# Medicare Program; Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities; Disclosures of Ownership and Additional Disclosable Parties Information

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2011-10555

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** May 6, 2011
- **Citation:** 76 FR 26364

## Text

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 413, 424, and 455
[CMS-1351-P]
RIN 0938-AQ29
Medicare Program; Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities; Disclosures of Ownership and Additional Disclosable Parties Information

AGENCY:

Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION:

Proposed rule.

SUMMARY:

This proposed rule presents two options for updating the payment rates used under the prospective payment system for skilled nursing facilities (SNFs), for fiscal year 2012. In this context, it examines recent changes in provider behavior relating to the implementation of the Resource Utilization Groups, version 4 (RUG-IV) case-mix classification system and considers a possible recalibration of the case-mix indexes so that they more accurately reflect parity in expenditures between RUG-IV and the previous case-mix classification system. It also includes a discussion of a Non-Therapy Ancillary component and outlier research currently under development within CMS. In addition, this proposed rule discusses the impact of certain provisions of the Affordable Care Act. It proposes to require for fiscal year 2012 and subsequent fiscal years that the SNF market basket percentage change be reduced by the multi-factor productivity adjustment. It also proposes to require Medicare SNFs and Medicaid nursing facilities to disclose certain information to the Secretary of the United States Department of Health and Human Services (the Secretary) and other entities regarding the ownership and organizational structure of their facilities. Finally, it proposes certain changes relating to the payment of group therapy services and proposes new resident assessment policies.

DATES:

To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on June 27, 2011.

ADDRESSES:

In commenting, please refer to file code CMS-1351-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (please choose only one of the ways listed):

1.
Electronically.
You may submit electronic comments on this regulation to
http://www.regulations.gov.
Follow the instructions under the “More Search Options” tab.

2.
By regular mail.
You may mail written comments to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1351-P, P.O. Box 8016, Baltimore, MD 21244-8016.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3.
By express or overnight mail.
You may send written comments to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1351-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4.
By hand or courier.
If you prefer, you may deliver (by hand or courier) your written comments before the close of the comment period to either of the following addresses:

a. Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201.

(Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

b. Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

For information on viewing public comments, see the beginning of the
SUPPLEMENTARY INFORMATION
section.

FOR FURTHER INFORMATION CONTACT:

Sandra Bastinelli, (410) 786-3630 (for disclosure of ownership).

Penny Gershman, (410) 786-6643 (for information related to clinical issues).

John Kane, (410) 786-0557 (for information related to the development of the payment rates and case-mix indexes). Kia Sidbury, (410) 786-7816 (for information related to the wage index).

Bill Ullman, (410) 786-5667 (for information related to level of care determinations, consolidated billing, and general information).

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments:
All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received:
http://www.regulations.gov.
Follow the search instructions on that Web site to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

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 SNF Services Under Part A of the Medicare Program

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

C. The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA)

D. The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA)

E. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)

F. The Affordable Care Act

G. Skilled Nursing Facility Prospective Payment—General Overview

1. Payment Provisions—Federal Rate

2. FY 2012 Rate Updates Using the Skilled Nursing Facility Market Basket Index

II. FY 2012 Annual Update of Payment Rates Under the Prospective Payment System for Skilled Nursing Facilities

A. Federal Prospective Payment System

1. Costs and Services Covered by the Federal Rates

2. Methodology Used for the Calculation of the Federal Rates

B. Case-Mix Adjustments

1. Background

2. Parity Adjustment

a. Option for Recalibration of the Parity Adjustment

b. Option for Application of Standard Update for FY 2012 Without Recalibration

C. Wage Index Adjustment to Federal Rates

D. Updates to Federal Rates

E. Relationship of Case-Mix Classification System to Existing Skilled Nursing Facility Level-of-Care Criteria

F. Example of Computation of Adjusted PPS Rates and SNF Payment

III. Resource Utilization Groups, Version 4 (RUG-IV)

A. Prospective Payment for SNF Non-Therapy Ancillary Costs

1. Previous Research

2. Conceptual Analysis

3. Analytic Sample

4. Approach to Analysis

5. Payment Methodology

a. Routine Non-Therapy Ancillary Payment

b. Tiered Non-Routine NTA Bundled Payment

c. Non-Routine NTA Outlier Payment

6. Temporary AIDS Add-On Payment Under Section 511 of the MMA

IV. Ongoing Initiatives Under the Affordable Care Act

A. Value-Based Purchasing (Section 3006)

B. Payment Adjustment for Hospital-Acquired Conditions (Section 3008)

C. Nursing Home Transparency and Improvement (Section 6104)

V. Other Issues

A. Required Disclosure of Ownership and Additional Disclosable Parties Information (Section 6101)

B. Therapy Student Supervision

C. Group Therapy and Therapy Documentation

D. Proposed Changes to the MDS 3.0 Assessment Schedule and Other Medicare-Required Assessments

E. Discussion of Possible Future Initiatives

VI. The Skilled Nursing Facility Market Basket Index

A. Use of the Skilled Nursing Facility Market Basket Percentage

B. Market Basket Forecast Error Adjustment

C. Multifactor Productivity Adjustment

1. Incorporating the Multifactor Productivity Adjustment Into the Market Basket Update

D. Federal Rate Update Factor

VII. Consolidated Billing

VIII. Application of the SNF PPS to SNF Services Furnished by Swing-Bed Hospitals

IX. Provisions of the Proposed Rule

X. Collection of Information Requirements

XI. Response to Comments

XII. Economic Analyses

A. Regulatory Impact Analysis

1. Introduction

2. Statement of Need

3. Overall Impacts

4. Detailed Economic Analysis

a. Impacts of Implementing the Recalibration Option for FY 2012

b. Impacts of Not Implementing the Recalibration Option for FY 2012

5. Alternatives Considered

6. Accounting Statement

7. Conclusion

B. Regulatory Flexibility Act Analysis

C. Unfunded Mandates Reform Act Analysis

D. Federalism Analysis

Regulation Text

Addendum:

FY 2012 CBSA-Based Wage Index Tables (Tables A & B)

Abbreviations

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

ABN Advance Beneficiary Notice

AIDS Acquired Immune Deficiency Syndrome

ARD Assessment Reference Date

ASAP Assessment Submission and Processing

BBA Balanced Budget Act of 1997, Public Law 105-33

BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999, Public Law 106-113

BIMS Brief Interview for Mental Status

BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, Public Law 106-554

CAH Critical Access Hospital

CBSA Core-Based Statistical Area

CCR Cost-to-Charge Ratio

CFR Code of Federal Regulations

CMI Case-Mix Index

CMS Centers for Medicare & Medicaid Services

COT Change of Therapy

EOT End of Therapy

EOT-R End of Therapy—Resumption

FQHC Federally Qualified Health Center

FR Federal Register

FY Fiscal Year

GAO Government Accountability Office

HAC Hospital-Acquired Condition

HCC Hierarchical Condition Category

HCPCS Healthcare Common Procedure Coding System

HR-III Hybrid Resource Utilization Groups, Version 3

IGI IHS (Information Handling Services) Global Insight, Inc.

MDS Minimum Data Set

MFP Multifactor Productivity

MIPPA Medicare Improvements for Patients and Providers Act of 2008, Public Law 110-275

MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173

MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public Law 110-173

MPAF Medicare PPS Assessment Form

MSA Metropolitan Statistical Area

NTA Non-Therapy Ancillary

OMB Office of Management and Budget

OMRA Other Medicare-Required Assessment

ONTA Other Non-Therapy Ancillary

OSCAR Online Survey Certification and Reporting System

PAC-PRD Post Acute Care Payment Reform Demonstration

PECOS Medicare Provider Enrollment, Chain, and Ownership System

PPS Prospective Payment System

QIES Quality Improvement and Evaluation System

RAI Resident Assessment Instrument

RAVEN Resident Assessment Validation Entry

RFA Regulatory Flexibility Act, Public Law 96-354

RNP Routine NTA Bundled Payment

RHC Rural Health Clinic

RIA Regulatory Impact Analysis

RTM Reimbursable Therapy Minutes

RUG-III Resource Utilization Groups, Version 3

RUG-IV Resource Utilization Groups, Version 4

RUG-53 Refined 53-Group RUG-III Case-Mix Classification System

SCHIP State Children's Health Insurance Program

SNF Skilled Nursing Facility

STM Staff Time Measurement

STRIVE Staff Time and Resource Intensity Verification

TNP Tiered Non-routine NTA Payment

UMRA Unfunded Mandates Reform Act, Public Law 104-4

I. Background

Annual updates to the prospective payment system (PPS) rates for skilled nursing facilities (SNFs) are required by section 1888(e) of the Social Security Act (the Act), as added by section 4432 of the Balanced Budget Act of 1997 (BBA, Public Law 105-33, enacted on August 5, 1997), and amended by subsequent legislation as discussed elsewhere in this preamble. Our most recent annual update occurred in an update notice with comment period (75 FR 42886, July 22, 2010) that set forth updates to the SNF PPS payment rates for fiscal year (FY) 2011. We subsequently published a correction notice (75 FR 55801, September 14, 2010) with respect to those payment rate updates. We will respond to public comments which relate to the FY 2011 update notice, along with those relating to this current proposed rule, in the FY 2012 final rule.

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

Section 4432 of the BBA amended section 1888 of the Act to provide for the implementation of a per diem PPS for SNFs, covering all costs (routine, ancillary, and capital-related) 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. In this proposed rule, we would update the

per diem payment rates for SNFs for FY 2012. Major elements of the SNF PPS include:

•
Rates.
As discussed in section I.G.1. of this proposed rule, we established per diem Federal rates for urban and rural areas using allowable costs from FY 1995 cost reports. These rates also included a “Part B add-on” (an estimate of the cost of those services that, before July 1, 1998, were paid under Part B but furnished to Medicare beneficiaries in a SNF during a Part A covered stay). We adjust the rates annually using a SNF market basket index, and we adjust them by the hospital inpatient wage index to account for geographic variation in wages. We also apply a case-mix adjustment to account for the relative resource utilization of different patient types. As further discussed in section I.G.1. of this proposed rule, for FY 2012 this adjustment will utilize the Resource Utilization Groups, version 4 (RUG-IV) case-mix classification, and will use information obtained from the required resident assessments using version 3.0 of the Minimum Data Set (MDS 3.0). (The resident assessment is approved under OMB# 0938-0739.) Additionally, as noted elsewhere in this preamble, the payment rates at various times have also reflected specific legislative provisions for certain temporary adjustments.

•
Transition.
Under sections 1888(e)(1)(A) and (e)(11) of the Act, the SNF PPS included an initial, three-phase transition that blended a facility-specific rate (reflecting the individual facility's historical cost experience) with the Federal case-mix adjusted rate. The transition extended through the facility's first three cost reporting periods under the PPS, up to and including the one that began in FY 2001. Thus, the SNF PPS is no longer operating under the transition, as all facilities have been paid at the full Federal rate effective with cost reporting periods beginning in FY 2002. As we now base payments entirely on the adjusted Federal per diem rates, we no longer include adjustment factors related to facility-specific rates for the coming FY.

•
Coverage.
The establishment of the SNF PPS did not change Medicare's fundamental requirements for SNF coverage. However, because the case-mix 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 existing resident assessment process and case-mix classification system. As further discussed in section II.E. of this proposed rule, in FY 2012, this approach includes an administrative presumption that utilizes a beneficiary's initial classification in one of the upper 52 RUGs of the 66-group RUG-IV case-mix classification system to assist in making certain SNF level of care determinations. In the July 30, 1999 final rule (64 FR 41670), we indicated that we would announce any changes to the guidelines for Medicare level of care determinations related to modifications in the case-mix classification structure (see section II.E. of this proposed rule for a more detailed discussion of the relationship between the case-mix classification system and SNF level of care determinations).

•
Consolidated Billing.
The SNF PPS includes a consolidated billing provision that requires a SNF to submit consolidated Medicare bills to its fiscal intermediary or Medicare Administrative Contractor for almost all of the services that its residents receive during the course of a covered Part A stay. In addition, this provision places with the SNF the Medicare billing responsibility for physical therapy, occupational therapy, and speech-language pathology services that the resident receives during a noncovered stay. The statute excludes a small list of services from the consolidated billing provision (primarily those of physicians and certain other types of practitioners), which remain separately billable under Part B when furnished to a SNF's Part A resident. A more detailed discussion of this provision appears in section VII. of this proposed rule.

•
Application of the SNF PPS to SNF services furnished by swing-bed hospitals.
Section 1883 of the Act permits certain small, rural hospitals to enter into a Medicare swing-bed agreement, under which the hospital can use its beds to provide either acute or SNF care, as needed. For critical access hospitals (CAHs), Part A pays on a reasonable cost basis for SNF services furnished under a swing-bed agreement. However, in accordance with section 1888(e)(7) of the Act, these services furnished by non-CAH rural hospitals are paid under the SNF PPS, effective with cost reporting periods beginning on or after July 1, 2002. A more detailed discussion of this provision appears in section VIII. of this proposed rule.

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

Section 1888(e)(4)(H) of the Act requires that we provide for publication annually in the
Federal Register
:

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

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

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

Along with other revisions discussed later in this preamble, this proposed rule provides these required annual updates to the Federal rates.

C. The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA)

There were several provisions in the BBRA (Pub. L. 106-113, enacted on November 29, 1999) that resulted in adjustments to the SNF PPS. We described these provisions in detail in the SNF PPS final rule for FY 2001 (65 FR 46770, July 31, 2000). In particular, section 101(a) of the BBRA provided for a temporary 20 percent increase in the per diem adjusted payment rates for 15 specified groups in the original, 44-group Resource Utilization Groups, version 3 (RUG-III) case-mix classification system. In accordance with section 101(c)(2) of the BBRA, this temporary payment adjustment expired on January 1, 2006, upon the implementation of a refined, 53-group version of the RUG-III system, RUG-53 (see section I.G.1. of this proposed rule). We included further information on BBRA provisions that affected the SNF PPS in Program Memoranda A-99-53 and A-99-61 (December 1999).

