[Federal Register Volume 66, Number 147 (Tuesday, July 31, 2001)]
[Rules and Regulations]
[Pages 39562-39607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-18869]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 410, et al.



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

  Federal Register / Vol. 66, No. 147 / Tuesday, July 31, 2001 / Rules 
and Regulations  

[[Page 39562]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 411, 413, 424, and 489

[CMS-1163-F]
RIN 0938-AK47


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

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

ACTION: Final rule.

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SUMMARY: This final rule updates the payment rates used under the 
prospective payment system (PPS) for skilled nursing facilities (SNFs) 
for fiscal year (FY) 2002, as required by statute. 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 SCHIP Balanced 
Budget Refinement Act of 1999 (BBRA), and the Medicare, Medicaid, and 
SCHIP Benefits Improvement and Protection Act of 2000 (BIPA), relating 
to Medicare payments and consolidated billing for SNFs. As part of this 
annual update, we are rebasing and revising the routine SNF market 
basket to reflect 1997 total cost data (the latest available complete 
data on the structure of SNF costs), and modifying certain variables 
for some of the cost categories. Finally, we are implementing the 
transition of swing-bed facilities to the SNF PPS, effective with cost 
reporting periods beginning on and after July 1, 2002.

EFFECTIVE DATE: These regulations are effective on October 1, 2001 for 
payment rates, and, for cost reporting periods beginning on or after 
July 1, 2002, for transition of swing-bed facilities to the SNF PPS.

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 and payment).
Sheila Lambowitz, (410) 786-7605 (for information related to swing-bed 
providers).
Bill Ullman, (410) 786-5667 (for general information).

SUPPLEMENTARY INFORMATION: Copies: To order copies of the Federal 
Register containing this document, send your request to: New Orders, 
Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-
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Register document at most libraries designated as Federal Depository 
Libraries and at many other public and academic libraries throughout 
the country that receive the Federal Register. This Federal Register 
document is also available from the Federal Register online database 
through GPO Access, a service of the U.S. Government Printing Office. 
The web site address is http://www.access.gpo.gov/nara/index.html.
    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 SCHIP Balanced Budget Refinement 
Act of 1999 (BBRA)
    D. The Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA)
    E. Skilled Nursing Facility Prospective Payment--General 
Overview
    1. Payment Provisions--Federal Rate
    2. Payment Provisions--Transition Period
    F. Skilled Nursing Facility Market Basket Index
II. Provisions of the Proposed Rule
III. Analysis and Response to Public Comments
    A. Research on Case-Mix Refinements
    B. Clinical Issues
    1. Minimum Data Set
    2. Therapy
    C. Update of Payment Rates Under the Prospective Payment System 
for Skilled Nursing Facilities
    1. Federal Prospective Payment System
    2. Case-Mix Adjustment
    D. Wage Index Adjustment to Federal Rate
    E. Updates to the Federal Rate
    F. Relationship of the RUG-III Classification System to Existing 
Skilled Nursing Facility Level-of-Care Criteria
    G. Example of Computation of Adjusted PPS Rates and SNF Payment
    H. The Skilled Nursing Facility Market Basket Index
    1. Background
    2. Rebasing and Revising the SNF Market Basket
    I. Update Framework
    J. Consolidated Billing
    K. Application of SNF PPS to Services Furnished by Swing-bed 
Hospitals
IV. Provisions of the Final Rule
V. Collection of Information Requirements
VI. Regulatory Impact Analysis
    A. Background
    B. Impact of the Final Rule
VII. Federalism
Regulation Text

Appendix A--Technical Features of the 1997-based Skilled Nursing 
Facility Market Basket Index

I. Synopsis of Structural Changes Adopted in the Revised and Rebased 
1997 Skilled Nursing Facility Market Basket
II. Methodology for Developing the Cost Category Weights
III. Price Proxies Used to Measure Cost Category Growth
    A. Wages and Salaries
    B. Employee Benefits
    C. All Other Operating Expenses
    D. Capital-Related Expenses

Appendix B--Swing-Bed Data Elements

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

ADL  Activity of Daily Living
AHE  Average Hourly Earnings
ARD  Assessment Reference Date
BBA  Balanced Budget Act of 1997, Pub. L. 105-33
BBRA  Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 
1999, Pub. L. 106-113
BEA  (U.S.) Bureau of Economic Analysis
BIPA  Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 
Act of 2000, Pub. L. 106-554
BES  (U.S.) Business Expenditures Survey
BLS  (U.S.) Bureau of Labor Statistics
CAH  Critical Access Hospital
CFR  Code of Federal Regulations
CMS  Centers for Medicare & Medicaid Services
CPI  Consumer Price Index
CPI-U  Consumer Price Index-All Urban Consumers
CPT  (Physicians') Current Procedural Terminology
DRG  Diagnosis Related Group
ECI  Employment Cost Index
FI  Fiscal Intermediary
FR  Federal Register
FY  Fiscal Year
GAO  General Accounting Office
HCPCS  Healthcare Common Procedure Coding System
ICD-9-CM  International Classification of Diseases, Ninth Revision, 
Clinical Modification

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IFC  Interim Final Rule with Comment Period
MDS  Minimum Data Set
MEDPAR  Medicare Provider Analysis and Review File
MIP  Medicare Integrity Program
MSA  Metropolitan Statistical Area
NECMA  New England County Metropolitan Area
OIG  Office of the Inspector General
OMRA  Other Medicare Required Assessment
PCE  Personal Care Expenditures
PPI  Producer Price Index
PPS  Prospective Payment System
PRM  Provider Reimbursement Manual
RAI  Resident Assessment Instrument
RAP  Resident Assessment Protocol
RAVEN  Resident Assessment Validation Entry
RUG-III  Resource Utilization Groups, Version III
SCHIP  State Children's Health Insurance Program
SNF  Skilled Nursing Facility
STM  Staff Time Measure

I. Background

    On May 10, 2001, we published in the Federal Register (66 FR 
23984), a proposed rule that set forth proposed updates to the payment 
rates used under the prospective payment system (PPS) for skilled 
nursing facilities (SNFs), for fiscal year (FY) 2002. 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 SCHIP Balanced 
Budget Refinement Act of 1999 (BBRA) and the Medicare, Medicaid, and 
SCHIP Benefits Improvement and Protection Act of 2000 (BIPA), relating 
to the Medicare prospective payment system and consolidated billing for 
SNFs.

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) amended 
section 1888 of the Act to provide for the implementation of a per diem 
PPS for SNFs, covering all costs (routine, ancillary, and capital) 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 diem payment rates for 
SNFs, for FY 2002. 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. The rates are 
adjusted annually using a SNF market basket index. 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). The rates are also adjusted by the 
hospital wage index to account for geographic variation in wages. 
Additionally, as noted in the July 31, 2000 final rule (65 FR 46770), 
section 101 of BBRA also affects the payment rate. Finally, sections 
311, 312, and 314 of the BIPA affect the Part A PPS payment rates for 
SNFs. These new provisions are discussed in detail in section I.D of 
this preamble.
     Transition. The SNF PPS included an initial 3-year, phased 
transition that blended a facility-specific payment rate with the 
Federal case-mix adjusted rate. For each cost reporting period after a 
facility migrated to the new system, the facility-specific portion of 
the blend decreased and the Federal portion increased in 25 percentage 
point increments. For facilities that received payment under the 
transition, the facility-specific rate was based on allowable costs 
from FY 1995; however, since the last year of the transition is FY 
2001, all facilities will be paid at the full Federal rate by the 
coming fiscal year (FY 2002), for which we have now finalized rates. 
Therefore, unlike previous years, this final rule does not include 
adjustment factors related to facility-specific rates for the coming 
fiscal year.
     Coverage. Medicare's fundamental requirements for SNF 
coverage were not changed by BBA; 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, as discussed in section 
III.F of this preamble.
     Consolidated Billing. The BBA included a billing provision 
that required a SNF to submit consolidated Medicare bills for its 
residents for almost all services that are covered under either Part A 
or Part B (the statute excluded a small list of services, primarily 
those of physicians and certain other types of practitioners). With the 
exception of physical therapy, occupational therapy, and speech-
language therapy, section 313 of BIPA has now limited the scope of this 
provision to apply only to those services that are furnished during the 
course of a resident's covered Part A stay in the SNF, as discussed in 
section III.J of this preamble.
     Application of the SNF PPS to SNF services furnished by 
swing-bed hospitals. Section 1883 of the Act permits certain small, 
rural hospitals to enter into a Medicare swing-bed agreement, under 
which the hospital can use its beds to provide either acute or SNF 
care, as needed. Part A currently pays for SNF services furnished by 
swing-bed hospitals on a cost-related basis. Section 1888(e)(7) of the 
Act requires the SNF PPS to encompass these services no earlier than 
cost reporting periods beginning on July 1, 1999, and no later than the 
end of the SNF PPS transition period described in section 1888(e)(2)(E) 
of the Act. In the proposed rule published in the Federal Register on 
May 10, 2001 (66 FR 23984), we proposed to implement the SNF PPS for 
swing-bed hospitals effective with cost reporting periods beginning on 
and after October 1, 2001. However, as discussed in section III.K of 
this preamble, based on concerns raised during the comment period, we 
are instead implementing the SNF PPS for swing-bed hospitals effective 
with cost reporting periods beginning on and after July 1, 2002.

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 the July 30, 1999 final rule (64 FR 41670), we indicated that we 
would announce any changes to the guidelines for Medicare level of care 
determinations related to modifications in the RUG-III classification 
structure.
    Along with a number of other revisions discussed later in this 
preamble, this final rule provides the annual updates to the Federal 
rates as mandated by the Act.

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

    There were several provisions in the BBRA that resulted in various 
adjustments, within specified timeframes, to the PPS for SNFs. The 
provisions were described in the final

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rule that we published in the Federal Register on July 31, 2000 (65 FR 
46770). In particular, section 101 provided 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). Section 101 also included a 4 percent across-the-
board increase in the adjusted Federal per diem payment rates each year 
for FYs 2001 and 2002, exclusive of the 20 percent increase. In 
addition, for certain SNFs located in Baldwin or Mobile County, 
Alabama, section 155 provided for a special 100 percent facility-
specific payment rate for cost reporting periods beginning in FY 2000 
and FY 2001. Finally, section 105 provided for payment at a 50 percent 
Federal, 50 percent facility-specific payment rate for SNFs serving 
certain specialized patient populations, which became effective on 
November 29, 1999, and expires on September 30, 2001.
    We included further information on all of the provisions of the 
BBRA in Program Memorandums A-99-53 and A-99-61 (December 1999), and 
Program Memorandum AB-00-18 (March 2000).

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

    As a result of enactment of the BIPA, 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 May 10, 2001 (66 FR 23984), and are discussed further in 
section III of this preamble, to the extent that we received public 
comments concerning them.
     Section 203--Exemption of Critical Access Hospital (CAH) 
Swing-beds from SNF PPS. This provision exempts swing-beds in CAHs from 
section 1888(e)(7) of the Act (as enacted by section 4432(a) of the 
BBA) which applies the SNF PPS to SNF services furnished by swing-bed 
hospitals. Accordingly, this provision enables CAHs to be paid for 
their swing-bed SNF services on a reasonable cost basis. This provision 
is effective with cost reporting periods beginning on or after December 
21, 2000, the date of the enactment of the BIPA. We included further 
information on this provision in Program Memorandum A-01-09 (January 
16, 2001).
     Section 311--Elimination of Reduction in SNF Market Basket 
Update in 2001. This provision eliminates the one percent reduction 
reflected in the update formula for the Federal rates for FY 2001 that 
was required by the BBA. In implementing this change, this provision 
also modifies the schedule and rates according to which Federal per 
diem payments are updated to FY 2002. For FY 2002 and FY 2003, the 
updates would be the market basket index increase minus 0.5 percentage 
points. This provision also provides a special rule that, for purposes 
of making payments under the SNF PPS for FY 2001, for the first half of 
FY 2001 (the period beginning October 1, 2000, and ending March 31, 
2001), the market basket update remains at market basket minus 1, and 
for the second half of the fiscal year (the period beginning on April 
1, 2001, and ending on September 30, 2001), the market basket update 
changes from market basket minus 1 to market basket plus 1.
    In addition, this provision requires the General Accounting Office 
(GAO) to submit a report to Congress by July 1, 2002, on the adequacy 
of SNF payment rates. It also requires the Secretary to conduct a study 
of the different systems for categorizing patients in SNFs in a manner 
that accounts for the relative resource utilization of different 
patient types, and to submit a report to Congress not later than 
January 1, 2005.
     Section 312--Increase in Nursing Component of PPS Federal 
Rate. This provision requires the Secretary to increase by 16.66 
percent the nursing component of the case-mix adjusted Federal rate 
specified in the July 31, 2000 final rule (65 FR 46770), as 
subsequently updated, for services furnished on or after April 1, 2001, 
and before October 1, 2002. This provision also requires the GAO to 
conduct an audit of SNF nursing staff ratios, and to submit a report to 
Congress by August 1, 2002, including a recommendation on whether the 
temporary 16.66 percent increase in the nursing component should be 
continued.
     Section 313--Application of SNF Consolidated Billing 
Requirement Limited to Part A Covered Stays. This provision repeals the 
consolidated billing requirement for services (other than physical 
therapy, occupational therapy, and speech-language therapy) furnished 
to those SNF residents who are in noncovered stays, effective January 
1, 2001. It also directs the Secretary to monitor Part B payments for 
those services, in order to guard against duplicate billing and the 
excessive provision of services.
     Section 314--Adjustment of Rehabilitation RUGs to Correct 
Anomaly in Payment Rates. For services furnished from April 1, 2001, 
until the date that RUG refinements are implemented, this provision 
requires the Secretary to increase by 6.7 percent the adjusted Federal 
per diem rate for all of the following RUG-III rehabilitation groups: 
RUC, RUB, RUA, RVC, RVB, RVA, RHC, RHB, RHA, RMC, RMB, RMA, RLB, and 
RLA. This provision supersedes the 20 percent increase that section 
101(b) of the BBRA had previously established for the RHC, RMC, and RMB 
rehabilitation groups, thereby correcting the resulting anomaly under 
which the payment rates for these particular groups were actually 
higher than the rates for some other, more intensive rehabilitation 
RUGs. This provision also requires the Office of Inspector General 
(OIG) to review whether the RUG payment structure in effect under the 
BBRA included incentives for the delivery of inadequate care and report 
to the Congress by October 1, 2001.
     Section 315--Establishment of Process for Geographic 
Reclassification. This provision explicitly permits the Secretary to 
establish a geographic reclassification procedure that is specific to 
SNFs, for purposes of payment for covered SNF services under the PPS. 
However, this cannot occur until the Secretary has collected data 
necessary to establish a SNF wage index that is based on wage data from 
nursing homes.
    We included further information on several of these provisions in 
Program Memorandum A-01-08 (January 16, 2001).

E. 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 (routine, 
ancillary, and capital-related costs) other than costs associated with 
approved educational activities. Covered SNF services include post-
hospital 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).
1. Payment Provisions--Federal Rate
    The PPS uses 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

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developed the Federal payment rates using allowable costs from 
hospital-based and freestanding SNF cost reports for reporting periods 
beginning in FY 1995. The data used in developing the Federal rates 
also incorporated an estimate of the amounts that would be payable 
under Part B for covered SNF services furnished to individuals who were 
receiving Part A covered services in a 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 then standardized for the 
costs of 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, as well as costs related to payments for 
exceptions to the routine cost limits. 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 computed and applied 
separately the payment rates for facilities located in urban and rural 
areas. In addition, we adjusted the portion of the Federal rate 
attributable to wage-related costs by a wage index.
    The Federal rate also incorporates adjustments to account for 
facility case-mix, using a classification system that accounts for the 
relative resource utilization of different patient types. This 
classification system, RUG-III, utilizes beneficiary assessment data 
from the Minimum Data Set (MDS) completed by SNFs to assign 
beneficiaries to one of 44 groups. The May 12, 1998 interim final rule 
(63 FR 26252) included a complete and detailed description of the RUG-
III classification system.
    The Federal rates in this rule reflect an update to the rates in 
the July 31, 2000 update notice (65 FR 46770) equal to the SNF market 
basket index minus 0.5 percent, as well as the elimination of the 1 
percent reduction reflected in the update formula for the FY 2001 
payment rates under section 311 of the BIPA. According to section 311 
of the BIPA, for FY 2002, we will update the rate by adjusting the 
current rates by the SNF market basket change minus 0.5 percent.
2. Payment Provisions--Transition Period
    The SNF PPS includes an initial, phased transition from a facility-
specific rate (which reflects the individual facility's historical cost 
experience) to the Federal case-mix adjusted rate. The transition 
extends through the facility's first three cost reporting periods under 
the PPS, up to and including the one that begins in FY 2001. 
Accordingly, starting with cost reporting periods that begin in FY 
2002, we will base payments entirely on the Federal rates.

F. Skilled Nursing Facility Market Basket Index

    Section 1888(e)(5) of the Act requires the Secretary to establish a 
SNF market basket index that reflects changes over time in the prices 
of an appropriate mix of goods and services included in the covered SNF 
services. The SNF market basket index is used to update the Federal 
rates on an annual basis. We have developed a revised and rebased SNF 
market basket index that consists of the most commonly used cost 
categories for SNF routine services, ancillary services, and capital-
related expenses. A complete discussion concerning the design and 
application of the SNF market basket index is presented in section 
III.H of this preamble.

II. Provisions of the Proposed Rule

    The proposed rule that we published in the Federal Register on May 
10, 2001 (66 FR 23984) included proposed FY 2002 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 updates reflect the SNF market 
basket percentage change for the fiscal year minus 0.5 percent, as well 
as the elimination of the 1 percent reduction reflected in the update 
formula for the FY 2001 payment rates under section 311 of the BIPA. 
The proposed rule described our process for revising and rebasing the 
market basket and included a discussion of a conceptual update 
framework. In addition, the proposed rule included a discussion of the 
feasibility of establishing a SNF-specific wage index. Further, the 
proposed rule described our methodology for adjusting the Federal rates 
in accordance with sections 311 and 312 of the BIPA, in order to 
reflect the elimination of the reduction in the market basket and the 
16.66 percent increase in the nursing component. In accordance with 
section 314 of the BIPA, we also provided for an adjustment of 
rehabilitation RUGs to correct an existing anomaly in the payment 
rates. We also included a discussion of our commitment to monitor the 
RUG-III classification system and to pursue RUG refinements. 
Additionally, we discussed our ongoing efforts to ensure accurate 
payment for appropriate care in areas such as concurrent therapy, MDS 
accuracy, and program safeguards.
    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. 410.150, paragraph (b)(14) would be revised to 
reflect that Part B makes payment to the SNF for its resident's 
services only in those situations where the SNF itself furnishes the 
services, either directly or under an arrangement with an outside 
source.
     In Sec. 411.15, paragraph (p)(1) would be revised to 
indicate that except for physical, occupational, and speech-language 
therapy, consolidated billing applies only to those services that a SNF 
resident receives during the course of a covered Part A stay. 
Conforming revisions would also be made in Secs. 489.20(s) and 
489.21(h), in the context of the requirements of the SNF provider 
agreement. Section 411.15(p)(2) would be revised to indicate that, for 
Part B services furnished to a SNF resident, the requirement to enter 
the SNF's Medicare provider number on the Part B claim (which 
previously applied only to claims for physician services) would apply 
to all types of Part B claims. Conforming revisions would also be made 
in the requirements regarding claims for payment, at Secs. 424.32(a)(2) 
and (a)(5). The existing requirement in Sec. 424.32(a)(5), that a SNF 
include appropriate HCPCS coding and its Medicare provider number on 
the claims that it files for its residents' services, would be revised 
by adding that these requirements also apply to these claims when they 
are filed by an outside entity. In addition, Sec. 411.15(p)(3) would be 
revised to exclude from the definition of a SNF resident, for 
consolidated billing purposes, those individuals who reside in the 
noncertified portion of an institution that also contains a 
participating distinct part SNF.
     In accordance with section 1888(e)(2)(E) of the Act, 
Sec. 413.114 would be revised to reimburse swing-bed services of rural 
hospitals (other than CAHs, which would be paid on a reasonable cost 
basis) under the SNF PPS described in regulations at subpart J of that 
part. This conversion to the SNF PPS was proposed to become effective 
for services furnished during

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cost reporting periods beginning on or after October 1, 2001. (However, 
as discussed in section III.K of this preamble, the conversion will 
instead become effective for services furnished during cost reporting 
periods beginning on or after July 1, 2002.) In addition, paragraph 
(d)(1) of this section would be revised to reflect modifications to the 
special requirements for swing-bed facilities with more than 49 but 
fewer than 100 beds (as enacted by section 408 of the BBRA), and a 
conforming revision would be made in Sec. 424.20(a)(2).
     In Sec. 413.337, a new paragraph (e) would be added to 
clarify that the temporary increases in payment for certain RUGs under 
section 101 of the BBRA (as modified by section 314 of the BIPA) will 
no longer be applicable upon issuance of a new regulation that sets 
forth a refined case-mix classification system.
    More detailed information on each of these issues, to the extent 
that we received public comments on them, appears in the discussion 
contained in the following section of this preamble.

III. Analysis and Responses to Public Comments

    In response to the publication of the proposed rule on May 10, 2001 
(66 FR 23984), we received over 200 comments. Many consisted of form 
letters, in which we received multiple copies of an identically worded 
letter that had been signed and submitted by different individuals. 
Further, we received numerous comments from various trade associations 
and major organizations. Comments originated from nursing homes, 
hospitals, and other providers, suppliers, and practitioners, nursing 
home resident advocacy groups, health care consulting firms and private 
citizens. The following discussion, arranged by subject area, includes 
a description of the comments that we received, along with our 
responses.

A. Research on Case-Mix Refinements

    In the proposed rule, we indicated that we would not be modifying 
the existing case-mix classification system during the current 
rulemaking cycle. Consequently, the add-ons to the Federal rates for 
specified RUG-III groups, as required by section 101 of the BBRA and 
modified by section 314 of the BIPA, will remain in effect during FY 
2002.
    Comment: We received a number of comments related to the proposed 
rule's discussion of efforts to refine the case-mix system. In that 
rule, we specifically invited comments on possible approaches to 
refining the current case-mix classification system, as well as on 
identifying and studying alternatives to the current system. Many 
commenters desired more information regarding our plans for refining 
the system. A number of commenters were supportive of efforts to refine 
the system but urged us to pursue approaches that were easy to 
administer and did not introduce a new burden for providers. A few 
commenters offered specific approaches to refining the system. These 
included the use of total cost per day and per Medicare covered episode 
(as the dependent variable in the analysis) to estimate the explanatory 
power of potential refinement approaches, and development of a medical 
complexity index that focuses on diagnoses, comorbidities, or other 
elements critical to describing the post acute care population. One 
commenter requested that we articulate in this final rule the 
principles we use to guide our approach to the SNF PPS and the case-mix 
refinement, and several others suggested principles they believe we 
should use in our case-mix refinement work. The suggested principles 
for our case-mix refinements included administrative feasibility, 
recognition of clinical complexity of the SNF population, and 
recognition of extraordinarily high-cost items and services. Several 
commenters recommended that we never implement refinements so that the 
additional payment add-ons associated with section 101 of the BBRA 
would be maintained.
    Response: We believe that payments must continue to be adequate in 
order to support quality care and access to needed services for 
Medicare beneficiaries. In doing so, the PPS should avoid imposing 
undue burden on providers. With regard to our efforts to develop case-
mix refinements, we intend to develop models that improve upon the 
statistical performance of the present case-mix system, and thus 
support accurate pricing of services, while minimizing complexity and 
controlling for any adverse incentives related to quality of care and 
program integrity. Achieving a result that reflects goals that are 
sometimes competing may require that we strike an appropriate balance. 
We believe the potential exists to find this balance and look forward 
to pursuing development of case-mix refinements. We believe that our 
approach to developing refinements will be both responsive to the 
provider community's concerns and support continued access to quality 
care for Medicare beneficiaries. As stated in the proposed rule, we are 
not implementing case-mix refinements for FY 2002. As a result, the 20 
percent payment add-ons required by the BBRA (and subsequently modified 
by the BIPA) will be maintained for FY 2002. However, the Congress 
intended these payment add-ons to be a temporary measure, to remain in 
effect only until we provide for refinements to the classification 
system. Under provisions of the BBRA, implementation of the refinements 
will result in the expiration of these temporary increases in the 
payment rates. (In the proposed rule, we proposed to add a new 
paragraph (e) to Sec. 413.337 to clarify this point.)
    Accordingly, it is our intention to develop and implement 
refinements to the case-mix classification system as soon as feasible. 
To that end, we have awarded a contract to the Urban Institute for a 
research project that will, in the initial stages, address the 
feasibility of developing and implementing such refinements. We plan to 
review various approaches to determine the most appropriate methodology 
for the refinements. As we discussed in the proposed rule, this may 
include further analysis to develop a non-therapy ancillary index, 
similar to that proposed in the FY 2001 proposed rule. We are also 
interested in evaluating approaches that take into account proven 
indicators of resource use in other post acute settings, such as 
functional status, diagnosis, and comorbidities. We found the comments 
very helpful in this area and we will consider the specific suggestions 
of commenters as we continue this effort. Any specific refinement 
proposal resulting from this research will be included in a future 
Federal Register notice for public comment.

B. Clinical Issues

    In the proposed rule published on May 10, 2001 (66 FR 23984), we 
included a description of our ongoing efforts to support accurate 
completion of the Minimum Data Set (MDS) 2.0, along with a discussion 
of our concerns about the provision of concurrent therapy--a practice 
in which an individual therapist simultaneously treats a number of 
beneficiaries who (unlike in group therapy) are not working on any 
common skill development.
1. Minimum Data Set
    Comment: We received a few comments commending our efforts to 
provide more clear definitions of MDS elements, provide more explicit 
MDS coding instructions, and expand provider training on the MDS. In 
addition, we received a few comments regarding the complexity of the 
MDS and the continuing confusion regarding some of the scheduling and 
completion

[[Page 39567]]

requirements. They requested that we consider simplification of the MDS 
process and that we also make a special effort to make additional 
training available to professional therapists and other SNF staff in 
addition to the MDS coordinators.
    Response: We appreciate the support of our efforts to clarify MDS 
elements and scheduling requirements, and to identify ways to simplify 
the requirements, and we intend to continue these efforts. We recently 
posted two sets of MDS 2.0 Questions and Answers on our web site at: 
www.hcfa.gov/medicaid/mds20/default.htm. The most recent set was posted 
in July 2001. As part of our ongoing effort to provide clarification in 
this area, we are also taking this opportunity to address a Medicare 
MDS scheduling issue that has come to our attention recently. We have 
become aware that there are instances in which providers have performed 
the Medicare-required 14-day assessment prior to the specified 
assessment window, days 11 through 14. In our discussion of the default 
rate in the preamble of the May 12, 1998, interim final rule (42 FR 
26265) that implemented the SNF PPS, we focused on the default rate as 
a consequence of late assessments, since we expected late assessments 
to be the most likely reason for triggering a default payment.
    In that discussion, we explained that when the assessment reference 
date of a Medicare-required assessment is set after the assessment 
window (including the grace days), the provider will be paid at the 
default rate for all of the days of the payment window, up until the 
assessment reference date of the late assessment. We did not include 
any explanation for the more unusual situation of an assessment 
reference date that is set prior to the assessment window. However, 
there have been instances in which assessments have been performed 
prior to the specified assessment window and questions have been raised 
about whether, and for how long, the default rate applies. It has been 
unclear whether the default rate was to be applied to the entire 
payment window, for the number of days between the assessment reference 
date and the due date for the assessment, or for the number of days by 
which the assessment is outside of the assessment window.
    Although we did not discuss early assessments in the preamble of 
the interim final rule, the regulations in Sec. 413.343(c) state that 
we pay a default rate for the Federal rate when a SNF fails to comply 
with the assessment schedule. A Medicare-required 14-day assessment 
with an assessment reference date on either day 9 or 10 is not in 
compliance with the assessment schedule and is, therefore, subject to 
payment at the default rate.
    If the assessment was performed outside of the specified assessment 
window due to a scheduling or clerical error and there was no effect on 
payment as a result of performing the assessment too early, the default 
rate will be assessed only for the number of days the assessment is out 
of compliance. For example, a Medicare-required 14-day assessment 
performed on day 10 would be paid at the default rate for the first day 
of the payment period that begins on day 15. These claims may be 
subject to medical review, and the provider may be asked to explain the 
reason for early assessment and demonstrate that there was no impact on 
payment.
    However, SNFs that systematically use early assessment reference 
dates will be handled in the same way as SNFs performing frequent late 
assessments. These facilities may be subject to an onsite review of 
assessment scheduling practices for the facility, in addition to the 
imposition of the default rate.
    We understand that setting the assessment reference dates outside 
of the assessment window has usually occurred as a result of 
misunderstanding of the assessment schedule requirements by facility 
staff, and we will make every effort to work with providers and the 
contractor to resolve these issues.
    We will expand the scope of our facility monitoring practices in 
order to detect patterns of assessment reference dates that are outside 
of, and prior to, the assessment windows. We believe that after three 
years of participation in the PPS, providers should be aware of, and 
comply with the required assessment schedule.
    Comment: Some commenters noted requests for MDS repository data 
that had been denied, and asked why we are so restrictive with these 
data.
    Response: MDS repository data contain beneficiary-level clinical 
information. The Privacy Act of 1974 allows us to disclose information 
without an individual's consent only if the information is to be used 
for a purpose that is compatible with the purpose(s) for which the 
information was collected. The Health Insurance Portability and 
Accountability Act of 1996 (HIPAA, Pub. L. 104-191) has only reinforced 
the need to safeguard beneficiary privacy. While we are committed to 
providing the public with appropriate access to our administrative 
data, we take beneficiary privacy concerns very seriously. It is our 
responsibility to protect the privacy of Medicare beneficiaries, and to 
comply with the related laws and regulations that safeguard their 
privacy.
    A full description of the criteria that are used to determine who 
may obtain MDS Repository data and for what purposes is provided in the 
Notice of New System of Records that was published in the Federal 
Register on May 22, 1998 (63 FR 28396). The notice also is available on 
our web site at: www.hcfa.gov/medicaid/mds20/mdssor.htm. The notice 
makes clear that requests for the data are evaluated individually to 
determine whether the user qualifies for use of the data. We do provide 
technical assistance for those with a legitimate need for the data.
2. Therapy
    Comment: A few commenters indicated that they were unfamiliar with 
the term concurrent therapy until encountering the concept in the 
discussion in the proposed rule. They asked whether it is the same as 
the practice referred to as dovetailing, and questioned whether it is a 
significant problem. We received a large number of comments encouraging 
us to continue to recognize concurrent therapy as skilled therapy. 
These commenters contended that therapists are treating more than one 
beneficiary concurrently only when appropriate. All of these commenters 
opposed any development of new guidance or regulation regarding the 
delivery of concurrent therapy services. However, some other comments 
indicated that our concerns regarding concurrent therapy were 
warranted. Several commenters reported that since the implementation of 
the SNF PPS, professional therapists are encountering increased 
pressure to be more productive than they have in the past, including 
the need to see more than one patient at a time, and performing 
documentation and collaboration with other members of the care team as 
non-reimbursed time.
    Response: Concurrent therapy and dovetailing are synonymous terms. 
While the practice of providing concurrent therapy is by no means 
universal, we perceived a need to discuss this practice in the proposed 
rule, in order to alert providers to the inappropriate uses of this 
practice in certain areas of the country. We addressed the practice of 
concurrent therapy in the proposed rule (66 FR 23991) in order to 
reiterate Medicare policy and to solicit public comment. Our concern 
was two-fold: that therapists' professional judgment was

