JB2

315.85

90.84

406.69

JC5

520.09

149.59

669.68

JC4

367.25

105.62

472.87

JC3

307.34

88.39

395.73

JC2

307.34

88.39

395.73

KA5

481.65

138.53

620.18

KA4

328.80

94.57

423.37

KA3

268.89

77.34

346.23

KA2

268.89

77.34

346.23

KB5

475.14

136.66

611.80

KB4

322.29

92.70

414.99

KB3

262.38

75.47

337.85

KB2

262.38

75.47

337.85

KC5

463.12

133.20

596.32

KC4

310.27

89.24

399.51

KC3

250.36

72.01

322.37

KC2

250.36

72.01

322.37

LA5

448.33

128.95

577.28

LA4

295.48

84.99

380.47

LA3

235.58

67.75

303.33

LA2

235.58

67.75

303.33

LB5

443.33

127.79

571.12

LB4

291.48

83.83

375.31

LB3

231.57

66.60

298.17

LB2

231.57

66.60

298.17

LC5

433.31

124.62

557.93

LC4

280.46

80.66

361.12

LC3

220.55

63.43

283.98

LC2

220.55

63.43

283.98

MA5

443.52

127.56

571.08

MA4

290.67

83.60

374.27

MA3

230.76

66.37

297.13

MA2

230.76

66.37

297.13

MB5

434.00

124.83

558.83

MB4

281.16

80.86

362.02

MB3

221.25

63.63

284.88

MB2

221.25

63.63

284.88

MC5

432.00

124.25

556.25

MC4

279.15

80.29

359.44

MC3

219.24

63.06

282.30

MC2

219.24

63.06

282.30

NA5

413.85

119.03

532.88

NA4

261.00

75.07

336.07

NA3

201.09

57.84

258.93

NA2

201.09

57.84

258.93

NB5

400.83

115.29

516.12

NB4

247.99

71.32

319.31

NB3

188.08

54.09

242.17

NB2

188.08

54.09

242.17

UA5

322.57

92.78

415.35

UA4

323.34

93.00

416.34

UA3

288.01

82.84

370.85

UA2

273.03

78.53

351.56

UB5

309.05

88.89

397.94

UB4

309.82

89.11

398.93

UB3

274.49

78.95

353.44

UB2

259.51

74.64

334.15

UC5

301.54

86.73

388.27

UC4

302.31

86.95

389.26

UC3

266.98

76.79

343.77

UC2

252.00

72.48

324.48

VA5

264.10

75.96

340.06

VA4

264.87

76.18

341.05

VA3

229.54

66.02

295.56

VA2

214.56

61.71

276.27

VB5

257.09

73.94

331.03

VB4

257.86

74.16

332.02

VB3

222.53

64.00

286.53

VB2

207.55

59.69

267.24

VC5

245.07

70.48

315.55

VC4

245.83

70.71

316.54

VC3

210.51

60.54

271.05

VC2

195.52

56.24

251.76

WA5

232.28

66.81

299.09

WA4

233.05

67.03

300.08

WA3

197.72

56.87

254.59

WA2

182.74

52.56

235.30

WB5

227.27

65.37

292.64

WB4

228.04

65.59

293.63

WB3

192.71

55.43

248.14

WB2

177.73

51.12

228.85

WC5

219.27

63.06

282.33

WC4

220.03

63.29

283.32

WC3

184.71

53.12

237.83

WC2

169.72

48.82

218.54

XA5

217.95

62.69

280.64

XA4

218.72

62.91

281.63

XA3

183.39

52.75

236.14

XA2

168.41

48.44

216.85

XB5

214.45

61.68

276.13

XB4

215.22

61.90

277.12

XB3

179.89

51.74

231.63

XB2

164.91

47.43

212.34

XC5

212.45

61.10

273.55

XC4

213.22

61.32

274.54

XC3

177.89

51.16

229.05

XC2

162.91

46.85

209.76

YA5

194.80

56.03

250.83

YA4

195.57

56.25

251.82

YA3

160.24

46.09

206.33

YA2

145.26

41.78

187.04

YB5

180.78

51.99

232.77

YB4

181.55

52.21

233.76

YB3

146.22

42.05

188.27

YB2

131.23

37.75

168.98

EA5

336.39

96.75

433.14

EA4

264.57

76.10

340.67

EA3

207.73

59.75

267.48

EA2

186.23

53.56

239.79

EB5

319.36

91.85

411.21

EB4

247.54

71.20

318.74

EB3

190.70

54.85

245.55

EB2

169.20

48.66

217.86

EC5

308.34

88.68

397.02

EC4

236.52

68.03

304.55

EC3

179.68

51.68

231.36

EC2

158.18

45.49

203.67

SA5

156.71

45.07

201.78

SA4

174.76

50.26

225.02

SA3

148.65

42.75

191.40

SA2

134.82

38.77

173.59

SB5

152.70

43.92

196.62

SB4

170.75

49.11

219.86

SB3

144.64

41.60

186.24

SB2

130.81

37.62

168.43

SC5

150.70

43.34

194.04

SC4

168.75

48.53

217.28

SC3

142.64

41.02

183.66

SC2

128.80

37.05

165.85

CA5

207.29

59.62

266.91

CA4

207.29

59.62

266.91

CA3

162.35

46.70

209.05

CA2

135.09

38.85

173.94

CB5

200.78

57.75

258.53

CB4

200.78

57.75

258.53

CB3

155.85

44.82

200.67

CB2

128.58

36.98

165.56

CC5

196.77

56.60

253.37

CC4

196.77

56.60

253.37

CC3

151.84

43.67

195.51

CC2

124.57

35.83

160.40

CD5

193.26

55.59

248.85

CD4

193.26

55.59

248.85

CD3

148.33

42.66

190.99

CD2

121.06

34.82

155.88

CE5

192.77

55.44

248.21

CE4

192.77

55.44

248.21

CE3

147.83

42.52

190.35

CE2

120.56

34.68

155.24

CF5

188.76

54.29

243.05

CF4

188.76

54.29

243.05

CF3

143.82

41.37

185.19

CF2

116.56

33.52

150.08

IA1

109.33

31.44

140.77

IB1

108.32

31.16

139.48

IC1

103.32

29.71

133.03

ID1

101.31

29.14

130.45

BA1

114.97

33.07

148.04

BB1

113.47

32.64

146.11

BC1

108.96

31.34

140.30

BD1

104.96

30.19

135.15

PA1

120.25

34.58

154.83

PB1

117.74

33.86

151.60

PC1

116.74

33.57

150.31

PD1

114.23

32.86

147.09

PE1

113.73

32.71

146.44

PF1

107.22

30.84

138.06

PG1

106.72

30.70

137.42

PH1

106.22

30.55

136.77

PI1

104.72

30.12

134.84

PJ1

104.72

30.12

134.84

Table 8.—Case-Mix Adjusted Federal Rates for Rural SNFs by Labor and Non-Labor Component

[In dollars]

