[Federal Register Volume 65, Number 147 (Monday, July 31, 2000)]
[Rules and Regulations]
[Pages 46770-46796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19004]



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Part II





Department of Health and Human Services





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Health Care Financing Administration



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42 CFR Parts 411, 413, and 489



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

  Federal Register / Vol. 65, No. 147 / Monday, July 31, 2000 / Rules 
and Regulations  

[[Page 46770]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 411, 413, and 489

[HCFA-1112-F]
RIN 0938-AJ93


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

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Final rule.

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

EFFECTIVE DATE: These regulations are effective on October 1, 2000.

FOR FURTHER INFORMATION CONTACT:   

Dana Burley, (410) 786-4547 or Sheila Lambowitz, (410) 786-7605 (for 
information related to the case-mix classification methodology).
John Davis, (410) 786-0008 (for information related to the Wage Index).
Bill Ullman, (410) 786-5667 (for information related to consolidated 
billing).
Steve Raitzyk, (410) 786-4599 (for information related to the facility-
specific transition rates).
Bill Ullman, (410) 786-5667 or Susan Burris (410) 786-6655 (for general 
information).

SUPPLEMENTARY INFORMATION:

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

Table of Contents

I. Background
    A. Current System for Payment of Skilled Nursing Facility 
Services Under Part A of the Medicare Program
    B. Requirements of the Balanced Budget Act of 1997 for Updating 
the Prospective Payment System for Skilled Nursing Facilities
    C. The Medicare, Medicaid and State Child Health Insurance 
Program (SCHIP) Balanced Budget Refinement Act of 1999
    D. Skilled Nursing Facility Prospective Payment--General 
Overview
    1. Payment Provisions--Federal Rates
    2. Payment Provisions--Transition Period
    3. Payment Provisions--Facility-Specific Rate
II. Provisions of the Proposed Rule
III. Analysis of and Responses to Public Comments
    A. Case-Mix Refinements
    1. Potential Case-Mix Refinements Described in the Proposed Rule
    2. Clinical Issues
    3. Medical Review and Fiscal Intermediary Issues
    4. Section U of the Minimum Data Set
    B. Update of Payment Rates Under the Prospective Payment System 
for Skilled Nursing Facilities
    1. Federal Prospective Payment System
    2. Case-Mix Adjustment
    C. Wage Index Adjustment to Federal Rates
    D. Updates to the Federal Rates
    E. Relationship of RUG-III Classification System to Existing 
Skilled Nursing Facility Level-of-Care Criteria
    F. Three-Year Transition Period
    1. Computation of the Skilled Nursing Facility Prospective 
Payment System Rate during the Transition
    G. The Skilled Nursing Facility Market Basket Index
    1. Facility-Specific Rate Update Factor
    2. Federal Rate Update Factor
    H. Consolidated Billing
    I. Appeal Rights
    J. Impact Analysis of the Proposed Rule
IV. Provisions of the Final Regulation
V. Collection of Information Requirements
VI. Regulatory Impact Analysis
    A. Background
    B. Impact of this Final Rule
VII. Federalism
Regulations Text

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

ADL  Activity of Daily Living
BBA  Balanced Budget Act of 1997, P.L. 105-33
BBRA  Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 
1999, P.L. 106-113, Appendix F
BLS  (U.S.) Bureau of Labor Statistics
CPI  Consumer Price Index
HCFA  Health Care Financing Administration
HCPCS  HCFA Common Procedure Coding System
IFC  Interim Final Rule with Comments
MDS  Minimum Data Set
MSA  Metropolitan Statistical Area
PPI  Producer Price Index
PPS  Prospective Payment System
PRM  Provider Reimbursement Manual
RUG-III  Resource Utilization Groups, version III
SCHIP  State Child Health Insurance Program
SNF  Skilled Nursing Facility

I. Background

    On April 10, 2000, we published in the Federal Register (65 FR 
19188), a proposed rule that set forth updates to the payment rates 
used under the prospective payment system (PPS) for skilled nursing 
facilities (SNFs), for fiscal year (FY) 2001. Furthermore, it 
specifically proposed changes to the SNF PPS case-mix methodology. 
Annual updates to the PPS rates are required by section 1888(e) of the 
Social Security Act (the Act), as amended by the Medicare, Medicaid and 
State Child Health Insurance Program Balanced Budget Refinement Act of 
1999, related to Medicare payments and consolidated billing for SNFs. 
In addition, the rule proposed certain conforming revisions to the 
regulations necessary in order to implement amendments made to the Act 
by section 103 of the Medicare, Medicaid and State Child Health 
Insurance Program Balanced Budget Refinement Act of 1999 (BBRA), Public 
Law 106-113, Appendix F.

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

    Section 4432 of the Balanced Budget Act of 1997 (BBA) (Public Law 
105-33) mandated the implementation of a per diem PPS for SNFs, 
covering all costs (routine, ancillary, and capital) of covered SNF 
services furnished to beneficiaries under Part A of the Medicare 
program, effective for cost reporting periods beginning on or after 
July 1, 1998. We are updating the per

[[Page 46771]]

diem payment rates for SNFs, for FY 2001. Major elements of the SNF PPS 
include:
     Rates: Per diem Federal rates were established for urban 
and rural areas using allowable costs from FY 1995 cost reports. These 
rates also included an estimate of the cost of services that, before 
July 1, 1998, had been paid under Part B but furnished to Medicare 
beneficiaries in a SNF during a Part A covered stay. Rates are case-mix 
adjusted using a classification system (Resource Utilization Groups, 
version III (RUG-III)) based on beneficiary assessments (using the 
Minimum Data Set (MDS) 2.0). In addition, the Federal rates are 
adjusted by the hospital wage index to account for geographic variation 
in wages. Further, the rates are adjusted annually using an SNF market 
basket index.
     Transition: The SNF PPS includes a 3-year, phased 
transition that blends a facility-specific payment rate with the 
Federal case-mix adjusted rate. For each cost reporting period after a 
facility migrates to the new system, the facility-specific portion of 
the blend decreases and the Federal portion increases, in 25 percent 
increments. For most facilities, the facility-specific rate is based on 
allowable costs from FY 1995. As discussed later in this final rule, 
section 102 of the BBRA authorized facilities to elect to bypass the 
transition to be paid at the full Federal rate.
     Coverage: The PPS statute did not change Medicare's 
fundamental requirements for SNF coverage. However, because RUG-III 
classification is based, in part, on the beneficiary's need for skilled 
nursing care and therapy, we have attempted where possible to 
coordinate claims review procedures with the outputs of beneficiary 
assessment and RUG-III classifying activities.
     Consolidated Billing: The statute includes a billing 
provision that requires a SNF to submit consolidated Medicare bills for 
its beneficiaries for virtually all services that are covered under 
either Part A or Part B. The statute excludes a small list of services 
(primarily those of physicians and certain other types of 
practitioners). As discussed later in this final rule, section 103 of 
the BBRA has identified certain additional services for exclusion, 
effective April 1, 2000.

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

    Section 1888(e)(4)(H) of the Act requires that we publish in the 
Federal Register:
    1. The unadjusted Federal per diem rates to be applied to days of 
covered SNF services furnished during the FY.
    2. The case-mix classification system to be applied with respect to 
these services during the FY.
    3. The factors to be applied in making the area wage adjustment 
with respect to these services.
    In addition, in the July 30, 1999 final rule (64 FR 41670), we 
indicated that we would announce any changes to the guidelines for 
Medicare level of care determinations related to Part A SNF services or 
to the RUG-III classifications.
    Along with a number of other revisions and refinements discussed 
later in this preamble, this final rule provides the annual updates to 
the Federal rates, as mandated by the Medicare statute.

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

    As a result of enactment of the BBRA, there are several new 
provisions that result in adjustments to the PPS for SNFs. The 
following provisions were described in the proposed rule that we 
published on April 10, 2000 (65 FR 19188), and are discussed further in 
section III. of this preamble, to the extent that we received public 
comments concerning them:
     Section 101 provides for a temporary, 20 percent increase 
in the per diem adjusted payment rates for 15 specified RUG-III groups 
(SE3, SE2, SE1, SSC, SSB, SSA, CC2, CC1, CB2, CB1, CA2, CA1, RHC, RMC, 
and RMB). This legislation provides that the 20 percent increase takes 
effect with SNF services that are furnished on or after April 1, 2000, 
and continues until the later of October 1, 2000, or implementation by 
the Secretary of a refined RUG system. Thus, the 20 percent increase 
serves as a temporary, interim adjustment to the payment rates and RUG-
III classification system as published in the final rule of July 30, 
1999, and will continue until implementation of the case-mix 
refinements described in the legislation. As discussed in Section III., 
we are not implementing such case-mix refinements in this final rule. 
Therefore, the 20 percent increase for the specified RUG-III groups 
will remain in effect during FY 2001. Section 101 also includes an 
across-the-board increase in the adjusted Federal per diem payment 
rates by 4 percent each year for FYs 2001 and 2002, exclusive of the 20 
percent increase.
     Section 102 authorizes SNFs that would otherwise be 
subject to the three-year, phased transition from facility-specific to 
Federal rates to elect instead to make an immediate transition to the 
full Federal rate.
     Effective April 1, 2000, section 103 excludes from the SNF 
PPS bundle and the consolidated billing requirement certain types of 
ambulance services, certain customized prosthetic devices, and certain 
services involving chemotherapy and its administration; beginning with 
FY 2001, this section also requires a corresponding proportional 
reduction in Part A SNF payments.
     Section 104 provides for a Part B add-on for facilities 
participating in the Multistate Nursing Home Case-Mix and Quality 
(NHCMQ) Demonstration Project.
     Section 105 provides for a 50 percent Federal, 50 percent 
facility-specific payment rate for those SNFs that serve certain 
specialized patient populations.
     Section 155 provides that PPS payment to certain SNF 
providers located in Baldwin or Mobile County, Alabama, are based on 
100 percent of their facility specific rates for cost reporting periods 
that begin in FY 2000 or FY 2001.
    We included further information on these provisions in Program 
Memorandums A-99-53 and A-99-61 (December 1999), and Program Memorandum 
A-00-18 (March 2000).

D. Skilled Nursing Facility Prospective Payment--General Overview

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

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1. Payment Provisions--Federal Rate
    The statute sets forth a fairly prescriptive methodology for 
calculating the amount of payment under the SNF PPS. The PPS utilizes 
per diem Federal payment rates based on mean SNF costs in a base year 
updated for inflation to the first effective period of the PPS. We 
developed the Federal payment rates using allowable costs from 
hospital-based and freestanding SNF cost reports for reporting periods 
beginning in FY 1995. The data used in developing the Federal rates 
also incorporate an estimate of the amounts that would be payable under 
Part B for covered SNF services to individuals who were receiving Part 
A covered services in an SNF.
    In developing the rates for the initial period, we updated costs to 
the first effective year of PPS (15-month period beginning July 1, 
1998) using a SNF market basket index, and standardized for facility 
differences in case-mix and for geographic variations in wages. 
Providers that received ``new provider'' exemptions from the routine 
cost limits were excluded from the database used to compute the Federal 
payment rates. In addition, costs related to payments for exceptions to 
the routine cost limits were excluded from the database used to compute 
the Federal rates. In accordance with the formula prescribed in the 
BBA, we set the Federal rates at a level equal to the weighted mean of 
freestanding costs plus 50 percent of the difference between the 
freestanding mean and weighted mean of all SNF costs (hospital-based 
and freestanding) combined. We compute and apply separately the payment 
rates for facilities located in urban and rural areas. In addition, we 
adjust the portion of the Federal rate attributable to wage related 
costs by a wage index.
    The Federal rate also incorporates adjustments to account for 
facility case-mix using a classification system that accounts for the 
relative resource utilization of different patient types. This 
classification system, RUG-III, utilizes beneficiary assessment data 
(from the Minimum Data Set or MDS) completed by SNFs to assign 
beneficiaries into one of 44 groups. The May 12, 1998 interim final 
rule (63 FR 26252) has a complete and detailed description of the RUG-
III classification system. The BBA requires us to publish the SNF PPS 
case-mix classification methodology applicable for the next Federal FY 
before August 1 of each year. In the proposed rule, we discussed 
options for refining the existing RUG-III classification system. 
Further discussion of this issue appears in Section III. A. of this 
rule.
    The Federal rates reflected in this rule update the rates in the 
July 30, 1999 update notice (64 FR 41684) by a factor equal to the SNF 
market basket index minus 1 percentage point. According to section 
1888(e)(4)(E)(ii) of the Act, for FYs 2001 and 2002, we will update the 
rate by adjusting the current rates by the SNF market basket change 
minus 1 percentage point. For subsequent FYs, we will adjust the rates 
by the applicable SNF market basket change.
2. Payment Provisions--Transition Period
    Beginning with a provider's first cost reporting period beginning 
on or after July 1, 1998, there is a transition period covering three 
cost reporting periods. During the transition period, SNFs receive a 
payment rate comprising a blend between the Federal rate and a 
facility-specific rate based on each facility's FY 1995 cost report. 
Under section 1888(e)(2)(E)(ii) of the Act, SNFs that received their 
first payment from Medicare on or after October 1, 1995 receive payment 
according to the Federal rates only.
    For SNFs subject to transition, the composition of the blended rate 
varies depending on the year of transition. For the first cost 
reporting period beginning on or after July 1, 1998, we make payment 
based on 75 percent of the facility-specific rate and 25 percent of the 
Federal rate. In the next cost reporting period, the rate consists of 
50 percent of the facility-specific rate and 50 percent of the Federal 
rate. In the following cost reporting period, the rate consists of 25 
percent of the facility-specific rate and 75 percent of the Federal 
rate. For all subsequent cost reporting periods, we base payments 
entirely on the Federal rates.
    As noted elsewhere in this regulation, in accordance with section 
102 of the BBRA, SNFs that would otherwise be subject to the statutory 
three-year, phased transition from facility-specific to Federal rates, 
may elect to bypass the transition and go directly to the full Federal 
rate. This amendment applies to elections made on or after December 15, 
1999, except that no election will be effective for a cost reporting 
period beginning before January 1, 2000; an election is effective for a 
cost reporting period beginning no earlier than 30 days before the date 
of the election.
3. Payment Provisions--Facility-Specific Rate
    For most facilities, we compute the facility-specific payment rate 
utilized for the transition using the allowable costs of SNF services 
for cost reporting periods beginning in FY 1995 (cost reporting periods 
beginning on or after October 1, 1994 and before October 1, 1995). 
Included in the facility-specific per diem rate is an estimate of the 
amount that would be payable under Part B for covered SNF services 
furnished during FY 1995 to those beneficiaries in the facility who 
were receiving Part A covered services. The facility-specific rate, in 
contrast to the Federal rates, includes amounts paid to SNFs for 
exceptions to the routine cost limits. In addition, we also take into 
account ``new provider'' exemptions from the routine cost limits, but 
only to the extent that routine costs do not exceed 150 percent of the 
routine cost limit.
    We update the facility-specific rate for each cost reporting period 
after 1995 by a factor equal to the SNF market basket percentage 
increase minus 1 percentage point. In each subsequent year, we will 
update it by the applicable SNF market basket increase.

II. Provisions of the Proposed Rule

    The proposed rule that we published in the Federal Register (65 FR 
19188, April 10, 2000) included proposed FY 2001 updates to the Federal 
payment rates used under the SNF PPS. In accordance with section 
1888(e)(4)(E)(ii)(II) of the Act, the proposed updates reflected the 
SNF market basket percentage change for that fiscal year minus 1 
percentage point. Also, in order to facilitate the incorporation of 
proposed refinements into the case-mix classification system (see 
discussion in Section III. A. of this final rule), we created a 
separate component of the payment rates specifically to account for 
non-therapy ancillary costs (which have been included within the 
overall nursing case-mix component of the payment rates). In addition, 
the proposed rule described our methodology for adjusting the Federal 
rates in accordance with section 103 of the BBRA, in order to reflect 
that provision's exclusion of certain additional items and services 
from the SNF PPS and consolidated billing. Further, we provided for a 4 
percent increase in the adjusted Federal rate, in accordance with 
section 101 of the BBRA. We also included a discussion of the rights of 
SNFs to appeal their payment rates under the PPS (65 FR 19192). In 
addition, we proposed to make certain refinements in the case-mix 
classification system, in accordance with section 101 of the BBRA (see 
discussion in Section III. A. of this final rule).

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    In addition to discussing these general issues in the proposed 
rule, we also proposed to make the following specific revisions to the 
existing text of the regulations:
     In Sec. 411.15, paragraph (p)(2)(vii) would be revised to 
exclude from consolidated billing those ambulance services that are 
furnished to an SNF resident in conjunction with dialysis services that 
are covered under Part B.
     In Sec. 411.15, paragraph (p)(2) would also be revised to 
list the additional services that section 103 of the BBRA has excluded 
from consolidated billing.
     In Sec. 411.15, paragraph (p)(3)(iv), the phrase ``within 
24 consecutive hours'' would be revised to read ``by midnight of the 
day of departure''.
     In Sec. 489.20, paragraph (s) would be revised to list the 
additional services that the BBRA has excluded from consolidated 
billing, and a conforming change would be made in Sec. 489.21(h).
     In Sec. 489.20, paragraph (s)(7) would be revised to 
exclude from consolidated billing those ambulance services that are 
furnished to an SNF resident in conjunction with dialysis services that 
are covered under Part B.
     Section 489.20(s)(11) and Sec. 411.15(p)(2)(xi), would be 
revised to reflect editorial revisions in the paragraphs concerning the 
transportation costs of electrocardiogram equipment.
    More detailed information on each of these issues can be found in 
the discussion contained in the following section of this final rule.

III. Analysis of and Responses to Public Comments

    In response to the publication of the proposed rule on April 10, 
2000, we received approximately 750 comments. The majority consisted of 
form letters, in which we received multiple copies of an identically-
worded letter that had been signed and submitted by different 
individuals. Furthermore, we received over 30 comments from various 
trade associations and other major organizations. Comments originated 
from nursing homes and other providers, suppliers and practitioners 
(both individually, and through their respective trade associations), 
nursing home resident advocacy groups, health care consulting firms, 
and private citizens. While the comments fell into several broad areas, 
by far the largest number involved the refinements that we proposed to 
make in the PPS case-mix classification system, in accordance with 
section 101 of the BBRA.

A. Case-Mix Refinements

    The proposed rule discussed options for refinements to the RUG-III 
system, described ongoing research and analyses, shared the initial 
results that we proposed be incorporated into the Medicare PPS system 
effective October 1, 2000, and solicited comments from all interested 
parties.
1. Potential Case-Mix Refinements Described in the Proposed Rule
    Comment: We received numerous comments on the potential 
refinements, the supporting data, and the analyses planned to validate 
the data. Commenters were concerned first about our ability to complete 
the analyses on a timely basis, and then on how we would use the 
additional analyses in setting the FY 2001 rates. They also expressed 
concerns that the proposed refinements might not adequately address the 
problems that they perceived with current PPS payment levels.
    Response: In the proposed rule (65 FR 19202), we indicated that we 
believed our preliminary research findings to be valid, but we also 
noted that

    * * * it is certainly possible that additional testing will 
identify new issues or suggest alternative refinements to those 
presented here. We remain open to suggestions during the comment 
period and will carefully evaluate the validation analyses before 
proceeding to final rulemaking.

