[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 2440 Introduced in Senate (IS)]

103d CONGRESS
  2d Session
                                S. 2440

  Entitled the ``Prospective Payment System for Nursing Facilities''.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

           September 19 (legislative day, September 12), 1994

   Mr. Pryor introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
  Entitled the ``Prospective Payment System for Nursing Facilities''.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 100. SHORT TITLE.

    This Act may be cited as the ``Prospective Payment System for 
Nursing Facilities'' and shall apply to the payment for services of 
nursing facilities under federally funded long-term care programs.

SEC. 101. DEFINITIONS.

    (a) For purposes of this Act:
            (1) ``Acuity payment'' refers to a fixed amount that will 
        be added to the facility-specific prices for certain resident 
        classes designated by the Secretary as requiring heavy care.
            (2) ``Administrative Procedure Act'' refers to section 551 
        et seq. of title 5, United States Code.
            (3) ``Aggregated resident invoice'' refers to a compilation 
        of the per resident invoices of a nursing facility which 
        contain the number of resident days for each resident and the 
        resident class of each resident at the nursing facility during 
        a particular month.
            (4) ``Allowable costs'' refer to costs which HCFA has 
        determined to be necessary for a nursing facility to incur 
        according to the Provider Reimbursement Manual (hereinafter 
        ``HCFA-Pub. 15'').
            (5) ``Base year'' refers to the most recent cost reporting 
        period (consisting of a period which is twelve (12) months in 
        length, except for facilities with new owners, in which case 
        the period is not less than four (4) months nor more than 
        thirteen (13) months) for which cost data of nursing facilities 
        is available to be used for the determination of a prospective 
        rate.
            (6) ``Case mix weight'' is the total case mix score of a 
        facility calculated by multiplying the resident days in each 
        resident class by the relative weight assigned to each resident 
        class, and summing the resulting products across all resident 
        classes.
            (7) ``Complex medical equipment'' refers to items such as 
        ventilators, intermittent positive pressure breathing (IPPB) 
        machines, nebulizers, suction pumps, continuous positive airway 
        pressure (CPAP) devices, and bead beds such as air fluidized 
        beds.
            (8) ``Distinct part nursing facility'' refers to an 
        institution which has a distinct part that is certified under 
        title XVIII of the Social Security Act and meets the 
        requirements of section 201.1 of the Skilled Nursing Facility 
        Manual published by HCFA (hereinafter ``HCFA-Pub. 12'').
            (9) ``Efficiency incentive'' refers to a payment made to a 
        nursing facility in recognition of incurring costs below a 
        prespecified level.
            (10) ``Fixed equipment'' refers to equipment which meets 
        the definition of building equipment in section 104.3 of HCFA-
        Pub. 15. Fixed equipment includes, but is not limited to, 
        attachments to buildings such as wiring, electrical fixtures, 
        plumbing, elevators, heating systems, and air-conditioning 
        systems.
            (11) ``Geographic ceiling'' refers to a limitation on 
        payments in any given cost center for nursing facilities in one 
        of no fewer than eight (8) geographic regions, further 
        subdivided into rural and urban areas, as designated by the 
        Secretary.
            (12) ``Heavy care'' refers to an exceptionally high level 
        of care which the Secretary has determined is required for 
        residents in certain resident classes.
            (13) ``HCFA'' refers to the Health Care Financing 
        Administration of the Department of Health and Human Services.
            (14) ``Index[ed] forward'' refers to an adjustment made to 
        a per diem rate to account for cost increases due to inflation 
        or other factors during an intervening period following the 
        base year and projecting such cost increases for a future 
        period in which the rate applies. Indexing forward under this 
        Act shall be determined from the midpoint of the base year to 
        the midpoint of the rate year.
            (15) ``Marshall-Swift segmented cost method'' refers to an 
        appraisal method published by the Marshall-Swift Valuation 
        Service.
            (16) ``Minimum Data Set'' (hereinafter ``MDS'') refers to a 
        resident assessment instrument, currently recognized by HCFA, 
        in addition to any extensions to MDS, such as MDS+, as well as 
        any extensions to accommodate subacute care which contain an 
        appropriate core of assessment items with definitions and 
        coding categories needed to comprehensively assess a nursing 
        facility resident.
            (17) ``Major movable equipment'' refers to equipment which 
        meets the definition of major movable equipment in section 
        104.4 of HCFA-Pub. 15. Major movable equipment includes, but is 
        not limited to, accounting machines, beds, wheelchairs, desks, 
        vehicles, and X-ray machines.
            (18) ``Nursing facility'' refers to an institution which 
        meets the requirements of ``skilled nursing facility'' under 
        section 1819(a) of title XVIII of the Social Security Act and a 
        ``nursing facility'' under section 1919(a) of title XIX of the 
        Social Security Act.
            (19) ``Per bed limit'' refers to a per bed ceiling on the 
        fair asset value of a nursing facility for one of the 
        geographic regions designated by the Secretary.
            (20) ``Per diem rate'' refers to a rate of payment for the 
        costs of covered services for a resident day.
            (21) ``Relative weight'' is the index of the value of the 
        resources required for a given resident class relative to the 
        value of resources of either a base resident class or the 
        average of all the resident classes.
            (22) ``R. S. Means Index'' refers to the index of the R. S. 
        Means Company, Inc., specific to commercial/industrial 
        institutionalized nursing facilities, which is based upon a 
        survey of prices of common building materials and wage rates 
        for nursing facility construction.
            (23) ``Rebase'' refers to the process of updating nursing 
        facility cost data for a subsequent rate year using a more 
        recent base year.
            (24) ``Rental rate'' refers to a percentage that will be 
        multiplied by the fair asset value of property to determine the 
        total annual rental payment in lieu of property costs.
            (25) ``Resident classification system'' refers to a system 
        which categorizes residents into different resident classes 
        according to similarity of their assessed condition and 
        required services.
            (26) ``Resident day'' refers to the period of services for 
        one resident, regardless of payment source, for one continuous 
        twenty-four hours of services. The day of admission of the 
        resident constitutes a resident day but the day of discharge 
        does not constitute a resident day. Bed-hold days are not to be 
        considered resident days, and bed-hold day revenues are not to 
        be offset.
            (27) ``Resource Utilization Groups, Version III 
        (hereinafter ``RUG-III'')'' refers to a category-based resident 
        classification system used to classify nursing facility 
        residents into mutually exclusive RUG-III groups. Residents in 
        each RUG-III group utilize similar quantities and patterns of 
        resources.
            (28) ``Secretary'' refers to the Secretary of the 
        Department of Health and Human Services.

