[Federal Register Volume 68, Number 111 (Tuesday, June 10, 2003)]
[Proposed Rules]
[Pages 34768-34773]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-14632]



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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 413



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

  Federal Register / Vol. 68, No. 111 / Tuesday, June 10, 2003 / 
Proposed Rules  

[[Page 34768]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 413

[CMS-1469-P2]
RIN 0938-AL20


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

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

ACTION: Proposed rule.

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SUMMARY: In this proposed rule, we are considering an adjustment to the 
annual update for skilled nursing facilities (SNFs) that would account 
for forecast errors. In addition, we are proposing to make a technical 
correction to correct a misspelling in existing regulation text. This 
proposed rule supplements the proposed rule that we published 
previously in the Federal Register on May 16, 2003 (68 FR 26758), which 
included proposed updates to the payment rates used under the 
prospective payment system (PPS) for SNFs, for fiscal year (FY) 2004, 
as required by section 1888(e) of the Social Security Act (the Act), as 
amended by the Medicare, Medicaid, and State Children's Health 
Insurance Program (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.

DATES: We will consider comments if we receive them at the appropriate 
address, as provided below, no later than 5 p.m. on July 7, 2003 (see 
section VI of this proposed rule for a discussion of the comment 
period).

ADDRESSES: Mail written comments (one original and three copies) to the 
following address:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1469-P2, P.O. Box 8013, Baltimore, MD 
21244-8013.
    If you prefer, you may deliver your written comments (one original 
and three copies) to one of the following addresses:

Hubert H. Humphrey Building, Room 443-G, 200 Independence Avenue, SW., 
Washington, DC 20201, or Centers for Medicare & Medicaid Services, Room 
C5-14-03, 7500 Security Boulevard, Baltimore, MD 21244-8013.

    Comments mailed to those addresses designated for courier delivery 
may be delayed and could be considered late. Because of staffing and 
resource limitations, we cannot accept comments by facsimile (FAX) 
transmission. Please refer to file code CMS-1469-P2 on each comment. 
Comments received timely will be available for public inspection as 
they are received, generally beginning approximately 3 weeks after 
publication of this document, in Room C5-12-08 of the Centers for 
Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, 
Maryland, Monday through Friday of each week from 8:30 a.m. to 4 p.m. 
Please call (410) 786-7197 to make an appointment to view comments.

FOR FURTHER INFORMATION CONTACT: Stephen Heffler, (410) 786-1211 (for 
information related to the SNF Market Basket Index and forecast error 
adjustments). Bill Ullman, (410) 786-5667, and Sheila Lambowitz, (410) 
786-7605 (for general information).

SUPPLEMENTARY INFORMATION: To assist readers in referencing sections 
contained in this document, we are providing the following Table of 
Contents.

Table of Contents
I. Background and Purpose of this Proposed Rule
II. Proposed Adjustment to the Annual Update to Account for Forecast 
Error in the SNF Market Basket
    A. Background
    B. Possible Approaches
    C. SNF Market Basket Forecast Error for FYs 2000 through 2002
    D. Process for Adjusting for SNF Market Basket Forecast Error
III. Solicitation of Comments on Quality of Care Efforts under SNF 
PPS
IV. Provisions of the Proposed Rule
V. Collection of Information Requirements
VI. Response to Public Comments
VII. Regulatory Impact Analysis