    We conducted the validation analyses discussed in the proposed rule 
to identify the actual distribution of the Medicare population, to 
determine any cost or acuity differences associated with short stay 
beneficiaries, and to validate the predictive power of the unweighted 
and weighted models in identifying variations in ancillary costs using 
national data from a current period (for example, after the 
implementation of the SNF PPS). We identified several important 
variations in the volume and distribution of beneficiaries and 
ancillary services costs using the 1999 national data which appear to 
have affected the performance of the index models described in the 
proposed rule.
    In examining the 1999 data, it is apparent that the introduction of 
the PPS and consolidated billing provisions for covered Part A SNF 
stays has caused changes in facility practice patterns and billing, 
although some of this change may be the effect of using national data. 
In part, these variations may be related to changes in facility 
practices regarding the use of pharmaceuticals and in the way 
respiratory therapy services are provided to Medicare beneficiaries. 
For example, respiratory therapy (RT) was a significant portion of the 
non-therapy ancillary services in the pre-PPS data base used to develop 
the refinement models. This component of cost provided a significant 
contribution to the predictive power of the index models presented in 
the proposed rule. However, mean RT costs decreased from $16.04 based 
on a re-analysis of the six State sample to $5.46 in the 1999 national 
data base (or a 66 percent decrease). We believe that the decrease may 
be a result of both more prudent use of the services (RT has been a 
target of OIG studies in utilization and pricing) and the incentives 
created by the PPS (for example, the use of nurses to provide RT care). 
On the other hand, average drug costs increased from $29.93 based on a 
re-analysis of the six State sample to $92.38 in 1999 national data 
base. Therefore, when applying the non-therapy ancillary index 
indicators to the national PPS data, we found the models were less 
effective in predicting ancillary cost variations than when applied to 
the earlier research data.
    As stated in the proposed rule, we were committed to validating the 
research results before proceeding to a refinement which required such 
a large expansion of the RUG-III classification system and impact on 
the delivery of SNF care. Since our latest validation analyses do not 
confirm the effectiveness of index models in the current PPS 
environment, we are not proceeding with implementation of the RUG 
refinements discussed in the proposed rule. Therefore, for FY 2001, we 
will be maintaining the existing 44-group RUG-III configuration. 
Consequently, we will also maintain the 20 percent add-on to the 
Federal rates for the 15 selected RUG-III groups, in accordance with 
section 101 of BBRA.
    The inability to validate the specific non-therapy ancillary index 
models described in the proposed rule does not preclude us from further 
efforts to improve the payment system's ability to allocate payments 
based on expected ancillary use. However, additional research will be 
needed to identify variables that will be effective predictors in the 
PPS environment. Now that we have developed a large national database 
of claims and MDS records from 1999, we plan to continue research on 
the development of a non-therapy ancillary index, as well as to 
investigate other potential refinement approaches. In continuing this 
research, we will carefully consider the comments we received, and use 
these comments to assist us in exploring potential solutions.

[[Page 46774]]

    Finally, as indicated in the April 10, 2000, proposed rule, both 
non-therapy ancillary index models were designed in conjunction with an 
addition to the RUG-III hierarchy; for example, 14 combined Extensive 
Services/Rehabilitation groups. While this approach may warrant further 
exploration, we are not adopting it at this time. The validation 
analyses looked at the impact of both components of the proposed 
refinements: the expansion of the RUG-III groups and the creation of a 
non-therapy ancillary index. The combined predictive power of both 
components was approximately 3 percent. Measured separately, the added 
predictive power of either component would be negligible. The benefit 
of expanding the number of RUG-III groups would be too small to justify 
the added complexity of the RUG-III system. We will continue to work to 
develop ways to address the needs of those beneficiaries who require an 
unusually heavy combination of clinical care, rehabilitation services, 
and ancillary utilization, without creating perverse incentives that 
could negatively affect the quality of care for this vulnerable segment 
of the beneficiary population.
2. Clinical Issues
    Comment: One commenter raised an issue involving certain 
restrictions placed by SNF administrators on staff's provision of 
therapies. The commenter reported that SNFs frequently constrain the 
amount of therapy therapists are permitted to provide the beneficiaries 
in particular facilities. Specifically, the commenter stated that 
therapists have been instructed by SNFs to limit therapy minutes to the 
minimum required for the medium RUG-III groups.
    Response: In view of this comment, in addition to other anecdotal 
evidence, we believe it is appropriate to reiterate some key points of 
Medicare policy. As we previously stated in the final rule of July 30, 
1999 (64 FR 41662), the number of minutes per week that are used as 
qualifiers for classification into the rehabilitation RUG-III groups 
``are minimums and are not to be used as upper limits for service 
provision.'' Facilities with patterns of therapy service provided at 
the minimum levels may be targeted for medical review and other audit 
activities. Arbitrary decisions by facility administrative staff to 
override the professional decision-making regarding which types and how 
much therapy service are needed by, and will be provided to, the 
individual beneficiary are inconsistent with our requirements for 
individual evaluations by a licensed professional therapist, care plan 
development that involves the physician and the professional therapist, 
and the strict rules we have promulgated regarding supervision of 
therapy service provision when service is provided by someone other 
than the licensed professional.
    Further, the Medicare requirements for participation (at section 
1819(b) of the Act) require SNFs to provide the services necessary to 
attain each resident's highest level of physical functioning. Any 
facility level policy that obstructs this goal is in direct conflict 
with Medicare policy.
    In addition, because we are not implementing the RUG-III 
refinements as proposed, we are concerned about some of the payment 
incentives associated with the 20 percent add-ons for 15 of the RUG-III 
groups. We are especially concerned about the effect on provider 
behavior that could result from the incentive provided by the add-on 
for such groups as those in the extensive services category, and for 
three of the rehabilitation RUG-III groups. For example, the additional 
payment for the RHC, RMC, and RMB groups results in higher payment for 
these groups than for some other, higher-level rehabilitation groups. 
We want to make clear that although this may create a fiscal incentive 
to provide less service in order to receive a higher rate of payment, 
we expect that facilities will continue to provide therapy at the 
levels most appropriate for each individual beneficiary.
    However, we realize that this is a powerful incentive and, 
therefore, are working on ways to monitor the inappropriate denial of 
services to beneficiaries in facilities' attempts to achieve higher 
payment. We are exploring our monitoring options and strategies to 
detect and deter inappropriate practices in this area, and will be able 
to present more specific information about our plans at our fall fiscal 
intermediary and provider training sessions. Monitoring activities will 
include our use of MDS data linked to SNF bills (which allows us to 
identify patterns and trends of SNF use and RUG-III group 
distributions), the SNF PPS Quality Medical Review Pilot and Data 
Analysis Peer Review Organization (which will specifically focus on the 
impact of the PPS in terms of quality of care and the potential for 
underutilization), and survey reports. At the facility level, we would 
certainly expect that any significant shift in beneficiary RUG-III 
classifications (for example, all beneficiaries being classified into 
the rehabilitation groups that have the 20 percent add-on), would 
result in closer monitoring and possible intervention.
    Comment: We received a few comments regarding the clinical items 
used as indicators for the non-therapy ancillary index. The commenters 
suggested additional MDS items that they believe should be used to 
trigger additional payment.
    Response: The clinical items used as indicators for the non-therapy 
ancillary indices, in the models discussed in the proposed rule are 
based on the data analyses performed to create the models. We did not 
undertake the research with any preconceived expectations or 
preferences as to the variables we believed would be most predictive of 
non-therapy ancillary cost. Rather, we looked to the data itself to 
identify the MDS items that were predictive of costs. We did not make 
decisions about the inclusion of these items and the values accepted 
for them unless the decision could be supported by the data analyses. 
As we continue to perform data analyses to identify the best way to 
recognize non-therapy ancillary costs, we will take into consideration 
the suggestions offered during the comment period. We plan to 
reexamine, using national data, which MDS items are predictive of non-
therapy ancillary costs.
3. Medical Review and Fiscal Intermediary Issues
    Comment: Many comments suggested that implementation of the 
refinements should be accompanied by HCFA-sponsored provider training. 
The reasons given for the additional training request are the 
expectation that the refinements will require software changes as well 
as some other operational changes. A few also suggested that clinical 
staff in particular, needed additional training because the refined 
RUG-III groups would necessitate changes in assessing, coding and 
documenting clinical decisions.
    Response: Although we are not going forward with the proposed 
refinements, we do intend to proceed with our plans for provider and 
fiscal intermediary training, in order to ensure that they have the 
most current information available on medical review procedures, claims 
processing requirements, and other aspects of the SNF PPS. We have 
already made plans for the provision of both ``train-the-trainer'' 
sessions for the fiscal intermediaries and for other HCFA-sponsored 
provider training to present updates on all aspects of the SNF PPS. We 
believe that having a full understanding of the payment and 
classification systems will help

[[Page 46775]]

providers achieve their highest levels of performance.
4. Section U of the Minimum Data Set
    Comment: We received a few comments expressing disappointment at 
our decision not to collect medication data using Section U of the 
minimum data set (MDS). These commenters suggested that we are losing 
an opportunity to collect very important information about the 
medications being offered to Medicare beneficiaries. They point out the 
importance of this data collection from both quality of care and 
payment perspectives. We also received a comment applauding our 
decision not to collect the medication data, which stated that the MDS 
should be streamlined rather than expanded.
    Response: We appreciate the commenters' concerns but, as stated in 
the proposed rule, we cannot collect the medication data beginning in 
October 2000, as we had planned. However, we are continuing our 
evaluation and will take all of the comments into consideration in that 
process.

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

1. Federal Prospective Payment System
    This final rule sets forth a schedule of Federal prospective 
payment rates applicable to Medicare Part A SNF services beginning 
October 1, 2000. The schedule incorporates per diem Federal rates that 
provide Part A payment for all costs of services furnished to a 
beneficiary in an SNF during a Medicare-covered stay. Tables 1 and 2 
reflect the updated components of the unadjusted Federal rates.

                                   Table 1.--Unadjusted Federal Rate Per Diem
                                                     [Urban]
----------------------------------------------------------------------------------------------------------------
                                                      Nursing--Case-  Therapy--Case-  Therapy--Non-   Non-case-
                   Rate component                           mix             mix          case mix        mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount.....................................        $114.38          $86.16         $11.35        $58.38
----------------------------------------------------------------------------------------------------------------


                                   Table 2.--Unadjusted Federal Rate Per Diem
                                                     [Rural]
----------------------------------------------------------------------------------------------------------------
                                                      Nursing--Case-  Therapy--Case-  Therapy--Non-   Non-case-
                   Rate component                           mix             mix          case mix        mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount.....................................        $109.29          $99.34         $12.13        $59.45
----------------------------------------------------------------------------------------------------------------

2. Case-Mix Adjustment
    As noted earlier in this final rule, we are not proceeding with the 
implemenation of the RUG refinements discussed in the proposed rule. 
Accordingly, the payment rates set forth in this final rule reflect the 
continued use of the 44-group RUG-III classification system discussed 
in the May 12, 1998 interim final rule (63 FR 26252). The case-mix 
adjusted payment rates are listed separately for urban and rural SNFs 
in Tables 3 and 4, with the corresponding case-mix index values.

                                            Table 3.--Case-mix Adjusted Federal Rates and Associated Indices
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     Therapy
                                                                 Nursing      Therapy      Nursing      Therapy     non-case-    Non-case-
                       RUG IV  category                           index        index      component    component       mix          mix       Total rate
                                                                                                                    component    component
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUC..........................................................         1.30         2.25      $148.69      $193.86  ...........       $58.38      $400.93
RUB..........................................................         0.95         2.25       108.66       193.86  ...........        58.38       360.90
RUA..........................................................         0.78         2.25        89.22       193.86  ...........        58.38       341.46
RVC..........................................................         1.13         1.41       129.25       121.49  ...........        58.38       309.12
RVB..........................................................         1.04         1.41       118.96       121.49  ...........        58.38       298.83
RVA..........................................................         0.81         1.41        92.65       121.49  ...........        58.38       272.52
RHC..........................................................         1.26         0.94       144.12        80.99  ...........        58.38       283.49
RHB..........................................................         1.06         0.94       121.24        80.99  ...........        58.38       260.61
RHA..........................................................         0.87         0.94        99.51        80.99  ...........        58.38       238.88
RMC..........................................................         1.35         0.77       154.41        66.34  ...........        58.38       279.13
RMB..........................................................         1.09         0.77       124.67        66.34  ...........        58.38       249.39
RMA..........................................................         0.96         0.77       109.80        66.34  ...........        58.38       234.52
RLB..........................................................         1.11         0.43       126.96        37.05  ...........        58.38       222.39
RLA..........................................................         0.80         0.43        91.50        37.05  ...........        58.38       186.93
SE3..........................................................         1.70  ...........       194.45  ...........       $11.35        58.38       264.18
SE2..........................................................         1.39  ...........       158.99  ...........        11.35        58.38       228.72
SE1..........................................................         1.17  ...........       133.82  ...........        11.35        58.38       203.55
SSC..........................................................         1.13  ...........       129.25  ...........        11.35        58.38       198.98
SSB..........................................................         1.05  ...........       120.10  ...........        11.35        58.38       189.83
SSA..........................................................         1.01  ...........       115.52  ...........        11.35        58.38       185.25
CC2..........................................................         1.12  ...........       128.11  ...........        11.35        58.38       197.84
CC1..........................................................         0.99  ...........       113.24  ...........        11.35        58.38       182.97
CB2..........................................................         0.91  ...........       104.09  ...........        11.35        58.38       173.82

[[Page 46776]]

 
CB1..........................................................         0.84  ...........        96.08  ...........        11.35        58.38       165.81
CA2..........................................................         0.83  ...........        94.94  ...........        11.35        58.38       164.67
CA1..........................................................         0.75  ...........        85.79  ...........        11.35        58.38       155.52
IB2..........................................................         0.69  ...........        78.92  ...........        11.35        58.38       148.65
IB1..........................................................         0.67  ...........        76.63  ...........        11.35        58.38       146.36
IA2..........................................................         0.57  ...........        65.20  ...........        11.35        58.38       134.93
IA1..........................................................         0.53  ...........        60.62  ...........        11.35        58.38       130.35
BB2..........................................................         0.68  ...........        77.78  ...........        11.35        58.38       147.51
BB1..........................................................         0.65  ...........        74.35  ...........        11.35        58.38       144.08
BA2..........................................................         0.56  ...........        64.05  ...........        11.35        58.38       133.78
BA1..........................................................         0.48  ...........        54.90  ...........        11.35        58.38       124.63
PE2..........................................................         0.79  ...........        90.36  ...........        11.35        58.38       160.09
PE1..........................................................         0.77  ...........        88.07  ...........        11.35        58.38       157.80
PD2..........................................................         0.72  ...........        82.35  ...........        11.35        58.38       152.08
PD1..........................................................         0.70  ...........        80.07  ...........        11.35        58.38       149.80
PC2..........................................................         0.65  ...........        74.35  ...........        11.35        58.38       144.08
PC1..........................................................         0.64  ...........        73.20  ...........        11.35        58.38       142.93
PB2..........................................................         0.51  ...........        58.33  ...........        11.35        58.38       128.06
PB1..........................................................         0.50  ...........        57.19  ...........        11.35        58.38       126.92
PA2..........................................................         0.49  ...........        56.05  ...........        11.35        58.38       125.78
PA1..........................................................         0.46  ...........        52.61  ...........        11.35        58.38       122.34
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                            Table 4.--Case-Mix Adjusted Federal Rates and Associated Indices
                                                                         [Rural]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                   Therapy non-  Non-case-
                       RUG IV category                           Nursing      Therapy      Nursing      Therapy      case-mix       mix       Total rate
                                                                  index        index      component    component    component    component
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUC..........................................................         1.30         2.25      $142.08      $223.52  ...........       $59.45      $425.05
RUB..........................................................         0.95         2.25       103.83       223.52  ...........        59.45       386.80
RUA..........................................................         0.78         2.25        85.25       223.52  ...........        59.45       368.22
RVC..........................................................         1.13         1.41       123.50       140.07  ...........        59.45       323.02
RVB..........................................................         1.04         1.41       113.66       140.07  ...........        59.45       313.18
RVA..........................................................         0.81         1.41        88.52       140.07  ...........        59.45       288.04
RHC..........................................................         1.26         0.94       137.71        93.38  ...........        59.45       290.54
RHB..........................................................         1.06         0.94       115.85        93.38  ...........        59.45       268.68
RHA..........................................................         0.87         0.94        95.08        93.38  ...........        59.45       247.91
RMC..........................................................         1.35         0.77       147.54        76.49  ...........        59.45       283.48
RMB..........................................................         1.09         0.77       119.13        76.49  ...........        59.45       255.07
RMA..........................................................         0.96         0.77       104.92        76.49  ...........        59.45       240.86
RLB..........................................................         1.11         0.43       121.31        42.72  ...........        59.45       223.48
RLA..........................................................         0.80         0.43        87.43        42.72  ...........        59.45       189.60
SE3..........................................................         1.70  ...........       185.79  ...........        12.13        59.45       257.37
SE2..........................................................         1.39  ...........       151.91  ...........        12.13        59.45       223.49
SE1..........................................................         1.17  ...........       127.87  ...........        12.13        59.45       199.45
SSC..........................................................         1.13  ...........       123.50  ...........        12.13        59.45       195.08
SSB..........................................................         1.05  ...........       114.75  ...........        12.13        59.45       186.33
SSA..........................................................         1.01  ...........       110.38  ...........        12.13        59.45       181.96
CC2..........................................................         1.12  ...........       122.40  ...........        12.13        59.45       193.98
CC1..........................................................         0.99  ...........       108.20  ...........        12.13        59.45       179.78
CB2..........................................................         0.91  ...........        99.45  ...........        12.13        59.45       171.03
CB1..........................................................         0.84  ...........        91.80  ...........        12.13        59.45       163.38
CA2..........................................................         0.83  ...........        90.71  ...........        12.13        59.45       162.29
CA1..........................................................         0.75  ...........        81.97  ...........        12.13        59.45       153.55
IB2..........................................................         0.69  ...........        75.41  ...........        12.13        59.45       146.99
IB1..........................................................         0.67  ...........        73.22  ...........        12.13        59.45       144.80
IA2..........................................................         0.57  ...........        62.30  ...........        12.13        59.45       133.88
IA1..........................................................         0.53  ...........        57.92  ...........        12.13        59.45       129.50
BB2..........................................................         0.68  ...........        74.32  ...........        12.13        59.45       145.90
BB1..........................................................         0.65  ...........        71.04  ...........        12.13        59.45       142.62
BA2..........................................................         0.56  ...........        61.20  ...........        12.13        59.45       132.78
BA1..........................................................         0.48  ...........        52.46  ...........        12.13        59.45       124.04
PE2..........................................................         0.79  ...........        86.34  ...........        12.13        59.45       157.92
PE1..........................................................         0.77  ...........        84.15  ...........        12.13        59.45       155.73
PD2..........................................................         0.72  ...........        78.69  ...........        12.13        59.45       150.27
PD1..........................................................         0.70  ...........        76.50  ...........        12.13        59.45       148.08

[[Page 46777]]

 
PC2..........................................................         0.65  ...........        71.04  ...........        12.13        59.45       142.62
PC1..........................................................         0.64  ...........        69.95  ...........        12.13        59.45       141.53
PB2..........................................................         0.51  ...........        55.74  ...........        12.13        59.45       127.32
PB1..........................................................         0.50  ...........        54.65  ...........        12.13        59.45       126.23
PA2..........................................................         0.49  ...........        53.55  ...........        12.13        59.45       125.13
PA1..........................................................         0.46  ...........        50.27  ...........        12.13        59.45       121.85
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Wage Index Adjustment to Federal Rates

    Section 1888(e)(4)(G)(ii) of the Act requires that we provide for 
adjustments to the Federal rates to account for differences in area 
wage levels using an ``appropriate'' wage index as determined by the 
Secretary. It is our intent to evaluate a wage index based specifically 
on SNF data once it becomes available. The SNF wage data are currently 
being collected and evaluated to determine if we can utilize them in 
the future. If a wage index based on SNF data is developed, we will 
publish it for comment. However, in the interim, many commenters urged 
us to incorporate the latest wage data available. We continue to 
believe that, until a wage index based on SNF wage data is collected 
and analyzed, the hospital wage index's wage data provide the best 
available measure of comparable wages that should be paid by SNFs. 
Since hospitals and SNFs compete in the same labor market area, we 
believe that the use of this index's wage data results in an 
appropriate adjustment to the labor portion of SNF costs based on an 
``appropriate'' wage index, as required under section 1888(e) of the 
Act.
    The computation of the wage index is similar to past years in that 
we incorporate the latest data and methodology used to construct the 
hospital wage index (see the discussion in the May 12, 1998 interim 
final rule (63 FR 26274)). The wage index adjustment is applied to the 
labor-related portion of the Federal rate, which is 77.870 percent of 
the total rate. Tables 5 and 6 below shows the Federal rates by labor-
related and non-labor-related components.

