[Federal Register Volume 69, Number 146 (Friday, July 30, 2004)]
[Notices]
[Pages 45775-45822]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-17443]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
[CMS-1249-N]
RIN 0938-AM46
Medicare Program; Prospective Payment System and Consolidated
Billing for Skilled Nursing Facilities--Update--Notice
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Notice.
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SUMMARY: This notice updates the payment rates used under the
prospective payment system (PPS) for skilled nursing facilities (SNFs),
for fiscal year (FY) 2005, 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 (the BBRA), the Medicare, Medicaid, and
SCHIP Benefits Improvement and Protection Act of 2000 (the BIPA), and
the Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (the MMA), relating to Medicare payments and consolidated billing
for SNFs.
EFFECTIVE DATE: This notice is effective on October 1, 2004.
FOR FURTHER INFORMATION CONTACT: John Davis, (410) 786-0008 (for
information related to the Wage Index, and to swing-bed providers).
Ellen Gay, (410) 786-4528 (for information related to the case-mix
classification methodology). Jeanette Kranacs, (410) 786-9385 (for
information related to the development of the payment rates). Bill
Ullman, (410) 786-5667 (for information related to level of care
determinations, consolidated billing, and general information).
SUPPLEMENTARY INFORMATION: Because of the many terms to which we refer
by abbreviation in this notice, we are listing these abbreviations and
their corresponding terms in alphabetical order below:
ADL Activity of Daily Living
AHE Average Hourly Earnings
AIDS Acquired Immune Deficiency Syndrome
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
CAH Critical Access Hospital
CFR Code of Federal Regulations
CMS Centers for Medicare & Medicaid Services
CPT (Physicians') Current Procedural Terminology
DRG Diagnosis Related Group
FI Fiscal Intermediary
FQHC Federally Qualified Health Center
FR Federal Register
FY Fiscal Year
GAO General Accounting Office
HCPCS Healthcare Common Procedure Coding System
ICD-9-CM International Classification of Diseases, Ninth Edition,
Clinical Modification
IFC Interim Final Rule with Comment Period
MDS Minimum Data Set
MEDPAR Medicare Provider Analysis and Review File
MIP Medicare Integrity Program
MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, Pub.L. 108-173
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
RFA Regulatory Flexibility Act, Pub. L. 96-354
RHC Rural Health Clinic
RIA Regulatory Impact Analysis
RUG Resource Utilization Groups
SCHIP State Children's Health Insurance Program
SNF Skilled Nursing Facility
STM Staff Time Measure
UMRA Unfunded Mandates Reform Act, Pub. L. 104-4
I. Background
On August 4, 2003, we published in the Federal Register (68 FR
46036) a final rule that set forth updates to the payment rates used
under the prospective payment system (PPS) for skilled nursing
facilities (SNFs) for fiscal year (FY) 2004. (We subsequently published
a correction notice (68 FR 55882, September 29, 2003) with respect to
those payment rate updates.) 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), the Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000 (BIPA), and the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)
relating to Medicare payments 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-
related) of covered SNF services furnished to beneficiaries under Part
A of the Medicare program, effective for cost reporting periods
beginning on or after July 1, 1998. In this notice, we are updating the
per diem payment rates for SNFs for FY 2005. 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 were
adjusted annually using a SNF market basket index. Rates were 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 were also adjusted by the
hospital wage index to account for geographic variation in wages. (In
section II.C of this notice, we discuss the wage index adjustment in
greater detail.) A correction notice was published on October 10, 2003
(68 FR 58756) that announced a wage index for a particular MSA that had
been inadvertently omitted from the September 29, 2003 correction
notice
[[Page 45776]]
(68 FR 55882). Additionally, as noted in the August 4, 2003 final rule
(68 FR 46036), section 101 of the BBRA and sections 311, 312, and 314
of the BIPA also affect the payment rate. Further, as explained in
section I.E of this update notice, the Congress has subsequently
enacted additional legislation, in section 511 of the MMA, that also
affects the payment rate.
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. The last year of the transition was FY
2001. All facilities have been paid at the full Federal rate since the
following fiscal year (FY 2002). Therefore, as discussed in section
I.F.2 of this notice, we no longer include adjustment factors related
to facility-specific rates for the coming fiscal year.
Coverage. The establishment of the SNF PPS did not change
Medicare's fundamental requirements for SNF coverage; however, because
RUG-III classification is based, in part, on the beneficiary's need for
skilled nursing care and therapy, we have attempted, where possible, to
coordinate claims review procedures with the outputs of beneficiary
assessment and RUG-III classifying activities. We discuss this
coordination in greater detail in section II.E of this notice.
Consolidated Billing. The SNF PPS includes a consolidated
billing provision (described in greater detail in section IV. of this
notice) that requires a SNF to submit consolidated Medicare bills for
almost all of the services that its residents receive during the course
of a covered Part A stay. In addition, this provision places with the
SNF the Medicare billing responsibility for physical, occupational, and
speech-language therapy that the resident receives during a noncovered
stay. The statute excludes a small list of services from the
consolidated billing provision (primarily those of physicians and
certain other types of practitioners), which remain separately billable
to Part B when furnished to a SNF's Part A resident. As discussed in
section IV. of this notice, section 410 of the MMA contains a provision
that affects the applicability of the consolidated billing requirement
to certain practitioner and other services furnished to SNF residents
by rural health clinics (RHCs) and Federally Qualified Health Centers
(FQHCs).
Application of the SNF PPS to SNF services furnished by swing-bed
hospitals. Section 1883 of the Act permits certain small, rural
hospitals to enter into a Medicare swing-bed agreement, under which the
hospital can use its beds to provide either acute or SNF care, as
needed. For critical access hospitals (CAHs), Part A pays on a
reasonable cost basis for SNF services furnished under a swing-bed
agreement. However, in accordance with section 1888(e)(7) of the Act,
these services furnished by non-CAH rural hospitals are paid under the
SNF PPS, effective with cost reporting periods beginning on or after
July 1, 2002. A more detailed discussion of this provision appears in
section V. of this notice.