Regulation Text

I. Background and Purpose of this Proposed Rule

    Annual updates to the prospective payment system (PPS) rates are 
required by section 1888(e) of the Social Security Act (the Act), as 
amended by the Medicare, Medicaid, and State Children's Health 
Insurance Program (SCHIP) Balanced Budget Refinement Act of 1999 (BBRA, 
Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554), 
relating to Medicare payments and consolidated billing for SNFs.
    On May 16, 2003, we published in the Federal Register a proposed 
rule (68 FR 26758) in connection with the Medicare PPS for skilled 
nursing facilities (SNFs). The proposed rule included updated payment 
rates for fiscal year (FY) 2004, as well as a number of proposed 
revisions and technical corrections to the associated regulations. We 
are now publishing this supplemental proposed rule in order to propose 
an additional possible change, concerning the regulations in 42 CFR 
413.337(d)(2) for determining the annual update to the SNF payment 
rates. Specifically, we are considering an adjustment that would 
account for forecast error. In addition, we propose to make a technical 
correction to correct a misspelling in the existing regulation text at 
Sec.  413.345.
    We note that the issue of establishing an adjustment to account for 
forecast error is one that we have considered previously. To date, we 
have not implemented such an adjustment, because we were concerned that 
it might tend to detract from the prospective nature of the SNF payment 
system. Additionally, we note that, in the past, our evaluation of a 
possible adjustment to account for forecast error has not taken place 
in isolation, but rather, within the broader context of considering the 
possibility of developing a SNF-specific update framework, which would 
keep track of the various factors that affect costs and payment per 
case. This would include not only the market basket, but also other 
factors as well, such as productivity changes, intensity changes, and 
adjustment for case-mix creep. For example, the May 12, 1998 interim 
final rule on the SNF PPS (63 FR 26293) discussed the possibility of 
adopting a forecast error adjustment, similar to the one employed in 
the existing update framework for the inpatient hospital PPS:

    We are considering a mechanism to adjust future SNF PPS rates 
for forecast errors. * * * In any given year, there may be 
unanticipated price fluctuations that may result in differences 
between the actual increases in prices faced by SNFs and the 
forecast used in calculating the update factors.

    We further noted that if such a mechanism were adopted,

* * * an adjustment would be made only if the forecasted market 
basket percentage change for any year differs from the actual 
percentage change by 0.25 percentage points or more. There would be 
a 2-year lag between the forecast and the measurement of the 
forecast error. Thus, for example, we would adjust for an error in 
forecasting the 1997 market basket percentage used to compute the 
PPS rates effective with this interim final

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rule through an adjustment to the fiscal year 1999 update to the SNF 
PPS rates.

    As noted in the May 12, 1998 interim final rule, the existing 
update framework for the inpatient hospital capital PPS already 
includes an adjustment to account for forecast error (see the 
regulations at Sec.  412.308(c)(1)(ii)). The update framework for the 
inpatient hospital operating PPS includes a similar forecast error 
adjustment as well. However, the latter framework serves as the basis 
for making a recommendation to the Congress, which then establishes the 
actual update amount for the operating PPS through legislation. In the 
context of discussing a possible update framework for the SNF PPS in 
the FY 2002 proposed rule published on May 10, 2001 (66 FR 24018 
through 24019), we observed that in this existing update framework,

a forecast error adjustment has typically been included, to reflect 
that the updates are set prospectively and some degree of forecast 
error is inevitable. In the case of the inpatient hospital PPS, this 
adjustment is made on a two-year lag and only if the error exceeds a 
defined threshold (0.25 percentage points).

    Further, in the FY 2002 final rule published on July 31, 2001 (66 
FR 39586), one commenter specifically suggested establishing a 
mechanism in the SNF PPS to account for forecast error. In response, we 
noted that the development of a SNF-specific update framework ``* * * 
would give us the ability to factor in a forecast error adjustment in 
our recommendation for an update to SNF payments.''
    As the preceding discussion indicates, our consideration of 
adopting a mechanism for making forecast error adjustments has, to 
date, occurred exclusively within the broader context of developing a 
SNF-specific update framework, where the end result would be solely a 
recommendation to the Congress, rather than an actual adjustment to the 
payment rates. However, it might also be possible to establish a 
forecast error adjustment mechanism independently as a separate 
initiative, as we discuss in the following sections of this proposed 
rule.