  Table 5.--Case-Mix Adjusted Federal Rates for Urban SNFs by Labor and
                           Non-Labor Component
------------------------------------------------------------------------
                                                                Total
         RUGs IV category             Labor-     Non-labor-    federal
                                     related      related        rate
------------------------------------------------------------------------
RUC..............................      $312.20       $88.73      $400.93
RUB..............................       281.03        79.87       360.90
RUA..............................       265.89        75.57       341.46
RVC..............................       240.71        68.41       309.12
RVB..............................       232.70        66.13       298.83
RVA..............................       212.21        60.31       272.52
RHC..............................       220.75        62.74       283.49
RHB..............................       202.94        57.67       260.61
RHA..............................       186.02        52.86       238.88
RMC..............................       217.36        61.77       279.13
RMB..............................       194.20        55.19       249.39
RMA..............................       182.62        51.90       234.52
RLB..............................       173.18        49.21       222.39
RLA..............................       145.56        41.37       186.93
SE3..............................       205.72        58.46       264.18
SE2..............................       178.10        50.62       228.72
SE1..............................       158.50        45.05       203.55
SSC..............................       154.95        44.03       198.98
SSB..............................       147.82        42.01       189.83
SSA..............................       144.25        41.00       185.25
CC2..............................       154.06        43.78       197.84
CC1..............................       142.48        40.49       182.97
CB2..............................       135.35        38.47       173.82
CB1..............................       129.12        36.69       165.81
CA2..............................       128.23        36.44       164.67
CA1..............................       121.10        34.42       155.52
IB2..............................       115.75        32.90       148.65
IB1..............................       113.97        32.39       146.36
IA2..............................       105.07        29.86       134.93
IA1..............................       101.50        28.85       130.35
BB2..............................       114.87        32.64       147.51
BB1..............................       112.20        31.88       144.08
BA2..............................       104.17        29.61       133.78
BA1..............................        97.05        27.58       124.63
PE2..............................       124.66        35.43       160.09
PE1..............................       122.88        34.92       157.80

[[Page 46778]]

 
PD2..............................       118.42        33.66       152.08
PD1..............................       116.65        33.15       149.80
PC2..............................       112.20        31.88       144.08
PC1..............................       111.30        31.63       142.93
PB2..............................        99.72        28.34       128.06
PB1..............................        98.83        28.09       126.92
PA2..............................        97.94        27.84       125.78
PA1..............................        95.27        27.07       122.34
------------------------------------------------------------------------


  Table 6.--Case-Mix Adjusted Federal Rates for Rural SNFs by Labor and
                           Non-Labor Component
------------------------------------------------------------------------
                                                                Total
         RUGs IV category             Labor-     Non-labor-    federal
                                     related      related        rate
------------------------------------------------------------------------
RUC..............................      $330.99       $94.06      $425.05
RUB..............................       301.20        85.60       386.80
RUA..............................       286.73        81.49       368.22
RVC..............................       251.54        71.48       323.02
RVB..............................       243.87        69.31       313.18
RVA..............................       224.30        63.74       288.04
RHC..............................       226.24        64.30       290.54
RHB..............................       209.22        59.46       268.68
RHA..............................       193.05        54.86       247.91
RMC..............................       220.75        62.73       283.48
RMB..............................       198.62        56.45       255.07
RMA..............................       187.56        53.30       240.86
RLB..............................       174.02        49.46       223.48
RLA..............................       147.64        41.96       189.60
SE3..............................       200.41        56.96       257.37
SE2..............................       174.03        49.46       223.49
SE1..............................       155.31        44.14       199.45
SSC..............................       151.91        43.17       195.08
SSB..............................       145.10        41.23       186.33
SSA..............................       141.69        40.27       181.96
CC2..............................       151.05        42.93       193.98
CC1..............................       139.99        39.79       179.78
CB2..............................       133.18        37.85       171.03
CB1..............................       127.22        36.16       163.38
CA2..............................       126.38        35.91       162.29
CA1..............................       119.57        33.98       153.55
IB2..............................       114.46        32.53       146.99
IB1..............................       112.76        32.04       144.80
IA2..............................       104.25        29.63       133.88
IA1..............................       100.84        28.66       129.50
BB2..............................       113.61        32.29       145.90
BB1..............................       111.06        31.56       142.62
BA2..............................       103.40        29.38       132.78
BA1..............................        96.59        27.45       124.04
PE2..............................       122.97        34.95       157.92
PE1..............................       121.27        34.46       155.73
PD2..............................       117.02        33.25       150.27
PD1..............................       115.31        32.77       148.08
PC2..............................       111.06        31.56       142.62
PC1..............................       110.21        31.32       141.53
PB2..............................        99.14        28.18       127.32
PB1..............................        98.30        27.93       126.23
PA2..............................        97.44        27.69       125.13
PA1..............................        94.88        26.97       121.85
------------------------------------------------------------------------

    As discussed above and in the proposed rule, until an appropriate 
wage index based specifically on SNF data is available, we will use the 
latest available hospital wage index data in making annual updates to 
the payment rates. In making these annual updates, section 
1888(e)(4)(G)(ii) of the Act requires that the application of this wage 
index be made in a manner that does not result in aggregate payments 
that are greater or less than would otherwise be made in the absence of 
the wage adjustment. In this third PPS year (Federal rates effective 
October 1, 2000), we are updating the wage index applicable to SNF 
payments using the most recent hospital wage data and applying an 
adjustment to fulfill the budget neutrality requirement. This 
requirement will be met by multiplying

[[Page 46779]]

each of the per diem rate components by the ratio of the volume 
weighted mean wage adjustment factor (using the wage index from the 
previous year) to the volume weighted mean wage adjustment factor, 
using the wage index for the FY beginning October 1, 2000. The same 
volume weights are used in both the numerator and denominator and will 
be derived from 1997 Medicare Provider Analysis and Review File 
(MedPar) data. The wage adjustment factor used in this calculation is 
defined as the labor share of the rate component multiplied by the wage 
index plus the non-labor share. The budget neutrality factor for FY 
2001 is 0.99909, which is multiplied by each of the Federal rate 
components.
    Comment: We received one comment suggesting that the differences in 
the rural and urban wage indexes exacerbate rural access problems. The 
commenter indicates that the loss of adequate indirect and overhead 
reimbursement has taken away the incentive for ancillary providers to 
travel long distances, particularly to rural SNFs.
    Response: The wage index used to adjust the SNF payment rate is 
currently based upon the wage and hourly data derived directly from the 
hospital cost report and, therefore, reflects the relative wage 
difference between a rural and urban area. In addition, the wages are 
adjusted to account for overhead allocated to excluded areas that are 
carved out of the computation. We do not believe that using the wage 
index to adjust payments to SNFs will affect access to care in rural 
SNFs.
    Comment: We received several comments concerning the use of the 
hospital wage index to adjust payments for SNFs. Several of these 
commenters suggested that the hospital wage index does not adequately 
reflect the wages paid in the SNF setting. They argued that this is 
compounded by the fact that the SNF along with other areas are carved 
out or excluded from the computation of the hospital wage index. These 
commenters strongly suggested that we move quickly to a SNF-specific 
wage index. We also received other comments suggesting that we only 
implement a SNF-specific wage index if the data is significantly 
better, in order to justify the efforts involved in collecting and 
cleaning up the data.
    Response: We are currently reviewing the data collected on the SNF 
cost reports to evaluate the possibility of developing a SNF-specific 
wage index. We are developing edits and screens on the data to evaluate 
the reasonableness and accuracy of the data. A full year's worth of 
data under the PPS will not be available until late fall 2000. We will 
review the data and consider the reasonableness of a SNF specific wage 
index. We hope to be able to provide detailed information on a SNF-
specific wage index in our next proposed rule.
    However, until that time, we continue to believe that the hospital 
wage data are an appropriate measure to adjust for area differences in 
wage rates. The statute provides that the Secretary use an 
``appropriate'' wage index. We believe that the use of hospital wage 
data is appropriate because the relative difference between labor 
markets for hospitals and SNFs does not vary significantly, as they 
compete in the same labor market area.
    Comment: One commenter suggested that we update the wage index 
every six months to attract the best nursing staff to nursing homes.
    Response: We are not adopting this suggestion, because we do not 
believe that revising the wage index every six months would achieve the 
goal that the commenter seeks.
    For any RUG-III group, to compute a wage-adjusted Federal payment 
rate, the labor-related portion of the payment rate is multiplied by 
the SNF's appropriate wage index factor listed in Table 7. The product 
of that calculation is added to the corresponding non-labor-related 
component. The resulting amount is the Federal rate applicable to a 
beneficiary in that RUG-III group for that SNF.

                  Table 7.--Wage Index for Urban Areas
------------------------------------------------------------------------
                                                                  Wage
   Urban area  (Constituent Counties or County Equivalents)       Index
------------------------------------------------------------------------
0040  Abilene, TX.............................................    0.8240
  Taylor, TX
0060  Aguadilla, PR...........................................    0.4391
  Aguada, PR
  Aguadilla, PR
  Moca, PR
0080  Akron, OH...............................................    0.9736
  Portage, OH
  Summit, OH
0120  Albany, GA..............................................    0.9933
  Dougherty, GA
  Lee, GA
0160  Albany-Schenectady-Troy, NY.............................    0.8549
  Albany, NY
  Montgomery, NY
  Rensselaer, NY
  Saratoga, NY
  Schenectady, NY
  Schoharie, NY
0200  Albuquerque, NM.........................................    0.9136
  Bernalillo, NM
  Sandoval, NM
  Valencia, NM
0220  Alexandria, LA..........................................    0.8151
  Rapides, LA
0240  Allentown-Bethlehem-Easton, PA..........................    1.0040
  Carbon, PA
  Lehigh, PA
  Northampton, PA
0280  Altoona, PA.............................................    0.9346
  Blair, PA
0320  Amarillo, TX............................................    0.8715
  Potter, TX
  Randall, TX
0380  Anchorage, AK...........................................    1.2793
  Anchorage, AK
0440  Ann Arbor, MI...........................................    1.1254
  Lenawee, MI
  Livingston, MI
  Washtenaw, MI
0450  Anniston, AL............................................    0.8284
  Calhoun, AL
0460  Appleton-Oshkosh-Neenah, WI.............................    0.9052
  Calumet, WI
  Outagamie, WI
  Winnebago, WI
0470  Arecibo, PR.............................................    0.4525
  Arecibo, PR
  Camuy, PR
  Hatillo, PR
0480  Asheville, NC...........................................    0.9516
  Buncombe, NC
  Madison, NC
0500  Athens, GA..............................................    0.9739
  Clarke, GA
  Madison, GA
  Oconee, GA
0520  Atlanta, GA.............................................    1.0096
  Barrow, GA
  Bartow, GA
  Carroll, GA
  Cherokee, GA
  Clayton, GA
  Cobb, GA
  Coweta, GA
  De Kalb, GA
  Douglas, GA
  Fayette, GA
  Forsyth, GA
  Fulton, GA
  Gwinnett, GA
  Henry, GA
  Newton, GA Paulding, GA
  Pickens, GA
  Rockdale, GA
  Spalding, GA
  Walton, GA
0560  Atlantic City-Cape May, NJ..............................    1.1182
  Atlantic City, NJ
  Cape May, NJ
0580  Auburn-Opelika, AL......................................    0.8106
  Lee, AL
0600  Augusta-Aiken, GA-SC....................................    0.9160
  Columbia, GA
  McDuffie, GA
  Richmond, GA
  Aiken, SC
  Edgefield, SC
0640  Austin-San Marcos, TX...................................    0.9577
  Bastrop, TX
  Caldwell, TX
  Hays, TX

[[Page 46780]]

 
  Travis, TX
  Williamson, TX
0680  Bakersfield, CA.........................................    0.9678
  Kern, CA
0720  Baltimore, MD...........................................    0.9365
  Anne Arundel, MD
  Baltimore, MD
  Baltimore City, MD
  Carroll, MD
  Harford, MD
  Howard, MD
  Queen Annes, MD
0733  Bangor, ME..............................................    0.9561
  Penobscot, ME
0743  Barnstable-Yarmouth, MA.................................    1.3839
  Barnstable, MA
0760  Baton Rouge, LA.........................................    0.8842
  Ascension, LA
  East Baton Rouge, LA
  Livingston, LA
  West Baton Rouge, LA
0840  Beaumont-Port Arthur, TX................................    0.8744
  Hardin, TX
  Jefferson, TX
  Orange, TX
0860  Bellingham, WA..........................................    1.1439
  Whatcom, WA
0870  Benton Harbor, MI.......................................    0.8671
  Berrien, MI
0875  Bergen-Passaic, NJ......................................    1.1848
  Bergen, NJ
  Passaic, NJ
0880  Billings, MT............................................    0.9585
  Yellowstone, MT
0920  Biloxi-Gulfport-Pascagoula, MS..........................    0.8236
  Hancock, MS
  Harrison, MS
  Jackson, MS
0960  Binghamton, NY..........................................    0.8690
  Broome, NY
  Tioga, NY
1000  Birmingham, AL..........................................    0.8452
  Blount, AL
  Jefferson, AL
  St. Clair, AL
  Shelby, AL
1010  Bismarck, ND............................................    0.7705
  Burleigh, ND
  Morton, ND
1020  Bloomington, IN.........................................    0.8733
  Monroe, IN
1040  Bloomington-Normal, IL..................................    0.9095
  McLean, IL
1080  Boise City, ID..........................................    0.9006
  Ada, ID
  Canyon, ID
1123  Boston-Worcester-Lawrence-Lowell-Brockton, MA-NH........    1.1160
  Bristol, MA
  Essex, MA
  Middlesex, MA
  Norfolk, MA
  Plymouth, MA
  Suffolk, MA
  Worcester, MA
  Hillsborough, NH
  Merrimack, NH
  Rockingham, NH
  Strafford, NH
1125  Boulder-Longmont, CO....................................    0.9731
  Boulder, CO
1145  Brazoria, TX............................................    0.8658
  Brazoria, TX
1150  Bremerton, WA...........................................    1.0975
  Kitsap, WA
1240  Brownsville-Harlingen-San Benito, TX....................    0.8722
  Cameron, TX
1260  Bryan-College Station, TX...............................    0.8237
  Brazos, TX
1280  Buffalo-Niagara Falls, NY...............................    0.9580
  Erie, NY
  Niagara, NY
1303  Burlington, VT..........................................    1.0735
  Chittenden, VT
  Franklin, VT
  Grand Isle, VT
1310  Caguas, PR..............................................    0.4562
  Caguas, PR
  Cayey, PR
  Cidra, PR
  Gurabo, PR
  San Lorenzo, PR
1320  Canton-Massillon, OH....................................    0.8584
  Carroll, OH
  Stark, OH
1350  Casper, WY..............................................    0.8724
  Natrona, WY
1360  Cedar Rapids, IA........................................    0.8736
  Linn, IA
1400  Champaign-Urbana, IL....................................    0.9198
  Champaign, IL
1440  Charleston-North Charleston, SC.........................    0.9038
  Berkeley, SC
  Charleston, SC
  Dorchester, SC
1480  Charleston, WV..........................................    0.9240
  Kanawha, WV
  Putnam, WV
1520  Charlotte-Gastonia-Rock Hill, NC-SC.....................    0.9407
  Cabarrus, NC
  Gaston, NC
  Lincoln, NC
  Mecklenburg, NC
  Rowan, NC
  Stanly, NC
  Union, NC
  York, SC
1540  Charlottesville, VA.....................................    1.0789
  Albemarle, VA
  Charlottesville City, VA
  Fluvanna, VA
  Greene, VA
1560  Chattanooga, TN-GA......................................    0.9833
  Catoosa, GA
  Dade, GA
  Walker, GA
  Hamilton, TN
  Marion, TN
1580  Cheyenne, WY............................................    0.8308
  Laramie, WY
1600  Chicago, IL.............................................    1.1146
  Cook, IL
  De Kalb, IL
  Du Page, IL
  Grundy, IL
  Kane, IL
  Kendall, IL
  Lake, IL
  McHenry, IL
  Will, IL
1620  Chico-Paradise, CA......................................    0.9918
  Butte, CA
1640  Cincinnati, OH-KY-IN....................................    0.9415
  Dearborn, IN
  Ohio, IN
  Boone, KY
  Campbell, KY
  Gallatin, KY
  Grant, KY
  Kenton, KY
  Pendleton, KY
  Brown, OH
  Clermont, OH
  Hamilton, OH
  Warren, OH
1660  Clarksville-Hopkinsville, TN-KY.........................    0.8204
  Christian, KY
  Montgomery, TN
1680  Cleveland-Lorain-Elyria, OH.............................    0.9597
  Ashtabula, OH
  Geauga, OH
  Cuyahoga, OH
  Lake, OH
  Lorain, OH
  Medina, OH
1720  Colorado Springs, CO....................................    0.9697
  El Paso, CO
1740  Columbia, MO............................................    0.8961
  Boone, MO
1760  Columbia, SC............................................    0.9554
  Lexington, SC
  Richland, SC
1800  Columbus, GA-AL.........................................    0.8568
  Russell, AL
  Chattanoochee, GA
  Harris, GA
  Muscogee, GA
1840  Columbus, OH............................................    0.9619
  Delaware, OH
  Fairfield, OH
  Franklin, OH
  Licking, OH
  Madison, OH
  Pickaway, OH
1880  Corpus Christi, TX......................................    0.8726
  Nueces, TX
  San Patricio, TX
1890  Corvallis, OR...........................................    1.1326
  Benton, OR
1900  Cumberland, MD-WV.......................................    0.8369
  Allegany, MD
  Mineral, WV
1920  Dallas, TX..............................................    0.9913
  Collin, TX
  Dallas, TX
  Denton, TX
  Ellis, TX
  Henderson, TX
  Hunt, TX
  Kaufman, TX
  Rockwall, TX
1950  Danville, VA............................................    0.8589

