[Federal Register Volume 74, Number 153 (Tuesday, August 11, 2009)]
[Rules and Regulations]
[Pages 40288-40395]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-18662]



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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; 
Final Rule

  Federal Register / Vol. 74, No. 153 / Tuesday, August 11, 2009 / 
Rules and Regulations  

[[Page 40288]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 483

[CMS-1410-F]
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: Final rule.

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SUMMARY: This final rule updates the payment rates used under the 
prospective payment system (PPS) for skilled nursing facilities (SNFs), 
for fiscal year (FY) 2010. In addition, it recalibrates 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, as well as a new Resource Utilization 
Groups, version 4 case-mix classification model for FY 2011 that will 
use the updated Minimum Data Set 3.0 resident assessment for case-mix 
classification. In addition, this final rule discusses the public 
comments that we have received on these and other issues, including a 
possible requirement for the quarterly reporting of nursing home 
staffing data, as well as on applying the quality monitoring mechanism 
in place for all other SNF PPS facilities to rural swing-bed hospitals. 
Finally, this final rule revises the regulations to incorporate certain 
technical corrections.

DATES: Effective Date: This final rule becomes effective on October 1, 
2009.

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: 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. Summary of the Provisions of the FY 2010 Proposed Rule
III. Analysis of and Responses to Public Comments on the FY 2010 
Proposed Rule
    A. General Comments on the FY 2010 Proposed Rule
    B. Annual Update of Payment Rates Under the Prospective Payment 
System for Skilled Nursing Facilities
    1. Federal Prospective Payment System
    a. Costs and Services Covered by the Federal Rates
    b. Methodology Used for the Calculation of the Federal Rates
    2. Case-Mix Adjustments
    a. Background
    b. Development of the Case-Mix Indexes
    3. Wage Index Adjustment to Federal Rates
    4. Updates to Federal Rates
    5. Relationship of RUG-III Classification System to Existing 
Skilled Nursing Facility Level-of-Care Criteria
    6. Example of Computation of Adjusted PPS Rates and SNF Payment
    C. Resource Utilization Groups, Version 4 (RUG-IV)
    1. Staff Time and Resource Intensity Verification (STRIVE) 
Project
    a. Data Collection
    b. Developing the Analytical Database
    i. Concurrent Therapy
    ii. Adjustments to STRIVE Therapy Minutes
    iii. ADL Adjustments
    iv. ``Look-Back'' Period
    v. Organizing the Nursing and Therapy Minutes
    vi. Data Dissemination
    2. The RUG-IV Classification System
    3. Development of the FY 2011 Case-Mix Indexes
    4. Relationship of RUG-IV Classification System to Existing 
Skilled Nursing Facility Level-of-Care Criteria
    5. Prospective Payment for SNF Nontherapy Ancillary Costs
    D. Minimum Data Set, Version 3.0 (MDS 3.0)
    1. Description of the MDS 3.0
    2. MDS Elements, Common Definitions, and Resident Assessment 
Protocols (RAPs) Used Under the MDS
    3. Data Submission Requirements Under the MDS 3.0
    4. Proposed Change to Section T of the Resident Assessment 
Instrument (RAI) Under the MDS 3.0
    E. Other Issues
    1. Invitation of Comments on Possible Quarterly Reporting of 
Nursing Home Staffing Data
    2. Miscellaneous Technical Corrections and Clarifications
    F. The Skilled Nursing Facility Market Basket Index
    1. Use of the Skilled Nursing Facility Market Basket Percentage
    2. Market Basket Forecast Error Adjustment
    3. Federal Rate Update Factor
    G. Consolidated Billing
    H. Application of the SNF PPS to SNF Services Furnished by 
Swing-Bed Hospitals; Quality Monitoring of Swing-Bed Hospitals
IV. Provisions of the Final Rule
V. Collection of Information Requirements
VI. 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 final 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, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999, Public Law 106-113
BIMS Brief Interview for Mental Status
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000, Public Law 106-554
CAA Care Area Assessment
CAH Critical Access Hospital

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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, Public Law 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 Agency
HIPPS Health Insurance Prospective Payment System
HIT Health Information Technology
HIV Human Immunodeficiency Virus
IFC Interim Final Rule with Comment Period
IPPS Hospital Inpatient Prospective Payment System
IRF Inpatient Rehabilitation Facility
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, 
Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public 
Law 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
RAND RAND Corporation
RAP Resident Assessment Protocol
RAVEN Resident Assessment Validation Entry
RFA Regulatory Flexibility Act, Public Law 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, Public Law 104-4

I. Background

    On May 12, 2009, we published a proposed rule (74 FR 22208) in the 
Federal Register (hereafter referred to as the FY 2010 proposed rule), 
setting forth updates to the payment rates used under the prospective 
payment system (PPS) for skilled nursing facilities (SNFs), for fiscal 
year (FY) 2010. Annual updates to the PPS rates for 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 on 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 annual update occurred in a final rule (73 FR 
46416, August 8, 2008) that set forth updates to the SNF PPS payment 
rates for 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 final rule, we are updating 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 final 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 3 (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

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in the RUG-III classification structure (see section III.B.5 of this 
final rule for a discussion of the relationship between the current 
case-mix classification system and SNF level of care determinations, 
and section III.C.4 for a discussion of this process in the context of 
the upcoming 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 III.G of this 
final 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 III.H of this final 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 discussed later in this preamble, this 
final 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 final 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 greater detail in section III.G of this final 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 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 http://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 http://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.
     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 final 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 http://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)

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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 $252.95 (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 $576.73. A further discussion of the AIDS add-on in the 
context of research conducted during the recent STRIVE study appears in 
section III.C.5 of this final 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), as discussed in section 
III.G of this final 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 SNF 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. As discussed previously in 
section I.A of this final rule, the data used in developing the Federal 
rates also incorporated a ``Part B add-on,'' an estimate of the amounts 
that would be payable under Part B in the base year for covered SNF 
services furnished to individuals during the course of a covered Part A 
SNF stay.
    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 final 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 sections I.F.2 and III.F of this final 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 FY 2010 market basket increase is 2.2 percent, which is based on 
IHS Global Insight, Inc. second quarter 2009 forecast with historical 
data through the first quarter 2009.
    In addition, as explained in the final rule for FY 2004 (66 FR 
46058, August 4, 2003) and in section III.F.2 of this final 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

[[Page 40292]]

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 2008       Actual FY 2008       FY 2008 difference
                   Index                           increase *            increase **                ***
----------------------------------------------------------------------------------------------------------------
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 second 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. Summary of the Provisions of the FY 2010 Proposed Rule

    In the FY 2010 proposed rule (74 FR 22208), we proposed to update 
the payment rates used under the SNF PPS for FY 2010. We also proposed 
to 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. We also discussed the results of our 
ongoing analysis of nursing home staff time measurement (STM) data 
collected in the Staff Time and Resource Intensity Verification 
(STRIVE) project, and proposed a new RUG-IV case-mix classification 
model that would use the updated Minimum Data Set (MDS) 3.0 resident 
assessment for case-mix classification effective FY 2011. In addition, 
we requested public comment on a possible requirement for the quarterly 
reporting of nursing home staffing data, and also on applying the 
quality monitoring mechanism in place for all other SNF PPS facilities 
to rural swing-bed hospitals. Finally, we proposed to revise the 
regulations to incorporate certain technical corrections.

III. Analysis and Response to Public Comments on the FY 2010 Proposed 
Rule

    In response to the publication of the FY 2010 proposed rule, we 
received over 112 timely items of correspondence from the public. The 
comments originated primarily from various trade associations and major 
organizations, but also from individual providers, corporations, 
government agencies, and private citizens.
    Brief summaries of each proposed provision, a summary of the public 
comments that we received, and our responses to the comments appear 
below.

A. General Comments on the FY 2010 Proposed Rule

    In addition to the comments that we received on the proposed rule's 
discussion of specific aspects of the SNF PPS (which we address later 
in this final rule), commenters also submitted the following, more 
general observations on the payment system.
    Comment: Some commenters noted that while the proposed rule's SNF 
PPS rate updates would be effective for FY 2010, its proposed 
conversion of the Resource Utilization Groups (RUGs) from version 3 
(RUG-III) to version 4 (RUG-IV) would not take effect until FY 2011. 
The commenters argued that it is unprecedented to publish such a 
proposal so far in advance of its anticipated effective date, and that 
the 60-day public comment period would not afford sufficient time to 
analyze and comment meaningfully on it. The commenters then suggested 
that we withdraw the current RUG conversion proposal and reissue it at 
a later date with a ``more reasonable'' comment period.
    Response: While it is true that the RUG conversion proposal would 
not become effective until FY 2011, our decision to include a 
discussion of it in the FY 2010 proposed rule and to propose to 
finalize it well in advance of its actual implementation date 
represents a response to specific requests from the nursing home 
industry for us to provide as much advance notification as possible of 
the nature of the proposed RUG-IV revisions, and to provide adequate 
time for system updates and training necessary to implement any 
proposed changes that are finalized. Thus, rather than arbitrarily 
deferring our discussion of this proposal until the FY 2011 rulemaking 
cycle (which, in any event, would have provided for exactly the same 
60-day duration for the public comment period), we decided to include 
the discussion in the current proposed rule, in order to ensure that 
providers, States, and other stakeholders and interested parties would 
have the maximum time available to familiarize themselves with the 
broad outlines of the new model and to prepare for its implementation. 
Moreover, even after the close of the FY 2010 proposed rule's public 
comment period, we fully intend to continue our analysis of the 
proposed changes that are finalized in this rule, in order to consider 
the most current data as it becomes available. As an essential part of 
this ongoing analysis, we will, of course, also continue to welcome 
input from the various stakeholders and interested parties as we move 
closer to actual implementation.
    Comment: We received comments similar to those discussed previously 
in the August 3, 2007 SNF PPS final rule for FY 2008 (72 FR 43415 
through 43416) regarding the need to address certain perceived 
inadequacies in payment for non-therapy ancillary (NTA) services, 
including those services relating to the provision of ventilator care 
in SNFs. We also received comments recommending that we continue to 
monitor ongoing research, and that we consider alternative case-mix 
methodologies such as the recent MedPAC proposal that appears on the 
MedPAC Web site (see http://www.MedPAC.gov).
    Response: As we noted in the proposed rule for FY 2010, we are 
conducting the analyses preparatory to developing a separate 
classification method for NTAs. For these analyses, we are using data 
developed through STRIVE, as well as alternative models such as the 
conceptual design released first by the Urban Institute and then by 
MedPAC. However, as noted in our December 2006 Report to Congress 
(available online at http://

[[Page 40293]]

www.cms.hhs.gov/SNFPPS/Downloads/RC_2006_PC-PPSSNF.pdf), our analysis 
of NTA utilization has been hindered by a lack of data. Almost all 
other Medicare institutional providers submit more detailed billing 
than SNFs on the ancillary services furnished during a Medicare-covered 
stay. SNFs may currently submit summary data that shows total dollar 
amounts for each ancillary service category, such as radiology and 
pharmacy, but are not required to submit more detailed data on drugs 
and biologicals, the most costly NTA expense category. As we examine 
the NTA analyses discussed in detail in the FY 2010 proposed rule, we 
will re-evaluate whether our current data requirements are sufficient 
to move forward with additional program enhancements. We will also 
consider whether collecting more detailed claims information on a 
regular basis will allow us to establish more accurate payment rates 
for NTA services.
    We also believe it is important to monitor ongoing research 
activities, and work with all stakeholders, including MedPAC, to 
identify opportunities for future program enhancements. At the same 
time, we note that the SNF PPS reimbursement structure will be 
completely examined as part of the Post Acute Care Payment Reform 
Demonstration (PAC-PRD) project. Under this major CMS initiative, we 
intend to analyze the costs and outcomes across all post-acute care 
providers, and the data collected in this demonstration will enable us 
to evaluate the possibility of establishing an integrated payment model 
centered on beneficiary needs and service utilization (including the 
use of non-therapy ancillaries) across settings. In considering future 
changes to the SNF PPS, it will be important to evaluate how shorter 
term enhancements contribute to our integrated post acute care 
strategy.
    A discussion of the public comments that we received on the STRIVE 
project itself appears in section III.C.1 of this final rule.