SEC. 102. PAYMENT OBJECTIVES.

    (a) Payment rates under the Prospective Payment System for Nursing 
Facilities shall reflect the following objectives:
            (1) To maintain an equitable and fair balance between cost 
        containment and quality of care in nursing facilities.
            (2) To encourage nursing facilities to admit residents 
        without regard to their source of payment.
            (3) To provide an incentive to nursing facilities to admit 
        and provide care to persons in need of comparatively greater 
        care.
            (4) To maintain administrative simplicity, for both nursing 
        facilities and the Secretary.
            (5) To encourage investment in buildings and improvements 
        to nursing facilities (capital formation) as necessary to 
        maintain quality and access.

SEC. 103. POWERS AND DUTIES OF THE SECRETARY.

    (a) The Secretary shall establish by regulation, in accordance with 
the Administrative Procedure Act, all rules and regulations necessary 
for the implementation of this Act. The rates determined under this Act 
shall reflect the objectives in section 102 of this Act.
    (b) The Secretary may require that each nursing facility file such 
data, statistics, schedules, or information as required to enable the 
Secretary to implement this Act.

SEC 104. RELATIONSHIP TO TITLE XVIII OF THE SOCIAL SECURITY ACT.

    (a) No provision in this Act shall replace, or otherwise affect, 
the skilled nursing facility benefit under title XVIII of the Social 
Security Act.
    (b) The provisions of HCFA-Pub. 15 shall apply to the determination 
of allowable costs under this Act except to the extent that they 
conflict with any other provision in this Act.

SEC. 105. ESTABLISHMENT OF RESIDENT CLASSIFICATION SYSTEM.