[[Page 46781]]

 
  Danville City, VA
  Pittsylvania, VA
1960  Davenport-Moline-Rock Island, IA-IL.....................    0.8898
  Scott, IA
  Henry, IL
  Rock Island, IL
2000  Dayton-Springfield, OH..................................    0.9442
  Clark, OH
  Greene, OH
  Miami, OH
  Montgomery, OH
2020  Daytona Beach, FL.......................................    0.9200
  Flagler, FL
  Volusia, FL
2030  Decatur, AL.............................................    0.8534
  Lawrence, AL
  Morgan, AL
2040  Decatur, IL.............................................    0.8125
  Macon, IL
2080  Denver, CO..............................................    1.0181
  Adams, CO
  Arapahoe, CO
  Denver, CO
  Douglas, CO
  Jefferson, CO
2120  Des Moines, IA..........................................    0.9118
  Dallas, IA
  Polk, IA
  Warren, IA
2160  Detroit, MI.............................................    1.0510
  Lapeer, MI
  Macomb, MI
  Monroe, MI
  Oakland, MI
  St. Clair, MI
  Wayne, MI
2180  Dothan, AL..............................................    0.7943
  Dale, AL
  Houston, AL
2190  Dover, DE...............................................    1.0078
  Kent, DE
2200  Dubuque, IA.............................................    0.8746
  Dubuque, IA
2240  Duluth-Superior, MN-WI..................................    1.0032
  St. Louis, MN
  Douglas, WI
2281  Dutchess County, NY.....................................    1.0249
  Dutchess, NY
2290  Eau Claire, WI..........................................    0.8790
  Chippewa, WI
  Eau Claire, WI
2320  El Paso, TX.............................................    0.9346
  El Paso, TX
2330  Elkhart-Goshen, IN......................................    0.9145
  Elkhart, IN
2335  Elmira, NY..............................................    0.8546
  Chemung, NY
2340  Enid, OK................................................    0.8610
  Garfield, OK
2360  Erie, PA................................................    0.8985
  Erie, PA
2400  Eugene-Springfield, OR..................................    1.0965
  Lane, OR
2440  Evansville-Henderson, IN-KY.............................    0.8173
  Posey, IN
  Vanderburgh, IN
  Warrick, IN
  Henderson, KY
2520  Fargo-Moorhead, ND-MN...................................    0.8749
  Clay, MN
  Cass, ND
2560  Fayetteville, NC........................................    0.8655
  Cumberland, NC
2580  Fayetteville-Springdale-Rogers, AR......................    0.7910
  Benton, AR
  Washington, AR
2620  Flagstaff, AZ-UT........................................    1.0686
  Coconino, AZ
  Kane, UT
2640  Flint, MI...............................................    1.1205
  Genesee, MI
2650  Florence, AL............................................    0.7616
  Colbert, AL
  Lauderdale, AL
2655  Florence, SC............................................    0.8777
  Florence, SC
2670  Fort Collins-Loveland, CO...............................    1.0647
  Larimer, CO
2680  Ft. Lauderdale, FL......................................    1.0121
  Broward, FL
2700  Fort Myers-Cape Coral, FL...............................    0.9247
  Lee, FL
2710  Fort Pierce-Port St. Lucie, FL..........................    0.9538
  Martin, FL
  St. Lucie, FL
2720  Fort Smith, AR-OK.......................................    0.8052
  Crawford, AR
  Sebastian, AR
  Sequoyah, OK
2750 Fort Walton Beach, FL....................................    0.9607
  Okaloosa, FL
2760 Fort Wayne, IN...........................................    0.8665
  Adams, IN
  Allen, IN
  De Kalb, IN
  Huntington, IN
  Wells, IN
  Whitley, IN
2800 Fort Worth-Arlington, TX.................................    0.9527
  Hood, TX
  Johnson, TX
  Parker, TX
  Tarrant, TX
2840 Fresno, CA...............................................    1.0104
  Fresno, CA
  Madera, CA
2880 Gadsden, AL..............................................    0.8423
  Etowah, AL
2900 Gainesville, FL..........................................    1.0074
  Alachua, FL
2920 Galveston-Texas City, TX.................................    0.9918
  Galveston, TX
2960 Gary, IN.................................................    0.9454
  Lake, IN
  Porter, IN
2975 Glens Falls, NY..........................................    0.8361
  Warren, NY
  Washington, NY
2980 Goldsboro, NC............................................    0.8423
  Wayne, NC
2985 Grand Forks, ND-MN.......................................    0.8816
  Polk, MN
  Grand Forks, ND
2995 Grand Junction, CO.......................................    0.9109
  Mesa, CO.
3000 Grand Rapids-Muskegon-Holland, MI........................    1.0248
  Allegan, MI
  Kent, MI
  Muskegon, MI
  Ottawa, MI
3040 Great Falls, MT..........................................    0.9065
  Cascade, MT
3060 Greeley, CO..............................................    0.9814
  Weld, CO
3080 Green Bay, WI............................................    0.9225
  Brown, WI
3120 Greensboro-Winston-Salem-High Point, NC..................    0.9131
  Alamance, NC
  Davidson, NC
  Davie, NC
  Forsyth, NC
  Guilford, NC
  Randolph, NC
  Stokes, NC
  Yadkin, NC
3150 Greenville, NC...........................................    0.9384
  Pitt, NC
3160 Greenville-Spartanburg-Anderson, SC......................    0.9003
  Anderson, SC
  Cherokee, SC
  Greenville, SC
  Pickens, SC
  Spartanburg, SC
3180 Hagerstown, MD...........................................    0.9409
  Washington, MD
3200 Hamilton-Middletown, OH..................................    0.9061
  Butler, OH
3240 Harrisburg-Lebanon-Carlisle, PA..........................    0.9386
  Cumberland, PA
  Dauphin, PA
  Lebanon, PA
  Perry, PA
3283 Hartford, CT.............................................    1.1373
  Hartford, CT
  Litchfield, CT
  Middlesex, CT
  Tolland, CT
3285 Hattiesburg, MS..........................................    0.7490
  Forrest, MS
  Lamar, MS
3290 Hickory-Morganton-Lenoir, NC.............................    0.9008
  Alexander, NC
  Burke, NC
  Caldwell, NC
  Catawba, NC
3320 Honolulu, HI.............................................    1.1863
  Honolulu, HI
3350 Houma, LA................................................    0.8086
  Lafourche, LA
  Terrebonne, LA
3360 Houston, TX..............................................    0.9732
  Chambers, TX
  Fort Bend, TX
  Harris, TX
  Liberty, TX
  Montgomery, TX
  Waller, TX

[[Page 46782]]

 
3400 Huntington-Ashland, WV-KY-OH.............................    0.9876
  Boyd, KY
  Carter, KY
  Greenup, KY
  Lawrence, OH
  Cabell, WV
  Wayne, WV
3440 Huntsville, AL...........................................    0.8932
  Limestone, AL
  Madison, AL
3480 Indianapolis, IN.........................................    0.9787
  Boone, IN
  Hamilton, IN
  Hancock, IN
  Hendricks, IN
  Johnson, IN
  Madison, IN
  Marion, IN
  Morgan, IN
  Shelby, IN
3500 Iowa City, IA............................................    0.9657
  Johnson, IA
3520 Jackson, MI..............................................    0.9134
  Jackson, MI
3560 Jackson, MS..............................................    0.8812
  Hinds, MS
  Madison, MS
  Rankin, MS
3580 Jackson, TN..............................................    0.8796
  Chester, TN
  Madison, TN
3600  Jacksonville, FL........................................    0.9208
  Clay, FL
  Duval, FL
  Nassau, FL
  St. Johns, FL
3605  Jacksonville, NC........................................    0.7777
  Onslow, NC
3610  Jamestown, NY...........................................    0.7818
  Chautaqua, NY
3620  Janesville-Beloit, WI...................................    0.9585
  Rock, WI
3640  Jersey City, NJ.........................................    1.1502
  Hudson, NJ
3660  Johnson City-Kingsport-Bristol, TN-VA...................    0.8272
  Carter, TN
  Hawkins, TN
  Sullivan, TN
  Unicoi, TN
  Washington, TN
  Bristol City, VA
  Scott, VA
  Washington, VA
3680  Johnstown, PA...........................................    0.8846
  Cambria, PA
  Somerset, PA
3700  Jonesboro, AR...........................................    0.7832
  Craighead, AR
3710  Joplin, MO..............................................    0.8148
  Jasper, MO
  Newton, MO
3720  Kalamazoo-Battlecreek, MI...............................    1.0453
  Calhoun, MI
  Kalamazoo, MI
  Van Buren, MI
3740  Kankakee, IL............................................    0.9902
  Kankakee, IL
3760  Kansas City, KS-MO......................................    0.9498
  Johnson, KS
  Leavenworth, KS
  Miami, KS
  Wyandotte, KS
  Cass, MO
  Clay, MO
  Clinton, MO
  Jackson, MO
  Lafayette, MO
  Platte, MO
  Ray, MO
3800  Kenosha, WI.............................................    0.9611
  Kenosha, WI
3810  Killeen-Temple, TX......................................    1.0119
  Bell, TX
  Coryell, TX
3840  Knoxville, TN...........................................    0.8340
  Anderson, TN
  Blount, TN
  Knox, TN
  Loudon, TN
  Sevier, TN
  Union, TN
3850  Kokomo, IN..............................................    0.9518
  Howard, IN
  Tipton, IN
3870  La Crosse, WI-MN........................................    0.9211
  Houston, MN
  La Crosse, WI
3880  Lafayette, LA...........................................    0.8490
  Acadia, LA
  Lafayette, LA
  St. Landry, LA
  St. Martin, LA
3920  Lafayette, IN...........................................    0.8834
  Clinton, IN
  Tippecanoe, IN
3960  Lake Charles, LA........................................    0.7399
  Calcasieu, LA
3980  Lakeland-Winter Haven, FL...............................    0.9239
  Polk, FL
4000  Lancaster, PA...........................................    0.9259
  Lancaster, PA
4040  Lansing-East Lansing, MI................................    0.9934
  Clinton, MI
  Eaton, MI
  Ingham, MI
4080  Laredo, TX..............................................    0.8168
  Webb, TX
4100  Las Cruces, NM..........................................    0.8658
  Dona Ana, NM
4120  Las Vegas, NV-AZ........................................    1.0796
  Mohave, AZ
  Clark, NV
  Nye, NV
4150  Lawrence, KS............................................    0.8190
  Douglas, KS
4200  Lawton, OK..............................................    0.8996
  Comanche, OK
4243  Lewiston-Auburn, ME.....................................    0.9036
  Androscoggin, ME
4280  Lexington, KY...........................................    0.8866
  Bourbon, KY
  Clark, KY
  Fayette, KY
  Jessamine, KY
  Madison, KY
  Scott, KY
  Woodford, KY
4320  Lima, OH................................................    0.9320
  Allen, OH
  Auglaize, OH
4360  Lincoln, NE.............................................    0.9626
  Lancaster, NE
4400  Little Rock-North Little Rock, AR.......................    0.8906
  Faulkner, AR
  Lonoke, AR
  Pulaski, AR
  Saline, AR
4420  Longview-Marshall, TX...................................    0.8922
  Gregg, TX
  Harrison, TX
  Upshur, TX
4480  Los Angeles-Long Beach, CA..............................    1.1996
  Los Angeles, CA
4520  Louisville, KY-IN.......................................    0.9350
  Clark, IN
  Floyd, IN
  Harrison, IN
  Scott, IN
  Bullitt, KY
  Jefferson, KY
  Oldham, KY
4600  Lubbock, TX.............................................    0.8838
  Lubbock, TX
4640  Lynchburg, VA...........................................    0.8867
  Amherst, VA
  Bedford City, VA
  Bedford, VA
  Campbell, VA
  Lynchburg City, VA
4680  Macon, GA...............................................    0.8974
  Bibb, GA
  Houston, GA
  Jones, GA
  Peach, GA
  Twiggs, GA
4720  Madison, WI.............................................    1.0271
  Dane, WI
4800  Mansfield, OH...........................................    0.8690
  Crawford, OH
  Richland, OH
4840  Mayaguez, PR............................................    0.4589
  Anasco, PR
  Cabo Rojo, PR
  Hormigueros, PR
  Mayaguez, PR
  Sabana Grande, PR
  San German, PR
4880  McAllen-Edinburg-Mission, TX............................    0.8566
  Hidalgo, TX
4890  Medford-Ashland, OR.....................................    1.0344
  Jackson, OR
4900  Melbourne-Titusville-Palm Bay, FL.......................    0.9688
  Brevard, Fl
4920  Memphis, TN-AR-MS.......................................    0.8723
  Crittenden, AR
  De Soto, MS
  Fayette, TN
  Shelby, TN
  Tipton, TN
4940  Merced, CA..............................................    0.9646
  Merced, CA

[[Page 46783]]

 
5000  Miami, FL...............................................    1.0059
  Dade, FL
5015  Middlesex-Somerset-Hunterdon, NJ........................    1.1075
  Hunterdon, NJ
  Middlesex, NJ
  Somerset, NJ
5080  Milwaukee-Waukesha, WI..................................    0.9767
  Milwaukee, WI
  Ozaukee, WI
  Washington, WI
  Waukesha, WI
5120  Minneapolis-St Paul, MN-WI..............................    1.1017
  Anoka, MN
  Carver, MN
  Chisago, MN
  Dakota, MN
  Hennepin, MN
  Isanti, MN
  Ramsey, MN
  Scott, MN
  Sherburne, MN
  Washington, MN
  Wright, MN
  Pierce, WI
  St. Croix, WI
5140  Missoula, MT............................................    0.9274
  Missoula, MT
5160  Mobile, AL..............................................    0.8163
  Baldwin, AL
  Mobile, AL
5170  Modesto, CA.............................................    1.0396
  Stanislaus, CA
5190  Monmouth-Ocean, NJ......................................    1.1278
  Monmouth, NJ
  Ocean, NJ
5200  Monroe, LA..............................................    0.8396
  Ouachita, LA
5240  Montgomery, AL..........................................    0.7653
  Autauga, AL
  Elmore, AL
  Montgomery, AL
5280  Muncie, IN..............................................    1.0969
  Delaware, IN
5330  Myrtle Beach, SC........................................    0.8440
  Horry, SC
5345  Naples, FL..............................................    0.9661
  Collier, FL
5360  Nashville, TN...........................................    0.9490
  Cheatham, TN
  Davidson, TN
  Dickson, TN
  Robertson, TN
  Rutherford TN
  Sumner, TN
  Williamson, TN
  Wilson, TN
5380  Nassau-Suffolk, NY......................................    1.3932
  Nassau, NY
  Suffolk, NY
5483  New Haven-Bridgeport-Stamford-Waterbury-Danbury, CT.....    1.2297
  Fairfield, CT
  New Haven, CT
5523  New London-Norwich, CT..................................    1.2063
  New London, CT
5560  New Orleans, LA.........................................    0.9295
  Jefferson, LA
  Orleans, LA
  Plaquemines, LA
  St. Bernard, LA
  St. Charles, LA
  St. James, LA
  St. John The Baptist, LA
  St. Tammany, LA
5600  New York, NY............................................    1.4651
  Bronx, NY
  Kings, NY
  New York, NY
  Putnam, NY
  Queens, NY
  Richmond, NY
  Rockland, NY
  Westchester, NY
5640  Newark, NJ..............................................    1.1837
  Essex, NJ
  Morris, NJ
  Sussex, NJ
  Union, NJ
  Warren, NJ
5660  Newburgh, NY-PA.........................................    1.0847
  Orange, NY
  Pike, PA
5720  Norfolk-Virginia Beach-Newport News, VA-NC..............    0.8412
  Currituck, NC
  Chesapeake City, VA
  Gloucester, VA
  Hampton City, VA
  Isle of Wight, VA
  James City, VA
  Mathews, VA
  Newport News City, VA
  Norfolk City, VA
  Poquoson City, VA
  Portsmouth City, VA
  Suffolk City, VA
  Virginia Beach City VA
  Williamsburg City, VA
  York, VA
5775  Oakland, CA.............................................    1.4983
  Alameda, CA
  Contra Costa, CA 5790 Ocala, FL                                 0.9243
  Marion, FL
5800  Odessa-Midland, TX......................................    0.9205
  Ector, TX
  Midland, TX
5880  Oklahoma City, OK.......................................    0.8822
  Canadian, OK
  Cleveland, OK
  Logan, OK
  McClain, OK
  Oklahoma, OK
  Pottawatomie, OK
5910  Olympia, WA.............................................    1.0677
  Thurston, WA
5920  Omaha, NE-IA............................................    0.9572
  Pottawattamie, IA
  Cass, NE
  Douglas, NE
  Sarpy, NE
  Washington, NE
5945  Orange County, CA.......................................    1.1467
  Orange, CA
5960  Orlando, FL.............................................    0.9610
  Lake, FL
  Orange, FL
  Osceola, FL
  Seminole, FL
5990  Owensboro, KY...........................................    0.8159
  Daviess, KY
6015  Panama City, FL.........................................    0.9010
  Bay, FL
6020  Parkersburg-Marietta, WV-OH.............................    0.8274
  Washington, OH
  Wood, WV
6080  Pensacola, FL...........................................    0.8176
  Escambia, FL
  Santa Rosa, FL
6120  Peoria-Pekin, IL........................................    0.8645
  Peoria, IL
  Tazewell, IL
  Woodford, IL
6160  Philadelphia, PA-NJ.....................................    1.0937
  Burlington, NJ
  Camden, NJ
  Gloucester, NJ
  Salem, NJ
  Bucks, PA
  Chester, PA
  Delaware, PA
  Montgomery, PA
  Philadelphia, PA
6200  Phoenix-Mesa, AZ........................................    0.9669
  Maricopa, AZ
  Pinal, AZ
6240  Pine Bluff, AR..........................................    0.7791
  Jefferson, AR
6280  Pittsburgh, PA..........................................    0.9741
  Allegheny, PA
  Beaver, PA
  Butler, PA
  Fayette, PA
  Washington, PA
  Westmoreland, PA
6323 Pittsfield, MA...........................................    1.0288
  Berkshire, MA
6340  Pocatello, ID...........................................    0.9076
  Bannock, ID
6360 Ponce, PR................................................    0.5006
  Guayanilla, PR
  Juana Diaz, PR
  Penuelas, PR
  Ponce, PR
  Villalba, PR
  Yauco, PR
6403  Portland, ME............................................    0.9748
  Cumberland, ME
  Sagadahoc, ME
  York, ME
6440  Portland-Vancouver, OR-WA...............................    1.0910
  Clackamas, OR
  Columbia, OR
  Multnomah, OR
  Washington, OR
  Yamhill, OR
  Clark, WA
6483  Providence-Warwick-Pawtucket, RI........................    1.0864
  Bristol, RI
  Kent, RI
  Newport, RI