Also, section 103 of the BBRA designated certain additional services for exclusion from the consolidated billing requirement, as discussed in section VII. of this proposed rule. Further, for swing-bed hospitals with more than 49 (but less than 100) beds, section 408 of the BBRA provided for the repeal of certain statutory restrictions on length of stay and aggregate payment for patient days, effective with the end of the SNF PPS transition period described in section 1888(e)(2)(E) of the Act. In the final rule for FY 2002 (66 FR 39562, July 31, 2001), we made conforming changes to the regulations at § 413.114(d), effective for services furnished in cost reporting periods beginning on or after July 1, 2002, to reflect section 408 of the BBRA.

D. The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA)

The BIPA (Pub. L. 106-554, enacted December 21, 2000) also included several provisions that resulted in adjustments to the SNF PPS. We described these provisions in detail in

the final rule for FY 2002 (66 FR 39562, July 31, 2001). In particular:

• Section 203 of the BIPA exempted CAH swing beds from the SNF PPS. We included further information on this provision in Program Memorandum A-01-09 (Change Request #1509), issued January 16, 2001, which is available online at
http://www.cms.gov/transmittals/downloads/a0109.pdf.

• Section 311 of the BIPA revised the statutory update formula for the SNF market basket, and also directed us to conduct a study of alternative case-mix classification systems for the SNF PPS. In 2006, we submitted a report to the Congress on this study, which is available online at
http://www.cms.gov/SNFPPS/Downloads/RC_2006_PC-PPSSNF.pdf.

• Section 312 of the BIPA provided for a temporary increase of 16.66 percent in the nursing component of the case-mix adjusted Federal rate for services furnished on or after April 1, 2001, and before October 1, 2002; accordingly, this add-on is no longer in effect. This section also directed the Government Accountability Office (GAO) to conduct an audit of SNF nursing staff ratios and submit a report to the Congress on whether the temporary increase in the nursing component should be continued. The report (GAO-03-176), which GAO issued in November 2002, is available online at
http://www.gao.gov/new.items/d03176.pdf.

• Section 313 of the BIPA repealed the consolidated billing requirement for services (other than physical therapy, occupational therapy, and speech-language pathology services) furnished to SNF residents during noncovered stays, effective January 1, 2001. (A more detailed discussion of this provision appears in section VII. of this proposed rule.)

• Section 314 of the BIPA corrected an anomaly involving three of the RUGs that section 101(a) of the BBRA had designated to receive the temporary payment adjustment discussed above in section I.C. of this proposed rule. (As noted previously, in accordance with section 101(c)(2) of the BBRA, this temporary payment adjustment expired upon the implementation of case-mix refinements on January 1, 2006.)

• Section 315 of the BIPA authorized us to establish a geographic reclassification procedure that is specific to SNFs, but only after collecting the data necessary to establish a SNF wage index that is based on wage data from nursing homes. To date, this has proven to be unfeasible due to the volatility of existing SNF wage data and the significant amount of resources that would be required to improve the quality of that data.

We included further information on several of the BIPA provisions in Program Memorandum A-01-08 (Change Request #1510), issued January 16, 2001, which is available online at
http://www.cms.gov/transmittals/downloads/a0108.pdf.

E. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)

The MMA (Pub. L. 108-173, enacted on December 8, 2003) included a provision that resulted in a further adjustment to the SNF PPS. Specifically, section 511 of the MMA amended section 1888(e)(12) of the Act, to provide for a temporary increase of 128 percent in the PPS per diem payment for any SNF residents with Acquired Immune Deficiency Syndrome (AIDS), effective with services furnished on or after October 1, 2004. This special AIDS add-on was to remain in effect until “* * * the Secretary certifies that there is an appropriate adjustment in the case mix * * * to compensate for the increased costs associated with [such] residents * * *.” The AIDS add-on is also discussed in Program Transmittal #160 (Change Request #3291), issued on April 30, 2004, which is available online at
http://www.cms.gov/transmittals/downloads/r160cp.pdf.
In the SNF PPS final rule for FY 2010 (74 FR 40288, August 11, 2009), we did not address the certification of the AIDS add-on in that final rule's implementation of the case-mix refinements for RUG-IV, thus allowing the temporary add-on payment created by section 511 of the MMA to remain in effect.

For the limited number of SNF residents that qualify for the AIDS add-on, implementation of this provision results in a significant increase in payment. For example, using FY 2009 data, we identified less than 3,500 SNF residents with a diagnosis code of 042 (Human Immunodeficiency Virus (HIV) Infection). For FY 2012, an urban facility with a resident with AIDS in RUG-IV group “HC2” would have a case-mix adjusted payment of $400.01 (see Table 5) before the application of the MMA adjustment. After an increase of 128 percent, this urban facility would receive a case-mix adjusted payment of approximately $912.02.

In addition, section 410 of the MMA contained a provision that excluded from consolidated billing certain services furnished to SNF residents by rural health clinics (RHCs) and Federally Qualified Health Centers (FQHCs). (Further information on this provision appears in section VII of this proposed rule.)

F. The Affordable Care Act

On March 23, 2010, the Patient Protection and Affordable Care Act, Public Law 111-148, was enacted. Following the enactment of Public Law 111-148, the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted on March 30, 2010) amended certain provisions of Public Law 111-148 and certain sections of the Social Security Act and, in certain instances, included “freestanding” provisions (Pub. L. 111-148 and Pub. L. 111-152 are collectively referred to in this proposed rule as “the Affordable Care Act”). Section 10325 of the Affordable Care Act included a provision involving the SNF PPS. Section 10325 postponed the implementation of the RUG-IV case-mix classification system published in the FY 2010 SNF PPS final rule (74 FR 40288, August 11, 2009), requiring that the Secretary not implement the RUG-IV case-mix classification system before October 1, 2011. Notwithstanding this postponement of overall RUG-IV implementation, section 10325 further specified that the Secretary implement, effective October 1 2010, the changes related to concurrent therapy and the look-back period that were finalized as components of RUG-IV (see 74 FR 40315-19, 40322-24, August 11, 2009). As we noted in the FY 2011 SNF PPS update notice (75 FR 42889), implementing the particular combination of RUG-III and RUG-IV features specified in section 10325 of the Affordable Care Act would require developing a revised grouper, something that could not be accomplished by that provision's effective date (October 1, 2010) without risking serious disruption to providers, suppliers, and State agencies. Accordingly, in the FY 2011 update notice (75 FR 42889), we announced our intention to proceed on an interim basis with implementation of the full RUG-IV case-mix classification system as of October 1, 2010, followed by a retroactive claims adjustment, using a hybrid RUG-III (HR-III) system reflecting the Affordable Care Act configuration, once we had developed a revised grouper that could accommodate it. In that update notice, we also invited public comment specifically on our plans for implementing section 10325 of the Affordable Care Act in this manner.

However, on December 15, 2010, the President signed H.R. 4994, the “Medicare and Medicaid Extenders Act of 2010” (Pub. L. 111-309), in which section 202 repeals section 10325 of the

Affordable Care Act. We will, therefore, leave in place permanently the implementation of the full RUG-IV system as of FY 2011, as finalized in the FY 2010 SNF PPS final rule (74 FR 40288). Moreover, as the repeal of section 10325 of the Affordable Care Act has now eliminated the need for a subsequent transition to the HR-III system, this also effectively renders moot any further discussion of public comments that we had invited on our planned implementation of that transition. In addition, we note that implementation of version 3.0 of the Minimum Data Set (MDS 3.0) has proceeded as originally scheduled, with an effective date of October 1, 2010. The MDS 3.0 RAI Manual and MDS 3.0 Item Set are published on the MDS 3.0 Training Materials Web site, at
http://www.cms.gov/NursingHomeQualityInits/45_NHQIMDS30TrainingMaterials.asp
.

We note that a parity adjustment was applied to the RUG-53 nursing case-mix weights when the RUG-III system was initially refined in 2006, in order to ensure that the implementation of the refinements would not cause any change in overall payment levels (70 FR 45031, August 4, 2005). A detailed discussion of the parity adjustment in the specific context of the RUG-IV payment rates appears in the FY 2010 SNF PPS proposed rule (74 FR 22236-38, May 12, 2009) and final rule (74 FR 40338-40339, August 11, 2009), and in the FY 2011 update notice (75 FR 42892-42893).

Accordingly, as discussed above, effective October 1, 2010, we implemented and paid claims under the RUG-IV system that was finalized in the FY 2010 SNF PPS final rule. In section IV. of this proposed rule, we discuss certain ongoing Affordable Care Act initiatives that relate to SNFs, and in section V.A., we discuss proposed revisions involving section 6101 of the Affordable Care Act, regarding required disclosure of ownership and additional disclosable parties information.

G. Skilled Nursing Facility Prospective Payment—General Overview

We implemented the Medicare SNF PPS effective with cost reporting periods beginning on or after July 1, 1998. This methodology uses prospective, case-mix adjusted per diem payment rates applicable to all covered SNF services. These payment rates cover all costs of furnishing covered skilled nursing services (routine, ancillary, and capital-related costs) other than costs associated with approved educational activities and bad debts. Covered SNF services include post-hospital services for which benefits are provided under Part A, as well as those items and services (other than physician and certain other services specifically excluded under the BBA) which, before July 1, 1998, had been paid under Part B but furnished to Medicare beneficiaries in a SNF during a covered Part A stay. A comprehensive discussion of these provisions appears in the May 12, 1998 interim final rule (63 FR 26252).

1. Payment Provisions—Federal Rate

The PPS uses per diem Federal payment rates based on mean SNF costs in a base year (FY 1995) 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 incorporated an estimate of the amounts that would be payable under Part B for covered SNF services furnished to individuals during the course of a covered Part A stay in a SNF.

In developing the rates for the initial period, we updated costs to the first effective year of the PPS (the 15-month period beginning July 1, 1998) using a SNF market basket index, and then standardized for the costs of facility differences in case mix and for geographic variations in wages. In compiling the database used to compute the Federal payment rates, we excluded those providers that received new provider exemptions from the routine cost limits, as well as costs related to payments for exceptions to the routine cost limits. Using the formula that the BBA prescribed, 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 computed and applied separately the payment rates for facilities located in urban and rural areas. In addition, we adjusted 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. The RUG-IV classification system uses beneficiary assessment data from the MDS 3.0 completed by SNFs to assign beneficiaries to one of 66 RUG-IV groups. The original RUG-III case-mix classification system used beneficiary assessment data from the MDS, version 2.0 (MDS 2.0) completed by SNFs to assign beneficiaries to one of 44 RUG-III groups. Then, under incremental refinements that became effective on January 1, 2006, we added nine new groups—comprising a new Rehabilitation plus Extensive Services category—at the top of the RUG-III hierarchy. The May 12, 1998 interim final rule (63 FR 26252) included a detailed description of the original 44-group RUG-III case-mix classification system. A comprehensive description of the refined RUG-53 system appeared in the proposed and final rules for FY 2006 (70 FR 29070, May 19, 2005, and 70 FR 45026, August 4, 2005), and a detailed description of the current 66-group RUG-IV system appeared in the proposed and final rules for FY 2010 (74 FR 22208, May 12, 2009, and 74 FR 40288, August 11, 2009).

Further, in accordance with sections 1888(e)(4)(E)(ii)(IV) and (e)(5) of the Act, the Federal rates in this proposed rule reflect an update to the rates that we published in the update notice for FY 2011 (75 FR 42886, July 22, 2010) and the associated correction notice (75 FR 55801, September 14, 2010), equal to the full change in the SNF market basket index, adjusted by the forecast error correction, if applicable, and the Multifactor Productivity (MFP) adjustment for FY 2012. A more detailed discussion of the SNF market basket index and related issues appears in sections I.G.2. and VI. of this proposed rule.

2. FY 2012 Rate Updates Using the Skilled Nursing Facility Market Basket Index

Section 1888(e)(5) of the Act requires us to establish a SNF market basket index that reflects changes over time in the prices of an appropriate mix of goods and services included in covered SNF services. We use the SNF market basket index, adjusted in the manner described below, to update the Federal rates on an annual basis. In the SNF PPS final rule for FY 2008 (72 FR 43425 through 43430, August 3, 2007), we revised and rebased the market basket, which included updating the base year from FY 1997 to FY 2004. The proposed FY 2012 market basket increase is 2.7 percent, which is based on IHS Global Insight, Inc. (IGI) first quarter 2011 forecast with historical data through fourth quarter 2010.

In addition, as explained in the final rule for FY 2004 (66 FR 46058, August 4, 2003) and in section VI.B. of this proposed rule, the annual update of the payment rates includes, as appropriate, an adjustment to account for market basket forecast error. As described in the final rule for FY 2008, the threshold

percentage that serves to trigger an adjustment to account for market basket forecast error is 0.5 percentage point effective for FY 2008 and subsequent years. This adjustment takes into account the forecast error from the most recently available FY for which there is final data, and applies whenever the difference between the forecasted and actual change in the market basket exceeds a 0.5 percentage point threshold. For FY 2010 (the most recently available FY for which there is final data), the estimated increase in the market basket index was 2.2 percentage points, while the actual increase was 2.0 percentage points, resulting in the actual increase being 0.2 percentage point lower than the estimated increase. Accordingly, as the difference between the estimated and actual amount of change does not exceed the 0.5 percentage point threshold, the payment rates for FY 2012 do not include a forecast error adjustment. As we stated in the final rule for FY 2004 that first promulgated the forecast error adjustment (68 FR 46058, August 4, 2003), the adjustment will “* * * reflect both upward and downward adjustments, as appropriate.” Table 1 shows the forecasted and actual market basket amounts for FY 2010.

