[Federal Register Volume 74, Number 90 (Tuesday, May 12, 2009)]
[Proposed Rules]
[Pages 22208-22316]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-10461]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 483



Medicare Program; Prospective Payment System and Consolidated Billing 
for Skilled Nursing Facilities for FY 2010; Minimum Data Set, Version 
3.0 for Skilled Nursing Facilities and Medicaid Nursing Facilities; 
Proposed Rule

  Federal Register / Vol. 74, No. 90 / Tuesday, May 12, 2009 / Proposed 
Rules  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 483

[CMS-1410-P]
RIN 0938-AP46


Medicare Program; Prospective Payment System and Consolidated 
Billing for Skilled Nursing Facilities for FY 2010; Minimum Data Set, 
Version 3.0 for Skilled Nursing Facilities and Medicaid Nursing 
Facilities

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would update the payment rates used under 
the prospective payment system for skilled nursing facilities, for 
fiscal year 2010. In addition, it would recalibrate the case-mix 
indexes so that they more accurately reflect parity in expenditures 
related to the implementation of case-mix refinements in January 2006. 
It also discusses the results of our ongoing analysis of nursing home 
staff time measurement data collected in the Staff Time and Resource 
Intensity Verification project, and proposes a new RUG-IV case-mix 
classification model that will use the updated Minimum Data Set (MDS) 
3.0 resident assessment for case-mix classification. In addition, this 
proposed rule includes a request for public comment on a possible 
requirement for the quarterly reporting of nursing home staffing data, 
and would revise the regulations to incorporate certain technical 
corrections. Finally, this proposed rule includes a request for public 
comments on applying the quality monitoring mechanism in place for all 
other SNF PPS facilities to rural swing-bed hospitals.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on June 30, 2009.

ADDRESSES: In commenting, please refer to file code CMS-1410-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1410-P, P.O. Box 8016, 
Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1410-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses:
    a. Centers for Medicare & Medicaid Services, Department of Health & 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue, SW., Washington, DC 20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal Government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. Centers for Medicare & Medicaid Services, Department of Health & 
Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Ellen Berry, (410) 786-4528 (for 
information related to clinical issues).
    Trish Brooks, (410) 786-4561 (for information related to Resident 
Assessment Protocols (RAPs) under the Minimum Data Set (MDS)).
    Jeanette Kranacs, (410) 786-9385 (for information related to the 
development of the payment rates and case-mix indexes).
    Abby Ryan, (410) 786-4343 (for information related to the STRIVE 
project).
    Jean Scott, (410) 786-6327 (for information related to the request 
for comment on the possible quarterly reporting of nursing home 
staffing data).
    Bill Ullman, (410) 786-5667 (for information related to level of 
care determinations, consolidated billing, and general information).

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all comments received before the close of the comment period on 
the following Web site as soon as possible after they have been 
received: http://www.regulations.gov. Follow the search instructions on 
that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.
    To assist readers in referencing sections contained in this 
document, we are providing the following Table of Contents.

Table of Contents

I. Background
    A. Current System for Payment of SNF Services Under Part A of 
the Medicare Program
    B. Requirements of the Balanced Budget Act of 1997 (BBA) for 
Updating the Prospective Payment System for Skilled Nursing 
Facilities
    C. The Medicare, Medicaid, and SCHIP Balanced Budget Refinement 
Act of 1999 (BBRA)
    D. The Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA)
    E. The Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA)
    F. Skilled Nursing Facility Prospective Payment--General 
Overview
    1. Payment Provisions--Federal Rate
    2. FY 2010 Rate Updates Using the Skilled Nursing Facility 
Market Basket Index
II. FY 2010 Annual Update of Payment Rates Under the Prospective 
Payment System for Skilled Nursing Facilities
    A. Federal Prospective Payment System
    1. Costs and Services Covered by the Federal Rates

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    2. Methodology Used for the Calculation of the Federal Rates
    B. Case-Mix Adjustments
    1. Background
    2. Development of the Case-Mix Indexes
    C. Wage Index Adjustment to Federal Rates
    D. Updates to Federal Rates
    E. Relationship of RUG-III Classification System to Existing 
Skilled Nursing Facility Level-of-Care Criteria
    F. Example of Computation of Adjusted PPS Rates and SNF Payment
III. Resource Utilization Groups, Version 4 (RUG-IV)
    A. Staff Time and Resource Intensity Verification (STRIVE) 
Project
    1. Data Collection
    2. Developing the Analytical Data Base
    a. Concurrent Therapy
    b. Adjustments to STRIVE Therapy Minutes
    c. ADL Adjustments
    d. ``Look-Back'' Period
    e. Organizing the Nursing and Therapy Minutes
    B. The RUG-IV Classification System
    C. Development of the FY 2011 Case-Mix Indexes
    D. Relationship of RUG-IV Classification System to Existing 
Skilled Nursing Facility Level-of-Care Criteria
    E. Prospective Payment for SNF Nontherapy Ancillary Costs
    1. Previous Research
    2. Conceptual Analysis
    3. Analytic Sample
    4. Approach to Analysis
    5. Payment Methodology
    6. Temporary AIDS Add-On Payment Under Section 511 of the MMA
IV. Minimum Data Set, Version 3.0 (MDS 3.0)
    A. Description of the MDS 3.0
    B. MDS Elements, Common Definitions, and Resident Assessment 
Protocols (RAPs) Used Under the MDS
    C. Data Submission Requirements Under the MDS 3.0
    D. Proposed Change to Section T of the Resident Assessment 
Instrument (RAI) under the MDS 3.0
    1. Short Stay Patients
    2. Starting Therapy between MDS Observation Periods
    3. Reporting the Discontinuation of Therapy Services
V. Other Issues
    A. Invitation of Comments on Possible Quarterly Reporting of 
Nursing Home Staffing Data
    B. Miscellaneous Technical Corrections and Clarifications
VI. The Skilled Nursing Facility Market Basket Index
    A. Use of the Skilled Nursing Facility Market Basket Percentage
    B. Market Basket Forecast Error Adjustment
    C. Federal Rate Update Factor
VII. Consolidated Billing
VIII. Application of the SNF PPS to SNF Services Furnished by Swing-
Bed Hospitals; Quality Monitoring of Swing-Bed Hospitals
IX. Provisions of the Proposed Rule
X. Collection of Information Requirements
XI. Response to Comments
XII. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects
    C. Alternatives Considered
    D. Accounting Statement
    E. Conclusion
    Regulation Text
    Addendum:
    FY 2010 CBSA-Based Wage Index Tables (Tables A & B)
    RUG-III to RUG-IV Comparison (Table C)

Abbreviations

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

ADLs Activities of Daily Living
AIDS Acquired Immune Deficiency Syndrome
AOTA American Occupational Therapy Association
APTA American Physical Therapy Association
ARD Assessment Reference Date
ASHA American Speech-Language-Hearing Association
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
BIMS Brief Interview for Mental Status
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000, Pub. L. 106-554
CAH Critical Access Hospital
CAM Confusion Assessment Method
CARE Continuity Assessment Record and Evaluation
CAT Care Area Trigger
CBSA Core-Based Statistical Area
CFR Code of Federal Regulations
CMI Case-Mix Index
CMS Centers for Medicare & Medicaid Services
CMSO Center for Medicaid and State Operations
DRA Deficit Reduction Act of 2005, Pub. L. 109-171
DSM-IV Diagnostic and Statistical Manual of Mental Disorders, 4th 
Revision
FQHC Federally Qualified Health Center
FR Federal Register
FY Fiscal Year
GAO Government Accountability Office
HCPCS Healthcare Common Procedure Coding System
HHA Home Health Agencies
HIPPS Health Insurance Prospective Payment System
HIT Health Information Technology
HIV Human Immunodeficiency Virus Infection
IFC Interim Final Rule with Comment Period
IPPS Hospital Inpatient Prospective Payment System
IRF Inpatient Rehabilitation Facilities
LTCH Long-Term Care Hospital
MAC Medicare Administrative Contractor
MMACS Medicare/Medicaid Automated Certification System
MDS Minimum Data Set
MIPPA Medicare Improvements for Patients and Providers Act of 2008, 
Pub. L. 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Pub. L. 108-173
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Pub. L. 
110-173
MSA Metropolitan Statistical Area
MS-DRG Medicare Severity Diagnosis-Related Group
NCQA National Committee for Quality Assurance
NF Nursing Facility
NRST Non-Resident Specific Time
NTA Non-Therapy Ancillary
OIG Office of the Inspector General
OMB Office of Management and Budget
OMRA Other Medicare Required Assessment
OSCAR Online Survey Certification and Reporting System
PAC Post-Acute Care
PHQ-9 9-Item Patient Health Questionnaire
PPS Prospective Payment System
QM Quality Measure
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
RST Resident Specific Time
RUG-III Resource Utilization Groups, Version 3
RUG-IV Resource Utilization Groups, Version 4
RUG-53 Refined 53--Group RUG-III Case-Mix Classification System
SCHIP State Children's Health Insurance Program
SNF Skilled Nursing Facility
SOM State Operations Manual
STM Staff Time Measurement
STRIVE Staff Time and Resource Intensity Verification
TEP Technical Expert Panel
UMRA Unfunded Mandates Reform Act, Pub. L. 104-4

I. Background

    Annual updates to the prospective payment system (PPS) rates for 
skilled nursing facilities (SNFs) are required by section 1888(e) of 
the Social Security Act (the Act), as added by section 4432 of the 
Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33, enacted on August 5, 
1997), and amended by the Medicare, Medicaid, and State Children's 
Health Insurance Program (SCHIP) Balanced Budget Refinement Act of 1999 
(BBRA) (Pub. L. 106-113, enacted on November 29, 1999), the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA) (Pub. L. 106-554, enacted December 21, 2000), and the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) 
(Pub. L. 108-173, enacted on December 8, 2003). Our most recent

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annual update occurred in a final rule (73 FR 46416, August 8, 2008) 
that set forth updates to the SNF PPS payment rates for fiscal year 
(FY) 2009. We subsequently published a correction notice (73 FR 56998, 
October 1, 2008) with respect to those payment rate updates.

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

    Section 4432 of the 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 proposed rule, we propose to update the per diem payment 
rates for SNFs for FY 2010. Major elements of the SNF PPS include:
     Rates. As discussed in section I.F.1. of this proposed 
rule, we established per diem Federal rates for urban and rural areas 
using allowable costs from FY 1995 cost reports. These rates also 
included a ``Part B add-on'' (an estimate of the cost of those services 
that, before July 1, 1998, were paid under Part B but furnished to 
Medicare beneficiaries in a SNF during a Part A covered stay). We 
adjust the rates annually using a SNF market basket index, and we 
adjust them by the hospital inpatient wage index to account for 
geographic variation in wages. We also apply a case-mix adjustment to 
account for the relative resource utilization of different patient 
types. This adjustment utilizes a refined, 53-group version of the 
Resource Utilization Groups, version III (RUG-III) case-mix 
classification system, based on information obtained from the required 
resident assessments using the Minimum Data Set (MDS) 2.0. 
Additionally, as noted in the final rule for FY 2006 (70 FR 45028, 
August 4, 2005), the payment rates at various times have also reflected 
specific legislative provisions, including section 101 of the BBRA, 
sections 311, 312, and 314 of the BIPA, and section 511 of the MMA.
     Transition. Under sections 1888(e)(1)(A) and (e)(11) of 
the Act, the SNF PPS included an initial, three-phase transition that 
blended a facility-specific rate (reflecting the individual facility's 
historical cost experience) with 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 2001. Thus, the SNF PPS is no longer operating under the 
transition, as all facilities have been paid at the full Federal rate 
effective with cost reporting periods beginning in FY 2002. As we now 
base payments entirely on the adjusted Federal per diem rates, we no 
longer include adjustment factors related to facility-specific rates 
for the coming FY.
     Coverage. The establishment of the SNF PPS did not change 
Medicare's fundamental requirements for SNF coverage. However, because 
the 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 existing 
resident assessment process and case-mix classification system. This 
approach includes an administrative presumption that utilizes a 
beneficiary's initial classification in one of the upper 35 RUGs of the 
refined 53-group system to assist in making certain SNF level of care 
determinations. 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 proposed 
rule for a discussion of the relationship between the case-mix 
classification system and SNF level of care determinations, and section 
III.D for a discussion of this process in the context of the proposed 
conversion to version 4 of the RUGs (RUG-IV)).
     Consolidated Billing. The SNF PPS includes a consolidated 
billing provision that requires a SNF to submit consolidated Medicare 
bills to its fiscal intermediary or Medicare Administrative Contractor 
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 under Part B when furnished to a SNF's Part A resident. A more 
detailed discussion of this provision appears in section VII of this 
proposed rule.
     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 VIII of this proposed rule.

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 provide for 
publication annually in the Federal Register:
    1. The unadjusted Federal per diem rates to be applied to days of 
covered SNF services furnished during the upcoming FY.
    2. The case-mix classification system to be applied with respect to 
these services during the upcoming FY.
    3. The factors to be applied in making the area wage adjustment 
with respect to these services.
    Along with other revisions proposed later in this preamble, this 
proposed rule provides these required annual updates to the Federal 
rates.

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. We described these provisions in detail in 
the SNF PPS final rule for FY 2001 (65 FR 46770, July 31, 2000). 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. In accordance with section 101(c)(2) of the 
BBRA, this temporary payment adjustment expired on January 1, 2006, 
upon the implementation of case-mix refinements (see section I.F.1. of 
this proposed rule). We included further information on BBRA provisions 
that affected the SNF PPS in Program Memorandums A-99-53 and A-99-61 
(December 1999).
    Also, section 103 of the BBRA designated certain additional 
services for exclusion from the consolidated billing requirement, as 
discussed in section VII. of this proposed rule. Further, 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

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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 final rule for FY 2002 (66 FR 39562, July 31, 2001), 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 SNF PPS. We described these provisions in detail in 
the final rule for FY 2002 (66 FR 39562, July 31, 2001). In particular:
     Section 203 of the BIPA exempted CAH swing-beds from the 
SNF PPS. We included further information on this provision in Program 
Memorandum A-01-09 (Change Request 1509), issued January 16, 
2001, which is available online at www.cms.hhs.gov/transmittals/downloads/a0109.pdf.
     Section 311 of the BIPA revised the statutory update 
formula for the SNF market basket, and also directed us to conduct a 
study of alternative case-mix classification systems for the SNF PPS. 
In 2006, we submitted a report to the Congress on this study, which is 
available online at www.cms.hhs.gov/SNFPPS/Downloads/RC_2006_PC-PPSSNF.pdf.
     Section 312 of the BIPA provided for a temporary increase 
of 16.66 percent 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; accordingly, this add-on is no longer in 
effect. This section also directed the Government Accountability 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. The report (GAO-03-176), which GAO 
issued in November 2002, is available online at http://www.gao.gov/new.items/d03176.pdf.
     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. (A more detailed discussion of this 
provision appears in section VII. of this proposed rule.)
     Section 314 of the BIPA corrected an anomaly involving 
three of the RUGs that section 101(a) of the BBRA had designated to 
receive the temporary payment adjustment discussed above in section 
I.C. of this proposed rule. (As noted previously, in accordance with 
section 101(c)(2) of the BBRA, this temporary payment adjustment 
expired upon the implementation of case-mix refinements on January 1, 
2006.)
     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. To date, this has proven 
to be infeasible due to the volatility of existing SNF wage data and 
the significant amount of resources that would be required to improve 
the quality of that data.
    We included further information on several of the BIPA provisions 
in Program Memorandum A-01-08 (Change Request 1510), issued 
January 16, 2001, which is available online at www.cms.hhs.gov/transmittals/downloads/a0108.pdf.

E. The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA)

    The MMA included a provision that results in a further adjustment 
to the SNF PPS. Specifically, section 511 of the MMA amended section 
1888(e)(12) of the Act, to provide for a temporary increase of 128 
percent in the PPS per diem payment for any SNF residents with Acquired 
Immune Deficiency Syndrome (AIDS), effective with services furnished on 
or after October 1, 2004. This special AIDS add-on was to remain in 
effect until ``* * * the Secretary certifies that there is an 
appropriate adjustment in the case mix * * * to compensate for the 
increased costs associated with [such] residents * * *.'' The AIDS add-
on is also discussed in Program Transmittal 160 (Change 
Request 3291), issued on April 30, 2004, which is available 
online at http://www.cms.hhs.gov/transmittals/downloads/r160cp.pdf. As 
discussed in the SNF PPS final rule for FY 2006 (70 FR 45028, August 4, 
2005), we did not address the certification of the AIDS add-on in that 
final rule's implementation of the case-mix refinements, thus allowing 
the temporary add-on payment created by section 511 of the MMA to 
remain in effect.
    For the limited number of SNF residents that qualify for the AIDS 
add-on, implementation of this provision results in a significant 
increase in payment. For example, using FY 2007 data, we identified 
slightly more than 2,700 SNF residents with a diagnosis code of 042 
(Human Immunodeficiency Virus (HIV) Infection). For FY 2010, an urban 
facility with a resident with AIDS in RUG group ``SSA'' would have a 
case-mix adjusted payment of $252.71 (see Table 4) before the 
application of the MMA adjustment. After an increase of 128 percent, 
this urban facility would receive a case-mix adjusted payment of 
approximately $576.18. A further discussion of the AIDS add-on in the 
context of research conducted during the recent STRIVE study appears in 
section III.E.6. of this proposed rule.
    In addition, section 410 of the MMA contained a provision that 
excluded from consolidated billing certain practitioner and other 
services furnished to SNF residents by rural health clinics (RHCs) and 
Federally Qualified Health Centers (FQHCs). (Further information on 
this provision appears in section VII. of this proposed rule.)

F. Skilled Nursing Facility Prospective Payment--General Overview

    We implemented the Medicare SNF PPS effective with cost reporting 
periods beginning on or after July 1, 1998. This PPS pays SNFs through 
prospective, case-mix adjusted per diem payment rates applicable to all 
covered SNF services. These payment rates cover all 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, as well as those items and 
services (other than physician and certain other services specifically 
excluded under the BBA) which, before July 1, 1998, had been paid under 
Part B but furnished to Medicare beneficiaries in a SNF during a 
covered Part A stay. A comprehensive 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 (FY 1995) 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.

[[Page 22212]]

    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. In compiling the database used to compute the Federal payment 
rates, we excluded those providers that received new provider 
exemptions from the routine cost limits, as well as costs related to 
payments for exceptions to the routine cost limits. Using the formula 
that the BBA prescribed, 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. The RUG-III 
classification system uses beneficiary assessment data from the Minimum 
Data Set (MDS) completed by SNFs to assign beneficiaries to one of 53 
RUG-III groups. The original RUG-III case-mix classification system 
included 44 groups. However, under incremental refinements that became 
effective on January 1, 2006, we added nine new groups--comprising a 
new Rehabilitation plus Extensive Services category--at the top of the 
RUG hierarchy. The May 12, 1998 interim final rule (63 FR 26252) 
included a detailed description of the original 44-group RUG-III case-
mix classification system. A comprehensive description of the refined 
53-group RUG-III case-mix classification system (RUG-53) appeared in 
the proposed and final rules for FY 2006 (70 FR 29070, May 19, 2005, 
and 70 FR 45026, August 4, 2005).
    Further, in accordance with section 1888(e)(4)(E)(ii)(IV) of the 
Act, the Federal rates in this proposed rule reflect an update to the 
rates that we published in the final rule for FY 2009 (73 FR 46416, 
August 8, 2008) and the associated correction notice (73 FR 56998, 
October 1, 2008), 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 section I.F.2. and section VI. of this 
proposed rule.
2. FY 2010 Rate Updates Using 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 covered SNF services. 
We use the SNF market basket index to update the Federal rates on an 
annual basis. In the SNF PPS final rule for FY 2008 (72 FR 43425 
through 43430, August 3, 2007), we revised and rebased the market 
basket, which included updating the base year from FY 1997 to FY 2004. 
The proposed FY 2010 market basket increase is 2.1 percent, which is 
based on IHS Global Insight, Inc. first quarter 2009 forecast with 
historical data through fourth quarter 2008.
    In addition, as explained in the final rule for FY 2004 (66 FR 
46058, August 4, 2003) and in section VI.B. of this proposed rule, the 
annual update of the payment rates includes, as appropriate, an 
adjustment to account for market basket forecast error. As described in 
the final rule for FY 2008, the threshold percentage that serves to 
trigger an adjustment to account for market basket forecast error is 
0.5 percentage point effective for FY 2008 and subsequent years. This 
adjustment takes into account the forecast error from the most recently 
available FY for which there is final data, and applies whenever the 
difference between the forecasted and actual change in the market 
basket exceeds a 0.5 percentage point threshold. For FY 2008 (the most 
recently available FY for which there is final data), the estimated 
increase in the market basket index was 3.3 percentage points, while 
the actual increase was 3.6 percentage points, resulting in a 
difference of 0.3 percentage point. Accordingly, as the difference 
between the estimated and actual amount of change does not exceed the 
0.5 percentage point threshold, the payment rates for FY 2010 do not 
include a forecast error adjustment. Table 1 shows the forecasted and 
actual market basket amounts for FY 2008.

            Table 1--Difference Between the Forecasted and Actual Market Basket Increases for FY 2008
----------------------------------------------------------------------------------------------------------------
                                                                Forecasted  FY
                            Index                               2008  increase   Actual FY 2008      FY 2008
                                                                      *           increase **     difference ***
----------------------------------------------------------------------------------------------------------------
SNF..........................................................             3.3              3.6              0.3
----------------------------------------------------------------------------------------------------------------
* Published in Federal Register; based on second quarter 2007 IHS Global Insight Inc. forecast (2004-based
  index).
** Based on the first quarter 2009 IHS Global Insight forecast (2004-based index).
*** The FY 2008 forecast error correction for the PPS Operating portion will be applied to the FY 2010 PPS
  update recommendations. Any forecast error less than 0.5 percentage points will not be reflected in the update
  recommendation.

II. FY 2010 Annual Update of Payment Rates Under the Prospective 
Payment System for Skilled Nursing Facilities

A. Federal Prospective Payment System

    This proposed rule sets forth a schedule of Federal prospective 
payment rates applicable to Medicare Part A SNF services beginning 
October 1, 2009. The schedule incorporates per diem Federal rates that 
provide Part A payment for almost 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
    In accordance with section 1888(e)(2)(B) of the Act, the Federal 
rates apply to all costs (routine, ancillary, and capital-related) of 
covered SNF services other than costs associated with approved 
educational activities as defined in Sec.  413.85. Under section 
1888(e)(2)(A)(i) 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 through 26297)).

[[Page 22213]]

2. Methodology Used for the Calculation of the Federal Rates
    The proposed FY 2010 rates would reflect an update using the full 
amount of the latest market basket index. The proposed FY 2010 market 
basket increase factor is 2.1 percent. A complete description of the 
multi-step process used to calculate Federal rates initially appeared 
in the May 12, 1998 interim final rule (63 FR 26252), as further 
revised in subsequent rules. We note that in accordance with section 
101(c)(2) of the BBRA, the previous temporary increases in the per diem 
adjusted payment rates for certain designated RUGs, as specified in 
section 101(a) of the BBRA and section 314 of the BIPA, are no longer 
in effect due to the implementation of case-mix refinements as of 
January 1, 2006. However, the temporary increase of 128 percent in the 
per diem adjusted payment rates for SNF residents with AIDS, enacted by 
section 511 of the MMA, remains in effect.
    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 FY beginning October 1, 2008, and ending 
September 30, 2009, and the midpoint of the Federal FY beginning 
October 1, 2009, and ending September 30, 2010, to which the payment 
rates apply. In accordance with section 1888(e)(4)(E)(ii)(IV) of the 
Act, we would update the payment rates for FY 2010 by a factor equal to 
the full market basket index percentage increase. We further adjust the 
rates 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 2010.

                             Table 2--FY 2010 Unadjusted Federal Rate per Diem Urban
----------------------------------------------------------------------------------------------------------------
                                                     Nursing--case-  Therapy--case-  Therapy--non-
                   Rate component                          mix             mix          case-mix    Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount....................................       $155.08         $116.82          $15.38        $79.15
----------------------------------------------------------------------------------------------------------------


                             Table 3--FY 2010 Unadjusted Federal Rate per Diem Rural
----------------------------------------------------------------------------------------------------------------
                                                     Nursing--case-  Therapy--case-  Therapy--non-
                   Rate component                          mix             mix          case-mix    Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount....................................       $148.16         $134.70          $16.43        $80.61
----------------------------------------------------------------------------------------------------------------

B. Case-Mix Adjustments

1. Background
    Section 1888(e)(4)(G)(i) of the Act requires the Secretary to make 
an adjustment to account for case-mix. The statute specifies that the 
adjustment is to reflect both a resident classification system that the 
Secretary establishes to account for the relative resource use of 
different patient types, as well as resident assessment and other data 
that the Secretary considers appropriate. In first implementing the SNF 
PPS (63 FR 26252, May 12, 1998), we developed the Resource Utilization 
Groups, version III (RUG-III) case-mix classification system, which 
tied the amount of payment to resident resource use in combination with 
resident characteristic information. Staff time measurement (STM) 
studies conducted in 1990, 1995, and 1997 provided information on 
resource use (time spent by staff members on residents) and resident 
characteristics that enabled us not only to establish RUG-III, but also 
to create case-mix indexes.
    Although the establishment of the SNF PPS did not change Medicare's 
fundamental requirements for SNF coverage, there is a correlation 
between level of care and provider payment. One of the elements 
affecting the SNF PPS per diem rates is the RUG-III case-mix adjustment 
classification system based on beneficiary assessments using the MDS 
2.0. RUG-III classification is based, in part, on the beneficiary's 
need for skilled nursing care and therapy. As discussed previously in 
section I.F.1 of this proposed rule, the SNF PPS final rule for FY 2006 
(70 FR 45026, August 4, 2005) refined the case-mix classification 
system effective January 1, 2006, by adding nine new Rehabilitation 
Plus Extensive Services RUGs at the top of the original, 44-group 
system, for a total of 53 groups. This nine-group addition was designed 
to better account for the higher costs of beneficiaries requiring both 
rehabilitation and certain high intensity medical services. When we 
developed the refined RUG-53 system, we constructed new case-mix 
indexes, using the Staff Time Measurement (STM) study data that was 
collected during the 1990s and originally used in creating the SNF PPS 
case-mix classification system and case-mix indexes. In addition, the 
RUG-III system was standardized with the intent of ensuring parity in 
payments under the 44-group and 53-group models. In section II.B.2 of 
this proposed rule, we discuss further adjustments to those new case-
mix indexes.
    The RUG-III case-mix classification system uses clinical data from 
the MDS 2.0, and wage-adjusted staff time measurement data, to assign a 
case-mix group to each patient record that is then used to calculate a 
per diem payment under the SNF PPS. The existing RUG-III grouper logic 
was based on clinical data collected in 1990, 1995, and 1997. As 
discussed in section III.A.1, we have recently completed a multi-year 
data collection and analysis under the Staff Time and Resource 
Intensity Verification (STRIVE) project to update the RUG-III case-mix 
classification system for FY 2011. As discussed later in this preamble, 
we are proposing to introduce a revised case-mix classification system, 
the RUG-IV, based on the data collected in 2006-2007 during the STRIVE 
project. At the same time, we plan to introduce an updated new resident 
assessment instrument, the MDS 3.0, to collect the clinical data that 
will be used for case-mix classification under RUG-IV. We believe that 
the coordinated introduction of the RUG-IV and MDS 3.0 reflects current 
medical practice and resource use in SNFs across the country, and will 
enhance the accuracy of the SNF PPS. Further, we are proposing to defer 
implementation of the RUG-IV and MDS 3.0 until October 1, 2010, to 
allow all stakeholders adequate time for the systems updates and staff 
training needed to assure a smooth transition. We discuss the RUG-IV 
methodology

[[Page 22214]]

and the MDS 3.0 in greater detail in sections III.B. and IV.A., 
respectively.
    Under the BBA, each update of the SNF PPS payment rates must 
include the case-mix classification methodology applicable for the 
coming Federal FY. As indicated in section I.F.1 of this proposed rule, 
the payment rates set forth herein reflect the use of the refined RUG-
53 system that we discussed in detail in the proposed and final rules 
for FY 2006.
2. Development of the Case-Mix Indexes
    In the SNF PPS final rule for FY 2006 (70 FR 45032, August 4, 
2005), we introduced two incremental refinements to the case-mix 
classification system:
     The addition of nine new case-mix groups at the top of the 
original 44-group hierarchy, designed to account for the care needs of 
beneficiaries requiring both extensive medical and rehabilitation 
services; and
     An adjustment to reflect the variability in the use of 
non-therapy ancillaries (NTAs).