[[Page 46784]]

 
  Providence, RI
  Washington, RI
6520  Provo-Orem, UT..........................................    1.0029
  Utah, UT
6560  Pueblo, CO..............................................    0.8815
  Pueblo, CO
6580 Punta Gorda, FL..........................................    0.9613
  Charlotte, FL
6600  Racine, WI..............................................    0.9246
  Racine, WI
6640  Raleigh-Durham-Chapel Hill, NC..........................    0.9646
  Chatham, NC
  Durham, NC
  Franklin, NC
  Johnston, NC
  Orange, NC
  Wake, NC
6660  Rapid City, SD..........................................    0.8865
  Pennington, SD
6680  Reading, PA.............................................    0.9152
  Berks, PA
6690  Redding, CA.............................................    1.1664
  Shasta, CA
6720  Reno, NV................................................    1.0550
  Washoe, NV
6740  Richland-Kennewick-Pasco, WA............................    1.1460
  Benton, WA
  Franklin, WA
6760  Richmond-Petersburg, VA.................................    0.9617
  Charles City County, VA
  Chesterfield, VA
  Colonial Heights City, VA
  Dinwiddie, VA
  Goochland, VA
  Hanover, VA
  Henrico, VA
  Hopewell City, VA
  New Kent, VA
  Petersburg City, VA
  Powhatan, VA
  Prince George, VA
  Richmond City, VA
6780  Riverside-San Bernardino, CA............................    1.1239
  Riverside, CA
  San Bernardino, CA
6800  Roanoke, VA.............................................    0.8750
  Botetourt, VA
  Roanoke, VA
  Roanoke City, VA
  Salem City, VA
6820  Rochester, MN...........................................    1.1315
  Olmsted, MN
6840  Rochester, NY...........................................    0.9182
  Genesee, NY
  Livingston, NY
  Monroe, NY
  Ontario, NY
  Orleans, NY
  Wayne, NY
6880  Rockford, IL............................................    0.8819
  Boone, IL
  Ogle, IL
  Winnebago, IL
6895  Rocky Mount, NC.........................................    0.8849
  Edgecombe, NC
  Nash, NC
6920  Sacramento, CA..........................................    1.1950
  El Dorado, CA
  Placer, CA
  Sacramento, CA
6960  Saginaw-Bay City-Midland, MI............................    0.9575
  Bay, MI
  Midland, MI
  Saginaw, MI
6980  St. Cloud, MN...........................................    1.0016
  Benton, MN
  Stearns, MN
7000 St. Joseph, MO...........................................    0.9071
  Andrews, MO
  Buchanan, MO
7040 St. Louis, MO-IL.........................................    0.9049
  Clinton, IL
  Jersey, IL
  Madison, IL
  Monroe, IL
  St. Clair, IL
  Franklin, MO
  Jefferson, MO
  Lincoln, MO
  St. Charles, MO
  St. Louis, MO
  St. Louis City, MO
  Warren, MO
  Sullivan City, MO
7080  Salem, OR...............................................    1.0189
  Marion, OR
  Polk, OR
7120  Salinas, CA.............................................    1.4502
  Monterey, CA
7160  Salt Lake City-Ogden, UT................................    0.9807
  Davis, UT
  Salt Lake, UT
  Weber, UT
7200  San Angelo, TX..........................................    0.8083
  Tom Green, TX
7240 San Antonio, TX..........................................    0.8580
  Bexar, TX
  Comal, TX
  Guadalupe, TX
  Wilson, TX
7320  San Diego, CA...........................................    1.1784
  San Diego, CA
7360  San Francisco, CA.......................................    1.4156
  Marin, CA
  San Francisco, CA
  San Mateo, CA
7400  San Jose, CA............................................    1.3652
  Santa Clara, CA
7440  San Juan-Bayamon, PR....................................    0.4690
  Aguas Buenas, PR
  Barceloneta, PR
  Bayamon, PR
  Canovanas, PR
  Carolina, PR
  Catano, PR
  Ceiba, PR
  Comerio, PR
  Corozal, PR
  Dorado, PR
  Fajardo, PR
  Florida, PR
  Guaynabo, PR
  Humacao, PR
  Juncos, PR
  Los Piedras, PR
  Loiza, PR
  Luguillo, PR
  Manati, PR
  Morovis, PR
  Naguabo, PR
  Naranjito, PR
  Rio Grande, PR
  San Juan, PR
  Toa Alta, PR
  Toa Baja, PR
  Trujillo Alto, PR
  Vega Alta, PR
  Vega Baja, PR
  Yabucoa, PR
7460  San Luis Obispo-Atascadero-Paso Robles, CA..............    1.0673
  San Luis Obispo, CA
7480  Santa Barbara-Santa Maria-Lompoc, CA....................    1.0597
  Santa Barbara, CA
7485  Santa Cruz-Watsonville, CA..............................    1.4040
  Santa Cruz, CA
7490  Santa Fe, NM............................................    1.0537
  Los Alamos, NM
  Santa Fe, NM
7500 Santa Rosa, CA...........................................    1.2646
  Sonoma, CA
7510  Sarasota-Bradenton, FL..................................    0.9809
  Manatee, FL
  Sarasota, FL
7520  Savannah, GA............................................    0.9697
  Bryan, GA
  Chatham, GA
  Effingham, GA
7560  Scranton--Wilkes-Barre--Hazleton, PA....................    0.8421
  Columbia, PA
  Lackawanna, PA
  Luzerne, PA
  Wyoming, PA
7600  Seattle-Bellevue-Everett, WA............................    1.0996
  Island, WA
  King, WA
  Snohomish, WA
7610  Sharon, PA..............................................    0.7928
  Mercer, PA
7620  Sheboygan, WI...........................................    0.8379
  Sheboygan, WI
7640  Sherman-Denison, TX.....................................    0.8694
  Grayson, TX
7680  Shreveport-Bossier City, LA.............................    0.8750
  Bossier, LA
  Caddo, LA
  Webster, LA
7720  Sioux City, IA-NE.......................................    0.8473
  Woodbury, IA
  Dakota, NE
7760  Sioux Falls, SD.........................................    0.8790
  Lincoln, SD
  Minnehaha, SD
7800  South Bend, IN..........................................    1.0000
  St. Joseph, IN
7840  Spokane, WA.............................................    1.0513
  Spokane, WA
7880  Springfield, IL.........................................    0.8685
  Menard, IL
  Sangamon, IL

[[Page 46785]]

 
7920  Springfield, MO.........................................    0.8488
  Christian, MO
  Greene, MO
  Webster, MO
8003 Springfield, MA..........................................    1.0637
  Hampden, MA
  Hampshire, MA
8050  State College, PA.......................................    0.9038
  Centre, PA
8080  Steubenville-Weirton, OH-WV.............................    0.8548
  Jefferson, OH
  Brooke, WV
  Hancock, WV
8120  Stockton-Lodi, CA.......................................    1.0629
  San Joaquin, CA
8140  Sumter, SC..............................................    0.8271
  Sumter, SC
8160  Syracuse, NY............................................    0.9549
  Cayuga, NY
  Madison, NY
  Onondaga, NY
  Oswego, NY
8200  Tacoma, WA..............................................    1.1564
  Pierce, WA
8240  Tallahassee, FL.........................................    0.8545
  Gadsden, FL
  Leon, FL
8280  Tampa-St. Petersburg-Clearwater, FL.....................    0.8982
  Hernando, FL
  Hillsborough, FL
  Pasco, FL
  Pinellas, FL
8320  Terre Haute, IN.........................................    0.8304
  Clay, IN
  Vermillion, IN
  Vigo, IN
8360  Texarkana, AR-Texarkana, TX.............................    0.8363
  Miller, AR
  Bowie, TX
8400  Toledo, OH..............................................    0.9832
  Fulton, OH
  Lucas, OH
  Wood, OH
8440  Topeka, KS..............................................    0.9117
  Shawnee, KS
8480  Trenton, NJ.............................................    1.0137
  Mercer, NJ
8520  Tucson, AZ..............................................    0.8794
  Pima, AZ
8560  Tulsa, OK...............................................    0.8454
  Creek, OK
  Osage, OK
  Rogers, OK
  Tulsa, OK
  Wagoner, OK
8600  Tuscaloosa, AL..........................................    0.8064
  Tuscaloosa, AL
8640  Tyler, TX...............................................    0.9404
  Smith, TX
8680  Utica-Rome, NY..........................................    0.8560
  Herkimer, NY
  Oneida, NY
8720  Vallejo-Fairfield-Napa, CA..............................    1.2847
  Napa, CA
  Solano, CA
8735  Ventura, CA.............................................    1.1030
  Ventura, CA
8750  Victoria, TX............................................    0.8154
  Victoria, TX
8760  Vineland-Millville-Bridgeton, NJ........................    1.0501
  Cumberland, NJ
8780  Visalia-Tulare-Porterville, CA..........................    0.9551
  Tulare, CA
8800  Waco, TX................................................    0.8314
  McLennan, TX
8840  Washington, DC-MD-VA-WV.................................    1.0755
  District of Columbia, DC
  Calvert, MD
  Charles, MD
  Frederick, MD
  Montgomery, MD
  Prince Georges, MD
  Alexandria City, VA
  Arlington, VA
  Clarke, VA
  Culpepper, VA
  Fairfax, VA
  Fairfax City, VA
  Falls Church City, VA
  Fauquier, VA
  Fredericksburg City, VA
  King George, VA
  Loudoun, VA
  Manassas City, VA
  Manassas Park City, VA
  Prince William, VA
  Spotsylvania, VA
  Stafford, VA
  Warren, VA
  Berkeley, WV
  Jefferson, WV
8920  Waterloo-Cedar Falls, IA................................    0.8404
  Black Hawk, IA
8940  Wausau, WI..............................................    0.9418
  Marathon, WI
8960  West Palm Beach-Boca Raton, FL..........................    0.9682
  Palm Beach, FL
9000  Wheeling, OH-WV.........................................    0.7733
  Belmont, OH
  Marshall, WV
  Ohio, WV
9040  Wichita, KS.............................................    0.9544
  Butler, KS
  Harvey, KS
  Sedgwick, KS
9080  Wichita Falls, TX.......................................    0.7668
  Archer, TX
  Wichita, TX
9140  Williamsport, PA........................................    0.8392
  Lycoming, PA
9160  Wilmington-Newark, DE-MD................................    1.1191
  New Castle, DE
  Cecil, MD
9200  Wilmington, NC..........................................    0.9402
  New Hanover, NC
  Brunswick, NC
9260  Yakima, WA..............................................    0.9907
  Yakima, WA
9270  Yolo, CA................................................    1.0199
  Yolo, CA
9280  York, PA................................................    0.9264
  York, PA
9320  Youngstown-Warren, OH...................................    0.9543
  Columbiana, OH
  Mahoning, OH
  Trumbull, OH
9340  Yuba City, CA...........................................    1.0706
  Sutter, CA
  Yuba, CA
9360  Yuma, AZ................................................    0.9529
  Yuma, AZ
------------------------------------------------------------------------


                  Table 8.--Wage Index for Rural Areas
------------------------------------------------------------------------
                                                                  Wage
                         Nonurban area                            index
------------------------------------------------------------------------
Alabama.......................................................    0.7489
Alaska........................................................    1.2392
Arizona.......................................................    0.8317
Arkansas......................................................    0.7445
California....................................................    0.9861
Colorado......................................................    0.8968
Connecticut...................................................    1.1715
Delaware......................................................    0.9074
Florida.......................................................    0.8919
Georgia.......................................................    0.8329
Guam..........................................................    0.9611
Hawaii........................................................    1.1059
Idaho.........................................................    0.8678
Illinois......................................................    0.8160
Indiana.......................................................    0.8602
Iowa..........................................................    0.8030
Kansas........................................................    0.7605
Kentucky......................................................    0.7931
Louisiana.....................................................    0.7668
Maine.........................................................    0.8766
Maryland......................................................    0.8651
Massachusetts.................................................    1.1204
Michigan......................................................    0.8987
Minnesota.....................................................    0.8881
Mississippi...................................................    0.7491
Missouri......................................................    0.7698
Montana.......................................................    0.8688
Nebraska......................................................    0.8109
Nevada........................................................    0.9232
New Hampshire.................................................    0.9845
New Jersey \1\................................................  ........
New Mexico....................................................    0.8497
New York......................................................    0.8499
North Carolina................................................    0.8445
North Dakota..................................................    0.7716
Ohio..........................................................    0.8670
Oklahoma......................................................    0.7491
Oregon........................................................    1.0132
Pennsylvania..................................................    0.8578
Puerto Rico...................................................    0.4264
Rhode Island \1\..............................................  ........
South Carolina................................................    0.8370
South Dakota..................................................    0.7570
Tennessee.....................................................    0.7838
Texas.........................................................    0.7502
Utah..........................................................    0.9037
Vermont.......................................................    0.9274
Virginia......................................................    0.8189
Virgin Islands................................................    0.6306
Washington....................................................    1.0434

[[Page 46786]]

 
West Virginia.................................................    0.8231
Wisconsin.....................................................    0.8880
Wyoming.......................................................   0.8817
------------------------------------------------------------------------
\1\ All counties within the State are classified urban.

D. Updates to the Federal Rates

    In accordance with section 1888(e)(4)(E) of the Act, the proposed 
payment rates listed here have been updated by the SNF market basket 
minus 1 percentage point, which equals 2.161 percent. For each 
succeeding FY, we will publish the rates in the Federal Register before 
August 1 of the year preceding the affected Federal FY.
    For the current FY (FY 2001), and for FY 2002, section 
1888(e)(4)(E)(ii) of the Act requires the rates to be increased by a 
factor equal to the SNF market index change minus 1 percentage point. 
For subsequent FYs, this section requires the rates to be increased by 
the applicable SNF market basket index increase.

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

    Regulations at Sec. 413.345 provide that the information included 
in each update of the Federal payment rates in the Federal Register 
will include the designation of those specific RUGs under the 
classification system that represent the required SNF level of care, as 
provided in Sec. 409.30. In the proposed rule (65 FR 19228), we 
proposed to designate the following RUG-III classifications for this 
purpose: All groups within the proposed new Rehabilitation and 
Extensive category; all groups within the Ultra High Rehabilitation 
category; all groups within the Very High Rehabilitation category; all 
groups within the Medium Rehabilitation category; all groups within the 
Low Rehabilitation category; all groups within the Extensive Services 
category; and, all groups within the Clinically Complex category.
    Comment: A few commenters raised issues regarding specific aspects 
of the process for making SNF level of care determinations. One 
commenter recommended that the level of care presumption in existing 
regulations at Sec. 409.30 (which extends through the assessment 
reference date (ARD) for the initial 5-day, Medicare-required 
assessment) be expanded to extend through the ARD for the 30-day 
assessment. This commenter also favored revising the regulations to 
allow for using a beneficiary's assignment to one of the designated 
RUG-III groups in lieu of following the physician certification and 
recertification procedures described in Sec. 424.20. Another commenter 
suggested that requiring individual level of care determinations for 
those beneficiaries who are assigned to one of the ``lower 18'' RUG-III 
groups (that is, to a RUG-III group that is not designated for purposes 
of the administrative presumption) creates a barrier to care for 
beneficiaries with dementing diseases. However, by far the majority of 
comments in this area observed that the High Rehabilitation and Special 
Care categories, which had been included in the most recent update 
notice (64 FR 41696, July 30, 1999), were missing from the list in the 
proposed rule, and urged their restoration.
    Response: We believe that the suggestion for expanding the 
administrative presumption's timeframe to encompass the 30-day 
assessment is inconsistent with the underlying rationale for this 
presumption. In the preamble to the final rule that was published on 
July 30, 1999 (64 FR 41666-67), we noted that the Medicare SNF benefit 
is a ``posthospital'' benefit, and

* * * that SNF residents tend to be relatively unstable and require 
fairly intensive skilled care during the period immediately 
following admission from the prior hospitalization, but that this 
tendency typically diminishes as they get further on in the SNF stay 
* * *. [This] means, in effect, that the basis for making any type 
of presumption with regard to coverage would tend to become 
progressively less conclusive as a resident moves farther into the 
SNF stay, and would be at its most conclusive at the very outset of 
the stay, during the period immediately following the resident's 
admission from the prior hospitalization.

    Further, the requirement for an initial physician certification and 
periodic recertification as to level of care is mandated by the law 
itself (at section 1814(a)(2)(B) of the Act) and, thus, cannot be 
eliminated administratively. We also note that the implementing 
regulations at Sec. 424.20(a)(1)(ii) already allow, at the option of 
the physician, for the required initial certification to be completed 
simply by confirming that the beneficiary has been correctly assigned 
to one of the designated RUG-III groups, as provided in Sec. 409.30.
    In the preamble to the interim final rule that was published on May 
12, 1998 (63 FR 26283), we provided that beneficiaries assigned to one 
of the upper 26 RUG-III groups would be automatically classified as 
meeting the SNF level of care definition under the administrative 
presumption, ``* * * while those beneficiaries assigned to any of the 
lower 18 groups are not automatically classified as either meeting or 
not meeting the definition, but instead receive an individual level of 
care determination using the existing administrative criteria.'' This 
presumption recognized the strong likelihood that beneficiaries 
assigned to one of the upper 26 groups during the immediate 
posthospital period would actually require a covered level of care, 
which would be significantly less likely for those beneficiaries 
assigned to one of the lower 18 groups. However, we do not share the 
view of the commenter who characterized as a barrier to coverage the 
policy of providing for an individual level of care determination when 
a beneficiary is assigned to one of the lower 18 groups. To the 
contrary, we chose this particular approach--rather than a policy of 
summarily deeming all of the lower 18 groups to be noncovered--
precisely in order to ensure coverage under the SNF PPS for individual 
beneficiaries within those groups who would have met the previous 
administrative criteria for determining a SNF level of care. This 
policy also helps ensure that any beneficiary who does, in fact, 
require a covered level of care will actually be able to receive 
coverage, without regard to the beneficiary's particular diagnosis.
    Finally, we note that the omission of the High Rehabilitation and 
Special Care categories from the designation list that appeared in the 
proposed rule was inadvertent, and we concur with the recommendation of 
the commenters who urged that these categories be restored to the list. 
Further, as discussed elsewhere in this final rule, we have decided not 
to adopt the case-mix refinements (including the creation of a new 
Rehabilitation and Extensive category) that we had previously proposed. 
Accordingly, we hereby designate the upper 26 RUG-III groups for 
purposes of the administrative presumption described in Sec. 409.30, as 
follows: all groups within the Ultra High Rehabilitation category; all 
groups within the Very High Rehabilitation category; all groups within 
the High Rehabilitation category; all groups within the Medium 
Rehabilitation category; all groups within the Low Rehabilitation 
category; all groups within the Extensive Services category; all groups 
within the Special Care category; and, all groups within the Clinically 
Complex category.