    (a)(1) The Secretary shall establish a resident classification 
system which shall group residents into classes according to similarity 
of their assessed condition and required services.
    (2) The resident classification system shall be modeled after the 
RUG-III system and all updated versions of that system.
    (3) The resident classification system shall be reflective of the 
necessary professional and paraprofessional nursing staff time and 
costs required to address the care needs of nursing facility residents.
    (b)(1) The Secretary shall assign a relative weight for each 
resident class based on the relative value of the resources required 
for each resident class. The assignment of relative weights for 
resident classes shall be performed for each geographic region as 
determined in accordance with subsection (c) of this section.
    (2) In assigning the relative weights of the resident classes in a 
geographic region, the Secretary shall utilize information derived from 
the most recent MDS's of all of the nursing facilities in a geographic 
region.
    (3) The relative weights of the resident classes in each geographic 
region shall be recalibrated every three (3) years based on any changes 
in the cost or amount of resources required for the care of a resident 
in the resident class.
    (c)(1) The Secretary shall designate no fewer than eight (8) 
geographic regions for the total United States. Within each geographic 
region, the Secretary shall take appropriate account of variations in 
cost between urban and rural areas.
    (2) There shall be no peer grouping of nursing facilities (e.g., 
based on whether the nursing facilities are hospital-based or not) 
other than peer-grouping by geographic region.

SEC. 106. COST CENTERS FOR NURSING FACILITY PAYMENT.

    (a) Consistent with the objectives established in section 102 of 
this Act, the Secretary shall determine payment rates for nursing 
facilities using the following cost/service groupings:
            (1) Nursing service costs. The nursing service cost center 
        shall include salaries and wages for the Director of Nursing, 
        Quality Assurance Nurses, registered nurses, licensed practical 
        nurses, nurse aides (including wages related to initial and on-
        going nurse aide training and other on-going or periodic 
        training costs incurred by nursing personnel), contract 
        nursing, fringe benefits and payroll taxes associated 
        therewith, medical records, and nursing supplies.
            (2) Administrative and general costs. The administrative 
        and general cost center shall include all expenses (including 
        salaries, benefits, and other costs) related to administration, 
        plant operation, maintenance and repair, housekeeping, dietary 
        (excluding raw food), central services and supply (excluding 
        medical supplies), laundry, and social services.
            (3) Fee-for-service ancillary services. Ancillary services 
        to be paid on a fee-for-service basis shall include physical 
        therapy, occupational therapy, speech therapy, respiratory 
        therapy, hyperalimentation, and complex medical equipment 
        (CME). These fee-for-service ancillary service payments under 
        part A of title XVIII of the Social Security Act shall not 
        affect the reimbursement of ancillary services under part B of 
        title XVIII of the Social Security Act.
            (4) Selected ancillary services and other costs. The cost 
        center for selected ancillary services and other costs shall 
        include drugs, raw food, medical supplies, IV therapy, X-ray 
        services, laboratory services, property tax, property 
        insurance, minor equipment, and all other costs not included in 
        the other four cost/service groupings.
            (5) Property costs. The property cost center shall include 
        depreciation on the building(s) and fixed equipment, major 
        movable equipment, motor vehicle(s), land improvements, 
        amortization of leasehold improvements, lease acquisition 
        costs, and capital leases; interest on capital indebtedness; 
        mortgage interest; lease costs; and equipment rental expense.
    (b) Nursing facilities shall be paid a prospective, facility-
specific, per diem rate based on the sum of the per diem rates 
established for the nursing service, administrative and general, and 
property cost centers as determined in accordance with sections 108, 
109 and 112 of this Act.
    (c) Nursing facilities shall be paid a facility-specific 
prospective rate for each unit of the fee-for-service ancillary 
services as determined in accordance with section 110 of this Act.
    (d) Nursing facilities shall be reimbursed for selected ancillary 
services and other costs on a retrospective basis in accordance with 
section 111 of this Act.

SEC. 107. RESIDENT ASSESSMENT.

    (a) The nursing facility shall perform a resident assessment in 
accordance with section 1819(b)(3) of title XVIII of the Social 
Security Act within fourteen (14) days of admission of the resident and 
at such other times as required by that section.
    (b) The resident assessment shall be used to determine the resident 
class of each resident in the nursing facility for purposes of 
determining the per diem rate for the nursing service cost center in 
accordance with section 108.

SEC. 108. THE PER DIEM RATE FOR NURSING SERVICE COSTS.