Table 1—Difference Between the Forecasted and Actual Market Basket Increases for FY 2010

Index

Forecasted
FY 2010 increase *

Actual
FY 2010 increase **

FY 2010 difference

SNF
2.2
2.0
−0.2

* Published in
Federal Register
; based on second quarter 2009 IHS Global Insight Inc. forecast (2004-based index).

** Based on the first quarter 2011 IHS Global Insight forecast, with historical data through the fourth quarter 2010 (2004-based index).

Furthermore, effective FY 2012, as required by section 3401(b) of the Affordable Care Act, the market basket percentage is reduced by a productivity adjustment equal to “the 10-year moving average of changes in annual economy-wide private nonfarm business multi-factor productivity (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost-reporting period or other annual period)” (the MFP adjustment). As discussed in greater detail in section VI.C of this proposed rule, the proposed MFP adjustment for FY 2012 is 1.2 percent.

II. FY 2012 Annual Update of Payment Rates Under the Prospective Payment System for Skilled Nursing Facilities

A. Federal Prospective Payment System

This proposed rule sets forth a schedule of Federal prospective payment rates applicable to Medicare Part A SNF services beginning October 1, 2011. The schedule incorporates per diem Federal rates that provide Part A payment for almost all costs of services furnished to a beneficiary in a SNF during a Medicare-covered stay.

1. Costs and Services Covered by the Federal Rates

In accordance with section 1888(e)(2)(B) of the Act, the Federal rates apply to all costs (routine, ancillary, and capital-related) of covered SNF services other than costs associated with approved educational activities as defined in § 413.85. Under section 1888(e)(2)(A)(i) of the Act, covered SNF services include post-hospital 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 through 26297)).

2. Methodology Used for the Calculation of the Federal Rates

The FY 2012 rates reflect an update using the latest market basket index, reduced by the MFP adjustment. The FY 2012 market basket increase factor is 2.7 percent, which as discussed in section VI.C of this proposed rule, is reduced by a 1.2 percent MFP adjustment. A complete description of the multi-step process used to calculate Federal rates initially appeared in the May 12, 1998 interim final rule (63 FR 26252), as further revised in subsequent rules. As explained above in section I.C of this proposed rule, under section 101(c)(2) of the BBRA, the previous temporary increases in the per diem adjusted payment rates for certain designated RUGs (as specified in section 101(a) of the BBRA and section 314 of the BIPA) are no longer in effect due to the implementation of case-mix refinements as of January 1, 2006. However, the temporary increase of 128 percent in the per diem adjusted payment rates for SNF residents with AIDS, enacted by section 511 of the MMA, remains in effect.

We used the SNF market basket 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, 2010, and ending September 30, 2011, and the midpoint of the Federal FY beginning October 1, 2011, and ending September 30, 2012, to which the payment rates apply. In accordance with sections 1888(e)(4)(E)(ii)(IV) and (e)(5) of the Act, we update the payment rates for FY 2012 by a factor equal to the market basket index percentage increase, as discussed in sections I.G.2 and VI. of this proposed rule. As further explained in sections I.G.2 and VI. of this proposed rule, as applicable, we adjust the market basket index by the forecast error from the most recently available FY for which there is final data and apply this adjustment whenever the difference between the forecasted and actual change in the market basket exceeds a 0.5 percentage point threshold. In addition, as further explained in sections I.G.2 and VI. of this proposed rule, effective FY 2012 and each subsequent fiscal year, we are required to reduce the market basket percentage by the MFP adjustment. We further adjust the rates by a wage index budget neutrality factor, described later in this section. Tables 2 and 3 reflect the updated components of the unadjusted Federal rates for FY 2012, prior to adjustment for case-mix.

Table 2—FY 2012 Unadjusted Federal Rate per Diem Urban

Rate component

Nursing—
case-mix

Therapy—
case-mix

Therapy—
non-case-mix

Non-case-mix

Per Diem Amount
$160.20
$120.68
$15.90
$81.76

Table 3—FY 2012 Unadjusted Federal Rate Per Diem Rural

Rate component

Nursing—
case-mix

Therapy—
case-mix

Therapy—
non-case-mix

Non-case-mix

Per Diem Amount
$153.07
$139.15
$16.97
$83.28

B. Case-Mix Adjustments

1. Background

Section 1888(e)(4)(G)(i) of the Act requires the Secretary to make an adjustment to account for case mix. The statute specifies that the adjustment is to reflect both a resident classification system that the Secretary establishes to account for the relative resource use of different patient types, as well as resident assessment and other data that the Secretary considers appropriate. In first implementing the SNF PPS (63 FR 26252, May 12, 1998), we developed the RUG-III case-mix classification system, which tied the amount of payment to resident resource use in combination with resident characteristic information. Staff time measurement (STM) studies conducted in 1990, 1995, and 1997 provided information on resource use (time spent by staff members on residents) and resident characteristics that enabled us not only to establish RUG-III, but also to create case-mix indexes (CMIs).

Although the establishment of the SNF PPS did not change Medicare's fundamental requirements for SNF coverage, there is a correlation between level of care and provider payment. One of the elements affecting the SNF PPS per diem rates is the case-mix adjustment derived from a classification system based on comprehensive resident assessments using the MDS. Case-mix classification is based, in part, on the beneficiary's need for skilled nursing care and therapy. The case-mix classification system uses clinical data from the MDS, and wage-adjusted staff time measurement data, to assign a case-mix group to each patient record that is then used to calculate a per diem payment under the SNF PPS. Because the MDS is a payment as well as a clinical document, we have provided extensive training on proper coding and the time frames for MDS completion in our Resident Assessment Instrument (RAI) Manual. For an MDS to be considered valid for use in determining payment, the MDS assessment must be completed in compliance with the instructions in the RAI Manual in effect at the time the assessment is completed. For payment and quality monitoring purposes, the RAI Manual consists of both the Manual instructions and the interpretive guidance and policy clarifications posted on the appropriate MDS Web site at
http://www.cms.gov/NursingHomeQualityInits/25_NHQIMDS30.asp.

The original RUG-III grouper logic was based on clinical data collected in 1990, 1995, and 1997. As discussed in the SNF PPS proposed rule for FY 2010 (74 FR 22208, May 12, 2009), we subsequently conducted a multi-year data collection and analysis under the Staff Time and Resource Intensity Verification (STRIVE) project to update the case-mix classification system for FY 2011. The resulting RUG-IV case-mix classification system reflected the data collected in 2006-2007 during the STRIVE project, and was finalized in the FY 2010 SNF PPS final rule (74 FR 40288, August 11, 2009) to take effect in FY 2011 concurrently with an updated new resident assessment instrument, the MDS 3.0, which collects the clinical data used for case-mix classification under RUG-IV.

Under the BBA, each update of the SNF PPS payment rates must include the case-mix classification methodology applicable for the coming Federal FY. As indicated in section I.G of this proposed rule, the payment rates set forth herein reflect the use of the RUG-IV case-mix classification system from October 1, 2011, through September 30, 2012.

2. Parity Adjustment

As discussed further below, we are considering two options for the CMIs that would be applied to the FY 2012 RUG-IV payment rates.

a. Option for Recalibration of the Parity Adjustment

As explained in the FY 2011 SNF PPS notice with comment period (75 FR 42886, 42892, July 22, 2010), we applied an upward adjustment of 61 percent to the RUG-IV nursing CMIs to achieve parity between the RUG-53 and RUG-IV models, based on an analysis using final FY 2009 claims data. Our calculation of the parity adjustment used the most recent data available to estimate RUG-IV utilization. As we stated in the FY 2010 SNF PPS final rule (74 FR 40339), in the absence of actual RUG-IV utilization for FY 2011, we believed the most recent data represented the best source available, by virtue of being the closest to the FY 2011 timeframe. We also stated that as actual data for RUG-IV utilization became available, we intended to assess the effectiveness of the parity adjustment in maintaining budget neutrality and, if necessary, to recalibrate the adjustment in future years (see 74 FR 40339).

Since the FY 2011 SNF PPS update notice was published, actual first quarter RUG-IV claims data became available. Our continued monitoring of recent claims data indicates that actual RUG-IV utilization patterns differ significantly from those we had projected using the FY 2009 claims data. In particular, the proportion of patients grouped in the highest-paying RUG therapy categories, such as Ultra High Rehabilitation, greatly exceeded our expectations. This is likely due to the significant reduction in the use of concurrent therapy, which first quarter 2011 RUG-IV claims data suggest has been reduced to less than 5 percent of all therapy utilization. These first quarter 2011 RUG-IV claims also suggest a significant increase in the utilization of individual and group therapy, which, given current MDS coding instructions, may also account for the high proportion of SNF residents classified in the Ultra High Rehabilitation RUG categories.

Based on this initial RUG-IV claims data, it would appear that rather than simply achieving parity, the FY 2011 parity adjustment may have inadvertently triggered a significant increase in overall payment levels. We

believe that if this preliminary assessment is confirmed as further FY 2011 RUG-IV claims data become available, a recalibration of the parity adjustment may become warranted in the FY 2012 final rule, in order to ensure that the adjustment continues to serve as intended to make the transition from RUG-53 to RUG-IV in a budget-neutral manner. As discussed in the FY 2010 SNF PPS final rule (74 FR 40296), we believe that ensuring parity (that is, ensuring that the RUG-IV classification system is implemented as intended on a budget-neutral basis) is integral to the process of providing “for an appropriate adjustment to account for case mix” that is based upon appropriate data in accordance with section 1888(e)(4)(G)(i) of the Act. Accordingly, in this proposed rule, we include the following analysis based on first quarter RUG-IV data in order to provide the public with information on the potential scope and impact of the recalibration we are considering for FY 2012.

To determine a specific parity adjustment factor that, under the initial RUG-IV claims data currently available, would be needed to reestablish budget neutrality, we used approximately 920,000 first quarter 2011 claims (the most current data available at the time) to compare the distribution of payment days by RUG category under the original RUG-53 model with the distribution of payment days observed in the first quarter of 2011 under the RUG-IV model. Using a file which linked these 920,000 claims to the corresponding MDS assessments, we determined the appropriate RUG group for the patients covered by the aforementioned set of claims under RUG-53. This permitted a more precise comparison of the same patients under both systems, to control for potential variations in case-mix or patient volume. Given the RUG assignments for this set of SNF residents under both RUG-53 and RUG-IV, we were able to determine a distribution of RUG assignments.

To determine the appropriate parity adjustment, consistent with the methodology described in the FY 2010 SNF PPS final rule (74 FR 40296) and detailed in the FY 2006 SNF PPS proposed rule (70 FR 29077 through 29079), we determined the total number of first quarter FY 2011 RUG-IV payment days, as well as the number of first quarter FY 2011 payment days of each RUG-IV category based on the first quarter FY 2011 SNF PPS claims. By linking these FY 2011 claims with the corresponding MDS 3.0 data, we were able to determine the appropriate RUG-53 category for each FY 2011 SNF resident represented in the sample of FY 2011 claims. We multiplied the percentage of SNF residents in each RUG-IV and RUG-53 category by the total number of first quarter FY 2011 payment days of service in order to determine a distribution of RUG-IV and RUG-53 payment days, given the first quarter FY 2011 claims and linked MDS 3.0 data. We then multiplied the projected RUG-IV and RUG-53 days of service by the FY 2012 unadjusted Federal per diem payment rate components, multiplied by the unadjusted case mix indexes to establish expenditures under the RUG-53 and RUG-IV systems. The parity adjustment used to ensure that the transition between the two systems is budget-neutral and does not create, in and of itself, an increase in the amount of SNF expenditures, was determined as the percent increase necessary for the nursing CMIs to generate estimated expenditure levels under the RUG-IV system that were equal to those estimated under the RUG-53 system. Based on the first quarter FY 2011 RUG-IV claims data, we determined that the adjustment, which had originally produced an increase of 61 percent to the nursing CMIs as discussed in the FY 2011 SNF PPS update notice, would need to be decreased to 22.55 percent to achieve budget neutrality, if we were to apply the parity adjustment equally to all nursing CMIs as we have done in the past. However, given that the most notable differences between expected and actual utilization patterns occurred within the therapy RUG categories, we believe that rather than applying the new parity adjustment percentage to all the nursing CMIs, it would be more appropriate to achieve budget neutrality between the RUG-53 and RUG-IV systems by maintaining the 61 percent parity adjustment to the nursing CMIs for the RUG-IV non-therapy groups, and reducing the 61 percent parity adjustment as it applied to the nursing CMIs for the RUG-IV therapy groups. Using this recalibration methodology described above, we found that the adjustment to the nursing CMIs of the RUG-IV therapy groups necessary to achieve parity, while maintaining the 61 percent parity adjustment for RUG-IV non-therapy groups, would be an updated adjustment of 19.81 percent. An analysis of recent utilization patterns is provided in Table 4. In this proposed rule, we are including Tables 5A and 6A, which illustrate the payment rates that would be derived from nursing CMIs reflecting this recalibration methodology.