II. Proposed Adjustment to the Annual Increase in the SNF Market Basket 
Index Amount to Account for Forecast Error

A. Background

    Since the implementation of the SNF PPS in July 1998, annual 
updates to the national PPS rate have been based on the forecasted 
percent change in the SNF market basket for the upcoming fiscal year. 
The SNF market basket was described in detail in the interim final rule 
that we published on May 12, 1998 (63 FR 26289), and in the final rule 
published on July 31, 2001 (65 FR 39581). The use of a forecasted 
market basket percent change is consistent with section 1888(e)(5) of 
the Act, which directs us to establish a market basket index for SNFs 
that ``* * * reflects changes over time in the prices of an appropriate 
mix of goods and services'' included in covered SNF services, and to 
calculate the percentage change in that index from the midpoint of the 
prior fiscal year to the midpoint of the current one. It is also 
consistent with the methodology used for other prospective payment 
systems, most notably the inpatient hospital PPS.
    The forecast of the SNF market basket percent change for the 
upcoming fiscal year is based on data that are available when the final 
rule is developed. This generally means that historical data that are 
available through the first quarter of the current calendar year are 
used to develop forecasts for the upcoming fiscal year. For example, 
the SNF market basket percent change for the FY 2003 payment update was 
forecast in June 2002, with historical data available through the first 
quarter of 2002. We purchase the forecasts of the individual price 
series in the SNF market basket from a leading macroeconometric 
forecasting firm, Global Insights, Inc. We define the SNF market basket 
forecast error as the difference in the forecasted percent change in 
the SNF market basket and the actual percent change in the SNF market 
basket for a given period, generally the fiscal year.
    Upon further consideration of the language of the statute and 
consistent with the use of a forecast to calculate the market basket 
percentage under section 1888(e)(5) of the Act, we believe that the 
statute provides us with authority to make adjustments to the update to 
the SNF per diem amount computed under section 1888(e)(4)(E)(ii)(IV) of 
the Act to adjust for differences in the forecasted percent change in 
the SNF market basket and the actual percent change in the SNF market 
basket, determined on the basis of later acquired, actual data. 
Pursuant to section 1888(e)(4)(E)(ii)(IV) of the Act, the SNF market 
basket percentage calculated by the Secretary is used to update the per 
diem rate computed for the prior fiscal year in order to determine the 
unadjusted Federal per diem rates to be applied during the upcoming 
fiscal year. Consistent with section 1888(e)(4)(H)(i) of the Act, 
before August 1, the Secretary shall publish in the Federal Register 
``the unadjusted Federal per diem rates to be applied to days of 
covered skilled nursing facility services furnished during the fiscal 
year.'' There is, however, no requirement that this published figure be 
used for purposes of computing the payment rate for the following 
fiscal year. Rather, the annual update to the SNF per diem rate is 
equal to ``the rate computed for the previous fiscal year increased by 
the skilled nursing facility market basket percentage change for the 
fiscal year involved'' (section 1888(e)(4)(E)(ii)(IV) of the Act). 
Accordingly, we believe the language of these provisions supports an 
interpretation of the Act in which the payment rate for a fiscal year 
can be computed again after the end of a fiscal year to reflect later 
acquired, actual data regarding changes in the market basket, and that 
this recomputed rate could then be used in determining updates to the 
SNF payment rate for the subsequent fiscal year. Because the payment 
rates to be applied during a fiscal year are the rates that are 
published in the Federal Register by the August 1 preceding the start 
of the fiscal year, (see section 1888(e)(4)(H)(i) of the Act), any such 
adjustments would be made for FY 2004 and subsequent years.

B. Possible Approaches

    We believe that establishing an adjustment for forecast error in 
prior years could help to further ensure that the payment rates 
appropriately reflect changes over time in the price of goods and 
services. However, it is important to consider certain additional 
factors in evaluating the feasibility of such an approach. In order to 
ensure that any such adjustment reflects actual market conditions 
accurately, it is absolutely essential that the adjustment be applied 
uniformly--not only in those instances where the forecasted percent 
change is lower than the actual percent change (as has been the case up 
to this point under the SNF PPS), but also in those instances where the 
forecasted percent change is higher than the actual percent change.
    We note that the latter circumstance would result in SNFs receiving 
lower than expected payments. In fact, it is even possible that, under 
a certain set of circumstances (for example, a year in which the law 
specifies an adjustment of the SNF market basket percentage change 
minus one percentage point, in combination with a negative forecast 
error correction and low price inflation), it could actually yield a 
net decrease in payment rates.
    This possibility underscores a potential disadvantage of 
establishing a forecast error adjustment, in that it would inevitably 
introduce an element