RUG III category

Labor

related

Non-labor

related

Total

federal

rate

JA5

$550.79

$158.41

$709.20

JA4

406.81

117.01

523.82

JA3

350.38

100.77

451.15

JA2

350.38

100.77

451.15

JB5

535.25

153.95

689.20

JB4

391.28

112.54

503.82

JB3

334.84

96.31

431.15

JB2

334.84

96.31

431.15

JC5

527.00

151.57

678.57

JC4

383.03

110.16

493.19

JC3

326.59

93.93

420.52

JC2

326.59

93.93

420.52

KA5

479.34

137.86

617.20

KA4

335.36

96.46

431.82

KA3

278.93

80.22

359.15

KA2

278.93

80.22

359.15

KB5

473.02

136.05

609.07

KB4

329.05

94.64

423.69

KB3

272.61

78.41

351.02

KB2

272.61

78.41

351.02

KC5

461.37

132.70

594.07

KC4

317.40

91.29

408.69

KC3

260.96

75.06

336.02

KC2

260.96

75.06

336.02

LA5

441.21

126.90

568.11

LA4

297.24

85.49

382.73

LA3

240.80

69.26

310.06

LA2

240.80

69.26

310.06

LB5

437.33

125.78

563.11

LB4

293.36

84.37

377.73

LB3

236.92

68.14

305.06

LB2

236.92

68.14

305.06

LC5

426.65

122.71

549.36

LC4

282.68

81.30

363.98

LC3

226.24

65.07

291.31

LC2

226.24

65.07

291.31

MA5

434.43

124.95

559.38

MA4

290.46

83.54

374.00

MA3

234.02

67.31

301.33

MA2

234.02

67.31

301.33

MB5

425.21

122.30

547.51

MB4

281.24

80.89

362.13

MB3

224.80

64.66

289.46

MB2

224.80

64.66

289.46

MC5

423.27

121.74

545.01

MC4

279.30

80.33

359.63

MC3

222.86

64.10

286.96

MC2

222.86

64.10

286.96

NA5

401.47

115.47

516.94

NA4

257.50

74.06

331.56

NA3

201.06

57.83

258.89

NA2

201.06

57.83

258.89

NB5

388.85

111.84

500.69

NB4

244.88

70.43

315.31

NB3

188.44

54.20

242.64

NB2

188.44

54.20

242.64

UA5

340.94

98.06

439.00

UA4

341.66

98.27

439.93

UA3

308.38

88.70

397.08

UA2

294.27

84.64

378.91

UB5

327.83

94.29

422.12

UB4

328.55

94.50

423.05

UB3

295.27

84.93

380.20

UB2

281.16

80.87

362.03

UC5

320.55

92.20

412.75

UC4

321.28

92.40

413.68

UC3

288.00

82.83

370.83

UC2

273.89

78.77

352.66

VA5

273.86

78.76

352.62

VA4

274.58

78.97

353.55

VA3

241.30

69.40

310.70

VA2

227.19

65.34

292.53

VB5

267.06

76.81

343.87

VB4

267.78

77.02

344.80

VB3

234.50

67.45

301.95

VB2

220.39

63.39

283.78

VC5

255.41

73.46

328.87

VC4

256.13

73.67

329.80

VC3

222.85

64.10

286.95

VC2

208.74

60.04

268.78

WA5

237.19

68.22

305.41

WA4

237.91

68.43

306.34

WA3

204.63

58.86

263.49

WA2

190.52

54.80

245.32

WB5

232.34

66.82

299.16

WB4

233.06

67.03

300.09

WB3

199.78

57.46

257.24

WB2

185.67

53.40

239.07

WC5

224.57

64.59

289.16

WC4

225.29

64.80

290.09

WC3

192.01

55.23

247.24

WC2

177.90

51.17

229.07

XX5

221.19

63.62

284.81

XA4

221.91

63.83

285.74

XA3

188.64

54.25

242.89

XA2

174.52

50.20

224.72

XB5

217.79

62.64

280.43

XB4

218.51

62.85

281.36

XB3

185.23

53.28

238.51

XB2

171.12

49.22

220.34

XC5

215.85

62.08

277.93

XC4

216.57

62.29

278.86

XC3

183.29

52.72

236.01

XC2

169.18

48.66

217.84

YA5

194.54

55.95

250.49

YA4

195.26

56.16

251.42

YA3

161.98

46.59

208.57

YA2

147.87

42.53

190.40

YB5

180.95

52.04

232.99

YB4

181.67

52.25

233.92

YB3

148.39

42.68

191.07

YB2

134.28

38.62

172.90

EA5

323.82

93.14

416.96

EA4

256.18

73.68

329.86

EA3

202.64

58.28

260.92

EA2

182.38

52.45

234.83

EB5

307.32

88.39

395.71

EB4

239.68

68.93

308.61

EB3

186.13

53.54

239.67

EB2

165.87

47.71

213.58

EC5

296.64

85.32

381.96

EC4

229.00

65.86

294.86

EC3

175.46

50.46

225.92

EC2

155.19

44.64

199.83

SA5

153.73

44.22

197.95

SA4

170.73

49.11

219.84

SA3

146.13

42.03

188.16

SA2

133.11

38.29

171.40

SB5

149.85

43.10

192.95

SB4

166.85

47.99

214.84

SB3

142.25

40.91

183.16

SB2

129.23

37.17

166.40

SC5

147.91

42.54

190.45

SC4

164.91

47.43

212.34

SC3

140.31

40.35

180.66

SC2

127.29

36.61

163.90

CA5

201.36

57.91

259.27

CA4

201.36

57.91

259.27

CA3

159.03

45.74

204.77

CA2

133.35

38.35

171.70

CB5

195.05

56.10

251.15

CB4

195.05

56.10

251.15

CB3

152.72

43.93

196.65

CB2

127.04

36.54

163.58

CC5

191.17

54.98

246.15

CC4

191.17

54.98

246.15

CC3

148.84

42.81

191.65

CC2

123.16

35.42

158.58

CD5

187.77

54.00

241.77

CD4

187.77

54.00

241.77

CD3

145.44

41.83

187.27

CD2

119.76

34.44

154.20

CE5

187.28

53.87

241.15

CE4

187.28

53.87

241.15

CE3

144.96

41.69

186.65

CE2

119.27

34.31

153.58

CF5

183.40

52.75

236.15

CF4

183.40

52.75

236.15

CF3

141.07

40.58

181.65

CF2

115.39

33.19

148.58

IA1

108.50

31.20

139.70

IB1

107.52

30.93

138.45

IC1

102.67

29.53

132.20

ID1

100.73

28.97

129.70

BA1

113.80

32.73

146.53

BB1

112.35

32.31

144.66

BC1

107.97

31.06

139.03

BD1

104.09

29.94

134.03

PA1

118.89

34.20

153.09

PB1

116.46

33.50

149.96

PC1

115.49

33.22

148.71

PD1

113.07

32.52

145.59

PE1

112.58

32.38

144.96

PF1

106.27

30.57

136.84

PG1

105.78

30.43

136.21

PH1

105.30

30.29

135.59

PI1

103.84

29.87

133.71

PJ1

103.84

29.87

133.71

For any RUG-III group, to compute a wage-adjusted Federal payment rate, the labor-related portion of the payment rate is multiplied by the SNF's appropriate wage index factor. The wage index factor has not been updated since the publication of the July 30, 1999 update notice (64 FR 41684). The product of that calculation is added to the corresponding non-labor-related component. The resulting amount is the Federal rate applicable to a beneficiary in that RUG-III group for that SNF.

D. Updates to the Federal Rates

In accordance with section 1888(e)(4)(E) of the Act, the proposed payment rates listed here have been updated by the SNF market basket minus 1 percentage point, which equals 1.01833 percent. For each succeeding FY, we will publish the rates in the

Federal Register

before August 1 of the year preceding the affected Federal FY.

For the current FY (FY 2001), and for FY 2002, section 1888(e)(4)(E)(ii) of the Act requires the rates to be increased by a factor equal to the SNF market index change minus 1 percentage point. For subsequent FYs, this section requires the rates to be increased by the applicable SNF market basket index increase.