[[Page 39568]]

being overridden by pressures to be more productive by treating 
multiple beneficiaries concurrently; and that the Medicare policy 
(reiterated below) that allows for the treatment of multiple 
beneficiaries was being used inappropriately and could lead to 
diminished quality of care. Apparently, this may not be a problem in 
the particular localities of most of the commenters. However, we expect 
that our discussion in the proposed rule may raise awareness and help 
prevent the inappropriate use of this practice from becoming more 
widespread.
    The proposed rule's discussion also provided an opportunity for us 
to reiterate Medicare coverage policy regarding skilled rehabilitation 
therapy. The Medicare SNF benefit provides coverage of skilled, 
individualized rehabilitation services that are of such a level of 
complexity and sophistication that the services can be safely and 
effectively performed only by or under the supervision of a qualified 
professional therapist. Accordingly, we wished to make clear that it is 
inappropriate to require, as a condition of employment, that a 
therapist agree to treat more than one beneficiary at a time in 
situations where providing treatment in such a manner would compromise 
the therapist's professional judgment. However, we continue to believe, 
as do many of the commenters, that concurrent therapy has a legitimate 
place in the spectrum of care options available to therapists treating 
Medicare beneficiaries. Our goals are to safeguard the health and 
safety of beneficiaries and assure that they are provided the most 
effective, skilled care available. We agree that, at times, such care 
can be provided concurrently with another therapy patient, as long as 
the decision to do so is driven by valid clinical considerations. At 
this time, we will not change our approach, but recognize that we may 
need to revisit this issue should the need to do so arise.
    Comment: One commenter characterized the PPS methodology as 
creating a perception that the SNF is not paid for anything that is not 
counted as therapy minutes on the MDS.
    Response: We would like to take this opportunity to clarify that 
this perception is inaccurate. The PPS rates were developed using all 
of the therapists' time, including both direct and indirect care time. 
The majority of comments on the proposed rule's discussion of 
concurrent therapy state that most therapy delivered to Medicare 
beneficiaries is performed on a one-to-one basis, as has always been 
the practice. We hope that this discussion will increase awareness 
among those who mistakenly believe that only the minutes on the MDS are 
covered by the rates.
    Comment: We received many comments regarding language in the 
proposed rule about the increased financial incentives that BIPA 
creates for the rehabilitation categories and the potential for 
upcoding under the SNF PPS to gain higher payments (66 FR 23991). The 
commenters regarded this language as implying that providers are 
intentionally manipulating the payment system, and they viewed this to 
be unwarranted and unfair. They cited a recent report by the Office of 
the Inspector General that found no evidence of provider upcoding.
    Response: The statement in the proposed rule was not intended to 
imply that large numbers of SNFs are behaving in an abusive manner. 
Since the implementation of the SNF PPS, the General Accounting Office 
and MedPAC have been critical of the payment system's method for 
classification into the rehabilitation groups. Specifically, they have 
questioned our methodology that assigns a beneficiary into the 
rehabilitation groups based on the amount of service provided. Thus, a 
beneficiary who is provided more services is assigned to a higher-paid 
RUG-III group.
    Our purpose in making this observation in the proposed rule was to 
recognize the systemic potential for inappropriate upcoding in any PPS 
that uses clinical information as the basis for payment. We have not 
encountered evidence of a significant amount of upcoding under the SNF 
PPS. In the proposed rule, we were simply making the observation that 
the BIPA provisions tended to magnify existing adverse incentives, and 
reinforcing our policy regarding medical review.

C. 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, 2001. The schedule establishes per diem Federal rates that 
provide Part A payment for all costs of services furnished to a 
beneficiary in a SNF during a Medicare-covered stay. Tables 1 and 2 
reflect the updated components of the unadjusted Federal rates.
    The FY 2002 rates reflect an update using the latest market basket 
index minus 0.5 percentage point. The final FY 2002 market basket 
increase factor is 3.3 percent, and subtracting 0.5 percentage points 
yields an update of 2.8 percent. This final update factor reflects the 
latest available forecast of the SNF market basket, and is 0.4 percent 
higher than the factor reflected in the proposed rule. In accordance 
with section 101 of the BBRA and section 314 of the BIPA, we have 
provided for a temporary increase in the per diem adjusted payment 
rates of 20 percent for certain specified RUGs, and 6.7 percent for 
certain others. These temporary increases of 20 percent and 6.7 percent 
for certain specified RUGs will continue until implementation of case-
mix refinements, as described in section 101 of the BBRA and section 
314 of the BIPA. Also, in accordance with section 101 of the BBRA, we 
are providing a 4 percent increase in the adjusted Federal rate for FY 
2002. These temporary adjustments (that is, 20 percent, 6.7 percent, or 
4 percent) are not reflected in the rate tables (Tables 1, 2, 3, 4, 5, 
and 6 of this final rule). Rather, in accordance with the statute, they 
are applied only after all other adjustments (wage and case-mix) have 
been made (see Table 9). However, the 16.6 percent increase to the 
nursing component of the Federal rate, established under section 312 of 
the BIPA, is reflected in the rate tables (Tables 1 through 6).

                                Table 1.--Unadjusted Federal Rate Per Diem--Urban
----------------------------------------------------------------------------------------------------------------
                                                  Nursing-- case- Therapy-- case- Therapy--  non-
                 Rate component                         mix             mix          case-mix     Non-  case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount.................................         $138.29          $89.29          $11.76          $60.50
----------------------------------------------------------------------------------------------------------------


[[Page 39569]]


                                Table 2.--Unadjusted Federal Rate Per Diem--Rural
----------------------------------------------------------------------------------------------------------------
                                                  Nursing-- case- Therapy-- case- Therapy--  non-
                 Rate component                         mix             mix          case-mix     Non-  case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount.................................         $132.13         $102.96          $12.56          $61.62
----------------------------------------------------------------------------------------------------------------

2. Case-Mix Adjustment
    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). Consequently, we 
will also maintain the add-ons to the Federal rates for specified RUG-
III groups, as required by section 101 of the BBRA and subsequently 
modified by section 314 of the BIPA. The case-mix adjusted payment 
rates are listed separately for urban and rural SNFs in Tables 3 and 4, 
with the corresponding case-mix values. These tables do not reflect the 
add-ons (that is, 20 percent, 6.7 percent, or 4 percent) provided for 
in the BBRA and the BIPA, which are applied only after all other 
adjustments (wage and case-mix) have been made, but do reflect the 
16.66 percent increase in the nursing component of the rate required in 
section 312 of the BIPA.

                                         Table 3.--Case-Mix Adjusted Federal Rates and Associated Indexes--Urban
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     Non-case     Non-case
                       RUG-III category                          Nursing      Therapy      Nursing      Therapy    mix therapy      mix      Total  rate
                                                                  index        index      component    component    component    component
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUC..........................................................         1.30         2.25       179.78       200.90  ...........        60.50       441.18
RUB..........................................................         0.95         2.25       131.38       200.90  ...........        60.50       392.78
RUA..........................................................         0.78         2.25       107.87       200.90  ...........        60.50       369.27
RVC..........................................................         1.13         1.41       156.27       125.90  ...........        60.50       342.67
RVB..........................................................         1.04         1.41       143.82       125.90  ...........        60.50       330.22
RVA..........................................................         0.81         1.41       112.01       125.90  ...........        60.50       298.41
RHC..........................................................         1.26         0.94       174.25        83.93  ...........        60.50       318.68
RHB..........................................................         1.06         0.94       146.59        83.93  ...........        60.50       291.02
RHA..........................................................         0.87         0.94       120.31        83.93  ...........        60.50       264.74
RMC..........................................................         1.35         0.77       186.69        68.75  ...........        60.50       315.94
RMB..........................................................         1.09         0.77       150.74        68.75  ...........        60.50       279.99
RMA..........................................................         0.96         0.77       132.76        68.75  ...........        60.50       262.01
RLB..........................................................         1.11         0.43       153.50        38.39  ...........        60.50       252.39
RLA..........................................................         0.80         0.43       110.63        38.39  ...........        60.50       209.52
SE3..........................................................         1.70  ...........       235.09  ...........        11.76        60.50       307.35
SE2..........................................................         1.39  ...........       192.22  ...........        11.76        60.50       264.48
SE1..........................................................         1.17  ...........       161.80  ...........        11.76        60.50       234.06
SSC..........................................................         1.13  ...........       156.27  ...........        11.76        60.50       228.53
SSB..........................................................         1.05  ...........       145.20  ...........        11.76        60.50       217.46
SSA..........................................................         1.01  ...........       139.67  ...........        11.76        60.50       211.93
CC2..........................................................         1.12  ...........       154.88  ...........        11.76        60.50       227.14
CC1..........................................................         0.99  ...........       136.91  ...........        11.76        60.50       209.17
CB2..........................................................         0.91  ...........       125.84  ...........        11.76        60.50       198.10
CB1..........................................................         0.84  ...........       116.16  ...........        11.76        60.50       188.42
CA2..........................................................         0.83  ...........       114.78  ...........        11.76        60.50       187.04
CA1..........................................................         0.75  ...........       103.72  ...........        11.76        60.50       175.98
IB2..........................................................         0.69  ...........        95.42  ...........        11.76        60.50       167.68
IB1..........................................................         0.67  ...........        92.65  ...........        11.76        60.50       164.91
IA2..........................................................         0.57  ...........        78.83  ...........        11.76        60.50       151.09
IA1..........................................................         0.53  ...........        73.29  ...........        11.76        60.50       145.55
BB2..........................................................         0.68  ...........        94.04  ...........        11.76        60.50       166.30
BB1..........................................................         0.65  ...........        89.89  ...........        11.76        60.50       162.15
BA2..........................................................         0.56  ...........        77.44  ...........        11.76        60.50       149.70
BA1..........................................................         0.48  ...........        66.38  ...........        11.76        60.50       138.64
PE2..........................................................         0.79  ...........       109.25  ...........        11.76        60.50       181.51
PE1..........................................................         0.77  ...........       106.48  ...........        11.76        60.50       178.74
PD2..........................................................         0.72  ...........        99.57  ...........        11.76        60.50       171.83
PD1..........................................................         0.70  ...........        96.80  ...........        11.76        60.50       169.06
PC2..........................................................         0.65  ...........        89.89  ...........        11.76        60.50       162.15
PC1..........................................................         0.64  ...........        88.51  ...........        11.76        60.50       160.77
PB2..........................................................         0.51  ...........        70.53  ...........        11.76        60.50       142.79
PB1..........................................................         0.50  ...........        69.15  ...........        11.76        60.50       141.41
PA2..........................................................         0.49  ...........        67.76  ...........        11.76        60.50       140.02
PA1..........................................................         0.46  ...........        63.61  ...........        11.76        60.50       135.87
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 39570]]


                                         Table 4.--Case-Mix Adjusted Federal Rates and Associated Indexes--Rural
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     Non-case     Non-case
                       RUG-III category                          Nursing      Therapy      Nursing      Therapy    mix therapy      mix      Total  rate
                                                                  index        index      component    component    component    component
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUC..........................................................         1.30         2.25       171.77       231.66  ...........        61.62       465.05
RUB..........................................................         0.95         2.25       125.52       231.66  ...........        61.62       418.80
RUA..........................................................         0.78         2.25       103.06       231.66  ...........        61.62       396.34
RVC..........................................................         1.13         1.41       149.31       145.17  ...........        61.62       356.10
RVB..........................................................         1.04         1.41       137.42       145.17  ...........        61.62       344.21
RVA..........................................................         0.81         1.41       107.03       145.17  ...........        61.62       313.82
RHC..........................................................         1.26         0.94       166.48        96.78  ...........        61.62       324.88
RHB..........................................................         1.06         0.94       140.06        96.78  ...........        61.62       298.46
RHA..........................................................         0.87         0.94       114.95        96.78  ...........        61.62       273.35
RMC..........................................................         1.35         0.77       178.38        79.28  ...........        61.62       319.28
RMB..........................................................         1.09         0.77       144.02        79.28  ...........        61.62       284.92
RMA..........................................................         0.96         0.77       126.84        79.28  ...........        61.62       267.74
RLB..........................................................         1.11         0.43       146.66        44.27  ...........        61.62       252.55
RLA..........................................................         0.80         0.43       105.70        44.27  ...........        61.62       211.59
SE3..........................................................         1.70  ...........       224.62  ...........        12.56        61.62       298.80
SE2..........................................................         1.39  ...........       183.66  ...........        12.56        61.62       257.84
SE1..........................................................         1.17  ...........       154.59  ...........        12.56        61.62       228.77
SSC..........................................................         1.13  ...........       149.31  ...........        12.56        61.62       223.49
SSB..........................................................         1.05  ...........       138.74  ...........        12.56        61.62       212.92
SSA..........................................................         1.01  ...........       133.45  ...........        12.56        61.62       207.63
CC2..........................................................         1.12  ...........       147.99  ...........        12.56        61.62       222.17
CC1..........................................................         0.99  ...........       130.81  ...........        12.56        61.62       204.99
CB2..........................................................         0.91  ...........       120.24  ...........        12.56        61.62       194.42
CB1..........................................................         0.84  ...........       110.99  ...........        12.56        61.62       185.17
CA2..........................................................         0.83  ...........       109.67  ...........        12.56        61.62       183.85
CA1..........................................................         0.75  ...........        99.10  ...........        12.56        61.62       173.28
IB2..........................................................         0.69  ...........        91.17  ...........        12.56        61.62       165.35
IB1..........................................................         0.67  ...........        88.53  ...........        12.56        61.62       162.71
IA2..........................................................         0.57  ...........        75.31  ...........        12.56        61.62       149.49
IA1..........................................................         0.53  ...........        70.03  ...........        12.56        61.62       144.21
BB2..........................................................         0.68  ...........        89.85  ...........        12.56        61.62       164.03
BB1..........................................................         0.65  ...........        85.88  ...........        12.56        61.62       160.06
BA2..........................................................         0.56  ...........        73.99  ...........        12.56        61.62       148.17
BA1..........................................................         0.48  ...........        63.42  ...........        12.56        61.62       137.60
PE2..........................................................         0.79  ...........       104.38  ...........        12.56        61.62       178.56
PE1..........................................................         0.77  ...........       101.74  ...........        12.56        61.62       175.92
PD2..........................................................         0.72  ...........        95.13  ...........        12.56        61.62       169.31
PD1..........................................................         0.70  ...........        92.49  ...........        12.56        61.62       166.67
PC2..........................................................         0.65  ...........        85.88  ...........        12.56        61.62       160.06
PC1..........................................................         0.64  ...........        84.56  ...........        12.56        61.62       158.74
PB2..........................................................         0.51  ...........        67.39  ...........        12.56        61.62       141.57
PB1..........................................................         0.50  ...........        66.07  ...........        12.56        61.62       140.25
PA2..........................................................         0.49  ...........        64.74  ...........        12.56        61.62       138.92
PA1..........................................................         0.46  ...........        60.78  ...........        12.56        61.62       134.96
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Wage Index Adjustment to Federal Rates

    Section 1888(e)(4)(G)(ii) of the Act requires that we adjust the 
Federal rates to account for differences in area wage levels, using an 
appropriate wage index, as determined by the Secretary. Section 315 of 
the BIPA authorizes the Secretary to establish a reclassification 
system specifically for SNFs, similar to the hospital methodology. 
However, this reclassification system cannot be implemented until the 
Secretary has collected data necessary to establish an area wage index 
for SNFs based on wage data from such facilities. Pursuant to section 
106(a) of the Social Security Act Amendments of 1994 (Pub.L. 103-432), 
the Secretary was directed to begin collecting data on employee 
compensation and paid hours of employment in SNFs for the purpose of 
constructing a SNF wage index. Since the inception of a PPS for SNFs, 
we have utilized hospital wage data in developing a wage index to be 
applied to SNFs.
    The computation of the wage index is similar to past years because 
we incorporate the latest data and methodology used to construct the 
hospital wage index (for a discussion, see the May 12, 1998 interim 
final rule (63 FR 26274)). We apply the wage index adjustment to the 
labor-related portion of the Federal rate, which is 75.379 percent of 
the total rate. This percentage reflects the labor-related relative 
importance for FY 2002. The labor-related relative importance, which we 
calculate from the SNF market basket, approximates the labor-related 
portion of the total costs after taking into account historical and 
projected price changes between the base year and FY 2002. The price 
proxies that move the different cost categories in the market basket do 
not necessarily change at the same rate, and the relative importance 
captures these changes. Accordingly, the relative importance figure 
more closely reflects the cost share weights for FY 2002 than the base 
year weights from the SNF market basket.
    We calculate the labor-related relative importance for FY 2002 in 
four steps. First, we compute the FY 2002 price index level for the 
total market basket and each cost category of the market basket. 
Second, we calculate a ratio for each cost category by dividing the FY

[[Page 39571]]

2002 price index level for that cost category by the total market 
basket price index level. Third, we determine the FY 2002 relative 
importance for each cost category by multiplying this ratio by the base 
year (FY 1997) weight. Finally, we sum the FY 2002 relative importance 
for each of the labor-related cost categories (that is, wages and 
salaries, employee benefits, nonmedical professional fees, labor-
intensive services, and capital-related) to produce the FY 2002 labor-
related relative importance.
    Tables 5 and 6 show the Federal rates by labor-related and non-
labor-related components. In addition, the wage index budget neutrality 
factor for FY 2002 is .99835.
    Section 1888(e)(4)(G)(ii) of the Act also requires that the 
application of this wage index be made in a manner that does not result 
in aggregate payments that are greater or lesser than would otherwise 
be made in the absence of the wage adjustment. As noted in the proposed 
rule (66 FR 23993), we are updating the wage index applicable to SNF 
payments using the most recent hospital wage data and applying the 
adjustment to fulfill the budget neutrality requirement. (For a 
discussion of how we calculate the adjustment, see our discussion in 
the proposed rule at 66 FR 23993.)

  Table 5.--Case-Mix Adjusted Federal Rates for Urban SNFs by Labor and
                           Non-Labor Component
------------------------------------------------------------------------
                                                   Labor      Non-labor
         RUG-III category          Total  rate    portion      portion
------------------------------------------------------------------------
RUC..............................       441.18       332.56       108.62
RUB..............................       392.78       296.07        96.71
RUA..............................       369.27       278.35        90.92
RVC..............................       342.67       258.30        84.37
RVB..............................       330.22       248.92        81.30
RVA..............................       298.41       224.94        73.47
RHC..............................       318.68       240.22        78.46
RHB..............................       291.02       219.37        71.65
RHA..............................       264.74       199.56        65.18
RMC..............................       315.94       238.15        77.79
RMB..............................       279.99       211.05        68.94
RMA..............................       262.01       197.50        64.51
RLB..............................       252.39       190.25        62.14
RLA..............................       209.52       157.93        51.59
SE3..............................       307.35       231.68        75.67
SE2..............................       264.48       199.36        65.12
SE1..............................       234.06       176.43        57.63
SSC..............................       228.53       172.26        56.27
SSB..............................       217.46       163.92        53.54
SSA..............................       211.93       159.75        52.18
CC2..............................       227.14       171.22        55.92
CC1..............................       209.17       157.67        51.50
CB2..............................       198.10       149.33        48.77
CB1..............................       188.42       142.03        46.39
CA2..............................       187.04       140.99        46.05
CA1..............................       175.98       132.65        43.33
IB2..............................       167.68       126.40        41.28
IB1..............................       164.91       124.31        40.60
IA2..............................       151.09       113.89        37.20
IA1..............................       145.55       109.71        35.84
BB2..............................       166.30       125.36        40.94
BB1..............................       162.15       122.23        39.92
BA2..............................       149.70       112.84        36.86
BA1..............................       138.64       104.51        34.13
PE2..............................       181.51       136.82        44.69
PE1..............................       178.74       134.73        44.01
PD2..............................       171.83       129.52        42.31
PD1..............................       169.06       127.44        41.62
PC2..............................       162.15       122.23        39.92
PC1..............................       160.77       121.19        39.58
PB2..............................       142.79       107.63        35.16
PB1..............................       141.41       106.59        34.82
PA2..............................       140.02       105.55        34.47
PA1..............................       135.87       102.42        33.45
------------------------------------------------------------------------


  Table 6.--Case-Mix Adjusted Federal Rates for Rural SNFs by Labor and
                           Non-Labor Component
------------------------------------------------------------------------
                                                   Labor      Non-labor
         RUG-III category          Total  rate    portion      portion
------------------------------------------------------------------------
RUC..............................       465.05       350.55       114.50
RUB..............................       418.80       315.69       103.11
RUA..............................       396.34       298.76        97.58
RVC..............................       356.10       268.42        87.68
RVB..............................       344.21       259.46        84.75
RVA..............................       313.82       236.55        77.27

[[Page 39572]]

 
RHC..............................       324.88       244.89        79.99
RHB..............................       298.46       224.98        73.48
RHA..............................       273.35       206.05        67.30
RMC..............................       319.28       240.67        78.61
RMB..............................       284.92       214.77        70.15
RMA..............................       267.74       201.82        65.92
RLB..............................       252.55       190.37        62.18
RLA..............................       211.59       159.49        52.10
SE3..............................       298.80       225.23        73.57
SE2..............................       257.84       194.36        63.48
SE1..............................       228.77       172.44        56.33
SSC..............................       223.49       168.46        55.03
SSB..............................       212.92       160.50        52.42
SSA..............................       207.63       156.51        51.12
CC2..............................       222.17       167.47        54.70
CC1..............................       204.99       154.52        50.47
CB2..............................       194.42       146.55        47.87
CB1..............................       185.17       139.58        45.59
CA2..............................       183.85       138.58        45.27
CA1..............................       173.28       130.62        42.66
IB2..............................       165.35       124.64        40.71
IB1..............................       162.71       122.65        40.06
IA2..............................       149.49       112.68        36.81
IA1..............................       144.21       108.70        35.51
BB2..............................       164.03       123.64        40.39
BB1..............................       160.06       120.65        39.41
BA2..............................       148.17       111.69        36.48
BA1..............................       137.60       103.72        33.88
PE2..............................       178.56       134.60        43.96
PE1..............................       175.92       132.61        43.31
PD2..............................       169.31       127.62        41.69
PD1..............................       166.67       125.63        41.04
PC2..............................       160.06       120.65        39.41
PC1..............................       158.74       119.66        39.08
PB2..............................       141.57       106.71        34.86
PB1..............................       140.25       105.72        34.53
PA2..............................       138.92       104.72        34.20
PA1..............................       134.96       101.73        33.23
------------------------------------------------------------------------

    As we noted in the proposed rule, we have received many comments 
over the past few years, asking that we evaluate a SNF-specific wage 
index, which would be based solely on wage and hourly data from SNFs. 
Further, the collection of nursing home wage data necessary to develop 
a SNF-specific wage index is a prerequisite for establishing a SNF-
specific geographic reclassification procedure, as authorized by 
section 315 of the BIPA. To develop this analysis, we have added a 
schedule to the cost report to gather wage and hourly data from each 
SNF. In the proposed rule, we published a wage index prototype based on 
SNF data, along with the wage index based on the hospital wage data 
that was used in the FY 2001 final rule published July 31, 2000 in the 
Federal Register (65 FR 46770). In addition, we discussed in the 
proposed rule the wage index computations for the SNF prototype. We 
also indicated our concern about the reliability of the existing data 
used in establishing a SNF wage index, in view of the significant 
variations in the SNF-specific wage data and the large number of SNFs 
that are unable to provide adequate wage and hourly data. Accordingly, 
we expressed the belief that a wage index based on hospital wage data 
remains the best and most appropriate to use in adjusting payments to 
SNFs, since both hospitals and SNFs compete in the same labor markets. 
Table 7 shows the hospital wage index for urban areas and Table 8 shows 
the hospital wage index for rural areas.

                  Table 7.--Wage Index for Urban Areas
------------------------------------------------------------------------
                                                                  Wage
   Urban area  (Constituent counties or  county equivalents)      index
------------------------------------------------------------------------
0040  Abilene, TX.............................................    0.7965
  Taylor, TX
0060  Aguadilla, PR...........................................    0.4683
  Aguada, PR
  Aguadilla, PR
  Moca, PR
0080  Akron, OH...............................................    0.9876
  Portage, OH
  Summit, OH
0120  Albany, GA..............................................    1.0640
  Dougherty, GA
  Lee, GA
0160  Albany-Schenectady-Troy, NY.............................    0.8500
  Albany, NY
  Montgomery, NY
  Rensselaer, NY
  Saratoga, NY
  Schenectady, NY
  Schoharie, NY
0200  Albuquerque, NM.........................................    0.9750
  Bernalillo, NM
  Sandoval, NM
  Valencia, NM
0220  Alexandria, LA..........................................    0.8029
  Rapides, LA

[[Page 39573]]

 
0240  Allentown-Bethlehem-Easton, PA..........................    1.0077
  Carbon, PA
  Lehigh, PA
  Northampton, PA
0280  Altoona, PA.............................................    0.9126
  Blair, PA
0320  Amarillo, TX............................................    0.8711
  Potter, TX
  Randall, TX
0380  Anchorage, AK...........................................    1.2570
  Anchorage, AK
0440  Ann Arbor, MI...........................................    1.1098
  Lenawee, MI
  Livingston, MI
  Washtenaw, MI
0450  Anniston, AL............................................    0.8276
  Calhoun, AL
0460  Appleton-Oshkosh-Neenah, WI.............................    0.9241
  Calumet, WI
  Outagamie, WI
  Winnebago, WI
0470  Arecibo, PR.............................................    0.4630
  Arecibo, PR
  Camuy, PR
  Hatillo, PR
0480  Asheville, NC...........................................    0.9200
  Buncombe, NC
  Madison, NC
0500  Athens, GA..............................................    0.9842
  Clarke, GA
  Madison, GA
  Oconee, GA
0520  Atlanta, GA.............................................    1.0058
  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..............................    1.1293
  Atlantic City, NJ
  Cape May, NJ
0580  Auburn-Opelika, AL  ....................................    0.8230
  Lee, AL
0600  Augusta-Aiken, GA-SC....................................    0.9970
  Columbia, GA
  McDuffie, GA
  Richmond, GA
  Aiken, SC
  Edgefield, SC
0640  Austin-San Marcos, TX...................................    0.9597
  Bastrop, TX
  Caldwell, TX
  Hays, TX
  Travis, TX
  Williamson, TX
0680  Bakersfield, CA.........................................    0.9470
  Kern, CA
0720  Baltimore, MD...........................................    0.9856
  Anne Arundel, MD
  Baltimore, MD
  Baltimore City, MD
  Carroll, MD
  Harford, MD
  Howard, MD
  Queen Annes, MD
0733  Bangor, ME..............................................    0.9593
  Penobscot, ME
0743  Barnstable-Yarmouth, MA.................................    1.3626
  Barnstable, MA
0760  Baton Rouge, LA.........................................    0.8149
  Ascension, LA
  East Baton Rouge, LA
  Livingston, LA
  West Baton Rouge, LA
0840  Beaumont-Port Arthur, TX................................    0.8442
  Hardin, TX
  Jefferson, TX
  Orange, TX
0860  Bellingham, WA..........................................    1.1826
  Whatcom, WA
0870  Benton Harbor, MI.......................................    0.8810
  Berrien, MI
0875  Bergen-Passaic, NJ......................................    1.1689
  Bergen, NJ
  Passaic, NJ
0880  Billings, MT............................................    0.9352
  Yellowstone, MT
0920  Biloxi-Gulfport-Pascagoula, MS..........................    0.8440
  Hancock, MS
  Harrison, MS
  Jackson, MS
0960  Binghamton, NY..........................................    0.8446
  Broome, NY
  Tioga, NY
1000  Birmingham, AL..........................................    0.8808
  Blount, AL
  Jefferson, AL
  St. Clair, AL
  Shelby, AL
1010  Bismarck, ND............................................    0.7984
  Burleigh, ND
  Morton, ND
1020  Bloomington, IN.........................................    0.8842
  Monroe, IN
1040  Bloomington-Normal, IL..................................    0.9038
  McLean, IL
1080  Boise City, ID..........................................    0.9050
  Ada, ID
  Canyon, ID
1123  Boston-Worcester-Lawrence-Lowell-Brockton, MA-NH........    1.1289
  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....................................    0.9799
  Boulder, CO
1145  Brazoria, TX............................................    0.8209
  Brazoria, TX
1150  Bremerton, WA...........................................    1.0758
  Kitsap, WA
1240  Brownsville-Harlingen-San Benito, TX....................    0.9012
  Cameron, TX
1260  Bryan-College Station, TX...............................    0.9328
  Brazos, TX
1280  Buffalo-Niagara Falls, NY...............................    0.9459
  Erie, NY
  Niagara, NY
1303  Burlington, VT..........................................    0.9883
  Chittenden, VT
  Franklin, VT
  Grand Isle, VT
1310  Caguas, PR..............................................    0.4699
  Caguas, PR
  Cayey, PR
  Cidra, PR
  Gurabo, PR
  San Lorenzo, PR
1320  Canton-Massillon, OH....................................    0.8956
  Carroll, OH
  Stark, OH
1350  Casper, WY..............................................    0.9496
  Natrona, WY
1360  Cedar Rapids, IA........................................    0.8699
  Linn, IA
1400  Champaign-Urbana, IL....................................    0.9306
  Champaign, IL
1440  Charleston-North Charleston, SC.........................    0.9206
  Berkeley, SC
  Charleston, SC
  Dorchester, SC
1480  Charleston, WV..........................................    0.9264
  Kanawha, WV
  Putnam, WV
1520  Charlotte-Gastonia-Rock Hill, NC-SC.....................    0.9348
  Cabarrus, NC
  Gaston, NC
  Lincoln, NC
  Mecklenburg, NC
  Rowan, NC
  Stanly, NC
  Union, NC
  York, SC
1540  Charlottesville, VA.....................................    1.0566
  Albemarle, VA
  Charlottesville City, VA
  Fluvanna, VA
  Greene, VA
1560  Chattanooga, TN-GA......................................    0.9369
  Catoosa, GA
  Dade, GA
  Walker, GA
  Hamilton, TN
  Marion, TN
1580  Cheyenne, WY............................................    0.8288
  Laramie, WY
1600  Chicago, IL.............................................    1.1046
  Cook, IL
  De Kalb, IL