We made these refinements by using the resource minute data from the 
original 44-group RUG-III model to create a new set of relative 
weights, or case-mix indexes (CMIs), for the 53 group RUG-III model. We 
then compared the CMIs for the two models in a way that was intended to 
ensure that estimated total payments under the 53-group model would be 
equal to those payments that would have been made under the 44-group 
model.
    In conducting this analysis, we used FY 2001 claims data (the most 
current claims data available at the time) to compare the distribution 
of payment days by RUG category in the 44-group model with the 
anticipated payments by RUG category in the refined 53-group model. 
Using the FY 2001 claims data, our initial projections of future 
utilization patterns under the refined case-mix system indicated that 
the new 53-group model would produce lower overall payments than under 
the original 44-group model. As the purpose of the refinements was to 
allocate payments more accurately rather than reduce overall 
expenditures, we adjusted the new case-mix indexes (CMIs) upward in 
order to ensure that our implementation of the case-mix refinements 
would achieve ``parity'' between the old and new models (that is, would 
not cause any change in overall payment levels). However, as noted in 
the SNF PPS proposed rule for FY 2009 (73 FR 25923, May 7, 2008), our 
continued monitoring of claims data subsequently showed that actual 
utilization patterns under the refined case-mix system differed 
significantly from the previous projections. As a consequence, rather 
than simply achieving parity, the 2006 adjustment inadvertently 
triggered a significant increase in overall payment levels, 
representing substantial overpayments to SNFs.
    Accordingly, the FY 2009 proposed rule included a proposal to 
recalibrate the parity adjustment in order to restore the intended 
budget neutrality to the 2006 case-mix refinements. While many of the 
commenters on this proposal characterized it as an unwarranted 
reduction in the level of SNF payments, the actual purpose of the 
recalibration proposal was not to reduce overall SNF payments below 
their appropriate level, but rather, to restore those payments to their 
appropriate level by correcting the inadvertent increase in overall 
payments that had resulted from the original parity adjustment. 
Moreover, our intent was to establish a more accurate baseline for SNF 
expenditures under the SNF PPS even as we were evaluating broader 
health care initiatives that could affect payment to SNFs. Thus, the 
recalibration was proposed as a prospective adjustment, and did not 
require recovery of any SNF PPS expenditures that had already been 
made. Commenters also expressed concern about the potential impact of 
the proposed recalibration on beneficiaries, providers, and the overall 
economy. As explained in the FY 2009 final rule (73 FR 46422, August 8, 
2008), even though our analysis did not substantiate the commenters' 
concerns, we concluded that it nevertheless would be prudent to take 
additional time to evaluate the proposal, in order to allow for further 
consideration of any consequences that might result from it. For that 
reason, we did not proceed with the proposed recalibration at that 
time, but instead continued to evaluate this issue with the full 
expectation of implementing such an adjustment in the future.
    In the course of this further evaluation, we conducted a thorough 
review of the recalibration methodology that we had proposed, and 
determined that it is, in fact, correct and appropriate to achieve the 
intended result of establishing parity in overall payments between the 
44-group and 53-group models. In addition, as we stated in the FY 2009 
final rule (73 FR 46424, August 8, 2008), we further considered the 
effects of the proposed recalibration on beneficiaries, SNF clinical 
staff, and quality of care. As discussed above, while the purpose of 
the original parity adjustment was to maintain the same overall 
payments under the 44-group and 53-group models, the effect of the 
adjustment was an inadvertent increase in overall payments under the 
53-group model, resulting in overpayments to SNFs. By recalibrating the 
CMIs under the 53-group model, we expect to restore SNF payments to 
their appropriate level by correcting this inadvertent increase in 
overall payments. Because the recalibration would simply remove an 
unintended overpayment rather than decrease an otherwise appropriate 
payment amount, we do not believe that the recalibration should 
negatively affect beneficiaries, clinical staff, or quality of care, or 
create an undue hardship on providers. The purpose of the FY 2006 
refinements was to reallocate payments so that they more accurately 
reflect resources used, not to increase or decrease overall 
expenditures. Thus, we believe that it is appropriate to proceed with 
the recalibration in order to ensure that we correctly accomplish the 
purpose of the FY 2006 case-mix refinements (that is, reallocating 
payments, rather than increasing or decreasing overall payments) and 
restore payments to their appropriate level. In addition, we believe 
that it is imperative that we proceed with this recalibration for FY 
2010 so that the proper baseline can be established before we move to 
the RUG-IV model, as discussed previously in the SNF PPS proposed rule 
for FY 2009 (73 FR 25938, May 7, 2008).
    Accordingly, we are now proposing to proceed with the recalibration 
using the methodology described in the FY 2009 proposed and final rules 
(73 FR 25923, 73 FR 46421-24). As we explained in the FY 2009 proposed 
rule, we would use actual 2006 claims data to recalibrate both of the 
adjustments to the CMIs: The parity adjustment designed to make the 
change from the 44-group model to the 53-group model in a budget 
neutral manner, and the factor used to recognize the variability in NTA 
utilization. A detailed description of the method proposed to 
recalibrate the two adjustments appears in the FY 2009 SNF PPS proposed 
and final rules (73 FR 25923, 73 FR 46421-24). Under this proposed 
recalibration, the parity and NTA adjustments to the CMIs (which had 
initially produced a combined increase of 17.9 percent in the FY 2006 
refinement), would instead result in an overall 9.68 percent increase 
for FY 2010. Thus, for FY 2010, the aggregate impact of this proposed 
recalibration of the CMIs would be the difference between payments 
calculated using the original FY 2006 total CMI increase of 17.9 
percent and payments calculated using the recalibrated total CMI 
increase of 9.68 percent. The

[[Page 22215]]

difference is a decrease of $1.05 billion (on an incurred basis) in 
payments for FY 2010.
    Again, we want to emphasize that, by proposing to implement the 
recalibration on a prospective basis, we have chosen the correction 
strategy that best mitigates the potential impact on providers. 
However, we believe that our responsibility for maintaining the fiscal 
integrity of the SNF PPS requires that we proceed with the adjustment. 
By using the actual claims data that are now available (rather than the 
projections upon which we had initially relied in estimating the impact 
of the case-mix refinements), the SNF PPS would better reflect the 
resources used, resulting in more accurate payment. To that end, we 
have developed our proposed recalibration of the parity and NTA 
adjustments to the CMIs using actual claims distribution data. Although 
the 2001 data were the best source available at the time the FY 2006 
refinements were introduced, the calendar year (CY) 2006 data represent 
actual RUG-53 utilization for the first full year after implementation 
(that is, the data that we were trying to project). Therefore, we 
believe the CY 2006 data provide the most accurate source of RUG-53 
utilization for this parity adjustment. We also note that the negative 
$1.05 billion adjustment described above would be partially offset by 
the FY 2010 market basket adjustment factor of 2.1 percent, or $660 
million, with a net result of a negative annual update of approximately 
$390 million. Moreover, this proposed recalibration would further the 
overall objective of the refinement provision implemented in January 
2006; that is, to have PPS payments account more accurately for 
resource utilization in SNFs. We also note that after MedPAC conducted 
a thorough review of SNF profit margins, it concluded that, in the 
aggregate, SNFs are operating on a sound financial basis. MedPAC's 
recent recommendation for a zero percent update for SNFs in FY 2010 
(see section 2.D (``Skilled Nursing Facility Services'') of its Report 
to the Congress on Medicare Payment Policy (March 2009), available 
online at http://www.medpac.gov/chapters/Mar09_Ch02D.pdf) supports our 
assessment that this recalibration could be made without creating undue 
hardship on providers.
    We list the case-mix adjusted payment rates separately for urban 
and rural SNFs in Tables 4 and 5, with the corresponding case-mix 
values. These tables do not reflect the AIDS add-on enacted by section 
511 of the MMA, which we apply only after making all other adjustments 
(wage and case-mix).

                                      Table 4--RUG-53 Case-Mix Adjusted Federal Rates and Associated Indexes Urban
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     Non-case     Non-case
                       RUG-III category                          Nursing      Therapy      Nursing      Therapy    mix therapy      mix       Total rate
                                                                  index        index      component    component       comp      component
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUX..........................................................         1.77         2.25       274.49       262.85  ...........        79.15       616.49
RUL..........................................................         1.31         2.25       203.15       262.85  ...........        79.15       545.15
RVX..........................................................         1.44         1.41       223.32       164.72  ...........        79.15       467.19
RVL..........................................................         1.24         1.41       192.30       164.72  ...........        79.15       436.17
RHX..........................................................         1.33         0.94       206.26       109.81  ...........        79.15       395.22
RHL..........................................................         1.27         0.94       196.95       109.81  ...........        79.15       385.91
RMX..........................................................         1.80         0.77       279.14        89.95  ...........        79.15       448.24
RML..........................................................         1.57         0.77       243.48        89.95  ...........        79.15       412.58
RLX..........................................................         1.22         0.43       189.20        50.23  ...........        79.15       318.58
RUC..........................................................         1.20         2.25       186.10       262.85  ...........        79.15       528.10
RUB..........................................................         0.92         2.25       142.67       262.85  ...........        79.15       484.67
RUA..........................................................         0.78         2.25       120.96       262.85  ...........        79.15       462.96
RVC..........................................................         1.14         1.41       176.79       164.72  ...........        79.15       420.66
RVB..........................................................         1.01         1.41       156.63       164.72  ...........        79.15       400.50
RVA..........................................................         0.77         1.41       119.41       164.72  ...........        79.15       363.28
RHC..........................................................         1.13         0.94       175.24       109.81  ...........        79.15       364.20
RHB..........................................................         1.03         0.94       159.73       109.81  ...........        79.15       348.69
RHA..........................................................         0.88         0.94       136.47       109.81  ...........        79.15       325.43
RMC..........................................................         1.07         0.77       165.94        89.95  ...........        79.15       335.04
RMB..........................................................         1.01         0.77       156.63        89.95  ...........        79.15       325.73
RMA..........................................................         0.97         0.77       150.43        89.95  ...........        79.15       319.53
RLB..........................................................         1.06         0.43       164.38        50.23  ...........        79.15       293.76
RLA..........................................................         0.79         0.43       122.51        50.23  ...........        79.15       251.89
SE3..........................................................         1.72  ...........       266.74  ...........        15.38        79.15       361.27
SE2..........................................................         1.38  ...........       214.01  ...........        15.38        79.15       308.54
SE1..........................................................         1.17  ...........       181.44  ...........        15.38        79.15       275.97
SSC..........................................................         1.14  ...........       176.79  ...........        15.38        79.15       271.32
SSB..........................................................         1.05  ...........       162.83  ...........        15.38        79.15       257.36
SSA..........................................................         1.02  ...........       158.18  ...........        15.38        79.15       252.71
CC2..........................................................         1.13  ...........       175.24  ...........        15.38        79.15       269.77
CC1..........................................................         0.99  ...........       153.53  ...........        15.38        79.15       248.06
CB2..........................................................         0.91  ...........       141.12  ...........        15.38        79.15       235.65
CB1..........................................................         0.84  ...........       130.27  ...........        15.38        79.15       224.80
CA2..........................................................         0.83  ...........       128.72  ...........        15.38        79.15       223.25
CA1..........................................................         0.75  ...........       116.31  ...........        15.38        79.15       210.84
IB2..........................................................         0.69  ...........       107.01  ...........        15.38        79.15       201.54
IB1..........................................................         0.67  ...........       103.90  ...........        15.38        79.15       198.43
IA2..........................................................         0.57  ...........        88.40  ...........        15.38        79.15       182.93
IA1..........................................................         0.53  ...........        82.19  ...........        15.38        79.15       176.72
BB2..........................................................         0.68  ...........       105.45  ...........        15.38        79.15       199.98
BB1..........................................................         0.65  ...........       100.80  ...........        15.38        79.15       195.33
BA2..........................................................         0.56  ...........        86.84  ...........        15.38        79.15       181.37
BA1..........................................................         0.48  ...........        74.44  ...........        15.38        79.15       168.97

[[Page 22216]]

 
PE2..........................................................         0.79  ...........       122.51  ...........        15.38        79.15       217.04
PE1..........................................................         0.77  ...........       119.41  ...........        15.38        79.15       213.94
PD2..........................................................         0.72  ...........       111.66  ...........        15.38        79.15       206.19
PD1..........................................................         0.70  ...........       108.56  ...........        15.38        79.15       203.09
PC2..........................................................         0.66  ...........       102.35  ...........        15.38        79.15       196.88
PC1..........................................................         0.65  ...........       100.80  ...........        15.38        79.15       195.33
PB2..........................................................         0.52  ...........        80.64  ...........        15.38        79.15       175.17
PB1..........................................................         0.50  ...........        77.54  ...........        15.38        79.15       172.07
PA2..........................................................         0.49  ...........        75.99  ...........        15.38        79.15       170.52
PA1..........................................................         0.46  ...........        71.34  ...........        15.38        79.15       165.87
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                      Table 5--RUG-53 Case-Mix Adjusted Federal Rates and Associated Indexes Rural
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     Non-case     Non-case
                       RUG-III category                          Nursing      Therapy      Nursing      Therapy    mix therapy      mix       Total rate
                                                                  index        index      component    component       comp      component
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUX..........................................................         1.77         2.25       262.24       303.08  ...........        80.61       645.93
RUL..........................................................         1.31         2.25       194.09       303.08  ...........        80.61       577.78
RVX..........................................................         1.44         1.41       213.35       189.93  ...........        80.61       483.89
RVL..........................................................         1.24         1.41       183.72       189.93  ...........        80.61       454.26
RHX..........................................................         1.33         0.94       197.05       126.62  ...........        80.61       404.28
RHL..........................................................         1.27         0.94       188.16       126.62  ...........        80.61       395.39
RMX..........................................................         1.80         0.77       266.69       103.72  ...........        80.61       451.02
RML..........................................................         1.57         0.77       232.61       103.72  ...........        80.61       416.94
RLX..........................................................         1.22         0.43       180.76        57.92  ...........        80.61       319.29
RUC..........................................................         1.20         2.25       177.79       303.08  ...........        80.61       561.48
RUB..........................................................         0.92         2.25       136.31       303.08  ...........        80.61       520.00
RUA..........................................................         0.78         2.25       115.56       303.08  ...........        80.61       499.25
RVC..........................................................         1.14         1.41       168.90       189.93  ...........        80.61       439.44
RVB..........................................................         1.01         1.41       149.64       189.93  ...........        80.61       420.18
RVA..........................................................         0.77         1.41       114.08       189.93  ...........        80.61       384.62
RHC..........................................................         1.13         0.94       167.42       126.62  ...........        80.61       374.65
RHB..........................................................         1.03         0.94       152.60       126.62  ...........        80.61       359.83
RHA..........................................................         0.88         0.94       130.38       126.62  ...........        80.61       337.61
RMC..........................................................         1.07         0.77       158.53       103.72  ...........        80.61       342.86
RMB..........................................................         1.01         0.77       149.64       103.72  ...........        80.61       333.97
RMA..........................................................         0.97         0.77       143.72       103.72  ...........        80.61       328.05
RLB..........................................................         1.06         0.43       157.05        57.92  ...........        80.61       295.58
RLA..........................................................         0.79         0.43       117.05        57.92  ...........        80.61       255.58
SE3..........................................................         1.72  ...........       254.84  ...........        16.43        80.61       351.88
SE2..........................................................         1.38  ...........       204.46  ...........        16.43        80.61       301.50
SE1..........................................................         1.17  ...........       173.35  ...........        16.43        80.61       270.39
SSC..........................................................         1.14  ...........       168.90  ...........        16.43        80.61       265.94
SSB..........................................................         1.05  ...........       155.57  ...........        16.43        80.61       252.61
SSA..........................................................         1.02  ...........       151.12  ...........        16.43        80.61       248.16
CC2..........................................................         1.13  ...........       167.42  ...........        16.43        80.61       264.46
CC1..........................................................         0.99  ...........       146.68  ...........        16.43        80.61       243.72
CB2..........................................................         0.91  ...........       134.83  ...........        16.43        80.61       231.87
CB1..........................................................         0.84  ...........       124.45  ...........        16.43        80.61       221.49
CA2..........................................................         0.83  ...........       122.97  ...........        16.43        80.61       220.01
CA1..........................................................         0.75  ...........       111.12  ...........        16.43        80.61       208.16
IB2..........................................................         0.69  ...........       102.23  ...........        16.43        80.61       199.27
IB1..........................................................         0.67  ...........        99.27  ...........        16.43        80.61       196.31
IA2..........................................................         0.57  ...........        84.45  ...........        16.43        80.61       181.49
IA1..........................................................         0.53  ...........        78.52  ...........        16.43        80.61       175.56
BB2..........................................................         0.68  ...........       100.75  ...........        16.43        80.61       197.79
BB1..........................................................         0.65  ...........        96.30  ...........        16.43        80.61       193.34
BA2..........................................................         0.56  ...........        82.97  ...........        16.43        80.61       180.01
BA1..........................................................         0.48  ...........        71.12  ...........        16.43        80.61       168.16
PE2..........................................................         0.79  ...........       117.05  ...........        16.43        80.61       214.09
PE1..........................................................         0.77  ...........       114.08  ...........        16.43        80.61       211.12
PD2..........................................................         0.72  ...........       106.68  ...........        16.43        80.61       203.72
PD1..........................................................         0.70  ...........       103.71  ...........        16.43        80.61       200.75
PC2..........................................................         0.66  ...........        97.79  ...........        16.43        80.61       194.83
PC1..........................................................         0.65  ...........        96.30  ...........        16.43        80.61       193.34
PB2..........................................................         0.52  ...........        77.04  ...........        16.43        80.61       174.08
PB1..........................................................         0.50  ...........        74.08  ...........        16.43        80.61       171.12
PA2..........................................................         0.49  ...........        72.60  ...........        16.43        80.61       169.64

[[Page 22217]]

 
PA...........................................................         0.46  ...........        68.15  ...........        16.43        80.61       165.19
--------------------------------------------------------------------------------------------------------------------------------------------------------

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 propose to continue that practice for FY 2010, as 
we continue to believe that in the absence of SNF-specific wage data, 
using the hospital inpatient wage index is appropriate and reasonable 
for the SNF PPS. As explained in the update notice for FY 2005 (69 FR 
45786, July 30, 2004), the SNF PPS does not use the hospital area wage 
index's occupational mix adjustment, as this adjustment serves 
specifically to define the occupational categories more clearly in a 
hospital setting; moreover, 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.
    Finally, we propose to continue using the same methodology 
discussed in the SNF PPS final rule for FY 2008 (72 FR 43423) to 
address those geographic areas in which there are no hospitals and, 
thus, no hospital wage index data on which to base the calculation of 
the FY 2010 SNF PPS wage index. For rural geographic areas that do not 
have hospitals and, therefore, lack hospital wage data on which to base 
an area wage adjustment, we would use the average wage index from all 
contiguous CBSAs as a reasonable proxy. This methodology is used to 
construct the wage index for rural Massachusetts. However, we would not 
apply this methodology to rural Puerto Rico due to the distinct 
economic circumstances that exist there, but instead would continue 
using the most recent wage index previously available for that area. 
For urban areas without specific hospital wage index data, we would use 
the average wage indexes of all of the urban areas within the State to 
serve as a reasonable proxy for the wage index of that urban CBSA. The 
only urban area without wage index data available is CBSA (25980) 
Hinesville-Fort Stewart, GA.
    To calculate the SNF PPS wage index adjustment, we would apply the 
wage index adjustment to the labor-related portion of the Federal rate, 
which is 70.017 percent of the total rate. This percentage reflects the 
labor-related relative importance for FY 2010, using the revised and 
rebased FY 2004-based market basket. The labor-related relative 
importance for FY 2009 was 69.783, as shown in Table 16. We calculate 
the labor-related relative importance from the SNF market basket, and 
it approximates the labor-related portion of the total costs after 
taking into account historical and projected price changes between the 
base year and FY 2010. 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 2010 than the base year weights from the SNF market 
basket.
    We calculate the labor-related relative importance for FY 2010 in 
four steps. First, we compute the FY 2010 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 
2010 price index level for that cost category by the total market 
basket price index level. Third, we determine the FY 2010 relative 
importance for each cost category by multiplying this ratio by the base 
year (FY 2004) weight. Finally, we add the FY 2010 relative importance 
for each of the labor-related cost categories (wages and salaries, 
employee benefits, non-medical professional fees, labor-intensive 
services, and a portion of capital-related expenses) to produce the FY 
2010 labor-related relative importance. Tables 6 and 7 below show the 
Federal rates by labor-related and non-labor-related components.

 Table 6--RUG-53 Case-Mix Adjusted Federal Rates for Urban SNFs by Labor
                         and Non-Labor Component
------------------------------------------------------------------------
                                                   Labor      Non-labor
         RUG-III category           Total rate    portion      portion
------------------------------------------------------------------------
RUX..............................       616.49       431.65       184.84
RUL..............................       545.15       381.70       163.45
RVX..............................       467.19       327.11       140.08
RVL..............................       436.17       305.39       130.78
RHX..............................       395.22       276.72       118.50
RHL..............................       385.91       270.20       115.71
RMX..............................       448.24       313.84       134.40
RML..............................       412.58       288.88       123.70
RLX..............................       318.58       223.06        95.52
RUC..............................       528.10       369.76       158.34
RUB..............................       484.67       339.35       145.32
RUA..............................       462.96       324.15       138.81
RVC..............................       420.66       294.53       126.13
RVB..............................       400.50       280.42       120.08
RVA..............................       363.28       254.36       108.92
RHC..............................       364.20       255.00       109.20
RHB..............................       348.69       244.14       104.55
RHA..............................       325.43       227.86        97.57
RMC..............................       335.04       234.58       100.46
RMB..............................       325.73       228.07        97.66

[[Page 22218]]

 
RMA..............................       319.53       223.73        95.80
RLB..............................       293.76       205.68        88.08
RLA..............................       251.89       176.37        75.52
SE3..............................       361.27       252.95       108.32
SE2..............................       308.54       216.03        92.51
SE1..............................       275.97       193.23        82.74
SSC..............................       271.32       189.97        81.35
SSB..............................       257.36       180.20        77.16
SSA..............................       252.71       176.94        75.77
CC2..............................       269.77       188.88        80.89
CC1..............................       248.06       173.68        74.38
CB2..............................       235.65       165.00        70.65
CB1..............................       224.80       157.40        67.40
CA2..............................       223.25       156.31        66.94
CA1..............................       210.84       147.62        63.22
IB2..............................       201.54       141.11        60.43
IB1..............................       198.43       138.93        59.50
IA2..............................       182.93       128.08        54.85
IA1..............................       176.72       123.73        52.99
BB2..............................       199.98       140.02        59.96
BB1..............................       195.33       136.76        58.57
BA2..............................       181.37       126.99        54.38
BA1..............................       168.97       118.31        50.66
PE2..............................       217.04       151.96        65.08
PE1..............................       213.94       149.79        64.15
PD2..............................       206.19       144.37        61.82
PD1..............................       203.09       142.20        60.89
PC2..............................       196.88       137.85        59.03
PC1..............................       195.33       136.76        58.57
PB2..............................       175.17       122.65        52.52
PB1..............................       172.07       120.48        51.59
PA2..............................       170.52       119.39        51.13
PA1..............................       165.87       116.14        49.73
------------------------------------------------------------------------


 Table 7--RUG-53 Case-Mix Adjusted Federal Rates for Rural SNFs by Labor
                         and Non-Labor Component
------------------------------------------------------------------------
                                                   Labor      Non-labor
         RUG-III category           Total rate    portion      portion
------------------------------------------------------------------------
RUX..............................       645.93       452.26       193.67
RUL..............................       577.78       404.54       173.24
RVX..............................       483.89       338.81       145.08
RVL..............................       454.26       318.06       136.20
RHX..............................       404.28       283.06       121.22
RHL..............................       395.39       276.84       118.55
RMX..............................       451.02       315.79       135.23
RML..............................       416.94       291.93       125.01
RLX..............................       319.29       223.56        95.73
RUC..............................       561.48       393.13       168.35
RUB..............................       520.00       364.09       155.91
RUA..............................       499.25       349.56       149.69
RVC..............................       439.44       307.68       131.76
RVB..............................       420.18       294.20       125.98
RVA..............................       384.62       269.30       115.32
RHC..............................       374.65       262.32       112.33
RHB..............................       359.83       251.94       107.89
RHA..............................       337.61       236.38       101.23
RMC..............................       342.86       240.06       102.80
RMB..............................       333.97       233.84       100.13
RMA..............................       328.05       229.69        98.36
RLB..............................       295.58       206.96        88.62
RLA..............................       255.58       178.95        76.63
SE3..............................       351.88       246.38       105.50
SE2..............................       301.50       211.10        90.40
SE1..............................       270.39       189.32        81.07
SSC..............................       265.94       186.20        79.74
SSB..............................       252.61       176.87        75.74
SSA..............................       248.16       173.75        74.41
CC2..............................       264.46       185.17        79.29

[[Page 22219]]

 
CC1..............................       243.72       170.65        73.07
CB2..............................       231.87       162.35        69.52
CB1..............................       221.49       155.08        66.41
CA2..............................       220.01       154.04        65.97
CA1..............................       208.16       145.75        62.41
IB2..............................       199.27       139.52        59.75
IB1..............................       196.31       137.45        58.86
IA2..............................       181.49       127.07        54.42
IA1..............................       175.56       122.92        52.64
BB2..............................       197.79       138.49        59.30
BB1..............................       193.34       135.37        57.97
BA2..............................       180.01       126.04        53.97
BA1..............................       168.16       117.74        50.42
PE2..............................       214.09       149.90        64.19
PE1..............................       211.12       147.82        63.30
PD2..............................       203.72       142.64        61.08
PD1..............................       200.75       140.56        60.19
PC2..............................       194.83       136.41        58.42
PC1..............................       193.34       135.37        57.97
PB2..............................       174.08       121.89        52.19
PB1..............................       171.12       119.81        51.31
PA2..............................       169.64       118.78        50.86
PA1..............................       165.19       115.66        49.53
------------------------------------------------------------------------

    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 less than would otherwise be made in the absence of 
the wage adjustment. For FY 2010 (Federal rates effective October 1, 
2009), we would apply an adjustment to fulfill the budget neutrality 
requirement. We would meet this requirement by multiplying each of the 
components of the unadjusted Federal rates by a budget neutrality 
factor equal to the ratio of the weighted average wage adjustment 
factor for FY 2009 to the weighted average wage adjustment factor for 
FY 2010. For this calculation, we use the same 2007 claims utilization 
data for both the numerator and denominator of this ratio. We define 
the wage adjustment factor used in this calculation as the labor share 
of the rate component multiplied by the wage index plus the non-labor 
share of the rate component. The proposed budget neutrality factor for 
this year is 1.0010. The wage index applicable to FY 2010 is set forth 
in Tables A and B, which appear in the Addendum of this proposed rule.
    In the SNF PPS final rule for FY 2006 (70 FR 45026, August 4, 
2005), we adopted the changes discussed in the Office of Management and 
Budget (OMB) Bulletin No. 03-04 (June 6, 2003), available online at 
http://www.whitehouse.gov/omb/bulletins/b03-04.html, which announced 
revised definitions for Metropolitan Statistical Areas (MSAs), and the 
creation of Micropolitan Statistical Areas and Combined Statistical 
Areas. In addition, OMB published subsequent bulletins regarding CBSA 
changes, including changes in CBSA numbers and titles. As indicated in 
the FY 2008 SNF PPS final rule (72 FR 43423, August 3, 2007), this and 
all subsequent SNF PPS rules and notices are considered to incorporate 
the CBSA changes published in the most recent OMB bulletin that applies 
to the hospital wage data used to determine the current SNF PPS wage 
index. The OMB bulletins may be accessed online at http://www.whitehouse.gov/omb/bulletins/index.html.
    In adopting the OMB Core-Based Statistical Area (CBSA) geographic 
designations, we provided for a 1-year transition with a blended wage 
index for all providers. For FY 2006, the wage index for each provider 
consisted of a blend of 50 percent of the FY 2006 MSA-based wage index 
and 50 percent of the FY 2006 CBSA-based wage index (both using FY 2002 
hospital data). We referred to the blended wage index as the FY 2006 
SNF PPS transition wage index. As discussed in the SNF PPS final rule 
for FY 2006 (70 FR 45041), subsequent to the expiration of this 1-year 
transition on September 30, 2006, we used the full CBSA-based wage 
index values, as now presented in Tables A and B in the Addendum of 
this proposed rule.

D. Updates to the Federal Rates

    In accordance with section 1888(e)(4)(E) of the Act, as amended by 
section 311 of the BIPA, the proposed payment rates in this proposed 
rule reflect an update equal to the full SNF market basket, estimated 
at 2.1 percentage points. We would continue to disseminate the rates, 
wage index, and case-mix classification methodology through the Federal 
Register before the August 1 that precedes the start of each succeeding 
FY.

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 refined 
RUG-53 system that beneficiaries who are correctly assigned to one of 
the upper 35 of the RUG-53 groups on the initial 5-day, Medicare-
required assessment are automatically classified as meeting the SNF 
level of care definition up to and including the assessment reference 
date on the 5-day Medicare required assessment.
    A beneficiary assigned to any of the lower 18 groups is not 
automatically classified as either meeting or not meeting the 
definition, but instead

[[Page 22220]]

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 35 groups 
during the immediate post-hospital period require a covered level of 
care, which would be less likely for those beneficiaries assigned to 
one of the lower 18 groups.
    In this proposed rule, we are continuing the designation of the 
upper 35 groups for purposes of this administrative presumption, 
consisting of all groups encompassed by the following RUG-53 
categories:
     Rehabilitation plus Extensive Services;
     Ultra High Rehabilitation;
     Very High Rehabilitation;
     High Rehabilitation;
     Medium Rehabilitation;
     Low Rehabilitation;
     Extensive Services;
     Special Care; and,
     Clinically Complex.

A discussion of the relationship of the proposed RUG-IV classification 
system to existing SNF level of care criteria appears in section III.D. 
of this proposed rule.

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

    Using the hypothetical SNF XYZ described in Table 8 below, the 
following shows the adjustments made to the Federal per diem rate to 
compute the provider's actual per diem PPS payment. SNF XYZ's 12-month 
cost reporting period begins October 1, 2009. SNF XYZ's total PPS 
payment would equal $30,619. We derive the Labor and Non-labor columns 
from Table 6 of this proposed rule.

                               Table 8--RUG-53 SNF XYZ: Located in Cedar Rapids, IA (Urban CBSA 16300) Wage Index: 0.8992
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     Percent      Medicare
                    RUG group                        Labor      Wage index   Adj. labor   Non-labor    Adj. rate       adj.         days       Payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
RVX.............................................      $327.11       0.8992      $294.14      $140.08      $434.22      $434.22           14    $6,079.00
RLX.............................................       223.06       0.8992       200.58        95.52       296.10       296.10           30     8,883.00
RHA.............................................       227.86       0.8992       204.89        97.57       302.46       302.46           16     4,839.00
CC2.............................................       188.88       0.8992       169.84        80.89       250.73      *571.67           10     5,717.00
IA2.............................................       128.08       0.8992       115.17        54.85       170.02       170.02           30     5,101.00
                                                  ...........  ...........  ...........  ...........  ...........  ...........          100   30,619.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Reflects a 128 percent adjustment from section 511 of the MMA.