E. Relationship of RUG-III Classification System to Existing Skilled Nursing Facility Level-of-Care Criteria

As discussed in II.B above, we are proposing a number of refinements in the RUGs classifications in this notice. Further, regulations at § 413.345 provide that the information included in each update of the Federal payment rates in the

Federal Register

will include the designation of those specific RUGs under the classification system that represent the required SNF level of care, as provided in § 409.30. Accordingly, we hereby propose to designate the following RUG-III classifications for this purpose: all groups within the Rehabilitation and Extensive category; all groups within the Ultra High Rehabilitation category; all groups within the Very High Rehabilitation category; all groups within the Medium Rehabilitation category; all groups within the Low Rehabilitation category; all groups within the Extensive Services category; and, all groups within the Clinically Complex category.

III. Three-Year Transition Period

Under sections 1888(e)(1) and (2) of the Act, during a facility's first three cost reporting periods that begin on or after July 1, 1998 (that is, the transition period), the facility's PPS rate will be equal to the sum of a percentage of an adjusted facility-specific per diem rate and a percentage of the adjusted Federal per diem rate, as discussed in Section I.D.2. above. After the transition period, the PPS rate will equal the adjusted Federal per diem rate. The transition period payment method will not apply to SNFs that first received Medicare payments (interim or otherwise) on or after October 1, 1995 under present or previous ownership, or to those facilities choosing to bypass the transition in accordance with section 102 of the BBRA; these facilities will be paid based on 100 percent of the Federal rate.

The facility-specific per diem rate is the sum of the facility's total allowable Part A Medicare costs and an estimate of the amounts that would be payable under Part B for covered SNF services for cost reporting periods beginning in FY 1995 (base year). The base year cost report used to compute the facility-specific per diem rate in the transition period may be settled (either tentative or final) or as-submitted for Medicare payment purposes. Under section 1888(e)(3) of the Act, any adjustments to the base year cost report made as a result of settlement or other action by the fiscal intermediary, including cost limit exceptions and exemptions, or results of an appeal, will result in a revision to the facility-specific per diem rate. The instructions for calculating the facility-specific per diem rate are described in detail in the May 12, 1998 interim final rule. In order to implement section 104 of the BBRA, for providers that received payment under the RUG-III demonstration during a cost reporting period that began in calendar year 1997, we will determine their facility-specific per diem rate using the methodology described below.

It is possible that some providers participated in the demonstration but did not have a cost reporting period that began in calendar year 1997. For those providers, we will determine their

facility-specific per diem rate by using the calculations outlined in the May 12, 1998

Federal Register

interim final rule (63 FR 26251, section III. (A)(1)(a), (b), or (c)). As with the facility-specific per diem applicable to other providers, the allowable costs will be subject to change based on the settlement of the cost report used to determine the total payment under the demonstration. In addition, we derive a special market basket inflation factor to adjust the 1997 costs to the midpoint of the rate setting period (October 1, 2000 to September 30, 2001.)

Step 1—Determine the aggregate payment during the cost reporting period that began in calendar year 1997—RUG-III payment plus routine capital costs plus ancillary costs (other than occupational therapy, physical therapy, and speech pathology).

Step 2—Divide the amount in Step 1, by the applicable total inpatient days for the cost reporting period.

Step 3—Adjust the amount in Step 2, by 1.094828 (inflation factor).

Step 4—Add the amount determined in step 3, to the appropriate Part B add-on amount determined according to Program Memorandum transmittal no. A-99-53 (December 1999).

The amount in Step 4 is the facility-specific rate that is applicable for the facility's first cost reporting period beginning on or after October 1, 2000.

Computation of the Skilled Nursing Facility Prospective Payment System Rate During the Transition:

For the first three cost reporting periods beginning on or after July 1, 1998 (the transition period), an SNF's payment under the PPS is the sum of a percentage of the facility-specific per diem rate and a percentage of the adjusted Federal per diem rate. Under section 1888(e)(2)(C) of the Act, for the first cost reporting period in the transition period, the SNF payment will be the sum of 75 percent of the facility-specific per diem rate and 25 percent of the Federal per diem rate. For the second cost reporting period, the SNF payment will be the sum of 50 percent of the facility-specific per diem rate and 50 percent of the Federal per diem rate. For the third cost reporting period, the SNF payment will be the sum of 25 percent of the facility-specific per diem rate and 75 percent of the Federal per diem rate. For all subsequent cost reporting periods beginning after the transition period, the SNF payment will be equal to 100 percent of the Federal per diem rate. An example is given below computing the SNF PPS rate and SNF payment.

Example of computation of adjusted PPS rates and SNF payment:

Using the XYZ SNF described in Table 9, the following shows the adjustments made to the facility-specific per diem rate and the Federal per diem rate to compute the provider's actual per diem PPS payment in the transition period. XYZ's 12-month cost reporting period begins October 1, 2000. (This is the provider's second cost reporting period under the transition.)

Step 1

Compute:

Facility-specific per diem rate

$570.00

Market Basket Adjustment (Table 10.C)

x

1.13320

Adjusted facility-specific rate

$645.92

Step 2

Compute Federal per diem rate:

Table 9

[SNF XYZ from above is located in State College, PA with a wage index of 0.9138.]

RUG group

Labor portion*

Wage index

Adjusted labor

Nonlabor portion*

Adjusted rate

4 percent adjustment

Medicare days

Payment

VA5

$264.10

0.9138

$241.33

$75.96

$317.29

$329.98

50

$16,499

WA5

232.28

0.9138

212.26

66.81

279.07

290.23

50

14,512

Total

100

31,011

* From Table 7.

Step 3

Apply transition period percentages:

Facility-specific per diem rate $645.92 × 100 days =

$64,592

Times transition percentage (50 percent)

.50

Actual facility-specific PPS payment

32,296

Federal PPS payment

31,011

Times transition percentage (50 percent)

.50

Actual Federal PPS payment

15,506

Step 4

Compute total PPS payment:

XYZ's total PPS payment ($32,296 + $15,506)

47,802

IV. The Skilled Nursing Facility Market Basket Index

Section 1888(e)(5)(A) of the Act requires the Secretary to establish an SNF market basket index (input price index) that reflects changes over time in the prices of an appropriate mix of goods and services included in the SNF PPS. This rule incorporates the latest estimates of the SNF market basket index at the time of this proposed rule. The final rule will incorporate updated

projections based on the latest available projections as of that point in time. Accordingly, as described below, we have developed a SNF market basket index that encompasses the most commonly used cost categories for SNF routine services, ancillary services, and capital-related expenses. In the May 12, 1998

Federal Register

, we included a complete discussion on rebasing the SNF market basket to FY 1992, and revising the index to include capital and ancillary costs. There are 21 separate cost categories and respective price proxies. These cost categories were illustrated in Tables 4.A, 4.B, and Appendix A, found in the May 12, 1998

Federal Register

.

Each year we calculate a revised labor-related share based on the relative importance of labor-related cost categories in the input price index. Table 10.A below summarizes the updated labor-related share for FY 2001.

Table

10.A—FY 2001

Labor-Related Share

Cost category

FY 2000 relative importance

FY 2001 relative importance

Wages and Salaries

56.647

56.744

Employee Benefits

12.321

12.405

Nonmedical Professional Fees

1.959

1.953

Labor-intensive Services

3.738

3.733

Capital-related

2.880

2.828

Total

77.545

77.663

The forecasted rates of growth used to compute the projected SNF market basket percentages, described in the next section, are shown in Table 10.B.