[[Page 39574]]

 
  Du Page, IL
  Grundy, IL
  Kane, IL
  Kendall, IL
  Lake, IL
  McHenry, IL
  Will, IL
1620  Chico-Paradise, CA......................................    0.9856
  Butte, CA
1640  Cincinnati, OH-KY-IN....................................    0.9473
  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.........................    0.8337
  Christian, KY
  Montgomery, TN
1680  Cleveland-Lorain-Elyria, OH.............................    0.9457
  Ashtabula, OH
  Geauga, OH
  Cuyahoga, OH
  Lake, OH
  Lorain, OH
  Medina, OH
1720  Colorado Springs, CO....................................    0.9744
  El Paso, CO
1740  Columbia, MO............................................    0.8686
  Boone, MO
1760  Columbia, SC............................................    0.9492
  Lexington, SC
  Richland, SC
1800  Columbus, GA-AL.........................................    0.8440
  Russell, AL
  Chattanoochee, GA
  Harris, GA
  Muscogee, GA
1840 ColumbusOH...............................................    0.9565
  Delaware, OH
  Fairfield, OH
  Franklin, OH
  Licking, OH
  Madison, OH
  Pickaway, OH
1880  Corpus Christi, TX......................................    0.8341
  Nueces, TX
  San Patricio, TX
1890  Corvallis, OR...........................................    1.1646
  Benton, OR
1900  Cumberland, MD-WV.......................................    0.8306
  Allegany, MD
  Mineral, WV
1920  Dallas, TX..............................................    0.9936
  Collin, TX
  Dallas, TX
  Denton, TX
  Ellis, TX
  Henderson, TX
  Hunt, TX
  Kaufman, TX
  Rockwall, TX
1950  Danville, VA............................................    0.8613
  Danville City, VA
  Pittsylvania, VA
1960  Davenport-Moline-Rock Island, IA-IL.....................    0.8638
  Scott, IA
  Henry, IL
  Rock Island, IL
2000  Dayton-Springfield, OH..................................    0.9225
  Clark, OH
  Greene, OH
  Miami, OH
  Montgomery, OH
2020  Daytona Beach, FL.......................................    0.8982
  Flagler, FL
  Volusia, FL
2030  Decatur, AL.............................................    0.8775
  Lawrence, AL
  Morgan, AL
2040  Decatur, IL.............................................    0.7987
  Macon, IL
2080  Denver, CO..............................................    1.0328
  Adams, CO
  Arapahoe, CO
  Denver, CO
  Douglas, CO
  Jefferson, CO
2120  Des Moines, IA..........................................    0.8779
  Dallas, IA
  Polk, IA
  Warren, IA
2160  Detroit, MI.............................................    1.0487
  Lapeer, MI
  Macomb, MI
  Monroe, MI
  Oakland, MI
  St. Clair, MI
  Wayne, MI
2180  Dothan, AL..............................................    0.7948
  Dale, AL
  Houston, AL
2190  Dover, DE...............................................    1.0296
  Kent, DE
2200  Dubuque, IA.............................................    0.8519
  Dubuque, IA
2240  Duluth-Superior, MN-WI..................................    1.0284
  St. Louis, MN
  Douglas, WI
2281  Dutchess County, NY.....................................    1.0532
  Dutchess, NY
2290  Eau Claire, WI..........................................    0.8832
  Chippewa, WI
  Eau Claire, WI
2320  El Paso, TX.............................................    0.9215
  El Paso, TX
2330  Elkhart-Goshen, IN......................................    0.9638
  Elkhart, IN
2335  Elmira, NY..............................................    0.8415
  Chemung, NY
2340  Enid, OK................................................    0.8357
  Garfield, OK
2360  Erie, PA................................................    0.8716
  Erie, PA
2400  Eugene-Springfield, OR..................................    1.1471
  Lane, OR
2440  Evansville-Henderson, IN-KY.............................    0.8514
  Posey, IN
  Vanderburgh, IN
  Warrick, IN
  Henderson, KY
2520  Fargo-Moorhead, ND-MN...................................    0.9267
  Clay, MN
  Cass, ND
2560  Fayetteville, NC........................................    0.9027
  Cumberland, NC
2580  Fayetteville-Springdale-Rogers, AR......................    0.8445
  Benton, AR
  Washington, AR
2620  Flagstaff, AZ-UT........................................    1.0556
  Coconino, AZ
  Kane, UT
2640  Flint, MI...............................................    1.0913
  Genesee, MI
2650  Florence, AL............................................    0.7845
  Colbert, AL
  Lauderdale, AL
2655  Florence, SC............................................    0.8722
  Florence, SC
2670  Fort Collins-Loveland, CO...............................    1.0045
  Larimer, CO
2680  Ft. Lauderdale, FL......................................    1.0293
  Broward, FL
2700  Fort Myers-Cape Coral, FL...............................    0.9374
  Lee, FL
2710  Fort Pierce-Port StLucie, FL............................    1.0214
  Martin, FL
  St. Lucie, FL
2720  Fort Smith, AR-OK.......................................    0.8053
  Crawford, AR
  Sebastian, AR
  Sequoyah, OK
2750  Fort Walton Beach, FL...................................    0.9002
  Okaloosa, FL
2760  Fort Wayne, IN..........................................    0.9203
  Adams, IN
  Allen, IN
  De Kalb, IN
  Huntington, IN
  Wells, IN
  Whitley, IN
2800  Fort Worth-Arlington, TX................................    0.9394
  Hood, TX
  Johnson, TX
  Parker, TX
  Tarrant, TX
2840  Fresno, CA..............................................    0.9887
  Fresno, CA
  Madera, CA
2880  Gadsden, AL.............................................    0.8792
  Etowah, AL
2900  Gainesville, FL.........................................    0.9481
  Alachua, FL
2920  Galveston-Texas City, TX................................    1.0313
  Galveston, TX
2960  Gary, IN................................................    0.9530
  Lake, IN
  Porter, IN
2975  Glens Falls, NY.........................................    0.8336
  Warren, NY
  Washington, NY
2980  Goldsboro, NC...........................................    0.8709
  Wayne, NC
2985  Grand Forks, ND-MN......................................    0.9069
  Polk, MN
  Grand Forks, ND
2995  Grand Junction, CO......................................    0.9569

[[Page 39575]]

 
  Mesa, CO
3000  Grand Rapids-Muskegon-Holland, MI.......................    1.0048
  Allegan, MI
  Kent, MI
  Muskegon, MI
  Ottawa, MI
3040  Great Falls, MT.........................................    0.8870
  Cascade, MT
3060  Greeley, CO.............................................    0.9495
  Weld, CO
3080  Green Bay, WI...........................................    0.9208
  Brown, WI
3120  Greensboro-Winston-Salem- High Point, NC................    0.9539
  Alamance, NC
  Davidson, NC
  Davie, NC
  Forsyth, NC
  Guilford, NC
  Randolph, NC
  Stokes, NC
  Yadkin, NC
3150  Greenville, NC..........................................    0.9289
  Pitt, NC
3160  Greenville-Spartanburg-Anderson, SC.....................    0.9217
  Anderson, SC
  Cherokee, SC
  Greenville, SC
  Pickens, SC
  Spartanburg, SC
3180  Hagerstown, MD..........................................    0.8365
  Washington, MD
3200  Hamilton-Middletown, OH.................................    0.9287
  Butler, OH
3240  Harrisburg-Lebanon-Carlisle, PA.........................    0.9425
  Cumberland, PA
  Dauphin, PA
  Lebanon, PA
  Perry, PA
3283  Hartford, CT............................................    1.1533
  Hartford, CT
  Litchfield, CT
  Middlesex, CT
  Tolland, CT
3285  Hattiesburg, MS.........................................    0.7476
  Forrest, MS
  Lamar, MS
3290  Hickory-Morganton-Lenoir, NC............................    0.9367
  Alexander, NC
  Burke, NC
  Caldwell, NC
  Catawba, NC
3320  Honolulu, HI............................................    1.1539
  Honolulu, HI
3350  Houma, LA...............................................    0.7951
  Lafourche, LA
  Terrebonne, LA
3360  Houston, TX.............................................    0.9631
  Chambers, TX
  Fort Bend, TX
  Harris, TX
  Liberty, TX
  Montgomery, TX
  Waller, TX
3400  Huntington-Ashland, WV-KY-OH............................    0.9616
  Boyd, KY
  Carter, KY
  Greenup, KY
  Lawrence, OH
  Cabell, WV
  Wayne, WV
3440  Huntsville, AL..........................................    0.8883
  Limestone, AL
  Madison, AL
3480  Indianapolis, IN........................................    0.9698
  Boone, IN
  Hamilton, IN
  Hancock, IN
  Hendricks, IN
  Johnson, IN
  Madison, IN
  Marion, IN
  Morgan, IN
  Shelby, IN
3500  Iowa City, IA...........................................    0.9859
  Johnson, IA
3520  Jackson, MI.............................................    0.9257
  Jackson, MI
3560  Jackson, MS.............................................    0.8491
  Hinds, MS
  Madison, MS
  Rankin, MS
3580  Jackson, TN.............................................    0.9013
  Chester, TN
  Madison, TN
3600 Jacksonville, FL.........................................    0.9223
  Clay, FL
  Duval, FL
  Nassau, FL
  St. Johns, FL
3605  Jacksonville, NC........................................    0.7622
  Onslow, NC
3610  Jamestown, NY...........................................    0.8050
  Chautaqua, NY
3620  Janesville-Beloit, WI...................................    0.9739
  Rock, WI
3640  Jersey City, NJ.........................................    1.1178
  Hudson, NJ
3660  Johnson City-Kingsport-Bristol, TN-VA...................    0.8617
  Carter, TN
  Hawkins, TN
  Sullivan, TN
  Unicoi, TN
  Washington, TN
  Bristol City, VA
  Scott, VA
  Washington, VA
3680  Johnstown, PA...........................................    0.8723
  Cambria, PA
  Somerset, PA
3700  Jonesboro, AR...........................................    0.8425
  Craighead, AR
3710  Joplin, MO..............................................    0.8727
  Jasper, MO
  Newton, MO
3720  Kalamazoo-Battle Creek, MI..............................    1.0639
  Calhoun, MI
  Kalamazoo, MI
  Van Buren, MI
3740  Kankakee, IL............................................    0.9889
  Kankakee, IL
3760  Kansas City, KS-MO......................................    0.9536
  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.............................................    0.9568
  Kenosha, WI
3810  Killeen-Temple, TX......................................    0.7292
  Bell, TX
  Coryell, TX
3840  Knoxville, TN...........................................    0.8890
  Anderson, TN
  Blount, TN
  Knox, TN
  Loudon, TN
  Sevier, TN
  Union, TN
3850  Kokomo, IN..............................................    0.9126
  Howard, IN
  Tipton, IN
3870  La Crosse, WI-MN........................................    0.9250
  Houston, MN
  La Crosse, WI
3880  Lafayette, LA...........................................    0.8526
  Acadia, LA
  Lafayette, LA
  St. Landry, LA
  St. Martin, LA
3920  Lafayette, IN...........................................    0.9121
  Clinton, IN
  Tippecanoe, IN
3960  Lake Charles, LA........................................    0.7765
  Calcasieu, LA
3980  Lakeland-Winter Haven, FL...............................    0.9067
  Polk, FL
4000  Lancaster, PA...........................................    0.9296
  Lancaster, PA
4040  Lansing-East Lansing, MI................................    0.9653
  Clinton, MI
  Eaton, MI
  Ingham, MI
4080  Laredo, TX..............................................    0.7849
  Webb, TX
4100  Las Cruces, NM..........................................    0.8621
  Dona Ana, NM
4120  Las Vegas, NV-AZ........................................    1.1182
  Mohave, AZ
  Clark, NV
  Nye, NV
4150  Lawrence, KS............................................    0.8656
  Douglas, KS
4200  Lawton, OK..............................................    0.8682
  Comanche, OK
4243  Lewiston-Auburn, ME.....................................    0.9287
  Androscoggin, ME
4280  Lexington, KY...........................................    0.8791
  Bourbon, KY
  Clark, KY
  Fayette, KY
  Jessamine, KY
  Madison, KY
  Scott, KY

[[Page 39576]]

 
  Woodford, KY
4320  Lima, OH................................................    0.9470
  Allen, OH
  Auglaize, OH
4360  Lincoln, NE.............................................    1.0173
  Lancaster, NE
4400  Little Rock-North Little Rock, AR.......................    0.8955
  Faulkner, AR
  Lonoke, AR
  Pulaski, AR
  Saline, AR
4420  Longview-Marshall, TX...................................    0.8571
  Gregg, TX
  Harrison, TX
  Upshur, TX
4480  Los Angeles-Long Beach, CA..............................    1.1948
  Los Angeles, CA
4520  Louisville, KY-IN.......................................    0.9529
  Clark, IN
  Floyd, IN
  Harrison, IN
  Scott, IN
  Bullitt, KY
  Jefferson, KY
  Oldham, KY
4600  Lubbock, TX.............................................    0.8449
  Lubbock, TX
4640  Lynchburg, VA...........................................    0.9103
  Amherst, VA
  Bedford City, VA
  Bedford, VA
  Campbell, VA
  Lynchburg City, VA
4680  Macon, GA...............................................    0.8957
  Bibb, GA
  Houston, GA
  Jones, GA
  Peach, GA
  Twiggs, GA
4720  Madison, WI.............................................    1.0337
  Dane, WI
4800  Mansfield, OH...........................................    0.8708
  Crawford, OH
  Richland, OH
4840  Mayaguez, PR............................................    0.4860
  Anasco, PR
  Cabo Rojo, PR
  Hormigueros, PR
  Mayaguez, PR
  Sabana Grande, PR
  San German, PR
4880  McAllen-Edinburg-Mission, TX............................    0.8378
  Hidalgo, TX
4890  Medford-Ashland, OR.....................................    1.0314
  Jackson, OR
4900  Melbourne-Titusville-Palm Bay, FL.......................    0.9913
  Brevard, Fl
4920  Memphis, TN-AR-MS.......................................    0.8978
  Crittenden, AR
  De Soto, MS
  Fayette, TN
  Shelby, TN
  Tipton, TN
4940  Merced, CA..............................................    0.9757
  Merced, CA
5000  Miami, FL...............................................    0.9950
  Dade, FL
5015  Middlesex-Somerset-Hunterdon, NJ........................    1.1469
  Hunterdon, NJ
  Middlesex, NJ
  Somerset, NJ
5080  Milwaukee-Waukesha, WI..................................    0.9971
  Milwaukee, WI
  Ozaukee, WI
  Washington, WI
  Waukesha, WI
5120  Minneapolis-St Paul, MN-WI..............................    1.0930
  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............................................    0.9364
  Missoula, MT
5160  Mobile, AL..............................................    0.8082
  Baldwin, AL
  Mobile, AL
5170  Modesto, CA.............................................    1.0820
  Stanislaus, CA
5190  Monmouth-Ocean, NJ......................................    1.0870
  Monmouth, NJ
  Ocean, NJ
5200  Monroe, LA..............................................    0.8201
  Ouachita, LA
5240  Montgomery, AL..........................................    0.7359
  Autauga, AL
  Elmore, AL
  Montgomery, AL
5280  Muncie, IN..............................................    0.9939
  Delaware, IN
5330  Myrtle Beach, SC........................................    0.8771
  Horry, SC
5345  Naples, FL..............................................    0.9699
  Collier, FL
5360  Nashville, TN...........................................    0.9754
  Cheatham, TN
  Davidson, TN
  Dickson, TN
  Robertson, TN
  Rutherford TN
  Sumner, TN
  Williamson, TN
  Wilson, TN
5380  Nassau-Suffolk, NY......................................    1.3643
  Nassau, NY
  Suffolk, NY
5483  New Haven-Bridgeport-Stamford-Waterbury-Danbury, CT.....    1.2238
  Fairfield, CT
  New Haven, CT
5523  New London-Norwich, CT..................................    1.1526
  New London, CT
5560  New Orleans, LA.........................................    0.9036
  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............................................    1.4427
  Bronx, NY
  Kings, NY
  New York, NY
  Putnam, NY
  Queens, NY
  Richmond, NY
  Rockland, NY
  Westchester, NY
5640  Newark, NJ..............................................    1.1622
  Essex, NJ
  Morris, NJ
  Sussex, NJ
  Union, NJ
  Warren, NJ
5660  Newburgh, NY-PA.........................................    1.1113
  Orange, NY
  Pike, PA
5720  Norfolk-Virginia Beach-Newport News, VA-NC..............    0.8579
  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.............................................    1.5319
  Alameda, CA
  Contra Costa, CA
5790  Ocala, FL...............................................    0.9556
  Marion, FL
5800  Odessa-Midland, TX......................................    1.0104
  Ector, TX
  Midland, TX
5880  Oklahoma City, OK.......................................    0.8694
  Canadian, OK
  Cleveland, OK
  Logan, OK
  McClain, OK
  Oklahoma, OK
  Pottawatomie, OK
5910  Olympia, WA.............................................    1.1350
  Thurston, WA
5920  Omaha, NE-IA............................................    0.9712
  Pottawattamie, IA
  Cass, NE
  Douglas, NE
  Sarpy, NE
  Washington, NE
5945  Orange County, CA.......................................    1.1123
  Orange, CA
5960  Orlando, FL.............................................    0.9642
  Lake, FL

[[Page 39577]]

 
  Orange, FL
  Osceola, FL
  Seminole, FL
5990 Owensboro, KY............................................    0.8334
  Daviess, KY
6015  Panama City, FL.........................................    0.9061
  Bay, FL
6020  Parkersburg-Marietta, WV-OH.............................    0.8133
  Washington, OH
  Wood, WV
6080  Pensacola, FL...........................................    0.8329
  Escambia, FL
  Santa Rosa, FL
6120  Peoria-Pekin, IL........................................    0.8773
  Peoria, IL
  Tazewell, IL
  Woodford, IL
6160  Philadelphia, PA-NJ.....................................    1.0947
  Burlington, NJ
  Camden, NJ
  Gloucester, NJ
  Salem, NJ
  Bucks, PA
  Chester, PA
  Delaware, PA
  Montgomery, PA
  Philadelphia, PA
6200  Phoenix-Mesa, AZ........................................    0.9638
  Maricopa, AZ
  Pinal, AZ
6240  Pine Bluff, AR..........................................    0.7895
  Jefferson, AR
6280  Pittsburgh, PA..........................................    0.9560
  Allegheny, PA
  Beaver, PA
  Butler, PA
  Fayette, PA
  Washington, PA
  Westmoreland, PA
6323  Pittsfield, MA..........................................    1.0278
  Berkshire, MA
6340  Pocatello, ID...........................................    0.9448
  Bannock, ID
6360  Ponce, PR...............................................    0.5218
  Guayanilla, PR
  Juana Diaz, PR
  Penuelas, PR
  Ponce, PR
  Villalba, PR
  Yauco, PR
6403  Portland, ME............................................    0.9427
  Cumberland, ME
  Sagadahoc, ME
  York, ME
6440  Portland-Vancouver, OR-WA...............................    1.1111
  Clackamas, OR.
  Columbia, OR
  Multnomah, OR
  Washington, OR
  Yamhill, OR
  Clark, WA
6483  Providence-Warwick-Pawtucket, RI........................    1.0805
  Bristol, RI
  Kent, RI
  Newport, RI
  Providence, RI
  Washington, RI
6520  Provo-Orem, UT..........................................    0.9843
  Utah, UT
6560  Pueblo, CO..............................................    0.8604
  Pueblo, CO
6580  Punta Gorda, FL.........................................    0.9015
  Charlotte, FL
6600  Racine, WI..............................................    0.9333
  Racine, WI
6640  Raleigh-Durham-Chapel Hill, NC..........................    0.9818
  Chatham, NC
  Durham, NC
  Franklin, NC
  Johnston, NC
  Orange, NC
  Wake, NC
6660  Rapid City, SD..........................................    0.8869
  Pennington, SD
6680  Reading, PA.............................................    0.9583
  Berks, PA
6690  Redding, CA.............................................    1.1155
  Shasta, CA
6720  Reno, NV................................................    1.0440
  Washoe, NV
6740  Richland-Kennewick-Pasco, WA............................    1.0960
  Benton, WA
  Franklin, WA
6760  Richmond-Petersburg, VA.................................    0.9678
  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............................    1.1111
  Riverside, CA
  San Bernardino, CA
6800  Roanoke, VA.............................................    0.8371
  Botetourt, VA
  Roanoke, VA
  Roanoke City, VA
  Salem City, VA
6820  Rochester, MN...........................................    1.1462
  Olmsted, MN
6840  Rochester, NY...........................................    0.9347
  Genesee, NY
  Livingston, NY
  Monroe, NY
  Ontario, NY
  Orleans, NY
  Wayne, NY
6880  Rockford, IL............................................    0.9204
  Boone, IL
  Ogle, IL
  Winnebago, IL
6895  Rocky Mount, NC.........................................    0.9109
  Edgecombe, NC
  Nash, NC
6920  Sacramento, CA..........................................    1.1831
  El Dorado, CA
  Placer, CA
  Sacramento, CA
A6960  Saginaw-Bay City-Midland, MI...........................    0.9590
  Bay, MI
  Midland, MI
  Saginaw, MI
6980  StCloud, MN.............................................    0.9851
  Benton, MN
  Stearns, MN
7000  StJoseph, MO............................................    0.9009
  Andrews, MO
  Buchanan, MO
7040  StLouis, MO-IL..........................................    0.8931
  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...............................................    1.0011
  Marion, OR
  Polk, OR
7120  Salinas, CA.............................................    1.4684
  Monterey, CA
7160  Salt Lake City-Ogden, UT................................    0.9863
  Davis, UT
  Salt Lake, UT
  Weber, UT
7200  San Angelo, TX..........................................    0.8193
  Tom Green, TX
7240  San Antonio, TX.........................................    0.8584
  Bexar, TX
  Comal, TX
  Guadalupe, TX
  Wilson, TX
7320  San Diego, CA...........................................    1.1265
  San Diego, CA
7360  San Francisco, CA.......................................    1.4140
  Marin, CA
  San Francisco, CA
  San Mateo, CA
7400  San Jose, CA............................................    1.4193
  Santa Clara, CA
7440  San Juan-Bayamon, PR....................................    0.4762
  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

[[Page 39578]]

 
  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.............    1.0990
  San Luis Obispo, CA
7480  Santa Barbara-Santa Maria-Lompoc, CA....................    1.0802
  Santa Barbara, CA
7485  Santa Cruz-Watsonville, CA..............................    1.3970
  Santa Cruz, CA
7490  Santa Fe, NM............................................    1.0194
  Los Alamos, NM
  Santa Fe, NM
7500  Santa Rosa, CA..........................................    1.3034
  Sonoma, CA
7510  Sarasota-Bradenton, FL..................................    1.0090
  Manatee, FL
  Sarasota, FL
7520  Savannah, GA............................................    0.9243
  Bryan, GA
  Chatham, GA
  Effingham, GA
7560  Scranton--Wilkes-Barre--Hazleton, PA....................    0.8683
  Columbia, PA
  Lackawanna, PA
  Luzerne, PA
  Wyoming, PA
7600  Seattle-Bellevue-Everett, WA............................    1.1361
  Island, WA
  King, WA
  Snohomish, WA
7610  Sharon, PA..............................................    0.7926
  Mercer, PA
7620  Sheboygan, WI...........................................    0.8427
  Sheboygan, WI
7640  Sherman-Denison, TX.....................................    0.9373
  Grayson, TX
7680  Shreveport-Bossier City, LA.............................    0.9050
  Bossier, LA
  Caddo, LA
  Webster, LA
7720  Sioux City, IA-NE.......................................    0.8767
  Woodbury, IA
  Dakota, NE
7760  Sioux Falls, SD.........................................    0.9139
  Lincoln, SD
  Minnehaha, SD
7800  South Bend, IN..........................................    0.9993
  St. Joseph, IN
7840  Spokane, WA.............................................    1.0668
  Spokane, WA
7880  Springfield, IL.........................................    0.8676
  Menard, IL
  Sangamon, IL
7920  Springfield, MO.........................................    0.8567
  Christian, MO
  Greene, MO
  Webster, MO
8003  Springfield, MA.........................................    1.0881
  Hampden, MA
  Hampshire, MA
8050  State College, PA.......................................    0.9133
  Centre, PA
8080  Steubenville-Weirton, OH-WV.............................    0.8637
  Jefferson, OH
  Brooke, WV
  Hancock, WV
8120  Stockton-Lodi, CA.......................................    1.0815
  San Joaquin, CA
8140  Sumter, SC..............................................    0.7794
  Sumter, SC
8160  Syracuse, NY............................................    0.9621
  Cayuga, NY
  Madison, NY
  Onondaga, NY
  Oswego, NY
8200  Tacoma, WA..............................................    1.1616
  Pierce, WA
8240  Tallahassee, FL.........................................    0.8527
  Gadsden, FL
  Leon, FL
8280  Tampa-St. Petersburg-Clearwater, FL.....................    0.8925
  Hernando, FL
  Hillsborough, FL
  Pasco, FL
  Pinellas, FL
8320  Terre Haute, IN.........................................    0.8532
  Clay, IN
  Vermillion, IN
  Vigo, IN
8360  Texarkana,AR-Texarkana, TX..............................    0.8327
  Miller, AR
  Bowie, TX
8400  Toledo, OH..............................................    0.9809
  Fulton, OH
  Lucas, OH
  Wood, OH
8440  Topeka, KS..............................................    0.8912
  Shawnee, KS
8480  Trenton, NJ.............................................    1.0416
  Mercer, NJ
8520  Tucson, AZ..............................................    0.8967
  Pima, AZ
8560  Tulsa, OK...............................................    0.8902
  Creek, OK
  Osage, OK
  Rogers, OK
  Tulsa, OK
  Wagoner, OK
8600  Tuscaloosa, AL..........................................    0.8171
  Tuscaloosa, AL
8640  Tyler, TX...............................................    0.9641
  Smith, TX
8680  Utica-Rome, NY..........................................    0.8329
  Herkimer, NY
  Oneida, NY
8720  Vallejo-Fairfield-Napa, CA..............................    1.3562
  Napa, CA
  Solano, CA
8735  Ventura, CA.............................................    1.0994
  Ventura, CA
8750  Victoria, TX............................................    0.8328
  Victoria, TX
8760  Vineland-Millville-Bridgeton, NJ........................    1.0441
  Cumberland, NJ
8780  Visalia-Tulare-Porterville, CA..........................    0.9610
  Tulare, CA
8800  Waco, TX................................................    0.8129
  McLennan, TX
8840  Washington, DC-MD-VA-WV.................................    1.0962
  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................................    0.8041
  Black Hawk, IA
8940  Wausau, WI..............................................    0.9696
  Marathon, WI
8960  West Palm Beach-Boca Raton, FL..........................    0.9777
  Palm Beach, FL
9000  Wheeling, OH-WV.........................................    0.7985
  Belmont, OH
  Marshall, WV
  Ohio, WV
9040  Wichita, KS.............................................    0.9606
  Butler, KS
  Harvey, KS
  Sedgwick, KS
9080  Wichita Falls, TX.......................................    0.7867
  Archer, TX
  Wichita, TX
9140  Williamsport, PA........................................    0.8521
  Lycoming, PA
9160  Wilmington-Newark, DE-MD................................    1.0877
  New Castle, DE
  Cecil, MD
9200  Wilmington, NC..........................................    0.9409
  New Hanover, NC
  Brunswick, NC
9260  Yakima, WA..............................................    1.0567
  Yakima, WA
9270  Yolo, CA................................................    0.9701
  Yolo, CA
9280  York, PA................................................    0.9441
  York, PA

[[Page 39579]]

 
9320  Youngstown-Warren, OH...................................    0.9563
  Columbiana, OH
  Mahoning, OH
  Trumbull, OH
9340  Yuba City, CA...........................................    1.0359
  Sutter, CA
  Yuba, CA
9360  Yuma, AZ................................................    0.8989
  Yuma, AZ
------------------------------------------------------------------------


                  Table 8.--Wage Index for Rural Areas
------------------------------------------------------------------------
                                                                  Wage
                          Rural area                              index
------------------------------------------------------------------------
Alabama.......................................................    0.7339
Alaska........................................................    1.1862
Arizona.......................................................    0.8681
Arkansas......................................................    0.7489
California....................................................    0.9772
Colorado......................................................    0.8811
Connecticut...................................................    1.2077
Delaware......................................................    0.9589
Florida.......................................................    0.8812
Georgia.......................................................    0.8295
Guam..........................................................    0.9611
Hawaii........................................................    1.1112
Idaho.........................................................    0.8718
Illinois......................................................    0.8053
Indiana.......................................................    0.8721
Iowa..........................................................    0.8147
Kansas........................................................    0.7769
Kentucky......................................................    0.7963
Louisiana.....................................................    0.7601
Maine.........................................................    0.8721
Maryland......................................................    0.8859
Massachusetts.................................................    1.1454
Michigan......................................................    0.9010
Minnesota.....................................................    0.9035
Mississippi...................................................    0.7528
Missouri......................................................    0.7778
Montana.......................................................    0.8655
Nebraska......................................................    0.8142
Nevada........................................................    0.9673
New Hampshire.................................................    0.9803
New Jersey \1\................................................  ........
New Mexico....................................................    0.8676
New York......................................................    0.8547
North Carolina................................................    0.8539
North Dakota..................................................    0.7879
Ohio..........................................................    0.8668
Oklahoma......................................................    0.7566
Oregon........................................................    1.0027
Pennsylvania..................................................    0.8617
Puerto Rico...................................................    0.4800
Rhode Island \1\..............................................  ........
South Carolina................................................    0.8512
South Dakota..................................................    0.7861
Tennessee.....................................................    0.7928
Texas.........................................................    0.7712
Utah..........................................................    0.9051
Vermont.......................................................    0.9466
Virginia......................................................    0.8241
Virgin Islands................................................    0.6747
Washington....................................................    1.0209
West Virginia.................................................    0.8067
Wisconsin.....................................................    0.9079
Wyoming.......................................................   0.8747
------------------------------------------------------------------------
\1\ All counties within the State are classified urban.