III. Resource Utilization Groups, Version 4 (RUG-IV)

A. Staff Time and Resource Intensity Verification (STRIVE) Project

    As noted previously in section II.B.1 of this proposed rule, 
section 1888(e)(4)(G)(i) of the Act requires the Secretary to make an 
adjustment to account for case-mix. The statute specifies that the 
adjustment is to reflect both a resident classification system that the 
Secretary establishes to account for the relative resource use of 
different patient types, as well as resident assessment and other data 
that the Secretary considers appropriate. In first implementing the SNF 
PPS (63 FR 26252, May 12, 1998), we developed the RUG-III case-mix 
classification system, which tied the amount of payment to resident 
resource use in combination with resident characteristic information. 
Staff time measurement (STM) studies conducted in 1990, 1995, and 1997 
provided information on resource use (time spent by staff members on 
residents) and resident characteristics that enabled us not only to 
establish RUG-III, but also to create case-mix indexes.
    Since that time, we have become concerned that incentives created 
by the SNF PPS, the public reporting of nursing home quality measures, 
and the changing beneficiary population using SNF services likely have 
altered industry practices, and have affected the nursing resources 
required to treat different types of patients. Changes to technology 
might also have affected care methods, while more choices in housing 
alternatives (such as assisted living and community housing) may have 
altered the population mix served by nursing homes.
    In considering changes to the classification system, we considered 
alternative models. Since the inception of the SNF PPS, we have 
investigated ways of developing a predictive model for therapy that 
could replace the existing methodology. During the demonstration that 
led to the development of the SNF PPS, we considered a therapy model 
based on need. However, there was a great deal of concern that by 
separating payment from the actual provision of services, the system, 
and more importantly, the beneficiaries would be vulnerable to 
underutilization. In work that the Urban Institute did for CMS, it 
developed a model that focused on hospital diagnosis and level of 
function to predict the need for therapy. That proposal was discussed 
in a CMS Report to the Congress issued in December 2006, which is 
available online at http://www.cms.hhs.gov/SNFPPS/Downloads/RC_2006_PC-PPSSNF.pdf.
    While the model had possibilities, it added a level of complexity 
without increasing the model's predictive power beyond that of the 
existing RUG-III methodology. In addition, we were concerned about the 
reliance on data from the prior hospital stay (which is not currently 
available to SNFs), and the use of hospital diagnosis to predict post-
acute therapy needs. MedPAC has retained the Urban Institute 
researchers to develop the model further, and has presented a refined 
methodology in its June 2008 Report to the Congress: Reforming the 
Delivery System, available online at http://MedPAC.gov/chapters/Jun08_Ch07.pdf. While we will continue to study this model, we believe it 
would be premature to include it in the RUG-IV model being proposed in 
this rule for two reasons.
    First, in accordance with section 115 of the Medicare, Medicaid, 
and SCHIP Extension Act of 2007 (MMSEA, Pub. L. 110-173), the Congress 
has asked us to look at alternatives to a diagnosis-based model for 
evaluating facility compliance under the IRF PPS. During the past 3 
months, we have spoken with a large number of clinicians and other 
stakeholders who have expressed strong reservations about using 
diagnosis as a predictor of therapy need. We have contracted with the 
Research Triangle, Inc. (RTI) to investigate alternatives, and want to 
review the results of this research before proceeding with a diagnosis-
linked model for therapy in SNFs.
    Second, we are working closely with CMS staff on the Post Acute 
Care (PAC) Payment Reform demonstration project. Data are currently 
being collected from SNFs, IRFs, home health agencies, and

[[Page 22221]]

long-term care hospitals that we believe will help us predict the need 
for post-hospital care across these four settings. We believe that the 
results of the PAC Payment Reform demonstration project will assist us 
in developing a more effective model for therapy reimbursement.
    We believe that significant changes in the SNF PPS therapy payment 
model would be most appropriately considered after the conclusion of 
research on diagnosis-based models and the PAC demonstration described 
above. Therefore, the STRIVE therapy model utilizes the same basic 
structure as the current RUG-III model and relies on updated staff time 
data collected during STRIVE.
1. Data Collection
    To help ensure that the SNF PPS payment rates reflect current 
practices and resource needs, CMS sponsored a national nursing home 
time study, STRIVE, which began in the Fall of 2005. Information 
collected in STRIVE includes the amount of time that staff members 
spend on residents and information on residents' physical and clinical 
status derived from MDS assessment data.
    Two hundred and five nursing homes from the following 15 States and 
jurisdictions volunteered to participate in STRIVE: the District of 
Columbia, Nevada, Florida, Illinois, Iowa, Kentucky, Louisiana, 
Michigan, Montana, New York, Ohio, South Dakota, Texas, Virginia, and 
Washington. Once the States were identified, we selected a sample of 
nursing homes using the procedures set forth in the document entitled 
``Sampling Methodology'' available on the SNF PPS Web site at http://www.cms.gov/snfpps/10_timestudy.asp, and analyzed staff time and MDS 
assessment data for approximately 9,700 residents. The STRIVE sample is 
40 percent greater than the 1994 sample used initially to develop RUG-
III, and is 2.5 times larger than the 1995/1997 sample used to revise 
RUG-III and establish the current CMIs that are the basis for current 
Medicare rates.
    Identifying the level of staff resources needed to provide quality 
care to nursing home patients was a primary objective. For this reason, 
nursing homes with poor survey histories or pending enforcement actions 
were excluded from the sample. In addition, nursing homes with poor 
quality measure (QM) scores, low occupancy rates, or large proportions 
of private pay or pediatric patients were also excluded.
    Using the procedures set forth in the document entitled ``Sampling 
Methodology'' that appears on the SNF PPS Web site at http://www.cms.gov/snfpps/10_timestudy.asp, nursing homes were recruited 
within the following five strata: Hospital-based facilities; facilities 
with high concentrations of residents on ventilators; facilities with 
high concentrations of residents with Human Immunodeficiency Virus 
(HIV); facilities with high concentrations of residents on Medicare 
Part A stays; and all other facilities. Facilities with large 
concentrations of residents on ventilators, residents with HIV, or 
residents on Part A stays were over-sampled in order to assure 
sufficient numbers of residents in those populations. Nursing homes 
were voluntarily recruited in random order until enough facilities in 
each targeted category agreed to participate.
    Participating facilities included both not-for-profit entities and 
corporations, chains and independent operators, nursing homes with 
populations small to large in size, freestanding and hospital-based 
facilities, and facilities situated in urban and rural locations. 
STRIVE began on-site data collection at both SNFs and Medicaid nursing 
facilities (NFs) in the spring of 2006. STRIVE collected data from both 
types of facilities because almost half of the States use a version of 
the RUG-III system for their Medicaid reimbursement systems.
    Participating facilities submitted both time and MDS assessment 
data. Nursing staff recorded their time over 48 hours. Nursing staff 
included registered nurses, licensed practical nurses, and nursing 
aides. Therapy staff recorded their time over 7 consecutive days. 
Therapy staff included physical therapists and aides; occupational 
therapists and aides; and speech-language pathologists. Each nursing 
home staff member recorded his or her time at the facility in different 
categories (for example, resident-specific time (RST), non-resident-
specific time (NRST), unpaid time, and non-study time).
    Additional detailed information on the STRIVE sampling and data 
collection process has been posted on the SNF PPS Web site at http://www.cms.hhs.gov/SNFPPS/10_TimeStudy.asp. In addition, more information 
on the STRIVE data collection process appears at the following Web 
site: https://www.qtso.com/strive.html. Items posted there include: 
Assessment forms distributed by STRIVE; ``train the trainer'' materials 
used to teach the data monitors who, in turn, instructed nursing home 
staff members on how to record their time; and materials from State 
teleconferences. Slides presented at STRIVE technical expert panels 
(TEPs) can also be found on this Web site.
2. Developing the Analytical Data Base
    To date, STRIVE has benefited from stakeholder input, starting with 
the December 2005 Open Door Forum to which the public was invited. The 
educators, researchers, beneficiary advocates, clinicians, consultants, 
government experts, and representatives from health care, nursing home, 
and other related industry associations serving on the STRIVE TEP have 
provided valuable insights on topics such as sample populations. 
Beginning in 2005 until its most recent March 2009 meeting, the TEP has 
met three times and held three teleconferences. Additionally, our 
contractor established a smaller Analytic Panel consisting of various 
stakeholders who have met with our researchers to discuss the analysis 
of the STRIVE data.
    In addition, we worked closely with the States to recruit State 
Medicaid agencies as partners in the data collection process. We held 
numerous phone conferences with the State agencies to organize the data 
collection and get State input on potential focus areas for the 
research. For example, we received suggestions to look at special 
populations including the ventilator/respirator population, HIV/AIDS, 
Alzheimers patients and individuals with behavioral problems. We also 
investigated differences in relative resource costs for the younger 
population that would typically be reimbursed through Medicaid rather 
than Medicare, and for patients with long-term chronic conditions such 
as deafness and/or blindness. We were able to incorporate the results 
of some of these analyses into the RUG-IV model. For example, we found 
that the relative resource use for respiratory conditions such as 
ventilator/respirator use have increased. Reimbursement for these 
conditions increases under the RUG-IV model. However, the data did not 
support a change to the RUG-IV model for other patient populations, 
such as the bariatric population or residents with behavioral issues. 
However, we plan to share our findings with the States so that they can 
consider the STRIVE data in evaluating changes to Medicaid payment 
systems.
    Finally, we have been working closely with colleagues in the 
Canadian government to broaden our data collection effort. CAN-STRIVE 
(a recent Canadian time study using the same methodology as the STRIVE 
project described in this proposed rule) has just

[[Page 22222]]

begun its data analysis, using some of the preliminary STRIVE data to 
focus its data collection efforts. We will continue to work with our 
Canadian colleagues to confirm our findings and, if possible, to 
continue our analysis of special populations. For example, the CAN-
STRIVE population includes a much larger sample of patients with 
behavior problems than the STRIVE sample, and the Canadian data may be 
helpful for future policy analysis.
    The STRIVE analyses have shown that the RUG-III model is still 
effective in determining relative nursing resource use generally across 
a broad range of conditions for which beneficiaries are treated. At the 
same time, however, we have found that the resource times associated 
with specific conditions or service categories, such as diabetes and 
the use of intravenous fluids or medications, has changed 
significantly. These analyses have confirmed our initial expectations 
that the RUG-III model needed to be updated to reflect significant 
changes in SNF care patterns during the past decade. Therefore, in 
constructing the analytical data base, we have proposed the changes to 
the RUG-IV model that are discussed below.
a. Concurrent Therapy
    Almost 90 percent of patients in a Medicare Part A SNF stay are 
receiving therapy services. Under the current RUG-III model, therapy 
services are case mix-adjusted based on the therapy minutes reported on 
the MDS. When the RUG-III model was developed, most therapy services 
were furnished on a one-on-one basis, and the minutes reported on the 
MDS served as a proxy for the staff resource time needed to provide the 
therapy care. However, we have long been concerned that the incentives 
of the current RUG-III classification model have created changes in the 
way therapy services are delivered in SNFs. Specifically, we have been 
concerned that, as discussed below, there has been a shift from one-on-
one therapy to concurrent therapy that may not represent optimal 
clinical practice.
    Concurrent therapy is the practice of one professional therapist 
treating multiple patients at the same time while the patients are 
performing different activities. In the SNF Part A setting, concurrent 
therapy is distinct from group therapy, where one therapist provides 
the same services to everyone in the group. In a concurrent model, the 
therapist works with multiple patients at the same time, each of whom 
can be receiving different therapy treatments. For concurrent therapy, 
there are currently no MDS coding restrictions regarding either the 
number of patients that may be treated concurrently, or the amount or 
percentage of concurrent therapy time that can be included on the MDS, 
whereas with group therapy there are limitations, as discussed in the 
July 30, 1999 SNF PPS final rule (64 FR 41662).
    There are specific MDS coding instructions that limit the amount of 
group therapy that can be reported on the MDS, and used to calculate 
the appropriate payment level. For MDS reporting purposes, in order to 
report the full time as therapy for each participant, the supervising 
therapist (or assistant) may treat no more than four participants at a 
time, and may not be supervising any additional patients outside the 
group. Group therapy minutes may be counted in the MDS, but are limited 
to no more than 25 percent of the total weekly minutes per discipline 
for a particular patient.
    In the SNF Part A setting, concurrent therapy can be a legitimate 
mode of delivering therapy services when used properly based on 
individual care needs as determined by the therapist's professional 
judgment. Given that Medicare and Medicaid patients are among the most 
frail and vulnerable populations in nursing homes, we believe that the 
most appropriate mode of providing therapy would usually be individual 
and not concurrent therapy. We believe it is in the beneficiary's best 
interest that concurrent therapy should never be the sole mode of 
delivering therapy care to any individual in a SNF setting; rather, it 
should be used as an adjunct to individual therapy when clinically 
appropriate, as determined by the individual's current medical and 
physical status based on a therapist's clinical judgment.
    Our concern is that concurrent therapy has become the standard of 
practice rather than a way to supplement needed individual therapy 
care. The STRIVE data show that approximately two-thirds of all Part A 
therapy provided in SNFs is now being delivered on a concurrent basis 
rather than on the individual basis that we believe to be the most 
clinically appropriate mode of therapy for SNF and NF patients. We are 
also concerned that the current method for reporting concurrent therapy 
on the MDS creates an inappropriate payment incentive to perform 
concurrent therapy in place of individual therapy, because the current 
method permits concurrent therapy time provided to a patient to be 
counted in the same manner as individual therapy time. For example, 
under the current method of reporting, if a therapist furnishes 60 
minutes of therapy time to a group of patients concurrently, then a 
separate 60 minutes of therapy time is counted for each patient. To 
test the impact of changing the method of reporting concurrent therapy, 
we designed the STRIVE analytical data base to distinguish between 
concurrent and individual therapy minutes. We were also able to 
identify the number of patients treated under the concurrent model, and 
allocated the total minutes evenly among the total number of patients 
receiving concurrent therapy care from the same therapist at the same 
time.
    The data showed that under our current RUG-III methodology, which 
does not allocate time, patients treated concurrently are typically 
assigned to higher therapy groups (with higher payments) than 
appropriate based on the therapy resources actually used to provide 
care for those patients. In order to eliminate this inappropriate 
incentive, and to better reflect our policy that individual therapy is 
usually the most appropriate mode of therapy for SNF residents, we are 
proposing to use allocated concurrent therapy minutes in developing the 
RUG-IV therapy model. Thus, a therapist who is treating patients 
concurrently would allocate the total minutes among the patients based 
on the therapist's clinical judgment of how much therapist time was 
actually provided to each patient. We note that this change is 
consistent with our longstanding policy for payment of timed codes 
(that is, codes that are billed per time unit rather than per visit) 
for Part B therapy services. As stated in the Medicare Benefit Policy 
Manual, Pub. 100-2, chapter 15, section 230, ``Contractors pay for 
outpatient physical therapy services (which includes outpatient speech-
language pathology services) and outpatient occupational therapy 
services provided simultaneously to two or more individuals by a 
practitioner as group therapy services (97150). The individuals can be, 
but need not be performing the same activity.'' Therefore, in 
outpatient settings, concurrent therapy is billed the same way as group 
treatment (and the therapist would bill the HCPCS code for group 
therapy, not individual therapy, for each individual involved).
    Consistent with this policy and with our initiative ``to improve 
consistency in the standards and conditions for Part A and Part B 
therapy services'' (as discussed in the Medicare Physician Fee Schedule 
final rule with comment period for CY 2008, 72 FR 66222, 66332, 
November 27, 2007), effective with the introduction of RUG-IV, 
concurrent therapy time provided in a Part A SNF

[[Page 22223]]

setting would no longer be counted as individual therapy time for each 
of the patients involved. However, we note that, unlike the Part B 
policy described above, in the SNF setting we are not proposing to 
treat concurrent therapy minutes the same way we treat group therapy 
minutes, and instead are proposing to allocate concurrent therapy 
minutes among the patients being treated (as stated above, the full 
therapy time can be reported for each group therapy participant as long 
as no more than four participants are being treated at a time). As 
discussed above, we believe that with the frail and vulnerable 
population in SNFs and NFs, concurrent therapy is appropriate only as 
an adjunct to individual therapy and that individual therapy is the 
most appropriate mode of therapy for this population. Therefore, unlike 
our policy for group therapy, we do not believe it is appropriate to 
count the full therapy time for each patient being treated 
concurrently. In a group setting, the patients are performing similar 
activities. By interacting with one another, the patients observe and 
learn from each other. They then apply this new information into their 
own therapy program to progress and, thus, benefit from the group 
setting. By contrast, during concurrent therapy, the patients are not 
performing similar activities and often do not interact at all with 
each other. Therefore, the patients are not benefiting from each 
other's therapy intervention. Furthermore, as discussed above, we 
believe that allowing concurrent therapy to be counted as individual 
therapy would create an inappropriate incentive to replace individual 
therapy with concurrent therapy.
    As we stated previously, in the SNF Part A setting, concurrent 
therapy can be a legitimate mode of delivering therapy services when 
used properly based on individual care needs as determined by the 
therapist's professional judgment. CMS requires that the actual total 
therapy time be documented on the MDS. However, we have not to date 
required that the facility staff separately report the amount of time 
for each individual therapy technique or delivery mode (individual, 
concurrent, and group). Without this documentation, it is difficult for 
CMS to evaluate the appropriateness of reimbursement.
    As discussed above, we are proposing that, for each discipline, 
concurrent therapy minutes must be allocated before reporting total 
therapy minutes on the MDS 3.0. For this reason, we are soliciting 
comments concerning whether therapy data need to be reported separately 
by therapy mode (that is, individual, concurrent, or group) on the MDS 
or whether it will be sufficient to include a record of therapy usage 
by therapy mode in the medical record. While we are not prescribing the 
specific facility process for the documentation of therapy services 
(for example, therapy log, therapy daily progress note), we note that, 
in the absence of further changes to the MDS 3.0, the amount of time 
for each mode of therapy would need to be distinguished in the 
individual's clinical record effective with the MDS 3.0, and it would 
be up to facility staff to make the correct time allocations for 
reporting on the MDS.
    We want to reiterate that concurrent therapy--
     Can represent a legitimate mode of delivering therapy 
services when used properly, based on individual care needs as 
determined by the therapist's professional judgment;
     Should be an adjunct to individual therapy, not the 
primary mode of delivery of care; and,
     Should represent an exception rather than the standard of 
care.
    As discussed above, while we limit the percentage of group therapy 
minutes that may be counted on the MDS, and limit the number of 
patients that may be treated simultaneously in group therapy for 
purposes of counting therapy minutes in full for each patient (64 FR 
41662), we have not, to date, placed a limit on the percentage of 
concurrent therapy that may be coded on the MDS or on the number of 
patients that can be treated concurrently. Therefore, we are also 
inviting public comments on whether there should be other restrictions 
relating to concurrent therapy such as a limit to the percentage of 
concurrent therapy minutes that may be counted on the MDS for any 
individual or to the number of people that can be treated concurrently 
by the same therapist.
    Finally, we are concerned that placing limits on the use of 
concurrent therapy could result in an inappropriate substitution of 
therapy aides for therapists and assistants. We note that therapy aides 
are expected to provide support services to the therapists and cannot 
be used to provided skilled therapy services. We also note that, under 
Part B, services rendered by therapy aides are not considered 
outpatient therapy services. In our analysis of the STRIVE data, it 
appears that therapy aides are being used appropriately; that is, for 
supportive services and not for the provision of skilled therapy 
services. However, we intend to monitor the use of therapy aides and, 
if necessary, to propose changes to MDS reporting requirements in the 
future.
b. Adjustments to STRIVE Therapy Minutes
    The STRIVE analysis also included an examination of therapy 
services reimbursed under RUG-III. While nursing services are fully 
reimbursed using a prospective case-mix adjusted algorithm, payment for 
therapy services is more closely linked to the amount of therapy 
actually received at a particular time. In the RUG-III model, there are 
five levels of therapy services: Ultra High, Very High, High, Medium, 
and Low therapy. Each of these levels is assigned based on the actual 
minutes of therapy care provided to a beneficiary as reported on the 
MDS assessment. Each level of therapy is assigned a CMI. Payment is 
determined by multiplying the CMI by the therapy portion of the SNF PPS 
rate. This therapy payment is then included in the SNF PPS bundled per 
diem payment.
    We are aware that there are some inherent limitations associated 
with the voluntary collection of data at a facility site. During the 
STRIVE time study, we collected nursing staff time for two weekdays, 
primarily with hand-held computers called personal data assistants 
(PDAs). We collected therapy staff time for 7 days, generally with PDAs 
only for the first three weekdays and then with a paper tool for the 
remaining 4 days, including weekends. We needed to clean the PDAs of 
all data and ship them to a new facility for availability at the 
beginning of the next week, which restricted PDA usage to only 3 days. 
In addition, during weekend days, different therapy staff were present 
and received substantially less oversight for the therapy data 
collection using the paper tools.
    There were three different data collection schedules: Therapy data 
collection on Schedules A and B both began on Tuesday continuing 
through the following Monday. With Schedule C, data collection began on 
Wednesday continuing through the following Tuesday. In all cases, the 
therapy data collection continued for a complete one-week period. Table 
9 below shows the percentage of weekly therapy time for the three data 
collection schedules.

[[Page 22224]]



                   Table 9--Data Collection Schedules With Percentage of Weekly Therapy by Day
----------------------------------------------------------------------------------------------------------------
      Collection schedule           N      Tues.     Wed.    Thur.     Fri.     Sat.     Sun.     Mon.    Tues.
----------------------------------------------------------------------------------------------------------------
A..............................     8012      26%      25%      22%      12%       2%       1%      12%  .......
B..............................     1193      25%      27%      26%      12%       1%       0%      10%  .......
C..............................      516  .......      30%      26%      21%       1%       1%      12%       9%
                                --------------------------------------------------------------------------------
    Total......................     9721      24%      26%      23%      13%       2%       1%      12%       1%
----------------------------------------------------------------------------------------------------------------
Shaded cells indicate days where therapy data were collected using the paper tool.

    Including only residents present for the full week of therapy data 
collection, Schedule A and Schedule B show similar percentages of 
reported weekly therapy across the seven days. Tuesday, Wednesday, and 
Thursday each had between 22 percent and 27 percent of the total weekly 
reported therapy, and together had between 73 and 78 percent of the 
total weekly reported therapy. Of the remaining total, 12 percent 
occurred on Friday, 10-12 percent on Monday, and very little (zero to 
two percent) occurred on weekend days.
    For Schedules A and B, Tuesday, Wednesday, and Thursday therapy 
time was collected by PDA; the paper tool was utilized Friday through 
Monday. For Schedule C, PDAs were used Wednesday through Friday, with 
paper tools utilized Saturday through Tuesday. While utilizing a PDA, 
all three schedules reported similar percentages: 22 to 30 percent, for 
Wednesdays and Thursdays, and 21 percent on Friday for Schedule C. In 
contrast, utilizing paper tools, Friday therapy time was 12 percent for 
Schedules A and B, and 9 percent on Tuesday for Schedule C. These 
observations lead us to believe that it was possible that therapy was 
being underreported when the paper tool was utilized.
    In order to determine if the therapy data collected seemed 
reasonable, we compared the STRIVE Medicare Part A data to the national 
distribution of RUG-III rehabilitation groups as reported on Medicare 
claims. The STRIVE data had fewer patients in the Ultra High, Very 
High, and High rehabilitation groups and more patients in the Medium 
rehabilitation groups. This Medicare Part A claims comparison indicated 
that STRIVE therapy time was probably being underreported. Possible 
explanations of the underreporting include both the use of paper forms 
and the less intense oversight on weekends.
    In order to mitigate potential paper tool shortfalls with respect 
to therapy times, we developed a methodology to determine adjusted 
weekly therapy time based on the PDA time. Our proposed methodology 
allows us to avoid direct use of the potentially underreported therapy 
minutes from the paper tools and best match the Medicare Part A claims 
information.
    As discussed in detail in section III.A.2.a. of this proposed rule, 
we adjusted the therapy minutes to allocate concurrent therapy time; 
that is, divide the total therapy minutes between the number of 
patients receiving therapy service from the same therapist at the same 
time. We then performed separate calculations using the resident time 
for each of the three therapy disciplines (physical therapy, 
occupational therapy and speech-language pathology). The steps for 
making the therapy time adjustment included:
     Totalling each resident's time for each discipline by 
adding times across the several practitioners of that discipline (for 
example, for physical therapy we had therapists, assistants, and 
aides.)
     Computing the resident's average therapy session for each 
separate discipline computed as the sum of the therapy time reported on 
PDA days and divided by the count of PDA days. There had to be 15 
minutes or more of therapy for inclusion in the computation.
     Estimating the total adjusted number of days the resident 
received that therapy discipline. We considered it a day of therapy 
only if 15 minutes or more of therapy time was reported on the PDA or 
the paper tool.
    To determine the number of weekdays where therapy was provided, we 
adjusted the data as follows:
     Three of three PDA days reported: We treated that resident 
as if there were five weekdays of therapy for that discipline. A 
resident receiving therapy on all data collection days would most 
likely indicate a pattern typical of a person receiving daily therapy.
     Two of three PDA days reported: We treated that resident 
as if there were three weekdays of therapy for that discipline. We note 
that residents can only qualify for a therapy group if they have had at 
least 3 days of therapy per week. Thus, facilities typically provide 
therapy services for at least 3 days per week, in order to qualify the 
resident for a therapy group. Accordingly, when therapy was reported on 
2 of 3 PDA days, we believed that it was likely that the patient 
actually received 3 days of therapy during the week. If the paper tool 
indicated there were 15 or more minutes of a specific therapy on either 
or both of the remaining weekdays, then an additional day was added for 
each day with 15 or more minutes; a maximum of two additional weekdays 
was possible.
     One of three PDA days: We treated that resident as if they 
had one weekday of that discipline but added additional days for each 
of the other two weekdays where therapy time of 15 or more minutes was 
indicated on the paper tool for that discipline.
     No PDA days: We counted any weekday or weekend days 
reported on a paper tool where there were 15 or more minutes for that 
discipline.

Generally, therapy was not given on weekends and weekend data 
collection was always done by the paper tool. We accounted for therapy 
time on the weekends by counting the days reported on a paper tool 
where there were 15 or more minutes of therapy for that discipline.
    Following the steps described above, we calculated an adjusted 
number of days for each discipline, for each resident. Then, for each 
discipline and for each resident, we adjusted the reported therapy 
minutes by multiplying the average therapy session time for each 
resident by the adjusted days of therapy to obtain adjusted weekly 
therapy minutes.
    After adjusting the therapy minutes, we performed a similar 
adjustment to add the estimated amount of therapy staff time that had 
not been captured during the data collection process. First, we divided 
the adjusted weekly therapy minutes by the reported weekly therapy 
minutes to calculate an inflation factor. Then, we applied the 
inflation factor to the reported per diem staff time resulting in the 
adjusted per diem therapy staff time. The adjusted staff time was then 
wage weighted (see discussion in II.G.1.b.v of this proposed rule) to 
produce the final wage-weighted staff time (WWST) for therapy. The WWST 
was then used as the dependent

[[Page 22225]]

(or cost) variable in the subsequent analyses of therapy staff time and 
also to derive the therapy CMIs.

                                                   Table 10--Adjusted Therapy Time Calculation Example
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                       Average    Days
                    Therapy data                        Tues.     Wed.     Thurs.     Fri.      Sat.      Sun.      Mon.      Total    therapy  with 15+
                                                                                                                              time     session   minutes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Observed............................................        45        40        40         0         0         0         0       125        42         3
Assumed.............................................         x         x         x         x         0         0         x       210        42         5
--------------------------------------------------------------------------------------------------------------------------------------------------------
3 days of PDA data with estimated days of therapy = 5.
Adjusted weekly minutes = 5 x 42 = 210 minutes.

    When group therapy was reported, we applied the existing 25 percent 
group time limitation for each discipline, excluding any group time 
exceeding 25 percent of total time, as follows: First, we calculated 
the amount of group time exceeding the 25 percent limitation. In order 
to achieve agreement with the adjusted therapy times, we multiplied the 
excess group time by the inflation factor before subtracting from the 
adjusted total time.
    This therapy time adjustment provides a better fit to the national 
RUG-III distribution for rehabilitation groups, and better accounts for 
all reported therapy staff times. We give the maximum credit possible 
for any day that therapy time was recorded for 15 or more minutes to 
avoid underestimating the actual amounts of therapy furnished to 
patients.
    We used the adjusted therapy time to determine the number of 
residents classifying into the ``Rehabilitation'' and ``Rehabilitation 
plus Extensive Services'' categories in the RUG-IV model and to 
calculate the CMIs. Though we propose to adjust for therapy time by 
developing the inflation factor described above, we evaluated the 
effect of two alternatives. The first alternative we considered was 
using the reported (unadjusted) times from the PDAs and paper tools. We 
also looked at therapy CMIs for nursing facilities where the therapy 
time data collection appeared consistent across the entire week, and 
examined the wage-weighted unadjusted times from only those 50 
facilities. We evaluated the alternatives by determining whether the 
alternative produced a substantial difference in the CMI computation 
for the ``Rehabilitation'' and ``Rehabilitation plus Extensive 
Services'' categories compared to the proposed adjusted therapy time 
methodology.
    The three different scenarios produce roughly the same CMIs because 
the RUG therapy groups use therapy time cutoffs, for example, the High 
rehabilitation groups require 325 minutes of therapy per week and the 
Very High rehabilitation groups require 500 minutes of therapy per 
week. While the therapy adjustment will not significantly influence the 
CMIs, it will change our estimated distribution of residents by 
increasing the number of residents in the higher level rehabilitation 
RUG groups.
    This adjustment methodology benefits providers that provide a 
substantial quantity of rehabilitation. Without taking this into 
consideration, we run the risk of undercounting the actual amount of 
therapy provided. Therefore, we propose the adjustment methodology 
because the RUG distribution after application of the adjustment of 
therapy time more closely matches the expected therapy RUGs national 
distribution. The adjustment methodology is described in detail in the 
slides presented at the March 2009 TEP posted on http://www.qtso.com/strive.html.
    We then included the adjusted therapy minutes in the STRIVE 
analytic database used to construct the RUG-IV classification structure 
and CMIs. We are confident that the STRIVE sample gave us the 
information we needed to evaluate changes we are proposing in this rule 
to the existing RUG-III model and to the therapy CMIs for RUG-IV. 
Still, as we discussed above, we believe that it would be premature to 
recommend a comprehensive restructuring of the SNF PPS therapy 
methodology based on a predictive model for therapy services. Thus, in 
this rule, we are proposing incremental, targeted changes that we 
believe will improve the accuracy of the existing RUG model. We plan to 
revisit alternatives to the current methodology used to reimburse 
therapy as additional information from the Post Acute Care 
demonstration and the analysis of IRF utilization patterns becomes 
available.
c. ADL Adjustments
    RUG-IV, like RUG-III, uses a scale measuring Activities of Daily 
Living (ADLs) to identify residents with similar levels of physical 
function. This scale is used to sub-divide (``split'') each of the 
major hierarchical categories except Extensive Services. It is also 
used as part of the qualification criteria for many of the RUG-IV 
hierarchical categories (Extensive Services, Special High, Special Low, 
and Cognitive Performance and Behavioral Symptoms), and is used as part 
of the specific criteria for classifying patients to RUGs within 
certain categories.
    As discussed below, we are proposing revisions to the RUG-IV ADL 
Index that reflect both clinical and statistical considerations, with 
the aim of scoring similarly those residents with similar function. As 
discussed further below, we changed component scores to make the scale 
more proportional to physical function (linear). In addition, we 
increased the range of the RUG-IV ADL Index (17 points), as compared to 
the RUG-III ADL Index (15 points), to allow somewhat greater 
distinction in physical function. An improvement of the categorization 
of the RUG-IV ADL scale is suggested by the results of the regression 
of the ADL scale (linear) after adjusting for the RUG-IV major 
hierarchical categories (R2 = 11.1 percent for the RUG-IV 
ADL Index versus R2 = 10.5 percent for the RUG-III ADL 
Index).
    In addition, as discussed further below, we made certain revisions 
in the eating component score to achieve better categorization of 
residents receiving assistance in feeding. The RUG-III ADL Index used 
component scores of 1, 2, and 3 with artificial feeding mechanisms; 
that is, Parenteral Feeding/IV Feeding or the use of feeding tubes, 
used to classify patients into the most dependent category. In the 
STRIVE analysis, we found that patients receiving One Person Physical 
Assist or more needed comparable staff resources to those patients who 
were being fed by artificial means. During RUG-IV development, we found 
that the inclusion of artificial feeding services in the ADL Index 
slightly reduced the effectiveness of the model fit. In fact, the 
regressions discussed immediately above dropped slightly from an 
R2 of 11.1 percent to 11.0 percent for the best alternative 
model (with the eating

[[Page 22226]]

component score = 2). Therefore, we modified the ADL component for 
eating so that the RUG-IV ADL component score for eating does not use 
Parenteral/IV feeding or feeding tube items. In addition, we made 
certain other revisions to the ADL component for eating as discussed 
below.
    As in RUG-III, in the RUG-IV model an ``ADL Index'' is determined 
by combining the ``component ADL scores'' for certain items. The RUG-IV 
ADL Index, like the RUG-III ADL Index, combines ``component ADL 
scores'' based on the MDS ADL items for bed mobility, transfer, eating, 
and toilet use. A higher score represents a greater functional 
dependence and a need for more assistance. However, in contrast with 
the RUG-III ADL scale which ranges from 4 to 18, the RUG-IV scale 
ranges from 0 to 16. Starting the RUG-IV ADL Index at 0 is intended to 
improve ease of use and interpretation, and the addition of 2 ADL 
levels is intended to capture a patient's functional status more 
effectively.