[[Page 46787]]

F. Three-Year Transition Period

    Under sections 1888(e)(1) and (2) of the Act, during a facility's 
first three cost reporting periods that begin on or after July 1, 1998 
(that is, the transition period), the facility's PPS rate will be equal 
to the sum of a percentage of an adjusted facility-specific per diem 
rate and a percentage of the adjusted Federal per diem rate. After the 
transition period, the PPS rate will equal the adjusted Federal per 
diem rate. The transition period payment method will not apply to SNFs 
that first received Medicare payments (interim or otherwise) on or 
after October 1, 1995 under present or previous ownership, or to those 
facilities choosing to bypass the transition in accordance with section 
102 of the BBRA; these facilities will be paid based on 100 percent of 
the Federal rate.
    The facility-specific per diem rate is the sum of the facility's 
total allowable Part A Medicare costs and an estimate of the amounts 
that would be payable under Part B for covered SNF services for cost 
reporting periods beginning in FY 1995 (base year). The base year cost 
report used to compute the facility-specific per diem rate in the 
transition period may be settled (either tentative or final) or as-
submitted for Medicare payment purposes. Under section 1888(e)(3) of 
the Act, any adjustments to the base year cost report made as a result 
of settlement or other action by the fiscal intermediary, including 
cost limit exceptions and exemptions, or results of an appeal, will 
result in a revision to the facility-specific per diem rate. The 
instructions for calculating the facility-specific per diem rate are 
described in detail in the May 12, 1998 interim final rule. In order to 
implement section 104 of the BBRA, for providers that received payment 
under the RUG-III demonstration during a cost reporting period that 
began in calendar year 1997, we will determine their facility-specific 
per diem rate using the methodology described below.
    It is possible that some providers participated in the 
demonstration but did not have a cost reporting period that began in 
calendar year 1997. For those providers, we will determine their 
facility-specific per diem rate by using the calculations outlined in 
the May 12, 1998 Federal Register interim final rule (63 FR 26251, 
section III. (A)(1)(a), (b), or (c)). As with the facility-specific per 
diem applicable to other providers, the allowable costs will be subject 
to change based on the settlement of the cost report used to determine 
the total payment under the demonstration. In addition, we derive a 
special market basket inflation factor, which is 1.105788, to adjust 
the 1997 costs to the midpoint of the rate setting period (October 1, 
2000 to September 30, 2001.)
    Step 1--Determine the aggregate payment during the cost reporting 
period that began in calendar year 1997--RUG-III payment plus routine 
capital costs plus ancillary costs (other than occupational therapy, 
physical therapy, and speech pathology).
    Step 2--Divide the amount in Step 1 by the applicable total 
inpatient days for the cost reporting period.
    Step 3--Adjust the amount in Step 2 by 1.105788 (inflation factor).
    Step 4--Add the amount determined in Step 3 to the appropriate Part 
B add-on amount determined according to Program Memorandum transmittal 
no. A-99-53 (December 1999).
    The amount in Step 4 is the facility-specific rate that is 
applicable for the facility's first cost reporting period beginning on 
or after October 1, 2000.
1. Computation of the Skilled Nursing Facility Prospective Payment 
System Rate During the Transition
    For the first three cost reporting periods beginning on or after 
July 1, 1998 (the transition period), an SNF's payment under the PPS is 
the sum of a percentage of the facility-specific per diem rate and a 
percentage of the adjusted Federal per diem rate. Under section 
1888(e)(2)(C) of the Act, for the first cost reporting period in the 
transition period, the SNF payment will be the sum of 75 percent of the 
facility-specific per diem rate and 25 percent of the Federal per diem 
rate. For the second cost reporting period, the SNF payment will be the 
sum of 50 percent of the facility-specific per diem rate and 50 percent 
of the Federal per diem rate. For the third cost reporting period, the 
SNF payment will be the sum of 25 percent of the facility-specific per 
diem rate and 75 percent of the Federal per diem rate. For all 
subsequent cost reporting periods beginning after the transition 
period, the SNF payment will be equal to 100 percent of the Federal per 
diem rate. An example is given below computing the SNF PPS rate and SNF 
payment.
    Example of computation of adjusted PPS rates and SNF payment: Using 
the XYZ SNF described in Table 9, the following shows the adjustments 
made to the facility-specific per diem rate and the Federal per diem 
rate to compute the provider's actual per diem PPS payment in the 
transition period. XYZ's 12-month cost reporting period begins October 
1, 2000. (This is the provider's third cost reporting period under the 
transition.)

                                 Step 1
Compute:
    Facility-specific per diem rate.....................         $570.00
    Market Basket Adjustment (Table 10.B)...............     x   1.14457
                                                         ---------------
    Adjusted facility-specific rate.....................         $652.40
 
                                 Step 2
Compute Federal per diem rate:
 


                                Table 9.--SNF XYZ From Above Is Located in State College, PA With a Wage Index of 0.9038
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Labor                    Adjusted     Nonlabor     Adjusted     Percent      Medicare
                    RUG group                      portion *    Wage index     labor      portion *       rate      adjustment      Days       Payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
RVC.............................................      $240.71       0.9038      $217.55       $68.41      $285.96   ** $297.40           50      $14,870
SSC.............................................       154.95       0.9038       140.04        44.03       184.07   *** 228.25           50       11,413
                                                 -------------------------------------------------------------------------------------------------------
    Total.......................................  ...........  ...........  ...........  ...........  ...........  ...........          100      26,283
--------------------------------------------------------------------------------------------------------------------------------------------------------
* From Table 5.
** Reflects a 4 percent adjustment.
*** Reflects a 24 percent adjustment.


[[Page 46788]]


                                 Step 3
Apply transition period percentages:
    Facility-specific per diem rate $652.40  x  100 days         $65,240
     =..................................................
    Times transition percentage (25 percent)............             .25
                                                         ---------------
    Actual facility-specific PPS payment................         $16,310
    Federal PPS payment.................................         $26,283
    Times transition percentage (75 percent)............             .75
    Actual Federal PPS payment..........................         $19,712
 
                                  Step 4
Compute total PPS payment:
    XYZ's total PPS payment ($16,310 + $19,712).........         $36,022
 

G. The Skilled Nursing Facility Market Basket Index

    Section 1888(e)(5)(A) of the Act requires the Secretary to 
establish an SNF market basket index (input price index) that reflects 
changes over time in the prices of an appropriate mix of goods and 
services included in the SNF PPS. The proposed rule incorporated the 
latest estimates of the SNF market basket index at that time. This rule 
incorporates updated projections based on the latest available 
projections as of this point in time. Accordingly, we have developed a 
SNF market basket index that encompasses the most commonly used cost 
categories for SNF routine services, ancillary services, and capital-
related expenses. In the May 12, 1998 Federal Register, we included a 
complete discussion on rebasing the SNF market basket to FY 1992, and 
revising the index to include capital and ancillary costs. There are 21 
separate cost categories and respective price proxies. These cost 
categories were illustrated in Tables 4.A, 4.B, and Appendix A, found 
in the May 12, 1998 Federal Register.
    Each year we calculate a revised labor-related share based on the 
relative importance of labor-related cost categories in the input price 
index. Table 10.A summarizes the updated labor-related share for FY 
2001.

                Table 10.A.--FY 2001 Labor-Related Share
------------------------------------------------------------------------
                                                  FY 2000      FY 2001
                 Cost category                    relative     relative
                                                importance*   importance
------------------------------------------------------------------------
Wages and Salaries............................       56.647       56.734
Employee Benefits.............................       12.321       12.654
Nonmedical Professional Fees..................        1.959        1.957
Labor-intensive Services......................        3.738        3.719
Capital-related...............................        2.880        2.807
                                               -------------------------
    Total.....................................       77.545       77.870
------------------------------------------------------------------------

    The forecasted rates of growth used to compute the projected SNF 
market basket percentages, described in the next section, are shown in 
Table 10.B, and the 12-month cost reporting period facility specific 
rate update factors are shown in Table 10C.

     Table 10.B.--Skilled Nursing Facility Total Cost Market Basket,
                      Forecasted Change, 1997-2002
------------------------------------------------------------------------
                                                               Skilled
                                                               nursing
                                                               facility
             Fiscal years beginning  October 1                total cost
                                                                market
                                                                basket
------------------------------------------------------------------------
October 1996, FY 1997......................................          2.4
October 1997, FY 1998......................................          2.7
October 1998, FY 1999......................................          3.0
October 1999, FY 2000......................................          3.6
October 2000, FY 2001......................................          3.2
October 2001, FY 2002......................................          3.2
Forecasted Average: 2000-2002..............................         3.3
------------------------------------------------------------------------
 Source: Standard & Poor's DRI HCC, 2nd QTR 2000; @USSIM/TRENDLONG0500@
  CISSIM/TRENDLONG0500. Released by HCFA, OACT, National Health
  Statistics Group.

    Use of the Skilled Nursing Facility Market Basket Percentage: 
Section 1888(e)(5)(B) of the Act defines the SNF market basket 
percentage as the percentage change in the SNF market basket index, 
described in the previous section, from the midpoint of the prior FY 
(or period) to the midpoint of the current FY (or other period) 
involved. The facility-specific portion and Federal portion of the SNF 
PPS rates addressed in the proposed rule were based on cost reporting 
periods beginning in the base year, Federal FY 1995. For the Federal 
rates, the percentage increases in the SNF market basket index will be 
used to compute the update factors occurring between the midpoint of FY 
2000 and the midpoint of FY 2001. We used the Standard & Poor's DRI CC, 
2nd quarter 2000 historical and forecasted percentage increases of the 
revised and rebased SNF market basket index for routine, ancillary, and 
capital-related expenses, to compute the update factors. Finally, we 
used the update factors to adjust the base year costs for computing the 
facility-specific portion and Federal portion of the SNF PPS rates.
    Comment: A number of commenters expressed concern with the SNF 
market basket. The commenters asserted that the market basket index 
used for updating the PPS rates does not reflect Medicare SNF care 
costs accurately. They added that we have the authority to address this 
issue through modifications to the market basket index. The comments 
included: trending forward the 1995 data to 1997 significantly 
understates the actual increase observed over this period; the market 
basket index is based on 1992 data that do not reflect the dynamic 
changes in the health care system that occurred between 1992 and 1997; 
the market basket labor inputs significantly understate the actual 
increases in labor costs for Medicare SNFs; and the one percentage 
point reduction to the market basket should be restored.
    Response: A number of the provisions that were the subjects of the 
commenters' concerns are specifically mandated by the law itself. 
Section 1888(e)(4)(A) of the Act requires the use of 1995 costs as a 
base. Section 1888(e)(5)(A) of the Act specifically provides for the 
establishment of an SNF market basket, while section 1888(e)(4)(E) of 
the Act requires that the SNF PPS rates be updated annually using that 
index. Furthermore, for the current FY 2001, and for FY 2002, section 
1888(e)(4)(E)(ii)(II) of the Act requires that the rates be increased 
by a factor equal to the SNF market basket index change minus 1 
percentage point. For subsequent fiscal years, section 
1888(e)(4)(E)(i)(III) of the Act requires the rates to be increased by 
the applicable SNF market basket index increase.
    The statute at section 1888(e)(5)(A) specifies that the market 
basket should reflect ``changes over time in the prices of an 
appropriate mix of goods and services included in covered SNF 
services''. The SNF market basket index meets this statutory 
requirement. The SNF market basket captures the pure price change of 
inputs such as labor,

[[Page 46789]]

capital, etc., used to provide SNF services. While several commenters 
pointed to the large growth in per diem SNF costs between 1995 and 1998 
(as indicated on SNF cost report data) as evidence that the SNF market 
basket was inaccurate, we wish to emphasize that we do not consider 
reported historical per diem SNF costs an appropriate benchmark for 
determining its accuracy. The SNF market basket index, like the market 
basket indices used for other Medicare payment systems, measures pure 
price changes of inputs associated with the efficient delivery of care. 
It should not reflect changes in historical reported SNF costs 
associated with inefficient care or medically unnecessary services. 
Suggestions that it should are antithetical to the very notion of a 
PPS. It should also not reflect changes in non-price factors, such as 
adding staff or purchasing additional supplies. In any event, the 
statute provides that, once the initial PPS rates have been 
established, the unadjusted payment rates for a given year are 
calculated by applying an update to the rates for the previous year; 
the statute does not provide for a complete recalculation of the rates 
by applying a revised market basket methodology retroactively to 1995.
    It is also important to note that the statute itself sets forth a 
fairly prescriptive methodology for calculating and updating the 
initial per diem payments established under the SNF PPS in 1998. The 
statute requires the use of an FY 1995 base year to calculate the 
Federal rates, and the statute specifies the amount of the updates to 
the base year costs (market basket minus one). It further reduces the 
base year cost pool by eliminating the costs associated with atypical 
services exceptions and exemptions (under Sec. 413.30 of the 
regulations), and sets the base payments at just above the freestanding 
mean. The current SNF PPS per diem payment rates reflect the 
methodology prescribed by statute, an intended consequence of which was 
the accumulation of budgetary savings. Thus, concerns regarding the 
level of funding associated with the base payment rates may actually 
have more to do with the statutory formula for establishing the 
payments than the market basket used to update them.
    With regard to the weights used to allocate many of the price 
proxies within the market basket, these are based on 1992 data because 
these are the latest complete data available from the Bureau of the 
Census and the Bureau of Economic Analysis. When more recent data 
become available, we will review the data and determine whether to 
rebase the market basket index to a more recent year. However, previous 
experience has shown that there is very little impact in the overall 
percent change in the market basket index when it is rebased. This was 
shown in the May 12, 1998 Federal Register (63 FR 26292), when the SNF 
market basket index was last rebased to a 1992 base from a 1977 base.
    All of the price proxies used in the calculation of the SNF market 
basket are based on the latest data released by their respective data 
sources. Therefore, the price proxies capture all of the dynamic price 
change which occurred or is expected to occur in any given period.
    In response to the specific comment concerning the labor portion of 
the market basket, the labor input proxies used in the SNF market 
basket are based the Employment Cost Index, a proven national survey of 
wages, salaries, and benefits for nursing home and personal care 
facilities, published by the BLS. These measures are based on a fixed 
skill mix of workers and do not reflect changes in skill mix. They 
measure only actual changes in the wages of workers and not shifts in 
wage costs caused by a shift in the skill mix of workers used. This 
makes it the preferred proxy to use, since it measures only pure price 
changes and not changes caused by other factors.
    As has always been our policy, we will continue to monitor and 
respond to any changes in the market for SNF services that affect the 
SNF market basket index. When data from the first fiscal year after 
full implementation of the SNF PPS become available, we plan to review 
the SNF market basket index to ensure that it accurately and 
appropriately captures all price changes faced by SNFs in providing 
services. This review includes updating weights used in allocating the 
price proxies within the market basket, as well as ensuring that our 
price proxies reflect market trends. For example, we monitor the proxy 
for prescription drugs to make sure that it reflects the price changes 
associated with both new and older medications.
    Finally, HCFA and MedPAC recognize that the SNF input price index 
developed by HCFA is only one component of the change in SNF cost per 
day. The index is designed to capture only the pure price change of 
inputs used to produce a constant quantity and quality of care in a 
SNF. This is consistent with the definition as it is used by HCFA and 
MedPAC in the existing payment methodologies for SNFs, hospitals, home 
health agencies, and other settings.
    Other factors in addition to input prices help determine the 
overall change in costs per day. These factors include changes in case-
mix, intensity, and productivity. Under the inpatient hospital PPS, 
HCFA and MedPAC use an update framework to account for these other 
factors and to make annual recommendations to Congress on the magnitude 
of the update. HCFA and MedPAC are both exploring the possibility of 
developing a SNF PPS update framework to make similar annual 
recommendations to Congress. As part of this update framework, we would 
address non-market basket factors such as intensity, productivity, and 
changes in site of service. This would allow us to maintain the 
integrity (and stability) of the market basket by keeping it separate 
and distinct from these other factors.
    It is very important to note that the non-market basket factors can 
be negative as well as positive. As SNFs move from a cost-based system 
to a fixed price PPS, there are likely to be substantial decreases in 
cost per unit of service. Increases in productivity, changes in site of 
service, elimination of ineffective practice patterns, and 
renegotiation to lower price contracts for inputs are some of the 
behavioral changes which result in negative factors.
1. Facility-Specific Rate Update Factor
    Under section 1888(e)(3)(D)(i) of the Act, for the facility-
specific portion of the SNF PPS rate, we will update a facility's base 
year costs up to the corresponding cost reporting period beginning 
October 1, 2000, and ending September 30, 2001, by the SNF market 
basket percentage. We took the following steps to develop the 12-month 
cost reporting period facility-specific rate update factors shown in 
Table 10.C.

[[Page 46790]]



Table 10.C.--Update Factors \1\ for Facility-Specific Portion of the SNF
  PPS Rates--Adjust To 12-Month Cost Reporting Periods Beginning On or
  After October 1, 2000 and Before October 1, 2001 From Cost Reporting
                      Periods Beginning in FY 1995
                               [Base year]
------------------------------------------------------------------------
                                     Adjust from 12-month       Using
If 12-month cost reporting period  cost reporting period in     update
    in initial period begins:       base year that begins:    factor of:
------------------------------------------------------------------------
October 1, 2000..................  October 1, 1994.........      1.14457
November 1, 2000.................  November 1, 1994........      1.14475
December 1, 2000.................  December 1, 1994........      1.14494
January 1, 2001..................  January 1, 1995.........      1.14522
February 1, 2001.................  February 1, 1995........      1.14567
March 1, 2001....................  March 1, 1995...........      1.14630
April 1, 2001....................  April 1, 1995...........      1.14693
May 1, 2001......................  May 1, 1995.............      1.14739
June 1, 2001.....................  June 1, 1995............      1.14768
July 1, 2001.....................  July 1, 1995............      1.14797
August 1, 2001...................  August 1, 1995..........      1.14843
September 1, 2001................  September 1, 1995.......     1.14905
------------------------------------------------------------------------
1 Source: Standard & Poor's DRI HCC, 2nd QTR 2000; @USSIM/
  TRENDLONG0500@CISSIM/TRENDLONG0500.

    For the facility rate, we developed factors to inflate data from 
cost reporting periods beginning October 1, 1994, through September 30, 
1995, to the corresponding cost reporting period beginning in FY 2001. 
According to section 1888(e)(3)(D) of the Act, the years through FY 
1999 were inflated at a rate of market basket minus 1 percentage point, 
while FY 2000 and FY 2001 are to be inflated at the full market basket 
rate of increase.
2. Federal Rate Update Factor
    To update each facility's costs up to the common period, we:
    A. Determined the total growth from the average market basket level 
for the period of October 1, 1999, through September 30, 2000, to the 
average market basket level for the period of October 1, 2000, through 
September 30, 2001.
    B. Calculated the rate of growth between the midpoints of the two 
periods.
    C. Calculated the annual average rate of growth for number 2, 
above.
    D. Subtracted 1 percentage point from this annual average rate of 
growth.
    E. Using the annual average minus 1 percentage point rate of 
growth, determined the cumulative growth between the midpoints of the 
two periods specified above.
    This revised update factor was used to compute the Federal portion 
of the SNF PPS rate shown in Tables 1 and 2.