    Comment: Several commenters expressed concern that we may discard 
the SNF-specific wage index without further work or development to 
ensure its accuracy. Many commenters suggested that we work with the 
industry to improve the cost reporting forms used in collecting the 
data, thus improving the editing and auditing that would lead to an 
improved SNF-specific wage index. Virtually all commenters agreed that 
the proposed SNF wage index prototype is not appropriate and should not 
be implemented with the current data shortcomings. We also received 
many comments suggesting that the SNF-specific wage index is not valid, 
and that there is no evidence to indicate it would be any better than 
the hospital wage index currently in use. These commenters maintained 
that imposing a SNF-specific wage index before improving the data 
quality would not be justified.
    Response: As discussed in the proposed rule, there is a great deal 
of volatility in the SNF-specific wage index prototype--not only 
between the hospital wage data, but also between the two years of data 
that we utilized in developing the SNF-specific wage index prototype. 
As many commenters suggested, the data could be improved if we were to 
establish better controls, edits, and screens of the data, and insist 
that more of the provider's data be audited to ensure its accuracy. We 
are committed to a process to ensure the accuracy of the data that is 
required by law. We are considering initiation of a process to develop 
and make appropriate changes to the cost report to improve the quality 
of the wage data reported, and intend to work with the industry 
representatives and others in this effort. We agree that auditing all 
SNFs would provide more accurate and reliable data; however, this 
approach involves a significant commitment of resources by us and our 
contractors and places a burden on providers in terms of recordkeeping 
and completion of the cost report worksheet. Developing a desk review 
and audit program similar to what is required in the hospital setting 
would require significant resources. The fiscal intermediaries (FIs) 
that are involved in preparing the hospital wage data currently spend 
considerable resources to ensure the accuracy of the wage data 
submitted by approximately 6,000 hospitals. This process involves 
editing, reviewing, auditing, and performing desk reviews of the data. 
Requiring FIs to do the same for the approximately 14,000 SNFs would 
nearly triple the FIs' workload and budgets in this area.
    We are committed to using a wage index under the SNF PPS that 
results in enhancing our current payment methodology. In fact, we are 
continuing to look at ways to improve the processing and accuracy of 
the current hospital wage data to improve its accuracy and reliability 
further, especially since these data are currently being used for 
payment purposes for hospitals and a variety of other providers. While 
we are committed to improving the accuracy of payments for SNFs, we do 
not expect to propose a SNF-specific wage index until its impact both 
on payments and resources is more clearly understood. This will include 
evidence demonstrating that a SNF-specific wage index would 
significantly improve our ability to determine payments for facilities, 
justifying the resources required to collect the data and the burden on 
providers.
    We realize, as a number of commenters suggested, that the impact of 
any new wage index would vary from one area to another. However, 
because of the problems associated with the current data, and our 
inability to demonstrate that the SNF-specific wage index is more 
reflective of the wages and salaries paid in a specific area, we 
continue to believe that hospital wage data are the most appropriate 
data for adjusting payments made to SNFs.
    Comment: Two commenters suggested that even though we cannot now 
implement a SNF-specific wage index, we should encourage legislation 
that would implement a geographic reclassification system for SNFs 
using the hospital wage index.
    Response: We believe that this is a matter for the Congress to 
address, as it did in the BIPA. Under section 315 of the BIPA, 
providers would be allowed to seek geographic reclassification to an 
adjacent area. However, the statute specifically noted that such 
reclassification could not be implemented until we have collected the 
data necessary to establish a SNF-specific wage index. Accordingly, 
under the current legislative authority, we are prohibited from 
implementing a SNF reclassification system until such an index becomes 
available.
    Comment: Two commenters suggested that a blend between a hospital 
wage

[[Page 39580]]

index and a SNF-specific wage index might be an appropriate adjustment 
or phase-in of a SNF-specific wage index, while the data quality is 
being improved.
    Response: If, in the future, we propose to move to a SNF-specific 
wage index, this approach may be appropriate. However, we do not 
believe that a blend between a hospital wage index and SNF-specific 
wage index is currently warranted, nor do we believe that a blend 
should be implemented until the SNF data is reliable. Calculating a 
wage index on a blend of hospital data and inaccurate SNF-data is not 
likely to improve the accuracy of our payments. As we have already 
indicated, we have concerns about establishing a wage index based on 
SNF-specific wage data that is unreliable and unaudited, since this 
could have an arbitrary impact on providers. Accordingly, we do not 
believe that it would be appropriate to use a blend that, at the 
present time, includes unreliable and unaudited SNF data.
    Comment: Some commenters pointed out two typographical errors in 
Table 5 of the proposed rule (66 FR 23992), which showed the labor 
portion of the adjusted Federal rate for RUG-III group BA1 as $704.20, 
and the total rate for RUG-III group PE2 as $780.99.
    Response: The correct dollar amounts for these two items are 
$104.20 and $180.99, respectively.
    Comment: One commenter reported discovering an error in the 
hospital wage data that was used in computing the current (FY 2001) 
wage index for the Baltimore MSA. The error was corrected in a timely 
fashion for the wage index data published in this final rule; however, 
the commenter indicated that because the hospital(s) did not accurately 
report their costs on prior year cost reports, the current wage index 
is incorrect and an adjustment should be made to account for this 
error.
    Response: For the reasons discussed previously, we are continuing 
to use the hospital wage index under the SNF PPS. Thus, corrections in 
the underlying data would be made in accordance with the existing 
process for developing the hospital wage index. We note that this 
process already includes numerous review and editing procedures, and 
also provides numerous opportunities for hospitals and other interested 
parties to detect and question any discrepancies in the data and seek 
revisions to that data.

E. Updates to the Federal Rate

    In accordance with section 1888(e)(4)(E) of the Act and section 311 
of the BIPA, the payment rates listed here reflect an update equal to 
the SNF market basket minus 0.5 percentage point, which equals 2.8 
percent. For each succeeding FY, we will publish the rates in the 
Federal Register before August 1 of the year preceding the next Federal 
FY.

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

    We include in each update of the Federal payment rates in the 
Federal Register the designation of those specific RUGs under the 
classification system that represent the required SNF level of care, as 
provided in Sec. 409.30. This designation reflects an administrative 
presumption that beneficiaries who are correctly assigned to one of the 
upper 26 RUG-III groups in the initial 5-day, Medicare-required 
assessment are automatically classified as meeting the SNF level of 
care definition up to that point. (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.)
    In the proposed rule published in the Federal Register on May 10, 
2001 (66 FR 24011), we proposed to continue the existing designation of 
the upper 26 RUG-III groups for purposes of this administrative 
presumption, consisting of the following RUG-III classifications: 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.
    Comment: Commenters expressed support for our proposal to continue 
the existing designation of the upper 26 RUG-III groups for purposes of 
the administrative presumption regarding level of care. They noted that 
since we are not introducing case-mix refinements in the current 
rulemaking cycle, the existing designation should also remain 
unchanged.
    Response: Consistent with the comments, we are continuing the 
existing designation of the upper 26 RUG-III groups for purposes of 
this administrative presumption, consisting of the following RUG-III 
classifications: 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.

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

    Using the example of the XYZ SNF described in Table 9, the 
following shows the adjustments made to the Federal per diem rate to 
compute the provider's actual per diem PPS payment. XYZ's 12-month cost 
reporting period begins October 1, 2001. Table 10 displays the 44 RUG-
III categories and their respective add-ons, as provided in the BBRA 
and the BIPA.

                                      Table 9.--SNF XYZ Is Located in State College, PA With a Wage Index of 0.9133
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Labor       Wage     Adjusted   Nonlabor    Adjusted    Percent    Medicare
                          RUG Group                              portion     index      labor      portion      rate    adjustment     days     Payment
-------------------------------------------------------------------\1\-------------------------------\1\------------------------------------------------
RVC..........................................................     $258.30     0.9133    $235.91      $84.37    $320.28  \2\ 354.55         50    $17,728
SSC..........................................................      172.26     0.9133     157.33       56.27     213.60  \3\ 264.86         25      6,622
IA2..........................................................      113.89     0.9133     104.02       37.20     141.22   \4\146.87         25      3,672
                                                              ------------------------------------------------------------------------------------------
    Total....................................................  ..........  .........  .........  ..........  .........  ..........        100    27,022
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ From Table 5.
\2\ Reflects a 10.7 percent adjustment (the 4 percent adjustment from section 101(d) of the BBRA and the 6.7 percent adjustment from section 314 of the
  BIPA).
\3\ Reflects a 24 percent adjustment (the 4 percent and 20 percent adjustments from sections 101(a) and (d) of the BBRA).
\4\ Reflects the 4 percent adjustment from section 101(d) of the BBRA.


[[Page 39581]]


      Table 10.--BBRA 1999 & BIPA 2000 Add-Ons, By RUG-III Category
------------------------------------------------------------------------
          RUG-III  category             4% \1\     10.7% \2\    24% \3\
------------------------------------------------------------------------
RUC.................................  ..........          X   ..........
RUB.................................  ..........          X   ..........
RUA.................................  ..........          X   ..........
RVC.................................  ..........          X   ..........
RVB.................................  ..........          X   ..........
RVA.................................  ..........          X   ..........
RHC.................................  ..........          X   ..........
RHB.................................  ..........          X   ..........
RHA.................................  ..........          X   ..........
RMC.................................  ..........          X   ..........
RMB.................................  ..........          X   ..........
RMA.................................  ..........          X   ..........
RLB.................................  ..........          X   ..........
RLA.................................  ..........          X   ..........
SE3.................................  ..........  ..........          X
SE2.................................  ..........  ..........          X
SE1.................................  ..........  ..........          X
SSC.................................  ..........  ..........          X
SSB.................................  ..........  ..........          X
SSA.................................  ..........  ..........          X
CC2.................................  ..........  ..........          X
CC1.................................  ..........  ..........          X
CB2.................................  ..........  ..........          X
CB1.................................  ..........  ..........          X
CA2.................................  ..........  ..........          X
CA1.................................  ..........  ..........          X
IB2.................................          X   ..........  ..........
IB1.................................          X   ..........  ..........
IA2.................................          X   ..........  ..........
IA1.................................          X   ..........  ..........
BB2.................................          X   ..........  ..........
BB1.................................          X   ..........  ..........
BA2.................................          X   ..........  ..........
BA1.................................          X   ..........  ..........
PE2.................................          X   ..........  ..........
PE1.................................          X   ..........  ..........
PD2.................................          X   ..........  ..........
PD1.................................          X   ..........  ..........
PC2.................................          X   ..........  ..........
PC1.................................          X   ..........  ..........
PB2.................................          X   ..........  ..........
PB1.................................          X   ..........  ..........
PA2.................................          X   ..........  ..........
PA1.................................          X   ..........  ..........
------------------------------------------------------------------------
\1\ Represents the 4% increase from the BBRA.
\2\ Includes the 4% increase from the BBRA and the 6.7% increase from
  the BIPA.
\3\ Includes the 4% and 20% increases from the BBRA.

    For rates addressed in this final rule, we are using wage index 
values that are based on hospital wage data from cost reporting periods 
beginning in FY 1997.

H. The Skilled Nursing Facility Market Basket Index

1. Background
    Section 1888(e)(5)(A) of the Act requires the Secretary to 
establish a market basket index that reflects changes over time in the 
prices of an appropriate mix of goods and services included in the SNF 
PPS. Effective for cost reporting periods beginning on or after July 1, 
1998, we revised and rebased our 1977 routine costs input price index 
and adopted a total expenses SNF input price index using data from 1992 
as the base year.
    The term ``market basket'' technically describes the mix of goods 
and services needed to produce SNF care, and is also commonly used to 
denote the input price index that includes both weights (mix of goods 
and services) and price factors. The term ``market basket'' used in 
this rule refers to the SNF input price index.
    The 1992-based SNF market basket represents routine costs, costs of 
ancillary services and capital-related costs. The percentage change in 
the market basket reflects the average change in the price of a fixed 
set of goods and services purchased by SNFs to furnish all services. 
For further background information, see the May 12, 1998 Federal 
Register (63 FR 26289).
    For purposes of SNF PPS, the SNF market basket is a fixed-weight 
(Laspeyres type) price index. (A Laspeyres type index compares the cost 
of purchasing a specified group of commodities in a selected base 
period to the cost of purchasing that same group at current prices.) 
The SNF market basket is constructed in three steps. First, a base 
period is selected and total base period expenditure shares are 
estimated for mutually exclusive and exhaustive spending categories. 
Total costs for routine services, ancillary services, and capital are 
used. These proportions are called cost or

[[Page 39582]]

expenditure weights. The second step is to match each expenditure 
category to a price/wage variable, called a price proxy. These price 
proxy variables are drawn from publicly available statistical series 
published on a consistent schedule, preferably at least quarterly. In 
the final step, the price level for each spending category is 
multiplied by the expenditure weight for that category. The sum of 
these products (that is, weights multiplied by proxy index levels) for 
all cost categories yields the composite index level in the market 
basket for a given quarter or year. Repeating the third step for other 
quarters and years produces a time series of market basket index 
levels, from which rates of growth can be calculated.
    The market basket is described as a fixed-weight index because it 
answers the question of how much more or less it would cost, at a later 
time, to purchase the same mix of goods and services that was purchased 
in the base period. The effects on total expenditures resulting from 
changes in the quantity or mix of goods and services purchased 
subsequent or prior to the base period are, by design, not considered.
    As discussed in the May 12, 1998 Federal Register (63 FR 26252), to 
implement section 1888(e)(5)(A) of the Act, we revised and rebased the 
market basket so the cost weights and price proxies reflected the mix 
of goods and services that SNFs purchase for all costs (routine, 
ancillary, and capital-related) encompassed by SNF PPS in fiscal year 
1992.
2. Rebasing and Revising the Skilled Nursing Facility Market Basket
    The terms ``rebasing'' and ``revising'', while often used 
interchangeably, actually denote different activities. Rebasing means 
shifting the base year for the structure of costs of the input price 
index (for example, for this rule, we shift the base year cost 
structure from fiscal year 1992 to fiscal year 1997). Revising means 
changing data sources, cost categories, and/or price proxies used in 
the input price index.
    We have rebased and revised the SNF market basket to reflect 1997 
total cost data (routine, ancillary, and capital-related). Fiscal year 
1997 was selected as the new base year because 1997 is the most recent 
year for which relatively complete data are available. These data 
include settled 1997 Medicare Cost Reports as well as 1997 data from 
two U. S. Department of Commerce surveys: The Bureau of the Census' 
Business Expenditures Survey, and the Bureau of Economic Analysis' 
Annual Input-Output tables. Preliminary analysis of 1998 data from 
Medicare Cost Reports showed little change in cost shares from those in 
the 1997 Medicare Cost Reports.
    In developing the market basket, we reviewed SNF expenditure data 
from Medicare Cost Reports for FY 1997 for each freestanding SNF that 
had Medicare expenses. FY 1997 Cost Reports are those with cost 
reporting periods beginning after September 30, 1996 and before October 
1, 1997.
    Comment: Some commenters believe that the weights derived for use 
in the revised and rebased market basket are not valid, because only 
freestanding facility data were used.
    Response: As described in the proposed rule, we used SNF 
expenditure data from Medicare Cost Reports for FY 1997 for each 
freestanding SNF that had Medicare expenses. We maintained our policy 
of using data from freestanding SNFs because they reflect the actual 
cost structure faced by the SNF. Expense data for a hospital-based SNF 
are affected by the allocation of overhead costs over the entire 
institution (hospital, hospital-based SNF, hospital-based home health 
agency, etc). Due to the method of allocation, total expenses will be 
correct, but the individual components' expenses may be skewed. 
Therefore, if data from hospital-based SNFs were included, the 
resultant cost structure could be unrepresentative of the costs facing 
an average SNF.
    Data on SNF expenditures for six major expense categories (wages 
and salaries, employee benefits, contract labor, pharmaceuticals, 
capital-related, and a residual ``all other'') were edited and 
tabulated. Using these data, we then determined the proportion of total 
costs that each category represented. The six major categories for the 
revised and rebased cost categories and weights derived from SNF 
Medicare Cost Reports are summarized in Table 10.A.

Table 10.A--1992 and 1997 Skilled Nursing Facility Major Cost Categories
                 and Weights From Medicate Cost Reports
------------------------------------------------------------------------
                                 1992-based skilled   1997-based skilled
        Cost categories           nursing facility     nursing facility
                                      weights              weights
------------------------------------------------------------------------
Wages and Salaries............             47.805%              46.889%
Employee Benefits.............             10.023                9.631
Contract Labor................             12.852                6.478
Pharmaceuticals...............              2.531                3.006
Capital-related Costs.........              9.778                9.877
All Other Costs...............             17.012               24.119
Total Costs...................            100.000              100.000
------------------------------------------------------------------------

    We fully discuss the methodology for developing these weights in 
Appendix A. The main methodological difference between the 1992-based 
SNF market basket and the 1997-based market basket is in the 
calculation of the contract labor weight. For the 1992-based market 
basket, we estimated this share using non-salary costs for therapy cost 
centers. For the 1997-based index, we used the contract labor amounts 
for a subset of edited reports from Worksheet S-3 in the Medicare Cost 
Reports. We believe this new methodology provides a more accurate 
reflection of the share of total costs that are attributable to 
contract labor. The data from this worksheet were not available in the 
1992 Medicare Cost Reports.
    Relative weights within the six major categories were derived using 
relative cost shares from the Bureau of the Census' 1997 Business 
Expenditures Survey (BES), 1997 Medicare Cost Reports, and the Bureau 
of Economic Analysis' (BEA) 1997 Annual Input-Output tables. They were 
used to disaggregate and allocate costs within the six major categories 
determined from the 1997 SNF Medicare Cost Reports. The BEA Input-
Output database is benchmarked at 5-year intervals and updated annually 
between benchmarks. We are using the annual update for 1997. The BES is 
updated every five years.

[[Page 39583]]

    The capital-related portion of the rebased and revised SNF PPS 
market basket employs the same overall methodology used to develop the 
capital-related portion of the 1992-based SNF market basket, described 
in the May 12, 1998 Federal Register (63 FR 26289). It is also the same 
methodology used for the inpatient hospital PPS capital input price 
index described in the Federal Register May 31, 1996 (61 FR 27466) and 
August 30, 1996 (61 FR 46196). The strength of this methodology is that 
it reflects the vintage nature of capital, which represents the 
acquisition and use of capital over time.
    Our work resulted in 21 separate categories for the rebased and 
revised SNF market basket. The 1992-based total cost SNF market basket 
also had 21 separate cost categories. Detailed descriptions of each 
cost category and respective price proxy in the 1997-based SNF market 
basket are provided in Appendix A to this final rule.
    Comment: Several commenters felt that the methodology and data 
sources used by CMS in the development of the market basket raise 
questions about the transparency and consistency of the index. The 
commenters were particularly concerned with the use of a fixed-weight 
(Laspeyres type) index that was only updated periodically and thus did 
not capture the changing dynamics of the SNF industry.
    Response: The methodology and data sources used by CMS for the SNF 
market basket are consistent with those used in the development of the 
hospital, home health, and physician market baskets, and prior versions 
of the SNF market basket. These market baskets have been used over the 
past two decades to update payments to providers of Medicare services, 
and the theory and methodology behind these market baskets have been 
continually revised and refined. We feel the current SNF market basket 
is based on a sound methodology that is completely consistent with 
price index theory as used in the development of other official 
government price indexes, such as those developed by the Bureau of 
Labor Statistics (BLS) and the Bureau of Economic Analysis (BEA). While 
the data sources available to develop the SNF market basket are 
limited, we feel our methodology ensures that these data sources are 
appropriately used and consistently combined, with great care taken to 
account for definitional and methodological differences in the data.
    As we stated in the proposed rule, our primary data source for 
developing the SNF market basket is the actual data submitted by SNFs 
in the Medicare cost reports. Using these data to develop the major 
cost category weights, we have used actual SNF data that reflect the 
actual cost experience faced by SNFs in providing care. We use as much 
detail as is available and accurately reported in the cost reports, and 
then supplement this information with data reported by nursing homes, 
of which SNFs represent a significant proportion, as part of official 
government statistics published by the Bureau of the Census and Bureau 
of Economic Analysis. These official government statistics are publicly 
available and also reflect the actual cost experience faced by SNFs and 
nursing homes. We use the distribution of costs reported in these 
official statistics, not actual cost levels, to further refine the 
distribution of the major cost categories measured by the Medicare cost 
reports. Thus our methodology makes the maximum use of Medicare cost 
report data submitted by SNFs and uses official government statistics 
based on data provided by nursing homes and SNFs to develop an index 
that fully reflects a mutually exclusive and exhaustive set of input 
costs facing SNFs. In the proposed rule, we specifically identified the 
data source (even providing the specific worksheets for the Medicare 
cost report data) from which each index weight was determined.
    The SNF market basket is a fixed-weight (Laspeyres type) index that 
measures how much more or less it would cost, at a later time, to 
purchase the same mix of goods and services (inputs) that was purchased 
in the base period. Thus it reflects the pure price change between the 
current and base period of a fixed set of inputs. Over time, SNFs may 
alter their mix of inputs, generally from higher cost inputs to lower 
cost inputs, although this change may reflect a number of different 
factors. In order to reflect the change in mix over time, we 
periodically rebase the SNF market basket to a more recent base year. 
The rebased SNF market basket reflects the mix of inputs for 1997. 
However, like any fixed-weight index, the SNF market basket does 
reflect the current prices facing the SNF. So, while the base weights 
may be from a prior year, the price changes reflected in the index are 
reflective of the current trends in the SNF industry.
    We do not share the commenters' concerns that using a fixed-weight 
(Laspeyres type) index biases the index or makes it less representative 
of the changing dynamics of the SNF industry. Unlike the official BLS 
and BEA price indexes, which generally measure consumption patterns of 
consumers and producers that can change drastically over a short period 
of time and for which many interchangeable products exist, the cost 
distribution of inputs for the SNF in providing services does not vary 
much over time. As such, the substitution bias that can exist with a 
fixed-weight price index is not evidenced in our SNF market basket. 
Thus, while the commenters feel that using a chain-weight or another 
type of alternative index formulation would make the SNF market basket 
more reflective of the changing dynamics in the SNF industry, in 
actuality these alternative index formulas would have no noticeable 
effect on the annual percent change in the market basket. As shown in 
Table 10.A., the weights of the major cost categories did not change 
significantly between 1992 and 1997, other than a methodological change 
we made in calculating the contract labor weight. The impact of 
rebasing the index is presented in Table 10.D., and shows that between 
FYs 1995 and 2000 the impact was always less than 0.1 percentage 
points, and on average, the 1992-based and 1997-based indexes grew at 
exactly the same rate during that time. In addition, when we looked at 
1998 Medicare cost report data (the most recent year of complete data) 
we found very little difference in the major cost weights.
    We have explored in the past the idea of using alternative index 
formulations, such as a Paasche, Fisher, Tornqvist, and chained-
versions of these indexes, that do not rely on a fixed-weight 
(Laspeyres type) index formula. In doing this research we found very 
little variation in the change in the index over time, mostly the 
result of weights that were relatively stable, as explained above. In 
addition, developing these alternative index formulations was affected 
by significant lags in data availability; the Medicare cost report data 
are at least three years old due to processing time, and the Census and 
BEA data are available only every five years. Given these outcomes, we 
did not feel it would be beneficial to switch from the current fixed-
weight methodology. We again note that the current methodology is both 
accurate and conceptually sound in measuring the change in input prices 
for SNFs, hospitals, HHAs, and physicians.
    As in the 1992-based SNF market basket, the 1997-based SNF market 
basket does not include a separate cost category for professional 
liability insurance. Our analysis of the BEA 1997 Annual Input-Output 
survey indicated that the general category for insurance carriers 
(which includes professional liability insurance as a subset) was, at

[[Page 39584]]

just 0.2 percent, a small share of the total costs in 1997. It has been 
our policy in the past not to provide detailed breakouts of cost 
categories unless they represent a significant portion of the 
providers' costs. We also reviewed data available on professional 
liability insurance from Worksheet S-2 of the SNF Medicare Cost 
Reports, but found that nearly all SNFs did not report data for 
malpractice premiums, paid losses, or self-insurance in 1997.
    Comment: Several commenters recommended that CMS quickly develop an 
appropriate weight and price measure to capture professional liability 
insurance costs.
    Response: As we stated in the proposed rule, we have been 
investigating sources of professional liability insurance costs for 
SNFs but have been unable to find an existing data source with this 
information. We are encouraged that the commenters are also interested 
in CMS acquiring this information, and would appreciate their input on 
any currently available data or possible approaches to obtaining the 
data. One possible data source for this information would be the 
Medicare cost reports. We note, however, that the Medicare cost reports 
for 1997 did not contain complete information for these costs. We 
encourage all providers to fully fill out the categories for 
malpractice premiums, paid losses, or self insurance on the Medicare 
cost reports. This would likely be the quickest and most efficient way 
to collect the data. In addition, we will continue to research possible 
data sources and may pursue data collection efforts if we cannot find 
the necessary data from publicly available, timely, unbiased sources.
    After the 21 cost weights for the revised and rebased SNF market 
basket were developed, we selected the most appropriate wage and price 
proxies currently available to monitor the rate of change for each 
expenditure category. With three exceptions (all for the capital-
related expenses cost category), the wage and price proxies are based 
on Bureau of Labor Statistics (BLS) data and are grouped into one of 
the following BLS categories:
     Employment Cost Indexes. Employment Cost Indexes (ECIs) 
measure the rate of change in employment wage rates and employer costs 
for employee benefits per hour worked. These indexes are fixed-weight 
indexes and strictly measure the change in wage rates and employee 
benefits per hour. They are not affected by shifts in occupation or 
industry mix. ECIs are superior to Average Hourly Earnings (AHEs) as 
price proxies for input price indexes for two reasons: (1) They measure 
pure price change, and (2) they are available by both occupational 
group and by industry.
     Producer Price Indexes. Producer Price Indexes (PPIs) 
measure price changes for goods sold in other than retail markets. PPIs 
were used when the purchases of goods or services were made at the 
wholesale level.
     Consumer Price Indexes. Consumer Price Indexes (CPIs) 
measure change in the prices of final goods and services bought by 
consumers. CPIs were only used when the purchases were similar to those 
of retail consumers rather than purchases at the wholesale level, or if 
no appropriate PPI was available.
    The contract labor weight of 6.478 was reallocated to (1) wages and 
salaries, and (2) employee benefits, so that the same price proxies 
that we use for direct labor costs are applied to contract costs.
    The rebased and revised cost categories, weights, and price proxies 
for the 1997-based SNF market basket are listed in Table 10.B.