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

1. Federal Prospective Payment System
    This final rule sets forth a schedule of Federal prospective 
payment rates applicable to Medicare Part A SNF services beginning 
October 1, 2010. 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.
a. 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)).
b. Methodology Used for the Calculation of the Federal Rates
    The FY 2010 rates reflect an update using the full amount of the 
latest market basket index. The FY 2010 market basket increase factor 
is 2.2 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 
(and discussed previously in section I.E of this final rule), 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.....................           $155.23            $116.93             $15.40             $79.22
----------------------------------------------------------------------------------------------------------------


                             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.....................           $148.31            $134.83             $16.45             $80.69
----------------------------------------------------------------------------------------------------------------

2. Case-Mix Adjustments
a. 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

[[Page 40294]]

RUG-III case-mix classification system, which tied the amount of 
payment to resident resource use in combination with resident 
characteristic information. The 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 final 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 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 III.B.2.b of this final 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 STM 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.C.1, we have recently completed a multi-year data 
collection and analysis under the STRIVE project to update the RUG-III 
case-mix classification system for FY 2011. As discussed later in this 
preamble, we are introducing 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 plan 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, the MDS 3.0, and the stakeholder comments in greater 
detail in sections III.C and III.D, 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 final rule, 
the FY 2010 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.
b. Development of the Case-Mix Indexes
    In the FY 2010 proposed rule (74 FR 22208, 22214, May 12, 2009), we 
discussed the incremental refinements to the case-mix classification 
system that we introduced effective January 1, 2006. We also discussed 
the accompanying adjustment that was intended to ensure that estimated 
total payments under the refined 53-group model would be equal to those 
payments that would have been made under the 44-group model that it 
replaced. We then explained that actual utilization patterns under the 
refined case-mix system differed significantly from the initial 
projections, and as a consequence, rather than simply achieving parity, 
this adjustment inadvertently triggered a significant increase in 
overall payment levels under the refined model, representing 
substantial overpayments to SNFs. Accordingly, the FY 2010 proposed 
rule included a proposal to recalibrate the parity adjustment in order 
to restore the intended parity to the 2006 case-mix refinements on a 
prospective basis. The comments that we received on this proposal, and 
our responses, appear below.
    Comment: Most commenters opposed our proposal to recalibrate the 
case-mix weights put into place for the refined RUG-53 system. Some 
commenters expressed the belief that we have overstated the amount of 
the proposed parity adjustment, by incorrectly identifying increased 
payments related to treatment of higher case-mix patients with an 
overpayment related to the use of an incorrect budget neutrality 
adjustment factor applied in January 2006. They believed that the 
recalibration proposal should be either withdrawn or significantly 
reduced to eliminate the effect of real acuity changes. One commenter 
conducted a detailed analysis of MDS clinical data that included 
changes in reported activities of daily living (ADLs), infections, 
falls, medication use, and other clinical conditions to support their 
conclusions that patient acuity has increased since the start of the 
SNF PPS and that our recalibration proposal incorrectly ignored the 
impact of these changes. Another commenter believed that the proposed 
recalibration could be more accurately calculated using either 2005 
data or a combination of 2005 and 2006 data.
    Response: We agree that, on average, the case-mix indexes for 
current SNF patients are higher than they were in 2001. In fact, our 
primary reason for implementing the STRIVE project was to identify 
changes in patient characteristics, and to adjust the RUG case-mix 
classification system to reflect the staff time and resource costs 
needed to reimburse fairly for the type of patients currently being 
treated in nursing homes. Moreover, in the STRIVE study, we collected 
2006-2007 patient and facility staff data in order to update the case-
mix classification system. As indicated in detail in the proposed rule, 
STRIVE data also show significant changes in patient characteristics 
and facility practice patterns that need to be incorporated into the 
case-mix methodology to reimburse facilities more accurately.
    However, we do not agree that changes in patient acuity levels 
skewed the results of our recalibration analysis. When we introduced 
nine new Rehabilitation Plus Extensive Care groups to create the RUG-53 
model in January 2006, we made a small, focused adjustment to the case-
mix classification of patients receiving both Extensive Care and 
Rehabilitation services. Under RUG-44, patients receiving both services 
would be classified into the highest paying group for which they 
qualified--either Extensive Care or Rehabilitation. Under RUG-53, we 
created a separate category for this subgroup of patients. As explained 
in the FY 2006 proposed rule (70 FR 29070, 29077, May 19, 2005), we 
took the nursing minutes used to create the original RUG-III system, 
and resorted the records to create three hierarchy categories 
(Rehabilitation, Extensive Care, and Rehabilitation Plus Extensive) 
from the two categories that were used

[[Page 40295]]

in the RUG-44 model. In making these changes, we did not change any 
other part of the case-mix classification model. Thus, patient clinical 
characteristics including ADL scores (used to assign a Rehabilitation 
RUG group) calculated under the RUG-53 model would be exactly the same 
as the patient characteristics, including ADL scores, calculated under 
the RUG-44 model. As we used the same 2006 data set to test for budget 
neutrality between the two models, ADLs and other components of the 
case-mix model reflected the same 2006 level of acuity.
    In addition, we believe this concern may erroneously equate the 
introduction of a new classification model with the regular SNF PPS 
annual update process. Normally, changes in case mix are accommodated 
as the classification model identifies changes in case mix and assigns 
the appropriate RUG group. Actual payments will typically vary from 
projections since case-mix changes, which occur for a variety of 
reasons, cannot be anticipated in an impact analysis.
    However, in January 2006, we did not just update the payment rates, 
but introduced a new classification model, the RUG-53 case-mix system. 
As discussed above, the purpose of this refined model was to 
redistribute payments across the 53 groups while maintaining the same 
total expenditure level that we would have incurred had we retained the 
original 44-group RUG model.
    In testing the two models, we used 2001 data because it was the 
best data we had available, and found that using the raw weights 
calculated for the RUG-53 model, we could expect aggregate payments to 
decrease as a result of introducing the refinement. To prevent this 
expected reduction in overall Medicare expenditures, we applied an 
adjustment to the RUG-53 case-mix weights as described earlier in this 
section. Later analysis using actual 2006 data showed that, rather than 
achieving budget neutrality between the two models, expenditures under 
the RUG-53 model were significantly higher than intended. For FY 2010, 
we estimate expenditures to be $1.05 billion higher than intended.
    As noted previously, we do not agree that updating our analysis 
using CY 2006 data captured payments related to increased case mix 
rather than establishing budget neutrality between the two models. 
First, by using 2006 data to estimate expenditures under both models, 
we incorporate the same case-mix changes into the estimated expenditure 
levels for RUG-44 as well as for RUG-53. Second, we believe it is 
appropriate to standardize the new model for the time period in which 
it is being introduced. The only reason we used 2001 data in the 
original calculation is that it was the best data available at the 
time. The CY 2006 data allowed us to calibrate the RUG-53 model more 
precisely for its first year of operation.
    One commenter recommended using alternative time periods in 
calculating the budget neutrality adjustment. However, while it might 
be possible to use some or all of CY 2005 rather than CY 2006 data, 
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 believe that using actual instead of projected data is the most 
appropriate approach. We also looked at a second recommended 
alternative, which involved averaging data periods directly before and 
after implementation of the RUG-53 model; 2005 for the RUG-44 model and 
2006 for the RUG-53 model. Again, we believe that using actual 
utilization data for CY 2006 is more accurate, as actual case mix 
during the calibration year is the basis for computing the case-mix 
adjustment. We have determined that using the 2006 data instead of the 
suggested alternatives is the most appropriate data to adopt.
    Comment: A few commenters stated that CMS failed to make public all 
information needed to provide sufficient explanation of the basis for 
the recalibration. The commenters indicated that the negative $1.05 
billion impact of the recalibration should be similar to that proposed 
in the 2009 proposed rule, and questioned the reasons for the change. 
Further, the commenters suggested that CMS has failed to provide the 
public with the aggregate baseline spending values that CMS used in 
making the initial FY 2006 ``parity'' adjustment and the one that is 
currently being used in the FY 2010 proposed rule.
    Response: In the FY 2009 rule, actual data were used to compare 
payments in 2006 under RUG-44 and RUG-53. At that time it was decided 
that an adjustment was necessary to recalibrate the CMIs because the 
adjustments in place since FY 2006, which were supposed to be budget 
neutral, actually resulted in a 3.3 percent overpayment to SNFs. It was 
also determined that the adjustment necessary to attain the appropriate 
3.3 percent reduction in payments was a 9.68 percent increase to the 
unadjusted RUG-53 case-mix indexes (73 FR 46422, August 8, 2008), to 
replace the 17.90 percent adjustment that was in place since 2006. To 
determine the dollar impact ($780 million) for the FY 2009 rule, the 
3.3 percent was applied to the estimated Medicare reimbursement to SNFs 
in FY 2008, which is net of beneficiary cost-sharing. For the FY 2010 
rule, the same data and methodology were used as in the FY 2009 rule, 
which determined that an overpayment of 3.3 percent has been in place 
since 2006, requiring an adjustment to the nursing case-mix indexes of 
9.68 percent (74 FR 22214, May 12, 2009) to replace the 17.90 percent 
adjustment. However, we believe that the presentation of the dollar 
impact would be more accurately reflected by applying the overpayment 
percentage to total SNF payments, including beneficiary cost-sharing 
amounts. The reason for using these higher payments to determine the 
dollar impact is because this is how the impact will play out in actual 
practice. Specifically, the revised 9.68 percent adjustment to the 
nursing CMIs is used to calculate total payments to SNFs, which reflect 
a combination of reimbursement from Medicare along with beneficiary 
cost-sharing. However, as the daily coinsurance amount for days 21-100 
in the SNF is set by law (in section 1813(a)(3) of the Act) at one-
eighth of the current calendar year's inpatient hospital deductible 
amount, the beneficiary cost-sharing is unaffected by the change in 
payments resulting from the recalibration. This point is best 
illustrated by way of an example: Total payments to SNFs in FY 2009 are 
estimated at approximately $31.3 billion, consisting of $25.9 billion 
in Medicare reimbursement and $5.4 billion in beneficiary cost-sharing.
    The impact of the recalibration lowers total payments to SNFs by 
approximately $1 billion (or 3.3 percent), to about $30.3 billion. Of 
this $30.3 billion, beneficiary cost-sharing (as determined by the 
statutory formula) remains unchanged at $5.4 billion, while Medicare 
reimbursement is reduced to $24.8 billion. Thus, although the 
determination of the total dollar impact changed, the methodology used 
to determine the need to recalibrate the CMIs did not change from FY 
2009 to FY 2010. The total payments to SNFs that are used to determine 
the dollar impacts are not explicitly published anywhere, but can be 
easily estimated by dividing the dollar impacts by the percentage 
impact. These results can be confirmed by contacting the CMS Office of 
the Actuary.
    Comment: Some commenters believed that CMS failed to provide 
sufficient information for a third party to reproduce CMS's conclusions 
with regard to the recalibrated parity