          Table 11a--ADL Values: Bed Mobility, Toilet, Transfer
------------------------------------------------------------------------
                   Bed Mobility, Toilet, Transfer ADL
-------------------------------------------------------------------------
                                                        Support
                                             ---------------------------
                 Performance                   None/      1-       2-
                                               setup    person   person
------------------------------------------------------------------------
Independent/Supervision.....................               0
------------------------------------------------------------------------
Limited Assistance..........................               1
------------------------------------------------------------------------
Extensive Assistance........................          2               4
---------------------------------------------------------------
Total Dependence............................          3
------------------------------------------------------------------------


                      Table 11b--ADL Values: Eating
------------------------------------------------------------------------
                               Eating ADL
-------------------------------------------------------------------------
                                                        Support
                                             ---------------------------
                 Performance                    None/      1-       2-
                                                setup    person   person
------------------------------------------------------------------------
Independent/Supervision.....................        0           2
---------------------------------------------
Limited Assistance                            ........
------------------------------------------------------------------------
Extensive Assistance........................        2           3
---------------------------------------------          -----------------
Total Dependence............................                    4
------------------------------------------------------------------------

    To compute the RUG-IV ADL Index, we sum the component ADL scores 
for bed mobility, transfer, eating, and toilet use. We obtain each 
component ADL score by using both the Self-Performance and Support 
Provided for all four of the MDS items. This is a minor change from the 
RUG-III ADL Index (which did not use the Support Provided item for 
eating), intended to capture a patient's functional status more 
effectively. In addition, RUG-IV ADL Index component ADL scores range 
from 0 to 4 for all four areas, whereas RUG-III ADL Index scores ranged 
from 1 to 5 for bed mobility, transfer, and toilet use, and 1 to 3 for 
eating. Thus, although many specific combinations of MDS items remain 
the same, the corresponding component scores are slightly different.
    As with the RUG-III ADL Index, in RUG-IV, bed mobility, transfer, 
and toilet use are treated identically. The ADL for eating had a 
different relationship with resource use than the toileting, transfer, 
and bed mobility ADLs. Therefore, we chose to develop a separate eating 
ADL scale, consistent with the current ADL system.
    For the ADL Index component for bed mobility, transfer, and toilet 
use, when a Self-Performance item (for example, G1aa--Bed Mobility 
Self-Performance) indicates Independent (0) or Supervision (1), the 
component ADL score is 0, regardless of the level of support provided 
(for example, G1ab--Bed Mobility Support Provided). The data indicated 
that there was no significant change in resource use when the level of 
support provided increased, until the Extensive Assistance and Total 
Dependence levels. When the Self-Performance item indicates Limited 
Assistance (2), the component score is 1 (again, regardless of the 
level of support provided). For Self-Performance levels that indicate 
greater functional dependence than Limited Assistance (that is, 
Extensive Assistance and Total Dependence), the component ADL score is 
based on the level of support provided. When the Self-Performance item 
indicates Extensive Assistance (3) and the Support Provided is One 
Person Physical Assist or less (0, 1, 2), the component score is 2; 
when a Two+ Persons Physical Assist (3) is indicated, the component 
score is 4. Finally, when a Self-Performance item indicates Total 
Dependence (4) and the corresponding Support Provided item indicates 
One Person Physical Assist or less (0, 1, 2), the corresponding 
component score is 3; when a Two+ Persons Physical Assist (3) is 
indicated, the component score is 4. When the ADL Activity Did Not 
Occur During the Entire 7-day Period, Self-Performance (8) or Support 
Provided (8), the component ADL score is 0.
    As mentioned previously, in the RUG-IV model, the eating component 
ADL score is obtained by using the Self-Performance and Support 
Provided items for eating. At each Self-Performance level, component 
scores differ by the level of Support Provided: Setup Help Only or less 
(0, 1) versus One Person Physical Assist or more (2, 3). When the Self-
Performance item indicates Independent (0), Supervision (1), or Limited 
Assistance (2) and the Support Provided indicates Setup Help Only or 
less (0, 1), the eating component ADL score is 0. For the same three 
values of eating Self-Performance (that is, 0-2) where the Support 
Provided is One Person Physical Assist (2) or Two+ Persons Physical 
Assist (3), the eating component ADL score is 2. When the Self-
Performance item indicates Extensive Assistance (3) or Total Dependence 
(4) and the Support Provided is Setup Help Only or less (0, 1), the 
component ADL score is 2. When the Self-Performance is Extensive 
Assistance (3) and the Support Provided is either a One Person Physical 
Assist (2) or Two+ Persons Physical Assist (3), the component ADL score 
is 3. When the Self-Performance is Total Dependence (4) and the Support 
Provided is One Person Physical Assist or more (2, 3), the component 
ADL score is 4. The component ADL score of 1 is not used for eating. 
The pattern is similar to the ADL scores in RUG-III for bed mobility, 
transfer, and toileting, which have values of 1, 3, 4, and 5, but not 
2. The STRIVE data indicate that not every ADL level is correlated with 
the same increase in resource time. We found that using a scale without 
an ADL level of 1 for eating provided slightly higher variance 
explanation and a closer relationship between the final RUG-IV ADL 
Scale and nursing WWST.
    As with the other 3 ADLs, when the eating items indicate Activity 
Did Not Occur During the Entire 7-Day Period, Self-Performance (8) or 
Support Provided (8), the component ADL score is 0. The RUG-IV eating 
ADL component score differs from the RUG-III in 2 ways. First, as 
discussed above, the RUG-III ADL component score does not use the 
Support Provided item, whereas the RUG-IV ADL component score does. 
Second, the RUG-IV eating ADL component score does not use the 
Parenteral/IV feeding or the Feeding tube items, as discussed above.
    The ADL levels used to subdivide patients classified in each major 
category of the RUG-IV hierarchy into the actual RUG-IV groups is shown 
below in Table 12. We invite comments

[[Page 22227]]

on the proposed changes to the ADL index.
[GRAPHIC] [TIFF OMITTED] TP12MY09.000

BILLING CODE 4120-01-C
d. ``Look-Back'' Period
    The RUG-III case-mix classification system includes items in the 
MDS 2.0 that may be coded for services provided to the resident prior 
to admission into the SNF. When RUG-III was developed, these items were 
deemed to be a proxy for medical complexity. In the SNF PPS final rule 
for FY 2000 (64 FR 41668-69, July 30, 1999), a commenter suggested that 
we eliminate the ``look-back'' period for completion of items in the 
MDS, as its use could trigger a RUG assignment based on services that 
occurred solely during the prior acute hospital stay and were no longer 
being furnished by the time of SNF admission. This would result in SNF 
coverage even though the resident was no longer receiving any skilled 
care at that point. While we did not have the data needed to evaluate 
the impact of making this change to the RUG-III model, we continued to 
monitor how the inclusion of pre-admission services affected the RUG-
III classification model.
    In the FY 2000 SNF final rule (64 FR 41668 through 41669, July 30, 
1999), we stated that

    * * * the use of the `look-back' period in making RUG-III 
assignments is essentially a clinical proxy that is designed to 
serve as an indicator of situations that involve a high probability 
of the need for skilled care. Thus, our expectation is that the 
occurrence of one of the specified events during the `look-back' 
period, when taken in combination with the characteristic tendency * 
* * for an SNF resident's condition to be at its most unstable and 
intensive state at the outset of the SNF stay, should make this a 
reliable indicator of the need for skilled care upon SNF admission 
in virtually all instances * * *. If it should become evident in 
actual practice that this is not the case, it may become appropriate 
at that point to reassess the validity of the RUG-III system's use 
of the `look-back' period in making assignments.

    We subsequently discussed changing the ``look-back'' period on 
specific items in the MDS in the SNF PPS proposed and final rules for 
FY 2006 (70 FR 29079 through 29080 and 70 FR 45034 through 45035). Some 
commenters stated that changing the look-back period for some items in 
the MDS would negatively affect the care planning process for 
individuals. Many recommended that any changes should be coordinated 
with other CMS initiatives, such as MDS 3.0 and the STRIVE project. We 
agreed to address the issue of the look-back period within the broader 
context of the MDS 3.0 and the STRIVE project.
    In addition, MedPAC, in its reports (for example, Report to the 
Congress: Promoting Greater Efficiency in Medicare, June 2007; http://www.medpac.gov/documents/Jun07_EntireReport.pdf), recommended that we 
eliminate the look-back period for specific treatments and that we 
include in the RUG payment system only those services that are provided 
after admission to the SNF.
    As part of the STRIVE project, we expanded the data collection by 
adding a STRIVE addendum that allowed us to distinguish between 
preadmission and postadmission utilization of a specific set of MDS 
items that serve as qualifiers to classify residents into the highest 
levels of the RUG-III hierarchy. In order to minimize burden on the 
nursing homes participating in the study, we limited the number of 
additional data

[[Page 22228]]

items collected, and concentrated on those special treatments that are 
often provided in a hospital but are not often provided in a SNF after 
hospital discharge. For these reasons, we concentrated on the use of IV 
medications, tracheostomy care, suctioning and ventilator/respirator 
services, and transfusions (which are rarely performed in SNFs). We did 
not collect pre- and post-admission data on those special treatments we 
expected to require longer term care such as dialysis, IV feeding, 
radiation therapy and chemotherapy. However, in all cases, the staff 
time data collected through STRIVE reflects the care furnished after 
admission to the facility.
    Analysis of the STRIVE data shows that: (1) the ``look-back'' 
period does in fact capture services that are provided solely prior to 
admission to the SNF; and (2) there is a much lower utilization of 
staff resources for individuals who received certain treatments solely 
prior to the SNF stay (that is, during the qualifying acute hospital 
stay) compared to those who received these services while a resident of 
the SNF. In fact, the STRIVE data showed that those patients who 
received specific services solely prior to admission to the SNF have 
similar resource utilization to those who never received the service 
(prior to admission or during the SNF stay). Therefore, the capture of 
preadmission services by the ``look-back'' does not provide an 
effective proxy for medical complexity for SNF residents. Instead, it 
results in payments that are inappropriately high for many non-complex 
medical cases.
    Accordingly, we now propose to modify the look-back period under 
RUG-IV for those items in section P1a of the MDS 2.0, Special 
Treatments and Procedures, to include only these services that are 
provided after admission (or readmission) to the SNF. The modified 
look-back would apply to all treatments and procedures that are 
currently listed in section P1a of MDS 2.0. As discussed above, in 
order to reduce the burden on facilities, the STRIVE study looked at 
preadmission and postadmission utilization for a subset of P1a 
services. Because the STRIVE project data showed that the capture of 
preadmission services by the ``look-back'' does not provide an 
effective proxy for medical complexity and thus is not an effective 
predictor of subsequent resource intensity during the SNF stay, we 
believe that it would be appropriate, and consistent with the STRIVE 
data, to modify the look-back period for all P1a services. Thus, the 
proposed change to the look-back period is supported by the STRIVE 
data. In addition, the proposed change to the look-back period is 
consistent with the policy that has been in effect for reporting 
therapy services, another critical component of the RUG model, since 
the start of the SNF PPS in July 1998.
    On the MDS 3.0 item set, there will be two ways to code for each of 
these procedures and treatments. In the first column (while not a 
resident) the provider would mark each treatment and procedure that was 
provided to the patient within the last 14 days while not a resident of 
the facility and would only be required to complete this column if the 
patient were admitted within the last 14 days. In the second column 
(while a resident) the provider would mark those procedures and 
treatments that have been performed while a resident of the facility 
within the last 14 days.
    We agree that information regarding the resident's status prior to 
admission to the SNF is important to develop a comprehensive care plan. 
We note that the MDS collects information on numerous clinical items 
that affect a person's condition (medical, physical, psychological, 
etc.), which need to be taken into account in developing care plans but 
do not significantly alter the staff resources needed to provide 
quality care to that patient. It is the responsibility of all providers 
to properly assess, care for, and provide treatment for all patient 
care needs regardless of whether these needs/services are specifically 
included in the case-mix classification model used for payment. 
Furthermore, to make sure that comprehensive information is available 
to facility staff for the care planning process, as noted above, we 
have expanded the MDS 3.0 for the Special Treatments and Procedures 
items to 2 columns instead of only one. The first column allows the 
provider to code those services that were provided prior to the 
individual being admitted to the facility, while the second would be 
completed for only those services that are provided to the patient 
after admission/readmission to the facility. In this way, we capture 
information that may be important for care planning while continuing to 
provide adequate and appropriate payments for those patients who 
actually receive these services while a SNF resident. At the same time, 
modifying the look-back period eliminates inappropriately high 
reimbursement for services that are solely provided prior to admission 
to the SNF. We solicit comments on our proposed changes to the look-
back period.
e. Organizing the Nursing and Therapy Minutes
    The proposed RUG-IV model uses the same basic methodology that was 
used to develop the RUG-III model that is in use today. A detailed 
description of the RUG-III model is included in the May 1998 interim 
final rule with comment period (63 FR 26252). In addition, a detailed 
comparison between the RUG-II and RUG-IV models has been included in 
the Addendum to this proposed rule, in Table C.
    In developing the RUG model, we look for clinical conditions that 
show a difference in mean staff time resource use (that is, wage 
weighted staff time or WWST) between residents with a clinical 
characteristic and residents without the condition. For a detailed 
description of the methods used to calculate the WWST for nursing and 
therapy, please see section III.C. of this proposed rule. In the STRIVE 
study, we linked nursing and therapy staff time collected on site at 
205 facilities with contemporaneous MDS data for those same residents. 
Facility staff generally completed the STRIVE MDS during the same week 
as the time study was being collected. In the STRIVE study, we did have 
certain advantages that were not available when the RUG-III staff time 
measurement study was conducted. At that time, there was no national 
MDS data collection process. We now have a repository of MDS data 
covering the same period as each of the STRIVE time studies. Thus, we 
were able to use the national MDS data base to correct for missing data 
or other minor discrepancies in the ``as reported'' STRIVE MDSs.
    In addition, in the STRIVE study, we were able to assign average 
hourly wage rates more appropriately to the different staff categories 
(as explained below), and use this data to construct the wage-weighted 
staffing time (WWST) used to compare the resource intensity of 
different conditions and services during the analysis discussed below, 
and to establish the CMIs or relative weights for each group in the 
proposed RUG-IV hierarchy.
    For STRIVE, we used the 2006 U.S. Department of Labor, Bureau of 
Labor Statistics Occupational Employment Statistics survey (North 
American Industry Classification System 623100--Nursing Care 
facilities) wage data to determine the relative wages for the staff 
types participating in the STRIVE study. The RUG-III model relied 
primarily on data furnished by industry sources that provided fewer 
staff categories and wage weights. Thus, the WWST used in the STRIVE 
study better represents actual

[[Page 22229]]

staffing and wage rates in SNFs across the country.
    The purpose of linking the clinical and staff resource data is to 
identify differences in relative resource use for those conditions and 
sets of conditions treated in Medicare SNFs and Medicaid nursing 
facilities. Thus, we sorted each record by each of the RUG-III 
qualifying items reported on the MDS, summed the WWST minutes, and 
calculated an average number of nursing and therapy minutes for each 
condition. For example, we identified and summed the WWST resource 
minutes associated with providing suctioning. We then divided the total 
WWST minutes by the number of MDS records on which suctioning was 
reported to obtain average WWST minutes for the service. As part of the 
analysis, we looked at comorbidities commonly associated with the 
condition as well as records where suctioning was the only RUG 
qualifier reported on the MDS. We then used the WWST minutes and the 
mean minutes for each current or potential payment qualifier to examine 
and ultimately update the RUG-III model.
    The current RUG-III model was created as a hierarchy from highest 
to lowest resource use. Clinical conditions and services were assigned 
to a hierarchy level based on similarity of staff time required to 
treat a beneficiary with that condition. Thus, while there might be no 
direct clinical relationship between items assigned to the same level 
of the RUG hierarchy, SNFs will generally incur similar costs for 
providing nursing and therapy services within that RUG. The RUG-III 
hierarchy consists of eight levels: Rehabilitation plus Extensive 
Services, Rehabilitation, Extensive Services, Special Care, Clinically 
Complex Services, Impaired Cognition, Behavior Problems, and Reduced 
Physical Function. For detailed information on the development of the 
RUG-III classification system, please see the May 12, 1998 interim 
final rule with comment period (63 FR 26252). A comprehensive list of 
the MDS items used to classify patients into a RUG-III grouper is 
included in Chapter 6 of the MDS 2.0 Manual and can also be found on 
the SNF PPS Web site at www.cms.hhs.gov/NursingHomeQualityInits/20_NHQIMDS20.asp.
    As a first step, we examined the current RUG-III structure in a 
hierarchical manner starting with the Rehabilitation plus Extensive 
Services category. We evaluated each category by first looking at the 
current qualifiers for that category and determining if the average 
WWST based on the STRIVE data for any RUG-III qualifier was either 
significantly higher or significantly lower than the average WWST for 
that category. If a condition had significantly higher or lower WWST, 
it could indicate that the condition would better fit into the category 
above or below in the hierarchy. The second step was to evaluate 
potential items to add to each category based on the WWST for that item 
by considering qualifying conditions from the category below or 
investigating conditions that had not previously been included in the 
classification system.
    Then, we evaluated other major components of the RUG-III model to 
determine where enhancements could be made. The STRIVE research 
confirmed findings of CMS's multi-year RUG-III demonstration that 
showed the importance of patient functional deficits, that is, the 
ability to perform activities of daily living (ADLs), in assessing 
patient care needs and total staff time needed to provide care. We 
found that ADL levels have a significant impact for specific conditions 
and across the group of conditions included in almost every level of 
the hierarchy. Therefore, the RUG-III model includes an ADL scale that 
is used to create secondary classification splits within each level of 
the hierarchy.
    For RUG-IV, the ADL scale remains a critical part of the model. We 
are proposing two modifications to the existing ADL methodology. First, 
in RUG-IV, we will standardize the ADL categories across the various 
levels of the hierarchy. Second, we revised the ADL scale to make it 
more sensitive to differences in functional levels. The proposed ADL 
changes are discussed in section III.B. of this proposed rule.
    In addition, we reassessed the effectiveness of the incremental 
refinement implemented in the FY 2006 final rule that added nine new 
RUG-III groups effective January 2006. We also looked at changes in the 
delivery of therapy services, and its impact on the classification 
system. Our findings and recommendations in this regard are set forth 
in section IV.D. of this proposed rule.
    The RUG-IV model presented in this proposed rule incorporates both 
the results of the STRIVE analysis and the stakeholder input received 
during the course of the project. A detailed description of proposed 
changes to the RUG classification structure, and the introduction of 
proposed new FY 2011 case-mix weights are presented later in this 
section.

B. The RUG-IV Classification System

    As discussed above, we are proposing to implement changes in FY 
2011 to the RUG classification structure and relative weights. In the 
proposed RUG-IV classification system, patient characteristics and 
health status information from the proposed MDS 3.0 (discussed in 
section IV. of this proposed rule) would be used to assign the patient 
to a resource group for payment. Like RUG-III, the new RUG-IV system is 
a hierarchy of major patient types, and reflects current medical 
practice and staff resource use in SNFs across the country. We believe 
that the RUG-IV model is more sensitive to differences in patient 
complexity and the SNF resources needed to provide quality care than 
the existing RUG-III model. In the RUG-IV model, we propose modifying 
the eight levels of the hierarchy and increasing the number of case-mix 
groups from 53 to 66. Expanding the model allows us to better 
distinguish between relative resource use both within and between RUG 
groups. For example, the RUG-IV model is more sensitive to the high 
level of resources associated with those medically complex conditions 
involving respiratory illness and infections.
    In addition, RUG-IV allows us to capture a patient's functional 
status more effectively. Functional status is a key component of both 
the existing RUG-III model and the proposed RUG-IV, and is used to 
distinguish the level of resource need between patients with similar 
conditions. Thus, if a patient is assigned to a RUG group at the 
Clinically Complex level of the hierarchy, we use that patient's level 
of functional status as a secondary classifier (commonly referred to as 
a secondary split) to assign a more precise classification into one of 
the 8 proposed Clinically Complex groups.
    RUG-IV, like RUG-III, uses a scale measuring Activities of Daily 
Living (ADLs) to identify residents with similar levels of physical 
function. This scale is used to sub-divide (``split'') each of the 
major hierarchical categories except Extensive Services. It is also 
used as part of the qualification criteria for many of the RUG-IV 
hierarchical categories (Extensive Services, Special High, Special Low, 
and Cognitive Performance and Behavioral Symptoms), and is used as part 
of the specific criteria for classifying patients to RUGs within 
certain categories. A complete description of the methodology used to 
develop the RUG-IV ADL Index is included in section III.A.2.c. of the 
proposed rule.

[[Page 22230]]

    The RUG-IV model reflects changes in how particular clinical 
conditions or services are assigned to the 66 levels of the RUG 
hierarchy. Since the CMIs assigned to each RUG group are based on 
average resource time for the conditions and services included in that 
RUG group, it is very important to make the individual RUG groups as 
homogeneous as possible with respect to the resource times associated 
with the conditions and services included in each RUG group. In this 
way, we enhance the accuracy of the payment structure and maximize the 
relationship between the RUG hierarchy and the accuracy of the payments 
made for each of the conditions included in a particular level of the 
hierarchy. Therefore, we are proposing to move certain existing 
conditions and/or services currently used to assign patients to RUG-III 
groups up or down within the RUG hierarchy (as described in more detail 
later in this section) to better reflect the average resource time for 
those conditions, and to enhance the accuracy of RUG payments.
    Finally, we have evaluated a broad range of clinical services and 
conditions, and are recommending several additions and deletions to the 
existing RUG-III model based on the results of the STRIVE research, and 
described in more detail later in this section. Since approximately 90 
percent of the days of service for Medicare Part A SNF stays include 
the provision of therapy, we looked carefully at utilization patterns 
and changes in the practice of therapy identified through the STRIVE 
research. We also carefully evaluated the methodology used to assign 
patients to the Rehabilitation plus Extensive Services category that 
was implemented in January 2006. This category was established to 
promote access for a small group of high-cost beneficiaries with both 
extensive medical and rehabilitation needs. The STRIVE analysis has 
shown us that the RUG-III model for classifying patients into Extensive 
Services, a prerequisite for placement in one of the nine combined 
Rehabilitation plus Extensive Services groups, is no longer effective 
in identifying the type of patient for whom these groups were created. 
Instead, the STRIVE data showed that most of the patients classifying 
into these nine new groups had some type of IV treatment in the 
hospital that was neither needed nor provided after admission to the 
SNF. Thus, most of the beneficiaries who were classified into one of 
these nine groups were actually treated in the SNF for less complex 
medical conditions than had been expected. We believe that the large 
percentage of SNF patients receiving IV services during the hospital 
stay prior to SNF admission reflects changes in hospital care practices 
since the development of the RUG-III system that are unrelated to 
increased patient severity in the subsequent SNF stay. Accordingly, as 
discussed in detail in section III.A.2.d., the proposed RUG-IV 
Extensive Services category would include only those nursing services 
actually received during the SNF stay itself. By correcting for this 
unanticipated effect, the RUG-IV model would more effectively 
distribute payment to patients with greater care needs. The proposed 
new RUG-IV groups are included in Table 12.
    The RUG-IV classification model is an iterative process where 
patients are assigned first to one of eight major categories which 
indicate the primary patient nursing and/or therapy needs. Each case is 
assigned to the highest major category for which it qualifies. In 
hierarchical order, from highest to lowest, the categories are 
Rehabilitation plus Extensive Services, Rehabilitation, Extensive 
Services, Special Care High, Special Care Low, Clinically Complex, 
Behavioral Symptoms and Cognitive Performance, and Reduced Physical 
Function. These major categories are further differentiated into more 
specific patient groupings; that is, secondary splits. Except for the 
Extensive Services category, we use a secondary split based on the 
patient's Activities of Daily Living (ADL) score discussed earlier in 
this section. As described below, the RUG-IV groups may be further 
differentiated based on nursing rehabilitation services and signs of 
depression. Thus, a record for a patient who is admitted to a SNF for 
treatment that qualifies for the Special Care High major category will 
be further evaluated to assign the most appropriate of the eight 
Special Care High groups. The final group selection will be made based 
on the patient's ADL level and on the existence of signs/symptoms of 
depression.
    The initial RUG-IV category of Rehabilitation plus Extensive 
Services is used to classify residents who both qualify for Extensive 
Services and need rehabilitation therapy. In RUG-IV, changes made to 
either the Extensive Services or Rehabilitation major categories affect 
the number and type of patients who can qualify for this group. We 
discuss changes to the Extensive Services and Rehabilitation major 
categories below.
    The second RUG-IV category is Rehabilitation. This includes 
residents receiving a certain number of physical or occupational 
therapy or speech language pathology service minutes per week. In RUG-
IV, we are proposing to maintain the existing RUG-III rehabilitation 
category, as well as the existing subcategories and criteria as 
described below. We note that, as discussed in greater detail in 
section III.A.2.a. of this proposed rule, we are proposing to require 
the allocation of concurrent therapy minutes. While this allocation 
proposal would affect the number of therapy minutes reported on the 
MDS, it does not affect the construction of the RUG-IV model. In 
addition, similar to the methodology used for RUG-III, the RUG-IV model 
we are proposing would not use ADL limitations to qualify for the 
Rehabilitation category. In the Rehabilitation category, ADLs are only 
used as a threshold for assignment into the sub-category.
    There are five subcategories within the Rehabilitation category. 
They are Ultra High, Very High, High, Medium, and Low, which require 
720, 500, 325, 150, or 45 minutes of rehabilitation therapy per week, 
respectively. In addition, Ultra High, Very High, and High 
subcategories also require at least 1 rehabilitation discipline 5 days 
per week. The Ultra High subcategory requires a second rehabilitation 
discipline 3 days per week. The Medium and Low Rehabilitation 
subcategories require 5 and 3 days per week, respectively, of any 
combination of 3 rehabilitation disciplines. In addition, the Low 
Rehabilitation subcategory requires nursing rehabilitation 6 days per 
week, 2 services (see Reduced Physical Function category below for 
nursing rehabilitation services count).
    The third RUG-IV category is Extensive Services. Under the current 
RUG-III model, patients are classified into the Extensive Services 
category if they exhibit one of the following five conditions: 
ventilator care, tracheostomy care, suctioning, IV medications, and IV 
feeding. Then, comorbidities are identified and used to subdivide the 
case into one of the three Extensive Services groups. Comorbidities are 
determined by identifying whether an Extensive Services patient also 
has one of the conditions needed to qualify for a Special Care, 
Clinically Complex Care, or Impaired Cognition group. All of the 
existing Extensive Services qualifying conditions were examined as part 
of the STRIVE project.
    We found that, while ventilator care and tracheostomy care still 
require intensive staff resources, the remaining RUG-III qualifiers are 
no longer appropriate for the Extensive Services

[[Page 22231]]

category. Our analysis showed significant differences between services 
furnished in the prior hospital stay and the same types of services 
provided in the SNF. In fact, we found no statistical difference 
between resources needed to treat patients who had an Extensive 
Services qualifying service in the prior hospital stay (but not in the 
SNF) and patients who did not have the service in either the hospital 
or the SNF. In addition, the resource minutes were considerably lower 
when services were only provided during the prior hospital stay. 
Similarly, we found that the existence of comorbidities (additional 
clinical conditions that qualified the patient for inclusion in the 
Special Care, Clinically Complex, or Impaired Cognition groups) did not 
change the nursing resources associated with the Extensive Services 
qualifiers in any meaningful way. Specifically, we did not find that 
the inclusion of comorbidities increased the staff time necessary to 
treat Extensive Services residents who also have conditions qualifying 
them for treatment in the other categories. Consistent with the 
proposed changes discussed in section III.A.2.d. of this proposed rule, 
in the RUG-IV model, ventilator/respirator care, and tracheostomy care 
qualify only when they are administered post-admission to the SNF. The 
same post-admit time constraint will apply for the new infection/
isolation addition to Extensive Services. Some prior Extensive Services 
qualifiers have been moved to a new location in RUG-IV, in order to 
better reflect the average resource time for these conditions (as 
discussed above): the parenteral/IV feeding qualifier moves to the 
Special Care High category and the IV medications qualifier moves to 
the Clinically Complex category. Furthermore, for the reasons discussed 
above, the inclusion of comorbidities has been eliminated as a 
secondary split. In addition, suctioning has been dropped as a 
qualifier in RUG-IV because the use of suctioning is highly correlated 
with the other two Extensive Services, ventilators and tracheostomies. 
Generally, in the STRIVE study, suctioning was associated with some 
type of respiratory condition coded on the MDS. In those few instances 
where suctioning had been coded without any other indication of a 
respiratory condition (such as respiratory therapy or oxygen therapy), 
the nursing WWST minutes were much lower than suctioning furnished with 
other respiratory conditions. Based on the low resource use for 
suctioning independent of any respiratory condition, and the absence of 
any other non-respiratory RUG qualifier associated with suctioning, we 
believe it is appropriate to exclude suctioning as an independent 
qualifier. Finally, we retain the ADL qualifier for inclusion in the 
Extensive Services category. We have modified the ADL qualifier from 7 
to 2 in order to reflect the change in calculating ADLs described 
above.
    For RUG-IV, we have divided the RUG-III Special Care category into 
Special Care High and Special Care Low categories to better reflect the 
differences in resource use. The Special Care High category includes 
residents receiving complex care or those with serious medical 
conditions, including the following: quadriplegia, respiratory therapy 
for 7 days, and fever in combination with dehydration, or pneumonia, or 
vomiting, or weight loss. Added to this category are the following: the 
parenteral/IV feedings qualifier, which has moved from the Extensive 
Services category; septicemia, which has moved from the Clinically 
Complex category; diabetes with injections and physician order changes 
on 2 or more days, which have moved from the Clinically Complex 
category; and, the comatose qualifier, which has moved from the 
Clinically Complex category. As discussed above, we moved these 
qualifiers based on the results of our STRIVE study so that the RUG-IV 
model better reflects the average resource use for these conditions. In 
addition, the Special Care High category includes a minimum ADL 
requirement of 2. We dropped fever with tube feeding with food/fluid 
requirements as a qualifier because in the STRIVE study, tube feeding 
resource use fell below that of fever. Therefore, based on resource 
use, we believe it is no longer appropriate to include tube feeding 
with fever.
    The RUG-IV Special Care Low category includes residents receiving 
complex care or those with significant medical conditions, including 
the following: multiple sclerosis; cerebral palsy; ulcers (2 or more 
stage II or one or more stage III or IV pressure ulcers) with 
treatment; surgical wounds or open lesions with treatment; and tube 
feeding with requirements. In the RUG-III model, aphasia was used as a 
qualifier when linked to the use of feeding tubes. The aphasia 
requirement has been dropped because, based on the results of our 
STRIVE analysis, aphasia no longer correlates with tube feeding. For 
this reason, we have retained tube feeding as a qualifier, but have 
dropped aphasia. In addition, the following conditions are moved to 
this category from the Clinically Complex category so that the RUG-IV 
model better reflects the average resource times associated with these 
conditions: dialysis, burns, pneumonia, and oxygen therapy; shortness 
of breath with emphysema/chronic obstructive pulmonary disease (COPD); 
and Parkinson's disease. In addition, the Special Care Low category 
includes a minimum ADL requirement of 2. We ran Mean Nursing WWST and 
variance explanations for all possible ADL thresholds for all hierarchy 
categories. After balancing the statistical results with the relative 
ease of understanding the system, we determined that a relatively 
consistent ADL threshold from the Extensive Services category down 
through the Special Care Low category would be most appropriate. Also, 
the ADL cut-off value of 2 for Special Care Low is close to the cut-off 
used in RUG-III.
    RUG-III had included radiation therapy in the Special Care 
category; however, for the reasons discussed below, in RUG-IV, this has 
been moved to the Clinically Complex category. Internal Bleeding is no 
longer a qualifier in any category because of its unreliability. The 
RAND Corporation recently completed an analysis of MDS 2.0 items, and 
recommended changes for use in the MDS 3.0 as shown at http://www.cms.hhs.gov/NursingHomeQualityInits/25_NHQIMDS30.asp. RAND found 
that there were no standardized definitions of internal bleeding, and 
that the item was vulnerable to misinterpretation, that is, 
inappropriately coding routine situations (such as minor nosebleeds) as 
``internal bleeding.''
    The sixth RUG-IV category is Clinically Complex. This includes 
residents receiving complex clinical care who do not meet the minimum 
ADL requirement for classification in the Extensive Services or the 
Special Care categories, or residents with conditions requiring skilled 
nursing management and interventions for conditions and treatments, 
such as: foot infections/wounds with treatment; transfusions; 
hemiplegia; and chemotherapy. This category also includes radiation 
therapy, which moved from the Special Care category, and post-admit IV 
medications. These qualifiers were moved because the average resource 
times for these conditions, as determined in the STRIVE analysis, are 
more reflective of conditions in the Clinically Complex category than 
for the higher levels of the hierarchy in which they classified under 
the RUG-III model. Dehydration was dropped as a qualifier in any 
category, based on the American Medical