B. Requirements of the Balanced Budget Act of 1997 (BBA) for Updating
the Prospective Payment System for Skilled Nursing Facilities
Section 1888(e)(4)(H) of the Act requires that we 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 (see section II.E of this notice).
This notice 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
adjustments to the SNF PPS. These provisions were described in detail
in the final rule that we published in the Federal Register on July 31,
2000 (65 FR 46770). In particular, section 101(a) of the BBRA provided
for a temporary, 20 percent increase in the per diem adjusted payment
rates for 15 specified RUG-III groups (SE3, SE2, SE1, SSC, SSB, SSA,
CC2, CC1, CB2, CB1, CA2, CA1, RHC, RMC, and RMB). Under the statute,
this temporary increase remains in effect until the later of October 1,
2000, or the implementation of case-mix refinements in the PPS. Section
101(d) 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.
We included further information on all of the provisions of the
BBRA that affect the SNF PPS in Program Memorandums A-99-53 and A-99-61
(December 1999), and Program Memorandum AB-00-18 (March 2000). In
addition, for swing-bed hospitals with more than 49 (but less than 100)
beds, section 408 of the BBRA provided for the repeal of certain
statutory restrictions on length of stay and aggregate payment for
patient days, effective with the end of the SNF PPS transition period
described in section 1888(e)(2)(E) of the Act. In the July 31, 2001
final rule (66 FR 39562), we made conforming changes to the regulations
at Sec. 413.114(d), effective for services furnished in cost reporting
periods beginning on or after July 1, 2002, to reflect section 408 of
the BBRA.
D. The Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000 (BIPA)
The BIPA also included several provisions that resulted in
adjustments to the PPS for SNFs. These provisions were described in
detail in the final rule that we published in the Federal Register on
July 31, 2001 (66 FR 39562), as follows:
Section 203 of the BIPA exempted critical access hospital
(CAH) swing-beds from the SNF PPS; we included further information on
this provision in Program Memorandum A-01-09 (January 16, 2001).
Section 311 of the BIPA eliminated the one percentage
point reduction in the SNF market basket that the statutory update
formula had previously specified for FY 2001, changed the one
percentage point reduction specified for FY 2002 to a 0.5 percentage
point reduction, and established an update factor for FY 2003 of market
basket minus 0.5 percentage point. This section also required us to
conduct a study of alternative case-mix classification systems for the
SNF PPS, and to submit a report to the Congress by January 1, 2005.
Section 312 of the BIPA provided for a temporary 16.66
percent increase in the nursing component of the case-mix adjusted
Federal rate for services furnished on or after April 1, 2001, and
before October 1, 2002. This section also required the General
Accounting Office (GAO) to conduct an audit of SNF nursing staff ratios
and submit a report to the Congress on whether the temporary increase
in the nursing component should be continued. GAO issued this report
(GAO-03-176) in November 2002.
Section 313 of the BIPA repealed the consolidated billing
requirement for services (other than physical, occupational, and
speech-language therapy) furnished to SNF residents during noncovered
stays, effective January 1, 2001.
[[Page 45777]]
Section 314 of the BIPA adjusted the payment rates for all
of the fourteen rehabilitation RUGs (RUC, RUB, RUA, RVC, RVB, RVA, RHC,
RHB, RHA, RMC, RMB, RMA, RLB, and RLA), in order to correct an anomaly
under which the existing payment rates for three particular
rehabilitation RUGs--RHC, RMC, and RMB--were higher than the rates for
some other, more intensive rehabilitation RUGs. Under the BIPA
adjustment, the temporary increase that section 101(a) of the BBRA had
applied to the RHC, RMC, and RMB rehabilitation RUGs was revised from
20 percent to 6.7 percent, and the BIPA adjustment also applied this
temporary 6.7 percent increase to each of the other eleven
rehabilitation RUGs as well.
Section 315 of the BIPA authorized us to establish a
geographic reclassification procedure that is specific to SNFs, but
only after collecting the data necessary to establish a SNF wage index
that is based on wage data from nursing homes.
We included further information on several of these provisions in
Program Memorandum A-01-08 (January 16, 2001).
E. The Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (MMA)
On December 8, 2003, the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 (MMA) was signed into law. This
legislation introduces a new provision that results in a further
adjustment to the PPS for SNFs. Specifically, section 511 of the MMA
amends paragraph (12) of section 1888(e) of the Act to provide for a
temporary 128 percent increase in the PPS per diem payment for any SNF
resident with Acquired Immune Deficiency Syndrome (AIDS), effective
with services furnished on or after October 1, 2004. Like the temporary
add-on payments created by section 101(a) of the BBRA (as amended by
section 314 of the BIPA), this special AIDS add-on remains in effect
until the implementation of case-mix refinements in the SNF PPS. The
law further provides that the 128 percent increase in payment under the
AIDS add-on is ``* * * determined without regard to any increase''
under section 101 of the BBRA (as amended by section 314 of the BIPA).
As explained in the MMA Conference report, this means that if a
resident qualifies for the temporary 128 percent increase in payment
under the special AIDS add-on, ``the BBRA temporary RUG add-on does not
apply in this case. * * *'' (H.R. Conf. Rep. No. 108-391 at 662). The
AIDS add-on is also discussed in Transmittal 160 (Change
Request 3291), issued on April 30, 2004, which is available
online at http://www.cms.hhs.gov/manuals/transmittals/comm_date_dsc.asp.