[[Page 40296]]

adjustment, noting the following specific elements: The baseline used 
for FY 2010, the CY 2006 days of service for both the RUG-44 and RUG-53 
systems, and the separate values for the recalibrated parity adjustment 
factor and the NTA cost adjustment factor for FY 2010.
    Response: We do not agree with the commenters' assertion. The 
methodology used to establish the case-mix adjustments is the same as 
that described in detail in the FY 2006 SNF PPS proposed rule (70 FR 
29077 through 29079, May 19, 2005), the FY 2009 SNF PPS proposed rule 
(73 FR 25923, May 7, 2008) and the FY 2009 SNF PPS final rule (73 FR 
46421-22, August 8, 2008). In addition, the data used to calculate the 
adjustments are publicly available on the CMS Web site, as explained 
below. We used the CY 2006 days of service (available in the Downloads 
section of our Web site at http://www.cms.hhs.gov/SNFPPS/02_Spotlight.asp) for both the RUG-44 and RUG-53 systems. We multiplied 
the CY 2006 days of service by the FY 2008 unadjusted Federal per diem 
payment rate components (72 FR 43416, August 3, 2007) multiplied by the 
unadjusted case-mix indexes (available in the Downloads section of our 
Web site at http://www.cms.hhs.gov/SNFPPS/09_RUGRefinement.asp) to 
establish expenditures under the RUG-44 and RUG-53 systems. The budget 
neutrality adjustment was determined as the percentage increase 
necessary for the nursing CMIs to generate estimated expenditure levels 
under the RUG-53 system that were equal to estimated expenditure levels 
under the RUG-44 system. We then calculated a second adjustment factor 
to increase the baseline by an amount that served to offset the 
variability in NTA utilization.
    The separate recalibrated parity adjustment factor and the NTA cost 
adjustment factor were considered in the calculation of the combined 
parity adjustment factor of 9.68 in the FY 2009 SNF PPS proposed rule 
(73 FR 25923, May 7, 2008), the FY 2009 SNF PPS final rule (73 FR 
46421-22, August 8, 2008), and the FY 2010 SNF PPS proposed rule (74 FR 
22214, May 12, 2009). We presented the total adjustment to the nursing 
case-mix indexes of 9.68 percent because this reflects all changes to 
the payment system with respect to the recalibration. The percentage 
adjustment to the nursing CMIs to maintain parity between the 44-group 
and 53-group models is a 2.43 percent increase. The adjustment to 
account for the variability in the non-therapy ancillary utilization is 
a 7.08 percent increase. The separate adjustments represent interim 
steps in the calculations, and the final result of 9.68 percent 
represents the complete change to aggregate payments.
    Although the SNF baseline is not explicitly published, the baseline 
used can be determined by dividing the dollar impacts by the percentage 
impact. Many commenters used this approach to conduct their own 
analyses. Some of the commenters contacted CMS to confirm the baseline 
in use, and this information was provided or verified.
    Comment: A few commenters believe that CMS failed to explain fully 
the evaluation done since the FY 2009 final rule to support the 
decision to proceed with the recalibration for FY 2010.
    Response: The analytic methodology and calculations were explained 
in detail in the FY 2009 proposed and final rules. In the final rule, 
we explained that we were deferring rather than withdrawing the 
recalibration proposal. After the publication of the FY 2009 final 
rule, we worked with CMS staff and contractors, and reviewed the entire 
methodology with our actuaries. We reviewed the recalibration approach 
with the CMS actuaries, asked for an independent review by one of our 
contractors, and met with an industry representative to discuss the 
methodology. The calculations were determined to be mathematically 
correct. The approach was reconsidered along with alternative 
approaches that we presented in our FY 2009 final rule (73 FR 46423, 
46439-40) and those offered by industry. Based on our results from 
these steps, we determined that our methodology was appropriate and 
reissued the proposal for FY 2010. In addition, we further considered 
the effects of the recalibration on beneficiaries, SNF clinical staff, 
and quality of care, and as explained in the FY 2010 proposed rule (74 
FR 22214), we determined that it is appropriate to proceed with the 
recalibration in FY 2010. As we explained in the FY 2010 proposed rule 
(74 FR 22214), by recalibrating the CMIs under the 53-group model, we 
expect to restore SNF payments to their appropriate level by correcting 
an 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 and restore 
payments to their appropriate level.
    Comment: Several commenters stated that the need for the 
recalibration arose because CMS initial projections of utilization 
under the refined case-mix system proved to be inaccurate once actual 
utilization data became available. They then asserted that in view of 
this, the proposed recalibration represents a ``forecast error 
adjustment'' that is not covered under the statutory authority to 
provide for an appropriate adjustment to account for case mix (section 
1888(e)(4)(G)(i) of the Act).
    Response: It would be incorrect to characterize the proposed 
recalibration as a ``forecast error adjustment,'' as that term refers 
solely to an adjustment that compensates for an inaccurate forecast of 
the annual inflation factor in the SNF market basket, as described in 
section III.F.2 of this final rule (see 42 CFR 413.337(d)(2)). By 
contrast, the proposed recalibration would serve to ensure that the 
2006 case-mix refinements are implemented as intended. As such, it 
would be integral to the process of providing ``* * * for an 
appropriate adjustment to account for case mix'' that is based upon 
appropriate data in accordance with section 1888(e)(4)(G)(i) of the 
Act.
    Comment: A number of comments included references to the discussion 
of the 2006 case-mix refinements in the SNF PPS proposed rule for FY 
2006 (70 FR 29079, May 19, 2005), in which we explained that we were 
``* * * advancing these proposed changes under our authority in section 
101(a) of the BBRA to establish case-mix refinements, and that the 
changes we are hereby proposing will represent the final adjustments 
made under this authority'' (emphasis added). The commenters stated 
that this earlier description of the 2006 case-mix refinements as 
``final'' effectively precludes CMS from proceeding with a 
recalibration, which they characterized as representing a further 
refinement. Similarly, several commenters also questioned our authority 
to recalibrate the case-mix system prior to the completion of the 
STRIVE STM project. In addition, several commenters questioned whether 
CMS has the authority to impose a budget neutrality requirement on the 
introduction of a new classification model.
    Response: We wish to clarify that the actual ``refinement'' that we 
proposed and implemented in the FY 2006

[[Page 40297]]

rulemaking cycle consisted of our introduction of the 9 new 
Rehabilitation plus Extensive Services groups at the top of the 
previous, 44-group RUG hierarchy, along with the adjustment recognizing 
the variability of NTA use, which together fulfilled the provisions of 
section 101(a) of the BBRA. The accompanying adjustment to the case-mix 
indexes (CMIs) was merely a vehicle through which we implemented that 
refinement. Rather than representing a new or further ``refinement'' in 
itself, the proposed recalibration merely serves to ensure that we 
correctly accomplish a revision to the CMIs that accompanied the FY 
2006 case-mix refinements.
    In the FY 2006 final rule (70 FR 45033, August 4, 2005), we 
addressed the introduction of the refinements within the broader 
context of ensuring payment accuracy and beneficiary access to care. We 
pointed out that

* * * this incremental change is part of this ongoing process that 
will also include update activities such as the upcoming STM study 
and investigation of potential alternatives to the RUG system 
itself. However, the commitment to long term analysis and refinement 
should not preclude the introduction of more immediate 
methodological and policy updates.

    Finally, the budget neutrality factor was applied to the unadjusted 
RUG-53 case-mix weights that were introduced in January 2006. As stated 
above, our initial analyses indicated that payments would be lower 
under the RUG-53 model. As the purpose of the refinement was to 
reallocate payments, and not to reduce expenditures, we believe that 
increasing the case-mix weights to equalize payments under the two 
models is an appropriate exercise of our broad authority to establish 
an appropriate case-mix system. We further note that the FY 2006 
refinement to the case-mix classification system using adjusted CMIs 
was implemented through the rulemaking process, and we received no 
comments on the use of a budget neutrality adjustment at that time.
    Comment: Some commenters argued against implementing the proposed 
recalibration by asserting that it is important to maintain Medicare 
SNF payments at their current levels in order to cross-subsidize what 
they characterized as inadequate payment rates for nursing facilities 
under the Medicaid program. Other commenters urged CMS to reconsider 
the recalibration in light of the potential national impact in a weak 
economy. A few commenters asserted that the recalibration would have 
the same impact as the original implementation of the SNF PPS, which 
they asserted had pushed providers into bankruptcy.
    Response: We wish to clarify that it is not the appropriate role of 
the Medicare SNF benefit to cross-subsidize nursing home payments made 
under the Medicaid program. We note that MedPAC has indicated that it 
is inappropriate for the Medicare program's SNF payments to cross-
subsidize Medicaid nursing facility rates in this manner. Specifically, 
on page 152 of its March 2008 Report to the Congress on Medicare 
Payment Policy (which is available online at http://medpac.gov/documents/Mar08_EntireReport.pdf), MedPAC stated:

    There are several reasons why Medicare cross-subsidization is 
not advisable policy for the Medicare program. On average, Medicare 
payments accounted for 21 percent of revenues to freestanding SNFs 
in 2006. As a result, the policy would use a minority of Medicare 
payments to subsidize a majority of Medicaid payments. If Medicare 
were to pay still higher rates, facilities with high shares of 
Medicare payments--presumably the facilities that need revenues the 
least--would receive the most in subsidies from the higher Medicare 
payments. In other words, the subsidy would be poorly targeted. 
Given the variation among States in the level and method of nursing 
home payments, the impact of the subsidy would be highly variable; 
in States where Medicaid payments were adequate, it would have no 
positive impact. In addition, increasing Medicare's payment rates 
could encourage States to reduce Medicaid payments further and, in 
turn, result in pressure to again raise Medicare rates. It could 
also encourage providers to select patients based on payer source or 
to rehospitalize dual-eligible patients so that they qualified for a 
Medicare-covered, and higher payment, stay.

    We agree with MedPAC and, therefore, do not agree with the 
commenters that cited cross-subsidizing Medicaid as a justification for 
maintaining Medicare SNF payments at any specific level.
    We are also aware of the concerns that reductions in payment levels 
can have a negative impact on SNFs and the quality of care furnished to 
nursing home patients across the country. However, in this particular 
case, we have proposed to correct, on a prospective basis, an 
overpayment situation that has been in effect since January 2006. To 
avoid possible negative consequences, we have decided not to go back 
and recoup the excess expenditures made to SNFs ever since January 
2006. Instead, we are limiting the scope of the recalibration to 
restoring the intended SNF PPS payment levels on a prospective basis 
only, effective October 1, 2010.
    We have also considered the concerns raised by industry 
representatives that restoring the intended payment levels will result 
in job losses and add significant burden to health care workers and 
State governments. CMS cost report and Online Survey Certification and 
Reporting System (OSCAR) data show that, for the majority of SNFs that 
operate as freestanding facilities or as parts of chains, there has 
been little change in staffing or in facility costs since 2006. 
Therefore, as data do not indicate that the overpayment was used to 
increase staffing during this time, we do not believe that restoring 
payments to their intended and appropriate levels should necessarily 
result in job losses or add significant burden to health care workers 
and State governments. Further, in its March 2009 Report to the 
Congress (available online at http://www.medpac.gov/documents/Mar09_EntireReport.pdf), MedPAC reports that average Medicare margins have 
increased for freestanding SNFs since 2005. In 2007, the aggregate 
Medicare margin for freestanding SNFs was 14.5 percent, up from 13.3 
percent in 2006.
    A few commenters expressed concern that the recalibration would 
have the same impact as the original implementation of the SNF PPS in 
the late 1990s, which they asserted had pushed providers into 
bankruptcy. However, studies have indicated multiple factors for those 
nursing home closures. Castle et al studied the rate of nursing home 
closures for 7 years (1999-2005).\1\ Those reasons for bankruptcy 
included internal factors such as quality, organizational factors such 
as chain membership, and external factors such as competition. Nursing 
homes most likely to close included those with higher rates of 
deficiency citations, hospital-based facilities, chain members, small 
bed size, and facilities located in markets with high levels of 
competition. A recent study examined nursing homes terminated from the 
Medicare and Medicaid programs.\2\ The study found that the 
introduction of the prospective case-mix system was not the sole cause 
of the fiscal instabilities that led these providers to terminate their 
participation in Medicare. The authors state that some of the fiscal 
instability was self-inflicted, due to investment

[[Page 40298]]

decisions made in an uncertain market and misreading the changing 
reimbursement environment.
---------------------------------------------------------------------------

    \1\ Castle NG, Engberg J, Lave J, Fisher A. Factors Associated 
with Increasing Nursing Home Closures, Health Services Research 44: 
(3) June 2009, pp. 1088-1109.
    \2\ Zinn J, Mor V, Feng Z, Intrator O. Determinants of 
performance failure in the nursing home industry, Social Science & 
Medicine 68: (5), March, 2009, pp. 933-940.
---------------------------------------------------------------------------

    A similar finding had been reported in the March 2002 MedPAC 
report.\3\ MedPAC noted that the ability to service debt was the same 
under PPS as under cost-based payments. Finally, a 2000 GAO report 
stated that the bankruptcies resulted from heavy business investments 
in ancillary service lines and high capital-related costs such as 
depreciation, interest, and rent.\4\
---------------------------------------------------------------------------