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of uncertainty regarding the amount of future updates. This 
uncertainty, in turn, would tend to detract from the prospective nature 
of the SNF payment system. In fact, the final rule that we published on 
January 3, 1984 at the inception of the prospective payment system for 
inpatient hospital services (49 FR 252) cited those very concerns in 
declining to adopt a suggestion to establish a forecast error 
adjustment at that point:

    One of the purposes of the prospective payment system is that 
hospitals will know in advance of each discharge the amount of 
Medicare payment. Using the latest available market basket 
projections prior to the beginning of a particular Federal fiscal 
year is consistent with this concept. To permit retroactive 
adjustments of the market basket inflation rates would erode the 
prospective nature of the system. We believe this would introduce an 
element of uncertainty incompatible with the very purpose of the 
prospective payment system. Therefore, we have not adopted the 
suggestion that the rates be adjusted if market basket projections 
prove to be inaccurate.

Thus, while there are considerations that argue in favor of 
establishing an adjustment to account for forecast error, we believe 
that such a change also raises a number of concerns. Accordingly, we 
seek comments on the advisability of pursuing this approach.
    Further, along with the basic question of whether to adopt a 
forecast error adjustment, it is also necessary to consider other 
related issues involving the precise nature of any such adjustment. For 
example, as further discussed in section II.D of this proposed rule, we 
are considering the inclusion of a threshold under which no forecast 
error adjustment would be made if the forecasted percent change is 
within 0.25 percentage points of the actual percent change (as is 
currently the case under the inpatient capital PPS). However, it would 
also be possible to set a different threshold, such as the 0.3 
percentage point level that was used in updating the SNF routine cost 
limits under the reasonable cost payment methodology that preceded the 
SNF PPS. Alternatively, we could even use a significantly higher 
threshold in this context, such as a full percentage point.
    In addition, we are considering that the initial forecast error 
adjustment would occur in FY 2004, and would take into account the 
cumulative forecast error between FYs 2000 and 2002, that is, since the 
beginning of the SNF PPS. We would apply the forecast error threshold 
of 0.25 percentage points to the forecast error calculation for the 
entire cumulative forecast error for FYs 2000 through 2002 instead of 
applying it to each year individually. We would do this because, in 
this calculation, the base payment rate is being adjusted in FY 2004 to 
bring the payment system in line with the actual experience. 
Alternatively, we could adopt an approach under which the initial 
adjustment takes into account only the forecast error for periods 
beginning after the effective date of the FY 2004 final rule. Under 
this alternative approach, the initial adjustment would not occur until 
FY 2006, and would take into account the forecast error from FY 2004. 
Accordingly, we invite comments not only on whether to adopt an 
adjustment to account for forecast error, but also on the specific 
characteristics of any such adjustment. The following describes the 
methodology that would be used if we considered an initial, cumulative 
forecast error adjustment provision.

C. SNF Market Basket Forecast Error for FYs 2000 Through 2002

    The initial SNF market basket forecasted update under the SNF PPS 
was for FY 2000 (3.1 percent), followed by forecasted updates for FY 
2001 (3.161 percent), FY 2002 (3.3 percent), and FY 2003 (3.1 percent). 
Historical market basket data are now available through FY 2002; 
therefore, we can calculate the cumulative SNF market basket forecast 
error for FYs 2000 through 2002, as shown in Table A. Historical data 
for the FY 2003 SNF market basket increase will not be available until 
early in 2004.

   Table A.--Cumulative SNF Market Basket Forecast Error For FYs 2000
                              Through 2002
------------------------------------------------------------------------
                                                  Forecasted  Actual SNF
                                                  SNF market    market
                                                    basket      basket
                                                    percent     percent
                                                    change      change
------------------------------------------------------------------------
FY 2000.........................................       3.1         4.1
FY 2001.........................................       3.161       5.1
FY 2002.........................................       3.3         3.4
Cumulative Growth FY 2000 through 2002..........       9.869      13.129
Cumulative SNF Market Basket Forecast Error.....  ..........       3.26
------------------------------------------------------------------------


    Note: The FY 2000 and FY 2001 SNF market basket percent changes 
are based on the 1992-based SNF market basket. The FY 2002 SNF 
market basket percent changes are based on the 1997-based SNF market 
basket.