Table

10.B—

Skilled Nursing Facility Total Cost Market Basket, Forecasted Change,

1997-2002

Fiscal years beginning October 1

Skilled nursing facility total cost market basket

October 1996, FY 1997

2.4

October 1997, FY 1998

2.8

October 1998, FY 1999

2.8

October 1999, FY 2000

3.1

October 2000, FY 2001

2.8

October 2001, FY 2002

2.9

Forecasted Average: 2000-2002

2.9

Source: Standard & Poor's DRI HCC, 4th QTR, 1999;@USSIM/TREND25YR1199 @CISSIM/TRENDLONG1199.

Released by HCFA, OACT, National Health Statistics Group

Use of the Skilled Nursing Facility Market Basket Percentage:

Section 1888(e)(5)(B) of the Act defines the SNF market basket percentage as the percentage change in the SNF market basket index, described in the previous section, from the midpoint of the prior FY (or period) to the midpoint of the current FY (or other period) involved. The facility-specific portion and Federal portion of the SNF PPS rates addressed in this proposed rule are based on cost reporting periods beginning in the base year, Federal FY 1995. For the Federal rates, the percentage increases in the SNF market basket index will be used to compute the update factors occurring between the midpoint of FY 2000 and the midpoint of FY 2001. We used the Standard & Poor's DRI CC, 4th quarter 1999 historical and forecasted percentage increases of the revised and rebased SNF market basket index for routine, ancillary, and capital-related expenses, described in the previous section, to compute the update factors. Finally, the update factors, as described below, will be used to adjust the base year costs for computing the facility-specific portion and Federal portion of the SNF PPS rates.

A. Facility-Specific Rate Update Factor

Under section 1888(e)(3)(D)(i) of the Act, for the facility-specific portion of the SNF PPS rate, we will update a facility's base year costs up to the corresponding cost reporting period beginning October 1, 2000, and ending September 30, 2001, by the SNF market basket percentage. We took the following steps to develop the 12-month cost reporting period facility-specific rate update factors shown in Table 10.C.

For the facility rate, we developed factors to inflate data from cost reporting periods beginning October 1, 1994, through September 30, 1995, to the corresponding cost reporting period beginning in FY 2001. According to section 1888(e)(3)(D) of the Act, the years through FY 1999 were inflated at a rate of market basket minus 1 percentage point, while FY 2000 and FY 2001 are to be inflated at the full market basket rate of increase.

1. We first determined the total growth from the midpoint of each 12-month cost reporting period that began during the period from October 1, 1994, through September 30, 1995, to the midpoint of the corresponding period beginning in FY 2001.

2. From this total growth, we determined the average annual growth rate for each time span.

3. We subtracted 1 percentage point from each average annual growth rate through FY 1999.

4. These reduced average annual growth rates were converted to cumulative growth rates, using market basket minus one for the first four years, and with full market basket for the final two years. (For example, if the time span were for 9 years, we would inflate at the market basket minus 1 percentage point annual rate for 7 years and at annual market basket rate for 2 additional years).

Table

10.C—

Update Factors

1

For Facility-Specific Portion of the SNF PPS Rates—Adjust to

12-

Month Cost Reporting Periods Beginning on or After October

1, 2000

and Before October 1, 2001 From Cost Reporting Periods Beginning in FY

1995 (

Base Year

)

If 12-month cost reporting period in initial period begins

Adjust from 12-month cost reporting period in base year that begins

Using update factor of

October 1, 2000

October 1, 1994

1.13320

November 1, 2000

November 1, 1994

1.13302

December 1, 2000

December 1, 1994

1.13276

January 1, 2001

January 1, 1995

1.13260

February 1, 2001

February 1, 1995

1.13273

March 1, 2001

March 1, 1995

1.13315

April 1, 2001

April 1, 1995

1.13363

May 1, 2001

May 1, 1995

1.13391

June 1, 2001

June 1, 1995

1.13401

July 1, 2001

July 1,1995

1.13411

August 1, 2001

August 1, 1995

1.13443

September 1, 2001

September 1, 1995

1.13497

1

Source: Standard & Poor's DRI, 1st Qtr 2000; @USSIM/TREND25YR0299@CISSIM/CONTROL991

B. Federal Rate Update Factor

To update each facility's costs up to the common period, we:

1. Determined the total growth from the average market basket level for the period of October 1, 1999 through September 30, 2000 to the average market basket level for the period of October 1, 2000 through September 30, 2001.

2. Calculated the rate of growth between the midpoints of the two periods.

3. Calculated the annual average rate of growth for number 2, above.

4. Subtracted 1 percentage point from this annual average rate of growth.

5. Using the annual average minus 1 percentage point rate of growth, determined the cumulative growth between the midpoints of the two periods specified above.

This revised update factor was used to compute the Federal portion of the SNF PPS rate shown in Tables 1 and 2.

V. Consolidated Billing

Section 4432(b) of the BBA sets forth a consolidated billing requirement applicable to all SNFs providing Medicare services. SNF consolidated billing is a comprehensive billing requirement (similar to the one that has been in effect for inpatient hospital services for well over a decade), under which the SNF itself is responsible for billing Medicare for virtually all of the services that its beneficiaries receive. As with hospital bundling, the law contains a list of services (primarily those of physicians and certain other types of medical practitioners) that are excluded from SNF consolidated billing and, thus, can be separately billed to Part B directly by the outside entity that furnishes them to the Medicare beneficiary (see section 1888(e)(2)(A)(ii) of the Act).

Section 103(a)(2) of the BBRA added section 1888(e)(2)(A)(iii) to the Act to provide for the exclusion of certain additional types of services from SNF consolidated billing, effective with services furnished on or after April 1, 2000. The original statutory exclusions enacted by the BBA consisted of a number of broad service categories, and encompassed all of the individual services that fall within those categories. By contrast, the additional exclusions enacted in the BBRA apply only to certain specified, individual services within a number of broader service categories that otherwise remain subject to consolidated billing. Within the affected service categories—that is, chemotherapy items and their administration, radioisotope services, and customized prosthetic devices—the exclusion applies only to those individual services that are specifically identified by HCPCS code in the legislation itself, while all other services within those broader categories remain subject to consolidated billing. See Table 11, Post-BBA Consolidated Billing Exclusions. We have issued Program Memorandum (PM) no. AB-00-18 (March 2000), which lists the HCPCS codes of those particular services identified by the BBRA as excluded from consolidated billing.

Table 11.—Post-BBA Consolidated Billing Exclusions

Exclusion

Exclusion authority

Effective date

Comments

Chemotherapy & Administration

Section 103 of BBRA; section 1888(e)(2)(A) (iii) (II) and (III) of the Act

4/1/2000

Only applies to those HCPCS codes specified in legislation; Excluded regardless of whether they are furnished in a hospital or nonhospital setting.

Radioisotope Services

Section 103 of BBRA; section 1888(e)(2)(A) (iii) (IV) of the Act

4/1/2000

Only applies to those HCPCS codes specified in legislation; Excluded regardless of whether they are furnished in a hospital or nonhospital setting.

Customized prosthetic devices

Section 103 of BBRA; section 1888(e)(2)(A) (iii) (V) of the Act

4/1/2000

Only applies to those HCPCS codes specified in legislation; Excluded regardless of whether they are furnished in a hospital or nonhospital setting.

Ambulance Services furnished in conjunction with Part B Dialysis services

Section 103 of BBRA; section 1888(e)(2)(A) (iii) (I) of the Act

4/1/2000

Subject to the medical necessity requirements that apply to ambulance services generally.