Implementation of this provision results in a significant increase
in payment. For example, using 2002 data we identified 773 SNF
residents with a principal diagnosis code of 042. The average payment
per day for these residents was approximately $261, including any
applicable add-ons from Section (312) of the BIPA, Section (314) of the
BIPA, and Section (101) of the BBRA. For FY2005, an urban facility with
a resident with AIDS in the SSA RUG would have a case-mix adjusted
payment of almost $216 (see Table 4) before the application of the
section 511 MMA adjustment. After an increase of 128 percent, this
urban facility would receive a case-mix adjusted payment of
approximately $492.
In addition, section 410 of the MMA contains a provision that
affects the consolidated billing requirement, which we discuss in
section IV. of this notice.
F. 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 covered Part A 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 developed the Federal payment rates using allowable costs
from hospital-based and freestanding SNF cost reports for reporting
periods beginning in FY 1995. The data used in developing the Federal
rates also incorporated an estimate of the amounts that would be
payable under Part B for covered SNF services furnished to individuals
during the course of a covered Part A stay in a SNF.
In developing the rates for the initial period, we updated costs to
the first effective year of the PPS (the 15-month period beginning July
1, 1998) using a SNF market basket index, and then standardized for the
costs of facility differences in case-mix and for geographic variations
in wages. 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, Resource Utilization Groups, version III (RUG-
III), uses beneficiary assessment data from the Minimum Data Set (MDS)
completed by SNFs to assign beneficiaries to one of 44 RUG-III groups.
The May 12, 1998 interim final rule (63 FR 26252) included a complete
and detailed description of the RUG-III classification system.
Further, in accordance with section 1888(e)(4)(E)(ii)(IV) of the
Act, the Federal rates in this notice reflect an update to the rates
that we published in the August 4, 2003 final rule for FY 2004 (68 FR
46036) and the associated correction notice (68 FR 55882, September 29,
2003), equal to the full change in the SNF market basket index. A more
detailed discussion of the SNF market basket index and related issues
appears in sections I.G and III. of this notice.
2. Payment Provisions--Initial Transition Period
The SNF PPS included an initial, phased transition from a facility-
specific rate (which reflected the individual facility's historical
cost experience) to the Federal case-mix adjusted rate. The transition
extended through the facility's first three cost reporting periods
under the PPS, up to and including the one that began in FY
[[Page 45778]]
2001. Accordingly, starting with cost reporting periods beginning in FY
2002, we base payments entirely on the Federal rates and, as indicated
in section II.F of this notice, we no longer include adjustment factors
related to facility-specific rates for the coming fiscal year.
G. Use of the Skilled Nursing Facility Market Basket Index
Section 1888(e)(5) of the Act requires us to establish a SNF market
basket index that reflects changes over time in the prices of an
appropriate mix of goods and services included in the covered SNF
services. The SNF market basket index is used to update the Federal
rates on an annual basis. The final rule published on July 31, 2001 (66
FR 39562) revised and rebased the market basket to reflect 1997 total
cost data.
In addition, as explained in the FY 2004 final rule (68 FR 46058)
and in section III.B of this notice, the annual update of the payment
rates includes, as appropriate, an adjustment to account for market
basket forecast error. This adjustment takes into account the forecast
error from the most recently available fiscal year for which there is
final data, and is applied whenever the difference between the
forecasted and actual change in the market basket exceeds a 0.25
percentage point threshold. For FY 2003 (the most recently available
fiscal year for which there is final data), the estimated increase in
the market basket index was 3.1 percentage points, while the actual
increase was 3.3 percentage points, resulting in only a 0.2 percentage
point underforecast. Accordingly, as the difference between the
estimated and actual amounts of change does not exceed the 0.25
percentage point threshold, the payment rates for FY 2005 do not
include a forecast error adjustment. Table 1 below shows the forecasted
and actual market basket amounts for FY 2003.
[GRAPHIC] [TIFF OMITTED] TN30JY04.052
II. Update of Payment Rates Under the Prospective Payment System for
Skilled Nursing Facilities
A. Federal Prospective Payment System
This notice sets forth a schedule of Federal prospective payment
rates applicable to Medicare Part A SNF services beginning October 1,
2004. The schedule incorporates 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.
1. Costs and Services Covered by the Federal Rates
The Federal rates apply to all costs (routine, ancillary, and
capital-related costs) of covered SNF services other than costs
associated with approved educational activities as defined in Sec.
413.85. Under section 1888(e)(2) of the Act covered SNF services
include post-hospital SNF services for which benefits are provided
under Part A (the hospital insurance program), as well as all items and
services (other than those services excluded by statute) that, before
July 1, 1998, were paid under Part B (the supplementary medical
insurance program) but furnished to Medicare beneficiaries in a SNF
during a Part A covered stay. (These excluded service categories are
discussed in greater detail in section V.B.2. of the May 12, 1998
interim final rule (63 FR 26295-97)).
2. Methodology Used for the Calculation of the Federal Rates
The FY 2005 rates reflect an update using the full amount of the
latest market basket index. The FY 2005 market basket increase factor
is 2.8 percent. For a complete description of the multi-step process,
see the May 12, 1998 interim final rule (63 FR 26252). We note that in
accordance with section 101(a) of the BBRA and section 314 of the BIPA,
the existing, temporary increase in the per diem adjusted payment rates
of 20 percent for certain specified RUGs (and 6.7 percent for certain
others) remains in effect until the implementation of case-mix
refinements. This is also the case for the temporary 128 percent
increase in the per diem adjusted payment rates for SNF residents with
AIDS, enacted by section 511 of the MMA. As discussed elsewhere in this
notice, while we are proceeding with our ongoing research in this area,
we are not implementing case-mix refinements at the present time.