    \3\ Report to the Congress: Medicare Payment Policy, ``Section 
2D: Skilled nursing facility,'' March 2002, pp. 85-90.
    \4\ General Accounting Office. Nursing homes: aggregate Medicare 
payments are adequate despite bankruptcies. No T-HEHS-00-192. 
Washington (DC), GAO. September 2000.
---------------------------------------------------------------------------

    Research fails to indicate that case-mix reimbursement is a 
significant contributor to nursing home bankruptcy. Thus, we do not 
agree with the commenters who asserted that the recalibration of 
Medicare CMIs to restore budget neutrality on a prospective basis will 
force providers into bankruptcy, or create the type of fiscal pressure 
that would negatively affect facility staffing or the quality of care 
furnished to Medicare beneficiaries. As regards the comment that CMS 
should reconsider the recalibration in light of the potential impact on 
a weak economy, we do not believe that a weak economy justifies 
perpetuating an overpayment.
    Comment: Several commenters asserted that a shift in patients from 
Inpatient Rehabilitation Facilities (IRFs) to SNFs results in savings 
to the Medicare Trust Fund and that the current SNF spending levels are 
needed to treat higher acuity patients that are now being treated in 
SNFs rather than IRFs. They asserted that the recalibration adjustment 
should not be made because SNFs used the money to expand their 
infrastructures to handle more seriously ill patients who were 
previously treated in IRFs, and that their actions actually saved 
Medicare dollars. Specifically, these commenters asserted that a shift 
of patients from IRFs to SNFs resulted in savings to the Medicare Trust 
Fund, and that SNFs need to maintain current SNF spending levels to 
treat this new type of patients. Underlying these comments is the 
assumption that SNFs are providing care for the same type of patients 
who would otherwise qualify for the higher IRF payments.
    Response: We note that a basic principle of the SNF PPS is to pay 
appropriately for the services provided. CMS data are consistent with 
the commenters' assertions that many patients formerly being treated in 
IRFs are now being treated in SNFs or Home Health Agencies (HHAs). In 
fact, our data show that a portion of patients needing rehabilitation 
have always been treated at SNFs and HHAs. The CY 2006 distribution 
used to recalibrate the case-mix adjustments reflects an increase in 
rehabilitation patients, and probably includes patients who might have 
been admitted to the higher-paying IRFs prior to CMS enforcement of IRF 
facility compliance criteria and more intensive medical review of IRF 
claims. However, we do not agree that these patients represent a higher 
level of acuity than the type of patients historically treated in SNFs. 
In fact, the decrease in the number of patients admitted to IRFs 
reflects that subset of the rehabilitation population that was not 
appropriate for IRF care. As such, CMS may have overpaid IRFs for more 
routine orthopedic cases, such as single joint knee replacements. For 
those former IRF patients who are appropriate for SNF care, we must pay 
the appropriate rate for the SNF services provided, and cannot use a 
reduction in IRF overpayments as a reason to increase payments under 
the SNF PPS. In discussing the proposed recalibration, it is important 
to bear in mind that recalibrating CMIs would not change the relative 
nature of higher payments for patients using more staff resources and 
services.
    Accordingly, for the reasons specified in the FY 2010 proposed rule 
(74 FR 22214-22215), we are finalizing the recalibration of the parity 
adjustment to the RUG-53 case-mix indexes in order to restore the 
intended parity in overall payments between the RUG-44 model and the 
RUG-53 model, and the factor used to recognize variability in NTA 
utilization, using the methodology described in the FY 2009 proposed 
and final rules (73 FR 25923, 73 FR 46421-24). Thus, for FY 2010, the 
aggregate impact of this recalibration 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 total difference is a decrease in 
payments of $1.05 billion (on an incurred basis) in payments for FY 
2010. We also note that the negative $1.05 billion would be partly 
offset by the FY 2010 market basket adjustment factor of 2.2 percent, 
or $690 million, with a net result of a negative 1.1 percent update of 
$360 million for FY 2010. Again, we want to emphasize that we are 
implementing the recalibration on a prospective basis, which is the 
strategy that we believe best mitigates the potential impact on 
providers. By using CY 2006 claims data (which represent actual RUG-53 
utilization), rather than FY 2001 claims data, we believe the SNF PPS 
will better reflect resources used, resulting in more accurate payment.
    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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Nursing         Therapy      Non-case mix    Non-case mix
            RUG-III category               Nursing index   Therapy index     component       component     therapy comp.     component      Total rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUX.....................................            1.77            2.25          274.76          263.09  ..............           79.22          617.07
RUL.....................................            1.31            2.25          203.35          263.09  ..............           79.22          545.66
RVX.....................................            1.44            1.41          223.53          164.87  ..............           79.22          467.62
RVL.....................................            1.24            1.41          192.49          164.87  ..............           79.22          436.58
RHX.....................................            1.33            0.94          206.46          109.91  ..............           79.22          395.59
RHL.....................................            1.27            0.94          197.14          109.91  ..............           79.22          386.27
RMX.....................................            1.80            0.77          279.41           90.04  ..............           79.22          448.67
RML.....................................            1.57            0.77          243.71           90.04  ..............           79.22          412.97
RLX.....................................            1.22            0.43          189.38           50.28  ..............           79.22          318.88
RUC.....................................            1.20            2.25          186.28          263.09  ..............           79.22          528.59
RUB.....................................            0.92            2.25          142.81          263.09  ..............           79.22          485.12

[[Page 40299]]

 
RUA.....................................            0.78            2.25          121.08          263.09  ..............           79.22          463.39
RVC.....................................            1.14            1.41          176.96          164.87  ..............           79.22          421.05
RVB.....................................            1.01            1.41          156.78          164.87  ..............           79.22          400.87
RVA.....................................            0.77            1.41          119.53          164.87  ..............           79.22          363.62
RHC.....................................            1.13            0.94          175.41          109.91  ..............           79.22          364.54
RHB.....................................            1.03            0.94          159.89          109.91  ..............           79.22          349.02
RHA.....................................            0.88            0.94          136.60          109.91  ..............           79.22          325.73
RMC.....................................            1.07            0.77          166.10           90.04  ..............           79.22          335.36
RMB.....................................            1.01            0.77          156.78           90.04  ..............           79.22          326.04
RMA.....................................            0.97            0.77          150.57           90.04  ..............           79.22          319.83
RLB.....................................            1.06            0.43          164.54           50.28  ..............           79.22          294.04
RLA.....................................            0.79            0.43          122.63           50.28  ..............           79.22          252.13
SE3.....................................            1.72  ..............          267.00  ..............           15.40           79.22          361.62
SE2.....................................            1.38  ..............          214.22  ..............           15.40           79.22          308.84
SE1.....................................            1.17  ..............          181.62  ..............           15.40           79.22          276.24
SSC.....................................            1.14  ..............          176.96  ..............           15.40           79.22          271.58
SSB.....................................            1.05  ..............          162.99  ..............           15.40           79.22          257.61
SSA.....................................            1.02  ..............          158.33  ..............           15.40           79.22          252.95
CC2.....................................            1.13  ..............          175.41  ..............           15.40           79.22          270.03
CC1.....................................            0.99  ..............          153.68  ..............           15.40           79.22          248.30
CB2.....................................            0.91  ..............          141.26  ..............           15.40           79.22          235.88
CB1.....................................            0.84  ..............          130.39  ..............           15.40           79.22          225.01
CA2.....................................            0.83  ..............          128.84  ..............           15.40           79.22          223.46
CA1.....................................            0.75  ..............          116.42  ..............           15.40           79.22          211.04
IB2.....................................            0.69  ..............          107.11  ..............           15.40           79.22          201.73
IB1.....................................            0.67  ..............          104.00  ..............           15.40           79.22          198.62
IA2.....................................            0.57  ..............           88.48  ..............           15.40           79.22          183.10
IA1.....................................            0.53  ..............           82.27  ..............           15.40           79.22          176.89
BB2.....................................            0.68  ..............          105.56  ..............           15.40           79.22          200.18
BB1.....................................            0.65  ..............          100.90  ..............           15.40           79.22          195.52
BA2.....................................            0.56  ..............           86.93  ..............           15.40           79.22          181.55
BA1.....................................            0.48  ..............           74.51  ..............           15.40           79.22          169.13
PE2.....................................            0.79  ..............          122.63  ..............           15.40           79.22          217.25
PE1.....................................            0.77  ..............          119.53  ..............           15.40           79.22          214.15
PD2.....................................            0.72  ..............          111.77  ..............           15.40           79.22          206.39
PD1.....................................            0.70  ..............          108.66  ..............           15.40           79.22          203.28
PC2.....................................            0.66  ..............          102.45  ..............           15.40           79.22          197.07
PC1.....................................            0.65  ..............          100.90  ..............           15.40           79.22          195.52
PB2.....................................            0.52  ..............           80.72  ..............           15.40           79.22          175.34
PB1.....................................            0.50  ..............           77.62  ..............           15.40           79.22          172.24
PA2.....................................            0.49  ..............           76.06  ..............           15.40           79.22          170.68
PA1.....................................            0.46  ..............           71.41  ..............           15.40           79.22          166.03
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                     Table 5--RUG-53--Case-Mix Adjusted Federal Rates and Associated Indexes, Rural
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Nursing         Therapy      Non-case mix    Non-case mix
            RUG-III category               Nursing index   Therapy index     component       component     therapy comp.     component      Total rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUX.....................................            1.77            2.25          262.51          303.37  ..............           80.69          646.57
RUL.....................................            1.31            2.25          194.29          303.37  ..............           80.69          578.35
RVX.....................................            1.44            1.41          213.57          190.11  ..............           80.69          484.37
RVL.....................................            1.24            1.41          183.90          190.11  ..............           80.69          454.70
RHX.....................................            1.33            0.94          197.25          126.74  ..............           80.69          404.68
RHL.....................................            1.27            0.94          188.35          126.74  ..............           80.69          395.78
RMX.....................................            1.80            0.77          266.96          103.82  ..............           80.69          451.47
RML.....................................            1.57            0.77          232.85          103.82  ..............           80.69          417.36
RLX.....................................            1.22            0.43          180.94           57.98  ..............           80.69          319.61
RUC.....................................            1.20            2.25          177.97          303.37  ..............           80.69          562.03
RUB.....................................            0.92            2.25          136.45          303.37  ..............           80.69          520.51
RUA.....................................            0.78            2.25          115.68          303.37  ..............           80.69          499.74
RVC.....................................            1.14            1.41          169.07          190.11  ..............           80.69          439.87
RVB.....................................            1.01            1.41          149.79          190.11  ..............           80.69          420.59
RVA.....................................            0.77            1.41          114.20          190.11  ..............           80.69          385.00
RHC.....................................            1.13            0.94          167.59          126.74  ..............           80.69          375.02
RHB.....................................            1.03            0.94          152.76          126.74  ..............           80.69          360.19
RHA.....................................            0.88            0.94          130.51          126.74  ..............           80.69          337.94
RMC.....................................            1.07            0.77          158.69          103.82  ..............           80.69          343.20
RMB.....................................            1.01            0.77          149.79          103.82  ..............           80.69          334.30
RMA.....................................            0.97            0.77          143.86          103.82  ..............           80.69          328.37
RLB.....................................            1.06            0.43          157.21           57.98  ..............           80.69          295.88

[[Page 40300]]