Outpatient hospital services that HCFA has identified (see Program Memorandum A-98-;37, 11/1998) as being beyond the general scope of SNF care plans, along with associated ambulance services:

§ 411.15(p)(2)(x) and (p)(3)(iii), as promulgated in the SNF PPS Interim Final Rule (5/12/1998)

7/1/1998

Excluded from consolidated billing only when furnished in the outpatient hospital setting.

• Cardiac catheterization;

• CT scans;

• Magnetic resonance imaging (MRIs);

• Ambulatory surgery involving the use of an operating room;

• Emergency services;

• Radiation therapy;

• Angiography;

• Venous and lymphatic procedures

The BBRA Conference report (H.R. Conf. Rep. No. 106-479 at 854) characterizes the individual services that this legislation targets for exclusion as “* * * high-cost, low probability events that could have devastating financial impacts because their costs far exceed the payment [SNFs] receive under the prospective payment system * * *.” According to the conferees, section 103(a) “is an attempt to exclude from the PPS certain services and costly items that are provided infrequently in SNFs * * *.” Some chemotherapy drugs, which are relatively inexpensive and are administered routinely in SNFs, were excluded from this provision [and thus continue to be subject to consolidated billing requirements]. Id.

Further, we note that the exceptionally costly and intensive outpatient hospital services, such as magnetic resonance imaging (MRIs) and cardiac catheterization, that we identified previously under the regulations at § 411.15(p)(3)(iii) (see the preamble discussion in the May 12, 1998 interim final rule at 63 FR 26298-99, and in the July 30, 1999 final rule at 64 FR 41675-76) are excluded from consolidated billing only when furnished in the outpatient hospital setting. By contrast, as indicated in Table 11, the services identified in section 103 of the BBRA are excluded regardless of whether they are furnished in a hospital or nonhospital setting.

In addition, section 103(a)(2) of the BBRA excludes from consolidated billing those ambulance services that are furnished to an SNF beneficiary in conjunction with dialysis services that are covered under Part B. We note that Part B dialysis services themselves are already excluded from consolidated billing (see regulations at 42 CFR 411.15(p)(2)(vii)), as are those ambulance services that are furnished to a beneficiary who is not considered an SNF “resident” for consolidated billing purposes (see § 411.15(p)(2)(x))—for example, a beneficiary who receives one of the excluded outpatient hospital services under § 411.15(p)(3)(iii). The BBRA Conference Committee report further indicates that the newly excluded ambulance services (that is, those needed to transport a SNF resident who receives Part B dialysis services offsite at a certified dialysis facility) still remain subject to the overall medical necessity requirement that applies to ambulance services generally; that is, that ambulance coverage is available only in those situations where the use of other means of transportation is medically contraindicated. (H.R. Conf. Rep. No. 106-479 at 854.)

Further, we note that the statutory exclusion of those ambulance services that are furnished to SNF residents in conjunction with Part B dialysis services does not extend to ambulance services furnished to SNF residents in conjunction with any of the other types of services that this section of the BBRA identifies as excluded. For example, when a SNF resident is temporarily transported offsite via ambulance to receive a type of chemotherapy that is excluded by the BBRA, the ambulance services themselves remain subject to the SNF consolidated billing provision, and are not separately billable to Part B.

Section 103 of the BBRA also gives the Secretary the authority to designate additional, individual services for exclusion within each of the specified service categories. The BBRA Conference report notes that “* * * [n]ew, extremely costly items may come into use or codes may change over time”, H.R. Conf. Rep. No. 106-479 at 854 and the discretionary authority provided in the BBRA affords the Secretary the flexibility to revise the exclusion list as warranted by changing conditions that may occur in the future. For example, we note that the BBRA's conference agreement requests the GAO to conduct a review, by July 1, 2000, of the appropriateness of the codes that this legislation has designated for exclusion from consolidated billing. We will carefully consider the GAO's findings to determine whether further refinements in the exclusion list are warranted.

Also, we note that the BBRA made a number of technical corrections in the provisions of the BBA. One of these corrections, section 321(g)(2) of the BBRA, has revised the statute at section 1833(h)(5)(A)(iii) of the Act to make it clear that clinical diagnostic tests furnished to a SNF resident are subject to the consolidated billing requirement.

Finally, while we have implemented consolidated billing in connection with services furnished to SNF residents during Medicare-covered stays, we have not yet implemented so-called “Part B” consolidated billing, in connection with services furnished to SNF residents who are in noncovered stays. As we explained in the July 30, 1999 final rule, the overriding need to accomplish systems renovations in time to achieve Year 2000 (Y2K) compliance forced us to delay certain other projects that involved significant systems modifications of their own, including the implementation of this aspect of consolidated billing. Now that the Y2K-related systems changes have been completed, we have been able to resume work on these other projects. In this context, we have been reexamining some of the operational implications of consolidated billing that are specific to implementing the “Part B” aspect of this provision.

For example, under regulations at § 411.15(p)(3)(iv), if a beneficiary leaves the SNF and then returns within 24 hours of departure, his or her status as an SNF “resident” (for consolidated billing purposes) continues during the absence, regardless of whether the SNF has effected a formal discharge. This would make the SNF responsible for billing Medicare for any services that a beneficiary receives during a temporary absence of up to 24 hours, other than those that are specifically excluded (see the preamble discussion in the SNF PPS interim final rule (63 FR 26298 through 26299, May 12, 1998)). Since consolidated billing is currently in effect only for those SNF stays that are covered by Part A and paid by the PPS, this essentially means that such a beneficiary remains a SNF “resident” after leaving the SNF only if he or she then returns to the SNF by midnight, thus making the day of departure a covered Part A day. However, once

consolidated billing is fully implemented, this will effectively convert the policy regarding services furnished during a beneficiary's temporary absence from the current “midnight rule” to the full “24 hour rule” described in the regulations.

As explained in the SNF PPS interim final rule, we initially established a 24-hour window in the regulations in order to prevent a SNF from being able to unbundle a particular service merely by sending a beneficiary offsite briefly to receive the service as an outpatient of a hospital or clinic. However, we note that SNFs basically have a financial incentive to unbundle such services only in connection with a resident whose stay is covered under Part A, since unbundling the service would mean that it could be paid separately under Part B, rather than out of the global per diem amount that Part A pays the SNF for the covered stay itself. By contrast, a resident who is in a noncovered stay does not qualify for comprehensive coverage of the entire institutional package of care under Part A, but only for Part B coverage of the individual medical and other health services specified in section 1861(s) of the Act. This means that when a SNF resident is in a noncovered stay, Part B would pay individually for each covered medical or other health service furnished to that resident, regardless of whether the SNF or an outside supplier submits the bill.

Thus, as the financial incentives for unbundling are associated with covered stays, we believe that it may be appropriate to have a standard with regard to SNF “resident” status that, in actual practice, is not more stringent for noncovered stays. We could revise the regulations at § 411.15(p)(3)(iv) to provide for continuing a beneficiary's “resident” status during a temporary absence only if he or she returns by midnight of the day of departure. This would, in effect, utilize the same standard that currently applies to covered stays for noncovered stays as well, and we invite comments on the appropriateness of such a revision.