We used the SNF market basket to adjust each per diem component of
the Federal rates forward to reflect cost increases occurring between
the midpoint of the Federal fiscal year beginning October 1, 2003, and
ending September 30, 2004, and the midpoint of the Federal fiscal year
beginning October 1, 2004, and ending September 30, 2005, to which the
payment rates apply. In accordance with section 1888(e)(4)(E)(ii)(IV)
of the Act, the payment rates for FY 2005 are updated by a factor equal
to the full market basket index percentage increase. The rates are
further adjusted by a wage index budget neutrality factor, described
later in this section. Tables 2 and 3 reflect the updated components of
the unadjusted Federal rates for FY 2005.
[[Page 45779]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.053
B. Case-Mix Refinements
Under the BBA, each update of the SNF PPS payment rates must
include the case-mix classification methodology applicable for the
coming Federal fiscal year. As noted in the following discussion, we
are proceeding with our ongoing research regarding possible refinements
in the existing case-mix classification system, but we are not
implementing the refinements in this notice. Therefore, we continue at
present to utilize the existing case-mix classification system that
employs the 44 RUG-III groups.
As discussed previously in this notice, section 101(a) of the BBRA
provided for a temporary 20 percent increase in the per diem adjusted
payment rates for 15 specified RUG-III groups. This legislation
specified that the 20 percent increase would be effective for SNF
services furnished on or after April 1, 2000, and would continue until
the later of: (1) October 1, 2000, or (2) implementation of a refined
case-mix classification system under section 1888(e)(4)(G)(i) of the
Act that would better account for medically complex patients.
In the SNF PPS proposed rule for FY 2001 (65 FR 19190, April 10,
2000), we proposed making an extensive, comprehensive set of
refinements to the existing case-mix classification system that
collectively would have significantly expanded the existing 44-group
structure. However, when our subsequent validation analyses indicated
that the refinements would afford only a limited degree of improvement
in explaining resource utilization relative to the significant increase
in complexity that they would entail, we decided not to implement them
at that time (see the FY 2001 final rule published July 31, 2000 (65 FR
46773)). Nevertheless, since the BBRA provision had demonstrated a
Congressional interest in improving the ability of the payment system
to account for the care furnished to medically complex patients in
SNFs, we continued to conduct research in this area.
The Congress subsequently enacted section 311(e) of the BIPA, which
directed us to conduct a study of the different systems for
categorizing patients in Medicare SNFs in a manner that accounts for
the relative resource utilization of different patient types, and to
issue a report with any appropriate recommendations to the Congress by
January 1, 2005. The extended timeframe for conducting the study, and
the broad mandate in the BIPA to consider various classification
systems and the full range of patient types, stood in sharp contrast to
the BBRA language regarding more incremental refinements to the
existing case-mix classification system under section 1888(e)(4)(G)(i)
of the Act. This underscored the fact that implementing the latter type
of refinements to the existing system in order to better account for
medically complex patients need not await the completion of the more
comprehensive changes envisioned in the BIPA. Accordingly, we again
considered the possibility of including these refinements as part of
the following year's annual update of the SNF payment rates.
However, in the July 31, 2002 update notice (67 FR 49801), we
determined that the research was not sufficiently advanced to implement
any case-mix refinements at that time, thus leaving the current
classification system in place. This also left in place the temporary
add-on payments enacted in section 101(a) of the BBRA. Moreover, while
we have continued with our ongoing research regarding possible
refinements in the existing case-mix classification system, this
research has not yet provided the basis for proceeding with those
refinements. Accordingly, we are not implementing case-mix refinements
in this notice.
As a result, the payment rates set forth in this notice reflect the
continued use of the 44-group RUG-III classification system discussed
in the May 12, 1998 interim final rule (63 FR 26252). We are also
maintaining the add-ons to the Federal rates for the specified RUG-III
[[Page 45780]]
groups required by section 101(a) 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 4 and 5, with the
corresponding case-mix values. These tables do not reflect the
temporary add-on to the specified RUG-III groups provided in the BBRA,
or the new AIDS add-on enacted by section 511 of the MMA, which are
applied only after all other adjustments (wage and case-mix) are made.
Meanwhile, we continue to explore both short-term and longer-range
revisions to our case-mix classification methodology. In July 2001, we
awarded a contract to the Urban Institute to perform research to aid us
in making incremental refinements to the case-mix classification system
under section 1888(e)(4)(G)(i) of the Act and to begin the case-mix
study mandated by section 311(e) of the BIPA. The results of our
current research will be included in the report to the Congress that
section 311(e) of the BIPA requires us to submit by January 1, 2005. As
we noted in the May 10, 2001 proposed rule (66 FR 23990), this research
may also support a longer term goal of developing more integrated
approaches for the payment and delivery system for Medicare post acute
services in general. This broader, ongoing research project will pursue
several avenues in studying various case-mix classification systems.
Our preliminary research has focused on incorporating comorbidities and
complications into the classification strategy, and we will thoroughly
explore and evaluate this approach and other approaches (including
procedures that might account more accurately for ancillary services)
in our ongoing work.
In addition, we note that certain questions have arisen recently in
connection with a particular aspect of a previous discussion of the
case-mix classification system, which appeared in the preamble to the
FY 2000 SNF PPS final rule (64 FR 41660-61, July 30, 1999).
Specifically, that portion of the preamble discussed the coverage of
rehabilitation therapy services (that is, physical, occupational, and
speech-language therapy) under the SNF PPS. This discussion noted the
longstanding requirement for such therapy services to be furnished
under ``an active written treatment regimen established by the
physician. * * *'' We further indicated that while Medicare allows the
professional therapist to begin providing services based on that plan
prior to obtaining the physician's signature on the plan,
* * * a physician signature must be obtained before the
facility bills Medicare for payment for the rehabilitation therapy
services provided to the beneficiary based on the plan of treatment
he or she has approved. In this way, the facility can be sure that
the level of therapy for which it bills Medicare is the level the
physician deems to be medically necessary.