[[Page 22232]]

Association's finding (see Faes, MC, ``Dehydration in Geriatrics,'' 
Geriatric Aging, 2007: 10(9): 590-596, available online at http://www.medscape.com/viewarticle/567678 that there is no standard 
definition of dehydration among providers, and that the signs and 
symptoms of dehydration may be vague and even absent in older adults. 
We believe that this qualifier is subject to a wide range of 
interpretation (and, therefore, is unreliable as a standard for RUG 
classification), as borne out by our MDS review, which showed instances 
of patients being coded for dehydration for long periods of time, that 
is, far beyond the time period in which we would expect the issue to be 
resolved through treatment. Thus, we believe continuing to use 
dehydration as a qualifier could result in inaccuracy in RUG 
classification. (This is not to minimize the potentially serious nature 
of dehydration and the need for prompt medical attention in some cases, 
but rather to improve coding accuracy). Finally, physician orders were 
dropped as a qualifier. Because of the lack of specificity and the 
variable nature of this qualifier, we do not believe that the presence 
of physician orders is a reliable predictor of resource use.
    The seventh RUG-IV category is Behavioral Symptoms and Cognitive 
Performance. Residents in this category display cognitive impairment in 
decision-making, recall, and short-term memory. They score above the 
threshold amount on the MDS 3.0 with respect to the brief interview for 
mental status. Alternatively, or in addition, these residents display 
one of the following behavior patterns: wandering; verbal abuse; 
physical abuse; socially inappropriate traits; resistance to care on 4 
or more days; hallucinations or delusions. In addition, these residents 
may not exceed a maximum ADL cut-off of 5. In the RUG-III model, 
Impaired Cognition and Behavior represented separate levels in the 
hierarchy. However, the STRIVE data showed that the same level of 
resources is needed to treat patients in either the cognitive or 
behavioral groups. Thus, we combined the groups into a single level of 
the RUG hierarchy.
    The final RUG-IV category is Reduced Physical Function. This 
category includes residents whose needs are primarily for ADLs and 
general supervision. For the Reduced Physical Function major category, 
all records are sorted into subgroups by ADL level. Once this secondary 
split has been done, the records are sorted into still more discrete 
groups using a tertiary split that identifies residents who are 
receiving restorative nursing. Restorative nursing services are coded 
on the MDS, and include passive and/or active range of motion (ROM); 
amputation/prosthesis training; splint or brace assistance; dressing or 
grooming training; transfer training; bed mobility and/or walking 
training; communication training; scheduled toileting plan and/or 
bladder retraining program.
    We believe that restorative nursing programs benefit all nursing 
home patients, and consider the use of a tertiary split for restorative 
nursing to be a positive incentive in fostering quality care. However, 
in the STRIVE analysis, we found that, for approximately half the 
Reduced Physical function groups, the nursing minutes were lower for 
patients where restorative nursing was reported on the MDS than for 
patients who were not receiving the service as shown in Table 13. While 
we are proposing to retain the tertiary split for restorative nursing 
in the RUG-IV model, we are soliciting comments that may shed light of 
the discrepancy between the reported service and the nursing minutes.

                                                    Table 13
----------------------------------------------------------------------------------------------------------------
                                                                                                Average nursing
                RUG category                     Nursing rehabilitation             N                 WWST
----------------------------------------------------------------------------------------------------------------
Physical E.................................  Yes..........................                 82              157.7
                                             No...........................                396              159.0
Physical D.................................  Yes..........................                153              129.6
                                             No...........................                691              125.5
Physical C.................................  Yes..........................                 17              105.4
                                             No...........................                 88              100.5
Physical B.................................  Yes..........................                 14               73.1
                                             No...........................                117               82.6
Physical A.................................  Yes..........................                 24               60.7
                                             No...........................                462               62.2
----------------------------------------------------------------------------------------------------------------

    The RUG-IV classification system shown in Table 14 is being 
proposed for use in the national Medicare SNF PPS. State Medicaid 
agencies are not required to adopt the RUG-IV model. However, we 
believe that most States will give the model careful consideration 
because it includes features that will promote accurate payment. For 
example, based on our STRIVE study results, inclusion of services 
furnished prior to the SNF/NF admission when assigning a RUG payment 
group has resulted in excess payments by both Medicare and Medicaid for 
services that were not actually furnished to the patient during the SNF 
stay. Similarly, as discussed in section IV.D. of this proposed rule, 
the RUG-III classification into the therapy groups overstates in some 
cases the actual staff time needed and used to provide therapy 
services. Further, most State Medicaid agencies have been using the 
same RUG-III model currently used by Medicare. While many of the high-
acuity patients are covered under Medicare Part A for all or part of 
their nursing home stays, Medicaid has its share of this same high-
acuity population. By identifying current nursing home practices and 
resource use, the RUG-IV model more closely ties payments to the 
relative severity and needs of the Medicaid as well as Medicare 
populations. We intend to work closely with State Medicaid agencies 
during the next year to assist them in evaluating the RUG-IV model for 
Medicaid use.
    We expect that most States will continue their existing payment 
systems until they have more time to evaluate the RUG-IV model. For 
this reason, we have already started work on support systems that will 
allow States to convert or crosswalk the MDS 3.0 data to the current 
MDS 2.0 structure for use in the State Medicaid payment systems. These 
crosswalks contain the data specifications that States will need to 
continue running their MDS 2.0/RUG-III-based systems after October 1, 
2010. Our Center for Medicaid and State Operations has initiated 
monthly calls with State Medicaid agencies and has established an 
ongoing dialogue to

[[Page 22233]]

address the States' systems support needs. Representatives from the MDS 
3.0 team in the Office of Clinical Standards and Quality and the RUG-IV 
development team in the Center for Medicare Management participate on 
these calls. All three Centers for Medicare & Medicaid Services (CMS) 
components are working together to support the State agencies and 
assist them in making the transition to the MDS 3.0 and, where 
applicable, to the RUG-IV system.
    In this proposed rule, we are soliciting comments from State 
Medicaid agencies on their preferred method(s) of transferring MDS 3.0 
data between CMS and the State Medicaid agency, and on any new systems 
developments needed to run their RUG-based payment systems. In 
addition, for those States that wish to adopt the proposed RUG-IV model 
in FY 2011, we are soliciting comments on the type of detailed RUG-IV 
specifications and technical support they will need in order to prepare 
for an October 2010 implementation. To assist in this effort, we have 
prepared a detailed RUG-IV/RUG-III comparison that can be found in the 
Addendum (Table C) to this rule. We invite comment on these proposed 
changes.
BILLING CODE 4120-01-P

[[Page 22234]]

[GRAPHIC] [TIFF OMITTED] TP12MY09.001


[[Page 22235]]


[GRAPHIC] [TIFF OMITTED] TP12MY09.002


[[Page 22236]]


[GRAPHIC] [TIFF OMITTED] TP12MY09.003

BILLING CODE 4120-01-C

C. Development of the FY 2011 Case-Mix Indexes

    As indicated previously, section 1888(e)(4)(G)(i) of the Act 
requires that the Federal rates be adjusted for case mix. Pursuant to 
the statute, such adjustment must be based on a resident classification 
system, established by the Secretary, that accounts for the relative 
resource utilization of different patient types. The case-mix 
adjustment must be based on resident assessment data and other data the 
Secretary considers appropriate.
    As discussed previously, the RUG-III system uses clinical data from 
the MDS, and wage-adjusted staff time measurement data, to assign a 
case-mix group to each record that is then used to calculate a per diem 
payment under the SNF PPS. The existing RUG-III grouper logic was based 
on clinical data collected in 1995 and 1997. We are proposing to 
implement in FY 2011 a RUG-IV update that uses data collected in 2006-
2007 during the STRIVE project, and reflects current medical practice 
and resource use in SNFs across the country.
    The proposed RUG-IV classification is a patient classification 
system that accounts for the relative resource utilization of different 
patient types. To adjust for the relative resource utilization of 
patients (that is, the case mix), direct patient care would be 
represented by an index score (case-mix index) that is based on the 
amount of staff time, weighted by salary levels, associated with each 
group. That is, each RUG-IV group would be assigned an index score that 
represents the amount of nursing time and rehabilitation treatment time 
associated with caring for the patients who qualify

[[Page 22237]]

for the group. The nursing weight would include both patient-specific 
time spent daily on behalf of each patient type by registered nurses, 
licensed practical nurses, and aides, as well as patient non-specific 
time spent by these staff members on other necessary functions such as 
staff education, administrative duties, and other tasks associated with 
maintenance of the caregiving environment.
    The case-mix indexes would be applied to the unadjusted rates 
resulting in 66 separate rates, each corresponding with one of the 66 
RUG-IV classification groups. To determine the appropriate payment 
rate, SNFs would classify each of their patients into a RUG-IV group 
based on assessment data from the MDS 3.0. The design and structure of 
RUG-IV and the methodology and policy associated with the 
classification of patients into RUG-IV groups, including the completion 
of assessments (MDS 3.0) for Medicare patients under the SNF PPS, are 
described in sections III.B. and IV.A. of this proposed rule.
    As explained in sections III.A. and III.B. of this proposed rule, 
we collected measures of the staff time required to care for nursing 
home patients and used them to identify specific clinical 
characteristics that are predictive of patient resource use. In order 
to do this, we combined and analyzed characteristics of the patients in 
the STRIVE study and the time it took to care for them. We then used 
these analyses to identify the patient characteristics that best 
explain weighted patient-specific time. From this, we created the 66 
RUG-IV groups and calculated separate nursing and rehabilitation 
therapy case-mix indexes for each group. In determining the case-mix 
indexes for each group, we first obtained the salaries of all staff 
types from the 2006 U.S. Department of Labor, Bureau of Labor 
Statistics Occupational Employment Statistics survey. Next, we computed 
the ratio of median salaries for different nursing and rehabilitation 
therapy staff to the median salary of a certified nurse aide. These 
ratios were used as the salary weights for each staff category. The 
basic calculation performed for each patient was to take the minutes 
spent providing patient care and multiply them by the weight that 
represents the staff person's salary. Thus, we multiplied the 
registered nurse's minutes by 2.58, the licensed practical nurse's 
minutes by 1.65 and the aide's minutes by 0.85, 1.0, or 1.20 (depending 
on the specific aide's job title) and then summed to yield salary-
weighted nursing time for the patient.
    For example, to compute the WWST for the ES3 RUG-IV group, we use 
the mean minutes per day for each of the nursing staff roles providing 
staff time for the ES3 group.
    For the ES3 group, we collected staff time from the following staff 
types: Registered Nurses (RNs)--97.83, Licensed Practical Nurses 
(LPNs)--39.35, Certified Nursing Assistants (CNA)--108.84, and 
Restorative Aides--0.88.
    We then multiplied the minutes for each of these roles by the 
relative wage weight for the respective role, standardized by the wage 
rate for CNA. The standardized weights are as follows:
    RN--$27.52/$10.67 = 2.58, LPN--$17.57/$10.67 = 1.65, CNA--1.0, and 
Restorative Aide--$12.80/$10.67 = 1.2. Standardizing to the rate of a 
CNA allows us to refer to the wage rates relative to the staff role 
generally providing the most minutes.
    The wage-weighted staff time for the ES3 group would be computed as 
follows:

(97.83*2.58) + (39.35*1.65) + (108.84*1) + (0.88*1.2) = 427.22

    For therapy, we multiplied the physical therapist's time by 2.98, 
the occupational therapist's time by 2.72, the speech pathologist's 
time by 2.60, the licensed physical therapy assistant's time by 1.86, 
the licensed occupational therapy assistant's time by 1.90, and the 
therapy aide's time by 0.99 (physical therapy aide), 1.13 (occupational 
therapy aide), or 1.06 (therapy aide or therapy transport aide) and 
then summed to yield salary-weighted therapy time for the patient. We 
then averaged the salary-weighted nursing time for each group to yield 
an array of 66 nursing case-mix index scores and averaged the salary-
weighted therapy time for the five different levels of therapy (Ultra 
High, Very High, High, Medium, and Low) to yield therapy case-mix 
indexes for those levels. These indexes comprise the unadjusted nursing 
and therapy weights for RUG-IV.
    Our intent in implementing RUG-IV is to allocate payments more 
accurately based on current medical practice and updated staff resource 
data obtained during the STRIVE study, and not to decrease or increase 
overall expenditures. Thus, consistent with the policy in place when we 
transitioned to the RUG-III 53-group model in FY 2006 (as discussed in 
section II.B.2), we believe that overall expenditures under the RUG-IV 
model should maintain parity with overall expenditures under the RUG-
III 53-group model. Therefore, we simulated payments under the RUG-III 
53-group model and the RUG-IV 66-group model to ensure that the change 
in classification systems did not result in greater or lesser aggregate 
payments.
    We used the resource minute data collected from STRIVE to create a 
new set of unadjusted relative weights, or case-mix indexes (CMIs), for 
the RUG-IV model as described above. We then compared the CMIs for the 
RUG-53 and RUG-66 models in a way that was intended to ensure that 
estimated total payments under the 66-group RUG-IV model would be equal 
to those payments that would have been made under the 53-group RUG-III 
model. We used STRIVE data with sample weights applied and FY 2007 
claims data (the most recent final claims data available at the time) 
to compare the distribution of payment days by RUG category in the 53-
group model with the anticipated payments by RUG category in the new 
66-group RUG-IV model. Our projections of future utilization patterns 
under the new case-mix system indicated that the 66-group RUG-IV model 
would produce lower overall payments than under the original RUG-III 
53-group model. Therefore, consistent with the policy in place when we 
transitioned to the RUG-III 53-group model in FY 2006 (as discussed in 
section II.B.2 of this proposed rule), we propose to provide for an 
adjustment to the nursing CMIs that would achieve ``parity'' between 
the old and new models (that is, would not cause any change in overall 
payment levels). The adjustment to the nursing weights necessary to 
achieve ``parity'' is an upward adjustment of 52.6 percent.
    The parity adjustment relies on projecting the utilization for a 
new classification system, RUG-IV, based on a new assessment 
instrument, MDS 3.0. Our calculation of the parity adjustment uses the 
most recent data available to estimate RUG-IV utilization for FY 2011. 
In the absence of actual RUG-IV utilization data for this timeframe, we 
believe the most recent data is the best source available, as it is 
closest to the FY 2011 timeframe. As actual data for RUG-IV utilization 
becomes available, we intend to assess the effectiveness of the parity 
adjustment in maintaining budget neutrality and, if necessary, to 
recalibrate the adjustment in future years.
    The final RUG-IV CMIs reflecting the parity adjustment are 
displayed in Table 15 and, as discussed above, we are proposing to 
apply them beginning in FY 2011.

[[Page 22238]]



                    Table 15--RUG-IV Case-Mix Indexes
------------------------------------------------------------------------
                                                     Nursing    Therapy
                        RUG                           index      index
------------------------------------------------------------------------
RUX...............................................       3.42       1.90
RUL...............................................       3.07       1.90
RVX...............................................       3.40       1.34
RVL...............................................       2.85       1.34
RHX...............................................       3.27       0.91
RHL...............................................       2.75       0.91
RMX...............................................       3.20       0.58
RML...............................................       2.72       0.58
RLX...............................................       2.79       0.30
RUC...............................................       2.00       1.90
RUB...............................................       2.00       1.90
RUA...............................................       1.30       1.90
RVC...............................................       1.98       1.34
RVB...............................................       1.43       1.34
RVA...............................................       1.43       1.34
RHC...............................................       1.83       0.91
RHB...............................................       1.57       0.91
RHA...............................................       1.21       0.91
RMC...............................................       1.79       0.58
RMB...............................................       1.56       0.58
RMA...............................................       1.13       0.58
RLB...............................................       1.95       0.30
RLA...............................................       0.92       0.30
ES3...............................................       3.43
ES2...............................................       2.56
ES1...............................................       2.21
HE2...............................................       2.09
HE1...............................................       1.68
HD2...............................................       1.91
HD1...............................................       1.53
HC2...............................................       1.77
HC1...............................................       1.42
HB2...............................................       1.75
HB1...............................................       1.40
LE2...............................................       1.82
LE1...............................................       1.45
LD2...............................................       1.62
LD1...............................................       1.30
LC2...............................................       1.48
LC1...............................................       1.19
LB2...............................................       1.27
LB1...............................................       1.01
CE2...............................................       1.62
CE1...............................................       1.45
CD2...............................................       1.42
CD1...............................................       1.28
CC2...............................................       1.31
CC1...............................................       1.18
CB2...............................................       1.10
CB1...............................................       0.99
CA2...............................................       0.82
CA1...............................................       0.73
BB2...............................................       0.93
BB1...............................................       0.87
BA2...............................................       0.66
BA1...............................................       0.61
PE2...............................................       1.45
PE1...............................................       1.34
PD2...............................................       1.31
PD1...............................................       1.24
PC2...............................................       1.05
PC1...............................................       0.98
PB2...............................................       0.79
PB1...............................................       0.75
PA2...............................................       0.56
PA1...............................................       0.52
------------------------------------------------------------------------

    We intend to actively monitor the changes in beneficiary access and 
utilization patterns as a response to the proposed implementation of 
RUG-IV. For example, we anticipate that the changes to the Extensive 
Services category could result in increased beneficiary access for 
patients with severe respiratory conditions. In addition, we intend to 
monitor utilization for any potential coding changes that could occur 
as a result of the proposed changes to the SNF PPS. If, in future 
years, evidence becomes available that indicates that a change in 
aggregate payments are a result of changes in the coding or 
classification of residents that do not reflect real changes in case 
mix, CMS will consider the authority given to the Secretary under 
Section 1888(e)(4)(F) of the Act to provide for an adjustment to the 
unadjusted federal per diem rates so as to eliminate the effect of such 
coding and classification changes.
a. Relationship of RUG-IV Classification System to Existing Skilled 
Nursing Facility Level-of-Care Criteria
    As discussed previously in section I.A of this proposed rule, the 
establishment of the SNF PPS did not change Medicare's fundamental 
requirements for SNF coverage. However, because the case-mix adjustment 
aspect of the SNF PPS is based, in part, on the beneficiary's need for 
skilled nursing care and therapy, we have utilized it to coordinate 
claims review procedures with the existing resident assessment process 
and case-mix classification system. Under RUG-III, this approach 
includes an administrative presumption that utilizes a beneficiary's 
initial classification in one of the upper 35 RUGs of the RUG-III 53-
group system to assist in making certain SNF level of care 
determinations (see section II.E. of this proposed rule for a 
discussion of the relationship between the case-mix classification 
system and SNF level of care determinations). 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. In addition, in the July 30, 1999 final rule 
(64 FR 41670), we indicated that we would announce any changes to the 
guidelines for Medicare level of care determinations related to 
modifications in the RUG-III classification structure.
    Under RUG-IV, we propose to adopt this same approach, by including 
an administrative presumption that utilizes a beneficiary's initial 
classification in one of the upper 52 RUGs of the refined RUG-IV 66-
group system to assist in making certain SNF level of care 
determinations. This designation reflects an administrative presumption 
under the refined RUG-IV 66 group system that beneficiaries who are 
correctly assigned to one of the upper 52 of the RUG-66 groups on the 
initial 5-day, Medicare-required assessment are automatically 
classified as meeting the SNF level of care definition up to and 
including the assessment reference date on the 5-day Medicare required 
assessment.
    A beneficiary assigned to any of the lower 14 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 52 groups during the immediate post-
hospital period require a covered level of care, which would be less 
likely for those beneficiaries assigned to one of the lower 14 groups. 
For purposes of this administrative presumption, the upper 52 RUG-IV 
groups would consist of all groups encompassed by the following 
categories:
     Rehabilitation Plus Extensive Services;
     Ultra High Rehabilitation;
     Very High Rehabilitation;
     High Rehabilitation;
     Medium Rehabilitation;
     Low Rehabilitation;
     Extensive Services;
     Special Care High;
     Special Care Low; and,
     Clinically Complex.

E. Prospective Payment for SNF Nontherapy Ancillary Costs

1. Previous Research
    We have conducted several studies since 1999 to refine the SNF 
PPS's reimbursement methodology for nontherapy ancillary (NTA) 
services. At the inception of the SNF PPS, payment for NTA services was 
included in the 44-group RUG system of case-mix groups. Analysis showed 
that there is only a weak correlation between NTA services costs and 
the RUG-III classification group. In addition, within the same RUG-III 
group, the NTA costs vary greatly. Thus, the data show that our present 
methodology of using the nursing CMIs to case-mix adjust the NTA 
payment amount may not be an accurate predictor of NTA costs. We are 
particularly concerned that the present system could underestimate NTA 
costs for the patients with the highest NTA needs, and that inadequate 
reimbursement could lead to restricted access to care for those 
patients who require them.

[[Page 22239]]

    As a result of research conducted in the late 1990s, one proposal 
included in the FY 2001 proposed rule was to modify the RUG system by 
adding 14 additional groups (65 FR 19103 through 19194, 19203, April 
10, 2000). These additional groups were designed to recognize that 
patients qualifying for both a Rehabilitation RUG and an Extensive 
Services RUG incurred NTA costs estimated to be as much as three times 
higher than those for patients qualifying solely for a rehabilitation 
RUG.
    As noted in the 2006 Report to Congress on case-mix refinements 
(available online at http://www.cms.hhs.gov/SNFPPS/Downloads/RC_2006_PC-PPSSNF.pdf), additional research conducted by Abt Associates in the 
late 1990s experimented with several mathematical models of NTA costs. 
Results from this work could have practical application as an ancillary 
``add-on'' index based on the beneficiary's predicted, per-diem NTA 
costs. As discussed in the FY 2001 SNF PPS proposed rule (65 FR 19195, 
April 10, 2000), NTA index models (both weighted and unweighted) were 
tested after exploring MDS variables that appeared to be predictive of 
NTA costs. In the unweighted model, cost predictions were based on 
counts of qualifying patient characteristics (characteristics such as 
respiratory infection or skin wounds). In the weighted models, a small 
set of payment groups were defined from ``index models'' that weighted 
the predictors, where the weights were proportional to the marginal 
impact of a patient characteristic on estimated NTA costs. The array of 
predicted costs generated by the equation could be subdivided into 
ranges of cost, or intervals, in order to define a small number of 
payment groups. As discussed in the Technical Appendix to the FY 2001 
proposed rule (65 FR 19240, 19248, April 10, 2000), variations were 
created by applying the index models to alternative sets of RUG groups. 
As further discussed in the FY 2001 proposed rule (65 FR 19196), we 
proposed a separate unweighted NTA index to be applied to certain RUG 
categories based on clinical variables on the MDS. In addition, to 
facilitate the incorporation of this proposed refinement into the case-
mix classification system, we proposed to create a new component of the 
payment rates to account for NTA services (65 FR 19192).
    As explained in the FY 2001 SNF PPS final rule (65 FR 46773, July 
31, 2000), while the expanded RUG groups approach and the NTA index 
approach initially appeared to improve payment accuracy in comparison 
to the existing case-mix system, attempts to validate the results on a 
later national PPS data set did not confirm the initial findings. As a 
result, we did not finalize the proposals made in April 2000.
    We sponsored subsequent research by the Urban Institute using 
claims samples from 2001. This work led to the FY 2006 final rule (70 
FR 45026, 45030-34, August 4, 2005), which implemented a variation on 
the 58-group RUG proposal developed by Abt Associates. In that rule, we 
finalized a system composed of 53 groups, by augmenting the original 
44-group system with nine additional groups identifying patients 
simultaneously qualifying for the Extensive Services and Rehabilitation 
groups. This incremental change to the grouping system was accompanied 
by an across-the-board increase in the case-mix weights for the payment 
component that includes NTA costs. Both of these modifications were 
designed to enable the original RUG-III payment system to account more 
accurately for variation in NTA costs.
    Using the 2001 data set, the Urban Institute also experimented with 
prediction models that were extensions of the original Abt Associates 
NTA index approaches. A small number of additional variables (for 
example, age) and improvements to the methodology for measuring 
independent variables in the data base led to potential improvements 
over the earlier Abt Associates models. The Urban Institute also 
explored substantially more complex models that incorporated variables 
derived from qualifying hospital stay claims; these models were 
estimated separately for patients after subdividing them into one of 
three groups: acute, chronic, or rehabilitation.
    In 2008, the Medicare Payment Advisory Commission (MedPAC) 
sponsored analyses by researchers from the Urban Institute extending 
some of the Institute's earlier work. This led to a MedPAC proposal 
that was based on the most promising results of the Institute's earlier 
work. The study used 2003 Medicare data. It resulted in a prediction 
equation for NTA services that used a large number of variables derived 
from the MDS assessment and hospital claims (for example, diagnosis), a 
measure of length of stay, as well as patient age (Bowen Garrett and 
Douglas A. Wissoker, ``Modeling Alternative Designs for a Revised PPS 
for Skilled Nursing Facilities: A study conducted by staff from the 
Urban Institute for the Medicare Payment Advisory Commission,'' June, 
2008; available online at http://www.urban.org/UploadedPDF/411706_revised_pps.pdf). MedPAC did not propose a system of NTA case-mix 
groups based on the prediction equation. However, the basic equation 
could be used to generate an array of predictions in the population and 
to group the predictions into cost intervals for defining a smaller 
number of payment groups. This is the same approach that Abt Associates 
took with its index model.
2. Conceptual Analysis
    We believe an administratively feasible approach to prospective 
payments for NTA costs would incorporate the following criteria:
     Uses information from available administrative data (data 
currently required on claims or on the MDS);
     Is case-mix adjusted, using predictor variables that 
represent clinically meaningful correlates of NTA services and that do 
not promote undesirable incentives for providers;
     Is developed from recent data in the National Claims 
History, in order to assure it reflects current care patterns and 
practices;
     Results in an add-on NTA index to the refined RUG case-mix 
groups that we are proposing based on the STRIVE project;
     Uses a minimal number of payment groups, or levels, to 
limit the complexity of the SNF PPS as a whole; and
     Ideally, uses payment groups that are clinically intuitive 
and readily understandable.
    We solicit comment on the proposed criteria specified above. To 
meet the aforementioned criteria, we have created a large analytic data 
file that combines Medicare SNF claims, cost reports, and MDS 
assessments from CY 2007. The MDS assessments were linked to the SNF 
claims by Stepwise Systems of Austin, Texas. Typically, more than one 
assessment is linked to a claim, because there is more than one 
reported RUG-III group. The file will be used to study relationships 
between reported claims charges for NTA-related revenue centers and 
predictor variables defined from items on the MDS.
3. Analytic Sample
    The data file is designed to minimize measurement error in the 
dependent variable (NTA costs) to the extent feasible. SNF cost reports 
pertinent to FY 2007 are linked to the SNF's Medicare claims covering 
services delivered during the SNF's cost reporting period. The actual 
cost of NTA services is determined by adjusting claims charges for NTA 
services in accordance with cost-to-charge ratios (CCRs) from cost 
reports. The NTA costs

[[Page 22240]]

are then used as the dependent variable in all subsequent analyses. We 
collected all claims (and only those claims) submitted within the 
reporting period for the cost reports available. Requiring a matched 
cost report eliminates some SNFs represented in the 2007 National 
Claims History. The SNFs that do not meet this threshold tend to be 
smaller SNFs, but in other respects this requirement does not adversely 
affect the representativeness of the SNFs in the sample.
    Previous research described above generally studied three 
categories of NTA costs: respiratory-related costs, drug-related costs, 
and other nontherapy ancillary (ONTA) costs. We intend to use the same 
three categories. We derive category-specific CCRs for each facility's 
cost report remaining in the sample. An additional requirement for a 
SNF to be in the sample is that it reports some drug and ONTA charges 
on the claims. If the SNF does not report any such charges, there is 
concern about whether the facility's data are sufficiently accurate for 
our study. Most SNFs do not report respiratory-related charges on 
claims, so we do not require positive respiratory charges for the 
facility to remain in the sample. One reason is that some charges 
related to respiratory care (for example, oxygen-related supplies) are 
expected to be in the ONTA category under some SNFs' reporting 
practices. The sample was further culled to ensure that CCRs are 
reasonable. Consistent with previous research, cost reports that did 
not show CCRs within three standard deviations from the mean were 
dropped. Finally, we compared the cost report charges and claims 
charges for drugs and ONTA services to ensure consistency. We were 
particularly concerned that claims charges far below cost report 
charges may be an indication of incomplete reporting. For our analysis, 
charges reporting is critical for the measurement of our dependent 
variable. SNF cost reports that did not conform to consistency 
standards (with tolerances we defined) were dropped from the sample.
    The analytic file does not include claims data from the qualifying 
hospital stay, in accordance with our criterion that the payment 
methodology be administratively feasible for SNFs and Medicare. At this 
time, we believe that such information is worth testing after data 
infrastructures develop with sufficient breadth and scope to ensure 
easy and accurate retrieval by SNFs of hospital stay information.
    For this study, we have linked SNF claims with the associated cost 
report to form the analytic file. That file will be divided between a 
development sample and a validation sample, and we will randomly assign 
beneficiaries to each sample.
4. Approach to Analysis
    The NTA charges adjusted by CCRs form the dependent variable in our 
analysis. The independent variables come from the matched MDS 
assessments. The following sections from the MDS contribute variables 
to be tested for their predictive value:

E: Mood and Behavior Patterns
G: Physical Functioning and Structural Problems
H: Continence in Last 14 Days
I: Disease Diagnoses
J: Health Conditions
K: Oral/Nutritional Status
L: Oral/Dental Status
M: Skin Condition
O: Medications
P: Special Treatments and Procedures

    Our study of the ability of MDS items to predict CCR-adjusted NTA 
charges builds on previous research and adheres to criteria outlined 
earlier in this section. Work by Abt Associates and the Urban Institute 
suggested that a relatively small set of readily available predictor 
variables might explain as much as approximately 20 percent of the 
variation in CCR-adjusted NTA charges. However, these analyses were 
performed on claims files that either predate the Medicare SNF PPS or 
are at least 5 years old. It is uncertain whether the more recent data 
in our analytic file will exhibit the same systematic relationships 
discovered in earlier work, due to the potential for changes in 
practice patterns and in quality of the reporting on claims and cost 
reports. Our approach is first to replicate versions of the simpler 
prediction models studied in previous work, because these lead directly 
to administratively feasible systems of NTA payment groups. We will 
then create more elaborate models with larger sets of variables to see 
how much improvement in predictive accuracy might be attainable.
    Larger sets of variables complicate the task of designing a simple, 
clinically intuitive set of payment groups. In the SNF PPS proposed 
rule for FY 2001 (65 FR 19188, April 10, 2000), we proposed as one 
alternative an index model in which predictions are arrayed and then 
subdivided into fixed ranges of cost values to form five payment 
groups. This type of alternative is more likely as the number of items 
needed to predict NTA costs increases.
5. Payment Methodology
    Currently, payment for NTA costs is included in the nursing 
component of the SNF PPS. The nursing component is case-mix adjusted 
using relative weights specific to nursing. As the NTA payment 
component is currently integrated into the nursing component, the 
creation of a separate NTA component would require that we remove an 
appropriate amount from total nursing component payments for 
distribution among the NTA payment groups that we anticipate would be 
billed by SNFs in the payment year. In determining the amount to 
isolate from the nursing component, we will consider the impact on the 
reimbursement for nursing, consistent with available data on NTA costs, 
as well as the ability to redistribute funds from other elements within 
SNF PPS system outlays. We will also consider the possibility of an 
outlier policy for NTA payment, but recognize that we do not currently 
have authority under the statute to introduce an outlier policy. We 
anticipate that we will be able to complete our NTA research by Spring 
2010, and expect to present the results of the research and any 
recommendations in future rule-making.
6. Temporary AIDS Add-On Payment Under Section 511 of the MMA
    As noted previously in section III.A.1. of this proposed rule, in 
the STRIVE study, five strata of nursing homes were recruited, 
including facilities with high concentrations of residents with HIV. It 
has been suggested that this population requires exceptionally costly 
care and intensive staff resources. As discussed previously in section 
I.E. of this proposed rule, section 511 of the MMA amended section 
1888(e)(12) of the Act to provide for a temporary increase of 128 
percent in the PPS per diem payment for any SNF residents with Acquired 
Immune Deficiency Syndrome (AIDS), effective with services furnished on 
or after October 1, 2004. This special AIDS add-on was to remain in 
effect until ``* * * the Secretary certifies that there is an 
appropriate adjustment in the case mix * * * to compensate for the 
increased costs associated with [such] residents * * * .'' During the 
course of the STRIVE study, we examined alternatives to this 128 
percent add-on. Using available MDS data, we identified facilities in 
which 10 percent or more of the residents had HIV. These facilities 
fell into the Hi-HIV stratum.
    As discussed in section III.A.1. of this proposed rule, units in 
facilities with residents in the Hi-HIV special population were over-
sampled in the STRIVE study in order to maximize the number of 
residents in the sample belonging to this population. Therefore,

[[Page 22241]]

in this respect, random selection of nursing units within facilities 
was not performed. Instead, a standard protocol was developed for the 
selection of units within facilities and project staff followed this 
protocol in consultation with nursing home management. This procedure 
minimized the use of judgment-based selection, which might impose 
unknown biases.
    Residents are identified as having HIV infections based upon MDS 
item I2d. This data has limitations, however, because some State 
Medicaid systems have MDS flags prohibiting the reporting of HIV 
status. Consequently, prevalence statistics based upon this item are 
known to be low. However, this is the only source of information 
available for nursing home residents nationally. Based upon item I2d, 
2,566 (0.2 percent) out of 1,428,993 residents in certified facilities 
nationally have HIV infections. There were 758 facilities (4.8 percent) 
that reported at least one HIV resident. Many of these facilities had 
only a handful of HIV residents, necessitating the 10 percent cutoff, 
for the designation of Hi-HIV facility. Nationally, 27 facilities (3.6 
percent of the 758 facilities with one or more HIV residents) qualified 
for this Hi-HIV stratum. These 27 facilities had 1,107 (43.1 percent) 
of the 2,566 residents nationally who were reported to have HIV.
    In the STRIVE study, facilities falling within the Hi-HIV stratum 
were quite rare, comprising only 15 facilities (2 in Florida, 1 in 
Louisiana, 11 in New York, and 1 in Ohio). This represents only 0.3 
percent of eligible facilities. As discussed above, at the time of the 
STRIVE study, data limitations existed due to electronic flags within 
State reporting systems that prevented the collection of HIV status 
data. As of April, 2009, 19 State systems still had these flags in 
place for reporting of HIV status, and 14 States had flags in place 
blocking access to sexually transmitted disease (STD) data. 
Accordingly, although we have not yet identified an approach that would 
account directly for the special care needs of AIDS patients in 
accordance with the provisions of section 511 of the MMA, we will 
continue to study the relationship of non-therapy ancillary costs and 
staff resource use within the broad spectrum of initial positive HIV 
status through the terminal stages of AIDS, in order to develop an 
alternative to the MMA's add-on payment of 128 percent in the PPS per 
diem payment for any SNF residents with AIDS.

IV. Minimum Data Set, Version 3.0 (MDS 3.0)

    Sections 1819(f)(6)(A)-(B) and 1919(f)(6)(A)-(B) of the Act, as 
amended by the Omnibus Budget Reconciliation Act of 1987 (OBRA 1987), 
require the Secretary to specify a Minimum Data Set (MDS) of core 
elements and common definitions for use by nursing homes in conducting 
assessments of their residents, and to designate one or more 
instruments which are consistent with these specifications. As stated 
in Sec.  483.20, Medicare- and Medicaid-participating nursing homes 
must conduct initially and periodically ``a comprehensive, accurate, 
standardized, reproducible assessment'' of each nursing home resident's 
functional capacity.

A. Description of the MDS 3.0

    CMS has developed a new version of the MDS, MDS 3.0, to reflect 
more accurately each resident's clinical, cognitive, and functional 
status as well as the care that nursing homes provide residents. The 
regulations at Sec.  483.20(b)(1)(i) through (xviii) list the clinical 
domains that must be included in the Resident Assessment Instrument 
(RAI). These domains have been incorporated into the MDS 2.0 and have 
been included in MDS 3.0. Effective October 1, 2010, MDS 3.0 will 
become the required version of the MDS for all Medicare SNFs and 
Medicaid-certified nursing facilities (NFs). MDS 3.0, like MDS 2.0, 
will focus on the clinical assessment of each nursing home resident to 
screen for common, often unrecognized or unevaluated, conditions and 
syndromes. We made clinical revisions to the instrument based on input 
from subject-area experts, feedback from MDS users, resident advocates 
and families, and new knowledge and evidence about resident assessment. 
With the implementation of MDS 3.0, we aim to increase the clinical 
relevance, accuracy, and efficiency of assessments; require assessors 
to record direct resident responses on some items; include assessment 
items used in other care settings; and move items toward future 
electronic health record formats.
    On January 24, 2008, CMS hosted a special Open Door Forum (ODF) 
providing details about MDS 3.0 (materials from the ODF are available 
at http://www.cms.hhs.gov/OpenDoorForums/05_ODF_SpecialODF.asp).
    Based on preliminary research presented at the ODF, some of the 
advances that MDS 3.0 provides include:
     Gives residents a stronger voice
     Increases clinical relevance
     Increases accuracy (validity & reliability)
     Increases clarity
     Substantially reduces time to complete
    In order to achieve the advances outlined above, the MDS 3.0 
incorporates revisions to many items, making the instrument a more 
valuable tool.
    The April 2008 RAND Corporation report to CMS titled, ``Development 
& Validation of a Revised Nursing Home Assessment Tool: MDS 3.0,'' 
which was posted at http://www.cms.hhs.gov/NursingHomeQualityInits/25_NHQIMDS30.asp, showed that the new items are more resident-centered and 
more useful for care planning.
    The Brief Interview for Mental Status (BIMS) is a new structured 
test that will replace the MDS 2.0 staff assessment for residents who 
can be understood. The BIMS directly tests domains common to most 
cognitive tests that are used in other settings, including 
registration, temporal orientation, and recall. The BIMS uses a 
resident interview and gives partial credit for answers to make it more 
relevant and specific to the SNF population. The MDS 2.0 cognitive 
evaluation relied solely on caregiver observation and unstructured 
interview with results that may be difficult to ascertain accurately.
    The Confusion Assessment Method (CAM) will replace the MDS 2.0 
items for delirium. The CAM is cited as the appropriate validated tool 
to use for delirium by the Royal College of Physicians of London and 
the National Committee for Quality Assurance (NCQA). It improves 
sensitivity and specificity for detecting delirium as compared to the 
MDS 2.0 items for delirium. Changes in Mood items for MDS 3.0 will 
include the use of a new resident interview entitled the 9-Item Patient 
Health Questionnaire (PHQ-9(copyright) Pfizer Inc.) for residents who 
can report mood symptoms. The PHQ-9-OV (Staff Assessment of Resident 
Mood) will be used for residents that are not able to self report. The 
PHQ-9(copyright) is based on the Diagnostic and Statistical Manual of 
Mental Disorders, 4th Revision (DSM-IV) criteria and its validity is 
well established. The PHQ-9(copyright) is a more useful tool for 
screening because it allows for a defined threshold score that triggers 
attention and a summed score that can track changes over time.
    Other changes from MDS 2.0 to 3.0 involve the behavior items. 
``Alterability'' questions will be replaced by questions that more 
specifically address the impact of the

[[Page 22242]]

behavior on the resident and staff. Wandering items are separated from 
the other behavioral symptoms and worded to address the impact on the 
resident and others around the resident.
    Preferences for Customary Routine, Activities and Community Setting 
are also significantly altered from MDS 2.0 to 3.0. The MDS 3.0 
includes a new interview that asks residents to rate the importance of 
specific customary routines as well as activities.
    Active Disease Diagnosis items also are revised in the MDS 3.0 
version. The revisions provide a more direct focus on active diseases. 
Additional directions will guide clinicians in determining whether a 
disease is active and is affecting a resident's functional status and 
course.
    In addition, pain items under Health Conditions have major changes 
in the MDS 3.0 version. The new items rely on a resident interview with 
the 0-10 scale. The items include the effect of pain on function and 
treatment items. We believe these changes will allow for a more 
accurate assessment of the severity of a resident's pain and its effect 
on function and treatment.
    The final major change for MDS 3.0 affects skin conditions. This 
version eliminates reverse staging of pressure ulcers. In MDS 3.0, data 
will establish whether the ulcer was present on admission and will 
include dimensions and tissue type for the most advanced staged ulcer. 
These changes will allow for a more accurate assessment of a patient's 
pressure ulcers.
    Minor changes set forth in MDS 3.0 are in functional status and 
bowel and bladder items. In MDS 3.0, new items regarding the resident's 
previous functional mobility and the presence of a hip fracture or 
joint replacement will establish a baseline. Balance items now focus on 
movement and transitions. Also, the use of a catheter is no longer 
scored as continent, and an improved toileting program item is added.
    Other items that have minor changes in the MDS 3.0 version include 
swallowing, restraints, oral/dental items, participation in assessment 
and goal setting, medications, and special treatments and procedures, 
as further described below. Swallowing items include a checklist of 
observable signs and symptoms. The restraint items separate use in bed 
and chair. Oral/dental items include six possible pathology groups of 
findings from staff examination of the oral cavity that would be clear 
to nursing home staff members, who are likely to vary in levels of 
training regarding oral health. Participation in goal setting includes 
the resident's goals and asks residents if they want to talk to someone 
about the possibility of returning to living in the community. 
Medication and special treatments questions are reduced in number and 
are incorporated in more appropriate sections. Finally, in MDS 3.0, we 
will collect information that distinguishes between special treatments 
furnished after admission to the SNF (that will be considered for 
purposes of RUG-IV classification as well as care planning, as 
discussed above) and special treatments provided prior to admission 
that should be considered in care planning. We believe that the above 
changes will enhance the efficiency, accuracy, and clarity of the 
assessment instrument.
    We have completed our analysis of the impact of these MDS 3.0 
changes on the RUG-III resident classification system used in the 
Medicare payment structure. In addition, we have adapted the proposed 
RUG-IV case-mix model (as described in section III.B. of this proposed 
rule) to use the clinical data collected on the MDS 3.0 assessment 
instrument. We expect to implement the MDS 3.0 and the updated RUG-IV 
classification system nationally in FY 2011. As discussed in section 
II.B.1 of this proposed rule, we propose to defer implementation of the 
RUG-IV and MDS 3.0 until October 1, 2010, to allow all stakeholders 
adequate time for the systems updates and staff training needed to 
assure a smooth transition.
    We are very much aware that the transition to a new MDS instrument 
in conjunction with the possible release of a new RUG grouper requires 
careful planning and extensive provider training. CMS staff are already 
working on training plans that will include a new MDS 3.0 manual, 
documents explaining the updated RUG grouper methodology, data 
specifications for providers and vendors, training materials, a help 
desk call and e-mail center, and train-the-trainer conferences 
tentatively scheduled for Spring 2010. However, we realize that the 
most effective training will require coordination between CMS and its 
key stakeholders, including provider and professional associations, 
Fiscal Intermediaries and Part A and Part B Medicare Administrative 
Contractors (MACs), and State agencies. We want to encourage 
stakeholders to work with CMS staff to provide additional training 
opportunities at the local level to ensure a smooth transition. In 
2008, we published draft MDS 3.0 specifications for stakeholders.
    CMS is aware of concerns by States and other key stakeholders that 
the MDS 3.0 should conform to current industry standards for the 
exchange of health information. To that end, CMS studied three domain 
areas and associated clinical standards that had been adopted through 
the Consolidated Health Informatics (CHI) initiative. This initiative, 
which began in October 2001 as one of 24 E-Government initiatives, 
sought to adopt Federal government-wide health information 
interoperability standards to be implemented by Federal agencies in 
order to enable the Federal government to exchange health information 
electronically. The standards identified in the CHI initiative have 
also been considered within the broader context of Healthcare 
Information Technology Standards Panel (HITSP) activities, which have 
resulted on occasion in formal recognition by the Secretary of certain 
interoperability standards. HITSP has attempted to harmonize and 
integrate standards that will meet identified clinical and business 
needs for the electronic sharing of health information.
    CMS will implement MDS 3.0 using one of the CHI-adopted standards 
for Disability and Assessments, the Logical Observation Identifiers 
Names and Codes (LOINC[supreg]) representation and codes for questions 
and answers as an attribute to our MDS 3.0 dataset. This standard was 
adopted for use in Federal government health information systems, as 
explained in a notice that appeared in the Federal Register on December 
17, 2007 (72 FR 71413). In that Notice, LOINC[supreg] is referenced as 
the vocabulary for representation and codes for questions and answers 
on Federally required assessment forms.
    In addition, the MDS 3.0 will use Extensible Markup Language (XML) 
text formatting standards to increase flexibility of the MDS 3.0 
dataset and database. XML will enable users and developers to define 
the content of the MDS 3.0 separately from its formatting, thereby 
allowing for simplified reuse of MDS 3.0 data elements. In addition, 
XML will assist CMS in leveraging new interoperability standards that 
arise.
    CMS also considered the Health Level Seven Clinical Document 
Architecture (HL7[supreg] CDA) from the CHI-adopted standard for 
Disability and Assessments as one of the standard methods to specify 
data coding, semantics, and structure in electronically exchanging 
clinical data. CMS did not identify any large scale uses of HL7[supreg] 
CDA for exchanging standardized assessment content. While there are 
some low level data exchanges among Regional Health Information 
Organizations (RHIOs) and Health Information Exchanges (HIEs) using CDA 
for approximately 100 submissions per month, MDS currently receives 
approximately 30 million

[[Page 22243]]

submissions a year. Therefore at this time, it is difficult to gauge 
the implications of the use of CDA on such a large scale without 
further study. At this time, CMS is reviewing the CDA, but has no 
immediate plans to include the CDA in the upcoming MDS 3.0 release. 
From the CHI-adopted Allergy Messaging and Vocabulary Standard, CMS 
studied the use of the Systematized Nomenclature of Medicine Clinical 
Terms (SNOMED CT[supreg]), which has been identified as a source of 
standardizing medical terminology for like or similar associations. 
These associations, although very close, may not represent the exact 
data matches. The semantic matching to MDS data elements does not give 
CMS the level of match confidence required for our intended uses of the 
data: Namely, payment, survey, and quality measurement. ``Usefully-
related'' matches do not serve the purposes of CMS and ``exact'' 
matches are rare. We are currently reviewing avenues where SNOMED 
CT[supreg] could be leveraged, but have no current plans to include 
SNOMED CT[supreg] in the current MDS 3.0 release in October, 2010.
    CMS is studying the use of the Health Level 7 (HL7[reg]) messaging 
standards in the pilots for our CARE (Continuity Assessment Record and 
Evaluation) tool, but HL7[reg] is currently not under consideration for 
MDS 3.0 because there are a limited number of MDS 3.0 data fields that 
are defined in HL7[reg] at this time. The HL7[reg] messaging standards 
provide the framework and standards for the exchange, integration, 
sharing and retrieval of electronic health care information. We are 
soliciting comments on the most appropriate clinical standards to use 
for clinical assessment instruments.
    Additional information on MDS 3.0 is available online at 
www.cms.hhs.gov via the following links:
     MDS 3.0 information: http://www.cms.hhs.gov/NursingHomeQualityInits/25_NHQIMDS30.asp.
     October, 2008 version of the MDS 3.0 instrument: http://www.cms.hhs.gov/NursingHomeQualityInits/Downloads/MDS30DraftVersion.pdf.

B. MDS Elements, Common Definitions, and Resident Assessment Protocols 
(RAPs) Used Under the MDS

    Sections 1819(f)(6)(A)-(B) and 1919(f)(6)(A)-(B) of the Act, as 
amended by OBRA 1987, require that the Secretary specify an MDS of core 
elements and common definitions for use by Medicare- and Medicaid-
participating nursing homes (long-term care (LTC) facilities) in 
conducting required assessments of their residents. These provisions 
also require the Secretary to establish guidelines for the use of these 
data elements. These guidelines consist of instructions for (1) the 
elements the MDS must include; (2) using the RAI; and (3) directing 
facilities to conduct further assessment of any care area triggered by 
the MDS. The care areas represent clinical conditions that are known to 
affect the LTC population.
    Sections 1819(e)(5) and 1919(e)(5) of the Act require that a State 
specify the RAI to be used by LTC facilities in the State when 
conducting initial and periodic assessments of each resident's 
functional capacity. This requirement is codified at Sec.  483.20. The 
State has two options in specifying an RAI. The first option is to 
utilize the instrument designated by CMS. The second option is to 
utilize an alternate instrument, specified by the State and approved by 
CMS, using the criteria specified in the State Operations Manual (SOM) 
issued by CMS (CMS Pub. 100-07) (http://www.cms.hhs.gov/nursinghomequalityinits/20_NHQIMDS20.asp). These requirements are 
codified at Sec.  483.315.
    The CMS-designated RAI is published in the SOM, and consists of: 
(1) The MDS and common definitions; (2) RAPs necessary to assess 
residents accurately; (3) the quarterly review, based on a subset of 
the MDS specified by CMS; and, (4) the requirements for the use of the 
RAI that appear at Sec.  483.20 and Sec.  483.315.
    One component of the CMS-designated RAI is a set of core elements 
(domains) and common definitions that represent care areas that an MDS 
assessment must include. Examples of MDS domains include cognitive 
patterns, disease diagnoses/health conditions, and discharge potential. 
Currently, the MDS must, at a minimum, address 18 domains and their 
common definitions, which are listed in the requirements at Sec. Sec.  
483.315(e)(1) through (18). Since the domains are already listed in the 
requirements at Sec. Sec.  483.20(b)(i) through (xviii), and the common 
definitions are included in the RAI manual, as part of the SOM issued 
by CMS, we now propose to remove the listing of the specific MDS 
domains and common definitions from the regulations at Sec. Sec.  
483.315(e)(1) through (18) and instead reference the requirements at 
Sec. Sec.  483.20(b)(1)(i) through (xviii) and the RAI manual, as part 
of the SOM issued by CMS, for specifics regarding the MDS domains and 
common definitions. This will afford CMS the flexibility to make any 
future changes in the common definitions of the MDS domains through 
manual revisions rather than rulemaking.
    Another component of the CMS-designated RAI is a set of 18 RAPs, 
which are problem-oriented frameworks for organizing MDS information 
and additional, clinically relevant information about an individual's 
health problems or functional status. Examples of RAPs include visual 
function, mood state, and psychotropic drug use. Currently, the RAPs 
must, at a minimum, address 18 domains, which are listed in the 
requirements at Sec. Sec.  483.315(f)(1) through (18). Since the RAPs 
were introduced, there have been several modifications to the standards 
of care for LTC facility residents. Further, there will likely be 
additional changes to the standards of care in the future. We need to 
be able to incorporate current standards of care into the guidance 
tools we provide to facilities to ensure that they continue to assess 
and provide care to residents appropriately. Accordingly, instead of 
continuing to specify the domains within the regulations, we now 
propose to utilize references to resources for current standard 
clinical practices through manual revisions rather than rulemaking, to 
assist LTC facilities in completing this additional assessment of 
triggered care areas.
    The references would be as specified in the RAI manual as part of 
the SOM issued by CMS (http://www.cms.hhs.gov/nursinghomequalityinits/20_NHQIMDS20.asp). The SOM would also reference: (1) The regulations 
at Sec.  483.20(b), Resident Assessment, as specified by the Secretary; 
and (2) additional resources for current clinical standards of 
practice. To this end, we propose revising the name of these guidance 
tools from RAPs to Care Area Triggers (CATs) and to delete the listing 
of the specific domains for the RAPs from the regulations text and 
instead reference the RAI manual, as part of the SOM issued by CMS, for 
specifics regarding the domains.

C. Data Submission Requirements Under the MDS 3.0

    Section 1888(e)(6) of the Act requires nursing facilities to 
provide the Secretary, in a manner and within the time-frames 
prescribed by the Secretary, the resident assessment data necessary to 
develop and implement SNF payment rates.
    Currently, submission of MDS data to CMS for all residents of long-
term care (LTC) facilities is required, regardless of payer source. LTC 
facilities electronically transmit MDS data to the

[[Page 22244]]

States within 30 days after a facility completes a resident's 
assessment on a monthly basis for all assessments conducted during the 
previous month.
    At the time of the national implementation of this requirement, CMS 
did not have a system in place that could receive and validate the 
required data and report back to the facility effectively. CMS did, 
however, develop a plan to install a CMS-owned system at each of the 
(53) State Survey Agencies (SAs) for collecting survey information. 
After further analysis, it was determined that this was in fact a 
viable option in order to receive both MDS and survey data, which could 
then be replicated to CMS, as required by the regulation.
    Although this process met the requirement for LTC facilities 
submitting MDS data to CMS (albeit indirectly through the SA), it was 
not an optimal solution. This process requires fifty-three separate 
assessment editing and reporting processing modules, which entails 
overhead, maintenance, and support expenses. The pending implementation 
of MDS 3.0 has presented CMS with an opportunity to reevaluate the 
current environment. As CMS's systems capability evolved, it was 
determined that a single assessment processing system would reduce the 
overhead, maintenance, and support expenses for assessment processing 
without affecting any other processes or user needs. It would also 
allow CMS to move the assessment data to a fully secure and controlled 
CMS-managed environment which would meet HHS, CMS, and Federal 
Information Security Management Act (FISMA) requirements.
    In summary, each LTC facility is required to submit resident 
assessment data to CMS. Initially, an intermediate step was necessary 
in order to have the data submitted to the CMS-owned system residing at 
the SA, which was then copied to a CMS national database. With the 
evolution of the CMS data platform, we believe that this intermediary 
step is no longer needed, allowing for direct submission to CMS.
    To this end, and to afford CMS the ability to receive MDS data in a 
more timely, efficient, and effective manner, for use by CMS quality 
measurement and payment programs, we now propose to require LTC 
facilities to transmit MDS data to the national CMS System, instead of 
the States, within 14 days after the facility completes a resident's 
assessment. We seek comments on the appropriateness and practical 
implications of a 14-day timeframe for the transmission of MDS data. 
The specific instructions would be specified in the RAI manual, as part 
of the SOM issued by CMS (CMS Pub 100-07), and in the regulations at 
Sec.  483.20 and Sec.  483.315.
    At the same time, we are aware that in the 10 years since the 
introduction of the SNF PPS, States have developed a variety of MDS-
related system applications to support their survey, payment, and 
quality programs. Although our systems analysis showed that the 
transition to a national CMS data collection system would retain all 
existing functionality, we have been working closely with the SAs to 
verify that the transition will be seamless for the States. We are 
developing a comprehensive list of all State functions currently using 
the MDS so we can test and document the ways SAs will be able to access 
the data once we adopt the MDS 3.0 format and the national data 
collection structure. We are interested in stakeholder comments on the 
MDS 3.0 data transmission process, and we are specifically soliciting 
comments from SAs on the effect the MDS 3.0 transition is expected to 
have on State programs.

D. Proposed Change to Section T of the Resident Assessment Instrument 
(RAI) Under the MDS 3.0

    As discussed previously, sections 1819(f)(6)(A)-(B) and 
1919(f)(6)(A)-(B) of the Act require the Secretary to specify a minimum 
data set of core elements and common definitions for use by nursing 
homes in conducting assessments of their residents, and to designate 
one or more instruments which are consistent with these specifications. 
Since the beginning of the SNF PPS, a SNF has been required to record 
the rehabilitative therapy services (physical therapy, occupational 
therapy, and speech-language pathology services) that have been ordered 
and are scheduled to occur during the early days of the patient's SNF 
stay. This was done because rehabilitation services often are not 
initiated until after the first MDS assessment's observation period 
ends. Therefore, we believed it was appropriate to permit a SNF to 
record on the Medicare-required 5-day assessment therapy services that 
are scheduled to occur but have not yet been provided.
    Section T of the Resident Assessment Instrument (RAI), version 2.0, 
provides information on special treatments and therapies not reported 
elsewhere in the patient assessment. Items T1.b, T1.c, and T1.d apply 
only to the Medicare-required 5-day assessment. Item T1.b allows the 
SNF to recognize therapy services ordered or scheduled to begin in the 
first 14 days of a patient's SNF stay. Item T1.c allows the SNF to 
calculate the total number of days that at least one therapy service is 
expected to be delivered through the resident's 15th day of admission 
based on the initial evaluation and subsequent treatment plan. Item 
T1.d allows the SNF to estimate the total number of minutes of therapy 
expected to be delivered through the resident's 15th day of admission. 
This allows the SNF to receive payment for therapy services that it 
plans to provide to a beneficiary in the first 15 days of the stay.
    In August 2002, the Government Accountability Office (GAO) issued 
Report No. GAO-02-841, entitled ``Skilled Nursing Facilities: Providers 
Have Responded to Medicare Payment System by Changing Practices'' 
(available online at www.gao.gov/new.items/d02841.pdf), which found 
that SNFs increasingly used estimates of therapy needed, rather than 
actual therapy delivered, to assign patients into the High, Medium, and 
Low therapy categories for the first 14 days of care. The GAO found 
that because payments are based on these estimates, payments for some 
patients were higher than they would have been if the payments were 
based on actual therapy provision (because some patients did not 
actually receive the amount of therapy estimated). Moreover, if a 
patient is classified into one of these rehabilitation categories using 
an estimate, but actually receives less than the amount of therapy 
necessary to qualify into that group, payments to the SNF for the 
initial assessment period are not reduced. As a result of its analysis, 
the GAO found that of the patients who could be evaluated (that is, 
patients who stayed long enough to have a second assessment where the 
actual minutes of therapy during the last 7 days were recorded), one-
quarter of the patients classified using estimated minutes of therapy 
did not receive the amount of therapy they were assessed as needing, 
while three-quarters eventually did. Furthermore, the GAO found that in 
2001, half of the patients initially categorized in the Medium and High 
groups did not actually receive the minimum amount of therapy required 
to be classified into those groups, due in part to the use of estimated 
therapy minutes for classification. CMS's response to this report 
indicated that it would examine whether therapy provided is consistent 
with payment levels and ADL coding accuracy through its program 
safeguard contractor (PSC) project known as the Data Assessment and 
Verification Program (DAVE).
    The original DAVE PSC contract was awarded in September 2001 to 
Computer Sciences Corporation. Under DAVE, the contractor conducted 
both on