 
RLA.....................................            0.79            0.43          117.16           57.98  ..............           80.69          255.83
SE3.....................................            1.72  ..............          255.09  ..............           16.45           80.69          352.23
SE2.....................................            1.38  ..............          204.67  ..............           16.45           80.69          301.81
SE1.....................................            1.17  ..............          173.52  ..............           16.45           80.69          270.66
SSC.....................................            1.14  ..............          169.07  ..............           16.45           80.69          266.21
SSB.....................................            1.05  ..............          155.73  ..............           16.45           80.69          252.87
SSA.....................................            1.02  ..............          151.28  ..............           16.45           80.69          248.42
CC2.....................................            1.13  ..............          167.59  ..............           16.45           80.69          264.73
CC1.....................................            0.99  ..............          146.83  ..............           16.45           80.69          243.97
CB2.....................................            0.91  ..............          134.96  ..............           16.45           80.69          232.10
CB1.....................................            0.84  ..............          124.58  ..............           16.45           80.69          221.72
CA2.....................................            0.83  ..............          123.10  ..............           16.45           80.69          220.24
CA1.....................................            0.75  ..............          111.23  ..............           16.45           80.69          208.37
IB2.....................................            0.69  ..............          102.33  ..............           16.45           80.69          199.47
IB1.....................................            0.67  ..............           99.37  ..............           16.45           80.69          196.51
IA2.....................................            0.57  ..............           84.54  ..............           16.45           80.69          181.68
IA1.....................................            0.53  ..............           78.60  ..............           16.45           80.69          175.74
BB2.....................................            0.68  ..............          100.85  ..............           16.45           80.69          197.99
BB1.....................................            0.65  ..............           96.40  ..............           16.45           80.69          193.54
BA2.....................................            0.56  ..............           83.05  ..............           16.45           80.69          180.19
BA1.....................................            0.48  ..............           71.19  ..............           16.45           80.69          168.33
PE2.....................................            0.79  ..............          117.16  ..............           16.45           80.69          214.30
PE1.....................................            0.77  ..............          114.20  ..............           16.45           80.69          211.34
PD2.....................................            0.72  ..............          106.78  ..............           16.45           80.69          203.92
PD1.....................................            0.70  ..............          103.82  ..............           16.45           80.69          200.96
PC2.....................................            0.66  ..............           97.88  ..............           16.45           80.69          195.02
PC1.....................................            0.65  ..............           96.40  ..............           16.45           80.69          193.54
PB2.....................................            0.52  ..............           77.12  ..............           16.45           80.69          174.26
PB1.....................................            0.50  ..............           74.16  ..............           16.45           80.69          171.30
PA2.....................................            0.49  ..............           72.67  ..............           16.45           80.69          169.81
PA1.....................................            0.46  ..............           68.22  ..............           16.45           80.69          165.36
--------------------------------------------------------------------------------------------------------------------------------------------------------

3. 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.
    In the FY 2010 proposed rule, we proposed to continue that 
practice, 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.
    In the FY 2010 proposed rule, we also proposed 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 proposed to 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 indicated that 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 proposed to 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.
    The comments that we received on the wage index adjustment to the 
Federal rates, and our responses to those comments, appear below.
    Comment: A commenter requested that CMS develop a method of 
gathering wage data information that would directly reflect the wages 
earned in both rural and urban SNF settings.
    Response: As described above, hospital wage data are used in 
developing a wage index to be applied to SNFs. All hospitals, both 
rural and urban, are used to establish the hospital wage data used to 
construct the SNF PPS wage index. Therefore, we believe that the SNF 
PPS wage index adequately captures earned wages across both urban and 
rural settings. Further, as discussed in greater detail below, we have 
been unable to develop a SNF-specific wage index 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'' 
(73 FR 46426, August 8, 2008).
    Comment: Several commenters asked CMS to consider adopting certain 
wage index policies in use under the acute IPPS, such as 
reclassification, because SNFs compete in a similar labor pool as acute 
care hospitals. In addition, a few commenters recommended that CMS 
develop a SNF-specific wage index. One commenter requested that we 
revisit the use of CBSA labor market areas and

[[Page 40301]]

develop an alternative that better captures Statewide labor market 
trends.
    Response: The regulations that govern the SNF PPS currently do not 
provide a mechanism for allowing providers to seek geographic 
reclassification. Moreover, as we have explained in the past (most 
recently, in the SNF PPS final rule for FY 2009 (73 FR 46416, 46426, 
August 8, 2008), while section 315 of the Benefits Improvement and 
Protection Act of 2000 (BIPA, Pub. L. 106-554) does authorize us to 
establish such a reclassification methodology under the SNF PPS, it 
additionally stipulates that such reclassification cannot be 
implemented until we have collected the data necessary to establish a 
SNF-specific wage index. This, in turn, 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'' (73 FR 46426, August 8, 2008). We continue to believe that 
these factors make it unlikely for such an approach to yield meaningful 
improvements in our ability to determine facility payments, or to 
justify the significant increase in administrative resources as well as 
burden on providers what this type of data collection would involve.
    In addition, we reviewed the Medicare Payment Advisory Commission's 
(MedPAC) wage index recommendations as discussed in MedPAC's June 2007 
report entitled, ``Report to Congress: Promoting Greater Efficiency in 
Medicare.'' Although some commenters recommend that we adopt the IPPS 
wage index policies such as reclassification and floor policies, we 
note that MedPAC's June 2007 report to Congress recommends that 
Congress ``repeal the existing hospital wage index statute, including 
reclassification and exceptions, and give the Secretary authority to 
establish new wage index systems.'' We believe that adopting the IPPS 
wage index policies (such as reclassification or floor) would not be 
prudent at this time, because MedPAC suggests that the reclassification 
and exception policies in the IPPS wage index alters the wage index 
values for one-third of IPPS hospitals. In addition, MedPAC found that 
the exceptions may lead to anomalies in the wage index. By adopting the 
IPPS reclassification and exceptions at this time, the SNF PPS wage 
index could become vulnerable to problems similar to those that MedPAC 
identified in their June 2007 Report to Congress. However, we will 
continue to review and consider MedPAC's recommendations on a refined 
or alternative wage index methodology for the SNF PPS in future years.
    We also note that section 106(b)(2) of the Medicare Improvements 
and Extension Act (MIEA) of 2006 (which is Division B of the Tax Relief 
and Health Care Act (TRHCA) of 2006, Public Law 109-432, collectively 
referred to as ``MIEA-TRHCA'') required the Secretary of Health and 
Human Services, taking into account MedPAC's recommendations on the 
Medicare wage index classification system, to include in the FY 2009 
IPPS proposed rule one or more proposals to revise the wage index 
adjustment applied under section 1886(d)(3)(E) of the Act for purposes 
of the IPPS. To assist CMS in meeting the requirements of section 
106(b)(2) of MIEA-TRHCA, in February 2008, CMS awarded a Task Order 
under its Expedited Research and Demonstration Contract, to Acumen, 
LLC. Acumen, LLC conducted a study of both the current methodology used 
to construct the Medicare wage index and the recommendations reported 
to Congress by MedPAC. Part One of Acumen's final report, which 
analyzes the strengths and weaknesses of the data sources used to 
construct the CMS and MedPAC indexes, is available online at http://www.acumenllc.com/reports/cms. MedPAC's recommendations are presented 
in the FY 2009 IPPS final rule (http://edocket.access.gpo.gov/2008/pdf/E8-17914.pdf). We plan to continue monitoring wage index research 
efforts and the impact or influence they may have for the SNF PPS wage 
index.
    Moreover, in light of all of the pending research and review of 
wage index issues in general, we believe that it would be premature at 
this time to initiate revisiting the use of CBSA labor market areas and 
review of a SNF-specific wage index.
    Therefore, in this final rule, we will continue to use hospital 
wage data exclusive of the occupational mix adjustment to calculate the 
SNF PPS wage index adjustment, and we are finalizing the wage index and 
associated policies as proposed in the SNF PPS proposed rule for FY 
2010 (74 FR 22217-22219, May 12, 2009).
    To calculate the SNF PPS wage index adjustment, we apply the wage 
index adjustment to the labor-related portion of the Federal rate, 
which is 69.840 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 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
----------------------------------------------------------------------------------------------------------------
                                                                                                     Non-labor
                        RUG-III category                            Total rate     Labor portion      portion
----------------------------------------------------------------------------------------------------------------
RUX.............................................................          617.07          430.96          186.11
RUL.............................................................          545.66          381.09          164.57
RVX.............................................................          467.62          326.59          141.03
RVL.............................................................          436.58          304.91          131.67
RHX.............................................................          395.59          276.28          119.31
RHL.............................................................          386.27          269.77          116.50

[[Page 40302]]

 
RMX.............................................................          448.67          313.35          135.32
RML.............................................................          412.97          288.42          124.55
RLX.............................................................          318.88          222.71           96.17
RUC.............................................................          528.59          369.17          159.42
RUB.............................................................          485.12          338.81          146.31
RUA.............................................................          463.39          323.63          139.76
RVC.............................................................          421.05          294.06          126.99
RVB.............................................................          400.87          279.97          120.90
RVA.............................................................          363.62          253.95          109.67
RHC.............................................................          364.54          254.59          109.95
RHB.............................................................          349.02          243.76          105.26
RHA.............................................................          325.73          227.49           98.24
RMC.............................................................          335.36          234.22          101.14
RMB.............................................................          326.04          227.71           98.33
RMA.............................................................          319.83          223.37           96.46
RLB.............................................................          294.04          205.36           88.68
RLA.............................................................          252.13          176.09           76.04
SE3.............................................................          361.62          252.56          109.06
SE2.............................................................          308.84          215.69           93.15
SE1.............................................................          276.24          192.93           83.31
SSC.............................................................          271.58          189.67           81.91
SSB.............................................................          257.61          179.91           77.70
SSA.............................................................          252.95          176.66           76.29
CC2.............................................................          270.03          188.59           81.44
CC1.............................................................          248.30          173.41           74.89
CB2.............................................................          235.88          164.74           71.14
CB1.............................................................          225.01          157.15           67.86
CA2.............................................................          223.46          156.06           67.40
CA1.............................................................          211.04          147.39           63.65
IB2.............................................................          201.73          140.89           60.84
IB1.............................................................          198.62          138.72           59.90
IA2.............................................................          183.10          127.88           55.22
IA1.............................................................          176.89          123.54           53.35
BB2.............................................................          200.18          139.81           60.37
BB1.............................................................          195.52          136.55           58.97
BA2.............................................................          181.55          126.79           54.76
BA1.............................................................          169.13          118.12           51.01
PE2.............................................................          217.25          151.73           65.52
PE1.............................................................          214.15          149.56           64.59
PD2.............................................................          206.39          144.14           62.25
PD1.............................................................          203.28          141.97           61.31
PC2.............................................................          197.07          137.63           59.44
PC1.............................................................          195.52          136.55           58.97
PB2.............................................................          175.34          122.46           52.88
PB1.............................................................          172.24          120.29           51.95
PA2.............................................................          170.68          119.20           51.48
PA1.............................................................          166.03          115.96           50.07
----------------------------------------------------------------------------------------------------------------


        Table 7--RUG-53--Case-Mix Adjusted Federal Rates for Rural SNFs by Labor and Non-Labor Component
----------------------------------------------------------------------------------------------------------------
                                                                                                     Non-labor
                        RUG-III category                            Total rate     Labor portion      portion
----------------------------------------------------------------------------------------------------------------
RUX.............................................................          646.57          451.56          195.01
RUL.............................................................          578.35          403.92          174.43
RVX.............................................................          484.37          338.28          146.09
RVL.............................................................          454.70          317.56          137.14
RHX.............................................................          404.68          282.63          122.05
RHL.............................................................          395.78          276.41          119.37
RMX.............................................................          451.47          315.31          136.16
RML.............................................................          417.36          291.48          125.88
RLX.............................................................          319.61          223.22           96.39
RUC.............................................................          562.03          392.52          169.51
RUB.............................................................          520.51          363.52          156.99
RUA.............................................................          499.74          349.02          150.72
RVC.............................................................          439.87          307.21          132.66
RVB.............................................................          420.59          293.74          126.85
RVA.............................................................          385.00          268.88          116.12
RHC.............................................................          375.02          261.91          113.11

[[Page 40303]]