    (a)(1) The nursing service cost center rate shall be calculated 
using a prospective, facility-specific per diem rate based on the 
nursing facility's case-mix weight and nursing service costs during the 
base year.
    (2) The case-mix weight of a nursing facility shall be obtained by 
multiplying the number of resident days in each resident class at a 
nursing facility during the base year by the relative weight assigned 
to each resident class in the appropriate geographic region. Once this 
calculation is performed for each resident class in the nursing 
facility, the sum of these products shall constitute the case-mix 
weight for the nursing facility.
    (3) A facility nursing unit value for the nursing facility for the 
base year shall be obtained by dividing the nursing service costs for 
the base year, which shall be indexed forward from the midpoint of the 
base period to the midpoint of the rate period using the DRI McGraw-
Hill HCFA Nursing Home Without Capital Market Basket, by the case-mix 
weight of the nursing facility for the base year.
    (4) A facility-specific nursing services price for each resident 
class shall be obtained by multiplying the lower of the indexed 
facility unit value of the nursing facility during the base year or the 
geographic ceiling, as determined in accordance with subsection (b) of 
this section, by the relative weight of the resident class.
    (5) The Secretary shall designate certain resident classes as 
requiring heavy care. An acuity payment of three (3) percent of the 
facility-specific nursing services price shall be added on to the 
facility-specific price for each resident class which the Secretary has 
designated as requiring heavy care. The acuity payment is intended to 
provide an incentive to nursing facilities to admit residents requiring 
heavy care.
    (6) The per diem rate for the nursing service cost center for each 
resident in a resident class shall constitute the facility-specific 
price, plus the acuity payment where appropriate.
    (7) The per diem rate for the nursing service cost center, 
including the facility-specific price and the acuity payment, shall be 
rebased annually.
    (8) To determine the payment amount to a nursing facility for the 
nursing service cost center, the Secretary shall multiply the per diem 
rate (including the acuity payment) for a resident class by the number 
of resident days for each resident class based on aggregated resident 
invoices which each nursing facility shall submit on a monthly basis.
    (b)(1) The facility unit value identified in subsection (a)(3) of 
this section shall be subjected to geographic ceilings established for 
the geographic regions designated by the Secretary in section 105(c).
    (2) The geographic ceiling shall be determined by first creating an 
array of indexed facility unit values in a geographic region from 
lowest to highest. Based on this array, the Secretary shall identify a 
fixed proportion between the indexed facility unit value of the nursing 
facility which contained the medianth resident day in the array (except 
as provided in subsection (b)(4) of this section) and the indexed 
facility unit value of the nursing facility which contained the 95th 
percentile resident day in that array during the first year of 
operation of the Prospective Payment System for Nursing Facilities. The 
fixed proportion (e.g., 1.1 times the median or 110 percent of the 
median) shall remain the same in subsequent years.
    (3) To obtain the geographic ceiling on the indexed facility unit 
value for nursing facilities in a geographic region in each subsequent 
year, the fixed proportion identified pursuant to subsection (b)(2) of 
this section shall be multiplied by the indexed facility unit value of 
the nursing facility which contained the medianth resident day in the 
array of facility unit values for the geographic region during the base 
year.
    (4) The Secretary shall exclude low volume and new nursing 
facilities, as defined in subsections (a) and (b) of section 113, 
respectively, for purposes of determining the geographic ceiling for 
the nursing service cost center.
    (c) The Secretary shall establish by regulation, in accordance with 
the Administrative Procedure Act, procedures for allowing exceptions to 
the geographic ceiling imposed on the nursing service cost center. The 
procedure shall permit exceptions based on the following factors:
            (1) Local supply and/or labor shortages which substantially 
        increase costs to specific nursing facilities.
            (2) Higher per resident day usage of contract nursing 
        personnel, if utilization of contract nursing personnel is 
        warranted by local circumstances, and the provider has taken 
        all reasonable measures to minimize contract personnel expense.
            (3) Extraordinarily low proportion of distinct part nursing 
        facilities in a geographic region resulting in a geographic 
        ceiling which unfairly restricts the reimbursement of distinct 
        part facilities.
            (4) Regulatory changes that increase costs to only a subset 
        of the nursing facility industry.
            (5) The offering of a new institutional health service or 
        treatment program by a nursing facility (in order to account 
        for initial startup costs).
            (6) Disproportionate usage of part-time employees, where 
        adequate numbers of full-time employees cannot reasonably be 
        obtained.
            (7) Other cost producing factors, to be specified by the 
        Secretary in regulations promulgated pursuant to the 
        Administrative Procedure Act, that are specific to a subset of 
        facilities in a geographic region (except case-mix variation).

SEC. 209. THE PER DIEM RATE FOR ADMINISTRATIVE AND GENERAL COSTS.