[[Page 22245]]

and off-site medical record review and analysis of MDS data in order to 
support improvements to the accuracy of nursing home resident 
assessment data, largely for payment-related purposes. The results from 
the DAVE project were consistent with those found by the GAO.
    Industry groups have also commented on prior rules that they are 
not properly reimbursed for the provision of therapy services that 
begin in between Medicare-required assessments, as there is no 
mechanism to change the payment group due to the onset of therapy 
services (for example, the use of a Significant Change in Status 
Assessment (SCSA) is limited to the situations set forth in Chapter 2 
of the RAI Version 2.0 Manual). For example, the patient begins therapy 
services on day 9 of the covered stay. Days 1 through 14 of the covered 
stay are generally paid based on a Medicare-required 5-day assessment. 
The assessment window for the Medicare-required 5-day assessment (in 
other words, the day on which the ARD must be set to receive payment) 
is day 1 though 8 of the covered stay. Day 9 is outside of the 
assessment window and, therefore, therapy services provided from day 9 
through day 14 will not be reflected in the SNF's payment for days 1 
through 14 if such therapy services were not recorded on the assessment 
as ordered and scheduled to occur during the first 15 days of the 
patient's SNF stay.
    Thus, in order to address the concerns brought to light by the GAO 
report, the DAVE PSC project, and industry groups, and to ensure that 
SNFs are receiving accurate payments for therapy services provided to 
Medicare beneficiaries, we are proposing to revise the manner in which 
therapy services are reported effective with the MDS 3.0 (that is, 
effective October 1, 2010), as discussed below. In addition, because 
basing payments on therapy services ordered and scheduled to occur (but 
not yet provided) can lead to inaccurate RUG classifications and, thus, 
inaccurate payments (as discussed above), we are proposing to eliminate 
section T of the RAI effective October 1, 2010.
1. Short Stay Patients
    To ensure that providers receive accurate payments for those 
residents who are discharged early in the stay, that is, prior to day 
14, and have not been able to complete 5 days of therapy (that is, have 
completed only 1 to 4 days of therapy), we are proposing that we 
calculate the appropriate therapy level by using items that will be 
reported on the MDS 3.0: The actual number of therapy minutes provided, 
the date of admission, the date therapy started, the patient's ADL 
level, and the assessment reference date (ARD), to assign a therapy 
group. For example, if an assessment with an ARD of day 5 shows that 
the patient started therapy on day three, actual therapy minutes should 
be reported for that patient for 3 days. We propose to calculate the 
average daily number of therapy minutes for each of those 3 days and 
assign a therapy category as follows: If therapy services are actually 
provided for between 15-29 minutes on average per day, the record would 
be assigned to the Low Rehabilitation category (RLx). If the patient 
receives 30 or more therapy minutes on average per day, the record 
would be assigned to the medium rehabilitation category (RMx). The 
actual RUG-IV group would be assigned based on the ADL level reported 
for that patient on the five day assessment and the average therapy 
minutes received. We believe the Medium and Low groups represent the 
most typical levels of therapy actually provided during the short stay. 
We determined the minimum minute requirements set forth above based on 
the minutes required to be assigned into the Low (at least 15 minutes 
each day for three days) and the Medium groups (an average of 30 
minutes each day for five days). However, we solicit public comment on 
whether an alternative methodology should be considered.
    As therapy is not being provided throughout the observation period, 
both the therapy and the non-therapy group will be calculated and 
reported to the facility to facilitate billing. Detailed instructions 
will be developed for the MDS 3.0 Manual and the Claims Processing 
Manual to assist providers.
    For example, physical therapy is started on day 4 and the resident 
is discharged to the hospital on day 7; the resident received 25 
minutes of therapy on day 4, 35 minutes on day 5, 33 minutes on day 6, 
and 37 minutes on day 7. The total days of physical therapy are 4, and 
the total minutes of physical therapy are 130. Because the average 
minutes of therapy provided on a daily basis is greater than 30 (total 
minutes (130) divided by number of therapy days (4) equals average 
minutes (32.5)), the RUG assigned would be RMx. The provider would bill 
the non-therapy RUG for days 1 to 3 and the RMx RUG for days 4 to 6 
(day 7 is the day of discharge and payment is not provided for the day 
of discharge). Please note that this policy applies only for short stay 
patients who received fewer than 5 days of therapy before either 
discontinuing therapy or ending the Part A stay. As set forth in 42 CFR 
409.34(a)(2), if skilled rehabilitation services are not available 7 
days a week, those services must be needed and provided at least 5 days 
a week to meet the daily basis requirement in Sec.  409.31(b)(1). 
Therefore, if a patient receives five or more days of therapy during 
the short stay, the patient has received the amount of therapy required 
for a skilled level of care and for classification in any of the 
Rehabilitation and Rehabilitation Plus Extensive Services RUG 
categories, and thus the revised procedures discussed above would not 
be necessary. We solicit comments on our proposed changes to the manner 
in which therapy levels are calculated for short-stay patients.
2. Starting Therapy Between MDS Observation Periods
    Under the current system, SNFs are required to complete an OMRA 8 
to 10 days following the cessation of all therapies for patients in the 
Rehabilitation plus Extensive Services and Rehabilitation categories 
who continue to need skilled SNF services. Currently, therapy services 
started in the middle of a payment period would not trigger a change in 
the payment rate until the next scheduled MDS is submitted. We are now 
proposing that the OMRA be used to signal the start of therapy services 
as well as the end of therapy services. To capture the start of therapy 
services, we are proposing that the SNF would have the option of 
completing an OMRA with an assessment reference date (ARD) that is set 
5 to 7 days from the first day therapy services are provided. The 5 to 
7 day window will allow providers to record the required therapy for a 
skilled SNF level of care, which, in accordance with Sec.  
409.31(b)(1), is daily (as set forth in 42 CFR 409.34(a)(2), if skilled 
rehabilitation services are not available 7 days a week those services 
must be needed and provided at least 5 days a week). Payment for the 
start of therapy would begin the day that therapy is started. For 
example, when therapy begins on day 9 of the stay, the provider could 
complete a start of therapy OMRA on day 13, 14, or 15, and the assigned 
Rehabilitation category would begin on day 9 of the stay, not on day 15 
(the first day of the next Medicare payment window) or on the ARD of 
the start of therapy OMRA (day 13, 14 or 15). We believe that this 
revised reporting procedure will provide a more accurate record of 
therapy services actually provided to the patient, allowing for more 
accurate RUG classification and payment based on services provided 
rather than estimated. We solicit

[[Page 22246]]

comments on this proposed change to the OMRA reporting procedures.
3. Reporting the Discontinuation of Therapy Services
    In addition, to report the end of therapy services, the SNF would 
be required to complete an OMRA with an assessment reference date that 
is set 1 to 3 days from the last day therapy services were provided. 
Under the current system, an OMRA is completed 8 to 10 days after the 
cessation of therapy (as discussed above), and payment under the 
patient's existing rehabilitation RUG continues to be made until the 
OMRA ARD. This methodology was developed before we had the capability 
to calculate and report both a therapy and a medical RUG group for 
payment. At that time, an MDS submitted earlier than 7 days after 
therapy was discontinued would still be classified into a therapy group 
(because all therapy provided within the past 7 days had to be reported 
on the OMRA). Thus, we delayed the submission of the OMRA, which meant 
that we continued payment under the patient's existing Rehabilitation 
RUG for several days after therapy was discontinued. As CMS has now 
developed a system to report both a therapy and non-therapy group on 
each assessment in which therapy is reported, it is no longer necessary 
to wait 8 to 10 days. Payment for the non-therapy RUG would begin the 
day after therapy services end. We are proposing the revised reporting 
procedures described above to allow for more accurate classification of 
patients based on services actually needed by and provided to the 
patient at the time therapy ended, leading to more accurate payment. We 
solicit comments on these proposed changes to the OMRA reporting 
requirements.
    As discussed previously, we would initiate the revised reporting 
procedures described above with MDS 3.0, that is, effective October 1, 
2010. We would include these changes in the MDS 3.0 RAI manual/
instructions and the SOM. In addition, at the same time, we would 
require that the date that physical therapy, occupational therapy, and/
or speech-language pathology services started and ended appear on the 
claim when billing a rehabilitation RUG (that is, a RUG in the 
Rehabilitation plus Extensive Services or the Rehabilitation 
categories). We would adjust our manuals to reflect this requirement. 
We believe that these revised reporting procedures will provide a more 
accurate record of therapy services actually provided to the patient, 
allowing for more accurate RUG classification and payment based on 
services provided rather than estimated. As noted previously, we 
solicit comments on our proposed changes to the therapy reporting 
procedures discussed above.

V. Other Issues

A. Invitation of Comments on Possible Quarterly Reporting of Nursing 
Home Staffing Data

    Although we are not proposing specific regulatory language in this 
area under this proposed rule, we are requesting public comment on a 
possible requirement for nursing homes to report nursing staffing data 
to CMS on a quarterly basis. The data would be reported through an 
electronic system and would be based on nursing home payroll data (for 
regular nursing employees) and invoices (for contract and agency 
nursing staff). Existing law gives us the authority to impose staffing 
reporting requirements. (See sections 1819(b)(4)(A)(i), 1819(b)(1)(A), 
and 1819(d)(4)(B) of the Act.) Further, sections 1819(f)(1) and 
1919(f)(1) of the Act specify the Secretary's duty and responsibility 
to assure that requirements that govern the provision of care in 
nursing homes and SNFs ``are adequate to protect the health, safety, 
welfare, and rights of residents * * * .'' Nevertheless, we believe it 
is appropriate to invite public comment on the possible use of an 
electronic, payroll-based staffing data collection, including the 
paperwork burden and cost for facilities to provide such data.
    CMS uses nursing staffing data and nursing home census data in 
rating nursing homes for quality. Nursing staffing data for an 
individual nursing home are adjusted for the case mix of the residents 
of the nursing home and are divided by the nursing home census to 
establish the average number of hours of care per day provided by 
registered nurses, licensed practical/vocational nurses, and certified 
nursing assistants in that nursing home. Optimal hours of care (case-
mix adjusted) and average hours of care for each case-mix group are 
used as a basis for rating the staffing in the nursing home. The data 
currently used for these calculations are included in the CMS Online 
Survey Certification and Reporting System (OSCAR). Limitations of the 
OSCAR data are detailed in later paragraphs of this section. In 
addition, nursing staffing data are available for consumer use on the 
CMS Web site at http://www.medicare.gov/NHCompare/Include/DataSection/Questions/SearchCriteriaNEW.asp?version=default&browser=IE%7C6%7CWinXP&language=English&defaultstatus=0&pagelist=Home&CookiesEnabledStatus.
    We note that CMS has collected nursing home staffing data and 
nursing home census information for more than 30 years. Initially, the 
data were included in the Medicare/Medicaid Automated Certification 
System (MMACS), and beginning in 1989, they have been part of OSCAR. 
The OSCAR data system includes staffing data for all Medicare and 
Medicaid-certified nursing homes in the United States. Currently, the 
information on staffing in nursing homes is collected at the time of 
the annual onsite survey by the nursing home surveyors. The nursing 
home completes a form CMS 671, reporting data for the 2 weeks prior to 
survey. ``Annual'' nursing home surveys occur, on average, every 12 
months, with no more than a 15-month interval in any particular 
instance.
    However, there have been concerns that the OSCAR staffing data have 
significant limitations, based on several factors: (1) The data 
represent a very limited time period of only 2 weeks; (2) the data are 
collected only once a year; (3) accuracy and reliability of the data 
have been questioned; and (4) the scope of the staffing measures 
available based on the data is limited. The use of an electronic system 
for collection of nursing home staffing data based on payroll would 
address these concerns and offer other advantages as well:
     Staffing data could be collected quarterly using an 
electronic payroll-based system.
     Staffing quality measures posted on Nursing Home Compare 
could be based on data for the most recent quarter for all nursing 
homes.
     Payroll data could be audited for accuracy. Data on use of 
agency (contract) staff would be based on invoices--also an auditable 
source.
     Payroll record data could be used to calculate measures of 
staffing turnover and retention.
     Payroll extract data specifications could be updated to 
include the broader array of newer nursing home nursing care staff 
roles in a meaningful way. Data specifications for the electronic 
payroll extracts are intrinsically more flexible than paper forms and, 
thus, would be easier to update in future years.
    CMS's Center for Medicaid and State Operations (CMSO), in 
conjunction with its Office of Clinical Standards and Quality (OCSQ), 
has been assessing the feasibility of moving to an electronic payroll-
based system to collect nursing home staffing data since 2003. At this 
time, we have accomplished a number of tasks that make the institution 
of an electronic payroll-based system feasible: (1) Developed data 
submission

[[Page 22247]]

specifications for the electronic payroll extracts of staffing data; 
(2) conducted a field study of the feasibility of using electronic 
payroll extracts to collect data from nursing homes; and (3) developed 
a set of valid nursing home staffing quality measures for public 
reporting (including measures of staff turnover) that use nursing home 
payroll data as a basis. At this time, we are not proposing any 
specific regulatory language, but we are soliciting general comments on 
the utility, scope, and level of detail of such a possible requirement, 
and the burden and cost for facilities to provide such data.

B. Miscellaneous Technical Corrections and Clarifications

    We are also taking the opportunity to set forth certain technical 
corrections and clarifications in this proposed rule, as discussed 
below.
    We would make a minor technical revision in the requirements for 
participation for long-term care facilities (that is, Medicare SNFs and 
Medicaid NFs) contained in Part 483, subpart B. Specifically, in 
paragraph (j) of Sec.  483.75, we would revise the paragraph heading by 
removing the phrase ``Level B requirement:'' and italicizing the 
remaining text in the heading (``Laboratory services''). The existing 
``Level B requirement'' wording is a vestige of a previous 
classification system of Level A and Level B requirements that had been 
introduced in a final rule with comment period (54 FR 5316, February 2, 
1989), and which was ``* * * intended to communicate that all of the 
nursing facility requirements are binding and are not part of a 
qualitative hierarchy * * *'' (54 FR 5318). However, in a subsequent 
final rule published on September 26, 1991 (56 FR 48826), we noted that 
commenters objected to these designations, indicating that they instead 
fostered ``* * * a belief that Level B requirements were less important 
than Level A requirements * * *'' (56 FR 48827). In order to prevent 
any further confusion over this issue, we then ``* * * decided to 
delete from part 483 all references to Level A and Level B 
requirements.'' Accordingly, in that 1991 final rule, we removed all 
such references, including the one that had appeared in paragraph (j) 
of Sec.  483.75 (56 FR 48878). However, the following year, a final 
rule to implement the Clinical Laboratory Improvement Amendments (CLIA) 
of 1988 (57 FR 7002, February 28, 1992) republished the regulations 
text at Sec.  483.75(j), and erroneously included the Level B 
requirement designation in the paragraph heading (57 FR 7136). As a 
result, that designation continues to appear inappropriately in the 
paragraph heading of this provision. Accordingly, this proposed rule 
includes a technical revision that would revise the paragraph heading 
to restore the correct wording from the 1991 final rule.

VI. The Skilled Nursing Facility Market Basket Index

    Section 1888(e)(5)(A) of the Act requires us to establish a 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 proposed rule incorporates the latest available 
projections of the SNF market basket index. We will incorporate updated 
projections based on the latest available data when we publish the SNF 
final rule. Accordingly, we have developed a SNF market basket index 
that encompasses the most commonly used cost categories for SNF routine 
services, ancillary services, and capital-related expenses.
    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 16 below summarizes the proposed updated labor-related 
share for FY 2010.

    Table 16--Labor-Related Relative Importance, FY 2009 and FY 2010
------------------------------------------------------------------------
                                             Relative        Relative
                                            importance,     importance,
                                          labor-related,  labor-related,
                                           FY 2009 08:2    FY 2010 09:1
                                             forecast        forecast
------------------------------------------------------------------------
Wages and salaries......................          51.003          51.269
Employee benefits.......................          11.547          11.514
Nonmedical professional fees............           1.331           1.333
Labor-intensive services................           3.434             438
Capital-related (.391)..................           2.468           2.463
                                         -------------------------------
    Total...............................          69.783          70.017
------------------------------------------------------------------------
Source: IHS Global Insight, Inc.

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 from 
the average of the previous FY to the average of the current FY. For 
the Federal rates established in this proposed rule, we use the 
percentage increase in the SNF market basket index to compute the 
update factor for FY 2010. This is based on the IHS Global Insight, 
Inc. (formerly DRI-WEFA) first quarter 2009 forecast (with historical 
data through the fourth quarter 2008) of the FY 2010 percentage 
increase in the FY 2004-based SNF market basket index for routine, 
ancillary, and capital-related expenses, to compute the update factor 
in this proposed rule. Finally, as discussed in section I.A. of this 
proposed rule, we no longer compute update factors to adjust a 
facility-specific portion of the SNF PPS rates, because the initial 
three-phase transition period from facility-specific to full Federal 
rates that started with cost reporting periods beginning in July 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 Sec.  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 for 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

[[Page 22248]]

available FY for which there is final data, and apply whenever the 
difference between the forecasted and actual change in the market 
basket exceeds a specified threshold. We originally used a 0.25 
percentage point threshold for this purpose; however, for the reasons 
specified in the FY 2008 SNF PPS final rule (72 FR 43425, August 3, 
2007), we adopted a 0.5 percentage point threshold effective with FY 
2008. As discussed previously in section I.F.2. of this proposed rule, 
as the difference between the estimated and actual amounts of increase 
in the market basket index for FY 2008 (the most recently available FY 
for which there is final data) does not exceed the 0.5 percentage point 
threshold, the proposed payment rates for FY 2010 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 2010 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, 2008 through September 
30, 2009 to the average market basket level for the period of October 
1, 2009 through September 30, 2010. Using this process, the proposed 
market basket update factor for FY 2010 SNF PPS Federal rates is 2.1 
percent. We used this proposed update factor to compute the Federal 
portion of the SNF PPS rate shown in Tables 2 and 3.

VII. Consolidated Billing

    Section 4432(b) of the BBA established a consolidated billing 
requirement that places the Medicare billing responsibility for 
virtually all of the services that the SNF's residents receive with the 
SNF, except for a small number of services that the statute 
specifically identifies as being excluded from this provision. As noted 
previously in section I. of this proposed rule, subsequent legislation 
enacted a number of modifications in the consolidated billing 
provision.
    Specifically, section 103 of the BBRA amended this provision by 
further excluding a number of individual ``high-cost, low-probability'' 
services, identified by the Healthcare Common Procedure Coding System 
(HCPCS) codes, within several broader categories (chemotherapy and its 
administration, radioisotope services, and customized prosthetic 
devices) that otherwise remained subject to the provision. We discuss 
this BBRA amendment in greater detail in the proposed and final rules 
for FY 2001 (65 FR 19231-19232, April 10, 2000, and 65 FR 46790 through 
46795, July 31, 2000), as well as in Program Memorandum AB-00-18 
(Change Request 1070), issued March 2000, which is available 
online at http://www.cms.hhs.gov/transmittals/downloads/ab001860.pdf.
    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 a SNF stay that Medicare Part A 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.) We discuss this 
BIPA amendment in greater detail in the proposed and final rules for FY 
2002 (66 FR 24020-24021, May 10, 2001, and 66 FR 39587-39588, July 31, 
2001).
    In addition, section 410 of the MMA amended this provision by 
excluding certain practitioner and other services furnished to SNF 
residents by RHCs and FQHCs. We discuss this MMA amendment in greater 
detail in the update notice for FY 2005 (69 FR 45818-45819, July 30, 
2004), as well as in Program Transmittal 390 (Change Request 
3575), issued December 10, 2004, which is available online at 
http://www.cms.hhs.gov/transmittals/downloads/r390cp.pdf.
    Further, while not substantively revising the consolidated billing 
requirement itself, a related provision was enacted in the Medicare 
Improvements for Patients and Providers Act of 2008 (MIPPA, Pub. L. 
110-275). Specifically, section 149 of MIPPA amended section 
1834(m)(4)(C)(ii) of the Act to add subclause (VII), which adds SNFs 
(as defined in section 1819(a) of the Act) to the list of entities that 
can serve as a telehealth ``originating site'' (that is, the location 
at which an eligible individual can receive, through the use of a 
telecommunications system, services furnished by a physician or other 
practitioner who is located elsewhere at a ``distant site'').
    As explained in the Medicare Physician Fee Schedule (PFS) final 
rule for Calendar Year (CY) 2009 (73 FR 69726, 69879, November 19, 
2008), a telehealth originating site receives a facility fee which is 
always separately payable under Part B outside of any other payment 
methodology. Section 149(b) of MIPPA amended section 1888(e)(2)(A)(ii) 
of the Act to exclude telehealth services furnished under section 
1834(m)(4)(C)(ii)(VII) of the Act from the definition of ``covered 
skilled nursing facility services'' that are paid under the SNF PPS. 
Thus, a SNF ``* * * can receive separate payment for a telehealth 
originating site facility fee even in those instances where it also 
receives a bundled per diem payment under the SNF PPS for a resident's 
covered Part A stay'' (73 FR 69881). By contrast, under section 
1834(m)(2)(A) of the Act, a telehealth distant site service is payable 
under Part B to an eligible physician or practitioner only to the same 
extent that it would have been so payable if furnished without the use 
of a telecommunications system. Thus, as explained in the CY 2009 PFS 
final rule, eligible distant site physicians or practitioners can 
receive payment for a telehealth service that they furnish

    * * * only if the service is separately payable under the PFS 
when furnished in a face-to-face encounter at that location. For 
example, we pay distant site physicians or practitioners for 
furnishing services via telehealth only if such services are not 
included in a bundled payment to the facility that serves as the 
originating site (73 FR 69880).

    This means that in those situations where a SNF serves as the 
telehealth originating site, the distant site professional services 
would be separately payable under Part B only to the extent that they 
are not already included in the SNF PPS bundled per diem payment and 
subject to consolidated billing. Thus, for a type of practitioner whose 
services are not otherwise excluded from consolidated billing when 
furnished during a face-to-face encounter, the use of a telehealth 
distant site would not serve to unbundle those services. In fact, 
consolidated billing does exclude the professional services of 
physicians, along with those of most of the other types of telehealth 
practitioners that the law specifies at section 1842(b)(18)(C) of the 
Act, that is, physician assistants, nurse practitioners, clinical nurse 
specialists, certified registered nurse anesthetists, certified nurse 
midwives, and clinical psychologists (see section 1888(e)(2)(A)(ii) of 
the Act and 42 CFR 411.15(p)(2)). However, the services of clinical 
social workers, registered dietitians and nutrition professionals 
remain subject to consolidated billing when furnished to a SNF's Part A 
resident and, thus, cannot qualify for separate Part B payment as 
telehealth distant site services in this situation. Additional 
information on this provision appears in Program Transmittal 
1635 (Change Request 6215), issued November 14, 2008, 
which is available online at http://www.cms.hhs.gov/transmittals/downloads/R1635CP.pdf.

[[Page 22249]]

    To date, the Congress has enacted no further legislation affecting 
the consolidated billing provision. However, as noted above and 
explained in the proposed rule for FY 2001 (65 FR 19232, April 10, 
2000), the amendments enacted in section 103 of the BBRA not only 
identified for exclusion from this provision a number of particular 
service codes within four specified categories (that is, chemotherapy 
items, chemotherapy administration services, radioisotope services, and 
customized prosthetic devices), but also gave the Secretary ``* * * the 
authority to designate additional, individual services for exclusion 
within each of the specified service categories.'' In the proposed rule 
for FY 2001, we also noted that the BBRA Conference report (H.R. Rep. 
No. 106-479 at 854 (1999) (Conf. Rep.)) characterizes the individual 
services that this legislation targets for exclusion as ``* * * high-
cost, low probability events that could have devastating financial 
impacts because their costs far exceed the payment [SNFs] receive under 
the prospective payment system * * *''. According to the conferees, 
section 103(a) ``is an attempt to exclude from the PPS certain services 
and costly items that are provided infrequently in SNFs * * *.'' By 
contrast, we noted that the Congress declined to designate for 
exclusion any of the remaining services within those four categories 
(thus leaving all of those services subject to SNF consolidated 
billing), because they are relatively inexpensive and are furnished 
routinely in SNFs.
    As we further explained in the final rule for FY 2001 (65 FR 46790, 
July 31, 2000), and as our longstanding policy, any additional service 
codes that we might designate for exclusion under our discretionary 
authority must meet the same statutory criteria used in identifying the 
original codes excluded from consolidated billing under section 103(a) 
of the BBRA: they must fall within one of the four service categories 
specified in the BBRA, and they also must meet the same standards of 
high cost and low probability in the SNF setting, as discussed in the 
BBRA Conference report. Accordingly, we characterized this statutory 
authority to identify additional service codes for exclusion `` * * * 
as essentially affording the flexibility to revise the list of excluded 
codes in response to changes of major significance that may occur over 
time (for example, the development of new medical technologies or other 
advances in the state of medical practice)'' (65 FR 46791). In this 
proposed rule, we specifically invite public comments identifying codes 
in any of these four service categories (chemotherapy items, 
chemotherapy administration services, radioisotope services, and 
customized prosthetic devices) representing recent medical advances 
that might meet our criteria for exclusion from SNF consolidated 
billing. We may consider excluding a particular service if it meets our 
criteria for exclusion as specified above. Commenters should identify 
in their comments the specific HCPCS code that is associated with the 
service in question, as well as their rationale for requesting that the 
identified HCPCS code(s) be excluded.
    We note that the original BBRA legislation (as well as the 
implementing regulations) identified a set of excluded services by 
means of specifying HCPCS codes that were in effect as of a particular 
date (in that case, as of July 1, 1999). Identifying the excluded 
services in this manner made it possible for us to utilize program 
issuances as the vehicle for accomplishing routine updates of the 
excluded codes, in order to reflect any minor revisions that might 
subsequently occur in the coding system itself (for example, the 
assignment of a different code number to the same service). 
Accordingly, in the event that we identify through the current 
rulemaking cycle any new services that would actually represent a 
substantive change in the scope of the exclusions from SNF consolidated 
billing, we would identify these additional excluded services by means 
of the HCPCS codes that are in effect as of a specific date (in this 
case, as of October 1, 2009). By making any new exclusions in this 
manner, we could similarly accomplish routine future updates of these 
additional codes through the issuance of program instructions.

VIII. Application of the SNF PPS to SNF Services Furnished by Swing-Bed 
Hospitals; Quality Monitoring of Swing-Bed Hospitals

    In accordance with section 1888(e)(7) of the Act, as amended by 
section 203 of the BIPA, Part A pays CAHs on a reasonable cost basis 
for SNF services furnished under a swing-bed agreement. However, 
effective with cost reporting periods beginning on or after July 1, 
2002, the swing-bed services of non-CAH rural hospitals are paid under 
the SNF PPS. As explained in the final rule for FY 2002 (66 FR 39562, 
July 31, 2001), we selected this effective 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.
    Accordingly, all non-CAH swing-bed rural hospitals have come under 
the SNF PPS as of June 30, 2003. Therefore, all rates and wage indexes 
outlined in earlier sections of this proposed rule for the SNF PPS also 
apply to all non-CAH swing-bed rural hospitals. A complete discussion 
of assessment schedules, the MDS and the transmission software (RAVEN-
SB for Swing Beds) appears in the final rule for FY 2002 (66 FR 39562, 
July 31, 2001). The latest changes in the MDS for swing-bed rural 
hospitals appear on the SNF PPS Web site,  http://www.cms.hhs.gov/snfpps. It is our intention to include rural hospital swing beds in the 
transition to the MDS 3.0 effective October 1, 2010, and to adopt the 
RUG-IV classification for swing-bed facilities on that same date. Under 
the RUG-III payment model, swing-bed hospitals have not been 
comprehensively monitored for quality of care, but have been required 
to submit four types of abbreviated MDS assessments: the abbreviated 
Medicare Assessments submitted on days 5, 14, 30, 60, and 90 used to 
determine payment under the SNF PPS, entry and discharge tracking 
assessments, the clinical change assessments, and the Other Medicare 
Required Assessments (OMRAs). The limited use of the MDS for quality 
monitoring was established because we believed that swing-bed units, as 
parts of rural hospitals, were already subject to the hospital quality 
review process. In addition, our analyses showed that the average 
length of stay in swing-bed facilities was significantly lower than in 
either hospital-based or free-standing SNFs, and that our existing 
quality measures might be unable to evaluate short stay patient care 
accurately. Thus, in the FY 2002 final rule referenced above (65 FR 
39590), we decided that we would not ``require swing-bed facilities to 
perform the care planning and quality monitoring components included in 
the full MDS * * * '' at that time. At the same time, we explained our 
intention of including `` * * * an analysis of swing-bed requirements 
in our comprehensive reevaluation of all post-acute data needs, and in 
the design of any future assessment and data collection tools.''
    Since that time, we have expanded our quality analysis in a variety 
of settings, and have made SNF information publicly available through 
Nursing Home Compare and other initiatives. While developing ways to 
monitor and compare quality across swing-bed facilities and between 
swing-bed facilities and other SNFs would increase swing-bed facility 
data

[[Page 22250]]

collection and transmission requirements, it would also increase the 
information available to patients, families, and oversight agencies for 
making placement decisions and evaluating the quality of care furnished 
by swing-bed facilities. For these reasons, we are considering a change 
in the swing bed MDS (SB-MDS) reporting requirements that would go into 
effect with the introduction of the MDS 3.0. Since the current SB-MDS 
does not include the items needed to evaluate quality in the same way 
as for other nursing facilities, we are proposing to eliminate the SB-
MDS, and replace it with the MDS 3.0 equivalent of the Medicare Payment 
Assessment Form (MPAF) that captures all of the items used in 
determining quality measures. Accordingly, in this rule, we are 
soliciting comments on expanding swing-bed MDS reporting requirements 
to apply the quality monitoring mechanism in place for all other SNF 
PPS facilities to rural swing-bed hospitals.

IX. Provisions of the Proposed Rule

    In this proposed rule, in addition to accomplishing the required 
annual update of the SNF PPS payment rates, we also propose making the 
following revisions in the regulations text:

Section 483.20 (Resident assessment)

    In Sec.  483.20, we are proposing to republish paragraph (b)(1) 
introductory text. We are also proposing in Sec.  483.20(b)(1)(xvii) to 
remove the phrase ``through the resident assessment protocols'' and 
replace it with ``on the care areas triggered by the completion of the 
Minimum Data Set (MDS).''
    As discussed previously in section IV.B. of this proposed rule, we 
would revise Sec.  483.20(b), as well as other formatting revisions in 
the section heading and regulations at Sec.  483.315(d) and Sec.  
483.315(e), and to specify the assessment to be completed on care areas 
triggered by completion of the MDS.
    In addition, as discussed previously in section IV.B. of this 
proposed rule, we would revise Sec.  483.20(f), as well as other 
formatting revisions in the section heading and regulations at Sec.  
483.315(h) and Sec.  483.315(i), to specify the transmission and 
submission requirements of MDS data.
    In Sec.  483.20(f)(2), we are proposing to delete the phrase 
``State information'' and replace it with ``CMS System information.''
    In Sec.  483.20(f)(3), we are proposing to remove the word 
``Monthly'' in the paragraph heading and revise the remaining paragraph 
heading to read as follows: ``Transmittal requirement''. In Sec.  
483.20(f)(3), we also propose revising the introductory text to read, 
``Within 14 days after a facility completes a resident's assessments, a 
facility must electronically transmit encoded, accurate, complete MDS 
data to the CMS System, including the following:''.

Section 483.75 (Administration)

    As discussed previously in section V.B. of this proposed rule, we 
are proposing to revise the paragraph heading in Sec.  483.75(j) to 
remove the phrase ``Level B requirement'' and replace it with 
``Laboratory services.''

Section 483.315 (Specification of resident assessment instrument)

    In Sec.  483.315(d)(2), we are proposing to remove the phrase ``The 
resident assessment protocols (RAPs) and triggers'' and replace it with 
``Care area triggers (CATs)''.
    In Sec.  483.315(e), we are proposing to revise the text to remove 
the specific MDS definitions and instead cross-reference to the 
resident assessment instrument requirements in Sec.  483.20(b)(1)(i) 
through (b)(1)(xviii).
    We are proposing to remove and reserve existing paragraph (f) of 
Sec.  483.315, which specifies the 18 domains for the RAPs.
    We are proposing to revise the paragraph heading for Sec.  
483.315(h) to remove the word ``collection'' and replace it with 
``system'' as well as making other organizational changes for this 
section.
    In Sec.  483.315(i), we are proposing to remove the word 
``collects'' in the paragraph heading and in the introductory text and 
replace it with ``receives''. In addition, we propose removing the 
phrase ``data and'' in Sec.  483.315(i)(2).

X. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA, 44 U.S.C. 3501 et 
seq.), agencies are required to provide a 60-day notice in the Federal 
Register and solicit public comment when a collection of information 
requirement is submitted to the Office of Management and Budget (OMB) 
for review and approval. To fairly evaluate whether an information 
collection should be approved by OMB, section 3506(c)(2)(A) of the PRA 
requires that we solicit comments on the following issues:
     Whether the information collection is necessary and useful 
to carry out the proper functions of the agency;
     The accuracy of the agency's estimate of the information 
collection burden;
     The quality, utility, and clarity of the information to be 
collected; and
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In the FY 2002 SNF PPS proposed rule (66 FR 24026-28, May 10, 2001) 
and final rule (66 FR 39594-96, July 31, 2001), we invited and 
discussed public comments on the information collection aspects of 
establishing the existing, abbreviated MDS completion requirements that 
apply to rural swing-bed hospitals paid under the SNF PPS (CMS-10064, 
OMB 0938-0872, 73 FR 30105, May 23, 2008). Similarly, we are 
now inviting public comment with respect to the expansion of MDS 
reporting requirements so that the quality measures currently in place 
for all other SNF PPS facilities can be applied to swing-bed hospitals, 
as discussed previously in section VIII. of this proposed rule. 
Specifically, we are proposing to replace the SB-MDS with the MDS 3.0 
version of the MPAF.
    Our information collection authority for the existing SB-MDS and 
MPAF includes detailed burden estimates. For the SB-MDS, we have 
determined that swing-bed facilities complete 105 assessments per year 
at an annual cost of $1,352.49 per facility. Thus, the total dollar 
impact for the 481 swing-bed facilities is $650,547.69 per year. In 
contrast, the estimated cost of completing 105 MPAFs is $1,804.62 per 
swing-bed facility, or a total of $868,022.22 for all 481 swing-bed 
facilities. Thus, for all 481 facilities, the increased burden 
associated with changing from the SB-MDS to the MPAF would be the 
difference between those two totals, or $217,503.39. We wish to note 
that should we decide to proceed with this approach, we will need to 
make further conforming revisions in another existing information 
collection authority (CMS-R-250, OMB 0938-0739) for the 
Medicare PPS Assessment Form (MPAF).
    We note that this document does not impose any other information 
collection and recordkeeping requirements for FY 2010. As discussed in 
the Federal Register notice that originally established the MPAF (67 FR 
38130-31, May 31, 2002), `` * * * the current requirements related to 
the submission and retention of resident assessment data are not 
subject to the PRA.'' This is because sections 4204(b) and 4214(d) of 
the Omnibus Budget Reconciliation Act of 1987 (OBRA 1987, P.L. 100-203) 
specifically waive the paperwork reduction requirements with respect to 
the revised requirements for

[[Page 22251]]

participation introduced by the nursing home reform legislation, 
including the MDS itself. Moreover, as the discussion in section 
IV.D.3. indicates, the proposed changes with reference to the OMRA 
represent no additional burden, as they merely reflect revisions in the 
timeframe for completion rather than the number of assessments to be 
completed. Further, we note that the proposed completion of an OMRA 
upon the start of therapy, as discussed in section IV.D.2., would be 
entirely voluntary on the part of the facility and, thus, would not 
represent the imposition of a mandatory burden.

XI. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

XII. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (September 19, 1980, RFA, 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), Executive Order 
13132 on Federalism, and the Congressional Review Act (5 U.S.C. 
804(2)).
    Executive Order 12866 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 an economically significant rule under Executive Order 12866, 
because we estimate the FY 2010 impact reflects a $660 million increase 
from the update to the payment rates and a $1.05 billion reduction (on 
an incurred basis) from the recalibration of the case-mix adjustment, 
thereby yielding a net decrease of $390 million in payments to SNFs. 
For FY 2011, we estimate that there will be no aggregate impact on 
payments as a result of the implementation of the RUG-IV model, which 
will be introduced on a budget neutral basis. The final FY 2011 impacts 
will be issued prior to August 1, 2010, and will include the FY 2011 
market basket update, FY 2011 wage index, and any further FY 2011 
policy changes. Furthermore, we are also considering this a major rule 
as defined in the Congressional Review Act (5 U.S.C. 804(2)).
    The proposed update set forth in this proposed rule would apply to 
payments in FY 2010. In addition, we include a preliminary estimate of 
the impact of the introduction of the RUG-IV model on FY 2011 payments. 
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. Therefore, 
final estimates for FY 2011 will be published prior to August 1, 2010.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small businesses or other small entities. For purposes of the 
RFA, small entities include small businesses, nonprofit organizations, 
and small government jurisdictions. Most SNFs and most other providers 
and suppliers are small entities, either by their nonprofit status or 
by having revenues of $13.5 million or less in any 1 year. For purposes 
of the RFA, approximately 51 percent of SNFs are considered small 
businesses according to the Small Business Administration's latest size 
standards, with total revenues of $13.5 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 proposed rule would update the SNF PPS rates published in the 
final rule for FY 2009 (73 FR 46416, August 8, 2008) and the associated 
correction notice (73 FR 56998, October 1, 2008), thereby decreasing 
net payments by an estimated $390 million. As indicated in Table 17a, 
the effect on facilities will be a net negative impact of 1.2 percent. 
The total impact reflects a $1.05 billion reduction from the 
recalibration of the case-mix adjustment, offset by a $660 million 
increase from the update to the payment rates. We also note that the 
percent decrease will vary due to the distributional impact of the FY 
2010 wage indexes and the degree of Medicare utilization. For FY 2011, 
we estimate that there will be no aggregate impact on payments due to 
the introduction of the RUG-IV model. However, we estimate that there 
will be distributional impacts that vary from slight increases to 
slight decreases due to the case-mix distribution of individual 
providers.
    Guidance issued by the Department of Health and Human Services, on 
the proper assessment of the impact on small entities in rulemakings, 
utilizes a revenue impact of 3 to 5 percent as a significance threshold 
under the RFA. While this proposed rule is considered economically 
significant, its relative impact on SNFs overall is small because 
Medicare is a relatively minor payer source for nursing home care. We 
estimate that Medicare covers approximately 10 percent of service days, 
and approximately 20 percent of payments. However, the distribution of 
days and payments is highly variable, with the majority of SNFs having 
significantly lower Medicare utilization. As a result, for most 
facilities, the impact to total facility revenues, considering all 
payers, should be substantially less than those shown in Table 17a. 
Therefore, the Secretary has determined that this proposed rule would 
not have a significant impact on a substantial number of small 
entities. However, in view of the potential economic impact on small 
entities, we have considered alternatives as described in section 
XII.C. of this proposed rule.
    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 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. The proposed rule will 
affect small rural hospitals that (a) furnish SNF services under a 
swing-bed agreement or (b) have a hospital-based SNF. We anticipate 
that the impact on small rural hospitals will be similar to the impact 
on SNF providers overall. Therefore, the Secretary has determined that 
this proposed rule will not have a significant impact on the operations 
of a substantial number of small rural hospitals.
    Section 202 of UMRA also requires that agencies assess anticipated 
costs and benefits before issuing any rule whose mandates require 
spending in any 1 year of $100 million in 1995 dollars, updated 
annually for inflation. In 2009, that threshold is approximately

[[Page 22252]]

$133 million. This proposed rule would not impose spending costs on 
State, local, or tribal governments in the aggregate, or by the private 
sector, of $133 million.
    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 proposed rule would have no substantial direct effect on 
State and local governments, preempt State law, or otherwise have 
Federalism implications.

B. Anticipated Effects

    This proposed rule sets forth proposed updates of the SNF PPS rates 
contained in the final rule for FY 2009 (73 FR 46416, August 8, 2008) 
and the associated correction notice (73 FR 56998, October 1, 2008). 
Based on the above, we estimate the FY 2010 impact would be a net 
decrease of $390 million on payments to SNFs (this reflects a $1.05 
billion reduction from the recalibration of the case-mix adjustment, 
offset by a $660 million increase from the update to the payment 
rates). The impact analysis of this proposed rule represents the 
projected effects of the changes in the SNF PPS from FY 2009 to FY 
2010. We assess the effects by estimating payments while holding all 
other payment-related variables constant. Although the best data 
available is utilized, there is no attempt to predict behavioral 
responses to these changes, or to make adjustments for future changes 
in such variables as days or case-mix. In addition, we provide an 
impact analysis projecting the changes for FY 2011 due to the 
introduction of the RUG-IV model. Final impact estimates for FY 2011 
will be published prior to August 1, 2010.
    Certain events may occur to limit the scope or accuracy of our 
impact analysis, as this analysis is future-oriented and, thus, very 
susceptible to forecasting errors due to certain events that may occur 
within the assessed impact time period. Some examples of possible 
events may include 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 previously enacted legislation, or new statutory provisions. 
Although these changes may not be specific to the SNF PPS, the nature 
of the Medicare program is that the changes may interact and, thus, 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, we update the 
payment rates for FY 2009 by a factor equal to the full market basket 
index percentage increase plus the FY 2008 forecast error adjustment to 
determine the payment rates for FY 2010. The special AIDS add-on 
established by section 511 of the MMA remains in effect until ``* * * 
such date as the Secretary certifies that there is an appropriate 
adjustment in the case mix * * *.'' We have not provided a separate 
impact analysis for the MMA provision. Our latest estimates indicate 
that there are slightly more than 2,700 beneficiaries who qualify for 
the AIDS add-on payment. The impact to Medicare is included in the 
``total'' column of Table 17a. In proposing to update the rates for FY 
2010, we made a number of standard annual revisions and clarifications 
mentioned elsewhere in this proposed rule (for example, the update to 
the wage and market basket indexes used for adjusting the Federal 
rates). These revisions would increase payments to SNFs by 
approximately $660 million.
    We estimate the net decrease in payments associated with this 
proposed rule to be $390 million for FY 2010. The decrease of $1.05 
billion due to the recalibration of the case-mix adjustment, together 
with the market basket increase of $660 million, results in a net 
decrease of $390 million.
    The FY 2010 impacts appear in Table 17a. 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 urban and rural 
designations are based on the location of the facility under the CBSA 
designation. The next twenty-two rows show the effects on urban versus 
rural status by census region.
    The second column in the table shows the number of facilities in 
the impact database.
    The third column of the table shows the effect of the annual update 
to the wage index. This represents the effect of using the most recent 
wage data available. The total impact of this change is zero percent; 
however, there are distributional effects of the change.
    The fourth column shows the effect of recalibrating the case-mix 
adjustment to the nursing CMIs. As explained previously in section 
II.B.2 of this proposed rule, we are proposing this recalibration so 
that the CMIs more accurately reflect parity in expenditures under the 
refined, 53-group RUG system introduced in 2006 relative to payments 
made under the original, 44-group RUG system, and in order to keep the 
NTA component at the appropriate level specified in the FY 2006 SNF PPS 
final rule. The total impact of this change is a decrease of 3.3 
percent. We note that some individual providers may experience larger 
decreases in payments than others due to case-mix utilization.
    The fifth column shows the effect of all of the changes on the FY 
2010 payments. The market basket increase of 2.1 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 decrease by 1.2 percent, assuming facilities do not change their 
care delivery and billing practices in response.
    As can be seen from Table 17a, the combined effects of all of the 
changes vary by specific types of providers and by location. For 
example, though nearly all facilities would experience payment 
decreases, providers in the rural Mountain region would show no change 
in FY 2010 total payments. Of those facilities showing decreases, 
facilities in the urban New England and urban Mountain areas of the 
country show the smallest decreases.

                             Table 17a--Projected Impact to the SNF PPS for FY 2010
----------------------------------------------------------------------------------------------------------------
                                                                                                       Total FY
                                                               Number of   Update wage    Revised    2010 change
                                                               facilities    data (in     CMIs (in       (in
                                                                             percent)     percent)     percent)
----------------------------------------------------------------------------------------------------------------
Total.......................................................       15,307          0.0         -3.3         -1.2

[[Page 22253]]

 
Urban.......................................................       10,586          0.0         -3.3         -1.3
Rural.......................................................        4,721         -0.2         -3.1         -1.3
Hospital based urban........................................        1,675         -0.1         -3.4         -1.5
Freestanding urban..........................................        8,911          0.1         -3.3         -1.2
Hospital based rural........................................        1,065         -0.2         -3.3         -1.5
Freestanding rural..........................................        3,656         -0.2         -3.1         -1.3
----------------------------------------------------------------------------------------------------------------
Urban by region
----------------------------------------------------------------------------------------------------------------
New England.................................................          832          0.8         -3.4         -0.6
Middle Atlantic.............................................        1,489         -0.2         -3.5         -1.6
South Atlantic..............................................        1,742          0.0         -3.2         -1.2
East North Central..........................................        2,024         -0.1         -3.2         -1.3
East South Central..........................................          539         -0.4         -3.3         -1.6
West North Central..........................................          874          0.3         -3.3         -1.0
West South Central..........................................        1,200         -0.3         -3.2         -1.5
Mountain....................................................          478          0.8         -3.2         -0.4
Pacific.....................................................        1,402          0.3         -3.3         -1.0
Outlying....................................................            6         -0.1         -3.6         -1.6
----------------------------------------------------------------------------------------------------------------
Rural by region
----------------------------------------------------------------------------------------------------------------
New England.................................................          148         -0.6         -3.1         -1.7
Middle Atlantic.............................................          254          0.1         -3.3         -1.2
South Atlantic..............................................          593          0.0         -3.1         -1.1
East North Central..........................................          930         -0.5         -3.1         -1.6
East South Central..........................................          533         -0.1         -3.1         -1.2
West North Central..........................................        1,092         -0.4         -3.3         -1.6
West South Central..........................................          788         -0.4         -3.1         -1.4
Mountain....................................................          247          1.2         -3.2          0.0
Pacific.....................................................          134         -0.6         -3.2         -1.7
Outlying....................................................            2          1.1         -3.9         -0.8
----------------------------------------------------------------------------------------------------------------
Ownership
----------------------------------------------------------------------------------------------------------------
Government..................................................          652         -0.2         -3.5         -1.6
Proprietary.................................................       11,302          0.0         -3.2         -1.2
Voluntary...................................................        3,353          0.1         -3.4        -1.2
----------------------------------------------------------------------------------------------------------------
Note: The Total column includes the 2.1 percent market basket increase.

    Table 17b shows the estimated effects for the FY 2011 
distributional changes due to the proposed RUG-IV classification 
system. Though the aggregate impact shows no change in total payments, 
it is estimated that some facilities will experience payment increases 
while others experience payment decreases due to the Medicare 
utilization under RUG-IV. For example, providers in the urban New 
England and urban Middle Atlantic regions show increases of 1.1 
percent, while providers in the rural East North Central region show a 
decrease of 1.5 percent.

            Table 17b--Projected Impact of RUG-IV for FY 2011
------------------------------------------------------------------------
                                                                 RUG-IV
                                 Number of        Number of       (in
                              facilities[ast]   patient days    percent)
------------------------------------------------------------------------
Total.......................           16,843      59,523,036        0.0
Urban.......................           11,729      47,630,775        0.2
Rural.......................            5,114      11,892,261       -0.8
Hospital based urban........              727       2,243,054       -2.2
Freestanding urban..........           11,002      45,387,721        0.3
Hospital based rural........              494         845,940       -1.8
Freestanding rural..........            4,621      11,046,321       -0.8
------------------------------------------------------------------------
Urban by region
------------------------------------------------------------------------
New England.................              983       3,895,369        1.1
Middle Atlantic.............            1,664       8,339,240        1.1
South Atlantic..............            1,937       9,750,052       -0.7
East North Central..........            2,257       9,700,520       -0.2
East South Central..........              569       2,456,007        0.9

[[Page 22254]]

 
West North Central..........              918       2,415,515        0.1
West South Central..........            1,262       4,375,056        0.6
Mountain....................              517       1,679,027       -0.3
Pacific.....................            1,613       5,014,016        0.2
Outlying....................                9           5,973        2.4
------------------------------------------------------------------------
Rural by region
------------------------------------------------------------------------
New England.................              139         352,592       -1.1
Middle Atlantic.............              276         871,871        0.6
South Atlantic..............              647       2,183,169       -1.0
East North Central..........            1,035       2,596,977       -1.5
East South Central..........              540       1,869,616       -0.3
West North Central..........            1,231       1,613,386       -0.6
West South Central..........              826       1,607,408       -1.0
Mountain....................              271         439,366       -1.2
Pacific.....................              149         357,405       -1.3
Outlying....................                1             471       -0.3
------------------------------------------------------------------------
Ownership
------------------------------------------------------------------------
Government..................              796       1,814,977        1.1
Proprietary.................           11,501      43,889,723       -0.1
Voluntary...................            4,546      13,818,336       0.0
------------------------------------------------------------------------
Note: The wage index column is not included for FY 2011 since the FY
  2011 wage index is unknown. In addition, the Total column is not
  included for FY 2011 since the market basket is unknown.
[ast] The number of facilities for this analysis relies on STRIVE data
  with sample weights applied. Therefore, the number of facilities
  presented here differs from those presented in Table 17a.

    Another effect of the introduction of the RUG-IV model is a re-
distribution of dollars between payment groups that focus on 
rehabilitation in contrast to those focused primarily on nursing 
services. In order to further understand the changes to specific 
provider types and case-mix, we evaluated the individual effect on the 
nursing and therapy portion of total payments. Table 18 shows the 
nursing and therapy percentage change as a portion of total payments by 
comparing the nursing and therapy rate components using the RUG-III 
CMIs and RUG-IV CMIs. As shown in Table 18, although hospital-based 
facilities do not show as large an increase in the nursing portion of 
total payments, they also do not show as large a decrease in the 
therapy portion of their payments. We expect that facilities providing 
more intensive nursing services will show increases in payments under 
the proposed RUG-IV model.

   Table 18--Percentage Change in Payment for the Nursing and Therapy
                               Components
------------------------------------------------------------------------
                                                        Urban     Rural
                   Rate component                        (in       (in
                                                      percent)  percent)
------------------------------------------------------------------------
Nursing CMIs--Freestanding..........................      18.2      17.4
Nursing CMIs--Hospital-Based........................       8.5       9.3
Therapy CMIs--Freestanding..........................     -38.4     -38.0
Therapy CMIs--Hospital-Based........................     -20.4     -20.4
------------------------------------------------------------------------

    We further note that while this analysis is focused primarily on 
the anticipated impact to the Medicare program, we understand that 
States are also concerned about potential systems needs to address the 
transition to the MDS 3.0 and the RUG-IV case-mix system. Although our 
systems analysis showed that the transition to a national CMS data 
collection system would retain all existing functionality, we have been 
working closely with the State Agencies (SAs) to verify that the 
transition will be as seamless as possible. Starting in the Fall of 
2008, we initiated monthly conference calls between CMS staff and 
representatives from the State Survey and Medicaid agencies to make 
sure that we have taken all State systems needs into account, and to 
develop strategies to support the SAs. Our progress has been hampered 
by three factors. First, many States have developed MDS-based 
applications to support a variety of State functions beyond the typical 
survey and payment operations. We are developing a comprehensive list 
of all affected State functions currently using the MDS so we can 
develop ways for the States to access the data once we adopt the MDS 
3.0 format. Second, most States have customized their Medicaid payment 
systems, which means that potential CMS data solutions cannot utilize a 
``one size fits all'' approach.
    The third issue is that the majority of the States have not yet 
reached a final decision on the payment system changes they will 
implement in October 2010. Some States will maintain their existing 
RUG-III payment systems and will simply need support to convert MDS 3.0 
data into an MDS 2.0 format to continue calculating their Medicaid 
payments. Other States are considering adopting all or part of the RUG-
IV model, and will need more extensive support. During the next two 
months, we will follow up individually with each State to identify the 
transition scenarios applicable to the different States. At that point, 
we will develop a comprehensive transition plan that will include an 
analysis of the systems costs

[[Page 22255]]

likely to be incurred under each transition approach; i.e., maintaining 
a standard RUG-III payment structure, maintaining a customized RUG-III 
structure, and adopting all or part of RUG-IV. We anticipate that we 
will be able to calculate more specific cost estimates for the final 
rule and we urge States to comment on this rule as well as to continue 
to participate in the outreach efforts described above.
    For those States that will maintain their existing RUG-III-based 
payment models, we have already started work on support systems that 
will allow States to convert or crosswalk the MDS 3.0 data to the 
current MDS 2.0 structure. The data specifications for these crosswalks 
are expected to be released by October 2010. We plan to work closely 
with the States to ensure a smooth transition.
    State Medicaid agencies are not required to adopt the RUG-IV model 
and will only do so after careful consideration of the cost and benefit 
of such a change on an individual State-by-State basis. For those 
States choosing to adopt the RUG-IV model, CMS provides detailed 
program specifications free of charge, which will mitigate State 
program design costs associated with converting from RUG-III to RUG-IV. 
We intend to continue to work closely with State Medicaid agencies 
during the next year to assist them in evaluating the RUG-IV model for 
Medicaid use.
    Accordingly, we are continuing to examine the implications of this 
transition and invite comments on those implications, in terms of the 
associated costs as well as possible ways to assist the States.

C. Alternatives Considered

    We have determined that this proposed rule is an economically 
significant rule under Executive Order 12866. As described above, we 
estimate the FY 2010 impact will be a net decrease of $390 million in 
payments to SNFs, resulting from a $660 million increase from the 
update to the payment rates and a $1.05 billion reduction from the 
recalibration of the case-mix adjustment. In view of the potential 
economic impact, we considered the alternatives described below.
    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 SNF PPS payment 
rates must be from FY 1995 (October 1, 1994, through September 30, 
1995). In accordance with the statute, we also incorporated a number of 
elements into the SNF PPS (for example, 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). Furthermore, section 1888(e)(4)(H) of 
the Act specifically requires us to disseminate the payment rates for 
each new FY through the Federal Register, and to do so before the 
August 1 that precedes the start of the new FY. Accordingly, we are not 
pursuing alternatives with respect to the payment methodology as 
discussed above. However, in view of the potential economic impact on 
small entities, we have voluntarily considered alternative approaches 
to the recalibration of the case-mix adjustments.
    Using our authority to establish an appropriate adjustment for case 
mix under section 1888(e)(4)(G)(i) of the Act, this proposed rule would 
recalibrate the adjustment to the nursing case-mix indexes based on 
actual CY 2006 data instead of FY 2001 data. In the SNF PPS final rule 
for FY 2006 (70 FR 45031, August 4, 2005), we committed to monitoring 
the accuracy and effectiveness of the case-mix indexes used in the 53-
group model. We believe that using the CY 2006 actual claims data to 
perform the recalibration analysis results in case-mix weights that 
reflect the resources used, produces more accurate payment, and 
represents an appropriate case-mix adjustment. Using the CY 2006 data 
is consistent with our intent to make the change from the 44-group RUG 
model to the refined 53-group model in a budget-neutral manner, as 
described in section II.B.2 and in the SNF PPS final rule for FY 2006 
(70 FR 45031, August 4, 2005).
    We investigated using alternative time periods in calculating the 
case-mix adjustments. One possibility was to use CY 2005 rather than CY 
2006 data. However, using CY 2005 data still requires us to use a 
projection of the distributional shift to the nine new groups in the 
RUG-53 group model. We also looked at a second alternative, which 
involved comparing quarterly data periods directly before and after 
implementation of the RUG-53 model; for example, October through 
December 2005 for the RUG-44 model and January through March 2006 for 
the RUG-53 model. This approach uses a combination of projected and 
actual data for only a 6-month time period. However, we believe that 
using actual utilization data for the entire CY 2006 is more accurate, 
as actual case mix during the calibration year is the basis for 
computing the case-mix adjustment. Accordingly, we have determined that 
performing the recalibration using the CY 2006 data is the most 
appropriate methodology.
    We considered various options for implementing the recalibrated 
case-mix adjustment. For example, we considered implementing partial 
adjustments to the case-mix indexes over multiple years until parity 
was achieved. However, we believe that these options would continue to 
reimburse in amounts that significantly exceed our intended policy. 
Moreover, as we move forward with programs designed to enhance and 
restructure our post-acute care payment systems, we believe that 
payments under the SNF PPS should be established at their intended and 
most appropriate levels. Stabilizing the baseline is a necessary first 
step toward implementing the RUG-IV classification methodology. As 
discussed in section III.B. of this proposed rule, RUG-IV will more 
accurately identify differences in patient acuity and will more closely 
tie reimbursement to the relative cost of goods and services needed to 
provide high quality care.
    We believe the introduction of the RUG-IV classification system 
better targets payments for beneficiaries with greater care needs, 
improving the accuracy of Medicare payment. In addition, RUG-IV changes 
such as eliminating the ``look-back'' period for preadmission services 
correct for existing vulnerabilities in the RUG-53 system. Therefore, 
we believe it would be prudent to move to RUG-IV as quickly as 
possible. Though we considered implementing the RUG-IV model for FY 
2010, we are proposing to implement the system for FY 2011. Many of the 
refinements of the RUG-IV model are integrated into the MDS 3.0 
resident assessment instrument. The transition to both the MDS 3.0 and 
the RUG-IV case-mix system requires careful planning, as it will affect 
multiple Medicare and Medicaid quality monitoring and production 
systems, including Medicaid PPS systems used by more than half the 
State agencies. In addition, State agencies, providers, and software 
vendors would benefit by receiving adequate time to prepare for a 
smooth transition. Therefore, we propose to implement RUG-IV for FY 
2011.

D. Accounting Statement

    As required by OMB Circular A-4 (available at www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 19

[[Page 22256]]

below, we have prepared an accounting statement showing the 
classification of the expenditures associated with the provisions of 
this proposed rule. This table provides our best estimate of the change 
in Medicare payments under the SNF PPS as a result of the policies in 
this proposed rule based on the data for 15,307 SNFs in our database. 
All expenditures are classified as transfers from Medicare providers 
(that is, SNFs).

       Table 19--Accounting Statement: Classification of Estimated
   Expenditures, From the 2009 SNF PPS Fiscal Year to the 2010 SNF PPS
                               Fiscal Year
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  -$390 million*
From Whom To Whom?                          Federal Government to SNF
                                             Medicare Providers.
------------------------------------------------------------------------
* The net decrease of $390 million in transfer payments is a result of
  the decrease of $1.05 billion due to the proposed recalibration of the
  case-mix adjustment, together with the proposed market basket increase
  of $660 million.

E. Conclusion

    Overall estimated payments for SNFs in FY 2010 are projected to 
decrease by $390 million, or 1.2 percent, compared with those in FY 
2009. We estimate that SNFs in urban areas would experience a 1.3 
percent decrease in estimated payments compared with FY 2009. We 
estimate that SNFs in rural areas would also experience a 1.3 percent 
decrease in estimated payments compared with FY 2009. Providers in the 
rural Pacific region and the rural New England region would both show 
decreases in payments of 1.7 percent.
    Though the FY 2011 aggregate impact due to the introduction of the 
RUG-IV model shows no change in payments, there are distributional 
effects for providers due to Medicare utilization. These effects range 
from a decrease of 2.2 percent for hospital-based urban facilities to 
an increase of 2.4 percent for urban Outlying facilities. 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 483

    Grants programs-health, Health facilities, Health professions, 
Health records, Medicaid, Medicare, Nursing homes, Nutrition, Reporting 
and recordkeeping requirements, Safety.
    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth 
below:

PART 483--REQUIREMENTS FOR STATES AND LONG TERM CARE FACILITIES

    1. The authority citation for part 483 continues to read as 
follows:

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

Subpart B--Requirements for Long Term Care Facilities

    2. Amend Sec.  483.20 by--
    A. Republishing paragraph (b)(1) introductory text.
    B. Revising paragraph (b)(1)(xvii).
    C. Revising paragraph (f)(2).
    D. Revising paragraph (f)(3) heading and the introductory text.
    The revisions read as follows:


Sec.  483.20  Resident assessment.

* * * * *
    (b) Comprehensive assessment--(1) Resident assessment instrument. A 
facility must make a comprehensive assessment of a resident's needs, 
using the resident assessment instrument (RAI) specified by the State. 
The assessment must include at least the following:
* * * * *
    (xvii) Documentation of summary information regarding the 
additional assessment performed on the care areas triggered by the 
completion of the Minimum Data Set (MDS).
* * * * *
    (f) * * *
    (2) Transmitting data. Within 7 days after a facility completes a 
resident's assessment, a facility must be capable of transmitting to 
the CMS System information for each resident contained in the MDS in a 
format that conforms to standard record layouts and data dictionaries, 
and that passes standardized edits defined by CMS and the State.
    (3) Transmittal requirements. Within 14 days after a facility 
completes a resident's assessments, a facility must electronically 
transmit encoded, accurate, complete MDS data to the CMS System, 
including the following:
* * * * *
    3. Amend Sec.  483.75 by revising the heading of paragraph (j) to 
read as follows:


Sec.  483.75  Administration.

* * * * *
    (j) Laboratory services. * * *
* * * * *

Subpart F--Requirements That Must be Met by States and State 
Agencies, Resident Assessment

    4. Amend Sec.  483.315 by--
    A. Revising paragraph (d)(2).
    B. Revising paragraph (e).
    C. Removing and reserving paragraph (f).
    D. Revising paragraph (h).
    E. Revising paragraph (i) heading and the introductory text.
    F. Revising paragraph (i)(2).
    The revisions read as follows:


Sec.  483.315  Specification of resident assessment instrument.

    (d) * * *
    (2) Care area triggers (CATs) that are necessary to accurately 
assess residents, established by CMS.
* * * * *
    (e) Minimum data set (MDS). The MDS includes assessment in the 
areas specified in Sec.  483.20(b)(i) through (xviii) of this chapter, 
and as defined in the RAI manual published in the State Operations 
Manual issued by CMS (CMS Pub. 100-07).
* * * * *
    (h) State MDS system and data base requirements. As part of 
facility survey responsibilities, the State must:
    (1) Support and maintain the CMS State system and database.
    (2) Specify to a facility the method of transmission of data, and 
instruct the facility on this method.
    (3) Upon receipt of facility data from CMS, ensure that a facility 
resolves all errors.
    (4) Analyze data and generate reports, as specified by CMS.
    (i) State identification of agency that receives RAI data. The 
State must identify the component agency that receives RAI data, and 
ensure that this agency restricts access to the data except for the 
following:
* * * * *
    (2) Transmission of reports to CMS.
* * * * *

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

    Dated: April 16, 2009.
Charlene Frizzera,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: April 30, 2009.
Kathleen Sebelius,
Secretary.
[Note: The following Addendum will not appear in the Code of Federal 
Regulations]

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Addendum--FY 2010 CBSA Wage Index Tables

    In this addendum, we provide the wage index tables referred to in 
the preamble to this proposed rule. Tables A and B display the CBSA-
based wage index values for urban and rural providers.

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[FR Doc. E9-10461 Filed 5-1-09; 4:15 pm]
BILLING CODE 4120-01-P