Table 4—FY 2011 Projected versus Actual RUG-IV Utilization Distribution as Percent of Total Days of Service

RUG-IV group
Projected (percent)

Actual
(percent)

RUX
0.18
0.60

RUL
0.05
0.75

RVX
0.36
0.41

RVL
0.53
0.56

RHX
0.43
0.17

RHL
0.72
0.19

RMX
0.76
0.33

RML
0.79
0.28

RLX
0.00
0.01

RUC
3.56
12.68

RUB
3.26
16.19

RUA
2.12
12.80

RVC
5.49
7.82

RVB
7.17
9.67

RVA
8.61
9.13

RHC
6.34
3.77

RHB
7.09
3.54

RHA
11.41
3.54

RMC
4.95
3.06

RMB
6.84
2.42

RMA
8.74
2.41

RLB
0.21
0.07

RLA
0.23
0.06

ES3
0.52
0.14

ES2
0.17
0.14

ES1
0.35
0.29

HE2
0.04
0.10

HE1
1.40
0.32

HD2
0.32
0.09

HD1
1.30
0.42

HC2
0.78
0.06

HC1
1.33
0.33

HB2
0.78
0.07

HB1
0.61
0.31

LE2
0.05
0.12

LE1
0.70
0.65

LD2
0.28
0.12

LD1
1.31
0.78

LC2
0.26
0.07

LC1
0.60
0.57

LB2
0.02
0.04

LB1
0.34
0.23

CE2
0.15
0.04

CE1
0.21
0.21

CD2
0.58
0.07

CD1
0.70
0.46

CC2
0.36
0.07

CC1
0.67
0.53

CB2
0.65
0.05

CB1
0.53
0.44

CA2
0.32
0.07

CA1
1.41
0.66

BB2
0.07
0.02

BB1
0.27
0.22

BA2
0.01
0.01

BA1
0.26
0.17

PE2
0.03
0.02

PE1
0.07
0.17

PD2
0.00
0.03

PD1
0.38
0.38

PC2
0.01
0.05

PC1
1.26
0.51

PB2
0.02
0.01

PB1
0.59
0.25

PA2
0.05
0.01

PA1
0.40
0.24

Note:
Projected utilization data based on STRIVE study results. Actual utilization data based on first quarter 2011 claims data.

We want to emphasize that any such recalibration would be implemented on a prospective basis only, which we believe would be the most equitable approach with regard to its potential impact on providers. For FY 2012, the aggregate impact of the recalibration described in this proposed rule would be the difference between the increase of 61 percent for all nursing CMIs (as set forth in the FY 2011 update notice), and the recalibrated increase of 19.81 percent for the nursing CMIs for the RUG-IV therapy groups (maintaining the 61 percent parity adjustment to the nursing CMIs for the RUG-IV non-therapy groups), or a negative $4.47 billion. We note that the negative $4.47 billion would be partly offset by the FY 2012 market basket adjustment factor of 1.5 percent, or $530 million, with a net result of a negative $3.94 billion update for FY 2012 (an aggregate negative impact of 11.3 percent).

We note that as an alternative to the preceding recalibration methodology, we initially considered applying a recalibration to all nursing CMIs, irrespective of RUG category. However, we found that such a recalibration most drastically affected non-therapy RUG groups, such as the Extensive Services RUG-IV group, which seemed incongruent with the perceived reasons for differences between expected and actual utilization patterns, as noted in Table 4. In addition, we considered using an analytical approach that would reflect implementing partial adjustments to the case-mix indexes over multiple years until parity is achieved. However, we believe that such an approach would continue to reimburse in amounts that significantly exceed our intended policy. Moreover, as we move forward with programs designed to enhance and restructure our post-acute care payment systems, we believe that payments under the SNF PPS should be established at their intended and most appropriate levels. We believe that stabilizing the baseline is a necessary first step toward properly implementing and maintaining the integrity of the RUG-IV classification methodology and the SNF PPS as a whole.

As explained above, in determining the parity adjustment in the FY 2011 update notice, we used CY 2009 data as representing the most recent final claims data available at that time. However, we believe that it is appropriate to standardize the new model for the time period in which it is used, and we believe that using actual claims data under RUG-IV would allow us to calibrate the RUG-IV model more precisely. While, in the past, we have waited for a full year of claims data before recalibrating the CMIs, under the recalibration methodology discussed above, we are considering using partial FY 2011 claims data (that is, FY 2011 RUG-IV claims data available at the time of the final rule) to recalibrate the CMIs for FY 2012 if our analysis of such data prior to the final rule confirms our initial assessment (based on first quarter FY 2011 claims data) that the parity adjustment implemented in the FY 2011 update notice has inadvertently triggered an increase in overall payments as discussed above. We believe it would be reasonable and appropriate to use actual RUG-IV claims data from FY 2011 to estimate utilization under RUG-IV, as we believe that it provides the most recent, clear evidence of utilization patterns and evolving provider behaviors under RUG-IV. Additionally, using FY 2010 claims data, we analyzed the quality of representation of the first quarter of FY 2010, in terms of both the volume of claims received and RUG distribution, for FY 2010 as a whole and found there to be no examples of seasonality which would affect predictions of SNF volume or utilization patterns. Given this analysis, we believe that using the partial FY 2011 claims data would provide a representative and reasonable sample from which to project FY 2011 utilization patterns and expenditures. We invite comments on the recalibration methodology considered above, as well as on potential alternative methodologies for recalibrating the parity adjustment in an accurate and equitable manner.

We also note that any measures taken to achieve parity for RUG-IV may happen to coincide with the introduction of various revisions under the RUG-IV system (for example, the original RUG-IV parity adjustment took effect on October 1, 2010, along with the allocation of concurrent therapy time). As noted in our discussion of the proposed allocation of group therapy time that appears later in this proposed rule in section V.C, preliminary data indicate a recent significant increase in the provision of individual and group therapy services, which have not, to date, been subject to the allocation requirement, and a corresponding decrease in the provision of concurrent therapy, which has been subject to the allocation requirement. We anticipate that imposing a similar allocation requirement for group therapy time (as discussed further in section V.C of this proposed rule) would eliminate an existing incentive to substitute such therapy for either concurrent or individual therapy.

However, even if the distribution of therapy minutes between individual, concurrent, and group therapy changes, this does not mean that a reduction in the parity adjustment for the RUG-IV therapy groups would be inappropriate. As explained previously, the purpose of the parity adjustment is simply to ensure that the transition from the RUG-53 model to the RUG-IV model does not trigger, in and of itself, an increase or decrease in overall payment levels. Because the FY 2011 first quarter RUG-IV utilization trends indicated that the most notable differences between expected and actual RUG-IV utilization patterns occurred within the therapy RUG categories, we believe that focusing any recalibration on these groups would provide for budget neutrality in an equitable manner given the RUG-IV utilization.

Moreover, even under the previous RUG-53 model, it is clear that the predominant mode of therapy that the payment rates were designed to address was individual therapy rather than concurrent or group therapy. As far back as the SNF PPS final rule for FY 2000, we specified that the minutes of group therapy received by the beneficiary may account for no more than 25 percent of the therapy (per discipline) received in a 7-day period (64 FR 41662, July 30, 1999). In addition, the SNF PPS rulemaking has on numerous occasions included discussions of concurrent therapy: In the FY 2002 proposed rule (66 FR 23991-23992, May 10, 2001) and final rule (66 FR 39567-68, July 31, 2001); in the FY 2006 proposed rule (70 FR 29082-29083, May 19, 2005) and final rule (70 FR 45036-45037, August 4, 2005); and, most recently, in the FY 2010 proposed rule (74 FR 22222-23, May 12, 2009) and final rule (74 FR 40315-19, August 11, 2009). These discussions clearly establish that we have always considered concurrent therapy as an infrequent exception rather than the norm. However, as discussed previously, the significant increase in individual and group therapy services and the reduction in concurrent therapy utilization reflected

in the first quarter RUG-IV data indicate that actual RUG-IV utilization patterns differ significantly from those we had projected using FY 2009 claims data in calculating the parity adjustment. The resulting unintended and significant increase in overall payment levels has prompted the need to reexamine the parity adjustment.

Thus, under the Medicare program, the standard of practice in the SNF setting has always been individual therapy, which is generally necessary to ensure that the services being delivered provide the high degree of individualized treatment and complex skill level required for Medicare coverage. We recognize that some SNFs may have actually used a less intensive combination of therapy modalities in the past year for some patients in response to the way in which therapy minutes were counted. However, the SNF PPS payment rates themselves have always reflected a standard of practice in which individual therapy is the predominant treatment modality. Further, because the overall payment rates under the previous RUG-III model were constructed to be sufficient to accommodate this level of resource intensity, we believe that the adequacy of those payment rates in this context would carry over to the payment rates under the current RUG-IV model, even if modified by an updated parity adjustment.

Given the apparent magnitude of the recalibration that would be needed to restore parity based on the initial RUG-IV claims data currently available (as discussed in the preceding analysis), we have provided in Tables 5A and 6A the case-mix adjusted RUG-IV payment rates which reflect the parity adjustment recalibration considered above based on our preliminary analysis using first quarter FY 2011 claims data. As further FY 2011 RUG-IV data become available, before we publish the final rule, we would review such additional data to confirm our preliminary assessment of the recalibration that would be necessary to achieve parity between the RUG-53 and RUG-IV models and would revise the parity adjustment in the final rule as necessary based on this additional data. We believe that the very magnitude of the potential recalibration, based on first quarter FY 2011 data, would make it inappropriate for us merely to consider payment rates for FY 2012 that solely reflect the standard update methodology without regard to the need for maintaining parity, as such an approach ultimately could result in continuing to make overall payments that significantly exceed their intended levels for an indefinite period.

b. Option for Application of Standard Update for FY 2012 Without Recalibration

Although our preliminary analysis of the RUG-IV data currently available suggests that recalibration of the parity adjustment would be needed to restore parity between the RUG-53 and RUG-IV models, in the circumstances discussed below, we are also considering not recalibrating the CMIs for FY 2012 and applying the standard update to the FY 2011 payment rates. As we observed in the preceding discussion of the recalibration option, it would appear from the currently available FY 2011 claims data that overall payments under the parity adjustment are significantly exceeding their intended levels. However, it is also possible that the apparent magnitude of the overpayments may itself represent a temporary aberrance resulting from the limited FY 2011 data that are available at this point in time. Moreover, we note that as with any significant programmatic change, the transition from the previous case-mix classification system to RUG-IV has been accompanied by a learning curve for providers, as they work to familiarize themselves with the requirements of the new system. As a consequence, it is possible that as additional FY 2011 claims data become available, they may indicate utilization patterns that are more consistent with our projections, and expenditures that are more in parity with those under the previous RUG-53 model. For this reason, we reserve the option to not implement in the final rule the type of recalibration discussed above, and instead to apply the standard update of the payment rates for FY 2012 if we find that the additional RUG-IV claims data collected prior to publication of the final rule are consistent with parity in expenditures between the current RUG-IV and previous RUG-53 models.

Accordingly, in this proposed rule, we are considering two separate options regarding the FY 2012 payment rates: One that incorporates the kind of recalibration discussed above which, based on the initial RUG-IV claims data currently available, may be necessary to restore overall payments under the parity adjustment to their intended levels (which recalibration may be adjusted based on further FY 2011 RUG-IV claims data that become available prior to publication of the final rule), and another that simply reflects the standard update to the FY 2011 payment rates without a recalibration of the FY 2011 parity adjustment. We solicit comments on these options as described above.

We list the case-mix adjusted RUG-IV payment rates which would exist if we choose to move forward with the recalibration of the parity adjustment described throughout this section, provided separately for urban and rural SNFs in Tables 5A and 6A, with the corresponding case-mix values which reflect the parity adjustment recalibration discussed above. Similarly, the case-mix adjusted RUG-IV rates, which would occur in the absence of such a recalibration of the parity adjustment, are listed in Tables 5B and 6B. These tables do not reflect the AIDS add-on enacted by section 511 of the MMA, which we apply only after making all other adjustments (wage and case-mix).

Table 5A—RUG-IV Case-Mix Adjusted Federal Rates and Associated Indexes (Including Parity Adjustment Recalibration)
[Urban]