As a point of clarification, we note that the phrase “midnight of the day of departure” refers to the midnight that immediately follows the actual moment of departure, rather than to the midnight that immediately precedes it (see, for example, the discussion of a “leave of absence” in section 3103.3 of the Medicare Intermediary Manual, Part 3 (HCFA Pub. 13-3), which indicates that the day a patient returns to the hospital from a leave of absence “* * * is counted as an inpatient day if he is present

at midnight of that day

” (emphasis added)). Thus, under this policy, a patient “day” begins at 12:01 A.M., and midnight of a particular day occurs at the very end of that day rather than at the very beginning. For example, under the “midnight rule,” if a beneficiary begins a leave of absence from the SNF at 10:00 A.M. on July 1 but subsequently returns to the SNF by 12:00 A.M. that night, the beneficiary would continue to be considered a “resident” of the SNF, for consolidated billing purposes, during his or her absence. By contrast, if the beneficiary does not return to the SNF until 1:00 A.M. on the morning of July 2, his or her “resident” status, for consolidated billing purposes, would end as of 10:00 A.M. on July 1, and would not resume until the actual point of readmission to the SNF (that is, as of 1:00 A.M. on July 2).

VI. Provisions of the Proposed Rule

The provisions of this proposed rule are as follows:

• In § 411.15, paragraph (p)(2)(vii) would be revised to exclude from consolidated billing those ambulance services that are furnished to an SNF resident in conjunction with dialysis services that are covered under Part B.

• In § 411.15, paragraph (p)(2) would also be revised to list the additional services that the BBRA has excluded from consolidated billing.

• In § 411.15, paragraph (p)(3)(iv), the phrase “within 24 consecutive hours” would be revised to read “by midnight of the day of departure”.

• In § 489.20, paragraph (s) would be revised to list the additional services that BBRA has excluded from consolidated billing, and a conforming change would be made in § 489.21(h).

• In § 489.20, paragraph (s)(7) would be revised to exclude from consolidated billing those ambulance services that are furnished to an SNF resident in conjunction with dialysis services that are covered under Part B.

• Section 489.20(s)(11) and § 411.15(p)(2)(xi), would be revised to reflect editorial revisions in the paragraphs concerning the transportation costs of electrocardiogram equipment.

VII. Collection of Information Requirements

This document does not impose information collection and recordkeeping requirements. Consequently, it need not be reviewed by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et.seq.).

VIII. Response to Comments

Because of the large number of items of correspondence we normally receive on

Federal Register

documents published for comment, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the

DATES

section of this preamble, and, if we proceed with a subsequent document, we will respond to the comments in the preamble to that document.

IX. Regulatory Impact Analysis

We have examined the impacts of this rule as required by Executive Order (EO) 12866, the Unfunded Mandates Reform Act (UMRA) (Pub. L. 104-4), the Regulatory Flexibility Act (RFA) (Pub. L. 96-354), and the Federalism Executive Order (EO) 13132.

Executive Order 12866 directs agencies to assess costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more annually). This notice is a major rule as defined in Title 5, United States Code, section 804(2), because we estimate its impact will be to increase the payments to SNFs by approximately $900 million in FY 2001. The update set forth in this notice applies to payments in FY 2001. Accordingly, the analysis that follows describes the impact of this one year only. In accordance with the requirements of the Act, we will publish a notice for each subsequent FY that will provide for an update to the payment rates and include an associated impact analysis.

The UMRA also requires (in section 202) that agencies prepare an assessment of anticipated costs and benefits before developing any rule that may result in an annual expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more in any given year. This rule will have no consequential effect on State, local, or tribal governments. We believe the private sector cost of this rule falls below these thresholds as well.

Executive Order 13132 (effective November 2, 1999), establishes certain requirements that an agency must meet when it promulgates regulations that impose substantial direct compliance costs on State and local governments,

preempts State law, or otherwise have Federalism implications. As stated above, this rule will have no consequential effect on State and local governments.

The RFA requires agencies to analyze options for regulatory relief of small entities. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and governmental agencies. Most SNFs and most other providers and suppliers are small entities, either by virtue of their nonprofit status or by having revenues of $5 million or less annually. For purposes of the RFA, all States and tribal governments are not considered to be small entities, nor are intermediaries or carriers. Individuals and States are not included in the definition of a small entity. The policies contained in this rule would update the SNF PPS rates by increasing the payment rates published in the July 30, 1999 notice, but will not have a significant effect upon small entities.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area and has fewer than 50 beds. We are not preparing a rural impact statement since we have determined, and the Secretary certifies, that this notice will not have a significant economic impact on the operations of a substantial number of small rural hospitals.

A. Background

This notice sets forth proposed updates of the SNF PPS rates contained in the update notice, published on July 30, 1999. Table 13 below, presents the projected effects of the policy changes in the SNF PPS update notice, as well as statutory changes effective for FY 2001, on various SNF categories. We estimate the effects of each policy change by estimating payments while holding all other payment variables constant. We use the best data available, but we do not attempt to predict behavioral responses to our policy changes, and we do not make adjustments for future changes in such variables as days or case-mix.

This analysis incorporates the latest estimates of growth in service use and payments under the Medicare SNF benefit based on Medicare claims from 1998. Some of the data used for this analysis are the same data used to develop the impact analysis associated with the SNF PPS update notice promulgated on July 30, 1999 (64 FR 41684). These data were used to estimate the effects of changing only one payment variable at a time. We have also utilized MDS 2.0 data from the States used for the RUG-III refinement research (described in section 2.B earlier) to illustrate the effect of case mix refinements on the classification of the patient population in the study States. In addition, we are unable at this time to demonstrate the distributional impact of these case mix refinements on facility payments but anticipate doing so in the final rule planned for later this year.

We have used the best avaliable data on SNF case mix in calculating the FY 2001 impact for this proposed rule; however, we note that the data currently available on Medicare SNF claims and MDS 2.0 do not reflect the refined case mix classification system and case-mix indices proposed in this rule. While we still have only a partial database of SNF PPS claims and MDS 2.0 data at the present time due to the phased-in manner in which SNFs came into the PPS, we are confident that sufficient national data reflecting the distribution of payments and service days under the new RUG-III classification model can be assembled before promulgation of the final rule associated with this update. While the refinement to the case-mix classification system results in no greater or lesser aggregate payments to SNFs under the Medicare SNF PPS, we believe it is important to estimate the potential distributional impact of incorporating the refined RUG-III case-mix groups and indices. Consequently, for the final rule implementing the FY 2001 SNF PPS rates, we anticipate using such a national data base of SNF PPS claims and MDS 2.0 data to estimate more accurately the impact of this update, including the distributional effect of the case-mix refinements on payments for different facility types and locations. However, based on the data currently available, we believe that the method we have used to develop the impact analysis for this proposed rule offers the most accurate estimate of the FY 2001 update to the SNF PPS.

For this proposed rule, we have attempted to convey a sense of the effect of the case-mix refinements on the classification of residents in SNFs. Below, we have prepared Table 12 which displays the distribution of patients in the six-state sample used to develop the case-mix refinements, as shown for both the existing RUG-III groups and for the refined model proposed in this rule. This table details a comparison of the distribution of an identical group of Medicare patients across both the existing and proposed RUG-III classification models. In addition, Table 6, in Technical Appendix A accompanying this rule, illustrates a comparison of the distribution of this same group of patients across the existing RUG-III system and the alternate ancillary index refinement approach (WIM2) discussed earlier in this proposed rule.