    (a)(1) Payment relative to the administrative and general cost 
center shall be a facility-specific, prospective, per diem rate.
    (2) The Secretary shall assign a per diem rate to a nursing 
facility by applying two standards which shall be calculated as 
follows:
            (A) Standard A shall be derived for each geographic region 
        by first creating an array of indexed nursing facility 
        administrative and general per diem costs from lowest to 
        highest. The Secretary shall then identify a fixed proportion 
        by dividing the indexed administrative and general per diem 
        costs of the nursing facility which contained the medianth 
        resident day of the array (except as provided in subsection 
        (a)(4) of this section) into the indexed administrative and 
        general per diem costs of the nursing facility which contained 
        the 75th percentile resident day in that array. Standard A for 
        each base year shall constitute the product of this fixed 
        proportion (e.g., 1.1 times the median or 110 percent of the 
        median) and the administrative and general indexed per diem 
        costs of the nursing facility which contained the medianth 
        resident day in the array of such costs during the base year.
            (B) Standard B shall be derived using the same calculation 
        as in subsection (A) except that the fixed proportion shall use 
        the indexed administrative and general costs of the nursing 
        facility containing the 85th percentile, rather than the 75th 
        percentile, resident day in the array of such costs.
    (3) The Secretary shall use the geographic regions identified in 
section 105(c) for purposes of determining Standard A and Standard B.
    (4) The Secretary shall exclude low volume and new nursing 
facilities, as defined in subsections (a) and (b) of section 113, 
respectively, for purposes of determining Standard A and Standard B.
    (5) To determine a nursing facility's per diem rate for the 
administrative and general cost center, Standard A and Standard B shall 
be applied to a nursing facility's administrative and general per diem 
costs, indexed forward using the DRI McGraw-Hill HCFA Nursing Home 
Without Capital Market Basket, as follows:
            (A) The nursing facilities having indexed costs which fall 
        below the median shall be assigned a rate equal to their 
        individual indexed costs plus an ``efficiency incentive'' equal 
        to one-half of the difference between the median and Standard 
        A.
            (B) The nursing facilities having indexed costs which fall 
        below Standard A but at or above the median shall be assigned a 
        per diem rate equal to their individual indexed costs plus an 
        ``efficiency incentive'' equal to one-half of the difference 
        between the nursing facility's indexed costs and Standard A.
            (C) The nursing facilities having indexed costs which fall 
        between Standard A and Standard B shall be assigned a rate 
        equal to Standard A plus one-half of the difference between the 
        nursing facility's indexed costs and Standard A.
            (D) The nursing facilities having indexed costs which 
        exceed Standard B shall be assigned a rate as if their costs 
        equaled Standard B. These nursing facilities shall be assigned 
        a per diem rate equal to Standard A plus one-half of the 
        difference between Standard A and Standard B.
            (E) For purposes of subsections (A)-(D) of section (a)(5) 
        of this section, the median represents the indexed 
        administrative and general per diem costs of the nursing 
        facility which contained the medianth resident day in the array 
        of such costs during the base year in the geographic region.
    (b) Rebasing of the payment rates for administrative and general 
costs shall occur no less frequently than once a year.

SEC. 110. PAYMENT FOR FEE-FOR-SERVICE ANCILLARY SERVICES.

    (a) Payment for each ancillary service enumerated in section 
106(a)(3), such as physical therapy, shall be calculated and paid on a 
prospective fee-for-service basis.
    (b) The Secretary shall identify the fee for each of the fee-for-
service ancillary services for a particular nursing facility by 
dividing the nursing facility's actual costs, including overhead 
allocated through the cost-finding process, of providing each 
particular service, indexed forward using the DRI McGraw-Hill HCFA 
Nursing Home Without Capital Market Basket, by the units of the 
particular service provided by the nursing facility during the cost 
year.
    (c) The fee for each of the fee-for-service ancillary services 
shall be calculated at least once a year for each facility and 
ancillary service.

SEC. 111. REIMBURSEMENT OF SELECTED ANCILLARY SERVICES AND OTHER COSTS.

    (a) Reimbursement of selected ancillary services and other costs 
identified in section 106(a)(4), such as drugs and medical supplies, 
shall be reimbursed on a retrospective basis as passthrough costs, 
including overhead allocated through the cost-finding process.
    (b) The Secretary shall set charge-based interim rates for selected 
ancillary services and other costs for each nursing facility providing 
such services. Any overpayments or underpayments resulting from the 
difference between the interim and final settlement rates shall be 
either refunded by the nursing facility or paid to the nursing facility 
following submission of a timely-filed medicare cost report.