In view of the questions that have arisen recently regarding that
portion of the preamble discussion, we would like to take this
opportunity to clarify the requirement for physician verification as it
relates to rehabilitation therapy services provided to a beneficiary
during a covered Part A SNF stay that is being paid under the SNF PPS.
Under section 1814(a)(2)(B) of the Act and the implementing regulations
at 42 CFR 424.20, the physician must certify (and periodically
recertify) that a beneficiary requires daily skilled nursing or
rehabilitation services which, as a practical matter, can only be
provided in the SNF on an inpatient basis (OMB approval number 0938-
0454 with a current expiration date of June 30, 2006). However, beyond
this overall statement as to the beneficiary's need for a SNF level of
care, the law and regulations do not require, as a prerequisite for
Part A coverage of rehabilitation therapy under the SNF benefit, the
completion of a further physician certification, specifically with
reference to the therapy plan of treatment.
Accordingly, notwithstanding the statement in the preamble to the
1999 final rule, as the Part A SNF benefit requires rehabilitation
therapy to be furnished according to an active written treatment
regimen established and certified by the physician, it is not necessary
for a SNF to obtain a separate physician signature on the therapy
treatment plan itself prior to billing Part A for the therapy services.
We wish to note explicitly that the foregoing discussion applies
specifically to coverage of rehabilitation therapy in the context of
the Part A SNF benefit, and does not address plan of care requirements
under the separate Part B therapy benefits, which are subject to their
own set of coverage requirements.
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C. Wage Index Adjustment to Federal Rates
Section 1888(e)(4)(G)(ii) of the Act requires that we adjust the
Federal rates to account for differences in area wage levels, using a
wage index that we find appropriate. Since the inception of a PPS for
SNFs, we have used hospital wage data in developing a wage index to be
applied to SNFs. We are continuing that practice for FY 2005.
The wage index adjustment is applied to the labor-related portion
of the Federal rate, which is 76.222 percent of the total rate. This
percentage reflects the labor-related relative importance for FY 2005.
The labor-related relative importance for FY 2004 was 76.372 as shown
in Table 11. The decrease in the labor share benefits rural areas. The
labor-related relative importance is calculated from the SNF market
basket, and approximates the labor-related portion of the total costs
after taking into account historical and projected price changes
between the base year and FY 2005. 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 2005 than the base year weights
from the SNF market basket.
We calculate the labor-related relative importance for FY 2005 in
four steps. First, we compute the FY 2005 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
2005 price index level for that cost category by the total market
basket price index level. Third, we determine the FY 2005 relative
importance for each cost category by multiplying this ratio by the base
year (FY 1997) weight. Finally, we sum the FY 2005 relative importance
for each of the labor-related cost categories (wages and salaries,
employee benefits, nonmedical professional fees, labor-intensive
services, and a portion of capital-related expenses) to produce the FY
2005 labor-related relative importance. Tables 6 and 7 show the Federal
rates by labor-related and non-labor-related components.
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Section 1888(e)(4)(G)(ii) of the Act also requires that we apply
this wage index in a manner that does not result in aggregate payments
that are greater or lesser than would otherwise be made in the absence
of the wage adjustment. In this seventh PPS year (Federal rates
effective October 1, 2004), we are applying the most recent wage index
using the hospital wage data, and applying an adjustment to fulfill the
budget neutrality requirement. This requirement will be met by
multiplying each of the components of the unadjusted Federal rates by a
factor equal to the ratio of the volume weighted mean wage adjustment
factor (using the wage index from the previous year) to the volume
weighted mean wage adjustment factor, using the wage index for the FY
beginning October 1, 2004. The same volume weights are used in both the
numerator and denominator and will be derived from 1997 Medicare
Provider Analysis and Review File (MEDPAR) data. The wage adjustment
factor used in this calculation is defined as the labor share of the
rate component multiplied by the wage index plus the non-labor share.
The budget neutrality factor for this year is 1.0011.
The wage index applicable to FY 2005 can be found in Table 8 and
Table 9 of this notice. We note that section 1886(d)(3)(E) of the Act
(as amended by section 304(c)(2) of the BIPA) directs the Secretary to
construct an occupational mix adjustment for the hospital area wage
index, for application beginning October 1, 2004. However, the
occupational mix adjustment outlined in section 1886(d)(3)(E) of the
Act applies only to the inpatient hospital PPS, which utilizes a
diagnosis-related group (DRG) payment system. While we are updating the
wage index to reflect the latest hospital wage data, we have never
included any adjustment for occupational mix in the SNF PPS, and we are
not doing so now.
We continue to believe that the hospital wage data represent the
best measure of wages and wage-related costs paid in the SNF setting.
However, the occupational mix adjustment utilized by the hospital
inpatient PPS serves specifically to define the occupational categories
more clearly in a hospital setting. The collection of the occupational
wage data also excludes any wage data related to SNFs; therefore, we
believe that using the updated wage data exclusive of the occupational
mix adjustment continues to be appropriate for SNF payments.
We also note that we are not adopting in this notice any of the
changes discussed in Office of Management and Budget (OMB) Bulletin No.
03-04 (June 6, 2003), which announced revised definitions for
Metropolitan Statistical Areas, and the creation of Micropolitan
Statistical Areas and Combined Statistical Areas. A copy of that
bulletin may be obtained at the following Internet address: http://www.whitehouse.gov/omb/bulletins/b03-04.html.