Table 12.—Distributional Shifts of Beneficiaries Between Existing RUG-III-Model and the Refined Model Proposed in This Rule

RUG III category

Existing RUG-III

Refined RUG III category

Refined RUG-III

(UWIM)

RUC+SE

JA5

14

RUC+SE

JA4

91

RUC+SE

JA3

78

RUC+SE

JA2

0

RUB+SE

JB5

9

RUB+SE

JB4

82

RUB+SE

JB3

190

RUB+SE

JB2

0

RUA+SE

JC5

0

RUA+SE

JC4

4

RUA+SE

JC3

23

RUA+SE

JC2

0

RVC+SE

KA5

5

RVC+SE

KA4

80

RVC+SE

KA3

75

RVC+SE

KA2

0

RVB+SE

KB5

2

RVB+SE

KB4

77

RVB+SE

KB3

169

RVB+SE

KB2

0

RVA+SE

KC5

0

RVA+SE

KC4

13

RVA+SE

KC3

18

RVA+SE

KC2

0

RHC+SE

LA5

12

RHC+SE

LA4

89

RHC+SE

LA3

143

RHC+SE

LA2

0

RHB+SE

LB5

1

RHB+SE

LB4

37

RHB+SE

LB3

91

RHB+SE

LB2

0

RHA+SE

LC5

0

RHA+SE

LC4

0

RHA+SE

LC3

1

RHA+SE

LC2

0

RMC+SE

MA5

40

RMC+SE

MA4

333

RMC+SE

MA3

376

RMC+SE

MA2

0

RMB+SE

MB5

5

RMB+SE

MB4

183

RMB+SE

MB3

563

RMB+SE

MB2

2

RMA+SE

MC5

0

RMA+SE

MC4

1

RMA+SE

MC3

15

RMA+SE

MC2

0

RLB+SE

NA5

0

RLB+SE

NA4

12

RLB+SE

NA3

28

RLB+SE

NA2

0

RLA+SE

NB5

0

RLA+SE

NB4

4

RLA+SE

NB3

31

RLA+SE

NB2

0

RUC

971

UA5

1

RUC

UA4

63

RUC

UA3

424

RUC

UA2

300

RUB

3072

UB5

1

RUB

UB4

106

RUB

UB3

1100

RUB

UB2

1584

RUA

1222

UC5

0

RUA

UC4

30

RUA

UC3

349

RUA

UC2

816

RVC

853

VA5

1

RVC

VA4

53

RVC

VA3

350

RVC

VA2

289

RVB

2812

VB5

0

RVB

VB4

81

RVB

VB3

1091

RVB

VB2

1392

RVA

1383

VC5

0

RVA

VC4

41

RVA

VC3

471

RVA

VC2

840

RHC

1808

WA5

0

RHC

WA4

75

RHC

WA3

721

RHC

WA2

768

RHB

1795

WB5

0

RHB

WB4

38

RHB

WB3

601

RHB

WB2

1027

RHA

900

WC5

0

RHA

WC4

23

RHA

WC3

309

RHA

WC2

567

RMC

3834

XX5

0

RMC

XA4

205

RMC

XA3

1601

RMC

XA2

1279

RMB

7142

XB5

0

RMB

XB4

160

RMB

XB3

2487

RMB

XB2

3742

RMA

2426

XC5

0

RMA

XC4

68

RMA

XC3

801

RMA

XC2

1541

RLB

404

YA5

0

RLB

YA4

18

RLB

YA3

182

RLB

YA2

164

RLA

703

YB5

0

RLA

YB4

19

RLA

YB3

249

RLA

YB2

400

SE3

2059

EA5

106

SE3

EA4

1021

SE3

EA3

932

SE3

EA2

0

SE2

2944

EB5

65

SE2

EB4

913

SE2

EB3

1934

SE2

EB2

32

SE1

272

EC5

0

SE1

EC4

33

SE1

EC3

227

SE1

EC2

12

SSC

3129

SA5

2

SSC

SA4

391

SSC

SA3

1907

SSC

SA2

829

SSB

3598

SB5

0

SSB

SB4

370

SSB

SB3

2168

SSB

SB2

1060

SSA

6251

SC5

0

SSA

SC4

424

SSA

SC3

3688

SSA

SC2

2139

CC2

58

CA5

0

CC2

CA4

1

CC2

CA3

28

CC2

CA2

29

CC1

309

CB5

0

CC1

CB4

18

CC1

CB3

171

CC1

CB2

120

CB2

262

CC5

0

CB2

CC4

9

CB2

CC3

104

CB2

CC2

149

CB1

1423

CD5

0

CB1

CD4

36

CB1

CD3

619

CB1

CD2

768

CA2

802

CE5

0

CA2

CE4

18

CA2

CE3

319

CA2

CE2

465

CA1

4977

CF5

0

CA1

CF4

107

CA1

CF3

2075

CA1

CF2

2795

IB2

60

IA1

60

IB1

565

IB1

565

IA2

12

IC1

12

IA1

379

ID1

379

BB2

1

BA1

1

BB1

52

BB1

52

BA2

2

BC1

2

BA1

71

BD1

71

PE2

41

PA1

41

PE1

401

PB1

401

PD2

119

PC1

119

PD1

1184

PD1

1184

PC2

33

PE1

33

PC1

342

PF1

342

PB2

39

PG1

39

PB1

602

PH1

602

PA2

40

PI1

40

PA1

1185

PJ1

1185

We note that certain events may combine to limit the scope or accuracy of our impact analysis, because such an analysis is future-oriented and, thus, very susceptible to forecasting errors due to other changes in the forecasted impact time period. Some examples of such possible events are newly legislated general Medicare program funding changes by the Congress, or changes specifically related to SNFs. In addition, changes to the Medicare program may continue to be made as a result of the BBA. Although these changes may not be specific to SNF PPS, due to the nature of the Medicare program the changes may interact, and the complexity of the interaction of these changes could make it very difficult to predict accurately the full scope of the impact upon SNFs.

B. Impact of This Proposed Rule

As stated previously in this preamble, the aggregate increase in payments associated with this update is estimated to be $900 million. There are three areas of change that produce this increase for facilities—

1. The effect of the Federal transition, that results in many facilities being paid 75 percent at the Federal rate and 25 percent at the facility-specific rate instead of the current 50 percent Federal rate and 50 percent facility-specific rate. There is also the additional effect of the BBRA option to bypass the transition and be paid according to 100 percent of the Federal rate;

2. The implementation of various other provisions in the BBRA; and,

3. The total change in payments from FY 2000 levels to FY 2001 levels. This includes all of the previously noted changes in addition to the effect of the update to the rates.

As seen in table 13 below, some of these areas result in increased aggregate payments and others tend to lower them. The breakdown of the various categories of data in the table are as follows:

In column one, the first row of the table includes the effects on all facilities. The next six rows show the effects on facilities split by hospital-based versus freestanding and urban versus rural. The rest of the table shows the effects on urban versus rural status by census region.

The second column in the table shows the number of facilities in the impact database. The third column shows the effect of the transition to the Federal rates. It includes the impact of the normal progression of facilities in the transition to new cost reporting periods

and, therefore, blended payment amounts (that is, facility-specific versus Federal rates) as well as those facilities that, as a result of the BBRA, elect to bypass the transition and go immediately to the full Federal rate). This change has an overall effect of raising payments by .3 percent, with most of the increase coming from freestanding facilities. There are several regions that have decreased payments due to this provision, but the majority (and most populous) of the regions evidence higher payments, with the largest increase being in the New England and mid-Atlantic regions for both urban and rural facilities.

We estimate that approximately 51 percent of SNFs currently under the transition will elect to be paid based on 100 percent of the Federal rate. Of these facilities, we estimate 22 percent are hospital-based and 78 percent are freestanding.

The fourth column shows the projected effect of the 4 percent add-on to the adjusted Federal rate mandated by the BBRA. As expected, this provision results in an increase in payments for all facilities. However, as seen in the table, the varying effect of the SNF PPS transition results in a distributional impact of this provision. In addition, since this increase only applies to the Federal portion of the payment rate, the effect on total expenditures is less than 4 percent.