RUG-IV category
Nursing index
Therapy index

Nursing
component

Therapy component
Non-case mix therapy comp
Non-case mix component
Total rate

RUX
2.67
1.87
$427.73
$225.67

$81.76
$735.16

RUL
2.57
1.87
411.71
225.67

81.76
719.14

RVX
2.61
1.28
418.12
154.47

81.76
654.35

RVL
2.19
1.28
350.84
154.47

81.76
587.07

RHX
2.55
0.85
408.51
102.58

81.76
592.85

RHL
2.15
0.85
344.43
102.58

81.76
528.77

RMX
2.47
0.55
395.69
66.37

81.76
543.82

RML
2.19
0.55
350.84
66.37

81.76
498.97

RLX
2.26
0.28
362.05
33.79

81.76
477.60

RUC
1.56
1.87
249.91
225.67

81.76
557.34

RUB
1.56
1.87
249.91
225.67

81.76
557.34

RUA
0.99
1.87
158.60
225.67

81.76
466.03

RVC
1.51
1.28
241.90
154.47

81.76
478.13

RVB
1.11
1.28
177.82
154.47

81.76
414.05

RVA
1.10
1.28
176.22
154.47

81.76
412.45

RHC
1.45
0.85
232.29
102.58

81.76
416.63

RHB
1.19
0.85
190.64
102.58

81.76
374.98

RHA
0.91
0.85
145.78
102.58

81.76
330.12

RMC
1.36
0.55
217.87
66.37

81.76
366.00

RMB
1.22
0.55
195.44
66.37

81.76
343.57

RMA
0.84
0.55
134.57
66.37

81.76
282.70

RLB
1.50
0.28
240.30
33.79

81.76
355.85

RLA
0.71
0.28
113.74
33.79

81.76
229.29

ES3
3.58

573.52

15.90
81.76
671.18

ES2
2.67

427.73

15.90
81.76
525.39

ES1
2.32

371.66

15.90
81.76
469.32

HE2
2.22

355.64

15.90
81.76
453.30

HE1
1.74

278.75

15.90
81.76
376.41

HD2
2.04

326.81

15.90
81.76
424.47

HD1
1.60

256.32

15.90
81.76
353.98

HC2
1.89

302.78

15.90
81.76
400.44

HC1
1.48

237.10

15.90
81.76
334.76

HB2
1.86

297.97

15.90
81.76
395.63

HB1
1.46

233.89

15.90
81.76
331.55

LE2
1.96

313.99

15.90
81.76
411.65

LE1
1.54

246.71

15.90
81.76
344.37

LD2
1.86

297.97

15.90
81.76
395.63

LD1
1.46

233.89

15.90
81.76
331.55

LC2
1.56

249.91

15.90
81.76
347.57

LC1
1.22

195.44

15.90
81.76
293.10

LB2
1.46

233.89

15.90
81.76
331.55

LB1
1.14

182.63

15.90
81.76
280.29

CE2
1.68

269.14

15.90
81.76
366.80

CE1
1.50

240.30

15.90
81.76
337.96

CD2
1.56

249.91

15.90
81.76
347.57

CD1
1.38

221.08

15.90
81.76
318.74

CC2
1.29

206.66

15.90
81.76
304.32

CC1
1.15

184.23

15.90
81.76
281.89

CB2
1.15

184.23

15.90
81.76
281.89

CB1
1.02

163.40

15.90
81.76
261.06

CA2
0.88

140.98

15.90
81.76
238.64

CA1
0.78

124.96

15.90
81.76
222.62

BB2
0.97

155.39

15.90
81.76
253.05

BB1
0.90

144.18

15.90
81.76
241.84

BA2
0.70

112.14

15.90
81.76
209.80

BA1
0.64

102.53

15.90
81.76
200.19

PE2
1.50

240.30

15.90
81.76
337.96

PE1
1.40

224.28

15.90
81.76
321.94

PD2
1.38

221.08

15.90
81.76
318.74

PD1
1.28

205.06

15.90
81.76
302.72

PC2
1.10

176.22

15.90
81.76
273.88

PC1
1.02

163.40

15.90
81.76
261.06

PB2
0.84

134.57

15.90
81.76
232.23

PB1
0.78

124.96

15.90
81.76
222.62

PA2
0.59

94.52

15.90
81.76
192.18

PA1
0.54

86.51

15.90
81.76
184.17

Table 5B—RUG-IV Case-Mix Adjusted Federal Rates and Associated Indexes (Without Parity Adjustment Recalibration)
[Urban]

RUG-IV category
Nursing index
Therapy index

Nursing
component

Therapy
component

Non-case mix therapy comp
Non-case mix component
Total rate

RUX
3.59
1.87
$575.12
$225.67

$81.76
$882.55

RUL
3.45
1.87
552.69
225.67

81.76
860.12

RVX
3.51
1.28
562.30
154.47

81.76
798.53

RVL
2.95
1.28
472.59
154.47

81.76
708.82

RHX
3.43
0.85
549.49
102.58

81.76
733.83

RHL
2.89
0.85
462.98
102.58

81.76
647.32

RMX
3.31
0.55
530.26
66.37

81.76
678.39

RML
2.95
0.55
472.59
66.37

81.76
620.72

RLX
3.04
0.28
487.01
33.79

81.76
602.56

RUC
2.10
1.87
336.42
225.67

81.76
643.85

RUB
2.10
1.87
336.42
225.67

81.76
643.85

RUA
1.33
1.87
213.07
225.67

81.76
520.50

RVC
2.02
1.28
323.60
154.47

81.76
559.83

RVB
1.49
1.28
238.70
154.47

81.76
474.93

RVA
1.48
1.28
237.10
154.47

81.76
473.33

RHC
1.94
0.85
310.79
102.58

81.76
495.13

RHB
1.60
0.85
256.32
102.58

81.76
440.66

RHA
1.23
0.85
197.05
102.58

81.76
381.39

RMC
1.83
0.55
293.17
66.37

81.76
441.30

RMB
1.63
0.55
261.13
66.37

81.76
409.26

RMA
1.13
0.55
181.03
66.37

81.76
329.16

RLB
2.01
0.28
322.00
33.79

81.76
437.55

RLA
0.95
0.28
152.19
33.79

81.76
267.74

ES3
3.58

573.52

15.90
81.76
671.18

ES2
2.67

427.73

15.90
81.76
525.39

ES1
2.32

371.66

15.90
81.76
469.32

HE2
2.22

355.64

15.90
81.76
453.30

HE1
1.74

278.75

15.90
81.76
376.41

HD2
2.04

326.81

15.90
81.76
424.47

HD1
1.60

256.32

15.90
81.76
353.98

HC2
1.89

302.78

15.90
81.76
400.44

HC1
1.48

237.10

15.90
81.76
334.76

HB2
1.86

297.97

15.90
81.76
395.63

HB1
1.46

233.89

15.90
81.76
331.55

LE2
1.96

313.99

15.90
81.76
411.65

LE1
1.54

246.71

15.90
81.76
344.37

LD2
1.86

297.97

15.90
81.76
395.63

LD1
1.46

233.89

15.90
81.76
331.55

LC2
1.56

249.91

15.90
81.76
347.57

LC1
1.22

195.44

15.90
81.76
293.10

LB2
1.46

233.89

15.90
81.76
331.55

LB1
1.14

182.63

15.90
81.76
280.29

CE2
1.68

269.14

15.90
81.76
366.80

CE1
1.50

240.30

15.90
81.76
337.96

CD2
1.56

249.91

15.90
81.76
347.57

CD1
1.38

221.08

15.90
81.76
318.74

CC2
1.29

206.66

15.90
81.76
304.32

CC1
1.15

184.23

15.90
81.76
281.89

CB2
1.15

184.23

15.90
81.76
281.89

CB1
1.02

163.40

15.90
81.76
261.06

CA2
0.88

140.98

15.90
81.76
238.64

CA1
0.78

124.96

15.90
81.76
222.62

BB2
0.97

155.39

15.90
81.76
253.05

BB1
0.90

144.18

15.90
81.76
241.84

BA2
0.70

112.14

15.90
81.76
209.80

BA1
0.64

102.53

15.90
81.76
200.19

PE2
1.50

240.30

15.90
81.76
337.96

PE1
1.40

224.28

15.90
81.76
321.94

PD2
1.38

221.08

15.90
81.76
318.74

PD1
1.28

205.06

15.90
81.76
302.72

PC2
1.10

176.22

15.90
81.76
273.88

PC1
1.02

163.40

15.90
81.76
261.06

PB2
0.84

134.57

15.90
81.76
232.23

PB1
0.78

124.96

15.90
81.76
222.62

PA2
0.59

94.52

15.90
81.76
192.18

PA1
0.54

86.51

15.90
81.76
184.17

Table 6A—Rug-IV Case-Mix Adjusted Federal Rates and Associated Indexes (Including Parity Adjustment Recalibration)
[Rural]

RUG-IV category
Nursing index
Therapy index

Nursing
component

Therapy
component

Non-case mix therapy comp
Non-case mix component
Total rate

RUX
2.67
1.87
$408.70
$260.21

$83.28
$752.19

RUL
2.57
1.87
393.39
260.21

83.28
736.88

RVX
2.61
1.28
399.51
178.11

83.28
660.90

RVL
2.19
1.28
335.22
178.11

83.28
596.61

RHX
2.55
0.85
390.33
118.28

83.28
591.89

RHL
2.15
0.85
329.10
118.28

83.28
530.66

RMX
2.47
0.55
378.08
76.53

83.28
537.89

RML
2.19
0.55
335.22
76.53

83.28
495.03

RLX
2.26
0.28
345.94
38.96

83.28
468.18

RUC
1.56
1.87
238.79
260.21

83.28
582.28

RUB
1.56
1.87
238.79
260.21

83.28
582.28

RUA
0.99
1.87
151.54
260.21

83.28
495.03

RVC
1.51
1.28
231.14
178.11

83.28
492.53

RVB
1.11
1.28
169.91
178.11

83.28
431.30

RVA
1.10
1.28
168.38
178.11

83.28
429.77

RHC
1.45
0.85
221.95
118.28

83.28
423.51

RHB
1.19
0.85
182.15
118.28

83.28
383.71

RHA
0.91
0.85
139.29
118.28

83.28
340.85

RMC
1.36
0.55
208.18
76.53

83.28
367.99

RMB
1.22
0.55
186.75
76.53

83.28
346.56

RMA
0.84
0.55
128.58
76.53

83.28
288.39

RLB
1.50
0.28
229.61
38.96

83.28
351.85

RLA
0.71
0.28
108.68
38.96

83.28
230.92

ES3
3.58

547.99

16.97
83.28
648.24

ES2
2.67

408.70

16.97
83.28
508.95

ES1
2.32

355.12

16.97
83.28
455.37

HE2
2.22

339.82

16.97
83.28
440.07

HE1
1.74

266.34

16.97
83.28
366.59

HD2
2.04

312.26

16.97
83.28
412.51

HD1
1.60

244.91

16.97
83.28
345.16

HC2
1.89

289.30

16.97
83.28
389.55

HC1
1.48

226.54

16.97
83.28
326.79

HB2
1.86

284.71

16.97
83.28
384.96

HB1
1.46

223.48

16.97
83.28
323.73

LE2
1.96

300.02

16.97
83.28
400.27

LE1
1.54

235.73

16.97
83.28
335.98

LD2
1.86

284.71

16.97
83.28
384.96

LD1
1.46

223.48

16.97
83.28
323.73

LC2
1.56

238.79

16.97
83.28
339.04

LC1
1.22

186.75

16.97
83.28
287.00

LB2
1.46

223.48

16.97
83.28
323.73

LB1
1.14

174.50

16.97
83.28
274.75

CE2
1.68

257.16

16.97
83.28
357.41

CE1
1.50

229.61

16.97
83.28
329.86

CD2
1.56

238.79

16.97
83.28
339.04

CD1
1.38

211.24

16.97
83.28
311.49

CC2
1.29

197.46

16.97
83.28
297.71

CC1
1.15

176.03

16.97
83.28
276.28

CB2
1.15

176.03

16.97
83.28
276.28

CB1
1.02

156.13

16.97
83.28
256.38

CA2
0.88

134.70

16.97
83.28
234.95

CA1
0.78

119.39

16.97
83.28
219.64

BB2
0.97

148.48

16.97
83.28
248.73

BB1
0.90

137.76

16.97
83.28
238.01

BA2
0.70

107.15

16.97
83.28
207.40

BA1
0.64

97.96

16.97
83.28
198.21

PE2
1.50

229.61

16.97
83.28
329.86

PE1
1.40

214.30

16.97
83.28
314.55

PD2
1.38

211.24

16.97
83.28
311.49

PD1
1.28

195.93

16.97
83.28
296.18

PC2
1.10

168.38

16.97
83.28
268.63

PC1
1.02

156.13

16.97
83.28
256.38

PB2
0.84

128.58

16.97
83.28
228.83

PB1
0.78

119.39

16.97
83.28
219.64

PA2
0.59

90.31

16.97
83.28
190.56

PA1
0.54

82.66

16.97
83.28
182.91

Table 6B—RUG-IV Case-Mix Adjusted Federal Rates and Associated Indexes: Without Parity Adjustment Recalibration)
[Rural]