The proposed rule for the FY 2005 payment rates under the inpatient
hospital PPS (69 FR 28249, May 18, 2004) discusses some of the problems
and concerns associated with using these new definitions. We believe it
is appropriate to wait until the public comments on that proposed rule
have been submitted and analyzed before we consider proposing any new
labor market definitions in the SNF context. Further, since the use of
new definitions may have a significant impact on the SNF wage index and
SNF payments, we believe that the nursing home industry and other
interested parties should have sufficient time and opportunity to
provide comment before we reach any conclusions on whether adopting
these new definitions would produce an ``appropriate'' wage index for
the SNF PPS under section 1888(e)(4)(G)(ii) of the Act. Accordingly, we
plan to publish in a proposed rule any changes that we consider for new
labor market definitions, in order to provide the public with an
opportunity to comment on the possible use of these new labor market
definitions in the SNF context. Until then, interested parties who
would like to provide input on this issue are invited to do so by
contacting either John Davis or Jeanette Kranacs (please refer to the
section entitled, FOR FURTHER INFORMATION CONTACT at the beginning of
this document).
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D. Updates to the Federal Rates
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 full SNF market basket, which equals 2.8 percentage points. We will
continue to disseminate the rates, wage index, and case-mix
classification methodology through the Federal Register before August 1
preceding the start of each succeeding fiscal year.
E. Relationship of RUG-III Classification System to Existing Skilled
Nursing Facility Level-of-Care Criteria
As discussed in Sec. 413.345, we include in each update of the
Federal payment rates in the Federal Register the designation of those
specific RUGs under the classification system that represent the
required SNF level of care, as provided in Sec. 409.30. This
designation reflects an administrative presumption under the current
44-group RUG-III classification system 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.
[[Page 45817]]
A beneficiary assigned to any of the lower 18 groups is not
automatically classified as either meeting or not meeting the
definition, but instead receives an individual level of care
determination using the existing administrative criteria. This
presumption recognizes the strong likelihood that beneficiaries
assigned to one of the upper 26 groups during the immediate post-
hospital period require a covered level of care, which would be
significantly less likely for those beneficiaries assigned to one of
the lower 18 groups.
In this notice, 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.
F. Initial Three-Year Transition Period
As previously discussed in sections I.A and I.F.2 of this notice,
the PPS is no longer operating under the initial three-year transition
period from facility-specific to Federal rates. Therefore, payment now
equals 100 percent of the adjusted Federal per diem rate.
G. Example of Computation of Adjusted PPS Rates and SNF Payment
Using the XYZ SNF described in Table 10, 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, 2004. XYZ's total PPS payment would equal $25,161.
The Labor and Non-labor columns are derived from Table 6. In addition,
the adjustments for certain specified RUG-III groups enacted in section
101(a) of the BBRA (as amended by section 314 of the BIPA) remain in
effect, and are reflected in Table 10.
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III. The Skilled Nursing Facility Market Basket Index
Section 1888(e)(5)(A) of the Act requires us to establish an SNF
market basket index (input price index) that reflects changes over time
in the prices of an appropriate mix of goods and services included in
the SNF PPS. This notice incorporates the latest available projections
of the SNF market basket index. Accordingly, we have developed an SNF
market basket index that encompasses the most commonly used cost
categories for SNF routine services, ancillary services, and capital-
related expenses. In the July 31, 2001 Federal Register (66 FR 39562),
we included a complete discussion on the rebasing of the SNF market
basket to FY 1997. There are 21 separate cost categories and respective
price proxies. These cost categories were illustrated in Tables 10.A,
10.B, and Appendix A, along with other relevant information, in the
July 31, 2001 Federal Register.
Each year, we calculate a revised labor-related share based on the
relative importance of labor-related cost categories in the input price
index. Table 11 summarizes the updated labor-related share for FY 2005.
[[Page 45818]]
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A. Use of the Skilled Nursing Facility Market Basket Percentage
Section 1888(e)(5)(B) of the Act defines the SNF market basket
percentage as the percentage change in the SNF market basket index, as
described in the previous section, from the average of the prior fiscal
year to the average of the current fiscal year. For the Federal rates
established in this notice, the percentage increase in the SNF market
basket index is used to compute the update factor occurring between FY
2004 and FY 2005. We used the Global Insight, Inc. (formerly DRI-WEFA),
2nd quarter 2004 forecasted percentage increase in the FY 1997-based
SNF market basket index for routine, ancillary, and capital-related
expenses, described in the previous section, to compute the update
factor. Finally, we no longer compute update factors to adjust a
facility-specific portion of the SNF PPS rates, because the three-year
transition period from facility-specific to full Federal rates that
started with cost reporting periods beginning in July of 1998 has
expired.
B. Market Basket Forecast Error Adjustment
As discussed in the June 10, 2003, supplemental proposed rule (68
FR 34768) and finalized in the August 4, 2003, final rule (68 FR
46067), the regulations at 42 CFR 413.337(d)(2) provide for an
adjustment to account for market basket forecast error. The initial
adjustment applied to the update of the FY 2003 rate that occurred in
FY 2004, and took into account the cumulative forecast error for the
period from FY 2000 through FY 2002. Subsequent adjustments in
succeeding FYs take into account the forecast error from the most
recently available fiscal year for which there is final data, and are
applied whenever the difference between the forecasted and actual
change in the market basket exceeds a 0.25 percentage point threshold.
As discussed previously in section I.G of this notice, as the
difference between the estimated and actual amounts of increase in the
market basket index for FY 2003 (the most recently available fiscal
year for which there is final data) did not exceed the 0.25 percentage
point threshold, the payment rates for FY 2005 do not include a
forecast error adjustment.
C. Federal Rate Update Factor
Section 1888(e)(4)(E)(ii)(IV) of the Act requires that the update
factor used to establish the FY 2005 Federal rates be at a level equal
to the full market basket percentage change. Accordingly, to establish
the update factor, we determined the total growth from the average
market basket level for the period of October 1, 2003 through September
30, 2004 to the average market basket level for the period of October
1, 2004 through September 30, 2005. Using this process, the market
basket update factor for FY 2005 SNF Federal rates is 2.8 percentage
points. We used this revised update factor to compute the Federal
portion of the SNF PPS rate shown in Tables 2 and 3.