 
RHB.............................................................          360.19          251.56          108.63
RHA.............................................................          337.94          236.02          101.92
RMC.............................................................          343.20          239.69          103.51
RMB.............................................................          334.30          233.48          100.82
RMA.............................................................          328.37          229.33           99.04
RLB.............................................................          295.88          206.64           89.24
RLA.............................................................          255.83          178.67           77.16
SE3.............................................................          352.23          246.00          106.23
SE2.............................................................          301.81          210.78           91.03
SE1.............................................................          270.66          189.03           81.63
SSC.............................................................          266.21          185.92           80.29
SSB.............................................................          252.87          176.60           76.27
SSA.............................................................          248.42          173.50           74.92
CC2.............................................................          264.73          184.89           79.84
CC1.............................................................          243.97          170.39           73.58
CB2.............................................................          232.10          162.10           70.00
CB1.............................................................          221.72          154.85           66.87
CA2.............................................................          220.24          153.82           66.42
CA1.............................................................          208.37          145.53           62.84
IB2.............................................................          199.47          139.31           60.16
IB1.............................................................          196.51          137.24           59.27
IA2.............................................................          181.68          126.89           54.79
IA1.............................................................          175.74          122.74           53.00
BB2.............................................................          197.99          138.28           59.71
BB1.............................................................          193.54          135.17           58.37
BA2.............................................................          180.19          125.84           54.35
BA1.............................................................          168.33          117.56           50.77
PE2.............................................................          214.30          149.67           64.63
PE1.............................................................          211.34          147.60           63.74
PD2.............................................................          203.92          142.42           61.50
PD1.............................................................          200.96          140.35           60.61
PC2.............................................................          195.02          136.20           58.82
PC1.............................................................          193.54          135.17           58.37
PB2.............................................................          174.26          121.70           52.56
PB1.............................................................          171.30          119.64           51.66
PA2.............................................................          169.81          118.60           51.21
PA1.............................................................          165.36          115.49           49.87
----------------------------------------------------------------------------------------------------------------

    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 apply an adjustment to fulfill the budget neutrality 
requirement. We 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 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 final rule.
    Comment: One commenter estimated SNF reimbursements using both the 
FY 2010 SNF wage index in the proposed rule and in the absence of a 
wage index using simulation. The commenter found that SNF reimbursement 
was about $400 million lower with the wage index adjustment than 
without it. The commenter believes that CMS is incorrectly adjusting 
for the wage index and that payments during the 2002-2009 timeframe are 
more than $2 billion too low.
    Response: The intent of the wage index budget neutrality factor is 
to make sure that aggregate payments using the updated wage index are 
not greater or less than aggregate payments would be using the previous 
year's wage index. Because the wage index is based on the pre-floor, 
pre-reclassified, no occupational mix hospital wage index, the weighted 
average wage index would be equal to 1.0000 for hospitals. However, 
there are often multiple SNFs within a wage area with varying 
utilization levels. The weighted average wage index across all SNF 
providers may not be equal to 1.0000 for any given fiscal year, so 
payments could go up or down as a result of their application. 
Estimation of payments relies on the combination of the geographic wage 
index value for providers along with their distribution of service 
days. The change in the wage index values along with the utilization 
within each urban or rural area determines the change in aggregate 
payments related to the previous year and, therefore, the budget 
neutrality factor. The application of the budget neutrality factor 
ensures that aggregate payments will not increase or decrease due to 
the year-to-year change in the wage index. Therefore, we do not accept 
the methodology applied by the commenter, and believe that the 1.0010 
budget neutrality factor will ensure equal payments after updating to 
the FY 2010 SNF PPS wage index, prior to any other policy changes.

[[Page 40304]]

    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 final rule.
4. 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 payment rates in this final rule reflect 
an update equal to the full SNF market basket, estimated at 2.2 
percentage points. We 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.
5. 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 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 final 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.C.4 of this final rule.
6. Example of Computation of Adjusted PPS Rates and SNF Payment
    Using the hypothetical SNF XYZ described in Table 8, 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 $30,635. We derive the Labor and Non-labor columns from 
Table 6 of this final rule.

                              Table 8--RUG-53--SNF XYZ: Located in Cedar Rapids, IA (Urban CBSA 16300); Wage Index: 0.8984
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     Percent      Medicare
                    RUG group                        Labor      Wage index   Adj. labor   Non-labor    Adj. rate       adj.         days       Payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
RVX.............................................      $326.59       0.8984      $293.41      $141.03      $434.44      $434.44           14    $6,082.00
RLX.............................................       222.71       0.8984       200.08        96.17       296.25       296.25           30     8,888.00
RHA.............................................       227.49       0.8984       204.38        98.24       302.62       302.62           16     4,842.00
CC2.............................................       188.59       0.8984       169.43        81.44       250.87      *571.98           10     5,720.00
IA2.............................................       127.88       0.8984       114.89        55.22       170.11       170.11           30     5,103.00
                                                 -------------------------------------------------------------------------------------------------------
    Total.......................................  ...........  ...........  ...........  ...........  ...........  ...........          100    30,635.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Reflects a 128 percent adjustment from section 511 of the MMA.

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

1. Staff Time and Resource Intensity Verification (STRIVE) Project
    In the FY 2010 proposed rule (74 FR 22208, 22220, May 12, 2009), we 
noted that the SNF PPS uses the Resource Utilization Group (RUG) to 
which a resident is assigned to make a case-mix adjustment to that 
resident's payment amount, in order to reflect the relative resource 
intensity that would typically be associated with the resident's 
clinical condition. In this context, we discussed our STRIVE project, 
which we conducted to help ensure that the SNF PPS payment rates 
reflect current practices and resource needs. The following sections 
discuss the comments that we received on this issue and related topics, 
along with our responses.
a. Data Collection
    To help ensure that the SNF PPS payment rates reflect current 
practices

[[Page 40305]]

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. As noted in the FY 2010 proposed rule 
(74 FR 22208, 22221, May 12, 2009), 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 indicator (QI) or quality 
measure (QM) scores were also excluded, as were nursing homes with low 
occupancy rates, large proportions of private pay or pediatric 
patients, and nursing homes that were undergoing hardships (such as 
fires or floods) that would prevent participation in the study. The 
comments that we received on this issue, and our responses, appear 
below.
Sampling Methodology
    A number of commenters addressed issues regarding the sampling 
methodology of the STRIVE project. These comments fell into several 
major categories:
     Sample size and margin of error.
     Random nature of the sample.
     Representativeness of the sample and data collection 
process.
Sample Size and Margin of Error
    Comment: Several commenters recognized CMS's efforts in collecting 
significantly more data than that gathered in the 1990 sample used 
initially to develop RUG-III, and the 1995/1997 sample used to revise 
RUG-III and establish the current CMIs that are the basis for current 
Medicare rates. However, a number of comments asserted that the 
precision was too low (that is, the margin of error too high) to make 
reliable estimates for use in setting payment rates. More specifically, 
these commenters stated that the overall margins of error for the 
sample that were presented at several TEP meetings appeared 
unrealistically low. These commenters recommended that CMS should 
abandon the time study methodology, which relies on a sample-based 
special study, and develop a methodology that uses population-based 
administrative data.
    Response: At several TEP meetings, estimates of the overall margin 
of error for Medicare and non-Medicare cases were presented. It is 
worth noting that these analyses were interim work products and were 
developed during the course of our analyses to give stakeholders the 
most current information available as early as possible to help them 
evaluate the RUG-IV model. To the comment that asserted these estimates 
were unrealistically low and that we must have failed to consider 
correctly the sample design when they were calculated, we note that 
these estimates actually did account for the sample design (both 
stratification and clustering), but were adjusted in two ways: (a) We 
developed procedures to remove variance associated with case mix, and 
(b) we presented a weighted variance estimate that was based upon all 
of the individual RUG groups and which weighted more prevalent groups 
more heavily than less prevalent groups (since these would be more 
often used in making payments). Basically, we attempted to compute the 
margin of error for the ``typical'' or ``average'' RUG group after 
removing the effect of case mix.
    Upon further review, as noted by a few commenters, we found minor 
flaws in the methodology, and have updated our analysis. As shown 
below, we believe that the simplest and most informative overall 
measure of the precision of the sample is the margin of error 
associated with the nursing and therapy overall means. Table 9 below 
presents relevant values from the STRIVE study and from the prior 1995/
97 time study.

                                                     Table 9
----------------------------------------------------------------------------------------------------------------
                                                                                   1995/97 time       Percent
                            Parameter                                 STRIVE           study        improvement
----------------------------------------------------------------------------------------------------------------
Nursing Time:
    Number of cases (weighted)..................................           9,766           3,933
    Mean wage-weighted time.....................................           135.2           228.3
    Standard error of mean......................................             3.1             7.2
    Coefficient of variation of mean............................            2.3%            3.2%            26.7
    Margin of error (percent of mean)...........................          4.6%      minus>6.2%
Therapy Time:
    Number of cases (weighted)..................................           1,510           1,133
    Mean wage-weighted time.....................................           144.0            86.0
    Standard error of mean......................................             5.5             3.5
    Coefficient of variation of mean............................            3.8%            4.0%             4.6
    Margin of error (percent of mean)...........................          7.6%      minus>8.0%
----------------------------------------------------------------------------------------------------------------
Note: Coefficient of variation of the mean = (std error of mean)/(mean) * 100.

    For each of these studies, the table above presents statistics for 
mean nursing time (based upon all residents in the sample) and for 
therapy time (based upon all residents who received any therapy time). 
For each of these datasets, the table presents the number of cases 
(raw, unweighted counts), the mean of the wage-weighted minutes, the 
standard error of the mean, the margin of error associated with the 
mean, and the margin of error expressed as a percentage of the mean.
    We note that for both nursing and therapy time, the methodology 
used to wage-weight time differed between the two studies. (A detailed 
discussion of the wage-weighting protocols is presented below.) 
Therefore, the means, standard errors, and margins of error cannot be 
directly compared between the two studies. We have, therefore, computed 
the margin of error as a percentage of the mean to allow such 
comparison.
    It can be seen that in the STRIVE sample, the margin of error for 
the nursing time is about 4.6 percent of mean nursing time, 
compared with 6.2 percent in the earlier study. This 
represents a 26.8 percent improvement in precision over the earlier 
study. For therapy time, the STRIVE margin of error is 7.6 
percent, a 4.7 percent improvement over the earlier study. With regard 
to therapy time, the

[[Page 40306]]