 Table 10.B.--1997-Based SNF Market Basket Cost Categories, Weights, and
                              Price Proxies
------------------------------------------------------------------------
                                    1997-based
                                 skilled nursing
         Cost category           facility market        Price proxy
                                  basket weight
------------------------------------------------------------------------
Operating Expenses............             90.123
  Compensation................             62.998
    Wages and Salaries........             52.263  ECI for Wages and
                                                    Salaries for Private
                                                    Nursing Homes.
    Employee benefits.........             10.734  ECI for Benefits for
                                                    Private Nursing
                                                    Homes.
    Nonmedical professional                 2.634  ECI for Compensation
     fees.                                          for Private
                                                    Professional,
                                                    Technical and
                                                    Specialty workers.
  Utilities...................              2.368
    Electricity...............              1.420  PPI for Commercial
                                                    Electric Power.
    Fuels, nonhighway.........              0.426  PPI for Commercial
                                                    Natural Gas.
    Water and sewerage........              0.522  CPI-U for Water and
                                                    Sewerage.
All Other Expenses............             22.123
  Other Products..............             13.522
  Pharmaceuticals.............              3.006  PPI for Prescription
                                                    Drugs.
  Food........................              4.136
    Food, wholesale purchase..              3.198  PPI for Processed
                                                    Foods.
    Food, retail purchase.....              0.937  CPI-U for Food Away
                                                    From Home.
  Chemicals...................              0.891  PPI for Industrial
                                                    Chemicals.
  Rubber and plastics.........              1.611  PPI for Rubber and
                                                    Plastic Products.
  Paper products..............              1.289  PPI for Converted
                                                    Paper and
                                                    Paperboard.
  Miscellaneous products......              2.589  PPI for Finished
                                                    Goods less Food and
                                                    Energy.
  Other Services..............              8.602
    Telephone Services........              0.448  CPI-U for Telephone
                                                    Services.
    Labor-intensive Services..              4.094  ECI for Compensation
                                                    for Private Service
                                                    Occupations
    Non labor-intensive                     4.059  CPI-U for All Items
     services.
Capital-related Expenses......              9.877
  Total Depreciation..........              5.266
    Building & Fixed Equipment              3.609  Boeckh Institutional
                                                    Construction Index
                                                    (vintage-weighted
                                                    over 23 years).
    Movable Equipment.........              1.657  PPI for Machinery &
                                                    Equipment (vintage-
                                                    weighted over 10
                                                    years).
  Total Interest..............              3.852

[[Page 39585]]

 
    Government & Nonprofit                  1.890  Average Yield
     SNFs.                                          Municipal Bonds
                                                    (Bond Buyer Index-20
                                                    bonds) (vintage-
                                                    weighted over 22
                                                    years).
    For-Profit SNFs...........              1.962  Average Yield Moody's
                                                    AAA Bonds (vintage-
                                                    weighted over 22
                                                    years).
  Other Capital-related                     0.760  CPI-U for Residential
   Expenses.                                        Rent.
                               -------------------
    Total.....................          * 100.000
------------------------------------------------------------------------
* Total may not equal 100 due to rounding

    In the 1997-based SNF market basket, the labor-related share for FY 
1997 is 73.588 percent, while the non-labor-related share is 26.412 
percent. The labor-related share reflects the proportion of the average 
SNF's costs that vary with local area wages. This share includes wages 
and salaries, employee benefits, professional fees, labor-intensive 
services, and a 39.1 percent share of capital-related expenses, as 
shown in Table 10.C. By comparison, the labor-related share of the 
1992-based SNF market basket was 75.888 percent. The labor-related 
share of the market basket is the sum of the weights for those cost 
categories that are influenced by the local labor market. The labor-
related share is calculated from the base year, which for the revised 
and rebased SNF market basket is FY 1997.
    The labor-related share for capital-related expenses was estimated 
using a statistical analysis of individual SNF Medicare Cost Reports 
for 1997, similar to the analysis done on the 1992 SNF Medicare Cost 
Reports and explained in the May 12, 1998 Federal Register (63 FR 
26289). The statistical analysis was necessary because the proportion 
of capital-related expenses related to local area wage costs cannot be 
directly determined from the SNF capital-related portion of the market 
basket. We used regression analysis with total costs per day in SNFs as 
the dependent variable and relevant explanatory variables for size, 
complexity, efficiency, age of capital, and local wage variation. To 
account for these factors, we used number of beds, case-mix indexes, 
occupancy rate, ownership, age of assets, length of stay, FTEs per bed, 
and wage index values based on the hospital wage index (wages and 
employee benefits) as independent variables. Our regression analysis 
indicated that the coefficient on the area wage index was 73.588, which 
represents the proportion of total costs that vary with local labor 
markets, holding constant other factors. From the operating portion of 
the market basket, we can specifically identify cost categories that 
reflect local labor markets and include them in the labor-related 
share. These cost categories equal 69.727, and reflect approximately 77 
percent of operating costs. Thus, the labor-related share for capital-
related costs is 3.861 (73.588 minus 69.727), and reflects 
approximately 39 percent of capital-related costs.
    Capital-related expenses are determined in some proportion by local 
area labor costs (such as construction worker wages and building 
materials costs) that are reflected in the price of the capital asset. 
However, many other inputs that determine capital costs are not related 
to local area wage costs, such as equipment prices and interest rates. 
Thus, it is appropriate that capital-related expenses would vary less 
with local wages than would operating expenses for SNFs. Therefore, we 
use this analysis in determining the labor-related share for SNF PPS.
    All price proxies for the revised and rebased SNF market basket are 
listed in Table 10.B and summarized in Appendix A to this final rule. A 
comparison of the yearly historical percent changes from FY 1995 
through FY 2000 for the current 1992-based market basket and the 1997-
based market basket is shown in Table 10.D.

          Table 10.C.--1992- and 1997-Based Labor-Related Share
------------------------------------------------------------------------
                                                      1992-      1997-
                                                      based      based
                                                     skilled    skilled
                                                     nursing    nursing
                   Cost category                     facility   facility
                                                      market     market
                                                      basket     basket
                                                      weight     weight
------------------------------------------------------------------------
Wages and Salaries................................     54.262     52.263
Employee Benefits.................................     12.797     10.734
Nonmedical Professional Fees......................      1.916      2.634
Labor-intensive Services..........................      3.686      4.094
Capital-related...................................      3.227      3.861
                                                   ---------------------
    Total.........................................     75.888     73.588
------------------------------------------------------------------------


   Table 10.D.--Comparison of the 1992-Based Skilled Nursing Facility
Market Basket and the 1997-Based Skilled Nursing Facility Market Basket,
                       Percent Changes, 1995-2000
------------------------------------------------------------------------
                                                      1992-      1997-
                                                      based      based
                                                     skilled    skilled
         Fiscal years beginning  October 1           nursing    nursing
                                                     facility   facility
                                                      market     market
                                                      basket     basket
------------------------------------------------------------------------
Historical:
  October 1994, FY 1995...........................        2.9        3.0
  October 1995, FY 1996...........................        2.7        2.7
  October 1996, FY 1997...........................        2.4        2.4
  October 1997, FY 1998...........................        2.8        2.8
  October 1998, FY 1999...........................        3.1        3.0
  October 1999, FY 2000...........................        4.1        4.0
                                                   ---------------------
    Historical average 1995-2000..................        3.0       3.0
------------------------------------------------------------------------
Released by CMS, OACT, National Health Statistics Group.

    The historical average rate of growth for 1995 through 2000 for the 
SNF 1997-based market basket is similar to that of the 1992-based 
market basket. The 1997-based SNF market basket provides a more current 
measure of the annual

[[Page 39586]]

price increases for total care than the 1992-based SNF market basket 
because the cost weights reflect the structure of costs for the most 
recent year for which there are relatively complete data. The 
forecasted rates of growth for FY 2002 for the 1997-based and 1992-
based SNF market basket are shown in Table 10.E.

 Table 10.E.--Comparison of Forecasted Change for the 1992-Based Skilled
   Nursing Facility Market Basket, and the 1997-Based Skilled Nursing
            Facility Market Basket Percent Change for FY 2002
------------------------------------------------------------------------
                                  1992-based skilled  1997-based skilled
 Fiscal year beginning October 1   nursing facility    nursing facility
                                     market basket       market basket
------------------------------------------------------------------------
October 2001, FY 2002...........                3.5                3.3
------------------------------------------------------------------------
Source: Global Insights, Inc., DRI-WEFA, 2nd QTR, 2001; @USMACRO/
  MODTREND @CISSIM/TRENDLONG0501. Released by CMS, OACT, National Health
  Statistics Group.

    Comment: One commenter indicated that there should be a mechanism 
to account for forecast error since forecasts of the market basket are 
used to determine the following year payment update.
    Response: Research is currently under way in developing an update 
framework for the SNF PPS. A conceptual discussion of this framework 
was presented in the proposed rule. The SNF PPS framework discussed in 
the proposed rule is similar to the one currently used by us and MedPAC 
to recommend annual updates to inpatient hospital payments. This 
framework would account for all non-price factors needed in an update, 
such as a forecast error correction. Although this would not impact the 
legislated payment update, the framework would give us the ability to 
factor in a forecast error adjustment in our recommendation for an 
update to SNF payments. In addition, our policy has been to use the 
most recent forecast of the market basket available to update the 
payment rates. These updated forecasts reflect expectations based on 
the most up-to-date price data. We note, however, that by definition, 
the forecasts may differ from later projections or the final number 
recorded for a given year.
    Comment: One comment noted that the base year used to establish the 
PPS rates was nonrepresentative and, thus, did not reflect the full 
cost of care. This comment also requested us to explain an apparent 
discrepancy between the rise in SNF costs between 1995 and 1998 and the 
market basket increase used to establish the initial rates under the 
PPS. The commenter noted a disparity of 19.2 percent over this period.
    Response: While we agree that certain costs were removed from the 
1995 base year data used to establish the initial SNF PPS rates in 
1998, the BBA specifically required that these costs not be included in 
the calculation of the rates. In addition, the removal of these costs 
from the 1995 base year data does not indicate that the rates are in 
any way inadequate. In direct contrast to the commenters' statement, 
the Office of Inspector General (OIG) issued a report shortly after the 
implementation of SNF PPS entitled ``Review of the Health Care 
Financing Administration's Development of a Prospective Payment System 
for Skilled Nursing Facilities'' (Number A-14-98-00350), which asserted 
that the cost base used to establish the PPS rates was inflated with 
unnecessary and improperly billed services. In addition, the General 
Accounting Office (GAO) and MedPAC have both recently stated in reports 
and testimony before the Congress that the payment rates are adequate.
    In addition, while we were unable to confirm the percentage 
difference referred to in the comment, we would note that the market 
basket and measures of reported costs represent two entirely different 
concepts. Accordingly, we do not believe there is a discrepancy, as the 
concepts cannot be compared to each other.
    The market baskets used by Medicare for SNF PPS and other payment 
systems are, by design, intended to recognize changes from year to year 
in the price of goods and services purchased by SNFs in providing 
covered Medicare services. Reported costs, on the other hand, reflect 
amounts billed by providers and paid for by Medicare. As such, they 
reflect an array of factors not reflected in the market basket. For 
example, measures of reported costs would reflect changes in the 
intensity of services billed for, and the amounts charged to, Medicare. 
In this case, an examination of the period between 1995 and 1998 shows 
substantial increases in the price and number of ancillary services 
billed to Medicare. This certainly appears to be a primary cause of the 
large increases in reported costs. However, it is unclear from the 
comment why the payment rates (or the market basket) should be expected 
to capture such non-price related changes. MedPAC has noted in 
testimony before the Congress and in recent reports that these cost 
increases between 1995 and 1998 were not related to changes in the 
overall case-mix or acuity of the patients served in SNFs or changes in 
input prices. As an illustrative example, the GAO and OIG have 
published numerous reports related to this period detailing instances 
of unnecessary services improperly billed by SNFs. In this context, it 
would not seem appropriate to capture changes in reported costs 
associated with improper or unnecessary service delivery in 
establishing the initial PPS rates.
    We believe the SNF market basket, as a measure of input prices, was 
established consistent with the statute and the methods used to develop 
such indexes under SNF cost limits and other Medicare payment systems 
in 1998 and at the present time. Congress mandated that, in 
establishing the rates, the base year costs from 1995 be updated to 
1998 by the market basket. Differences between that update and the 
increases in reported costs over that period relate to the fundamental 
differences between the two measurement concepts and are to be 
expected.
    Comment: We received several comments recommending that we 
undertake a thorough review of the SNF market basket. These comments 
suggested that we examine the full range of market basket components, 
including the weights and price proxies used in the current SNF market 
(with particular attention to wages, benefits, professional liability, 
and pharmaceuticals), and the appropriateness of using a Laspeyres 
fixed weight input price index for updating PPS payments. The comments 
also suggested that we initiate a collaborative process with the 
nursing home industry and other entities aimed at redesigning the SNF 
market basket. Several comments suggested that we initiate formal 
regulations negotiations on the issue of the SNF market basket.
    Response: We are committed to ensuring the continued adequacy of 
our payments to SNFs under the Medicare

[[Page 39587]]

program. Our ongoing efforts to refine the case-mix methodology and 
revise and rebase the market basket offer evidence of our efforts to 
keep the SNF PPS current in a continually evolving health care 
environment.
    As in the past, we are interested in maintaining a dialogue with 
the industry, beneficiaries, and other interested parties on this 
important issue. We will continue to be receptive to new ideas on this 
and other issues. In the proposed rule, we specifically requested 
comments on the market basket for the purpose of eliciting ideas and 
recommendations on refining the market basket components and 
methodology used for the SNF PPS. While we received few concrete 
recommendations or suggestions on this subject, a number of important 
issues and questions were raised which we have and will continue to 
examine closely. While formal regulations negotiations may offer a good 
opportunity for us to collaborate with the industry and other 
interested parties on important regulatory policy initiatives, we 
believe that without an understanding of the scope and direction of any 
potential regulatory effort in this area, it is premature for us to 
comment on whether this issue would be a good candidate for future 
formal negotiations. We will consider the potential for this in the 
future and we appreciate the continued interest and thinking of 
commenters in this area.

I. Update Framework

    Medicare payments to SNFs are based on a predetermined national 
payment amount per day. Annual updates to these payments are required 
by section 1888(e) of the Act. These updates are usually based on the 
increase in the SNF market basket. For FY 2002, the update is set at 
market basket minus 0.5 percent. Our goal is to develop a method for 
analyzing and comparing expected trends in the underlying cost per day 
to use in establishing these updates. For a complete discussion of the 
conceptual framework, see the May 10, 2001 proposed rule (66 FR 23984).
    The SNF market basket, or input price index, developed by our 
Office of the Actuary (OACT), is just one component in the SNF cost per 
day amount. It captures only the pure price change of inputs (labor, 
materials, and capital) used by the SNF to produce a constant quantity 
and quality of care. Other factors also contribute to the change in 
costs per day, which include changes in case-mix, intensity, and 
productivity.
    In the proposed rule, we outlined a conceptual approach for a SNF-
specific update framework, and invited comments on the utility and 
feasibility of that approach for SNFs, as well as whether certain 
factors should be accounted for in the framework. We also invited 
suggestions for potential data sources and analysis to support the 
model.
    Comment: We received numerous comments on the update framework 
discussed in the proposed rule. These commenters focused on a range of 
issues related to the framework, including its purpose, structural 
design, and the data required to operate such a tool effectively. Some 
commenters recommended that the annual update to payment rates continue 
to be based solely on the market basket due to concerns that the 
framework may be too subjective and unpredictable and the data sources 
potentially unreliable. Others offered technical suggestions related to 
the data sources and methodology used to develop the different 
components of the update framework.
    Response: As discussed in the proposed rule, an update framework, 
used in combination with the market basket, seeks to enhance the system 
for updating payments by addressing factors beyond changes in pure 
input price. These factors are not reflected in the market basket used 
for establishing SNF payments, but often have an effect on changes in 
cost per day. Other factors that result in changes in the cost of SNF 
services from year to year include such things as patient acuity, 
intensity of services, and productivity.
    Like the update framework used for Medicare's inpatient hospital 
PPS, an update framework in the context of the SNF PPS would provide a 
comprehensive and objective tool for measuring and understanding 
changes in cost per day. These factors are not reflected in the market 
basket but often have an effect on cost per day from year to year. It 
can provide information that policy officials in the executive branch 
and the Congress can use in making decisions about the magnitude of 
updates each year. This will support the continued accuracy of SNF 
payments and ensure that the SNF PPS keeps pace with changing economic 
and health care market trends. We believe the potential value of the 
framework justifies continued research and development in this area.
    We appreciate the comments and technical suggestions offered by 
commenters concerning potential data sources and methodological 
approaches for the development of an update framework. While we are not 
addressing each technical comment individually in this final rule, we 
wish to assure the commenters that we will take them into consideration 
as we continue to pursue development efforts in this area. As stated in 
the proposed rule, we are not proposing to apply an update framework in 
a recommendation to the Congress at this time. After considerable 
research and analysis, our intention is to include a specific proposal 
for an update framework in a future Federal Register notice for public 
comment. This proposal would clearly detail the methodology, data 
sources, and potential impact of applying an analytical update 
framework under the SNF PPS.

J. Consolidated Billing

    As enacted in section 4432(b) of the BBA, the consolidated billing 
requirement places with the SNF itself the Medicare billing 
responsibility for virtually all of the services that a SNF resident 
receives. In defining the scope of this provision, the original 
legislation made no distinction between services furnished during the 
course of a covered Part A SNF stay and those furnished during a SNF 
stay that Medicare does not cover. However, as we noted in the proposed 
rule, we did not initially implement the Part B aspect of this 
provision (in connection with those services furnished during a 
noncovered SNF stay), because doing so would require making significant 
systems modifications, which were delayed by systems constraints that 
arose in connection with achieving Y2K compliance. Accordingly, in the 
July 30, 1999 final rule (64 FR 41671), we announced an indefinite 
postponement in the implementation of Part B consolidated billing, 
along with our intention to publish a notice of the anticipated 
implementation date for this aspect of consolidated billing in the 
Federal Register at least 90 days in advance.
    Subsequently, effective January 1, 2001, section 313 of the BIPA 
repealed the Part B aspect of SNF consolidated billing, except for 
physical, occupational, and speech-language therapy, which remain 
subject to consolidated billing whenever furnished to a SNF resident, 
regardless of whether Medicare covers that resident's stay in the SNF. 
In the proposed rule, we set forth several conforming revisions in the 
regulations to implement these statutory changes in the consolidated 
billing requirement.
    We note that section 313 of the BIPA does not delay the 
implementation of Part B consolidated billing, but repeals it (except 
for physical, occupational, and speech-language therapy) completely. 
Therefore, we hereby

[[Page 39588]]

withdraw our previously announced plan to provide 90 days advance 
notice in the Federal Register of an implementation date for Part B 
consolidated billing with regard to nontherapy services, since this 
aspect of the provision has now been eliminated and, thus, does not 
need to be implemented. Further, with regard to physical, occupational, 
and speech-language therapy furnished during noncovered SNF stays, the 
Part B billing and tracking responsibilities for SNFs have already been 
effectively implemented, as SNFs already have specific responsibility 
for these services, pursuant to the separate Part B therapy payment cap 
provision enacted by section 4541 of the BBA (see our discussion in the 
proposed rule, at 66 FR 24020). Accordingly, there is no need to 
announce a separate implementation date specifically for these three 
services.
    Notwithstanding the repeal of Part B consolidated billing by 
section 313 of the BIPA, the consolidated billing requirements for 
services furnished to a SNF resident during the course of a covered 
Part A stay remain in effect. Further, as we noted in the proposed 
rule, to the extent that SNFs continue to submit Part B bills, the 
repeal of Part B consolidated billing would not affect the applicable 
requirements for fee schedule payment and appropriate HCPCS coding, 
which remain in the law (at sections 1888(e)(9) and (10) of the Act, 
respectively).
    Comment: Although the BIPA legislation affected only those aspects 
of consolidated billing relating to the Part B repeal, a number of 
commenters took this opportunity to reiterate concerns about other 
aspects of consolidated billing that originally had been expressed 
during the public comment periods in prior years. For example, we 
received a number of comments concerning the possible exclusion of 
additional services from SNF consolidated billing. While the BIPA made 
no revisions to the statutory list of services that are excluded from 
consolidated billing, the preceding year's legislation (the BBRA) had 
created several new categories of excluded services. These exclusions 
encompassed certain individual services (identified in the statute by 
HCPCS code) within the categories of chemotherapy and its 
administration, radioisotope services, and customized prosthetic 
devices, as well as ambulance services that are furnished in connection 
with Part B dialysis services. During the public comment period for 
last year's SNF PPS rule (which implemented these statutory 
exclusions), a number of commenters recommended designating a broader 
set of services for exclusion. The commenters identified services such 
as modified barium swallows, stress tests, hyperbaric oxygen 
treatments, doppler studies, and nuclear medicine scans as appropriate 
candidates for exclusion. They also advocated expanding the existing 
exclusion for certain high-intensity outpatient hospital services to 
encompass services furnished in other, nonhospital, settings. Many of 
the comments on this year's SNF PPS proposed rule reiterated these 
previous recommendations. In addition, a number of commenters now 
recommended a further set of services for temporary exclusion from the 
requirement, with possible reinstatement upon implementation of case-
mix refinements that might, in their view, better account for these 
services. These additional services are blood transfusions, total 
parenteral nutrition, liquid oxygen, specialty beds for patients with 
severe skin breakdown, and certain I.V. medications. Some commenters 
also suggested that our evaluation of any case-mix refinements should 
include consideration of the ability to account accurately for these 
types of services. One commenter reiterated concerns that many 
commenters had expressed in previous years about ensuring that a SNF 
makes timely payment to its suppliers, while another commenter 
requested that the final rule contain detailed billing instructions 
concerning the requirement to include the SNF's Medicare provider 
number on all Part B claims.
    Response: When we declined last year to adopt the recommendations 
to exclude additional services from consolidated billing, we noted that 
we do not view making additions to the list of excluded services as a 
part of a process of continual expansion to encompass an ever-
broadening array of excluded services. Further, we indicated that an 
ongoing expansion of the existing exclusions (in the absence of 
significant changes in the current state of medical practice) would be 
contrary to the fundamental purpose of the consolidated billing 
provision, which is to make the SNF responsible for billing Medicare 
for essentially all of its residents' services, other than those 
identified in a small number of narrow and specifically delimited 
statutory exclusions. We do not find in the current public comments any 
additional evidence, beyond what was advanced previously, to support 
the recommendations for further exclusions. Therefore, for the reasons 
set forth in the final rule for FY 2001, we once again decline to adopt 
these recommendations. Further, we do not share the view of those 
commenters who suggested that the creation of additional exclusions 
from consolidated billing could serve, in effect, as an interim 
substitute for implementing case-mix refinements. We believe that 
payment adjustments relating to case-mix would best be accomplished 
directly through refinements in the case-mix classification system. 
Further, we note that the Congress has already provided an interim 
adjustment until the refinements can be implemented, in the form of the 
temporary rate increases for certain specified RUG-III groups. As 
indicated in our discussion of research on case-mix refinements in 
section III.A of this preamble, we agree with the recommendation to 
evaluate the ability of any case-mix refinements to support accurate 
pricing of services, and we plan to do so as the research in this area 
proceeds.
    In connection with the commenter's concern about ensuring that a 
SNF pays its suppliers in a timely manner, we noted in the July 30, 
1999 final rule (64 FR 41677) that under consolidated billing, a SNF's 
relationship with its suppliers is a contractual one, in which the 
terms of the suppliers' payment by the SNF are agreed upon through 
negotiation between the parties. Accordingly, a supplier can best 
resolve any concerns that it may have about the adequacy or timeliness 
of the SNF's payment by ensuring that these concerns are addressed to 
its satisfaction in its contract with the SNF. Finally, regarding the 
comment about specific billing procedures for including the SNF's 
Medicare provider number on Part B claims, we noted in last year's SNF 
PPS final rule (65 FR 46791, July 31, 2000) that specific operational 
instructions (such as those describing the details of particular 
billing procedures) are beyond the scope of the SNF PPS final rule, and 
are addressed instead through program issuances.

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

    In the proposed rule, we outlined our plans for converting rural 
swing-bed hospitals to the SNF PPS. We proposed to make the conversion 
effective with cost reporting periods beginning on and after October 1, 
2001, a timeframe consistent with the implementation time limits 
prescribed in the law. We received a number of comments on this swing 
bed proposal, nearly all of which expressed concern about the impact 
that introducing the MDS would have on

[[Page 39589]]

facility costs, staffing levels, and patient care. We have carefully 
considered these comments, and agree that, since our mutual objective 
is the efficient provision of high quality care, our requirements 
should be framed in a way that both protects the integrity of the 
Medicare program and supports provider efforts in this direction. As a 
result, we have revised our initial proposal in several ways that 
minimize burden and support swing-bed hospitals in providing quality 
care while still maintaining the accuracy of our payments.
    Comment: Several commenters expressed concern about the long-term 
adequacy of the SNF PPS rate structure, and urged us to continue our 
work to develop SNF PPS refinements. Comments received from swing-bed 
providers generally described their beneficiary populations as 
medically complex patients who are often difficult to place following 
discharge from an acute care hospital stay. They stressed the 
importance of accurate payment for non-therapy ancillaries in 
maintaining access for this segment of the Medicare population and for 
maintaining the financial viability of the swing-bed hospitals.
    Response: During the past year, OIG, GAO and MedPAC have reviewed 
the adequacy of the SNF PPS rates. They have each determined that the 
current rate structure, including the increases mandated under the BBRA 
and BIPA, is adequate to maintain access and provide aggregate payments 
at a level sufficient to provide quality care to Medicare 
beneficiaries. As stated in our May 10, 2001 proposed rule (66 FR 
23984), the need to reflect differences in ancillary usage accurately 
and the resulting impact on facility costs is a major focus of our 
research to refine the SNF PPS. Since this research will include 
analyses of patients currently classified in the Extensive Care and 
Rehabilitation groups (the two most common types of swing-bed 
patients), we believe that the needs of swing-bed providers will be 
addressed. A more detailed discussion of our research plans is provided 
in section III.A.
    Comment: A number of commenters focused on issues related to 
reimbursement of non-therapy ancillaries, and concluded that a 
transition to the SNF PPS (which would eliminate cost reimbursement for 
swing bed ancillary services) would not fully cover the costs of at 
least some of the beneficiaries currently served. These commenters were 
concerned about their continued ability to care for medically complex 
beneficiaries by providing them with the costly services they need, or 
even to stay in operation. Other commenters pointed out that the 
anticipated 9 percent increase in overall swing-bed reimbursement, 
combined with the elimination of restrictions on swing-bed utilization, 
are likely to increase swing-bed participation rather than reduce the 
number of swing-bed programs.
    Response: In a prospective payment system, costs may exceed 
payments for an individual patient or group of patients. It is equally 
possible for payments to exceed costs. However, as stated above, OIG, 
GAO and MedPAC have concluded that aggregate payments under the SNF PPS 
are sufficient to maintain access for beneficiaries and to provide 
needed patient care. In fact, in section V, we have projected an 
aggregate increase in swing-bed reimbursement using calendar year 1999 
actual claims data that includes all therapy and non-therapy ancillary 
services provided to Medicare beneficiaries. Moreover, the claims data 
included all ancillary services, including some high-cost services that 
have been excluded from the SNF PPS under the consolidated billing 
regulations. As discussed below, swing-bed hospitals will be separately 
reimbursed for these excluded services, which encompass such high-cost 
items as MRIs, CAT scans, and intensive chemotherapy. While utilization 
patterns may change over time, we are not anticipating any sudden, 
immediate changes in either the type of beneficiaries served or the 
type of services needed. Therefore, we believe that the providers can 
continue to provide high quality services to all types of Medicare 
beneficiaries, even those with complex medical needs who may require a 
high level of ancillary services, under the current SNF PPS rate 
structure.
    Comment: A small number of commenters suggested that rural swing-
bed hospitals with less than 50 beds or those providers designated as 
sole community hospitals (SCHs) should be exempted from the SNF PPS and 
reimbursed on a cost basis like swing-beds in critical access hospitals 
(CAHs). A few commenters recommended that these types of rural 
hospitals be given a choice between the SNF PPS and the current payment 
methodology.
    Response: Section 203 of the BIPA specifically exempted swing-bed 
services furnished in CAHs from the SNF PPS. The requirements for 
swing-beds in rural hospitals were not changed. The statute requires 
payment to all swing-beds in rural hospitals, including those 
designated as sole community hospitals, under the SNF PPS after June 
30, 2002, the end of the SNF PPS transition period. The statute does 
not provide any authority for payment to swing-bed hospitals under any 
other payment system.
    Comment: A large number of comments proposed the possibility of an 
alternative payment mechanism that would assign payment rates solely on 
the basis of UB-92 information. (The Uniform Bill (UB)-92 also known as 
the HCFA-1450) form and instructions are used by institutional and 
other selected providers to complete a Medicare, Part A paper claim for 
submission to Medicare FIs.) They asked us to consider offering this 
model to swing-bed hospitals as a voluntary alternative to the SNF PPS.
    Response: The statute requires that resident assessment data be 
used as necessary to develop and implement the SNF PPS rates. 
Currently, the claims form data do not contain the information 
necessary to develop the SNF PPS rates. Moreover, as noted previously, 
the statute is very clear that payment to swing-bed hospitals must be 
made under the SNF PPS and does not provide for an alternative method 
of payment after the SNF PPS transition period. However, we acknowledge 
the considerable amount of time and effort that went into developing 
the proposal, and the degree of interest generated. Accordingly, we 
will discuss the proposal in greater detail later in this section, and 
will ask our contractor to include an analysis of a claims-based 
classification system in its analysis of program refinements.
    Comment: We received a number of comments questioning the use of 
the full MDS for a new provider group at a time when we are committed 
to restructuring and streamlining the MDS instrument. These commenters 
pointed out the inefficiency of training clinical staff on an 
instrument that will only remain in use for a limited time. Several of 
these commenters suggested that the conversion to the SNF PPS be 
postponed until the introduction of the revised MDS.
    Response: The statute does not provide any authority to postpone 
the conversion of swing bed hospitals to the SNF PPS beyond the last 
day of the SNF PPS transition period; i.e., July 1, 2002. While we are 
working on a reexamination of our post-acute care data needs consistent 
with the provisions of section 545 of the BIPA, any new assessment 
tools will not be available in time for the swing-bed conversion to SNF 
PPS.
    Comment: We also received a few comments supporting our original 
MDS proposal. These commenters believe