H. Consolidated Billing

    The consolidated billing requirement places with the SNF itself the 
Medicare billing responsibility for virtually all of the services that 
an SNF resident receives. The original SNF PPS legislation in the BBA 
identified several service categories that were excluded from the SNF 
consolidated billing requirement, as well as from the bundled Part A 
payment made under the SNF PPS itself. As noted in the proposed rule, 
section 103(a) of the BBRA amended section 1888(e)(2)(A) of the Act, 
effective with services furnished on or after April 1, 2000, to exclude 
certain additional types of services from the consolidated billing 
requirement, thus allowing these services to be billed separately to 
Part B. We listed these excluded services, by HCPCS code, in Program 
Memorandum AB-00-18 (March 2000). Section 103(b) of the BBRA also 
amended section 1888(e)(4)(G) of the Act to provide for a corresponding 
proportional reduction in Part A SNF payments, beginning with FY 2001.
    Comment: In addition to identifying certain individual services 
(within a number of broader service categories) for exclusion from the 
consolidated billing requirement, section 103 of the BBRA also gives 
the Secretary the authority to designate additional services within 
each of those categories for exclusion from this requirement. A number 
of commenters recommended that we exercise this authority to designate 
a variety of additional services for exclusion, such as modified barium 
swallow, stress tests, hyperbaric oxygen treatment, doppler studies, 
nuclear medicine, orthotic devices, gastrointestinal procedures 
performed in endoscopy rooms, and outpatient surgery performed in 
hospital treatment rooms or ambulatory surgical centers. Alternatively, 
some commenters suggested that we could accomplish this result by 
adding these services to the existing exclusion list (in regulations at 
Sec. 411.15(p)(3)(iii)) for certain high-intensity outpatient hospital 
services. Others expressed the view that this latter authority should 
not be limited to only those services that actually require the 
intensity of a hospital setting, but rather, should also encompass 
services furnished in other, nonhospital settings as well. As an 
example, they cited magnetic resonance imaging (MRIs) furnished in 
freestanding imaging centers, which may be cheaper and more accessible 
in certain particular localities than those furnished by hospitals.
    Response: The BBRA's discretionary authority applies only to 
identifying additional excluded services within the particular 
categories that are specified in the legislation itself (that is, 
chemotherapy and its administration; radioisotope services; and, 
customized prosthetic devices) and not to other services that fall 
outside of those particular categories. Further, we are not exercising 
this discretionary authority at the present time, because we believe 
that the particular HCPCS codes identified in the BBRA represent the 
service exclusions within the specified categories that are appropriate 
under current circumstances. We note that language in the BBRA 
conference agreement requests the GAO to conduct a review of the 
appropriateness of the particular HCPCS codes that this legislation has 
designated for exclusion from consolidated billing. As we indicated in 
the proposed rule, we will carefully consider the GAO's findings when 
they become available, in order to determine whether further 
refinements in the codes identified on the exclusion list might be 
warranted.

[[Page 46791]]

    Moreover, we believe that the comments advocating broader 
exclusions, beyond the particular services identified in the BBRA, may 
reflect a misunderstanding of the overall objective of the consolidated 
billing provision. We do not view the identification of new service 
categories for exclusion from this provision in terms of a process of 
continual expansion to encompass an ever-broadening array of excluded 
services. As we noted in the May 12, 1998 interim final rule (63 FR 
26297), the fundamental purpose of the consolidated billing provision 
is ``* * * to make the SNF itself responsible for billing Medicare for 
essentially all of its residents' services, other than those identified 
in a small number of narrow and specifically delimited exclusions.'' 
This is consistent with the type of discretionary authority that the 
BBRA provided, which we regard as essentially affording the flexibility 
to revise the list of excluded codes in response to changes of major 
significance that may occur over time (for example, the development of 
new medical technologies or other advances in the state of medical 
practice).
    Finally, regarding the comment on MRIs, we noted in the May 1998, 
interim final rule (63 FR 26298) that the exclusion of certain 
outpatient hospital services (in regulations at Sec. 411.15(p)(3)(iii)) 
is targeted specifically at those services ``* * * that, under commonly 
accepted standards of medical practice, lie exclusively within the 
purview of hospitals * * *'' (emphasis added); that is, services which 
generally require the intensity of the hospital setting in order to be 
furnished safely and effectively. Thus, to the extent that advances in 
medical practice over time may make it feasible to perform such a 
service more widely in a less intensive, nonhospital setting, this 
would not argue in favor of unbundling the nonhospital performance of 
the service, but rather, of considering whether to rebundle the service 
entirely back to the SNF.
    Comment: A number of commenters noted that the BBRA has now 
excluded from consolidated billing those ambulance services that are 
furnished in conjunction with dialysis services, and asked that we 
extend this exclusion to apply as well to those ambulance services 
furnished in conjunction with the other newly excluded service 
categories identified in the BBRA (chemotherapy, radioisotope, etc.). 
Some suggested that we could accomplish this by administratively 
expanding the existing exclusion of certain high-intensity outpatient 
hospital services (in regulations at Sec. 411.15(p)(3)(iii)) to 
encompass these newly excluded services (which would, in turn, result 
in excluding the associated ambulance services as well). Another argued 
that since many ambulance services have already been excluded from 
consolidated billing, it would be less complicated from an 
administrative standpoint simply to establish a categorical exclusion 
for all ambulance services.
    Response: We note that, prior to the BBRA's exclusion of dialysis-
related ambulance services from consolidated billing, we received a 
number of similar recommendations to designate the statutorily-excluded 
category of dialysis services as also being one of the excluded 
outpatient hospital services under Sec. 411.15(p)(3)(iii), as a means 
of permitting the associated ambulance transportation to be excluded as 
well. In response, we noted in the preamble to the July 30, 1999 final 
rule (64 FR 41673) that such a recommendation reflects

    * * * a misunderstanding of the underlying purpose of the 
outpatient hospital exclusion. This exclusion from consolidated 
billing does not serve as a mechanism for unbundling ambulance 
services per se. The * * * unbundling of ambulance services 
associated with * * * excluded outpatient hospital services occurs 
simply because the bundling of ambulance services is itself tied to 
a beneficiary's status as an SNF ``resident'' for consolidated 
billing purposes, which is suspended by the receipt of these 
excluded types of outpatient hospital services.

    Further, while the statute itself excludes a number of service 
categories from the consolidated billing requirement--including 
services of physicians and certain other practitioners that are defined 
as being entirely outside the scope of the Part A SNF benefit (see 
sections 1861(h)(7) and 1861(b)(4) of the Act)--the receipt of such 
services offsite does not have the effect of ending a beneficiary's 
status as an SNF ``resident'' for consolidated billing purposes and, 
consequently, does not result in unbundling the associated ambulance 
transportation. Thus, unbundling the ambulance transportation that is 
associated with the statutorily-excluded types of chemotherapy 
services, radioisotope services, and customized prosthetic devices 
would require legislation to amend the law itself, like that which 
Congress enacted in section 103(a)(2) of the BBRA with respect to 
dialysis-related ambulance services. Similarly, establishing a 
categorical exclusion of all ambulance services whatsoever would also 
require legislation to amend the law.
    Comment: A number of commenters raised issues regarding so-called 
``Part B'' consolidated billing, in connection with services furnished 
to those beneficiaries in the SNF who are not in a covered Part A stay. 
(As we noted in the proposed rule, implementation of this aspect of 
consolidated billing has been delayed as a result of higher-priority 
systems renovations that had to be completed timely in order to achieve 
Year 2000 (Y2K) compliance.) Most of these commenters recommended 
extending the timeframe for implementation of Part B consolidated 
billing until after implementation of the PPS case-mix refinements set 
forth in the proposed rule, and a few even suggested reconsidering 
whether to implement this aspect of consolidated billing at all. One 
commenter suggested that bills for those types of items that are 
currently submitted to the Durable Medical Equipment Regional Carriers 
(DMERCs) should continue to be submitted to them under Part B 
consolidated billing, since the DMERCs have acquired specialized 
expertise in this area. Another recommended that HCFA should impose 
limitations on the amounts that suppliers can charge SNFs for Part B 
services.
    Response: Since the law provides that consolidated billing applies 
to services furnished to a SNF ``resident'' (regardless of whether 
Medicare covers a particular resident's stay), we do not have the 
discretion simply to decline to implement this aspect of the provision. 
As we indicated in the July 30, 1999 final rule (64 FR 41671), once we 
have determined the specific implementation timeframe for this aspect 
of consolidated billing, we will provide at least 90 days' advance 
notice in the Federal Register. However, specific operational 
instructions (such as those describing the details of particular 
billing procedures) are beyond the scope of this final rule, and will 
be addressed instead in HCFA program issuances. With regard to the 
suggestion that we limit the amount a supplier can charge a SNF for its 
services, we note that the Medicare transaction for a service that is 
subject to consolidated billing is the one that takes place between the 
Medicare program and the SNF itself. As we pointed out in the July 1999 
final rule (64 FR 41677), a SNF's relationship with its supplier under 
consolidated billing is essentially a private contractual matter, and 
the specific terms of the supplier's payment by the SNF must be arrived 
at through direct negotiations between the two parties themselves.
    Comment: Under the current regulations at Sec. 411.15(p)(3)(iv), a 
beneficiary's status as a SNF ``resident''

[[Page 46792]]

(for consolidated billing purposes) generally ends at the point of 
departure from the SNF. However, if the beneficiary returns to that or 
another SNF within 24 hours of departure, the beneficiary's status as a 
``resident'' of the SNF from which he or she departed would continue 
during the absence, along with that SNF's consolidated billing 
responsibilities. As we noted in the proposed rule, since consolidated 
billing is currently in effect only for those SNF stays that are 
covered by Part A and paid by the PPS, this means in actual practice 
that such a beneficiary remains a SNF ``resident'' after leaving the 
SNF only if he or she then returns to the SNF by midnight. (This is 
because, under longstanding Medicare policy, a beneficiary generally 
must be present in the SNF at midnight of a given day in order for that 
day to be considered a Part A day.) We then proposed to revise the 
regulations to adopt this ``midnight rule'' in place of the current 
``24-hour rule,'' which would essentially extend the policy currently 
in effect under Part A consolidated billing to apply to Part B 
consolidated billing as well. The commenters overwhelmingly supported 
this proposal, indicating that the resulting uniformity in policy would 
reduce the potential for confusion and billing errors. One commenter, 
while supporting the idea of following a uniform policy for both 
aspects of consolidated billing, suggested that the policy should be 
the ``24-hour rule'' that currently appears in the regulations rather 
than the ``midnight rule.'' The commenter cited, as a reason for taking 
this position, a concern over whether Part A payment under the SNF PPS 
recognizes those services that are furnished on the day of a 
beneficiary's discharge from the SNF, but before the actual moment of 
departure.
    Response: As recommended by the majority of commenters, we are 
revising the regulations to adopt the ``midnight rule.'' Thus, a 
beneficiary's status as a SNF ``resident'' for consolidated billing 
purposes ends upon departure, unless the beneficiary returns to that or 
another SNF by midnight of the day of departure. (As we explained in 
the proposed rule, a patient ``day'' begins at 12:01 A.M. and ends the 
following midnight, so that the phrase ``midnight of the day of 
departure'' refers to the midnight that immediately follows the actual 
moment of departure, rather than to the midnight that immediately 
precedes it.) With regard to the concern expressed by one commenter 
about services that are furnished on the day of (but before the actual 
moment of) discharge, we note that the SNF PPS does, in fact, recognize 
such services, as discussed below. Even though the day of discharge 
from a covered SNF stay is not itself a covered Part A day, under the 
pre-PPS (reasonable cost) SNF payment methodology, ancillary services 
furnished on that day but before the actual moment of departure were 
covered, included on the SNF's cost report, and reflected in final cost 
settlement. Accordingly, the cost of such services has been built into 
the SNF PPS base. This makes the PPS per diem amount somewhat higher 
than it would otherwise have been for all of the preceding SNF days 
that Part A does cover, even though the day of discharge itself is not 
a covered Part A day. Further, with regard to room and board, although 
the Medicare program uses a midnight-to-midnight approach as a 
convention for counting inpatient days, the routine costs for the 
covered day that immediately precedes the date of discharge would 
include (much like a hotel bill) the accommodations for that entire 
night.
    Comment: In excluding the additional services from consolidated 
billing and the SNF PPS (and, thus, qualifying them for separate 
payment under Part B), section 103 of the BBRA also mandated a 
corresponding proportional reduction in Part A SNF payments, beginning 
with FY 2001. We described our methodology for making this adjustment 
in the proposed rule (65 FR 19202), and indicated that we expected the 
amount of the adjustment to be minimal. However, due to the complexity 
of the process and the amount of time involved in completing it, we 
added that we would publish the actual adjusted rates themselves 
prospectively in the final rule. One commenter requested us to share 
the methodology that we actually used in making this adjustment. 
Another argued that the reduction in Part A payment essentially cancels 
out the fiscal relief provided by allowing the newly-excluded services 
to be billed to Part B.
    Response: Regarding our adjustment methodology, we have computed a 
reduction of 5 cents ($0.05) in the unadjusted urban and rural rates, 
using the identical data as used to establish the Part B add-on for a 
sample of approximately 1,500 SNFs from the 1995 base period. By 
matching the excluded codes specified in section 103 of the BBRA to the 
Part B bills, we identified an amount equal to a reduction of $0.05 in 
the Federal rate. While the amount of the reduction reflects those 
excluded codes that we were specifically able to identify, there may be 
additional excluded services that were not captured, since certain of 
these services were billed differently in 1995 than now, in a manner 
that may not have utilized the codes by which they were specified in 
the BBRA. We are, therefore, continuing to examine the billing 
practices in the PPS base year, and may revise our estimate of this 
reduction in the future to capture additional elements of allowable 
charges, as appropriate. Regarding the comment that characterized this 
adjustment as canceling out the fiscal relief that was otherwise 
provided by this section of the BBRA, we note that the reduction in 
Part A payment rates is specifically required by that same section of 
the law, in order to prevent the Medicare program from paying twice 
(once under Part A, and again under Part B) for the same service. 
Further, we believe that this comment may reflect a misunderstanding of 
the overall effect of this provision's fiscal relief. As amended by 
section 103(b) of the BBRA, section 1888(e)(4)(G)(iii) of the Act 
provides that the adjustment is to be made in such a way that the 
aggregate reduction in Part A payments is estimated to equal the 
aggregate increase in Part B payments attributable to the exclusion. 
Further, we note that the particular services were excluded in 
recognition that SNFs could experience ``* * * high-cost, low 
probability events that could have devastating financial impacts 
because their costs far exceed'' an individual SNF's PPS payment (H.R. 
Conf. Rep. No. 106-479 at 854). Thus, the actual result of this 
provision's mandatory Part A payment reduction is to take the expense 
of the excluded items (which could be financially devastating to an 
individual SNF that actually incurs it, if borne solely by that 
particular facility) and effectively redistribute it over the entire 
universe of providers. In much the same way that an insurance pool 
reduces the degree of financial risk to an individual member of the 
pool in the event of a catastrophic loss, effectively spreading the 
expense of the excluded items over such a large provider population 
helps minimize the potential financial liability that any individual 
provider might otherwise incur.

I. Appeal Rights

    In the proposed rule, we discussed the appeal rights of SNFs to 
appeal their payment rates under SNF PPS. We received no comments on 
this discussion.

J. Impact Analysis of the Proposed Rule

    As required by Executive Order 12866, the Unfunded Mandates Reform 
Act of 1995 (UMRA, Public Law 104-4),

[[Page 46793]]

and the Regulatory Flexibility Act (RFA, Public Law 96-354), the 
proposed rule included a Regulatory Impact Statement, on which we 
received comments. (A regulatory impact analysis for this final rule 
appears in Section VI. below.)
    Comment: Several commenters alleged that there is a large variance 
between the projections for FY 2001, including the 20 percent add-on, 
and the most recent actual SNF program expenditure data. Some added 
that the Congressional Budget Office (CBO) baseline spending estimates 
differ from HCFA's. They noted that changes in rates due to inflation 
updates and statutory amendments do not necessarily account for the 
variance between FY 1999 and FY 2001. The commenters requested 
clarification of our projections and fiscal impacts, including any 
assumptions about volume growth or behavioral changes in response to 
payment changes.
    Response: We have, in the past, included a behavioral offset in 
estimates required by legislation; however, we do not include them in 
estimating the effects of regulations merely for purposes of routinely 
updating the rates. The calculation of $1 billion for the 20 percent 
add-on assumes a baseline for FY 2001 of $15.3 billion. Our estimate of 
the days covered by the 20 percent add-on is 43 percent and our 
estimate of the Federal portion of payments is 85 percent. We note that 
CBO's baseline spending estimates differ from HCFA's due to different 
assumptions about SNF utilization patterns. Further, since the time we 
did these estimates, we have in fact reduced our own baseline estimate 
for FY 2001 to $14.4 billion, which still yields $1 billion in the 
calculation. However, we have since revised our estimate to reflect the 
latest available SNF data, as indicated in the impact analysis for this 
final rule (see section VI., below).
    Comment: There were a number of comments expressing concern over 
the financial viability of providers. In particular, commenters were 
concerned with the number of nursing home chains that have filed for 
bankruptcy nationwide.
    Response: We are aware of the challenges that certain providers 
have faced in moving from a payment system that was based on reasonable 
costs to a PPS, which uses mean-based prices. One of the intended 
consequences of the BBA was an overall reduction in SNF payments. 
However, we do not agree that the changes introduced by the SNF PPS are 
the exclusive--or even the primary--cause of their current financial 
difficulties. We believe that many of these financial constraints are 
directly attributable to business decisions on the part of the 
providers themselves. For example, a GAO review (``Skilled Nursing 
Facilities: Medicare Payment Changes Require Provider Adjustments but 
Maintain Access,'' GAO/HEHS-00-23, December 1999) of two of the largest 
publicly held chains found that the financial position of both firms 
suffered from high capital-related costs; substantial, non-recurring 
expenses and write-offs; and reduced demand for ancillary services 
related to several of the other BBA provisions. In fact, in one of 
these chains, SNF operations themselves remained profitable after the 
introduction of the SNF PPS. This scenario is consistent with reports 
of other chains experiencing financial difficulties. In addition, media 
reports cite rapid expansion into other lines of business, high capital 
costs, and inadequate cost controls as other factors influencing 
current financial status within the SNF industry.