    As indicated in Table A, the cumulative SNF market basket forecast 
error from FYs 2000 through 2002 is 3.26 percent. This figure is 
calculated by taking the difference in the cumulative forecasted SNF 
market basket increase over this period (1.031*1.03161*1.033=1.09869) 
and the cumulative actual SNF market basket increase 
(1.041*1.051*1.034=1.13129). As mentioned previously in section II.B of 
this proposed rule, we applied the forecast error threshold of 0.25 
percentage points to the forecast error calculation for the entire 
cumulative forecast error for FYs 2000 through 2002 instead of applying 
it to each year individually. We did this because, in this calculation, 
the base payment rate is being adjusted in FY 2004 to bring the payment 
system in line with the actual experience. The difference between these 
two cumulative increases equals 0.0326 (1.13129 minus 1.09869). This 
means that the SNF market basket was under-forecast by 3.26 percent for 
the period FY 2000 through 2002. Similarly, the base payment rate 
computed for FY 2003 was 3.26 percent lower than it would have been if 
actual data had been used.
    The major reason that the SNF market basket forecast was under-
forecast during this period was that wages and benefits for nursing 
home workers increased more rapidly than expected. This faster-than-
expected increase occurred primarily because the health sector 
continued to grow rapidly despite the economic downturn, and also 
because of the impacts of nursing staff shortages and other conditions 
generally affecting the health care market.
    In order to illustrate the potential impact that an initial, 
cumulative forecast error adjustment provision would have on payment 
rates, we are reproducing the original figures from Tables 1 and 2 in 
the FY 2004 SNF PPS proposed rule that appeared in the Federal Register 
on May 16, 2003 (68 FR 26761). The Federal rates in that proposed rule 
reflect an update to the rates that we published in the July 31, 2002 
Federal Register (67 FR 49798) equal to the full change in the SNF 
market basket index. According to our interpretation of section 
1888(e)(4)(E)(ii)(IV) of the Act, we would update the SNF PPS national 
base payment rate for FY 2003 by the cumulative forecast error amount. 
Thus, we would increase the SNF PPS national base payment rate for FY 
2003 by 3.26 percent. We would then update the rate by adjusting the 
revised rate by the full SNF market basket index (see the May 16, 2003 
proposed rule (68 FR 26775) for an explanation of how we calculate the 
full SNF market basket index). The FY 2004 market basket increase 
factor is 2.9 percent. We are inviting comments on including an

[[Page 34771]]

adjustment to the SNF PPS base payment rate to account for the 
cumulative forecast error between FY 2000 and FY 2002. Using this 
approach, we would update the FY 2003 SNF PPS national payment rate by 
an additional 3.26 percent above the 2.9 percent SNF market basket 
increase currently forecasted for FY 2004. For a complete description 
of the multi-step process, see the May 12, 1998 interim final rule (63 
FR 26252).
    As explained in section II.D, we have also included additional 
figures that are adjusted to reflect a 3.26 percent forecast error 
adjustment. The following describes the process we could consider using 
if we apply a forecast error adjustment only in future years.

                                Table 1.--Unadjusted Federal Rate Per Diem Urban
----------------------------------------------------------------------------------------------------------------
                                                     Nursing--case-  Therapy--case-  Therapy--non-
                   Rate component                          mix             mix          case-mix    Non-case-mix
----------------------------------------------------------------------------------------------------------------
Original Per Diem Amount without Forecast Error            $125.15          $94.27          $12.42        $63.87
 Adjustment........................................
Revised Per Diem Amount with Forecast Error                 129.23           97.34           12.82         65.96
 Adjustment........................................
----------------------------------------------------------------------------------------------------------------


                                Table 2.--Unadjusted Federal Rate Per Diem Rural
----------------------------------------------------------------------------------------------------------------
                                                     Nursing--case-  Therapy--case-  Therapy--non-
                   Rate component                          mix             mix          case-mix    Non-case-mix
----------------------------------------------------------------------------------------------------------------
Original Per Diem Amount without Forecast Error            $119.57         $108.70          $13.26        $65.06
 Adjustment........................................
Revised Per Diem Amount with Forecast Error                 123.47          112.24           13.69         67.18
 Adjustment........................................
----------------------------------------------------------------------------------------------------------------