[[Page 39590]]

that swing-bed hospitals providing SNF-level services should be subject 
to the same requirements as SNFs. These commenters pointed out that 
uniformity is not just a question of fairness, but the only way we 
could truly compare SNFs and swing-beds in terms of quality, skilled 
care utilization, and costs.
    Response: It is necessary to distinguish between the short-term and 
long-term effects of our policies. We are certainly committed to 
reviewing the purposes of collecting data and specifying comparable and 
compatible data elements across Medicare providers, including post-
acute care services and swing-bed hospitals, when such common data 
elements will allow us to achieve our objectives. Our reevaluation of 
our patient assessment data needs will start by first examining what we 
need the data for and whether comparable and compatible data across 
Medicare providers are appropriate. However, since this review is not 
yet complete, we must also be sensitive to the short-term impact of 
imposing a policy that cannot be clearly justified in terms of patient 
care and program integrity.
    Comment: Comments from swing-bed hospitals consistently focused on 
the burden of using the full MDS, and stressed that they already use a 
variety of functional screening tools to implement care plans upon 
admission, and have mechanisms in place to monitor quality. Commenters 
concluded that requiring the care planning and quality monitoring 
components of the MDS would be time-consuming and labor intensive 
without contributing to improved beneficiary outcomes. However, a few 
commenters questioned the prevailing assumption that swing-bed 
hospitals were better able to manage care planning and quality 
monitoring functions than SNFs, and believed the MDS care planning and 
quality monitoring components would have value for swing-bed hospitals.
    Response: In considering the applicability of the full MDS 2.0 for 
swing-bed hospitals, we considered the usefulness of the MDS instrument 
for both payment and patient care purposes. In this analysis, we looked 
at similarities and differences between swing-bed and other SNF service 
delivery systems. At the time of SNF PPS national implementation, the 
MDS had already been in use in SNFs for 7 years and was the standard 
for care planning and quality monitoring. By contrast, although swing-
bed hospitals use care planning and quality tools, these are not 
standard across providers. Further, these tools will continue to be 
required for the acute care patients in the swing-bed hospital. The 
introduction of the MDS into the swing-bed setting poses an additional 
burden to the clinical staff since they will be required to master the 
MDS as well as maintain their mastery of the tools that the hospital 
uses for its acute care patients.
    As mentioned above, an additional consideration at this time is the 
impending revision of the MDS 2.0 by CMS. This work is underway, but 
the revised instrument will not be ready for use before 2003, at the 
earliest. Intensive training will be required for the swing-bed 
clinical staff to be able to use the full MDS 2.0 and an additional 
burden may be imposed as it is expected that more training will be 
required when the new assessment tool is introduced.
    Further, the length of stay for Medicare Part A beneficiaries in 
swing-beds is much shorter than for similar beneficiaries in SNFs. This 
shorter length of stay minimizes the usefulness of the MDS-based 
Quality Indicator system in identifying poor patient outcomes. Finally, 
by requiring the full MDS at this time, we would be mandating not one 
but two major changes in swing-bed clinical operations, the current MDS 
and the next generation of streamlined data assessment tools that are 
already in the planning stages.
    Therefore, we will not require swing-bed facilities to perform the 
care planning and quality monitoring components included in the full 
MDS at this time. We will include an analysis of swing-bed requirements 
in our comprehensive reevaluation of all post-acute data needs, and in 
the design of any future assessment and data collection tools. In 
addition, we reserve the right to modify the swing-bed hospital 
conditions of participation in response to the identification of 
significant quality concerns.
    As specified in section 1888(e)(7) of the Act, we have now 
determined that an appropriate manner in which to apply the SNF PPS to 
swing-beds is to establish a unique MDS for swing-bed hospitals. This 
new 2-page MDS for Swing-Bed Hospitals will use a subset of the MDS 
information, and will include only those items needed for payment and 
ongoing analysis of the SNF PPS. This 2-page MDS for Swing-Bed 
Hospitals may be viewed on our web site at http://www.hcfa.gov/medicare/SNFPPS.gov. Appendix B contains a comparison between the full, 
six-page MDS and this new, 2-page MDS for Swing-Bed Hospitals.
    Comment: Almost every comment on swing-beds that we received raised 
the issue of the MDS. Most commenters were extremely concerned that the 
proposed MDS requirements were likely to divert nursing resources from 
patient care to MDS preparation, increase facility costs by requiring 
additional nursing staff (if staff were even available in this period 
of nursing shortages) and possibly reduce the quality of care that the 
swing-bed hospital is able to provide. Other commenters asserted that 
swing-bed hospitals providing SNF-level services should be subject to 
the same requirements as SNFs, in order to maintain a level playing 
field. They pointed out that there is no data to support a conclusion 
that rural hospitals are better able to provide care than SNFs, and 
that data are needed to monitor and evaluate swing-bed services. They 
also pointed out that SNFs (particularly small rural SNFs) provide the 
same types of services, but have to respond to the same issues and 
pressures.
    Response: The comments described a wide range of potential 
outcomes, from minor adjustments in staff assignments to staffing 
increases of 0.1 to 2.0 FTEs, restrictions on access, negative patient 
outcomes, and swing-bed closures. Generally, providers commenting on 
costs estimated that one-third to one-half of the proposed rate 
increases would be required to comply with the MDS requirements. Even 
though this information is anecdotal (and still assumes an overall 
increase in rates), it did raise concerns about the benefits of using 
the full MDS. By using the customized 2-page MDS for Swing-Bed 
Hospitals, we will focus our data collection efforts on those items 
needed for payment and ongoing analyses of the characteristics and 
service utilization patterns of swing-bed hospital patients. Most of 
these items are typically part of the routine physical assessment 
performed by nursing staff and documented in the medical record, and 
will require little or no extra work by clinical staff.
    Comment: A number of commenters questioned the cost estimates 
provided in our proposed rule. They expressed concern that we had 
underestimated both the number of staff needing training and the time 
it would take to prepare, review, encode, and transmit data. Several 
providers also expressed concern about the cost of computer software 
needed to support the MDS function. There was also some concern related 
to the level of effort needed to implement the changes so quickly.
    Response: These comments applied to use of the full MDS form, not 
the customized 2-page MDS for Swing-Bed Hospitals that will actually be 
used. We have taken these comments into

[[Page 39591]]

consideration in updating the cost estimates for this final rule. See 
sections V and VI.B of this preamble for a more detailed discussion.
    We note that we have attempted to address concerns and support the 
swing-bed hospital conversion effort as much as possible. First, in 
response to comments, we have revised the implementation date to cost 
report periods starting on and after July 1, 2002, the latest date 
permitted by the statute. Second, we have reduced the burden associated 
with MDS completion by creating a separate 2-page Swing-bed Hospitals 
MDS. This new instrument will use a subset of the MDS information and 
will include only those items needed for payment and ongoing analyses 
of the characteristics and service utilization patterns of care of 
swing-bed hospital patients. Third, we will develop and distribute a 
Swing-Bed Manual that will include instructions for MDS coding and 
related issues. Fourth, we have committed to the development of 
customized swing-bed MDS software that will be available without charge 
to each swing-bed provider. Fifth, we have committed to an extensive 
provider training and support program. Help Desks will be established 
to respond to clinical and technical questions from swing-bed staff. We 
are also planning a series of training programs on MDS completion and 
electronic transmission procedures. We are confident that these 
initiatives will minimize the disruption to swing-bed operations and 
provide needed support during the transition period.
    Comment: Several commenters indicated that the SNF PPS assessment 
frequency (5, 14, 30, 60, and 90 days from the start of the Part A 
stay) was unnecessary in the swing-bed hospital setting. They 
recommended various alternatives, including eliminating one or more of 
the current assessments, or requiring only a single MDS to be completed 
at the end of the stay.
    Response: Based on the most recent available data, the average 
length of stay in a hospital swing-bed is under 9 days. Since the 5-day 
MDS is used to determine payment for the first 14 days of the stay, 
hospital staff will generally complete only one MDS for each 
beneficiary. Furthermore, we note that eliminating some or all of the 
remaining SNF PPS assessments (14, 30, 60, and 90 days from the start 
of the Part A stay) would affect only a very limited number of swing-
bed providers.
    We also note that the type and intensity of care typically changes 
during the course of a stay. For beneficiaries with short stays, 
reliance on the 5-day assessment is appropriate, since the intensity 
level is likely to remain relatively constant over a short time period. 
However, for longer-stay patients, the intensity of care generally 
changes over the course of the stay. We recently compared the RUG-III 
classifications reported on the Medicare 5-day and 14-day assessments, 
and we found that the data showed an increased acuity level on the 14 
day assessment. Thus, collecting MDS data at different points in the 
stay enables our payments to reflect the actual intensity of care more 
accurately. Reliance on a single MDS, either the initial 5-day 
assessment or an MDS completed at the time of discharge, would not as 
accurately reflect beneficiary resource use. In addition, the data on 
longer stays will be used to monitor changes in swing-bed utilization 
patterns and care practices, and to evaluate the need for adjustments 
to the current swing-bed conditions of participation and care planning 
requirements.
    For these reasons, we have concluded that swing-bed providers must 
comply with the SNF PPS assessment schedule. Since the MDS for Swing-
Bed Hospitals will contain only a small subset of the full MDS items, 
MDS completion times will be greatly reduced.
    Comment: We received a few comments from swing-bed providers 
concerned that the SNF PPS requirements would have a disproportionate 
impact on their facilities. For example, one facility mentioned the 
large number of MDSs that would be required in a facility with short 
lengths of stay and rapid patient turnover. Another commenter was 
concerned that time would be wasted by complying with the assessment 
window for the 14-day assessments (days 11-14) for beneficiaries 
expected to be discharged before the start of the next SNF PPS payment 
period.
    Response: We agree that individual facility characteristics are a 
factor in determining the impact of any policy. It is true that a 
swing-bed hospital serving a high-volume, short stay population may do 
more than the average number of MDS assessments. We believe that the 
new 2-page Swing-Bed Hospitals will reduce the burden on clinical 
staff. We also suggest that, prior to coming under the SNF PPS system, 
staff evaluate their admission, care planning, and documentation 
processes, and make changes to integrate the MDS requirements into 
their daily routines. This will help avoid the documentation burden 
associated with a new assessment tool caused by putting the new 
requirements on top of the old and duplicating efforts.
    A solid understanding of the assessment schedule will also help 
staff to maximize their resources and avoid unnecessary work. For 
example, some flexibility has been built into the assessment schedule 
through the designation of grace days. In the example described above, 
the assessment reference date for the 14-day assessment can be 
performed at any time during the assessment window, from day 11 to as 
late as day 19. These grace days should be utilized when scheduling 
assessments for beneficiaries likely to be discharged by day 14.
    Comment: A few commenters questioned why swing-bed hospitals need 
to complete the discharge and reentry tracking forms.
    Response: Completion of the discharge and reentry tracking forms 
will provide us a clear picture of the interaction between acute and 
post-acute care that may be unique to patients in hospital swing-beds. 
This data needs to be incorporated into our payment design efforts so 
that our analyses of the methodologies used accurately reflect swing-
bed as well as SNF utilization patterns. Second, the discharge and 
reentry information is needed to monitor the appropriateness of 
transfers between acute and post-acute levels of care in swing-bed 
hospitals.
    Comment: A few commenters opposed the development of a swing-bed-
specific reason for assessment that would allow swing-bed providers to 
report changes in patient status that result in a change in RUG-III 
group but do not require the completion of a Significant Change in 
Status Assessment (SCSA). These commenters recommended that swing-bed 
providers subject to the SNF PPS be required to use the same criteria 
for reporting status changes as SNFs.
    Response: The swing-bed conditions of participation do not 
currently require swing-bed hospitals to perform and transmit SCSAs. As 
explained below, we have determined that a change in these conditions 
of participation at this time is not warranted. We also believe that 
the inability to report clinical changes would decrease the accuracy of 
SNF PPS payment to swing-bed hospitals. For this reason, we will 
establish a swing bed-specific reason for assessment that will allow 
swing-bed providers to complete and transmit MDS data reflecting 
significant clinical changes in patient status.
    Comment: Several commenters recommended the creation of a unique 
payment mechanism for swing-beds that would eliminate the use of the 
MDS entirely. The commenters suggested that

[[Page 39592]]

a system similar to the MEDPAR analog should be designed to determine 
payment groups based on the UB-92 claim form. The MEDPAR analog was a 
tool that we used for estimating SNF case-mix in the development of the 
initial PPS rates (see 63 FR 26289, May 12, 1998). These commenters 
suggested that we allow swing-bed hospitals to choose between the 
regular SNF PPS and this alternative payment model.
    Response: Before considering the specifics of this proposal, it is 
important to state that, while we do have some flexibility in 
transitioning into the SNF PPS, the statute does limit the options that 
can be considered. The statute, in section 1888(e)(7) of the Act, does 
provide us with the authority to determine an appropriate manner in 
which to apply the provisions of the SNF PPS (as described throughout 
section 1888(e)) to swing-bed hospital units. We have determined that 
the framework of SNF PPS and the general requirements of that 
subsection are appropriate in transitioning these providers to SNF PPS. 
Specifically, the statute requires, in section 1888(e)(6), that a SNF, 
or a hospital swing-bed unit must provide the us, in a manner and 
within the time frames prescribed by the us, the resident assessment 
data necessary to develop and implement the rates. The statute does not 
provide authority to develop an entirely new or optional payment system 
for this class of providers. Similarly, the statute does not provide 
any authority to replace the existing case-mix system (the RUG-III 
classification) with the MEDPAR analog, an entirely different modeling 
system that we had developed to approximate acuity levels on a per stay 
basis.
    We realize that the suggestion of developing a voluntary 
alternative to the SNF PPS (that would use neither the MDS nor the RUG-
III system) stems from concerns over the time requirements for training 
and MDS preparation. We understand that some commenters were willing to 
accept a lower degree of rate-setting accuracy by using the approximate 
acuity level determined from the UB-92, in exchange for eliminating the 
MDS requirement. However, it is unclear whether the majority of those 
submitting comments understood that reduced accuracy is likely to 
result in reduced payment for their medically complex patients, since 
we would have to establish some type of average payment rate for each 
of the levels in the payment hierarchy. Beneficiaries who would group 
into the highest levels of the Extensive Care or Special Care 
categories would also likely receive lower payments under this option. 
In addition, the MEDPAR analog was designed as an analytical tool for 
estimating case-mix in the aggregate for the purpose of standardizing 
the initial payment rates under the PPS (see 63 FR 26259, May 12, 
1998). It was not developed for determining claims level payments to 
providers, nor do we believe it is appropriate for such an application.
    The proposed 9-group charge-based system that these commenters 
advocated is also vulnerable in its heavy reliance on charges to 
establish classification criteria or break points. Under this proposal, 
historical claims data would be used to establish the break points 
between the different levels of the hierarchy, a method similar to the 
one used for DRG development. However, in the DRG system, billed 
charges do not affect the assignment to a specific group. Under the 
commenters' proposal, the classification breakpoints would be applied 
to current charges. Any facility could change its payment level by 
simply modifying its charge structure for specified ancillary services; 
such as therapy and medical supplies.
    In addition, the burden associated with reporting items needed to 
calculate payment rates is not eliminated under this proposal; it is 
merely shifted from the clinical staff to medical records and billing 
staff. Since this proposal assumes that the necessary payment 
information is present in the medical record, it actually increases the 
burden on the billing/coding staff without any real reduction in 
workload for the clinicians. The creation of the new 2-page Swing-Bed 
Hospital MDS will permit easy recording of the data necessary for RUG-
III calculation and billing without requiring major changes to UB-92 
preparation requirements.
    While we understand the attraction to providers of an option that 
completely eliminates the MDS documentation and reporting process, the 
statute does not provide for the establishment of this type of option. 
Further, we do not believe that this proposal, as presently drafted, is 
an appropriate way to provide SNF PPS payment to swing-bed hospitals. 
Moreover, as discussed above, contrary to the commenters' perception, 
it may not effectively address the burden associated with the MDS, is 
susceptible to manipulation and abuse, and most seriously, might not 
provide sufficient payment to a critical and vulnerable sector of our 
national health care system. For these reasons, we cannot support this 
proposal, and will instead implement the SNF PPS for swing-bed 
hospitals, as described in this final rule.
    Comment: A few commenters expressed concern about the lack of lead 
time to prepare for the transition to the SNF PPS. They cited a number 
of recent changes, such as Outcome and Assessment Information Set 
(OASIS) and hospital outpatient Ambulatory Payment Classifications 
(APCs), that have strained hospital resources. They believed that the 
short timeframes would be disruptive to rural hospitals and detract 
from patient care.
    Response: We agree that ensuring a smooth transition should be a 
high priority. After considering the concerns raised by the commenters 
in this regard, we have determined that providing increased lead time 
would be appropriate. Therefore, in this final rule, we are revising 
the effective date for swing-bed conversion to the SNF PPS to the start 
of the provider's first cost reporting period that begins on or after 
July 1, 2002, the latest possible implementation time frame authorized 
in the law.
    Comment: In the proposed rule, we solicited comments on the 
possibility of modifying the swing-bed conditions of participation. A 
number of commenters stated that swing-beds are already subject to the 
overall hospital certification requirements in addition to the 
specialized swing-bed conditions of participation. They do not believe 
that a change in the swing-bed conditions of participation is 
warranted. Others recommended that all providers that furnish SNF-level 
services should be subject to the same requirements, and that we should 
revise the swing-bed conditions of participation to reflect the new SNF 
PPS requirements.
    Response: The Medicare conditions of participation establish 
standards for patient care, and reflect the needs of different provider 
types. The fact that two types of providers are reimbursed in the same 
way is not, in and of itself, a reason to change these requirements. 
However, we realize that, by eliminating restrictions on swing-bed 
length of stay and by changing the way services are reimbursed, we may 
see changes in the type, intensity, and duration of care furnished in 
swing-bed hospitals. We plan to monitor swing-bed utilization to 
identify changes that could affect patient care, and to address these 
issues quickly and appropriately. Accordingly, we believe that it would 
be premature to revise the existing conditions of participation at this 
time.
    We also considered the current conditions of participation in light 
of the provisions in section 408 of the BBRA that remove restrictions 
on swing-bed length of stay. It is possible that these legislative 
changes, especially

[[Page 39593]]

when combined with a new set of payment incentives and disincentives 
associated with the SNF PPS, will result in longer lengths of stay and 
changes in the type of beneficiaries treated in swing beds. In other 
words, swing-bed hospitals could start to resemble SNFs more closely. 
In that case, the full MDS may be needed to address issues applicable 
to beneficiaries with longer lengths of stay and different care needs. 
We plan to monitor swing-bed activity to identify changes in practice 
patterns.
    Comment: In addition to comments on swing-bed requirements, we also 
received a number of comments questioning the effectiveness of the MDS 
requirements that are currently in effect for swing beds in critical 
access hospitals (CAHs). Generally, the comments focused on the time/
staff requirements and the effectiveness of completing an assessment 
instrument that is not collected or used for program monitoring.
    Response: CAH swing beds are required to use the MDS for care 
planning and quality monitoring as part of the CAH conditions of 
participation. We agree that MDS requirements for swing beds in CAHs 
should be considered within the scope of our comprehensive reevaluation 
of post-acute data needs. Therefore, we have chosen not to address CAHs 
in this regulation.
    Comment: In the proposed rule, we noted that swing-bed services are 
not subject to the SNF consolidated billing requirement at section 
1862(a)(18) of the Act (since that provision applies to services that 
are furnished to residents of SNFs), but are instead subject to the 
hospital bundling requirement at section 1862(a)(14) of the Act (which 
applies to services furnished to inpatients of hospitals). Several 
commenters expressed concern about reconciling hospital bundling 
requirements and the services excluded from Part A consolidated billing 
under the SNF PPS. They observed that the hospital bundling requirement 
is slightly broader in scope than the SNF consolidated billing 
provision, in that the former provision does not exclude certain types 
of services that the latter provision specifically excludes (such as 
Part B dialysis, erythropoietin (EPO), certain services involving 
chemotherapy and its administration, certain customized prosthetics, 
and radioisotope services, as described in sections 1888(e)(2)(A)(ii) 
and (iii) of the Act). The commenters requested clarification on how 
such services are to be billed when furnished to SNF-level inpatients 
of those swing-bed hospitals that come under the SNF PPS.
    Response: The swing-bed provision is unique in that it represents a 
hybrid benefit. Although the services that a swing-bed provider 
furnishes under its swing-bed agreement are SNF services, the provider 
itself is a hospital (and, as such, is subject to the requirements that 
pertain to hospitals, including hospital bundling). Accordingly, under 
the SNF PPS, we must consider both the SNF Part A consolidated billing 
requirements and the hospital bundling requirements. The costs of the 
high-cost ancillary services (such as MRIs and radioisotope services) 
that are excluded from the SNF consolidated billing requirement are not 
included in the SNF PPS per diem. Accordingly, a swing-bed hospital 
will be permitted to submit a separate bill to its FI for these 
excluded services, and will receive payment for these high-cost 
ancillary services over and above the SNF PPS per diem.
    Based on our analysis of swing-bed claims data, we have estimated 
that the conversion to the SNF PPS will increase payments to swing-bed 
hospitals by over $18 million. These projections are based on claims 
filed in compliance with the hospital bundling requirements. As such, 
the claims include charges for ancillary services that will, under the 
SNF PPS, be separately payable. As a result, actual payment increases 
should exceed the estimates for swing-bed hospitals serving high-acuity 
beneficiaries who would be more likely to require these high-cost non-
therapy ancillary services.
    Comment: In response to our request for comments in the proposed 
rule on the applicability of the post-acute transfer policy enacted in 
section 4407 of the BBA to swing-bed hospitals, we received a mixed 
response. SNF providers advocated inclusion of swing-bed hospitals as a 
matter of equity. Comments from hospital providers questioned the value 
of applying this provision to transfers between acute care and swing-
bed extended care services. One commenter pointed out that the policy 
would have limited impact, since beneficiaries in the DRG categories 
covered by the transfer policy are usually transferred to larger, 
tertiary care facilities rather than to a rural hospital swing-bed.
    Response: As noted by several commenters, swing-bed providers were 
specifically excluded from this transfer provision of the BBA. However, 
we plan to monitor swing-bed utilization, and, if inappropriate 
transfer patterns develop, to recommend legislative action to extend 
the transfer policy to swing-beds.
    Comment: We received a few comments on implementation issues, 
including the way SNF PPS billing and medical review policies will be 
applied to swing beds. These commenters urged that SNF and swing-bed 
bills be reviewed under the same protocols and by the same contractors. 
For example, a SNF that files more than 2 percent of claims for 
services in the lower 18 RUG-III categories may be subject to focused 
medical review. As one commenter pointed out, approximately 9 percent 
of the swing-bed claims used in our projections grouped in the lower 18 
RUG-III groups. If this pattern continues under the SNF PPS, these 
swing-bed claims should be subject to the same scrutiny as SNF bills.
    Response: We agree that all providers reimbursed under the SNF PPS 
must comply with program requirements. We are also in full agreement 
that operating policies and procedures should be applied consistently. 
Over the next few months, we will be finalizing our operating 
instructions, and will incorporate these comments into our program 
design efforts. We also welcome additional ideas and suggestions 
related to billing, medical review, or other program operation 
functions.

IV. Provisions of the Final Regulations

    The provisions of this final rule are as follows:
     In Sec. 410.150, we are revising paragraph (b)(14) to 
reflect that Part B makes payment to the SNF for its resident's 
services only in those situations where the SNF itself furnishes the 
services, either directly or under an arrangement with an outside 
source.
     In Sec. 411.15, we are revising paragraph (p)(1) to 
indicate that, except for physical, occupational, and speech-language 
therapy (to which consolidated billing applies regardless of whether 
the resident who receives them is in a covered Part A stay), 
consolidated billing applies only to those services that a SNF resident 
receives during the course of a covered Part A stay. We are also making 
conforming revisions in Secs. 489.20(s) and 489.21(h), in the context 
of the requirements of the SNF provider agreement. We are revising 
paragraph (p)(2) of Sec. 411.15 to indicate that, for Part B services 
furnished to a SNF resident, the requirement to enter the SNF's 
Medicare provider number on the Part B claim (which previously applied 
only to claims for physician services) applies to all types of Part B 
claims. We are also making conforming revisions in the requirements 
regarding claims for payment, at Secs. 424.32(a)(2) and (a)(5). We are 
revising the wording of the existing requirement in Sec. 424.32(a)(5) 
for a SNF to include

[[Page 39594]]

appropriate HCPCS coding and its Medicare provider number on the Part B 
claims that it files for its residents' services, by adding that these 
requirements also apply to such claims when they are filed by an 
outside entity. In addition, we are revising Sec. 411.15(p)(3) to 
exclude from the definition of a SNF resident, for consolidated billing 
purposes, those individuals who reside in the noncertified portion of 
an institution that also contains a participating distinct part SNF. We 
are also clarifying that, for services other than physical, 
occupational, and speech-language therapy, a beneficiary's resident 
status ends along with Part A coverage of his or her SNF stay (or, if 
earlier, when one of the events described in Secs. 411.15(p)(3)(i)-(iv) 
occurs).
     In accordance with section 1888(e)(2)(E) of the Act, we 
are revising Sec. 413.114 to reimburse swing-bed services of rural 
hospitals (other than CAHs, which will be paid on a reasonable cost 
basis) under the SNF PPS described in regulations at subpart J of that 
part. This conversion to the SNF PPS would be effective for services 
furnished during cost reporting periods beginning on or after July 1, 
2002. We are also revising paragraph (d)(1) of this section to reflect 
modifications to the special requirements for swing-bed facilities with 
more than 49 but fewer than 100 beds (as enacted by section 408 of the 
BBRA), and are making a conforming revision in Sec. 424.20(a)(2).
     In Sec. 413.337, we are adding a new paragraph (e) to 
clarify that the temporary increases in payment for certain RUGs under 
section 101 of the BBRA (as modified by section 314 of the BIPA) will 
expire upon the issuance of a new regulation with the newly refined 
case-mix classification system.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), agencies are 
required to provide a 60-day notice in the Federal Register and solicit 
public comment when a collection of information requirement is 
submitted to the Office of Management and Budget (OMB) for review and 
approval. To evaluate fairly whether an information collection should 
be approved by OMB, section 3506(c)(2)(A) of the PRA requires that we 
solicit comments on the following issues:
     Whether the information collection is necessary and useful 
to carry out the proper functions of the agency;
     The accuracy of the agency's estimate of the information 
collection burden;
     The quality, utility, and clarity of the information to be 
collected; and
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    Sec. 413.114(a)(2)--In the May 10, 2001 proposed rule (66 FR 
23984), we estimated swing-bed hospital start-up costs and the ongoing 
costs associated with the use of the MDS for calculating the SNF PPS 
per diem payment. Those estimates were based on the use of the full 
MDS, a 6-page paper assessment tool containing more than 400 data 
items. After careful consideration of the comments received, we have 
eliminated the requirement for the full MDS and created a 2-page MDS 
for swing-bed hospitals that reduces the number of data items by 
approximately 75 percent. We have also carefully considered comments 
related to our initial time and cost estimates in updating this impact 
analysis.
    As stated in the proposed rule, we used the best available 1999 
claims data, and identified 1,250 swing-bed facilities and 97,576 
swing-bed stays. The average number of admissions is 78 per swing-bed 
hospital. Using the same 1999 claims data, the average length of stay 
is 8.79 days. On average, a typical swing-bed facility would need to 
complete only one MDS per admission, since the PPS 5-day assessment 
governs payment for the first 14 days of the stay.
    Data Entry: In our proposed rule, we based our projections upon our 
experience with SNF providers, and adjusted those estimates to reflect 
the smaller scale of swing bed operations. We received a number of 
comments expressing concerns that we may have underestimated staffing 
needs and completion times for the MDS and data entry functions. For 
example, we estimated that swing beds would generally need to train at 
least one staff person to handle the MDS data entry and transmission 
system. The commenters generally recommended training 2 individuals to 
ensure adequate back-up. We agree that additional training would be 
appropriate, and have adjusted our estimates.
    State agencies currently train SNF staff on these functions, and 
the training is generally completed in one 4-hour session. Additional 
training materials and updates to program requirements are generally 
posted on the MDS web sites, and are available to staff at no cost. By 
distributing information electronically, and providing Help Desks for 
software and transmission problems, we minimize the need for staff 
travel, and reduce the ongoing costs associated with encoding and 
transmitting MDS data. We have used the original estimate of 4 hours of 
training time (as published in the proposed rule (66 FR 23984)), since 
the reduction in MDS requirements has no impact on data entry staff 
training time. We did not increase the estimates to reflect the cost of 
replacement staff, since short absences can usually be handled by 
adjusting work schedules. We did, however, add 2 hours per trainee to 
reflect travel time.
    We also received a number of comments that the estimated data entry 
time was too low, particularly for staff unfamiliar with the MDS. The 
substitution of the 2-page Swing-Bed Hospitals MDS for the full MDS 
should simplify the data entry effort. We expect that the data entry 
time for the 2-page form will average less than the 15 minutes per 
assessment we had estimated for the full form. However, in view of the 
concerns raised in the comments and our unfamiliarity with this new 
form, we have not reduced our data entry projections. We are also 
maintaining our projections for approximately 2 hours per month to 
perform system-related functions, such as processing corrections, 
retrieving assessment information, printing copies, verifying the 
accuracy of the data entered into the system, and reviewing program 
updates and training materials.
    These data entry estimates assume that facilities may choose among 
a variety of approaches to encode the MDS data in electronic format. In 
many SNFs, the nurses conducting the assessments input their responses 
directly into the computer, and the data entry time is incorporated 
into the MDS preparation time. In others, a data entry operator is used 
to input the MDS data and maintain the MDS processing system. In some 
facilities, data may be extracted and/or compiled and data-entered by a 
combination of clinical and technical staff under the overall 
supervision of an RN. We estimated the hourly rate for data entry at 
$15, which reflects the salary differentials between the two types of 
staff typically performing this function: RNs and data operators.
    Electronic Transmission: Swing-bed staff will also need training on 
data transmission procedures. Again, State agencies have already 
developed training programs in this area, and this training will be 
available to swing-bed personnel. In response to the comments, we have 
increased our estimates to include sending two staff employees to a 4-
hour training program. We estimated the training time at 4 hours per 
person plus 2 hours per person travel time.