improvement is modest because of the relatively large number of cases 
in the 1995/97 time study that had therapy time. We believe this is 
because the sample that was used for the earlier study was largely 
aimed at identifying and enlisting nursing homes that had Medicare 
residents and provided therapy.
    Thus, the STRIVE sample is larger and has considerably more 
precision for nursing time than the earlier time study. The results of 
the earlier study have served as the basis for Medicare and Medicaid 
rate setting since 1998 and the new results should, if anything, lead 
to more accuracy than the data collected more than 10 years ago. We 
believe that the ability to distinguish more precisely and accurately 
between patient characteristics and varying degrees of acuity with the 
time study methodology outweighs the issues of ease of collection and 
analysis of population-based administrative data.
    Comment: Some commenters said the sample sizes for some individual 
RUG groups were very low. Several commenters focused on sampling error 
due either to bias or to small sample sizes that they believed weakened 
the STRIVE study. One respondent questioned the small sample size, and 
claimed that an overall sample size of 500,000 (compared with STRIVE's 
sample of under 10,000) would be necessary to ensure reasonable 
precision in all RUG groups. While they also stated that the margins of 
error associated with overall mean nursing and therapy times provide a 
useful metric for comparing the STRIVE study with the 1995/97 time 
study, several comments expressed concerns about the precision of 
individual RUG group means as opposed to the means for the entire 
sample. They observed that the margin of error for such small RUG 
groups was so large as to make the mean staff time estimates unusable 
for those groups.
    Response: While a sample size of 500,000 might be appropriate for a 
large-scale academic research project or medical trial, the STRIVE 
project was specifically designed to update the RUG case-mix 
classification system to reflect current resource utilization in 
nursing homes across the country. As many commenters pointed out, 
patient characteristics have changed and patient acuity levels have 
increased since the introduction of the SNF PPS in 1998. For STRIVE, as 
for many other CMS analytic projects, there is a tradeoff between 
timeliness of results, cost, and small cell size. In fact, using the 
sample size guideline recommended by the commenter, it is unlikely that 
many if not most of the programmatic changes incorporated into the 
Medicare program since its inception in 1966 could have been 
successfully introduced.
    It is true that the sample sizes for some RUG groups are small and 
that the margins of errors for these RUG groups means are large. 
However, there are several reasons why we believe that the precision is 
sufficient for rate setting:
     Some comments appeared to suggest that only Medicare cases 
were used to produce the group means and CMIs that were used for rate 
setting. Because Medicare residents comprised only about 14 percent of 
the total weighted STRIVE sample, this would have exacerbated problems 
with small sample sizes. In fact, however, we used the entire sample of 
valid cases (that is, all cases that passed our accuracy edits), not 
just Medicare cases, to produce these group means and CMIs. Thus, the 
RUG group sample sizes were considerably larger than some comments 
suggested.
     Therapy CMIs are based upon mean therapy times for the 
therapy categories, not the means for individual therapy groups. That 
is, mean therapy times are calculated for the RU, RV, RH, RM, and RL 
categories and therapy CMIs are computed based upon these category 
means. The therapy CMI for a category is then used to calculate the 
therapy payment rate applied to all of that category's subgroups. For 
example, the RU therapy CMI and corresponding rate are applied across 
the RUX, RUL, RUC, RUB, and RUA groups. Because the therapy CMIs and 
therapy rate components are computed at the category level, the sample 
sizes are considerably larger than some comments suggest.
     We recognized that the nursing time sample sizes were 
quite small for some individual RUG groups, especially those with 
tertiary splits (based on nursing rehabilitation and depression) and 
for the ``Rehabilitation plus Extensive'' groups. To address this 
problem, we used regression-based estimation procedures to develop 
group means and CMIs for these groups. For example, the individual 
combined Rehabilitation-Extensive Services RUG-IV groups (for example, 
RUX) had very small sample sizes, with weighted sample sizes varying 
from less than 1 to 12 cases. Clearly, this was an insufficient number 
of cases in these individual groups to obtain reliable individual group 
means or reliable CMIs based on individual group means. Therefore, we 
developed a regression model to estimate the overall average increase 
in nursing time for providing extensive services to residents receiving 
rehabilitation, controlling for level of therapy and ADL dependence. 
The estimated average increase due to extensive services was based on 
comparison of all Rehabilitation-Extensive Services residents (49 
sample weighted cases) versus all Rehabilitation-only residents (1,261 
sample weighted cases). The nursing time estimate for each 
Rehabilitation-Extensive Services group was then calculated as the 
nursing time mean for Rehabilitation-only residents with the same level 
of rehabilitation and ADL dependence plus the estimated average 
increase due to extensive services. For example, the nursing time 
estimate for RUX was calculated as the mean for RUC plus the average 
extensive services increase. This estimate is based on much larger 
sample sizes and is, therefore, much more reliable than individual 
Rehabilitation-Extensive Services group means. Similar models and 
adjustments were made for the depression and restorative therapy 
splits.
     The RUG-IV model, like previous RUG models, is structured 
and contains implicit assumptions about the ordering of group means. 
One assumption is that within a category, payment rates will increase 
as the ADL score (and ADL dependence) increases. A second assumption is 
that within a corridor of ADL scores, payment rates will decrease as 
one moves down the hierarchy. Exceptions to these constraints are 
called rate inversions and are to be avoided because of the perverse 
incentives they can create (for example, when a resident qualifies for 
more than one group and would produce a higher payment in a lower group 
with fewer services being provided). A considerable effort was made to 
examine the individual group means, CMIs, and rates for possible 
inversions, and to make adjustments where necessary to fix these 
inversions. Inversions were fixed employing the regression models 
described above and by smoothing techniques (for example, computing the 
weighted mean of two groups that had a small inversion and using that 
weighted mean as the basis for computing the rate for those two 
groups). Some of the observed inversions were in groups with small 
sample sizes and may have been the result of imprecise estimates of the 
group means. The smoothing and estimation procedures described above 
produced payment rates that, with a few exceptions, conformed with the 
RUG model's hierarchical constraints. Most exceptions where rate 
inversions remained involved the following rare groups (with sample 
weighted number

[[Page 40307]]

of cases in parenthesis): RHL (8 cases), RML (10 cases), RLX (0 cases), 
RLB (21 cases), and RLA (24 cases)). The only inversions involving 
larger groups were LD1 and CD1 versus PD2. Because the means, CMIs, and 
rates were constrained as discussed above, and were adjusted where 
necessary to conform with these constraints, the impact of any 
statistical imprecision due to small sample sizes was mitigated.
     Finally, regarding those comments which stated that the 
lack of sampling precision associated with some RUG groups meant that 
the STRIVE results were too imprecise to be used with confidence for 
rate setting, we note that the logic of PPS models is that they 
successfully predict cost, and that payment rates that are based on 
those models will be accurately aligned with actual cost. The net 
result will be that providers will be paid in proportion to the cost of 
providing care to their residents. Nevertheless, PPS models do not 
perfectly predict cost, and there is error inherent in using such PPS 
models. This is true of the diagnosis-related group (DRG) model used 
for acute hospitals, the case-mix group (CMG) model used for inpatient 
rehabilitation hospitals, and the home health resource group (HHRG) 
model used for home health care. It has been recognized since the late 
1980s that these models are not perfect predictors of cost. In fact, in 
2002, a Report to Congress (``Prospective Payment System for Inpatient 
Services in Psychiatric Hospitals and Exempt Units,'' available online 
at http://www.cms.hhs.gov/InpatientPsychFacilPPS/downloads/rptcongress.pdf) discussed the historical limitations of PPS systems 
generally in terms of predicting resource use, and a June, 2008 MedPAC 
report (available online at http://www.medpac.gov/documents/Jun08_EntireReport.pdf) noted that PPS models do not perfectly predict cost. 
Thus, all of the Medicare PPS models account for only a portion of the 
variance associated with cost. Our analysis shows that, with sampling 
weights applied and using the full sample, the RUG-IV model accounts 
for 41.5 percent of the variance in nursing time. This statement does 
not mean that the RUG-IV model should not be used for rate setting. In 
fact, using the STRIVE sample, the RUG-IV variance explanation is 
higher than the 29.1 percent variance calculated for RUG-III.
    As discussed above, there will always be a certain amount of error 
associated with payment rates. For the SNF PPS, much of this inaccuracy 
is ``averaged out'' when payment is made to a facility for a large 
number of days and for multiple residents. That small sample sizes and 
some degree of sampling error may contribute to this overall estimation 
error does not mean that rate setting cannot be performed with an 
acceptable level of accuracy.
Random Nature of the STRIVE Sample
    Comment: Several commenters argued that the STRIVE sample is not 
random, making it unreliable for projecting patient acuity in the 
development of the new RUG-IV system. One commenter suggested that, 
while there is insufficient information to make a conclusive finding on 
this point, the potential exists that the STRIVE sample is fatally 
flawed due to the presence of bias.
    A few commenters noted that at the last stage of the design, 
facilities had to be sub-sampled if the facilities were too large to be 
observed in their entirety. Due to a lack of PDAs and data monitors, 
data collection was limited to a portion of the facility, be it one or 
more floors, or one or more units. The subsample was selected by the 
project staff in consultation with facility management. The commenters 
stated that the subsampling was not conducted using any randomization 
method, and may have introduced bias to the sample and data collection.
    Generally, several commenters argued that because the STRIVE 
sampling plan relied upon voluntary participation, sample selection was 
not random and may have introduced sampling biases.
    Response: Selection of the STRIVE sample involved a number of 
steps, and we have acknowledged in public documentation and at several 
TEP meetings that non-random selection was used, by necessity, at 
several steps in this process. Specifically, States volunteered for 
selection and were not selected randomly. Nursing homes volunteered to 
participate and were, therefore, not selected randomly. Finally, in 
larger facilities where the entire nursing home could not be studied, 
nursing units within the nursing home were selected based upon a pre-
determined protocol, rather than using a random procedure.
    While we sought to utilize random processes where possible (for 
example, the list of facilities that were invited to participate in the 
study in each State was generated using a random procedure), the nature 
of this study precluded the use of strictly random selection. Because 
CMS did not have the authority to compel any State or nursing home to 
participate in the study, it was impossible to use a strictly random 
procedure for selecting States or nursing homes. Further, in larger 
nursing homes where all nursing units could not be included in the 
study, it was not possible to select nursing units randomly for 
inclusion in the study, because this could have introduced difficult 
logistical problems for data monitors if the selected nursing units 
were located on different floors of a building or different buildings 
on a campus.
    It was, therefore, apparent from the outset of the study that the 
sampling design would have to accommodate non-random selection 
procedures. Potential problems that could be introduced by the use of 
non-random selection were addressed in several ways.
    First, random procedures were used whenever possible, such as for 
generating lists of facilities that were invited to participate in the 
study. Second, where random processes were not feasible, we developed 
protocols that described exactly how selection was to occur. For 
example, we used a detailed decision tree to select nursing units in 
larger facilities. This protocol was uniform across nursing homes and 
applied by the project staff who managed the study. Use of these 
protocols eliminated important types of bias (for example, selecting a 
nursing unit because it was deemed more efficient or of better 
quality). Third, we directly assessed the study's sampling error and 
quantified its precision statistically. Fourth, we developed sampling 
weights based on the sample design that adjust the sample for over- or 
under-sampling and produced sample estimates that were not biased by 
the design itself. A number of analyses were performed comparing the 
STRIVE sample with national OSCAR and MDS databases to determine the 
degree to which the sample was representative (that is, the degree to 
which the sample resembled the population on important variables). The 
results of these analyses are described later in this final rule.
Sample Representativeness
    Comment: Some commenters questioned the overall representativeness 
of the STRIVE sample, stating it was biased due to a number of factors. 
Commenters stated that CMS had not made sufficient information 
available to show that the sample can be relied upon to generalize 
nationally. Commenters also questioned whether the actual sample being 
smaller than the original project goal affected the sample 
representativeness, and questioned whether the sample methodology had 
taken these differences from the planned design into account. In 
addition, a commenter

[[Page 40308]]