D. Process for Adjusting for SNF Market Basket Forecast Error

    We are also inviting comments on applying the forecast error 
adjustment in future years, by adjusting the SNF PPS base payment rate 
annually for any forecast error in the SNF market basket. This process 
would involve making a one-time adjustment for the forecast error from 
the most recently available fiscal year. For example, for the FY 2005 
update, we could adjust for forecast error for FY 2003 only; FY 2004 
information would not yet be final. Similarly, for the FY 2006 update, 
we could adjust for the FY 2004 forecast error. This process creates 
what is essentially a 2-year lag on the forecast error correction, but 
is as timely as possible given the availability of historical data.
    The method of adjusting for annual forecast error would be similar 
to that described above for the FY 2004 update. We could adjust for 
forecast error in a fiscal year by adjusting the SNF PPS national base 
payment by the forecast error amount. For example, if the FY 2004 SNF 
market basket were over-forecast by 0.5 percent, we would reduce the 
SNF PPS national base payment rate in FY 2006 by 0.5 percent. 
Accordingly, this is a prospective adjustment and is consistent with 
the methodology currently employed under the inpatient hospital capital 
PPS, and with the update framework that we discussed in the FY 2002 SNF 
PPS proposed rule published on May 10, 2001 (66 FR 24016) and FY 2002 
final rule published on July 31, 2001 (66 FR 39587).
    In addition, as mentioned previously in section II.B, we are 
considering adopting a threshold under which no forecast error 
adjustment would be made if the forecasted percent change is within a 
defined range of the actual percent change. As noted previously, the 
inpatient hospital capital PPS already uses a threshold of 0.25 
percentage points. We are soliciting comments on what threshold would 
be appropriate in the context of the SNF PPS. This methodology is again 
consistent with the methodology used under the inpatient capital PPS, 
and reflects the concept that there is a certain level of imprecision 
associated with measuring statistics. We invite comments on the use of 
this standard.

III. Solicitation of Comments on Quality of Care Efforts Under SNF PPS

    We noted above that a major reason the SNF market basket forecast 
was under-forecasted for previous periods was that wages and benefits 
for SNF workers increased more rapidly than expected. Part of this wage 
increase may have been caused by nursing staff shortages which, coupled 
with the increased demand for services during this period, drove up 
wages not only in SNFs but in the entire health sector. Since the 
factors that drive costs in SNFs can also relate to nursing home 
quality of care, we believe it is important to reflect appropriately 
the market conditions facing SNFs.
    We have focused significant resources in the past two years on 
improving the quality of health care provided by Medicare providers. 
Our efforts with respect to nursing home quality have been particularly 
intensive. In December 2001, we announced a Nursing Home Quality 
Initiative. This initiative is part of the goal of the Department of 
Health and Human Services to continue to improve the quality of health 
care for all Americans, including those covered by the Medicare and 
Medicaid programs. After a successful six-State pilot in the Spring of 
2002, we released quality of care information on November 12, 2002 for 
nearly 17,000 nursing homes in all 50 States, the District of Columbia, 
and some U.S. Territories. Consumers can view these measures and other 
helpful information at http://www.medicare.gov.
    The Nursing Home Quality Initiative is a four-prong effort that 
consists of: regulation and enforcement efforts conducted by State 
survey agencies and by us; improved consumer information on the quality 
of care in nursing homes; continual, community-based quality 
improvement programs designed to help nursing homes improve their 
quality of care; and collaboration and partnership to utilize available 
knowledge and resources most effectively. State pilot in the Spring of 
2002, we released quality of care information on November 12, 2002 for 
nearly 17,000 nursing homes in all 50 States, the District of Columbia, 
and some U.S. Territories. Consumers can view these measures and other 
helpful information at http://www.medicare.gov.
    The Nursing Home Quality Initiative is a four-prong effort that 
consists of: regulation and enforcement efforts conducted by State 
survey agencies and by us; improved consumer information on the quality 
of care in nursing homes; continual, community-based quality 
improvement programs designed to help nursing homes improve their 
quality of care; and collaboration and partnership