[[Page 39595]]

These employees would be responsible for handling data transmission 
functions, and would be expected to train other facility staff on a 
time-available basis. Once the assigned employees have been trained, we 
estimate that the MDS transmission will take approximately one hour per 
month.
    We projected the hourly rate of data transmission at $15, which 
reflects the salary differentials between the two types of staff 
typically performing this function: RNs and data operators. Again, 
training costs are not affected by the reduction in the MDS 
requirements, and the cost estimates are the same as those presented in 
the proposed rule.
    MDS Coding: As stated in the proposed rule, we advise each swing-
bed hospital to designate an RN to assume lead responsibility, and 
ensure that this RN is fully trained. Based on the comments, we have 
increased our training estimates from one to two RNs to reflect the 
need for backup on the MDS function. We have also adjusted our 
projections for training time. Our preliminary estimates were for two 
full days of formal training in MDS clinical coding and SNF PPS 
assessment scheduling. In view of the reduced MDS coding required using 
the 2-page Swing-Bed Hospital MDS, we have revised our formal training 
estimate to 12 hours, plus 4 hours travel time for each RN attending 
the training.
    In addition, we have also reduced our estimates for MDS completion 
time to reflect the major reduction in the number of MDS items to be 
completed. In making this adjustment, we recognized that different MDS 
items may take different amounts of time to complete, and did not 
assume a direct relationship between the number of items and the total 
completion time, a methodology that would have resulted in an estimated 
completion time of approximately 15 minutes.
    Instead, we have used an estimated completion time of 30 minutes 
per swing-bed MDS, or 67 percent of the time originally estimated to 
complete the full 6-page MDS. Again, as stated in the proposed rule, we 
believe that swing-bed hospital staff have some advantages when they 
complete the initial MDS, since they are more familiar with each 
beneficiary's condition and have full access to the hospital record. 
However, we have not reduced the time estimate to take these factors 
into account. Instead, we are using the higher number to reflect the 
expected learning curve over the first year as staff become more 
familiar with and proficient in completing the MDS.
    As stated above, swing-bed providers averaged 78 stays per year 
with an average swing-bed length of stay of slightly under 9 days. 
Therefore, swing-bed providers would generally complete just one SNF 
PPS assessment for most patients, the 5-day assessment that governs 
payment for the first 14 days of a stay. To calculate the costs of 
preparing the MDS, we used 1998 Bureau of Labor Statistics nursing wage 
data, including fringe benefits, updated to FY 2002 levels using the 
SNF market basket factor. The average hourly rate of $24.70 is used in 
the calculations shown in Table 11. In reviewing the cost data in Table 
11, we found that the aggregate MDS preparation cost had been 
transcribed incorrectly in the proposed rule, resulting in an 
understatement of approximately $1.6 million. This error has been 
corrected in Table 11, and the adjustments discussed in this section 
have been incorporated into Table 11 of this final rule, rounded to the 
nearest dollar.
    As shown in Table 11, swing-bed start up costs are expected to 
average between $2,650 and $4,550 per facility. This estimate includes 
the cost of hardware and software costs as well as the total start up 
burden associated of 56 staff hours for staff training on the MDS 
function. Although the range seems fairly broad, the variations are 
based on choices that individual facilities will make in setting up 
their MDS processing and staff support functions. The biggest factor in 
the cost variation is the selection of MDS software. Facilities 
choosing to purchase proprietary software (estimated at an initial cost 
of $1,200) will incur higher start up costs. For each succeeding year, 
these facilities will incur additional costs for software maintenance 
and support services (data for second year costs are not shown).
    The CMS software is being customized specifically for use with the 
2-page Swing-Bed MDS, and will provide all of the basic services needed 
to store and transmit MDS data used for SNF PPS payment. A Help Desk 
will also be available to assist swing-bed hospital staff with data 
transmission problems and support in learning how to use the software 
efficiently. We have estimated a total burden of 72.5 hours per 
facility of staff time annually for ongoing administration the MDS 
function. As indicated in Table 11, we also included the costs for 
supplies and computer maintenance in our estimates, and projected 
average facility operating costs of $1,766 for swing-bed hospitals 
performing one assessment per beneficiary. Although almost all swing-
bed facilities submitting comments indicated that their lengths of stay 
were under 10 days, there were a few swing-bed hospitals with longer 
lengths of stay. In considering the impact on these facilities, we do 
recognize a slight additional burden. We have estimated that a facility 
performing two MDS assessments on 30 percent of its Medicare 
beneficiaries would require approximately 18 additional hours per year 
(data not shown). However, the cost of performing these additional 
assessments would only increase a facility's MDS-related costs from 
$1.40 to $1.83 per day per patient.
    We received a significant number of comments claiming that the 
operating cost estimates are understated because they do not reflect 
increased clinical staffing needs associated with MDS preparation and 
overall coordination of the MDS process within the facility. The impact 
on swing-bed facility staffing was one of the issues that we considered 
in our decision to reduce the MDS requirements to the two-page Swing-
Bed MDS. We also considered the impact of a new payment system on staff 
operations, and the need to integrate the MDS process into day-to-day 
operations. We were concerned that the October 1, 2001 implementation 
set forth in the proposed rule would not give facility staff enough 
time to assess their existing operations and make the modifications 
needed to implement the MDS function smoothly. We believe that, by 
establishing the 2-page Swing-Bed MDS and by revising the 
implementation schedule to provide additional time for staff to adjust 
facility procedures and operating protocols, the MDS function can be 
integrated into swing-bed operations with existing staff.

[[Page 39596]]



                           Table 11.--Swing-Bed Rural Hospital Cost of Completing MDS
----------------------------------------------------------------------------------------------------------------
                                                                                                     Aggregate
                                                  Basic option--  Small business     Aggregate      cost--small
                    Category                       cost/facility   option--cost/    cost--basic      business
                                                                     facility         option          option
----------------------------------------------------------------------------------------------------------------
                                                 Start Up Costs
----------------------------------------------------------------------------------------------------------------
Hardware........................................          $1,400          $2,100      $1,750,000      $2,625,000
Comm. Software..................................             100             100         125,000         125,000
MDS Sftwre-CMS..................................               0               0               0               0
MDS Sftwre--Purchased...........................           1,200           1,200       1,500,000       1,500,000
Staff Training--MDS Coding......................             790             790         988,000         988,000
Staff Training--Other...........................             360             360         450,000         450,000
----------------------------------------------------------------------------------------------------------------
                                                Start-Up Subtotal
----------------------------------------------------------------------------------------------------------------
With CMS Sftwre.................................          $2,650          $3,350      $3,313,000      $4,188,000
With Purchased Software.........................          $3,850          $4,550      $4,813,000      $5,688,000
----------------------------------------------------------------------------------------------------------------
                                                 Operating Cost
----------------------------------------------------------------------------------------------------------------
MDS Preparation.................................             963             963       1,204,125       1,204,125
MDS Entry.......................................             323             323         403,125         403,125
MDS Transmission................................             180             180         225,000         225,000
Supplies........................................             200             200         250,000         250,000
Maintenance.....................................             100             100         125,000         125,000
Operating Cost..................................          $1,766          $1,766      $2,207,250      $2,207,250
----------------------------------------------------------------------------------------------------------------
                                                First Year Costs
----------------------------------------------------------------------------------------------------------------
With CMS Sftwre.................................          $4,416          $5,116      $5,520,250      $6,395,250
With Purchased Software.........................          $5,616          $6,316      $7,020,250      $7,895,250
----------------------------------------------------------------------------------------------------------------

    Sec. 424.32(a)(5)--In the proposed rule (66 FR 34984), we proposed 
to revise Sec. 424.32(a)(5) to reflect the new statutory requirement 
that all Part B claims for services furnished to SNF residents must 
include the SNF's Medicare provider number. Because the burden 
associated with this additional requirement is incidental to the 
completion of a claim, we were unable to estimate the burden associated 
with this new requirement, and explicitly solicited comment on this 
point. As a result of this new requirement, we will be revising the OMB 
clearance package for the CMS-1500 (Common Claim Form), OMB number 
0938-0008, which we will submit to OMB for review.
    We have submitted a copy of this final rule to OMB for its review 
of the information collection requirements in Secs. 413.411(a)(2) and 
424.32(a)(5). These requirements are not effective until they have been 
approved by OMB.

VI. Regulatory Impact Analysis

    We have examined the impact of this rule as required by Executive 
Order (EO) 12866, the Unfunded Mandate Reform Act (UMRA, Pub. L. 104-
4), the Regulatory Flexibility Act (RFA, Pub. L. 96-354), and the 
Federalism Executive Order (EO) 13132.
    Executive Order 12866 directs agencies to assess costs and benefits 
of available regulatory alternatives and, when regulation is necessary, 
to select regulatory approaches that maximize net benefits (including 
potential economic, environmental, public health and safety effects, 
distributive impacts, and equity). A regulatory impact analysis (RIA) 
must be prepared for major rules with economically significant effects 
($100 million or more annually). This 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 $1.5 billion in FY 2002, or 10.3 percent. The update set 
forth in this final rule applies to payments in FY 2002. 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. This rule will have no consequential effect on State, 
local, or tribal governments. We believe the private sector cost of 
this rule falls below these thresholds as well.
    Executive Order 13132 (effective November 2, 1999) establishes 
certain requirements that an agency must meet when it promulgates 
regulations that impose substantial direct compliance costs on State 
and local governments, 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 small governmental 
jurisdictions. Most SNFs and most other providers and suppliers are 
small entities, either by virtue of their nonprofit status or by having 
revenues of $10 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 final rule would update the SNF PPS 
rates by increasing the payment rates published in the July 31, 2000 
notice (65 FR 46770). While we do not believe that this will have a 
significant effect upon small entities overall, some individual

[[Page 39597]]

providers may experience significant increases in payments, while 
others (those that are concluding their final year under the transition 
from facility-specific to full Federal rates) may experience decreases, 
as discussed later in this section.
    In addition, section 1102(b) of the Act requires us to prepare an 
RIA 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 100 beds. Although we are delaying implementation for the 1,250 
swing-bed facilities that would start receiving payment under the SNF 
PPS until July 1, 2002, we do find that the payments to these 
facilities will increase overall. Some swing-bed facilities may receive 
significant increases in Medicare related payments, as described later 
in this section. Accordingly, the following analysis includes a 
specific examination of the projected impact of these provisions on 
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 cost reporting 
periods beginning in 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, and the urban and rural distinction used in 
the development or adjustment of the Federal rates.
    This final rule sets forth updates of the SNF PPS rates contained 
in the July 31, 2000 final rule (65 FR 46770). Table 12 presents the 
projected effects of the policy changes in the SNF PPS from FY 2001 to 
FY 2002, as well as statutory changes effective for FY 2001 and FY 
2002. 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 
2000. 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, 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, the BBRA, the BIPA, 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 the 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 provide an 
update to the rates for FY 2002. 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 rule. As such, these revisions will 
not represent an additional burden to the industry.
    The aggregate increase in payments associated with this final rule 
is estimated to be $1.5 billion, or 10.3 percent. The current estimate 
varies substantially from that computed for the proposed rule, which 
forecast an increase in payment of only $300 million, or 2.1 percent. 
In reviewing the estimate used for the proposed rule, an error was 
discovered in the component of the calculations associated with 
determining the impact of the expiration of the transition. This error 
caused the downward effect on payments associated with the transition's 
expiration to be magnified. This error has now been corrected and a 
more accurate estimate of this effect now appears in Table 12.
    The effect of the 20 percent add-on from the BBRA (as subsequently 
revised by the BIPA) is $1.0 billion; however, since this add-on became 
effective in FY 2001, it has already been reflected in the impact 
analysis for last year's final rule (65 FR 46770) and, thus, does not 
represent a new, additional impact for the FY 2002 payment rates. There 
are three areas of change that produce this increase for facilities:
    1. The effect of facilities being paid the full Federal rate.
    2. The implementation of provisions in the BIPA, such as the 16.6 
percent increase in the nursing component of the Federal rate and the 
elimination of the one percent reduction in the SNF market basket 
update for FY 2001.
    3. The total change in payments from FY 2001 levels to FY 2002 
levels. This includes all of the previously noted changes in addition 
to the effect of the annual update to the rates.
    As seen in Table 12, some of these areas are expected to result in 
increased aggregate payments and others are expected to tend to lower 
them. The breakdown of the various categories of data in the table is 
as follows:
    The first row of figures in the table describes the estimated 
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 
expiration of the transition and movement to the full Federal rates for 
all SNFs. This change has an overall effect of lowering payments by an 
estimated 1.6 percent, affecting hospital-based facilities more than 
freestanding facilities. The main reason for such a large decrease is 
the BBRA provision that allowed facilities to choose the full Federal 
rate. When given the option to do so, an estimated 74 percent of the 
facilities elected to go to the full Federal rate. This meant that the 
only facilities left to transition to the full Federal rate are ones 
for which the expiration of the transition will cause a decrease in 
reimbursement. In contrast, those facilities receiving the full Federal 
rate will experience a 12.1 percent increase in payments. The overall 
effect of the expiration of the transition was to reduce reimbursement, 
but the effects across regions are quite variable.
    The fourth column shows the projected effect of the 16.66 percent 
add-on to the nursing portion of the Federal rate mandated by BIPA 
2000. As expected, this 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. In addition, 
since this increase only applies to the nursing

[[Page 39598]]

portion of the payment rate, the effect on total expenditures is less 
than 16.66 percent.
    The fifth column of the table shows the effect of the change in the 
add-on for the rehabilitation RUGs. The total impact of this change is 
zero percent; however, there are distributional effects of this change, 
as seen in the table.
    The sixth column of the table shows the effect of the annual update 
to the wage index. The total impact of this change is zero percent; 
however, there are distributional effects of the change.
    The seventh column of the table shows the effect of all of the 
changes on the FY 2002 payments. This includes all of the previous 
changes, including the update to this year's payment rates by the 
market basket. Rebasing of the market basket index from 1992 to 1997 
had little impact on the overall changes displayed in this column. It 
is projected that payments will increase by 10.3 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 the changes vary widely by specific types of providers 
and by location. For example, freestanding facilities experience 
payment increases, while the effects of the transition cause decreases 
in payments for hospital-based providers.

                          Table 12.--Projected Impact of FY 2002 Update to the SNF PPS
----------------------------------------------------------------------------------------------------------------
                                                  Transition   Add-on to
                                     Number of    to Federal    nursing     Add-on to    Wage index    Total FY
                                     facilities     rates        rates      rehab RUGs     change    2002 change
----------------------------------------------------------------------------------------------------------------
Total.............................         9037        -1.6%         8.0%         0.0%         0.0%        10.3%
Urban.............................         6300        -1.7%         8.1%         0.1%         0.1%        10.5%
Rural.............................         2737        -1.1%         7.8%        -0.7%        -0.3%         9.6%
Hospital based urban..............          683        -4.1%         8.6%        -0.8%        -1.0%         6.2%
Freestanding urban................         5617        -1.3%         8.0%         0.3%         0.2%        11.2%
Hospital based rural..............          533        -2.3%         8.5%        -2.0%        -1.7%         6.0%
Freestanding rural................         2204        -0.9%         7.7%        -0.4%         0.0%        10.3%
 
          Urban by Region
 
New England.......................          630        -0.3%         8.4%         0.0%         0.2%        12.4%
Middle Atlantic...................          877        -0.4%         8.4%        -1.4%        -2.2%         8.1%
South Atlantic....................          959        -2.5%         7.8%         0.9%         1.3%        11.5%
East North Central................         1232        -0.8%         8.2%         0.6%         0.3%        12.4%
East South Central................          212        -1.8%         8.0%         0.0%         1.3%        11.5%
West North Central................          469        -1.5%         8.0%        -0.2%        -0.4%         9.8%
West South Central................          519        -4.7%         8.4%         0.3%        -0.5%         7.0%
Mountain..........................          303        -3.4%         7.6%         1.1%         1.2%        10.4%
Pacific...........................         1070        -2.9%         7.9%         0.6%         0.6%        10.1%
 
          Rural by Region
 
New England.......................           88        -0.3%         8.0%        -0.3%         0.3%        11.8%
Middle Atlantic...................          144        -0.3%         8.0%        -1.8%        -1.6%         8.0%
South Atlantic....................          373        -1.0%         7.8%         0.2%         0.4%        11.4%
East North Central................          561        -0.5%         7.8%        -0.3%         0.0%        11.0%
East South Central................          255        -1.5%         7.9%        -2.3%        -2.0%         5.6%
West North Central................          581        -1.5%         7.9%        -1.5%        -0.4%         8.2%
West South Central................          354        -2.5%         8.0%        -0.1%         1.0%        10.3%
Mountain..........................          204        -1.0%         7.3%        -0.4%        -0.2%         9.6%
Pacific...........................          151        -0.9%         7.4%         0.3%        -0.8%         9.9%
----------------------------------------------------------------------------------------------------------------

    As noted earlier, in accordance with section 1888(e)(7) of the Act, 
we are providing in this final rule to pay rural hospitals for SNF-
level swing-bed services under the SNF PPS, effective with cost 
reporting periods beginning on and after July 1, 2002. In doing so, we 
have examined the anticipated impact of this payment change on swing-
bed facilities.
    We analyzed data from swing-bed claims for calendar years 1996 
through 1998 to determine Medicare payments made under the current 
swing-bed payment system. The claims data reflect the predetermined 
routine cost payments and the interim payment for ancillary services. 
While the interim payment rate for ancillary services is subject to 
final cost settlement, it represents a reasonable proxy for actual 
swing-bed payments.
    We then adjusted the historical data on swing-bed payments to 2002 
levels. For calendar years 1999 through 2001, we projected the average 
payment per day, using the 6.5 percent growth rate calculated from the 
most recent available data from calendar years 1997 and 1998. For 2002, 
we used a blended growth rate that reflects a projected increase in 
payment for routine services equal to the market basket of 2.4 percent, 
but retains the historical growth factor of 6.5 percent for ancillary 
payments. In 1998, the average payment per day was $205.41. The 
estimated swing-bed payment per day for 2002 under the existing method 
of reimbursement is $258.41.
    We then estimated the amount that would have been paid for the same 
services under the SNF PPS. This estimate reflected both adjustments 
for geographic variation and case-mix. For the geographic adjustment, 
we used the average rural wage index for FY 2001 (that is, 0.8700). In 
preparing this final rule, we found a minor error in the calculation of 
the estimate published in the proposed rule that slightly overstated 
anticipated payments for swing-bed hospitals under the SNF PPS. We 
corrected the error and recalculated this impact analysis. The revised 
data are presented in this final rule.
    As described in the proposed rule, we used the MEDPAR case-mix 
analog (described in detail in the SNF PPS interim final rule published 
on May 12, 1998 (63 FR 26252)) to estimate how the national swing-bed 
population would classify into RUG-III categories. We found that 69 
percent of the covered days would be assigned to just two RUG-III 
categories (or six groups):

[[Page 39599]]

Medium Rehabilitation and Extensive Services.
    We also noted that 9 percent of the covered days were assigned to 
categories that are not typically associated with a Medicare level of 
care (Impaired Cognition and lower groups). We have not assumed that 
these claims were paid in error. Rather, we are assuming that these 
patients had skilled care needs other than ones that could be captured 
using the MEDPAR case-mix analog, and we have included these stays in 
our analysis.

   Table 13.--RUG-III Frequency Distribution Using Calendar Year 1999
                                 Claims
------------------------------------------------------------------------
                                                 Number of    Percent of
            RUG-III category level               days paid    total days
------------------------------------------------------------------------
Ultra High Rehab..............................       30,618           3%
Very High Rehab...............................       33,687           4%
High Rehab....................................       76,596           9%
Medium Rehab..................................      264,614          30%
Low Rehab.....................................       58,016           7%
Extensive Services............................      288,131          33%
Special Care..................................       11,540           1%
Clinically Complex............................       35,304           4%
Impaired Cognition............................        4,737           1%
Other.........................................       72,293           8%
                                               -------------------------
    Total.....................................      875,536         100%
------------------------------------------------------------------------

    Our next step was to project the SNF PPS payments for these swing-
bed services. For the purposes of this analysis, we used the calendar 
year frequency distribution and number of covered swing-bed days shown 
in Table 13. Unique nursing case-mix weights have already been 
developed for each level of the MEDPAR case-mix analog. These weights 
were used to adjust the FY 2002 rural SNF PPS rates set forth in this 
final rule to determine the SNF PPS rates used in this estimate. We 
adjusted these rates for all the BBRA and the BIPA add-ons applicable 
for FY 2002.
    Based on our analysis, the FY 2002 SNF PPS payment amount exceeds 
the projected payments under the current swing-bed payment system for 
that year in 5 of the 10 case-mix analog categories that included 79 
percent of the swing-bed days. In fact, for the two most common RUG-III 
categories, medium rehabilitation and extensive services, the projected 
increases are substantial: 10 percent for medium rehabilitation and 12 
percent for extensive services. In addition, in two categories, 
Impaired Cognition and Other, where the projected SNF PPS rate is lower 
than the projected swing-bed payment amount, the MDS records are likely 
to group into much higher categories when using the full RUG-III 
algorithm.
    In terms of aggregate Medicare expenditures, we estimate that the 
transition to SNF PPS will increase payments for SNF-level swing-bed 
services by 8 percent, or approximately $18.3 million. Aggregate start-
up costs are estimated to be between $3.3 and $5.7 million, and first 
year operating costs, including estimated costs associated with the MDS 
completion, are estimated to be $2.2 million.
    Based on these estimates, we believe the financial impact on swing-
bed providers will be positive, with the anticipated 8 percent payment 
increase serving to offset the estimated start-up costs associated with 
MDS completion and transmission. Although the aggregate percentage 
increase has been adjusted downward from 9 percent to 8 percent, the 
reduction in MDS requirements has been even more significant. Swing-bed 
hospitals had expressed strong concerns that the expected increases 
would be eroded by their MDS costs. With the reduction in the MDS 
requirements, the impact of the projected 8 percent increase may 
represent an addition of dollars available to support swing-bed 
operations.
    Finally, in accordance with the provisions of Executive Order 
12866, this final rule 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 410

    Health facilities, Health professions, Kidney diseases, 
Laboratories, Medicare, Rural areas, X-rays.

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.

42 CFR Part 424

    Emergency medical services, Health facilities, Health professions, 
Medicare.

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 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

    1. The authority citation for part 410 continues to read as 
follows:

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

Subpart I--Payment of SMI Benefits

    2. In Sec. 410.150, the introductory text of paragraph (b) is 
republished, and paragraph (b)(14) is revised to read as follows:


Sec. 410.150  To whom payment is made.

* * * * *
    (b) Specific rules. Subject to the conditions set forth in 
paragraph (a) of this section, Medicare Part B pays as follows:
* * * * *
    (14) To an SNF for services (other than those described in 
Sec. 411.15(p)(2) of this chapter) that it furnishes to a resident (as 
defined in Sec. 411.15(p)(3) of

[[Page 39600]]

this chapter) of the SNF who is not in a covered Part A stay.
* * * * *

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

    3. 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

    4. In Sec. 411.15, paragraph (p)(1) is revised, and paragraph 
(p)(2) introductory text, paragraph (p)(2)(i), and paragraph (p)(3) 
introductory text are revised to read as follows:


Sec. 411.15  Particular services excluded from coverage.

* * * * *
    (p) Services furnished to SNF residents. (1) Basic rule. Except as 
provided in paragraph (p)(2) of this section, any service furnished to 
a resident of an SNF during a covered Part A stay by an entity other 
than the SNF, unless the SNF has an arrangement (as defined in 
Sec. 409.3 of this chapter) with that entity to furnish that particular 
service to the SNF's residents. Services subject to exclusion under 
this paragraph include, but are not limited to--
    (i) Any physical, occupational, or speech-language therapy 
services, regardless of whether the services are furnished by (or under 
the supervision of) a physician or other health care professional, and 
regardless of whether the resident who receives the services is in a 
covered Part A stay; and
    (ii) Services furnished as an incident to the professional services 
of a physician or other health care professional specified in paragraph 
(p)(2) of this section.
    (2) Exceptions. The following services are not excluded from 
coverage, provided that the claim for payment includes the SNF's 
Medicare provider number in accordance with Sec. 424.32(a)(5) of this 
chapter:
    (i) Physicians' services that meet the criteria of Sec. 415.102(a) 
of this chapter for payment on a fee schedule basis.
    (3) SNF resident defined. For purposes of this paragraph, a 
beneficiary who is admitted to a Medicare-participating SNF is 
considered to be a resident of the SNF for the duration of the 
beneficiary's covered Part A stay. In addition, for purposes of the 
services described in paragraph (p)(1)(i) of this section, a 
beneficiary who is admitted to a Medicare-participating SNF is 
considered to be a resident of the SNF regardless of whether the 
beneficiary is in a covered Part A stay. Whenever the beneficiary 
leaves the facility, the beneficiary's status as an SNF resident for 
purposes of this paragraph (along with the SNF's responsibility to 
furnish or make arrangements for the services described in paragraph 
(p)(1) of this section) ends when one of the following events occurs--
* * * * *

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

    5. The authority citation for part 413 is amended to read as 
follows:

    Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and 
(n), 1871, 1881, 1883, 1886, and 1888 of the Social Security Act (42 
U.S.C. 1302, 1395d(d), 1395(f)b, 1395g, 1395l(a), (i), and (n), 
1395hh, 1395rr, 1395tt, 1395ww, and 1395yy).

Subpart F--Specific Categories of Costs

    6. In Sec. 413.114:
    a. Paragraph (a) is revised.
    b. In paragraph (c), the heading is revised.
    c. In paragraph (d)(1), the introductory text is revised.


Sec. 413.114  Payment for posthospital SNF care furnished by a swing-
bed hospital.

    (a) Purpose and basis. This section implements section 1883 of the 
Act, which provides for payment for posthospital SNF care furnished by 
rural hospitals and CAHs having a swing-bed approval.
    (1) Services furnished in cost reporting periods beginning prior to 
July 1, 2002. Posthospital SNF care furnished in general routine 
inpatient beds in rural hospitals and CAHs is paid in accordance with 
the special rules in paragraph (c) of this section for determining the 
reasonable cost of this care. When furnished by rural and CAH swing-bed 
hospitals approved after March 31, 1988 with more than 49 beds (but 
fewer than 100), these services must also meet the additional payment 
requirements set forth in paragraph (d) of this section.
    (2) Services furnished in cost reporting periods beginning on and 
after July 1, 2002. Posthospital SNF care furnished in general routine 
inpatient beds in rural hospitals (other than CAHs) is paid in 
accordance with the provisions of the prospective payment system for 
SNFs described in subpart J of this part, except that for purposes of 
this paragraph, the requirements of Sec. 413.343(a) must be met using 
the specific assessment instrument and data designated by CMS for this 
purpose. Posthospital SNF care furnished in general routine inpatient 
beds in CAHs is paid based on reasonable cost, in accordance with the 
provisions of subparts A through G of this part (other than paragraphs 
(c) and (d) of this section).
* * * * *
    (c) Special rules for determining the reasonable cost of 
posthospital SNF care furnished in cost reporting periods beginning 
prior to July 1, 2002.
* * * * *
    (d) Additional requirements--(1) General rule. For services 
furnished in cost reporting periods beginning prior to July 1, 2002, in 
order for Medicare payment to be made to a swing-bed hospital with more 
than 49 beds (but fewer than 100), the following payment requirements 
must be met:
* * * * *
    7. In Sec. 413.337, paragraph (e) is added to read as follows:


Sec. 413.337  Methodology for calculating the prospective payment 
rates.

* * * * *
    (e) Pursuant to section 101 of the Medicare, Medicaid, and SCHIP 
Balanced Budget Refinement Act of 1999 (BBRA) as revised by section 314 
of the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA), using the best available data, the 
Secretary will issue a new regulation with a newly refined case-mix 
classification system to better account for medically complex patients. 
Upon issuance of the new regulation, the temporary increases in payment 
for certain high cost patients will no longer be applicable.

PART 424--CONDITIONS FOR MEDICARE PAYMENT

    8. The authority citation for part 424 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).
    9. In Sec. 424.20(a)(2), the heading is revised to read as follows:


Sec. 424.20  Requirements for posthospital SNF care.

    (a) * * *
    (2) Special requirement for certifications performed prior to July 
1, 2002: A swing-bed hospital with more than 49 beds (but fewer than 
100) that

[[Page 39601]]

does not transfer a swing-bed patient to a SNF within 5 days of the 
availability date.
    * * *
* * * * *

Subpart C--Claims for Payment

    10. In Sec. 424.32, the introductory text of paragraph (a) is 
republished, and paragraphs (a)(2) and (a)(5) are revised.


Sec. 424.32  Basic requirements for all claims.

    (a) A claim must meet the following requirements:
* * * * *
    (2) A claim for physician services, clinical psychologist services, 
or clinical social worker services must include appropriate diagnostic 
coding for those services using ICD-9-CM.
* * * * *
    (5) All Part B claims for services furnished to SNF residents 
(whether filed by the SNF or by another entity) must include the SNF's 
Medicare provider number and appropriate HCPCS coding.
* * * * *

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

    11. 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

    12. In Sec. 489.20, the introductory text is republished, and the 
introductory text of paragraph (s) is revised.


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 any 
physical, occupational, or speech-language therapy services furnished 
to a resident of the SNF under Sec. 411.15(p) of this chapter 
(regardless of whether the resident is in a covered Part A stay), and 
also either to furnish directly or make arrangements for all other 
Medicare-covered services furnished to a resident during a covered Part 
A stay, except the following:
* * * * *
    13. In Sec. 489.21, the introductory text is republished, and 
paragraph (h) is revised to read as follows:


Sec. 489.21  Specific limitations on charges.

    Except as specified in subpart C of this part, the provider agrees 
not to charge a beneficiary for any of the following:
* * * * *
    (h) Items and services (other than those described in 
Secs. 489.20(s)(1) through (15)) required to be furnished under 
Sec. 489.20(s) to a resident of an SNF (defined in Sec. 411.15(p) of 
this chapter), for which Medicare payment would be made if furnished by 
the SNF or by other providers or suppliers under arrangements made with 
them by the SNF. For this purpose, a charge by another provider or 
supplier for such an item or service is treated as a charge by the SNF 
for the item or service, and is also prohibited.

    Note:
    These appendices will not appear in the Code of Federal 
Regulations.

Appendix A

Technical Features of the 1997 Skilled Nursing Facility Market Basket 
Index

    As discussed in the preamble of this final rule, we have revised 
and rebased the SNF market basket. This appendix describes the 
technical aspects of the 1997-based index made final in this rule. 
We present this description of the market basket in three steps:
     A synopsis of the structural differences between the 
1992-and the 1997-based market baskets.
     A description of the methodology used to develop the 
cost category weights in the 1997-based market basket.
     A description of the data sources used to measure price 
change for each component of the 1997-based market basket, making 
note of the differences, if any, from the price proxies used in the 
1992-based market basket.