IV. Provisions of the Final Regulations

    The provisions of this final rule restate the provisions of the 
April 10, 2000, proposed rule as discussed previously and a minor 
technical correction of a cross-reference in parts 413 and 489. 
Following is a highlight of the changes made:
     In Sec. 411.15, paragraph (p)(2)(vii) is revised to 
exclude from consolidated billing those ambulance services that are 
furnished to a SNF resident in conjunction with dialysis services that 
are covered under Part B.
     In Sec. 411.15, paragraph (p)(2) is also revised to list 
the additional services that section 103 of the BBRA has excluded from 
consolidated billing.
     In Sec. 411.15, paragraph (p)(3)(iv), the phrase ``within 
24 consecutive hours'' is revised to read ``by midnight of the day of 
departure''.
     In Sec. 413.1, paragraph (b), the phrase ``paragraphs (c) 
through (f) of this section'' is revised to read ``paragraphs (c) 
through (h) of this section'', in order to reflect previous revisions 
to this section that provide for prospective payment to SNFs (63 FR 
26309, May 12, 1998) and home health agencies (65 FR 41211, July 3, 
2000).
     In Sec. 489.20, paragraph (s) is revised to list the 
additional services that the BBRA has excluded from consolidated 
billing, and a conforming change is made at Sec. 489.21(h) regarding a 
cross-reference to this list.
     In Sec. 489.20, paragraph (s)(7) is revised to exclude 
from consolidated billing those ambulance services that are furnished 
to a SNF resident in conjunction with dialysis services that are 
covered under Part B.
     Sections 489.20(s)(11) and 411.15(p)(2)(xi) are revised to 
reflect editorial revisions in the paragraphs concerning the 
transportation costs of electrocardiogram equipment.

V. Collection of Information Requirements

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

VI. Regulatory Impact Analysis

    We have examined the impact of this rule as required by Executive 
Order (EO) 12866, the Unfunded Mandates Reform Act (UMRA) (Public Law 
104-4), the Regulatory Flexibility Act (RFA) (Public Law 96-354), and 
the Federalism Executive Order (EO) 13132.
    Executive Order 12866 directs agencies to assess costs and benefits 
of available regulatory alternatives and, when regulation is necessary, 
to select regulatory approaches that maximize net benefits (including 
potential economic, environmental, public health and safety effects, 
distributive impacts, and equity). A regulatory impact analysis (RIA) 
must be prepared for major rules with economically significant effects 
($100 million or more annually). This final rule is a major rule as 
defined in Title 5, United States Code, section 804(2), because we 
estimate its impact will be to increase the payments to SNFs by 
approximately $3.1 billion in FY 2001. The update set forth in this 
final rule applies to payments in FY 2001. Accordingly, the analysis 
that follows describes the impact of this one year only. In accordance 
with the requirements of the Act, we will publish a notice for each 
subsequent FY that will provide for an update to the payment rates and 
include an associated impact analysis.
    The UMRA also requires (in section 202) that agencies prepare an 
assessment of anticipated costs and benefits before developing any rule 
that may result in an expenditure in any year by State, local, or 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any given year. This rule will have no consequential 
effect on State, local, or tribal governments. We believe the private 
sector cost of this rule falls below these thresholds as well.
    Executive Order 13132 (effective November 2, 1999), establishes 
certain

[[Page 46794]]

requirements that an agency must meet when it promulgates regulations 
that impose substantial direct compliance costs on State and local 
governments, preempt State law, or otherwise have Federalism 
implications. As stated above, this rule will have no consequential 
effect on State and local governments.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and governmental agencies. 
Most SNFs and most other providers and suppliers are small entities, 
either by virtue of their nonprofit status or by having revenues of $5 
million or less annually. For purposes of the RFA, all States and 
tribal governments are not considered to be small entities, nor are 
intermediaries or carriers. Individuals and States are not included in 
the definition of a small entity. The policies contained in this rule 
would update the SNF PPS rates by increasing the payment rates 
published in the July 30, 1999 notice, but will not have a significant 
effect upon small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 50 beds. We are not preparing a 
rural impact statement since we have determined, and the Secretary 
certifies, that this notice will not have a significant economic impact 
on the operations of a substantial number of small rural hospitals.

A. Background

    Section 1888(e) of the Act establishes the SNF PPS for the payment 
of Medicare SNF services for periods beginning on or after July 1, 
1998. This section specifies that the base year cost data to be used 
for computing the RUG-III payment rates must be from FY 1995 (that is, 
October 1, 1994, through September 30, 1995.) In accordance with the 
statute, we also incorporated a number of elements into the SNF PPS, 
such as case-mix classification methodology, the MDS assessment 
schedule, a market basket index, a wage index, the urban and rural 
distinction used in the development or adjustment of the Federal rates, 
and other features.
    This final rule sets forth updates of the SNF PPS rates contained 
in the April 10, 2000 proposed rule. Table 11 below, presents the 
projected effects of the policy changes in the SNF PPS from FY 2000 to 
FY 2001, as well as statutory changes effective for FY 2001 on SNFs. In 
so doing, we estimate the effects of each policy change by estimating 
payments while holding all other payment variables constant. We use the 
best data available, but we do not attempt to predict behavioral 
responses to our policy changes, and we do not make adjustments for 
future changes in such variables as days or case-mix.
    This analysis incorporates the latest estimates of growth in 
service use and payments under the Medicare SNF benefit based on the 
latest available Medicare claims data and MDS 2.0 assessment data from 
1999. Because we are not incorporating the refinements to the case-mix 
classification system, we are not presenting any additional information 
regarding their distributional impact on facility payments as we had 
indicated we would in the proposed rule. We note that certain events 
may combine to limit the scope or accuracy of our impact analysis, 
because such an analysis is future-oriented and, thus, very susceptible 
to forecasting errors due to other changes in the forecasted impact 
time period. Some examples of such possible events are newly legislated 
general Medicare program funding changes by the Congress, or changes 
specifically related to SNFs. In addition, changes to the Medicare 
program may continue to be made as a result of the BBA, BBRA, or new 
statutory provisions. Although these changes may not be specific to SNF 
PPS, the nature of the Medicare program is such that the changes may 
interact, and the complexity of the interaction of these changes could 
make it difficult to predict accurately the full scope of the impact 
upon SNFs.

B. Impact of This Final Rule

    The purpose of this final rule is not to initiate significant 
policy changes with regard to the SNF PPS; rather, it is to respond to 
the comments on the proposed rule and establish the update methodology 
for FY 2001 after completion of our validation of the analysis 
presented in the proposed rule, based upon national data. Accordingly, 
we believe that the revisions and clarifications mentioned elsewhere in 
the preamble (for example, the update to the wage index used for 
adjusting the Federal rates) will have, at most, only a negligible 
overall effect upon the regulatory impact estimate specified in the 
proposed rule. As such, these revisions will not represent an 
additional burden to the industry.
    As stated previously in this rule, the aggregate increase in 
payments associated with this final rule is estimated to be $3.1 
billion. There are three areas of change that produce this increase for 
facilities--
    1. The effect of the Federal transition, that results in many 
facilities being paid 75 percent at the Federal rate and 25 percent at 
the facility-specific rate instead of the current 50 percent Federal 
rate and 50 percent facility-specific rate. There is also the 
additional effect of the BBRA option to bypass the transition and be 
paid according to 100 percent of the Federal rate;
    2. The implementation of various other provisions in the BBRA, such 
as the 20 percent and 4 percent add-ons to the Federal rates; and,
    3. The total change in payments from FY 2000 levels to FY 2001 
levels. This includes all of the previously noted changes in addition 
to the effect of the update to the rates.
    As seen in Table 11 below, some of these areas result in increased 
aggregate payments and others tend to lower them. The breakdown of the 
various categories of data in the table are as follows:
    The first row of the table describes the effects of the various 
policies on all facilities. The next six rows show the effects on 
facilities split by hospital-based, freestanding, urban and rural 
categories. The remainder of the table shows the effects on urban 
versus rural status by census region.
    The second column in the table shows the number of facilities in 
the impact database. The third column shows the effect of the 
transition to the Federal rates. It includes the impact of the normal 
progression of facilities in the transition to new cost reporting 
periods and, therefore, blended payment amounts (that is, facility-
specific versus Federal rates) as well as those facilities that, as a 
result of the BBRA, elect to bypass the transition and go immediately 
to the full Federal rate. This change has an overall effect of raising 
payments by 4.2 percent, with most of the increase coming from 
freestanding facilities. There are several regions that have decreased 
payments due to this provision, but the majority (and most populous) of 
the regions evidence higher payments, with the largest increase being 
in the New England and mid-Atlantic regions for both urban and rural 
facilities.
    We estimate that approximately 63 percent of SNFs under the 
transition at the enactment of the BBRA have or will elect to be paid 
based on 100 percent of

[[Page 46795]]

the Federal rate. Of these facilities, we estimate 22 percent are 
hospital-based and 78 percent are freestanding, consistent with the 
proposed rule.
    The fourth column shows the projected effect of the 4 percent add-
on to the adjusted Federal rate mandated by the BBRA. As expected, this 
provision results in an increase in payments for all facilities. 
However, as seen in the table, the varying effect of the SNF PPS 
transition results in a distributional impact of this provision. In 
addition, since this increase only applies to the Federal portion of 
the payment rate, the effect on total expenditures is less than 4 
percent.
    The fifth column of the table shows the effect of the update to the 
Federal and facility-specific payment rates. It reflects an update to 
the Federal rates of 2.161 percent, which is equivalent to the market 
basket increase minus 1 percentage point, as required by law. In 
addition, it reflects an update to the facility-specific rates of 3.161 
percent, which is equivalent to the full market basket increase for 
this period. For this analysis, it is assumed that payments will 
increase by 2.3 percent in total if there are no behavioral changes by 
the facilities. As can be seen from this table, the effects of the 
update itself do not vary significantly by specific types of providers 
or by location.
    The sixth column of the table shows the effect of all of the 
revised wage index on the FY 2001 payments. The total impact of this 
change is 0 percent since the law requires this component of the update 
to be budget neutral. However, there are distributional effects of this 
change, as seen in the table.
    The seventh column of the table indicates the overall impact of the 
20 percent add-on for 15 specific RUG-III groups required under the 
BBRA.
    Finally, the eighth column of the table shows the effect of all of 
the changes on the FY 2001 payments. This includes all of the previous 
changes, including the update to this year's payment rates by the 
market basket, and the 20 percent add-on. It is assumed that payments 
will increase by 21.8 percent in total, assuming facilities do not 
change their care delivery and billing practices in response. As can be 
seen from this table, the combined effects of all of the changes vary 
much more widely by specific types of providers and by location. For 
example, freestanding facilities enjoy more significant payment 
increases due to the policy changes, while the effects of the 
transition tend to diminish the increase for hospital-based providers.

                                              Table 11.--Projected Impact of FY 2001 Update to the SNF PPS
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Transition   Add on to
                                                                Number of    to federal    Federal       Update     Wage index   20% add on    Total FY
                                                                facilities     rates        rates        change       change     (percent)   2001 change
                                                                             (percent)    (percent)    (percent)    (percent)                  (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total........................................................         9034          4.2          3.5          2.3          0.0         10.4         21.8
Urban........................................................         6300          3.6          3.5          2.3         -0.1         10.2         20.8
Rural........................................................         2737          7.1          3.7          2.2          0.8         11.3         27.3
Hospital based urban.........................................          683         -4.5          3.0          2.4          0.0          9.6         10.4
Freestanding urban...........................................         5617          5.1          3.6          2.3         -0.1         10.2         22.6
Hospital based rural.........................................          533          2.0          3.4          2.3          0.9         12.2         22.1
Freestanding rural...........................................         2204          8.2          3.7          2.2          0.7         11.1         28.3
Urban by region..............................................
New England..................................................          630         10.5          3.8          2.2         -0.8         10.9         29.0
Middle Atlantic..............................................          877         14.3          3.8          2.2         -0.3         12.9         36.5
South Atlantic...............................................          959         -0.4          3.3          2.3         -0.4          8.9         14.2
East North Central...........................................         1232          6.1          3.6          2.2          0.4         10.1         24.2
East South Central...........................................          212          1.9          3.5          2.3         -0.7          9.8         17.6
West North Central...........................................          469          3.6          3.5          2.3          0.4         10.2         21.4
West South Central...........................................          519         -5.2          3.0          2.4          1.0          8.8          9.9
Mountain.....................................................          303         -4.0          3.1          2.4          0.0          7.1          8.5
Pacific......................................................         1070         -2.3          3.2          2.4         -0.5          9.6         12.6
Rural by region:
    New England..............................................           88         14.4          3.9          2.2         -0.9         12.6         35.6
    Middle Atlantic..........................................          144         13.1          3.9          2.2          0.0         13.4         36.2
    South Atlantic...........................................          373          5.3          3.6          2.2          1.1         11.1         25.2
    East North Central.......................................          561          9.2          3.7          2.2          1.0         11.1         29.9
    East South Central.......................................          255          4.2          3.6          2.3          0.6         12.3         24.8
    West North Central.......................................          581         11.1          3.7          2.2          0.8         12.5         33.5
    West South Central.......................................          354          1.2          3.4          2.3          1.1          9.8         18.8
    Mountain.................................................          204          3.3          3.5          2.3          0.7          9.4         20.5
    Pacific..................................................          151          3.2          3.5          2.3          0.3          9.2         19.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

    While not specifically detailed in Table 11, we would also like to 
indicate the impact of the proportional reduction in the Federal rates 
to account for the new services excluded from consolidated billing 
(and, therefore, SNF PPS) under section 103 of the BBRA. The 5 cent 
($0.05) reduction to the urban and rural unadjusted Federal rate 
results in an overall impact of a $2 million decrease in SNF payments 
for FY 2001.
    Finally, in accordance with the provisions of Executive Order 
12866, this notice was reviewed by the Office of Management and Budget.

VII. Federalism

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

List of Subjects

42 CFR Part 411

    Kidney diseases, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 413

    Health facilities, Kidney diseases, Medicare, Puerto Rico, 
Reporting and recordkeeping requirements.

[[Page 46796]]

42 CFR Part 489

    Health facilities, Medicare, Reporting and recordkeeping 
requirements.
    For the reasons set forth in the preamble, 42 CFR chapter IV is 
amended as follows:

PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE 
PAYMENT

    A. Part 411 is amended as set forth below:
    1. The authority citation for part 411 continues to read as 
follows:

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

Subpart A--General Exclusions and Exclusion of Particular Services

    2. Section 411.15 is amended by:
    A. Republishing the introductory text, and paragraph (p)(2) 
introductory text.
    B. Revising paragraphs (p)(2)(vii) and (p)(2)(xi).
    C. Adding new paragraphs (p)(2)(xii), (p)(2)(xiii), (p)(2)(xiv), 
and (p)(2)(xv).
    D. Revising paragraph (p)(3)(iv).


Sec. 411.15  Particular services excluded from coverage.

    The following services are excluded from coverage.
* * * * *
    (p) Services furnished to SNF residents.
* * * * *
    (2) Exceptions. The following services are not excluded from 
coverage:
* * * * *
    (vii) Dialysis services and supplies, as defined in section 
1861(s)(2)(F) of the Act, and those ambulance services that are 
furnished in conjunction with them.
* * * * *
    (xi) The transportation costs of electrocardiogram equipment (HCPCS 
code R0076), but only with respect to those electrocardiogram test 
services furnished during 1998.
    (xii) Those chemotherapy items identified, as of July 1, 1999, by 
HCPCS codes J9000-J9020; J9040-J9151; J9170-J9185; J9200-J9201; J9206-
J9208; J9211; J9230-J9245; and J9265-J9600.
    (xiii) Those chemotherapy administration services identified, as of 
July 1, 1999, by HCPCS codes 36260-36262; 36489; 36530-36535; 36640; 
36823; and 96405-96542.
    (xiv) Those radioisotope services identified, as of July 1, 1999, 
by HCPCS codes 79030-79440.
    (xv) Those customized prosthetic devices (including artificial 
limbs and their components) identified, as of July 1, 1999, by HCPCS 
codes L5050-L5340; L5500-L5611; L5613-L5986; L5988; L6050-L6370; L6400-
6880; L6920-L7274; and L7362-L7366, which are delivered for a 
resident's use during a stay in the SNF and intended to be used by the 
resident after discharge from the SNF.
    (3) SNF resident defined. * * *
    (iv) The beneficiary is formally discharged (or otherwise departs) 
from the SNF, unless the beneficiary is readmitted (or returns) to that 
or another SNF by midnight of the day of departure.

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES; PROSPECTIVELY DETERMINED PAYMENT 
RATES FOR SKILLED NURSING FACILITIES

    B. Part 413 is amended as set forth below:
    1. The authority citation for part 413 continues to read as 
follows:

    Authority: Secs. 1102, 1861(v)(1)(A), and 1871 of the Social 
Security Act (42 U.S.C. 1302, 1395x(v)(1)(A), and 1395hh).

Subpart A--Introduction and General Rules

    2. Section 413.1, paragraph (b), is amended by revising the phrase 
``paragraphs (c) through (f) of this section'' to read ``paragraphs (c) 
through (h) of this section''.

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

    C. Part 489 is amended to read as follows:
    1. The authority citation for part 489 continues to read as 
follows:

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

Subpart B--Essentials of Provider Agreements

    2. Section 489.20 is amended by:
    A. Republishing the introductory text and paragraph (s) 
introductory text.
    B. Revising paragraphs (s)(7) and (s)(11).
    C. Adding new paragraphs (s)(12), (s)(13), (s)(14), and (s)(15).


Sec. 489.20  Basic commitments.

    The provider agrees to the following:
* * * * *
    (s) In the case of an SNF, either to furnish directly or make 
arrangements (as defined in Sec. 409.3 of this chapter) for all 
Medicare-covered services furnished to a resident (as defined in 
Sec. 411.15(p)(3) of this chapter) of the SNF, except the following:
* * * * *
    (7) Dialysis services and supplies, as defined in section 
1861(s)(2)(F) of the Act, and those ambulance services that are 
furnished in conjunction with them.
* * * * *
    (11) The transportation costs of electrocardiogram equipment (HCPCS 
code R0076), but only with respect to those electrocardiogram test 
services furnished during 1998.
    (12) Those chemotherapy items identified, as of July 1, 1999, by 
HCPCS codes J9000-J9020; J9040-J9151; J9170-J9185; J9200-J9201; J9206-
J9208; J9211; J9230-J9245; and J9265-J9600.
    (13) Those chemotherapy administration services identified, as of 
July 1, 1999, by HCPCS codes 36260-36262; 36489; 36530-36535; 36640; 
36823; and 96405-96542.
    (14) Those radioisotope services identified, as of July 1, 1999, by 
HCPCS codes 79030-79440.
    (15) Those customized prosthetic devices (including artificial 
limbs and their components) identified, as of July 1, 1999, by HCPCS 
codes L5050-L5340; L5500-L5611; L5613-L5986; L5988; L6050-L6370; L6400-
6880; L6920-L7274; and L7362-L7366, which are delivered for a 
resident's use during a stay in the SNF and intended to be used by the 
resident after discharge from the SNF.


Sec. 489.21  [Amended]

    3. In Sec. 489.21, paragraph (h), the phrase ``Sec. 489.20(s)(1) 
through (11)'' is revised to read ``Sec. 489.20(s)(1) through (15)''.

(Catalog of Federal Domestic Assistance Program No. 93.773 
Medicare--Hospital Insurance Program; and No. 93.774, Medicare--
Supplementary Medical Insurance Program)


    Dated: July 18, 2000.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.

    Approved: July 21, 2000.
Donna E. Shalala,
Secretary.
[FR Doc. 00-19004 Filed 7-25-00; 8:45 am]
BILLING CODE 4120-01-P