SEC. 112. THE PER DIEM RATE FOR PROPERTY COSTS.

    (a)(1) The basis for payment within the property cost center for 
nursing facilities shall be calculated and paid on a prospective 
(except as provided for newly constructed facilities in subsection 
(d)(2) of this section), facility-specific, per resident day rate based 
on the fair asset value of the property.
    (2)(A) The fair asset value of the property shall constitute the 
sum of the market value of the land (including site preparation costs), 
a reconstruction cost appraised value for the building(s) and fixed 
equipment, and the product of the number of beds in the nursing 
facility and a per bed allowance for major movable equipment.
    (B) The land, building(s), and fixed equipment which are included 
in determining the fair asset value must be used in connection with the 
care of residents.
    (C) Appraisals for the building(s) and fixed equipment shall be 
performed using the Marshall-Swift segmented cost method. A nursing 
facility shall be appraised every four years.
    (D) The Secretary shall utilize an annual allowance of $3,500 per 
bed for major movable equipment for a nursing facility. The Secretary 
shall review the annual allowance for major movable equipment every 
five (5) years to determine its accuracy.
    (E) If a nursing facility has commenced a renovation to a building 
and fixed equipment between appraisals the cost of which constitutes at 
least five (5) percent of the total value of the existing building and 
the fixed equipment, it may submit documentation as to the cost of the 
renovation during the previous year. The Secretary shall add the 
reasonable costs of the major renovation for the previous year to the 
fair asset value of the facility. This new asset value is to be the 
base for indexing until the next full appraisal.
    (F) The value of the assets is determined through appraisals, 
indexing, and the application of allowances, and is, therefore, 
unaffected by sales transactions, refinancing, or other changes in 
financing. Accordingly, the concept of recapture of depreciation is 
inapplicable to facilities whose payment is established under this 
chapter.
    (3) The value of the land, building(s), and fixed equipment shall 
be indexed annually between reappraisals as follows:
            (A) The land shall be indexed using the Consumer Price 
        Index Urban.
            (B) The building(s) and fixed equipment shall be indexed 
        annually using the R. S. Means Index.
    (4) The annual allowance for major movable equipment shall be 
indexed annually using the hospital equipment index of the Marshall 
Swift Valuation Service.
    (5) The Secretary shall adjust the indexes used for the land, 
building(s) and fixed equipment, and major movable equipment for the 
different geographic regions.
    (b)(1) The Secretary shall establish a per bed limit on the fair 
asset value of a nursing facility for each geographic region, as 
designated in section 105(c). The per bed limit shall be equal to the 
average indexed costs incurred by all recently constructed nursing 
facilities in the geographic region which have been designed and 
constructed in an efficient manner.
    (2) The per bed limit on the fair asset value shall be indexed 
annually using the R. S. Means Index.
    (3) The per bed limit shall be recalculated every five (5) years.
    (c) The total annual rental shall constitute the product of the 
lower of the indexed fair asset value or the indexed per bed limit and 
a rental rate which shall be based on the average yield for twenty (20) 
year United States Treasury Bonds during the prior year plus a risk 
premium of 3 percentage points.
    (d)(1) The per resident day rental shall be obtained by dividing 
the total annual rental by 90 percent of the annual licensed bed days. 
The per resident day rental shall constitute the per diem rate 
attributable to the property cost center.
    (2) The per resident day rental rate for newly-constructed 
facilities during their first year of operation shall be based on the 
total annual rental divided by the greater of fifty (50) percent of 
available resident days or actual annualized resident days up to 90 
percent of annual licensed bed days during their first year of 
operation.
    (e) Facilities in operation prior to the effective date of this Act 
shall receive the per resident day rental or actual costs, as 
determined in accordance with HCFA-Pub. 15, whichever is greater, 
except that a nursing facility shall be reimbursed the per resident day 
rental.
            (1) Commencing with the date upon which the nursing 
        facility changes ownership; or
            (2) After the nursing facility has accepted the per 
        resident day rental; or
            (3) After renegotiation of the lease for the land and/or 
        building(s), not including the exercise of optional extensions 
        specifically included in the original lease agreement or valid 
        extensions thereof.