RUG-IV category
Nursing index
Therapy index

Nursing
component

Therapy
component

Non-case mix therapy comp
Non-case mix component
Total rate

RUX
3.59
1.87
$549.52
$260.21

$83.28
$893.01

RUL
3.45
1.87
528.09
260.21

83.28
871.58

RVX
3.51
1.28
537.28
178.11

83.28
798.67

RVL
2.95
1.28
451.56
178.11

83.28
712.95

RHX
3.43
0.85
525.03
118.28

83.28
726.59

RHL
2.89
0.85
442.37
118.28

83.28
643.93

RMX
3.31
0.55
506.66
76.53

83.28
666.47

RML
2.95
0.55
451.56
76.53

83.28
611.37

RLX
3.04
0.28
465.33
38.96

83.28
587.57

RUC
2.10
1.87
321.45
260.21

83.28
664.94

RUB
2.10
1.87
321.45
260.21

83.28
664.94

RUA
1.33
1.87
203.58
260.21

83.28
547.07

RVC
2.02
1.28
309.20
178.11

83.28
570.59

RVB
1.49
1.28
228.07
178.11

83.28
489.46

RVA
1.48
1.28
226.54
178.11

83.28
487.93

RHC
1.94
0.85
296.96
118.28

83.28
498.52

RHB
1.60
0.85
244.91
118.28

83.28
446.47

RHA
1.23
0.85
188.28
118.28

83.28
389.84

RMC
1.83
0.55
280.12
76.53

83.28
439.93

RMB
1.63
0.55
249.50
76.53

83.28
409.31

RMA
1.13
0.55
172.97
76.53

83.28
332.78

RLB
2.01
0.28
307.67
38.96

83.28
429.91

RLA
0.95
0.28
145.42
38.96

83.28
267.66

ES3
3.58

547.99

$16.97
83.28
648.24

ES2
2.67

408.70

16.97
83.28
508.95

ES1
2.32

355.12

16.97
83.28
455.37

HE2
2.22

339.82

16.97
83.28
440.07

HE1
1.74

266.34

16.97
83.28
366.59

HD2
2.04

312.26

16.97
83.28
412.51

HD1
1.60

244.91

16.97
83.28
345.16

HC2
1.89

289.30

16.97
83.28
389.55

HC1
1.48

226.54

16.97
83.28
326.79

HB2
1.86

284.71

16.97
83.28
384.96

HB1
1.46

223.48

16.97
83.28
323.73

LE2
1.96

300.02

16.97
83.28
400.27

LE1
1.54

235.73

16.97
83.28
335.98

LD2
1.86

284.71

16.97
83.28
384.96

LD1
1.46

223.48

16.97
83.28
323.73

LC2
1.56

238.79

16.97
83.28
339.04

LC1
1.22

186.75

16.97
83.28
287.00

LB2
1.46

223.48

16.97
83.28
323.73

LB1
1.14

174.50

16.97
83.28
274.75

CE2
1.68

257.16

16.97
83.28
357.41

CE1
1.50

229.61

16.97
83.28
329.86

CD2
1.56

238.79

16.97
83.28
339.04

CD1
1.38

211.24

16.97
83.28
311.49

CC2
1.29

197.46

16.97
83.28
297.71

CC1
1.15

176.03

16.97
83.28
276.28

CB2
1.15

176.03

16.97
83.28
276.28

CB1
1.02

156.13

16.97
83.28
256.38

CA2
0.88

134.70

16.97
83.28
234.95

CA1
0.78

119.39

16.97
83.28
219.64

BB2
0.97

148.48

16.97
83.28
248.73

BB1
0.90

137.76

16.97
83.28
238.01

BA2
0.70

107.15

16.97
83.28
207.40

BA1
0.64

97.96

16.97
83.28
198.21

PE2
1.50

229.61

16.97
83.28
329.86

PE1
1.40

214.30

16.97
83.28
314.55

PD2
1.38

211.24

16.97
83.28
311.49

PD1
1.28

195.93

16.97
83.28
296.18

PC2
1.10

168.38

16.97
83.28
268.63

PC1
1.02

156.13

16.97
83.28
256.38

PB2
0.84

128.58

16.97
83.28
228.83

PB1
0.78

119.39

16.97
83.28
219.64

PA2
0.59

90.31

16.97
83.28
190.56

PA1
0.54

82.66

16.97
83.28
182.91

C. Wage Index Adjustment to Federal Rates

Section 1888(e)(4)(G)(ii) of the Act requires that we adjust the Federal rates to account for differences in area wage levels, using a wage index that we find appropriate. Since the inception of a PPS for SNFs, we have used hospital wage data in developing a wage index to be applied to SNFs. We are maintaining that practice for FY 2012, as we continue to believe that in the absence of SNF-specific wage data, using the hospital inpatient wage index is appropriate and reasonable for the SNF PPS. As explained in the update notice for FY 2005 (69 FR 45786, July 30, 2004), the SNF PPS does not use the hospital area wage index's occupational mix adjustment, as this adjustment serves specifically to define the occupational categories more clearly in a hospital setting; moreover, the collection of the occupational wage data also excludes any wage data related to SNFs. Therefore, we believe that using the updated wage data exclusive of the occupational mix adjustment continues to be appropriate for SNF payments.

Finally, we continue to use the same methodology discussed in the SNF PPS final rule for FY 2008 (72 FR 43423) to address those geographic areas in which there are no hospitals and, thus, no hospital wage index data on which to base the calculation of the FY 2012 SNF PPS wage index. For rural geographic areas that do not have hospitals and, therefore, lack hospital wage data on which to base an area wage adjustment, we use the average wage index from all contiguous Core-Based Statistical Areas (CBSAs) as a reasonable proxy. This methodology was used to construct the wage index for rural Massachusetts for FY 2011. However, there is now a rural hospital with wage data upon which to base an area wage index for rural Massachusetts. Therefore, it is not necessary to apply this methodology to rural Massachusetts for FY 2012. For rural Puerto Rico, we do not apply this methodology due to the distinct economic circumstances that exist there, but instead continue using the most recent wage index previously available for that area. For urban areas without specific hospital wage index data, we use the average wage indexes of all of the urban areas within the State to serve as a reasonable proxy for the wage index of that urban CBSA. For FY 2012, there is an additional urban area without hospital wage index data. Therefore, for FY 2012, the two urban areas without wage index data available are CBSA 25980, Hinesville-Fort Stewart, GA, and CBSA 49700, Yuba City, CA.

To calculate the SNF PPS wage index adjustment, we apply the wage index adjustment to the labor-related portion of the Federal rate, which is 68.805 percent of the total rate. This percentage reflects the labor-related relative importance for FY 2012, using the revised and rebased FY 2004-based market basket. The labor-related relative importance for FY 2011 was 69.311, as shown in Table 11. We calculate the labor-related relative importance from the SNF market basket, and it approximates the labor-related portion of the total costs after taking into account historical and projected price changes between the base year and FY 2012. The price proxies that move the different cost categories in the market basket do not necessarily change at the same rate, and the relative importance captures these changes. Accordingly, the relative importance figure more closely reflects the cost share weights for FY 2012 than the base year weights from the SNF market basket.

We calculate the labor-related relative importance for FY 2012 in four steps. First, we compute the FY 2012 price index level for the total market basket and each cost category of the market basket. Second, we calculate a ratio for each cost category by dividing the FY 2012 price index level for that cost category by the total market basket price index level. Third, we determine the FY 2012 relative importance for each cost category by multiplying this ratio by the base year (FY 2004) weight. Finally, we add the FY 2012 relative importance for each of the labor-related cost categories (wages and salaries, employee benefits, non-medical professional fees, labor-intensive services, and a portion of capital-related expenses) to produce the FY 2012 labor-related relative importance. Tables 7A and 8A show the case-mix adjusted RUG-IV Federal rates by labor-related and non-labor-related components that would exist if we choose to move forward with the parity adjustment recalibration described in section II.B.2. Similarly, Tables 7B and 8B show the case-mix adjusted RUG-IV Federal rates by labor-related and non-labor related components in the absence of such a parity adjustment recalibration.

Table 7A—RUG-IV Case-Mix Adjusted Federal Rates for Urban SNFs by Labor and Non-Labor Component
[Including parity adjustment recalibration]

RUG-IV
category

Total
rate

Labor
portion

Non-labor
portion

RUX
$735.16
$505.83
$229.33

RUL
719.14
494.80
224.34

RVX
654.35
450.23
204.12

RVL
587.07
403.93
183.14

RHX
592.85
407.91
184.94

RHL
528.77
363.82
164.95

RMX
543.82
374.18
169.64

RML
498.97
343.32
155.65

RLX
477.60
328.61
148.99

RUC
557.34
383.48
173.86

RUB
557.34
383.48
173.86

RUA
466.03
320.65
145.38

RVC
478.13
328.98
149.15

RVB
414.05
284.89
129.16

RVA
412.45
283.79
128.66

RHC
416.63
286.66
129.97

RHB
374.98
258.00
116.98

RHA
330.12
227.14
102.98

RMC
366.00
251.83
114.17

RMB
343.57
236.39
107.18

RMA
282.70
194.51
88.19

RLB
355.85
244.84
111.01

RLA
229.29
157.76
71.53

ES3
671.18
461.81
209.37

ES2
525.39
361.49
163.90

ES1
469.32
322.92
146.40

HE2
453.30
311.89
141.41

HE1
376.41
258.99
117.42

HD2
424.47
292.06
132.41

HD1
353.98
243.56
110.42

HC2
400.44
275.52
124.92

HC1
334.76
230.33
104.43

HB2
395.63
272.21
123.42

HB1
331.55
228.12
103.43

LE2
411.65
283.24
128.41

LE1
344.37
236.94
107.43

LD2
395.63
272.21
123.42

LD1
331.55
228.12
103.43

LC2
347.57
239.15
108.42

LC1
293.10
201.67
91.43

LB2
331.55
228.12
103.43

LB1
280.29
192.85
87.44

CE2
366.80
252.38
114.42

CE1
337.96
232.53
105.43

CD2
347.57
239.15
108.42

CD1
318.74
219.31
99.43

CC2
304.32
209.39
94.93

CC1
281.89
193.95
87.94

CB2
281.89
193.95
87.94

CB1
261.06
179.62
81.44

CA2
238.64
164.20
74.44

CA1
222.62
153.17
69.45

BB2
253.05
174.11
78.94

BB1
241.84
166.40
75.44

BA2
209.80
144.35
65.45

BA1
200.19
137.74
62.45

PE2
337.96
232.53
105.43

PE1
321.94
221.51
100.43

PD2
318.74
219.31
99.43

PD1
302.72
208.29
94.43

PC2
273.88
188.44
85.44

PC1
261.06
179.62
81.44

PB2
232.23
159.79
72.44

PB1
222.62
153.17
69.45

PA2
192.18
132.23
59.95

PA1
184.17
126.72
57.45

Table 7B—RUG-IV Case-Mix Adjusted Federal Rates for Urban SNFs by Labor and Non-Labor Component
[Without parity adjustment recalibration]

RUG-IV
category

Total
rate

Labor
portion

Non-labor
portion

RUX
$882.55
$607.24
$275.31

RUL
860.12
591.81
268.31

RVX
798.53
549.43
249.10

RVL
708.82
487.70
221.12

RHX
733.83
504.91
228.92

RHL
647.32
445.39
201.93

RMX
678.39
466.77
211.62

RML
620.72
427.09
193.63

RLX
602.56
414.59
187.97

RUC
643.85
443.00
200.85

RUB
643.85
443.00
200.85

RUA
520.50
358.13
162.37

RVC
559.83
385.19
174.64

RVB
474.93
326.78
148.15

RVA
473.33
325.67
147.66

RHC
495.13
340.67
154.46

RHB
440.66
303.20
137.46

RHA
381.39
262.42
118.97

RMC
441.30
303.64
137.66

RMB
409.26
281.59
127.67

RMA
329.16
226.48
102.68

RLB
437.55
301.06
136.49

RLA
267.74
184.22
83.52

ES3
671.18
461.81
209.37

ES2
525.39
361.49
163.90

ES1
469.32
322.92
146.40

HE2
453.30
311.89
141.41

HE1
376.41
258.99
117.42

HD2
424.47
292.06
132.41

HD1
353.98
243.56
110.42

HC2
400.44
275.52
124.92

HC1
334.76
230.33
104.43

HB2
395.63
272.21
123.42

HB1
331.55
228.12
103.43

LE2
411.65
283.24
128.41

LE1
344.37
236.94
107.43

LD2
395.63
272.21
123.42

LD1
331.55
228.12
103.43

LC2
347.57
239.15
108.42

LC1
293.10
201.67
91.43

LB2
331.55
228.12
103.43

LB1
280.29
192.85
87.44

CE2
366.80
252.38
114.42

CE1
337.96
232.53
105.43

CD2
347.57
239.15
108.42

CD1
318.74
219.31
99.43

CC2
304.32
209.39
94.93

CC1
281.89
193.95
87.94

CB2
281.89
193.95
87.94

CB1
261.06
179.62
81.44

CA2
238.64
164.20
74.44

CA1
222.62
153.17
69.45

BB2
253.05
174.11
78.94

BB1
241.84
166.40
75.44

BA2
209.80
144.35
65.45

BA1
200.19
137.74
62.45

PE2
337.96
232.53
105.43

PE1
321.94
221.51
100.43

PD2
318.74
219.31
99.43

PD1
302.72
208.29
94.43

PC2
273.88
188.44
85.44

PC1
261.06
179.62
81.44

PB2
232.23
159.79
72.44

PB1
222.62
153.17
69.45

PA2
192.18
132.23
59.95

PA1
184.17
126.72
57.45

Table 8A—RUG-IV Case-Mix Adjusted Federal Rates for Rural SNFs by Labor and Non-Labor Component
[Including parity adjustment recalibration]

RUG-IV
category

Total
rate

Labor
portion

Non-labor
portion

RUX
$752.19
$517.54
$234.65

RUL
736.88
507.01
229.87

RVX
660.90
454.73
206.17

RVL
596.61
410.50
186.11

RHX
591.89
407.25
184.64

RHL
530.66
365.12
165.54

RMX
537.89
370.10
167.79

RML
495.03
340.61
154.42

RLX
468.18
322.13
146.05

RUC
582.28
400.64
181.64

RUB
582.28
400.64
181.64

RUA
495.03
340.61
154.42

RVC
492.53
338.89
153.64

RVB
431.30
296.76
134.54

RVA
429.77
295.70
134.07

RHC
423.51
291.40
132.11

RHB
383.71
264.01
119.70

RHA
340.85
234.52
106.33

RMC
367.99
253.20
114.79

RMB
346.56
238.45
108.11

RMA
288.39
198.43
89.96

RLB
351.85
242.09
109.76

RLA
230.92
158.88
72.04

ES3
648.24
446.02
202.22

ES2
508.95
350.18
158.77

ES1
455.37
313.32
142.05

HE2
440.07
302.79
137.28

HE1
366.59
252.23
114.36

HD2
412.51
283.83
128.68

HD1
345.16
237.49
107.67

HC2
389.55
268.03
121.52

HC1
326.79
224.85
101.94

HB2
384.96
264.87
120.09

HB1
323.73
222.74
100.99

LE2
400.27
275.41
124.86

LE1
335.98
231.17
104.81

LD2
384.96
264.87
120.09

LD1
323.73
222.74
100.99

LC2
339.04
233.28
105.76

LC1
287.00
197.47
89.53

LB2
323.73
222.74
100.99

LB1
274.75
189.04
85.71

CE2
357.41
245.92
111.49

CE1
329.86
226.96
102.90

CD2
339.04
233.28
105.76

CD1
311.49
214.32
97.17

CC2
297.71
204.84
92.87

CC1
276.28
190.09
86.19

CB2
276.28
190.09
86.19

CB1
256.38
176.40
79.98

CA2
234.95
161.66
73.29

CA1
219.64
151.12
68.52

BB2
248.73
171.14
77.59

BB1
238.01
163.76
74.25

BA2
207.40
142.70
64.70

BA1
198.21
136.38
61.83

PE2
329.86
226.96
102.90

PE1
314.55
216.43
98.12

PD2
311.49
214.32
97.17

PD1
296.18
203.79
92.39

PC2
268.63
184.83
83.80

PC1
256.38
176.40
79.98

PB2
228.83
157.45
71.38

PB1
219.64
151.12
68.52

PA2
190.56
131.11
59.45

PA1
182.91
125.85
57.06

Table 8B—RUG-IV Case-Mix Adjusted Federal Rates for Rural SNFs by Labor and Non-Labor Component
[Without parity adjustment recalibration]