IV. Consolidated Billing
As established by section 4432(b) of the BBA, the consolidated
billing requirement places with the SNF the Medicare billing
responsibility for virtually all of the services that the SNF's
residents receive, except for a small number of services that the
statute specifically identifies as being excluded from this provision.
Section 103 of the BBRA amended this provision by further excluding a
number of individual services, identified by Healthcare Common
Procedure Coding System (HCPCS) code, within several broader categories
that otherwise remained subject to the provision. Section 313 of the
BIPA further amended this provision by repealing its Part B aspect;
that is, its applicability to services furnished to a resident during
an SNF stay that Medicare does not cover. (However, physical,
occupational, and speech-language therapy remain subject to
consolidated billing, regardless of whether the resident who receives
these services is in a covered Part A stay.)
Among the services that sections 1888(e)(2)(A)(ii) through (iii) of
the Act exclude from the consolidated billing requirement are those of
physicians and certain other specified types of medical practitioners,
which remain separately billable to Part B when furnished to an SNF's
Part A resident. Since the statute does not exclude the services of
rural health clinics (RHCs) or Federally Qualified Health Centers
(FQHCs), we have always regarded those specified types of practitioner
services, when furnished to an SNF's Part A resident by an RHC or FQHC,
as being a part of RHC or FQHC services (which are subject to
consolidated billing). However, section 410 of the MMA amended section
1888(e)(2)(A)(iv) of the Act to specify that when an RHC or FQHC
furnishes the services of a physician, or another type of service that
section 1888(e)(2)(A)(ii) of the Act identifies as being excluded from
SNF consolidated billing, those services do not become subject to
consolidated billing merely by virtue of being furnished under the
auspices of the RHC or FQHC. In effect, this amendment enables such
services to retain their separate identity as excluded ``practitioner''
services in this context, rather than being treated as bundled ``RHC''
or ``FQHC'' services. As such, these services would remain separately
billable to Part B when furnished to a resident of the SNF during a
covered Part A stay. The MMA specifies that this provision becomes
effective with services furnished on or after January 1, 2005. In
accordance with added section 1888(e)(2)(A)(iv) of the Act, this
provision applies to the following excluded service categories,
[[Page 45819]]
as identified in section 1888(e)(2)(A)(ii) of the Act:
Physician services.
Services of physician assistants working under a
physician's supervision.
Services of nurse practitioners and clinical nurse
specialists working in collaboration with a physician.
Certified nurse-midwife services.
Qualified psychologist services.
Certified registered nurse anesthetist services.
Home dialysis supplies and equipment, self-care home
dialysis support services, and institutional dialysis services and
supplies as described in section 1861(s)(2)(F) of the Act.
Erythropoietin (EPO) for certain dialysis patients as
described in section 1861(s)(2)(O) of the Act, subject to methods and
standards established by the Secretary in regulations for its safe and
effective use (see Sec. Sec. 405.2163(g) and (h)).
Further, we note that the amendment enacted in section 410 of the
MMA does not affect the applicability of the consolidated billing
requirement to any physical, occupational, or speech-language therapy
services furnished by RHCs and FQHCs. As specified in section
1888(e)(2)(A)(ii) of the Act, such services are always subject to SNF
consolidated billing, even when performed by a type of practitioner
whose services would otherwise be excluded from this provision.
V. Application of the SNF PPS to SNF Services Furnished by Swing-Bed
Hospitals
In accordance with section 1888(e)(7) of the Act (as amended by
section 203 of the BIPA), Part A pays critical access hospitals (CAHs)
on a reasonable cost basis for SNF services furnished under a swing-bed
agreement. However, as noted previously in section I.A of this notice,
the services furnished by non-CAH rural hospitals are paid under the
SNF PPS. In the July 31, 2001 final rule (66 FR 39562), we announced
the conversion of swing-bed rural hospitals to the SNF PPS, effective
with the start of the provider's first cost reporting period beginning
on or after July 1, 2002. We selected this date consistent with the
statutory provision to integrate swing-bed rural hospitals into the SNF
PPS by the end of the SNF transition period, June 30, 2002.
As of June 30, 2003, all swing-bed rural hospitals have come under
the SNF PPS. Therefore, all rates and wage indexes outlined in earlier
sections of this notice for SNF PPS also apply to all swing-bed rural
hospitals. A complete discussion of assessment schedules, the MDS and
the transmission software, Raven-SB for Swing Beds can be found in the
July 31, 2001 final rule (66 FR 39562). The latest changes in the MDS
for swing-bed rural hospitals are listed on our SNF PPS Web site,
http://www.cms.hhs.gov/providers/snfpps/default.asp.
VI. 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.).
VII. Regulatory Impact Analysis
A. Overall Impact
We have examined the impacts of this notice 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 notice is major, as defined in Title 5, United States Code,
section 804(2), because we estimate the impact of the standard update
will be to increase payments to SNFs by approximately $440 million.
The update set forth in this notice applies to payments in FY 2005.
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 RFA requires agencies to analyze options for 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. In addition, approximately 29 percent
of SNFs are nonprofit organizations.