[[Page 34772]]

to utilize available knowledge and resources most effectively.
    To the extent that market basket adjustments to the SNF PPS result 
in more appropriate payments to SNFs in future years, it is expected 
that a majority of the additional payments made in the future to SNFs 
will be used for direct care services to nursing home residents. 
Further, we expect that SNFs will use such payments to continue to 
engage in proactive, quality improvement activities and programs. 
Accordingly, we invite comments on how SNFs will account for these 
direct care funds and how CMS may use its authority under section 1888 
of the Act or elsewhere to further promote quality improvement efforts 
among SNFs. We also invite comments on available legal authority, as 
well as the advisability of refining and structuring payments under the 
SNF PPS to promote additional caregiver staffing at SNFs.

IV. Provisions of the Proposed Rule

    In this proposed rule, we propose to make the following revisions 
to the existing text of the regulations:
    [sbull] In Sec.  413.337(d)(2), we would insert additional text at 
the end of the paragraph, which would provide for an adjustment to the 
annual update of the previous fiscal year's rate to account for 
forecast error in the SNF market basket beginning with FY 2004.
    [sbull] In Sec.  413.345, we would make a technical correction to 
the second sentence of the regulation text, in order to correct the 
spelling of the word ``standardized.''

V. Collection of Information Requirements

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

VI. Response to Public Comments

    Because of the large number of items of correspondence we normally 
receive on a proposed rule, we are not able to acknowledge or respond 
to them individually. However, in preparing the final rule, we will 
consider all comments concerning the provisions of this proposed rule 
that we receive by the date and time specified in the DATES section of 
this preamble and respond to those comments in the preamble to that 
rule.

Waiver of 60-day Comment Period

    As discussed previously in section I of this preamble, we are 
issuing this proposed rule specifically in order to supplement the 
proposed rule that we published previously in the Federal Register on 
May 16, 2003 (68 FR 26758). Section 1871(b)(1) of the Act normally 
requires a 60-day public comment period for a proposed rule. However, 
under section 1871(b)(2)(C) of the Act, this requirement can be waived 
for good cause in situations where the agency finds that its 
application would be ``* * * impracticable, unnecessary, or contrary to 
the public interest'' (see 5 U.S.C. Sec.  553(b)). We note that under 
section 1888(e)(4)(H) of the Act, the updated payment rates for FY 2004 
must be published in the Federal Register no later than July 31, 2003. 
This means that providing a full 60-day comment period for this 
supplemental proposed rule could leave insufficient time following the 
close of the comment period to include any resulting revisions in that 
publication. We believe it to be in the public interest to consider any 
revisions in conjunction with the annual update to the SNF PPS rates so 
any adjustment to the payment rate could be done as part of the annual 
update process. Moreover, promulgating such revisions in a separate 
final rule published later than July 31 would require revising the rate 
structure after the start of the new fiscal year in order to 
accommodate the change, which would impose an inordinate administrative 
burden. Additionally, we note that, other than to propose a minor 
technical correction in the existing regulations text, the sole focus 
of this supplemental proposed rule concerns a single potential change, 
to adjust the annual update to the SNF payment rates in order to 
account for forecast error. Given the extremely narrow scope of this 
document, we believe that even a comment period of less than 60 days 
would still give interested parties sufficient opportunity to comment 
adequately on it.
    For the reasons set forth in the preceding discussion, which 
indicate that providing a full comment period would be contrary to the 
public interest, we find that there is good cause to modify the 60-day 
comment period in this instance. Accordingly, the closing date of the 
comment period for this supplemental proposed rule is hereby set at 
July 7, 2003, to coincide with the close of the initial proposed rule's 
comment period.