RUG-IV
category

Total
rate

Labor
portion

Non-Labor
portion

RUX
893.01
$614.44
$278.57

RUL
871.58
599.69
271.89

RVX
798.67
549.52
249.15

RVL
712.95
490.55
222.40

RHX
726.59
499.93
226.66

RHL
643.93
443.06
200.87

RMX
666.47
458.56
207.91

RML
611.37
420.65
190.72

RLX
587.57
404.28
183.29

RUC
664.94
457.51
207.43

RUB
664.94
457.51
207.43

RUA
547.07
376.41
170.66

RVC
570.59
392.59
178.00

RVB
489.46
336.77
152.69

RVA
487.93
335.72
152.21

RHC
498.52
343.01
155.51

RHB
446.47
307.19
139.28

RHA
389.84
268.23
121.61

RMC
439.93
302.69
137.24

RMB
409.31
281.63
127.68

RMA
332.78
228.97
103.81

RLB
429.91
295.80
134.11

RLA
267.66
184.16
83.50

ES3
648.24
446.02
202.22

ES2
508.95
350.18
158.77

ES1
455.37
313.32
142.05

HE2
440.07
302.79
137.28

HE1
366.59
252.23
114.36

HD2
412.51
283.83
128.68

HD1
345.16
237.49
107.67

HC2
389.55
268.03
121.52

HC1
326.79
224.85
101.94

HB2
384.96
264.87
120.09

HB1
323.73
222.74
100.99

LE2
400.27
275.41
124.86

LE1
335.98
231.17
104.81

LD2
384.96
264.87
120.09

LD1
323.73
222.74
100.99

LC2
339.04
233.28
105.76

LC1
287.00
197.47
89.53

LB2
323.73
222.74
100.99

LB1
274.75
189.04
85.71

CE2
357.41
245.92
111.49

CE1
329.86
226.96
102.90

CD2
339.04
233.28
105.76

CD1
311.49
214.32
97.17

CC2
297.71
204.84
92.87

CC1
276.28
190.09
86.19

CB2
276.28
190.09
86.19

CB1
256.38
176.40
79.98

CA2
234.95
161.66
73.29

CA1
219.64
151.12
68.52

BB2
248.73
171.14
77.59

BB1
238.01
163.76
74.25

BA2
207.40
142.70
64.70

BA1
198.21
136.38
61.83

PE2
329.86
226.96
102.90

PE1
314.55
216.43
98.12

PD2
311.49
214.32
97.17

PD1
296.18
203.79
92.39

PC2
268.63
184.83
83.80

PC1
256.38
176.40
79.98

PB2
228.83
157.45
71.38

PB1
219.64
151.12
68.52

PA2
190.56
131.11
59.45

PA1
182.91
125.85
57.06

Section 1888(e)(4)(G)(ii) of the Act also requires that we apply this wage index 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. For FY 2012 (Federal rates effective October 1, 2011), we apply an adjustment to fulfill the budget neutrality requirement. We meet this requirement by multiplying each of the components of the unadjusted Federal rates by a budget neutrality factor equal to the ratio of the weighted average wage adjustment factor for FY 2011 to the weighted average wage adjustment factor for FY 2012. For this calculation, we use the same 2010 claims utilization data for both the numerator and denominator of this ratio. We define the wage adjustment factor used in this calculation as the labor share of the rate component multiplied by the wage index plus the non-labor share of the rate component. The budget neutrality factor for this year is 1.0001. The wage index applicable to FY 2012 is set forth in Tables A and B, which appear in the Addendum of this proposed rule.

In the SNF PPS final rule for FY 2006 (70 FR 45026, August 4, 2005), we adopted the changes discussed in the Office of Management and Budget (OMB) Bulletin No. 03-04 (June 6, 2003), available online at
http://www.whitehouse.gov/omb/bulletins/b03-04.html,
which announced revised definitions for Metropolitan Statistical Areas (MSAs), and the creation of Micropolitan Statistical Areas and Combined Statistical Areas. In addition, OMB published subsequent bulletins regarding CBSA changes, including changes in CBSA numbers and titles. As indicated in the FY 2008 SNF PPS final rule (72 FR 43423, August 3, 2007), this and all subsequent SNF PPS rules and notices are considered to incorporate the CBSA changes published in the most recent OMB bulletin that applies to the hospital wage data used to determine the current SNF PPS wage index. The OMB bulletins are available online at
http://www.whitehouse.gov/omb/bulletins/index.html.

In adopting the OMB CBSA geographic designations, we provided for a 1-year transition with a blended wage index for all providers. For FY 2006, the wage index for each provider consisted of a blend of 50 percent of the FY 2006 MSA-based wage index and 50 percent of the FY 2006 CBSA-based wage index (both using FY 2002 hospital data). We referred to the blended wage index as the FY 2006 SNF PPS transition wage index. As discussed in the SNF PPS final rule for FY 2006 (70 FR 45041), subsequent to the expiration of this 1-year transition on September 30, 2006, we used the full CBSA-based wage index values, as now presented in Tables A and B in the Addendum of this proposed rule.

D. Updates to the Federal Rates

In accordance with section 1888(e)(4)(E) of the Act as amended by section 311 of the BIPA, and section 1888(e)(5)(B) of the Act as amended by section 3401(b) of the Affordable Care Act, the payment rates in this proposed rule reflect an update equal to the full SNF market basket, estimated at 2.7 percentage points, reduced by the MFP adjustment. As discussed in sections I.G.2 and VI.C of this proposed rule, the annual update includes a 1.2 percentage point reduction to account for the MFP adjustment described in the latter section, for a net update of 1.5 percent for FY 2012. We continue to disseminate the rates, wage index, and case-mix classification methodology through the
Federal Register
before the August 1 that precedes the start of each succeeding FY.

E. Relationship of Case-Mix Classification System to Existing Skilled Nursing Facility Level-of-Care Criteria

As discussed in § 413.345, we include in each update of the Federal payment rates in the
Federal Register
the designation of those specific RUGs under the classification system that represent the required SNF level of care, as provided in § 409.30. As set forth in the FY 2011 SNF PPS update notice (75 FR 42910, July 22, 2010), this designation reflects an administrative presumption under the 66-group RUG-IV system that beneficiaries who are correctly assigned to one of the upper 52 RUG-IV groups on the initial 5-day, Medicare-required assessment are automatically classified as meeting the SNF level of care definition up to and including the assessment reference date on the 5-day Medicare-required assessment.

A beneficiary assigned to any of the lower 14 RUG-IV groups is not automatically classified as either meeting or not meeting the definition, but instead receives an individual level of care determination using the existing administrative criteria. This presumption recognizes the strong likelihood that beneficiaries assigned to one of the upper 52 RUG-IV groups during the immediate post-hospital period require a covered level of care, which would be less likely for those beneficiaries assigned to one of the lower 14 RUG-IV groups.

In this proposed rule, we once again propose to designate the upper 52 RUG-IV groups for purposes of this administrative presumption, consisting of all groups encompassed by the following RUG-IV categories:

• Rehabilitation plus Extensive Services;

• Ultra High Rehabilitation;

• Very High Rehabilitation;

• High Rehabilitation;

• Medium Rehabilitation;

• Low Rehabilitation;

• Extensive Services;

• Special Care High;

• Special Care Low; and,

• Clinically Complex.

However, we note that this administrative presumption policy does not supersede the SNF's responsibility to ensure that its decisions relating to level of care are appropriate and timely, including a review to confirm that the services prompting the beneficiary's assignment to one of the upper 52 RUG-IV groups (which, in turn, serves to trigger the administrative presumption) are themselves medically necessary. As we explained in the FY 2000 SNF PPS final rule (64 FR 41667, July 30, 1999), the administrative presumption

* * * is itself rebuttable in those individual cases in which the services actually received by the resident do not meet the basic statutory criterion of being reasonable and necessary to diagnose or treat a beneficiary's condition (according to section 1862(a)(1) of the Act). Accordingly, the presumption would not apply, for example, in those situations in which a resident's assignment to one of the upper * * * groups is itself based on the receipt of services that are subsequently determined to be not reasonable and necessary.

Moreover, we want to stress the importance of careful monitoring for changes in each patient's condition to determine the continuing need for Part A SNF benefits after the assessment reference date of the 5-day assessment.

F. Example of Computation of Adjusted PPS Rates and SNF Payment

Using the hypothetical SNF XYZ described below, Tables 9A and 9B show the adjustments made to the Federal per diem rates to compute the provider's actual per diem PPS payment under each of the described scenarios (that is, with a parity adjustment recalibration and without a parity adjustment recalibration). SNF XYZ's 12-month cost reporting period begins October 1, 2011. As illustrated in Table 9A, SNF XYZ's total PPS payment would equal $40,021.02 with the application of a parity adjustment recalibration (calculated using first quarter FY 2011 data), as described in section II.B.2 above. SNF XYZ's total PPS payment would equal $42,636.62

without the application of the parity adjustment recalibration considered in section II.B.2, as illustrated in Table 9B. We derive the Labor and Non-labor columns from Tables 7A and 7B.

Table 9A—RUG-IV—Including Parity Adjustment Recalibration SNF XYZ: Located in Cedar Rapids, IA
[(Urban CBSA 16300) Wage Index: 0.8857]

RUG-IV group
Labor
Wage index
Adjusted labor
Non-labor
Adjusted rate

Percent
adjustment

Medicare days
Payment

RVX
$450.23
0.8857
$398.77
$204.12
$602.89
$602.89
14
$8,440.46

ES2
361.49
0.8857
320.17
163.90
484.07
484.07
30
14,522.10

RHA
227.14
0.8857
201.18
102.98
304.16
304.16
16
4,866.56

CC2 *
209.39
0.8857
185.46
94.93
280.39
639.29
10
6,392.90

BA2
144.35
0.8857
127.85
65.45
193.30
193.30
30
5,799.00

100
40,021.02

* Reflects a 128 percent adjustment from section 511 of the MMA.

Table 9B—RUG-IV—Without Parity Adjustment Recalibration SNF XYZ: Located in Cedar Rapids, IA
[(Urban CBSA 16300) Wage Index: 0.8857]

RUG-IV group
Labor
Wage index
Adjusted labor
Non-labor
Adjusted rate

Percent
adjustment

Medicare days
Payment

RVX
$549.43
0.8857
$486.63
$249.10
$735.73
$735.73
14
$10,300.22

ES2
361.49
0.8857
320.17
163.90
484.07
484.07
30
14,522.10

RHA
262.42
0.8857
232.43
118.97
351.40
351.40
16
5,622.40

CC2*
209.39
0.8857
185.46
94.93
280.39
639.29
10
6,392.90

BA2
144.35
0.8857
127.85
65.45
193.30
193.30
30
5,799.00

100
42,636.62

* Reflects a 128 percent adjustment from section 511 of the MMA.

III. Resource Utilization Groups, Version 4 (RUG-IV)

A. Prospective Payment for SNF Non-therapy Ancillary Costs

1. Previous Research

We have conducted several studies since 1999 to refine the reimbursement methodology for non-therapy ancillary (NTA) services covered by the SNF PPS. At the inception of the SNF PPS, payment for NTA services was included in the 44-group RUG system of case-mix groups. Analysis showed that there was only a weak correlation between NTA services costs and the RUG-III classification group. As the current RUG-IV system, similar to the RUG-III system, has maintained NTA costs coverage as part of the nursing CMIs, we believe that the present methodology for case-mix adjusting the NTA payment amount may not be the most accurate predictor of NTA costs. We are particularly concerned that the present system could underestimate NTA costs for the patients with the highest NTA needs, which could lead to restricted access to care for those patients.

As a result of research conducted in the late 1990s, one proposal included in the FY 2001 proposed rule was to modify the RUG system by adding 14 additional RUG groups (65 FR 19193-19194, 19203, April 10, 2000). These additional groups were designed to recognize that patients qualifying for both a Rehabilitation RUG and an Extensive Services RUG incurred NTA costs estimated to be as much as three times higher than those of patients who qualify solely for a Rehabilitation RUG.

As noted in the 2006 Report to Congress on case-mix refinements (available online at
http://www.cms.gov/SNFPPS/Downloads/RC_2006_PC-PPSSNF.pdf
), additional research conducted by Abt Associates in the late 1990s experimented with several mathematical models of NTA costs. Results from this work could have practical application as an ancillary “add-on” index based on the beneficiary's predicted, per diem NTA costs. As discussed in the FY 2001 SNF PPS proposed rule (65 FR 19195, April 10, 2000), NTA index models (both weighted and unweighted) were tested after exploring MDS variables that appeared to be predictive of NTA costs. In the unweighted model, cost predictions were based on counts of qualifying patient characteristics (characteristics such as respiratory infection or skin wounds). In the weighted models, a small set of payment groups were defined from “index models” that weighted the predictors where the weights were proportional to the marginal impact of a patient characteristic on estimated NTA costs. The array of predicted costs generated by the equation could be subdivided into ranges of costs, or intervals, in order to define a small number of payment groups. As discussed in the Technical Appendix to the FY 2001 proposed rule (65 FR 19240, 19248, April 10, 2000), variations were created by applying the index models to alternative sets of RUG groups. As further discussed in the FY 2001 proposed rule (65 FR 19196), we proposed a separate unweighted NTA index to be applied to certain RUG categories based on clinical variables on the MDS. In addition, to facilitate the incorporation of this proposed refinement into the case-mix classification system, we proposed to create a new component of the payment rates for NTA services (65 FR 19192).