I. Synopsis of Structural Changes Adopted in the Revised and Rebased 
1997 Skilled Nursing Facility Market Basket

    We have made just one major structural change between the 
current 1992-based and the 1997-based SNF market baskets, which is 
that more recent SNF cost data were used in the revised and rebased 
SNF market basket.
    The 1997-based market basket contains cost shares for six major 
cost categories that were derived from an edited set of FY 1997 
Medicare Cost Reports for freestanding SNFs that had Medicare 
expenses. FY 1997 cost reports have cost reporting periods beginning 
after September 30, 1996 and before October 1, 1997. The 1992-based 
market basket used data from the PPS-9 Medicare Cost Reports for 
freestanding SNFs with Medicare expenses greater than 1 percent of 
total expenses. PPS-9 cost reports have cost reporting periods 
beginning after September 30, 1991 and before October 1, 1992. Cost 
allocations for the 1997-based SNF market basket within the six 
major cost categories use Medicare Cost Reports and two Department 
of Commerce data sources: the 1997 Business Expenditures Survey, 
Bureau of the Census, Economics and Statistics Administration, and 
the 1997 Bureau of Economic Analysis' Annual Input-Output tables.

II. Methodology for Developing the Cost Category Weights

    Cost category weights for the 1997-based market basket were 
developed in two stages. First, base weights for six main categories 
(wages and salaries, employee benefits, contract labor, 
pharmaceuticals, capital-related expenses, and a residual ``all 
other'') were derived from the SNF Medicare Cost Reports described 
above. The residual ``all other'' cost category was divided into 
subcategories, using U.S. Department of Commerce data sources for 
the nursing home industry. Relationships from the 1997 Business 
Expenditures Survey and data from the 1997 Annual Input-Output 
tables were used to allocate the all other cost category.
    Below we describe the source of the main category weights and 
their subcategories in the 1997-based market basket.
     Wages and Salaries: The wages and salaries cost 
category is derived using 1997 SNF Medicare Cost Reports. The share 
was determined using wages and salaries from Worksheet S-3, part II 
and total expenses from Worksheet B. This share represents the wage 
and salary share of costs for employees of the nursing home, and 
does not include the wages and salaries from contract labor, which 
is allocated to wages and salaries at a later step.
    We improved the methodology for calculating the weight of 
contract labor, as well as that for the calculation of the fringe 
benefits share. Both changes result in more accurate but, in each 
case, lower weights in the revised market basket. The weight for 
wages only, as determined from the Medicare Cost Reports and 
excluding contract labor, increased between 1992 and 1997 (from 
45.805 to 46.889). This is consistent with the rate of change of the 
price of wages and salaries, as represented by the ECI for wages and 
salaries in nursing homes, which increased at a pace faster than 
that of the overall market basket during the 1992-1997 period. 
However, when the 1997 wage share of contract labor was added to the 
1997 weight for wages, the resultant weight for wages was lower than 
in the 1992-based index.
     Employee Benefits: The weight for employee benefits was 
determined using 1997 Medicare Cost Reports. The share was derived 
using wage-related costs from Worksheet S-3, part II.
     Contract Labor: The weight for the contract labor cost 
category was derived using 1997 Medicare Cost Reports. For the 1997-
based SNF market basket, we used a group of cost reports edited for 
data entered for contract labor on Worksheet S-3, part II. This 
methodology differed from that of the 1992 SNF market basket (where 
we estimated contract labor costs using data from Worksheet A) since 
Worksheet S-3, part II, was not available in the 1992 Cost Reports. 
This methodology produces results that are similar to the contract 
labor share in the 1997 Business Expenditures Survey. Contract labor 
was not available in the 1992 Asset and Expenditure Survey. As 
explained in the preamble, contract labor costs were distributed 
between the wages and salaries and employee benefits cost 
categories, under the assumption that contract costs should

[[Page 39602]]

move at the same rate as direct labor costs even though unit labor 
cost levels may be different.
     Pharmaceuticals: The pharmaceuticals cost weight was 
derived from 1997 SNF Medicare Cost Reports. This share was 
calculated using non-salary costs from the pharmacy and drugs 
charged to patients' cost centers from Worksheet A.
     Capital-Related: The weight for the overall capital-
related expenses cost category was derived using 1997 SNF Medicare 
Cost Report data from Worksheet B. The subcategory and vintage 
weights within the overall capital-related expenses were derived 
using additional data sources.
    In determining the subcategory weights for capital, we used a 
combination of information from the 1997 SNF Medicare Cost Reports 
and the 1997 Census Business Expenditures Survey.
    We estimated the depreciation expense share of capital-related 
expenses from the SNF Medicare Cost Reports using data from edited 
cost reports with data completed on Worksheet G. For the 1992-based 
SNF market basket, we had depreciation expenses from the 1992 Asset 
and Expenditure Survey. When we calculated the ratio of depreciation 
to wages from the 1997 SNF Medicare Cost Reports, the result was 
consistent with the ratio from the 1997 Business Expenditures 
Survey. The distribution between building and fixed equipment and 
movable equipment was determined from the 1997 Business Expenditures 
Survey. From these calculations, depreciation expenses (not 
including depreciation expenses implicit from leases) were estimated 
to be 33.2 percent of total capital-related expenditures in 1997.
    The interest expense share of capital-related expenses was also 
derived from the same edited 1997 SNF Medicare Cost Reports. 
Interest expenses are not identifiable in the 1997 Business 
Expenditures Survey. We determined the split of interest expense 
between for-profit and not-for-profit facilities based on the 
distribution of long-term debt outstanding by type of SNF (for-
profit or not-for-profit) from the 1997 SNF Medicare Cost Reports. 
Interest expense (not including interest expenses implicit from 
leases) was estimated to be 24.3 percent of total capital-related 
expenditures in 1997.
    We used the 1997 Business Expenditures Survey to estimate the 
proportion of capital-related expenses attributable to leasing 
building and fixed and movable equipment. This share was estimated 
to be 34.9 percent of capital-related expenses in 1997. The split 
between fixed and movable lease expenses was directly available from 
the 1997 Business Expenditures Survey. We used this split, and the 
distribution of depreciation and interest calculated above to 
distribute leases among these cost categories.
    The remaining residual after depreciation, interest, and 
leasing, is considered to be other capital-related expenses 
(insurance, taxes, other). Other capital-related expenses were 
estimated to be 7.7 percent of total capital-related expenditures in 
1997.
    Table A-1 shows the capital-related expense distribution 
(including expenses from leases) in the 1997 SNF PPS market basket 
and the 1992 SNF market basket.

                                Table A-1.--Capital-Related Expense Distribution
----------------------------------------------------------------------------------------------------------------
                                                                               1992-based SNF    1997-based SNF
                                                                               capital-related   capital-related
                                                                                expenses as a     expenses as a
                                                                              percent of total  percent of total
                                                                              capital--related  capital--related
                                                                                  expenses          expenses
----------------------------------------------------------------------------------------------------------------
Total.......................................................................           100.0             100.0
Depreciation................................................................            60.5              53.3
Building and Fixed Equipment................................................            42.1              36.5
Movable Equipment...........................................................            18.4              16.8
Interest....................................................................            32.6              39.0
Other capital-related expense...............................................             6.9               7.7
----------------------------------------------------------------------------------------------------------------

    As explained in section I.F of the preamble, our methodology for 
determining the price change of capital-related expenses accounts 
for the vintage nature of capital, which is the acquisition and use 
of capital over time. In order to capture this vintage nature, the 
price proxies must be vintage-weighted. The determination of these 
vintage weights occurs in two steps. First, we must determine the 
expected useful life of capital and debt instruments in SNFs. 
Second, we must identify the proportion of expenditures within a 
cost category that are attributable to each individual year over the 
useful life of the relevant capital assets, or the vintage weights.
    The derivation of useful life of capital is explained in detail 
in the May 12, 1998 interim final rule (63 FR 26252). The useful 
lives for the 1997-based SNF market basket are the same as the 1992-
based SNF market basket. The data source that was previously used to 
develop the useful lives of capital is no longer available and a 
suitable replacement has not been identified. We asked for comments 
on any data sources that would provide the necessary information for 
determining useful lives of capital and debt instruments, but did 
not receive any suitable alternatives.
    Given the expected useful life of capital and debt instruments, 
we must determine the proportion of capital expenditures 
attributable to each year of the expected useful life by cost 
category. These proportions represent the vintage weights. We were 
not able to find an historical time series of capital expenditures 
by SNFs. Therefore, we approximated the capital expenditure patterns 
of SNFs over time using alternative SNF data sources. For building 
and fixed equipment, we used the stock of beds in nursing homes from 
the CMS National Health Accounts for 1962 through 1997. We then used 
the change in the stock of beds each year to approximate building 
and fixed equipment purchases for that year. This procedure assumes 
that bed growth reflects the growth in capital-related costs in SNFs 
for building and fixed equipment. We believe this assumption is 
reasonable since the number of beds reflects the size of the SNF, 
and as the SNF adds beds, it also adds fixed capital.
    Comment: Several commenters expressed concern over the use of 
the net changes in the number of SNF beds as an approximation of 
capital acquisitions over time. Commenters felt that the market 
basket was only reflecting changes in the number of beds and not 
increases in other components that are inflation sensitive.
    Response: As pointed out in the proposed rule, we use the net 
change in the stock of beds each year to reflect the growth in real 
purchases of buildings and fixed capital equipment each year. This 
is done for use in determining the proportion of capital 
expenditures attributable to each year of the expected useful life 
of an asset or 'vintage weight'. This measure is not used to measure 
the inflationary increases in costs from year to year facing SNFs 
nor is it used to determine the actual weight of depreciation in the 
index. Again, the net change in the number of beds is used to 
establish `vintage weights and, as such, should reflect real capital 
purchases as opposed to nominal purchases. Therefore, we feel that 
the use of the change in the number of SNF beds, while not an exact 
measure of purchases since it would include beds taken out of 
service, approximates SNF capital purchases because if the SNF is 
adding beds, it is most likely also adding fixed capital. We were 
unable to find another suitable time series of capital purchases 
that met our proxy selection criteria, and therefore will continue 
to use the stock of beds to approximate capital purchases.

[[Page 39603]]

    For movable equipment, we used available SNF data to capture the 
changes in intensity of SNF services that would cause SNFs to 
purchase movable equipment. We estimated the change in intensity as 
the trend in the ratio of non-therapy ancillary costs to routine 
costs from the 1989 through 1997 SNF Medicare Cost Reports. For 1962 
through 1988 we estimated these values using regression analysis. 
The time series of the ratio of non-therapy ancillary costs to 
routine costs for SNFs measures changes in intensity in SNF 
services, which are assumed to be associated with movable equipment 
purchase patterns. The assumption here is that as non-therapy 
ancillary costs increase compared with routine costs, the SNF 
caseload becomes more complex and would require more movable 
equipment. Again, the lack of direct movable equipment purchase data 
for SNFs over time required us to use alternative SNF data sources. 
The resulting two time series, determined from beds and the ratio of 
non-therapy ancillary to routine costs, reflect real capital 
purchases of building and fixed equipment and movable equipment over 
time, respectively.
    To obtain nominal purchases, which are used to determine the 
vintage weights for interest, we converted the two real capital 
purchase series from 1963 through 1997 determined above to nominal 
capital purchase series using their respective price proxies (Boeckh 
institutional construction index and PPI for machinery and 
equipment). We then combined the two nominal series into one nominal 
capital purchase series for 1963 through 1997. Nominal capital 
purchases are needed for interest vintage weights to capture the 
value of the debt instrument.
    Once these capital purchase time series were created for 1963 
through 1997, we averaged different periods to obtain an average 
capital purchase pattern over time. For building and fixed equipment 
we averaged thirteen 23-year periods, for movable equipment we 
averaged twenty-six 10-year periods, and for interest we averaged 
fourteen 22-year periods. The vintage weight for a given year is 
calculated by dividing the capital purchase amount in any given year 
by the total amount of purchases during the expected useful life of 
the equipment or debt instrument. This methodology was described in 
full in the May 12, 1998 Federal Register (63 FR 26252). The 
resulting vintage weights for each of these cost categories are 
shown in Table A-2.

Table A-2.--Vintage Weights for 1997-Based SNF PPS Capital-Related Price
                                 Proxies
------------------------------------------------------------------------
                                     Building
               Year                 and fixed     Movable      Interest
                                    equipment    equipment
------------------------------------------------------------------------
1................................        0.082        0.083        0.025
2................................        0.086        0.088        0.028
3................................        0.085        0.089        0.031
4................................        0.083        0.090        0.034
5................................        0.077        0.091        0.038
6................................        0.069        0.097        0.042
7................................        0.063        0.106        0.046
8................................        0.060        0.111        0.049
9................................        0.050        0.116        0.051
10...............................        0.040        0.128        0.051
11...............................        0.040  ...........        0.052
12...............................        0.036  ...........        0.053
13...............................        0.030  ...........        0.051
14...............................        0.020  ...........        0.050
15...............................        0.016  ...........        0.049
16...............................        0.014  ...........        0.048
17...............................        0.012  ...........        0.049
18...............................        0.017  ...........        0.050
19...............................        0.018  ...........        0.051
20...............................        0.023  ...........        0.051
21...............................        0.025  ...........        0.049
22...............................        0.027  ...........        0.051
23...............................        0.029  ...........  ...........
                                  --------------------------------------
    Total........................        1.000        1.000       1.000
------------------------------------------------------------------------
Sources: 1997 SNF Medicare Cost Reports; CMS, National Health Accounts.
Note: Totals may not sum to 1.000 due to rounding.

     All Other: Subcategory weights for the All Other 
category were derived using information from two U.S. Department of 
Commerce data sources. Weights for the three utilities cost 
categories, as well as that for telephone services, were derived 
from the 1997 Business Expenditure Survey. Weights for other cost 
categories were derived from the 1997 Annual Input-Output tables.

III. Price Proxies Used To Measure Cost Category Growth

A. Wages and Salaries

    For measuring price growth in the wages and salaries cost 
component of the 1997-based SNF market basket, we use the percentage 
change in the ECI for wages and salaries for private nursing homes.
    Comment: Commenters questioned the ability of the ECI for 
nursing home wages and salaries to capture trends in wages in SNFs. 
The commenters were specifically concerned that the ECI was not 
capturing the wage increases shown by other data sources, that the 
difference in skill mix between SNFs and nursing homes was not being 
reflected, and that the fixed weights in the ECI was not 
representative of the current SNF skill mix.
    Response: We believe that the ECI for wages and salaries in 
nursing homes is the best price proxy for measuring wage changes 
facing SNFs. This wage series reflects actual wage data reported by 
nursing homes to BLS. This proxy meets our criteria of relevance, 
reliability, timeliness, and time-series length. The commenters 
expressed concern that the ECI for nursing homes was not capturing 
the wage increases shown by other data sources, including other BLS 
surveys. Two BLS surveys, other than the ECI, that measure wages for 
nursing homes, the Average Hourly Earnings (AHE) and the Employer 
Cost for Employee Compensation (ECEC), reflect both changes in 
hourly wage and changes in skill mix. As we stated in the proposed 
rule, change in occupational mix does not represent a price change 
and, as such, should not be included in an input price index. 
Otherwise, changes in prices are confounded with shifts among 
occupations. In addition, the AHE includes only earnings for 
nonsupervisory workers, and the ECEC is only published annually for 
March of each year. Thus neither of these wage measures meet our 
criteria for use in the SNF market basket. Although referenced in 
the comments we received, we have not been provided other data 
sources measuring wages for SNF

[[Page 39604]]

employees and, as such, cannot make a determination of the 
relevance, reliability, timeliness, or time-series length of the 
data.
    For our purposes, the ECI appropriately keeps the occupational 
mix constant. Currently, the ECI reflects the 1990 distribution of 
occupations as measured by the BLS Occupational Employment Survey. 
The BLS periodically updates this distribution to reflect a more 
recent occupational mix. When the BLS updates the occupational 
distribution it will be reflected in the ECI for wages and salaries 
in nursing homes and, therefore, will be reflected in the SNF market 
basket. However, it is appropriate that the SNF market basket 
currently reflect the wage increases associated with a fixed 
occupational mix rather than confound changes in wages with changes 
in skill mix.
    The commenters were concerned that the ECI reflected wages in 
nursing homes and not just for SNFs, which they feel have a 
different skill mix. The ECI for nursing homes captures wages for 
SNFs and other types of nursing and personal care facilities as 
defined by the Standard Industrial Classification (SIC). Employment 
in skilled nursing care facilities, as measured by the Current 
Employment Survey, includes skilled nursing homes, convalescent 
homes, extended care facilities, and mental retardation hospitals. 
Skilled nursing care facilities, as defined by SIC, represent a 
significant portion (at least 70 percent) of total nursing home 
employment. The BLS does not publish data, nor are we aware of any 
available data that meet our criteria, at a more detailed level than 
total nursing homes. As such, we feel that while the ECI for nursing 
homes does include more than SNFs, the wage trends and skill mix in 
SNFs are adequately represented by this proxy.

B. Employee Benefits

    For measuring employee benefits price growth in the 1997-based 
market basket, the percentage change in the ECI for benefits for 
private nursing homes is used. The ECI for benefits for private 
nursing homes is also a fixed-weight index that measures pure price 
change and is not affected by shifts in occupation. Again, we 
believe that the ECI for nursing homes is the most acceptable and 
appropriate benefit series available from reliable, timely, and 
relevant statistical sources.

C. All Other Expenses

     Nonmedical professional fees: The ECI for compensation 
for Private Industry Professional, Technical, and Specialty Workers 
is used to measure price changes in nonmedical professional fees.
     Electricity: For measuring price change in the 
electricity cost category, the PPI for Commercial Electric Power is 
used.
     Fuels, nonhighway: For measuring price change in the 
Fuels, Nonhighway cost category, the PPI for Commercial Natural Gas 
is used.
     Water and Sewerage: For measuring price change in the 
Water and Sewerage cost category, the CPI-U (Consumer Price Index 
for All Urban Consumers) for Water and Sewerage is used.
     Food-wholesale purchases: For measuring price change in 
the Food-wholesale purchases cost category, the PPI for Processed 
Foods is used.
     Food-retail purchases: For measuring price change in 
the Food-retail purchases cost category, the CPI-U for Food Away 
From Home is used. This reflects the use of contract food service by 
some SNFs.
     Pharmaceuticals: For measuring price change in the 
Pharmaceuticals cost category, the PPI for Prescription Drugs is 
used.
    Comment: Some commenters were concerned that the price proxy 
used for pharmaceuticals is inappropriate, since the PPI for 
prescription drugs may have a different distribution of drugs 
included than SNFs use.
    Response: The PPI commodity grouping for ethical preparations 
(prescription drugs) is a combined index. The weights for each 
product included in this PPI are based on the gross value of 
shipments (domestic products only) across all industries engaged in 
the production of ethical preparations. The weights include all 
prescription drugs that are made in the U.S. and do not include 
proprietary or biological preparations. The weighting of all ethical 
preparations according to the value of shipments means that 
pharmaceuticals used by SNFs are included. While there may not be 
quite the same proportions of pharmaceuticals used in SNFs as in the 
PPI, there is no evidence provided by the commenters or that we have 
found suggesting a different price change than reported by the PPI. 
There does not exist an alternative proxy for SNF pharmaceuticals 
that meets our criteria for inclusion in the index. Based on this, 
we feel the PPI for prescription drugs does provide an accurate 
representation of the pure price change of pharmaceuticals faced by 
SNFs, and thus is an appropriate price proxy.
     Chemicals: For measuring price change in the Chemicals 
cost category, the PPI for Industrial Chemicals is used.
     Rubber and Plastics: For measuring price change in the 
Rubber and Plastics cost category, the PPI for Rubber and Plastic 
Products is used.
     Paper Products: For measuring price change in the Paper 
Products cost category, the PPI for Converted Paper and Paperboard 
is used.
     Miscellaneous Products: For measuring price change in 
the Miscellaneous Products cost category, the PPI for Finished Goods 
less Food and Energy is used. This represents a change from the 1992 
SNF market basket, in which the PPI for Finished Goods is used. Both 
food and energy are already adequately represented in separate cost 
categories and should not also be reflected in this cost category.
     Telephone Services: The percentage change in the price 
of Telephone Services as measured by the CPI-U is applied to this 
component.
     Labor-Intensive Services: For measuring price change in 
the Labor-Intensive Services cost category, the ECI for Compensation 
for Private Service Occupations is used.
     Non Labor-Intensive Services: For measuring price 
change in the Non Labor-Intensive Services cost category, the CPI-U 
for All Items is used.

D. Capital-Related Expenses

    All capital-related expense categories have the same price 
proxies as those used in the 1992-based SNF PPS market basket 
described in the May 12, 1998 Federal Register (63 FR 26252). The 
price proxies for the SNF capital-related expenses are described 
below:
     Depreciation--Building and Fixed Equipment: The Boeckh 
Institutional Construction Index for unit prices of fixed assets.
     Depreciation--Movable Equipment: The PPI for Machinery 
and Equipment.
     Interest--Government and Nonprofit SNFs: The Average 
Yield for Municipal Bonds from the Bond Buyer Index of 20 bonds. CMS 
input price indexes, including this rebased SNF index, appropriately 
reflect the rate of change in the price proxy and not the level of 
the price proxy. While SNFs may face different interest rate levels 
than those included in the Bond Buyer Index, the rate of change 
between the two is not significantly different. ]
     Interest--For-profit SNFs: The Average Yield for 
Moody's AAA Corporate Bonds. Again, the final rebased SNF index 
focuses on the rate of change in this interest rate and not the 
level of the interest rate.
    Comment: One commenter indicated that the AAA corporate bond 
proxy is not appropriate for SNFs.
    Response: We feel that the yield on Moody's AAA corporate bond 
rating is an appropriate proxy to use to measure the interest costs 
faced by SNFs. While the interest rate levels may not be equal for 
differently rated bonds, over the long term on which vintage 
weighting is based, the growth rates of the bond yields move 
similarly.
     Other Capital-related Expenses: The CPI-U for 
Residential Rent.

  Table A-3.--A Comparison of Price Proxies Used in the 1992-Based and
           1997-Based Skilled Nursing Facility Market Baskets
------------------------------------------------------------------------
                                1992-based price      1997-based price
        Cost category                 proxy                 proxy
------------------------------------------------------------------------
Wages and Salaries..........  ECI for Wages and     Same
                               Salaries for
                               Private Nursing
                               Homes.
Employee Benefits...........  ECI for Benefits for  Same
                               Private Nursing
                               Homes.

[[Page 39605]]

 
Nonmedical professional fees  ECI for Compensation  Same
                               for Private
                               Professional and
                               Technical Workers.
Electricity.................  PPI for Commercial    Same
                               Electric Power.
Fuels.......................  PPI for Commercial    Same
                               Natural Gas.
Water and sewerage..........  CPI-U for Water and   Same
                               Sewerage.
Food--Wholesale purchases...  PPI--Processed Foods  Same
Food--Retail purchases......  CPI-U--Food Away      Same
                               From Home.
Pharmaceuticals.............  PPI for Prescription  Same
                               Drugs.
Chemicals...................  PPI for Industrial    Same
                               Chemicals.
Rubber and plastics.........  PPI for Rubber and    Same
                               Plastic Products.
Paper products..............  PPI for Converted     Same
                               Paper and
                               Paperboard.
Miscellaneous products......  PPI for Finished      PPI for Finished
                               Goods.                Goods less Food And
                                                     Energy
Telephone services..........  CPI-U for Telephone   Same
                               Services.
Labor-intensive services....  ECI for Compensation  Same
                               for private service
                               occupations.
Non labor-intensive services  CPI-U for All Items.  Same
Depreciation: Building and    Boeckh Institutional  Same
 Fixed Equipment.              Construction Index.
Depreciation: Movable         PPI for Machinery     Same
 Equipment.                    and Equipment.
Interest: Government and      Average Yield         Same
 Nonprofit SNFs.               Municipal Bonds
                               (Bond Buyer Index--
                               20 bonds).
Interest: For-profit SNFs...  Average Yield         Same
                               Moody's AAA Bonds.
Other Capital-related         CPI-U for             Same
 Expenses.                     Residential Rent.
------------------------------------------------------------------------


                  Appendix B.--Swing-Bed Data Elements
------------------------------------------------------------------------
         MDS item description                      MDS2.0 item
------------------------------------------------------------------------
First Name, Middle Initial, Last Name.  AA1a, 1b, 1c
Gender................................  AA2
Birth Date............................  AA3
Marital Status........................  A5
Ethnicity/Race........................  AA4
Zip Code..............................  AB4
Resident SSN..........................  AA5a
Resident Medicare Number..............  AA5b
Resident Medicaid Number..............  AA7
Secondary Payer Source................  A7
Facility Medicare Provider Number.....  AA6b
Facility Medicaid Provider Number.....  AA6a
Admitted From at Entry to Swing-Bed     Similar to AB2
 Extended Care Services.
Prior Acute Care Admission Date.......  New Item
Admission Date........................  AB1
Readmission Date......................  A4
Assessment Reference Date.............  A3
Reason for Assessment.................  Similar to AA8
Discharge Status......................  R3
Discharge Date........................  R4
Comatose..............................  B1
Short Term Memory.....................  B2a
Cognitive skills/Daily Decision-Making  B4
Making Self Understood................  C4
Negative Statements...................  E1a
Repetitive Statements.................  E1b
Repetitive Verbalizations.............  E1c
Persistent Anger with Others..........  E1d
Self Deprecation......................  E1e
Expression of Unrealistic Fears.......  E1f
Recurrent Statements of Fears for the   E1g
 Future.
Repetitive Health Complaints..........  E1h
Repetitive Anxious Complaints/Concerns  E1i
Unpleasant mood in morning............  E1j
Insomniac/Change in Sleeping Patterns.  E1k
Sad/Pained/Worried Facial Expression..  E1l
Crying/tearfulness....................  E1m
Repetitive physical movements.........  E1n
Withdrawal from activities of interest  E1o
Reduced Social Interaction............  E1p
Behavior symptom--Wandering frequency.  E4aa
Behavior symptom--Verbally Abusive      E4ba
 frequency.

[[Page 39606]]

 
Behavior symptom--Physically Abusive    E4ca
 frequency.
Behavior symptom--Socially              E4da
 Inappropriate/disruption frequency.
Behavior symptom--Resists care          E4ea
 frequency.
ADL-Self Performance--Bed Mobility....  G1aa
ADL Support--Bed Mobility.............  G1ab
ADL--Self Performance--Transfer.......  G1ba
ADL Support--Transfer.................  G1bb
ADL--Self Performance--Eating.........  G1ha
ADL--Support--Eating..................  G1hb
ADL Self-Performance--Toileting.......  G1ia
ADL Support--Toileting................  G1ib
Any scheduled toileting plan..........  H3a
Bladder retraining plan...............  H3b
Diabetes mellitus.....................  I1a
Aphasia...............................  I1r
Cerebral Palsy........................  I1s
Hemiplegia/hemiparesis................  I1v
Multiple Sclerosis....................  I1w
Quadriplegia..........................  I1z
Pneumonia.............................  I2e
Septicemia............................  I2g
Dehydrated--output exceeds input......  J1c
Delusions.............................  J1e
Fever.................................  J1h
Hallucinations........................  J1i
Internal bleeding.....................  J1j
Vomiting..............................  J1o
Weight loss...........................  K3a
Parenteral IV.........................  K5a
Feeding Tube..........................  K5b
Total calories by IV..................  K6a
Average fluid intake by IV............  K6b
Ulcers--Stage 1.......................  M1a
Ulcers--Stage 2.......................  M1b
Ulcers--Stage 3.......................  M1c
Ulcers--Stage 4.......................  M1d
Pressure Ulcer........................  M2a
Burns.................................  M4b
Open lesions..........................  M4c
Surgical Wounds.......................  M4g
Pressure relieving device for chair...  M5a
Pressure relieving device for bed.....  M5b
Turning/Repositioning program.........  M5c
Nutrition/hydration program...........  M5d
Ulcer Care............................  M5e
Surgical wound care...................  M5f
Application of dressings..............  M5g
Application of ointments/medications..  M5h
Infection of foot.....................  M6b
Open lesions on foot..................  M6c
Application of dressings..............  M6f
Time Awake--Morning...................  N1a
Time Awake Afternoon..................  N1b
Time Awake--Evening...................  N1c
Time Awake--None of the Above.........  N1d
Injections............................  O3
Chemotherapy..........................  P1aa
Dialysis..............................  P1ab
IV Meds...............................  P1ac
Oxygen Therapy........................  P1ag
Radiation.............................  P1ah
Suctioning............................  P1ai
Trach Care............................  P1aj
Transfusions..........................  P1ak
Ventilator/respirator.................  P1al
Therapy Days--Speech..................  P1baa
Therapy Minutes--Speech...............  P1bab
Therapy Days OT.......................  P1bba
Therapy Minutes--OT...................  P1bbb
Therapy Days--PT......................  P1bca
Therapy Minutes--PT...................  P1bcb
Therapy Days Respiratory..............  P1bda

[[Page 39607]]

 
Therapy Minutes--Respiratory..........  P1bdb
Range of Motion--Passive..............  P3a
Range of Motion--Active...............  P3b
Splint or brace assistance............  P3c
Bed Mobility..........................  P3d
Transfer..............................  P3e
Walking...............................  P3f
Dressing or grooming..................  P3g
Eating or swallowing..................  P3h
Amputation/prosthesis care............  P3i
Communication.........................  P3j
Physician Visits......................  P7
Physician Orders......................  P8
Ordered Therapies.....................  T1b
Estimated Therapy days................  T1c
Estimated Therapy Minutes.............  T1d
Medicare Case-Mix Group...............  T3a
Medicaid Case-Mix Group, if Applicable  T3b
HIPPS Assessment Indicator............  New Item (software generated)
RN Signature..........................  R2a
Date of RN Signature..................  R2b
------------------------------------------------------------------------

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

    Dated: July 23, 2001.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.


    Dated: July 24, 2001.
Tommy G. Thompson,
Secretary.

[FR Doc. 01-18869 Filed 7-26-01; 8:45 am]
BILLING CODE 4120-01-P