VII. Regulatory Impact Analysis

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review), 
the Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-
354), section 1102(b) of the Social Security Act (the Act), the 
Unfunded Mandates Reform Act of 1995 (UMRA) (Pub. L. 104-4), and 
Executive Order 13132.
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely assigns responsibility of duties) directs agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
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 in any 1 year). 
This proposed rule is a major rule, as defined in 5 U.S.C. 804(2), 
because, if we proceed with a forecast error adjustment, we estimate 
that the impact of such a change would be approximately $450 million in 
FY 2004 (based on the cumulative SNF market basket forecast error of 
3.26 percent for FYs 2000 through 2002, as shown in Table A). The $450 
million estimate also assumes the use of a 0.25 percentage point 
threshold (and would be reliable for thresholds up to 3.26 percent). 
However, as noted previously in section II.D, this estimated impact 
could change in any given year if we were to adopt a different 
threshold level.
    The RFA requires agencies to analyze options for the regulatory 
relief of small businesses. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and government 
agencies. Most SNFs and most other providers and suppliers are small 
entities, either by their nonprofit status or by having revenues of 
$11.5 million or less in any 1 year. For purposes of the RFA, 
approximately 53 percent of SNFs are considered small businesses 
according to the Small Business Administration's latest size standards 
with total revenues of $11.5 million or less in any 1 year (for further 
information, see 65 FR 69432, November 17, 2000). Individuals and 
States are not included in the definition of a small entity.
    The revision that we are considering in this proposed rule would 
simply provide for adjusting the annual increase in the applicable SNF 
market basket index amount, effective with FY

[[Page 34773]]

2004, to account for forecast error. Accordingly, we certify that this 
proposed rule would not have a significant impact on small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. For a 
proposed rule, this analysis must conform to the provisions of section 
603 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. Because the 
change in methodology set forth in this proposed rule would also affect 
rural hospital swing-bed services, we believe that this proposed rule 
would similarly affect small rural hospitals. However, because the 
incremental change in payments for Medicare swing-bed services would be 
relatively minor in comparison to overall rural hospital revenues, this 
proposed rule would not have a significant impact on the overall 
operations of these small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in an expenditure in any 1 year by 
State, local, or tribal governments, in the aggregate, or by the 
private sector, of $110 million or more. This proposed rule would have 
no substantial effect on State, local, or tribal governments. We 
believe the private sector cost of this proposed rule falls below these 
thresholds as well.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. As stated above, this proposed rule would have no 
substantial effect on State and local governments.
    As stated previously, the purpose of this proposed rule is simply 
to consider an adjustment to the annual update to account for forecast 
error in the SNF market basket. We believe that such a revision would 
have, at most, only a negligible overall effect in terms of the RFA and 
the other provisions discussed in this section. As such, it would not 
represent an additional burden to the industry.
    For the reasons set forth in the preceding discussion, we are not 
preparing analyses for either the RFA or section 1102(b) of the Act 
because we have determined that this proposed rule would not have a 
significant economic impact on a substantial number of small entities 
or a significant impact on the operations of a substantial number of 
small rural hospitals.
    Finally, in accordance with the provisions of Executive Order 
12866, this regulation was reviewed by the Office of Management and 
Budget.

List of Subjects in 42 CFR Part 413

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

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as follows:

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

    1. The authority citation for part 413 continues to read as 
follows:

    Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i) and 
(n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act 
(42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n), 
1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww).

Subpart J--Prospective Payment for Skilled Nursing Facilities

    2. In Sec.  413.337(d)(2), paragraph (d)(2) is revised to read as 
follows:


Sec.  413.337  Methodology for calculating the prospective payment 
rates.

* * * * *
    (d) Annual updates of Federal unadjusted payment rates. * * *
    (2) For subsequent fiscal years, the unadjusted Federal rate is 
equal to the rate for the previous fiscal year increased by the 
applicable SNF market basket index amount. Beginning with fiscal year 
2004, an adjustment to the annual update of the previous fiscal year's 
rate will be computed to account for forecast error. The initial 
adjustment (in fiscal year 2004) to the update of the previous fiscal 
year's rate will take into account the cumulative forecast error 
between fiscal years 2000 and 2002. Subsequent adjustments in 
succeeding fiscal years will take into account the forecast error from 
the most recently available fiscal year for which there is final data.
* * * * *


Sec.  413.345  [Amended]

    3. In the second sentence of Sec.  413.345, the word 
``tandardized'' is removed and the word ``standardized'' is added in 
its place.

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

    Dated: May 22, 2003.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: June 3, 2003.
Tommy G. Thompson,
Secretary.
[FR Doc. 03-14632 Filed 6-6-03; 10:38 am]
BILLING CODE 4120-01-P