SEC. 112. MID-YEAR RATE ADJUSTMENTS.

    (a)(1) The Secretary shall establish by regulation, in accordance 
with the Administrative Procedure Act, a procedure for granting midyear 
rate adjustments for the nursing service, administrative and general, 
and fee-for-service ancillary services cost centers.
    (2) The mid-year rate adjustment procedure shall require the 
Secretary to grant adjustments on an industry-wide basis, without the 
need for nursing facilities to apply for such adjustments, based on the 
following circumstances:
            (A) Statutory or regulatory changes affecting nursing 
        facilities (e.g., new staffing standards or expanded services).
            (B) Changes to the Federal minimum wage.
            (C) General labor shortages with high regional wage 
        impacts.
    (3) The midyear rate adjustment procedure shall permit specific 
facilities or groups of facilities to apply for an adjustment based on 
the following factors:
            (A) Local labor shortages.
            (B) Regulatory changes that apply to only a subset of the 
        nursing facility industry.
            (C) Economic conditions created by natural disasters or 
        other events outside of the control of the provider.
            (D) Other cost producing factors, except case-mix 
        variation, to be specified by the Secretary in regulations 
        promulgated pursuant to the Administrative Procedure Act.
    (4)(A) A nursing facility which applies for a midyear rate 
adjustment pursuant to subsection (a)(3) of this section shall be 
required to show that the adjustment will result in a greater than 2 
percent deviation in the per diem rate for any individual cost service 
center or a deviation of greater than $5,000 in the total projected and 
indexed costs for the rate year, whichever is less.
    (B) A nursing facility application for a midyear rate adjustment 
must be accompanied by recent cost experience data and/or budget 
projections.

SEC. 113. EXCEPTION TO PAYMENT METHODS FOR NEW AND LOW VOLUME NURSING 
              FACILITIES.

    (a) A low volume nursing facility shall constitute a nursing 
facility having fewer than 2,500 medicare part A resident days per 
year.
    (b) A new nursing facility shall constitute a newly constructed, 
licensed, and certified nursing facility and/or a nursing facility that 
is in its first three years of operation as a medicare part A provider. 
A nursing facility that has operated for more than three years but has 
a change of ownership shall not constitute a new facility.
    (c) Low volume nursing facilities shall have the option of 
submitting a cost report to receive retrospective payment for all of 
the cost centers, other than the property cost center, or accepting a 
per diem rate which shall be based on the sum of--
            (1) the median indexed resident day facility unit value for 
        the appropriate geographic region for the nursing service cost 
        center during the base year as identified in section 108(b)(2);
            (2) the median indexed resident day administrative and 
        general per diem costs of all nursing facilities in the 
        appropriate geographic region as identified in section 
        109(a)(5)(E);
            (3) the median indexed resident day costs per unit of 
        service for fee-for-service ancillary services which shall be 
        obtained using the cost information from the nursing facilities 
        in the appropriate geographic region during the base year, 
        excluding low volume and new nursing facilities, and which 
        shall be based on an array of such costs from lowest to 
        highest; and
            (4) The median indexed resident day per diem costs for 
        selected ancillary services and other costs which shall be 
        obtained using information from the nursing facilities in the 
        appropriate geographic region during the base year, excluding 
        low volume and new nursing facilities, and which shall be based 
        on an array of such costs from lowest to highest.
    (d) New nursing facilities shall have the option of being paid on a 
retrospective cost passthrough basis for all cost centers, or in 
accordance with section 113(c)(1) through (4)--Low Volume Providers.

SEC. 114. APPEAL PROCEDURES.

    (a)(1) Any person or legal entity aggrieved by a decision of the 
Secretary under this Act, and which results in an amount in controversy 
of $10,000 or more, shall have the right to appeal such decision 
directly to the Provider Reimbursement Review Board (hereinafter ``the 
Board'') authorized under section 1878 of title XVIII of the Social 
Security Act.
    (2) The $10,000 amount in controversy shall be computed in 
accordance with 42 C.F.R. Sec. 405.1839.
    (b) Hearings before the Board under this Act, and any appeals 
thereto, shall follow the procedures under section 1878 of title XVIII 
of the Social Security Act and the regulations contained in 42 C.F.R. 
Sec. Sec. 405.1841-1889, except to the extent that they conflict with, 
or are inapplicable on account of, any other provision of this Act.
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