As explained in the FY 2001 SNF PPS final rule (65 FR 46773, July 31, 2000), while the expanded RUG groups approach and the NTA index approach initially appeared to improve payment accuracy in comparison to the existing case-mix system, attempts to validate the results on a later national PPS data set did not confirm the initial findings. As a result, we did not finalize the proposals made in April 2000.

We sponsored subsequent research by the Urban Institute using claims samples from 2001. This work led to the FY 2006 final rule (70 FR 45026, 45030-34, August 4, 2005), which essentially implemented a variation of the 58-group RUG proposal developed by Abt Associates discussed above. In that rule, we finalized a system composed of 53 groups, by augmenting the original 44-group system with nine additional groups identifying patients simultaneously qualifying for the Extensive Services and Rehabilitation groups. This incremental change to the grouping system was accompanied by an across-the-board increase in the case-mix weights for the payment component that includes NTA costs. Both of these modifications were intended to enable the original RUG-III payment model to account more accurately for variation in NTA costs.

Using the 2001 data set, the Urban Institute also experimented with prediction models that were extensions of the original Abt Associates NTA index approaches. A small number of additional variables (for example, age) and improvements to the methodology used to measure independent variables in the data base led to potential improvements over the earlier model. The Urban Institute also explored substantially more complex models that incorporated variables derived from qualifying hospital stay claims; these models were estimated separately for patients after subdividing them into one of three groups: Acute, chronic, or rehabilitation.

In 2008, the Medicare Payment Advisory Commission (MedPAC) sponsored analyses by researchers from the Urban Institute extending some of the Institute's earlier work. This led to a MedPAC proposal that was based on the most promising results of the Institute's earlier work. The study used 2003 Medicare data. It resulted in a prediction equation for NTA services that used a large number of variables derived from the MDS assessments and hospital claims (for example, diagnosis), a measure of length of stay, as well as patient age (Bowen Garrett and Douglas A. Wissoker, “Modeling Alternative Designs for a Revised PPS for Skilled Nursing Facilities: A study conducted by staff from the Urban Institute for the Medicare Payment Advisory Commission,” June, 2008; available online at
http://www.medpac.gov/documents/Jun08_SNF_PPS_CONTRACTOR_CC.pdf
). MedPAC did not propose a system of NTA case-mix groups based on the prediction equation. However, the basic equation could be used to generate an array of predictions in the population and to group the predictions into cost intervals for defining a smaller number of payment groups. This is the same approach that Abt Associates took with its index model.

In a June 2010 memo to MedPAC (available online at
http://www.medpac.gov/documents/Oct10_SNF_NonTherapyAncillary_CONTRACTOR_CC.pdf
), the Urban Institute described a series of refinements to MedPAC's 2008 proposed model. Most importantly, with their 2010 model, the Urban Institute sought to reduce the number of indicators from nearly 70 and ensure that all indicators are derived from information based on available administrative data. Additionally, when the Urban Institute used 2007 SNF data files (as compared to the 2003 data files used to support the previous model), they found that the predictive ability of the model was reduced slightly from 23 percent to 21 percent.

After completing a revised statistical analysis and eliminating indicators for conditions that were either relatively rare or had little impact on NTA costs, the Urban Institute advanced a 20-variable “streamlined” model that maintained almost equivalent predictive accuracy to MedPAC's 2008 proposed model described above. The streamlined model included many of the “high-impact” variables contained in the 69-variable model, such as IV medication use and respiratory services. Additionally, the streamlined model included variables suggested by CMS, such as the nursing case-mix index and the MDS diabetes diagnosis, which were also found to be strong indicators of anticipated NTA costs.

2. Conceptual Analysis

Based on our initial research, we continue to believe that an administratively feasible and equitable approach to prospective payments for NTA costs would incorporate the following criteria:

• Uses information from available administrative data (data available on claims or on the MDS assessment);

• Uses predictor variables that represent meaningful correlates of NTA services that are highly predictive, clinically sensible, sensitive to patient NTA variation, and do not promote undesirable incentives for providers;

• Is developed by using the best and most recently available data sources, in order to assure that it reflects current care practices and resource utilization;

• Results in a separate NTA component and index that uses a minimal number of payment groups, or tiers, to limit the complexity of the SNF PPS as a whole; and

• Uses payment groups and predictor variables that are readily understandable and clinically intuitive.

These criteria and our initial research intent were discussed in the FY 2010 SNF PPS proposed rule (74 FR 22238 through 22241, May 12, 2009), and responses to comments on this initial research proposal were part of the FY 2010 SNF PPS final rule (74 FR 40341 through 40342, August 11, 2009). These comments helped to guide our initial research to develop the conceptual model discussed in this proposed rule.

In addition to the criteria specified above, our research is also guided by the results of multiple recent studies, such as those conducted by the Urban Institute, regarding the relationship between NTA utilization and resident condition. Most relevant to our work in this area, these studies suggest that the highest-cost ancillary services (such as respiratory services, enteral and parenteral feeding, and treatment of chronic conditions, such as AIDS) are used by a small subset of the SNF population, and that the high and varied cost of individual services or drugs by these populations—rather than the volume of NTA utilization—can at least partially explain the wide variance in NTA costs.

To continue our analytic work for developing a payment methodology for NTA costs, we have utilized a large analytic data file that combines Medicare SNF claims, cost reports, and MDS assessments from FY 2007. The file has been used to study relationships between reported claims charges for NTA-related revenue centers and predictor variables defined from items on the MDS. We augmented the analytic file with diagnosis information from the patient's qualifying hospital stay as a way of compensating for potentially incomplete diagnosis reporting on MDS and on SNF claims. (As noted earlier, it is not our intention to use hospital-assigned diagnoses directly in any tiered system we may propose.) Because three-quarters of the NTA costs are pharmacy-related, we have summarized the patient's recent diagnoses using the diagnosis classification system CMS developed for Medicare Part D risk adjustment. This is known as the RxHCC system. The RxHCC system was developed from the Hierarchical Condition Categories (HCCs) used for risk-adjustment in Medicare Part C. We also continue to examine the performance of the diagnosis flags from Section I of the MDS.

Now that more recent data are available, we are developing a similar

file using FY 2009 data, which may be used to test our initial model formulas and monitor any recent changes to NTA utilization patterns. We solicit comment on the criteria specified above and the conceptual model discussed in the following sections.

3. Analytic Sample

To develop the analytic sample, we linked FY 2007 SNF cost reports with SNF Medicare Part A claims covering services delivered during the SNF's cost reporting period. The actual cost of the NTA services is determined by adjusting claims charges for NTA services in accordance with cost-to-charge ratios (CCRs) from the cost report. The NTA costs are then used as the dependent variable in all subsequent analyses, while MDS items and claims diagnoses act as the independent variables. We collected all claims, and used only those claims submitted within the reporting period for the cost reports available. Requiring a matched cost report eliminated some SNFs represented in the 2007 National Claims History. The SNFs that do not meet this threshold tend to be smaller SNFs, though this requirement does not adversely affect the representativeness of the analytic sample.

We have studied the same three general categories of NTAs as previous research has suggested: Respiratory-related costs (for example, ventilator services), drug-related costs, and other non-therapy ancillary (ONTA) costs (for example, wound dressings). We derive category-specific CCRs for each facility's cost report remaining in the sample. An additional requirement for an SNF to be in the sample is that it reports some drug and ONTA charges on the claims; otherwise, the facility's data may not be accurate enough to be used in the sample. Positive respiratory charges are not necessary, as these types of charges are not always reported. One reason is that some respiratory charges, such as oxygen-related supplies, are reported as ONTAs, based on certain reporting standards.

We trimmed the sample to eliminate facilities with extreme values for CCRs, as outlying CCRs could skew the results of our analysis. Finally, we compared the drug and ONTA charges on the claims to the SNF's cost report drug and ONTA charges, since wide differences could be the result of incomplete or inaccurate reporting. Facilities that were found to exhibit such wide differences were dropped from the sample. For our analysis, accurate charge reporting is critical for the measurement of our dependent-variable, CCR-adjusted NTA charges.

4. Approach to Analysis

The dependent variable in our analysis is the NTA charges, adjusted by CCRs. The independent variables are diagnosis groupings and variables selected from the matched MDS assessments. With the recent implementation of the MDS 3.0, we will monitor any changes in our selected set of variables and, based on research conducted as part of the Post Acute Care Payment Reform Demonstration (PAC-PRD), we may explore changes to the MDS assessment which would allow us to collect more detailed information on NTA costs and utilization. However, as our current analytic database is based on FY 2007 and FY 2009 data, our analysis still utilizes the MDS 2.0. The following sections of the MDS 2.0 contribute variables to be tested for their predictive value:

E: Mood and Behavior Problems

G: Physical Functioning and Structural Problems

H: Continence in Last 14 Days

I: Disease Diagnoses

J: Health Conditions

K: Oral/Nutritional Status

L: Oral/Dental Status

M: Skin Condition

O: Medications

P: Special Treatments and Procedures

Our study of the ability of particular MDS items and diagnosis groupings to predict NTA costs builds on previous research discussed above and adheres to the criteria outlined earlier in this section. Now that we have completed the initial phase of this research, we are in a better position to understand the relationship between NTA costs and certain classes of illness. Understanding these relationships has led us to explore potential groupings of conditions, distinct from the RUG classification or qualifying hospital condition, which could suggest a feasible system for NTA payment tiers.

5. Payment Methodology

The payments associated with a new NTA component of the SNF PPS would be financed by reallocating that portion of the current nursing component which has been previously considered to account for NTA costs. Our intent in adding a separate NTA component, distinct from the nursing component, would be to provide greater predictive ability, promote more equitable NTA reimbursement, and achieve a more cost-effective payment structure for SNFs.

The NTA payment would be broken into two parts: A routine NTA bundled payment (RNP) and a tiered non-routine NTA payment (TNP).

a. Routine Non-Therapy Ancillary Payment

The RNP would constitute a base payment for every patient day, distinct from the tiered NTA payment described below and separate from the nursing component, to cover the cost of routine NTA services (drugs, laboratory services,
etc.
) that are commonly given to a wide range of SNF patients. CMS is currently analyzing SNF claims data linked to specially collected data from Medicare research projects, such as the STRIVE study and the PAC-PRD project, to help determine the specific drugs and services that would be included in the RNP and an appropriate per diem amount to cover their purchase and administration. Examples of such routine NTAs could include high blood pressure medication, common analgesics, anti-infective agents, sleep aids, laxatives, and standard blood tests, among others. The RNP would help capture the daily cost of administering these types of routine NTAs, thereby allowing for a more clearly defined and appropriate tiered NTA bundled payment to cover non-routine NTA services, as well as a more transparent payment for such routine costs incurred by providers. We also believe that, in conjunction with a possible NTA outlier policy (discussed below), having an RNP component would limit the administrative burdens associated with reporting that might be required to administer outlier payments.

As with the other components of the SNF PPS, the RNP piece of the NTA component would be updated annually to account for changes in the market basket and other relevant adjustments. It would operate in much the same way as the non-therapy non-case mix adjusted component of the current SNF PPS, in that it would constitute a flat amount added to the payment for all applicable SNF claims.

b. Tiered Non-Routine NTA Bundled Payment

The TNP would operate as a variation of the model previously discussed in the FY 2001 SNF PPS proposed rule (65 FR 19188, April 10, 2000). Specifically, we are in the process of developing a tiered NTA bundled payment, where payment tiers track relative variations in NTA costs and utilization. The June 2008 Urban Institute report referenced above (Garrett and Wissoker, June 2008) suggested that average wage-adjusted per diem NTA costs were approximately $68, with a standard deviation of $94, which would support the use of multiple case-mix-adjusted tiers.

The TNP is designed to capture the average cost of the drugs and services, given the patient's clinical characteristics, excluding the drugs and services covered by the RNP or those already excluded from the SNF PPS altogether under the consolidated billing requirements. Such a cost schedule and tier structure is currently under development, using recent Medicare Part A claims data and data from the PAC-PRD.

We have focused on developing an index model in which predictions are arrayed and then subdivided into fixed ranges of cost values to form distinct payment groups, or tiers, as we believe this type of approach is better equipped to handle the number of explanatory variables needed to predict NTA costs reasonably well. The tiers which constitute the TNP will be based on average NTA costs as measured from available administrative data. Generally, based on the resident's case mix and the variables selected for predicting NTA costs, if the resident's expected NTA costs exceed a particular threshold, then the facility would be paid a prospective amount, which would be added to the base RNP amount.

c. Non-Routine NTA Outlier Payment

Though we currently lack explicit statutory authority to establish an SNF outlier policy, we are continuing to explore how such a policy could be implemented in the event that we receive statutory authority. Results of the STRIVE study suggest that it is the cost of individual high-cost pharmaceuticals and other NTAs, rather than a particular patient's use of a high volume of NTA services, which creates high NTA costs. Given the effect of specific high-cost items like prescription drugs or respiratory services, it is clear that any type of averaging system (such as the conceptual NTA model discussed here) will not in all cases account for the cost of such items. It will be insufficiently sensitive to high NTA costs deriving from variations among costs of individual medications and ONTAs.

Accordingly, we are currently reviewing the available data to determine how an outlier approach could be designed to address patient-specific expenditures that exceed the routine and non-routine NTA payments that we would make, while allowing for an outlier threshold. While we have not yet fully simulated a potential SNF outlier payment policy, we believe it is appropriate to conduct analysis at the stay level, because NTA utilization can fluctuate significantly during a given SNF stay. Using a stay-level analysis of potential NTA cost outliers would h

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2011-10555. Public record. Not legal advice.