The fifth column of the table shows the effect of the update to the Federal and facility-specific payment rates. It reflects an update to the Federal rates of 1.833 percent, which is equivalent to the market basket increase minus 1 percentage point, as required by law. In addition, it reflects an update to the facility-specific rates of 2.833 percent, which is equivalent to the full market basket increase for this period. For this analysis, it is assumed that payments will increase by 2.0 percent in total if there are no behavioral changes by the facilities. As can be seen from this table, the effects of the update itself do not vary significantly by specific types of providers or by location.

The sixth column of the table shows the effect of all of the changes on the FY 2001 payments. This includes all of the previous changes, including the update to this year's payment rates by the market basket. Therefore, it is assumed that payments will increase by 5.8 percent in total, assuming facilities do not change their care delivery and billing practices in response. As can be seen from this table, the combined effects of all of the changes vary much more widely by specific types of providers and by location. For example, freestanding facilities enjoy more significant payment increases due to the policy changes, while the effects of the transition tend to diminish the increase for hospital-based providers.

Table 13.—Projected Impact of FY 2001 Update to the SNF PPS

Number of facilities

Transition to federal rates

(percent)

Add on to federal rates

(percent)

Update change

(percent)

Total FY 2001 change

(percent)

Total

9037

0.3

3.4

2.0

5.8

Urban

6300

0.0

3.4

2.0

5.5

Rural

2737

1.4

3.5

1.9

6.9

Hospital based urban

683

−6.1

2.9

2.1

−1.3

Freestanding urban

5617

1.2

3.5

2.0

6.8

Hospital based rural

533

−3.2

3.2

2.0

1.9

Freestanding rural

2204

2.5

3.6

1.9

5.8

Urban by region:

New England

630

6.1

3.8

1.9

12.2

Middle Atlantic

877

5.1

3.7

1.9

11.1

South Atlantic

959

−2.0

3.2

2.0

3.2

East North Central

1232

1.5

3.5

1.9

7.0

East South Central

212

−1.3

3.3

2.0

4.0

West North Central

469

0.3

3.4

2.0

5.8

West South Central

519

−6.8

2.9

2.1

−2.1

Mountain

303

−4.6

3.0

2.1

0.3

Pacific

1070

−2.5

3.2

2.0

2.6

Rural by region:

New England

88

6.0

3.9

1.9

12.2

Middle Atlantic

144

4.0

3.7

1.9

9.9

South Atlantic

373

0.6

3.5

2.0

6.2

East North Central

561

2.6

3.6

1.9

8.3

East South Central

255

−0.4

3.4

2.0

5.0

West North Central

581

3.9

3.6

1.9

9.7

West South Central

354

−3.2

3.2

2.0

1.9

Mountain

204

0.2

3.4

2.0

5.7

Pacific

151

1.7

3.6

1.9

7.4

Notes:

1. The effects of the various changes are not additive.

2. The percent differences illustrated in this table are measured against the policies and payment rates in effect for FY 2000 as described in the SNF PPS Notice published on July 30, 1999 (64 FR 42684).

3. This table reflects Federal payment rates based on the case-mix methodology and wage index used for FY 2000. As explained in the text, the FY 2001 wage index and national case-mix data based on the refined RUG-III model are not currently available, but will be for the final rule.

In the final rule implementing the SNF PPS update for FY 2001, we will revise the estimates listed in Table 13 to reflect the final FY 2001 payment rates as well as the latest available data on estimates of program growth in services and expenditures. Table 13 will also incorporate two additional columns showing the projected distributional effect of the refined case-mix classification system based on actual MDS 2.0 data and updated wage index

across the various facility types and locations, as discussed earlier. We will also indicate the impact of the reduction in the Federal rates to account for the new services excluded from consolidated billing under section 103 of the BBRA.

As discussed earlier in this rule, Section 101 of the BBRA provides for a 20 percent positive adjustment to the adjusted Federal rates associated with 15 RUG-III groups for the period of April 1, 2000 through October 1, 2000. In addition, it provides for a four percent positive adjustment to the Federal rates associated with all RUG-III categories for FY 2001 and FY 2002, regardless of whether refinements to the case-mix adjustment are implemented. However, were we not to implement case-mix refinements such as those proposed in this rule for FY 2001, the Federal rates for this period would be based on the existing RUG-III model currently in use and maintain the 20 percent adjustments to the 15 specified RUG-III groups. As indicated in Table 13, the effect of this proposed rule will be an increase in expenditures of 900 million dollars (or +5.8 percent) over the payment rates and policies as described in the SNF PPS Notice published on July 30, 1999 (64 FR 41684). However, were we not to implement case-mix refinements, the effect of this BBRA provision would be a larger increase in expenditures equaling 1.9 billion dollars (or +12.5 percent). At the present time, we are unable to illustrate the distributional impact of maintaining this 20 percent add-on, but will attempt to develop the data to allow us to do so for the final rule associated with the FY 2001 update. It is important to note that such a result would also have negative consequences for the beneficiary. Section 101 of the BBRA provides the 20 percent add-on for certain RUG-III rehabilitation groups, resulting in higher payments for such groups even though they are associated with a lower intensity of service than other rehabilitation groups. This results in a perverse incentive where some facilities may choose to provide less rehabilitation services to beneficiaries in order to receive the higher payments. Because this provision of the law takes effect on April 1, 2000, it may already be resulting in a reduction of needed services. Adoption of the refinements proposed in this rule would eliminate this perverse incentive.

As noted previously, we are proposing the addition of new RUG-III categories to recognize the needs of Medicare beneficiaries with both heavy medical and rehabilitation needs and to account more precisely for the variation in non-therapy ancillary services. The refinements will achieve important improvements in the PPS and allow for more accurate payment rates, thus meeting our responsibility to provide for equitable payments to providers while ensuring access to quality SNF care for Medicare beneficiaries. In evaluating the different options, it is important to analyze the overall impact of implementing a refined case-mix system. Adoption of any of these refinements will increase the complexity of the PPS and may introduce some initial uncertainty for providers, who would have to become familiar with the refined system and modify existing operational and support systems. As discussed in section II.B of this proposed rule, we propose adoption of the UWIM model because we believe it best represents an appropriate balance between improvements in the accuracy of our payments and the complexity and uncertainty which results from changes of this nature.

Finally, in accordance with the provisions of Executive Order 12866, this notice was reviewed by the Office of Management and Budget.

X. Federalism

We have reviewed this final rule under the threshold criteria of Executive Order 13132, Federalism, and we have determined that it does not significantly affect the rights, roles, and responsibilities of States.

List of Subjects

42 CFR Part 411

Kidney diseases, Medicare, Reporting and recordkeeping requirements.

42 CFR Part 489

Health facilities, Medicare, Reporting and recordkeeping requirements.

For the reasons set forth in the preamble, 42 CFR chapter IV would be amended as follows:

PART 411—EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE PAYMENT

A. Part 411 is amended as set forth below:

1. The authority citation for part 411 continues to read as follows:

Authority:

Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh).

Subpart A—General Exclusions and Exclusion of Particular Services

2. Section 411.15 is amended by:

A. Republishing the introductory text.

B. Revising paragraphs (p)(2)(vii) and (p)(2)(xi).

C. Adding new paragraphs (p)(2)(xii), (p)(2)(xiii), (p)(2)(xiv), and (p)(2)(xv).

D. Revising paragraph (p)(3)(iv).

§ 411.15

Particular services excluded from coverage.

The following services are excluded from coverage.

(p)

Services furnished to SNF residents.

* * *

(2)

Exceptions.

The following services are not excluded from coverage:

(vii) Dialysis services and supplies, as defined in section 1861(s)(2)(F) of t

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