This notice updates the SNF PPS rates published in the August 4,
2003 final rule (68 FR 46036) and the associated correction notice (68
FR 55882, September 29, 2003), thereby increasing aggregate payments by
an estimated $440 million. As indicated in Table 12, the effect on
facilities will be an aggregate positive impact of 2.8 percent. We note
that some individual providers may experience larger increases in
payments than others due to the distributional impact of the FY 2005
wage indices and the degree of Medicare utilization. While this notice
is considered major, its overall impact is extremely small; that is,
less than 3 percent of total SNF revenues from all payor sources. As
the overall impact is positive on the industry as a whole, and on small
entities specifically, it is not necessary to consider regulatory
alternatives.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 100 beds. Because the payment rates
set forth in this notice also affect rural hospital swing-bed services,
we believe that this notice will have a positive fiscal impact on small
rural hospitals. However, because this incremental increase in payments
for Medicare swing-bed services is relatively minor in comparison to
overall rural hospital revenues, this notice will 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
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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 notice will increase payments to SNFs by 2.8
percent, but will have no other substantial effect on State, local, or
tribal governments. Again, we believe that the aggregate impact of this
notice is positive, and does not meet the significance thresholds for
determining added costs under the Unfunded Mandates Reform Act.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates regulations that impose
substantial direct requirement costs on State and local governments,
preempts State law, or otherwise has Federalism implications. As stated
above, this notice will have no substantial effect on State and local
governments.
B. Anticipated Effects
This notice sets forth updates of the SNF PPS rates contained in
the August 4, 2003 final rule (68 FR 46036) and the associated
correction notice (68 FR 55882, September 29, 2003). The impact
analysis of this notice represents the projected effects of the changes
in the SNF PPS from FY 2004 to FY 2005. We estimate the effects 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 these 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 from 2002. We note that certain events
may combine to limit the scope or accuracy of our impact analysis,
because such an analysis is future-oriented and, thus, very susceptible
to forecasting errors due to other changes in the forecasted impact
time period. Some examples of such possible events are newly-legislated
general Medicare program funding changes by the Congress, or changes
specifically related to SNFs. In addition, changes to the Medicare
program may continue to be made as a result of the BBA, the BBRA, the
BIPA, the MMA, or new statutory provisions. Although these changes may
not be specific to the 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.
In accordance with section 1888(e)(4)(E) of the Act, the payment
rates for FY 2005 are updated by a factor equal to the full market
basket index percentage increase to determine the payment rates for FY
2005. We note that in accordance with section 101(a) of the BBRA and
section 314 of the BIPA, the existing, temporary increase in the per
diem adjusted payment rates of 20 percent for certain specified RUGs
(and 6.7 percent for certain others) remains in effect until the
implementation of case-mix refinements in the SNF PPS. Similarly, the
special AIDS add-on established by section 511 of the MMA remains in
effect until the implementation of case-mix refinements. In updating
the rates for FY 2005, we made a number of standard annual revisions
and clarifications mentioned elsewhere in this notice (for example, the
update to the wage and market basket indices used for adjusting the
Federal rates). These revisions will increase payments to SNFs by
approximately $440 million.
The impacts are shown in Table 12. The breakdown of the various
categories of data in the table follows.
The first column shows the breakdown of all SNFs by urban or rural
status, hospital-based or freestanding status, and census region.
The first row of figures in the first column describes the
estimated effects of the various changes on all facilities. The next
six rows show the effects on facilities split by hospital-based,
freestanding, urban, and rural categories. The next twenty rows show
the effects on urban versus rural status by census region. The final
four rows show the effects on facilities by ownership type.
The second column in the table shows the number of facilities in
the impact database.
The third 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 fourth column of the table shows the effect of all of the
changes on the FY 2005 payments. The market basket increase of 2.8
percentage points is constant for all providers and, though not shown
individually, is included in the total column. It is projected that
aggregate payments will increase by 2.8 percent in total, assuming
facilities do not change their care delivery and billing practices in
response.
As can be seen from this table, the combined effects of all of the
changes vary by specific types of providers and by location.
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C. Alternatives Considered
Section 1888(e) of the Act establishes the SNF PPS for the payment
of Medicare SNF services for cost reporting periods beginning on or
after July 1, 1998. This section of the statute prescribes a detailed
formula for calculating payment rates under the SNF PPS, and does not
provide for the use of any alternative methodology. It specifies that
the base year cost data to be used for computing the RUG-III payment
rates must be from FY 1995 (October 1, 1994, through September 30,
1995.) In accordance with the statute,
[[Page 45822]]
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. Further,
section 1888(e)(4)(H) of the Act specifically requires us to
disseminate the payment rates for each new fiscal year through the
Federal Register, and to do so before the August 1 that precedes the
start of the new fiscal year. Accordingly, we are not pursuing
alternatives with respect to the payment methodology. Further, as
discussed previously in section II.B of this notice, we are not
implementing case-mix refinements at the present time, but instead are
proceeding with our ongoing research in this area.
D. Conclusion
This notice does not initiate any policy changes with regard to the
SNF PPS; rather, it simply provides an update to the rates for FY 2005.
Therefore, 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 notice will 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.
VIII. Waiver of Proposed Rulemaking
We ordinarily publish a notice of proposed rulemaking in the
Federal Register to provide a period for public comment before the
provisions of a notice such as this take effect. We can waive this
procedure, however, if we find good cause that notice and comment
procedure is impracticable, unnecessary, or contrary to the public
interest and incorporate a statement of the finding and the reasons for
it into the notice issued.
We believe it is unnecessary to undertake notice-and-comment
rulemaking in this instance, as the statute requires annual updates to
the SNF PPS rates, the methodologies used to update the rates have been
previously subject to public comment, and this notice initiates no
policy changes with regard to the SNF PPS but simply reflects the
application of previously established methodologies. Therefore, we find
good cause to waive notice and comment procedures.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare-Hospital Insurance Program; and No. 93.774, Medicare-
Supplementary Medical Insurance Program)
Dated: June 24, 2004.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Dated: July 27, 2004.
Tommy G. Thompson,
Secretary.
[FR Doc. 04-17443 Filed 7-29-04; 8:45 am]
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