asserted that CMS has not presented any evaluation or validation of the 
study in the publicly available documents.
    Another bias factor mentioned by commenters was geographic 
location. Specifically, the commenters indicated that the STRIVE sample 
size was too small to be nationally representative, that important 
States were omitted from the sample, and that the 15 States that were 
included in the sample were not representative of the nation. It was 
also noted that in four States, we drew facilities from only a portion 
of the State and that this could have introduced additional geographic 
bias. In order to demonstrate the potential biases introduced by these 
geographic selections, several comments included analyses showing 
statistically significant differences in claims, OSCAR, and MDS data 
between the 15 States that were included in the sample and the 
remaining States in the nation. Commenters were concerned that no data 
were collected from the Mid-Atlantic or New England regions, California 
and Oregon, or in the area the commenter characterized as the ``entire 
mid-section'' of the country. One commenter noted that the initial 
STRIVE collection methodology was tested in one center in Maryland and 
that none of the preliminary data from that center were considered.
    Some commenters argued that there is greater relative resource use 
with significantly higher costs in those missing States than in the 
STRIVE States, as well as the nation overall. The commenters indicated 
that the operating characteristics of the facilities in the STRIVE 
States do not appear to be representative of the characteristics of the 
facilities in the other States.
    Another commenter questioned CMS's reference to Canadian data, 
given the significant differences in the health systems between the two 
countries. The commenter asked CMS to explain how and why Canadian data 
were used, and how such data can be considered representative of New 
England States, the Mid-Atlantic States, the Southeastern States, and 
California.
    One commenter asserted that the participating States were not 
representative of SNFs nationwide, and that the STRIVE sample likely 
may be weighted in a manner that reflects care patterns in rural areas 
and facilities more than in urban facilities. The commenter argued that 
the STRIVE sample only included 2 of the 7 States with a high urban 
ratio (the District of Columbia, and 4 Florida facilities) where more 
than 90 percent of facilities are in an urban region. The commenter 
believed that selecting the majority of the participating States from 
the remaining 44 States (where the urban-to-rural ratio is about 70 
percent to 30 percent) biased the sample.
    One commenter submitted a regression analysis suggesting that the 
RUG costs, both overall and by RUG-53 category, are different in STRIVE 
States when compared to non-STRIVE States, indicating that the STRIVE 
relative weight structure could be non-representative. The commenter 
believed that the perceived lack of representativeness calls into 
question the validity and appropriateness of the updated weights and 
the re-categorization of residents who were key to the STRIVE project 
and critical to the design of RUG-IV. In addition, several commenters 
asserted patients evaluated in the STRIVE sample may not be 
representative of the actual acuity of most SNF residents nationwide.
    Finally, a commenter claimed that CMS failed to make publicly 
available sufficient information to allow for an external evaluation of 
the impact. As a result, the commenter concluded that it is not known 
how much bias might have been added to the estimators of the mean staff 
time due to these nonsampling errors. The commenter recommended 
performing further analysis of the current sample before implementing 
the RUG-IV model, in order to determine whether and to what extent the 
sample might have been affected by these potential biases.
    Response: In response to these comments, we note first that it 
would have been best to base the sample on either a random selection of 
States or on all States in the nation. However, as noted above, this 
was not possible given the study's resources and the voluntary nature 
of the study. We note also that the sample included both populous and 
small States, predominantly urban and predominantly rural States, and 
States that were spread geographically across the country. Thus, we 
disagree with commenters that believe the study's sample size and 
geographic scope were insufficient or led to undue bias.
    Of course, in any sample that includes less than all of the States 
(or indeed, less than all facilities throughout the country), it is 
always possible to question whether the sample is sufficiently 
representative of the nation as a whole. While some commenters 
suggested that selecting facilities in only 2 of the 7 States with the 
highest urban-to-rural ratios might have understated STRIVE acuity 
levels, it is equally possible that oversampling the States with 
atypical population distributions could have resulted in the opposite 
effect. However, whether the STRIVE sample is representative can be and 
was tested by comparing data from STRIVE with national data to 
determine the degree to which the sample statistics match with national 
statistics. Some commenters noted that the data and analyses that were 
previously presented were insufficient to judge the degree of sampling 
bias that was present. We have, therefore, performed supplemental 
analysis which will be presented later in this section.
    It is true, as some commenters noted, that our actual sample size 
of 205 nursing homes was smaller than the goal of 238 nursing homes 
that was set at the beginning of the study. While it is always 
preferable to have a larger sample size, we were unable, given 
available time and resources, to achieve the initial goal. During the 
planning phase of the study, we projected the expected margins of error 
using various sample sizes, including the size that was actually 
achieved. All things being equal, precision is always better when the 
sample size is larger, but we determined that the incremental precision 
that would have been achieved with 238 facilities was small and that 
the sample size that was actually achieved was sufficient to meet the 
analytic goals of the study.
    Regarding the comment that questioned CMS's reference to Canadian 
data, we note that in fact, the Canadian data were not merged with the 
STRIVE sample at all. Instead, we worked with Canadian officials who 
were developing their own STM study based on our efforts: CAN-STRIVE. 
We have shared data and discussed findings as a way of testing the 
accuracy of our own findings. For example, patients with similar 
characteristics and care needs required similar staff resources for 
treatment. In addition, the CAN-STRIVE project reports that applying 
our RUG-IV model to their data results in a variance explanation of 
weighted nursing time of 35.4 percent. This represents an independent 
and highly successful validation of the RUG-IV model. Far from being an 
inappropriate misuse of data, we believe that this inter-governmental 
collaboration actually serves to further the interests of both Canada 
and the United States. Similarly, data from 2 facilities, including 1 
in Maryland, that were used to pilot test the data collection process, 
were used to determine facility training needs and to finalize data 
collection procedures. These pilot facilities were crucial in testing 
protocols and, as a result of honest and open staff feedback, in 
modifying some of our original data collection methods. Since the data 
collection process was still under

[[Page 40309]]

development, we did not include the staff time data in the STRIVE data.
    Finally, in response to the commenters' concerns about our 
evaluation and validation of the study, a validation methodology was 
built into the STRIVE study. With the large sample size obtained, we 
reserved one third (3,253 observations) for validation: We did not use 
these reserved observations at all in the derivation of the RUG-IV 
classification. After the RUG-IV system was fully developed, we then 
tested it on the validation sample. Such a cross-validation procedure 
is standard statistical practice to ensure that a statistical model is 
not ``over-fitted,'' meaning that some of the relationships that appear 
to be statistically significant are merely noise. Cross-validation 
allows us to verify that the model will perform well in practice, will 
replicate well, and will have reasonably accurate predictive ability. 
The results showed that the derived system described in the proposed 
rule was robust. For example, the variance explanation of nursing time 
(sample weighted) of the RUG-IV system fitted to the derivation sample 
was 41.8 percent, while in the validation sample, the same statistic 
was 41.4 percent. Because the results have been cross-validated within 
the original STRIVE sample, we do not consider a separate validation 
study to be necessary, nor was a separate study part of the original 
STRIVE design. Further, the results of the CAN-STRIVE project, reported 
above, serve as a second type of model validation.
    Comment: Some commenters asserted the sample was biased due to 
voluntary self-selection of nursing homes that agreed or refused to 
participate in the study. Commenters questioned the selection of 
facilities based on the number of facilities the data monitors were 
able to visit, indicating the sample size within the State was driven 
by resource constraints on how many facilities could be visited, which 
could introduce bias.
    Another voluntary sampling issue raised by the commenters was the 
selection of facilities until enough facilities agreed to participate. 
Bias could be introduced here when such factors as resources or staff 
availability could influence the decision of a facility to agree or not 
agree to participate.
    A few commenters questioned the high non-response rate. The 
commenters noted that of the 837 sampled facilities, 100 were dropped 
by State agencies or CMS regional offices. Of the 737 eligible 
facilities, 523 were invited to participate, 214 (about 40 percent) 
agreed to participate, and 205 (about 39 percent) actually participated 
in the study. The STRIVE sample survey literature indicates that 
voluntary response samples are biased, as people with strong opinions 
or atypical institutions tend to respond.
    Response: As with geographic selection, we would have preferred a 
design where self-selection was not a factor. However, as noted above, 
CMS did not have the authority to require participation in the study if 
a facility was randomly selected for inclusion. As discussed in 
published documentation, only 40.9 percent of the facilities invited to 
participate in STRIVE agreed to be part of the study. This acceptance 
rate is not surprising considering participation required a fairly 
large commitment of time and resources on the part of the nursing home. 
Like those who commented on this issue, we were concerned that this 
self-selection might have introduced biases. In particular, we were 
concerned that only those facilities with better staffing levels might 
agree to participate because of the time involved in being part of the 
study.
    We tested this possibility using OSCAR staffing data. Staffing data 
were cleaned using standard CMS algorithms to remove erroneous data, 
and were matched to the STRIVE data. For each nursing home in the 
database, both STRIVE and non-STRIVE, we computed the number of staff 
minutes per resident day for RNs, LVNs, and aides separately. Table 10 
shows the mean minutes per resident day by staff type for the following 
groups of STRIVE nursing homes in the first 3 rows: (1) STRIVE nursing 
homes that were eliminated from consideration by State and Regional 
staff, (2) STRIVE nursing homes that were invited but declined to 
participate, and (3) STRIVE nursing homes that participated in the 
study. We also show three national groups of nursing homes: (4) All 
nursing homes nationally that passed the QI/QM and survey deficiency 
quality data screens, (5) all nursing homes nationally that failed the 
quality data screens, and (6) all nursing homes nationally. Note that 
the number of facilities shown in Rows 1, 2, and 3 of the table are 
slightly lower than those in previously published documentation, 
because not all STRIVE facilities could be matched to OSCAR data.

                                                    Table 10
----------------------------------------------------------------------------------------------------------------
                                                           Mean minutes per resident day
      Row             Group      -------------------------------------------------------------------------------
                                   Nursing homes        RNs            LVNs            Aides           Total
----------------------------------------------------------------------------------------------------------------
                                              STRIVE Nursing Homes
----------------------------------------------------------------------------------------------------------------
1.............  Eliminated by                 90            32.2            49.3           144.9           226.4
                 States and
                 regions.
2.............  Declined to                  287            37.4            46.8         * 136.5         * 220.7
                 participate.
3.............  Participated....         \1\ 198            34.4            54.7           146.7           235.9
----------------------------------------------------------------------------------------------------------------
                                             National Nursing Homes
----------------------------------------------------------------------------------------------------------------
4.............  Passed quality            13,419            38.2            47.4           141.3           226.9
                 data screens.
5.............  Excluded by                1,149            38.1            51.8           138.6           228.6
                 quality data
                 screens.
6.............  All facilities..          14,636            38.2            47.8           141.1           227.1
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ There were 205 nursing homes that participated in the STRIVE study, but only 198 could be matched to OSCAR
  data.
*Asterisks indicate statistically significant differences between the values in Rows 1, 2, or 3 compared with
  corresponding values in Row 4.

    The proper basis for comparison between the STRIVE sample groups 
and the nation is Row 4: Facilities that passed the quality data 
screens. As part of the design, we excluded about 8 percent of all 
nursing homes nationally from the sampling frame that had very poor QI, 
QM, or survey deficiency histories (Row 5). Since these nursing

[[Page 40310]]

homes were not in the sampling frame, we would not necessarily expect 
the staffing levels of STRIVE nursing homes to match their staffing 
levels. Therefore, statistical comparisons were made between 
corresponding values in Rows 1, 2, and 3 and the values in Row 4. 
Asterisks indicate values that are significantly different (p < 0.05) 
from the values in Row 4.
    The three groups of STRIVE nursing homes matched the national 
statistics in Row 4 fairly well. Nursing homes that declined to 
participate (Row 2) had significantly lower aide and total time, but 
the staff times for nursing homes that completed the study were not 
significantly different from the nation. Therefore, we conclude that 
the factors related to self-selection did not create a sample that was 
biased (upwards) in staff time.
    We do not agree with the comment that resource constraints on the 
number of facilities that data monitors could visit may have introduced 
another source of bias. When a State agreed to participate in the 
study, an evaluation was made of the number of facilities that the data 
monitors would be able to visit. The sample size for the State was 
agreed upon before the sample was drawn. These resource constraints, 
therefore, could not have produced a sample bias.
    Comment: A few commenters expressed concern that the STRIVE project 
did not specifically address short-stay patients. They were concerned 
that, when collecting data, we excluded short-stay patients from the 
study and only used data for patients with lengths of stay of 7 or more 
days. They indicated that short-stay patients, especially those with 
hospital readmission, tend to be unstable and have higher acuity and 
resource utilization.
    Response: The purpose of the STRIVE project was to update the 
existing RUG-III case-mix classification system that was introduced on 
July 1, 1998. While the RUG-III model does not include a separate 
classification structure for short-stay patients, short-stay patients 
were included in the original study. Similarly, when collecting the 
STRIVE data, we included a variety of patients from new admissions to 
longer-term or chronic patients. For each unit in the test sample, we 
included patients who were admitted prior to or on the study start 
date, and who remained in the facility for the two days on which we 
collected nursing staff time data. The nursing staff time for these 
patients was included in the STRIVE data. The confusion may have arisen 
because we limited the collection of therapy data to patients who were 
nursing home patients for the entire 7 days when therapy data were 
collected.
    During the past few years, we have been conducting analyses on 
episodes of care (that are separate from STRIVE) and are concerned that 
episodes of care increasingly show repeated transfers between acute and 
post acute care. We agree with the commenters that these short-stay 
admissions appear to be more costly, but we have not yet determined the 
reasons for these transfers. It is not clear whether the primary 
reasons for frequent readmission to an acute care setting reflect 
hospital discharge patterns, SNF care practices, or a combination of 
both. Until more research is available, we do not believe it would be 
appropriate to establish a separate payment structure for short-term 
patients. In the future, we hope to include an analysis of short-stay 
patients as part of other post-acute health care reform initiatives. In 
this way, we can make appropriate adjustments as we develop the next 
generation of post acute care payment systems.
    Comment: A few other commenters who questioned the omission of 
short-stay patients suggested that the omission of this sizable and 
expensive population would likely skew both nursing time and the 
nursing index, while raising questions about the appropriateness of the 
reclassification of SNF residents within the RUG hierarchy. These 
commenters submitted data that they believed showed the following:
     This short-stay SNF resident population has substantially 
higher acuity and substantially higher resource utilization.
     Very short stay SNF residents account for over 21.0 
percent of SNF stays.
     The omission of this critical population may well have 
underestimated and skewed the reclassification of SNF residents and the 
nursing and therapy weights that underlie the proposed RUG-IV system.
     Given that these very short stay, higher acuity residents 
generally would not be captured in the STRIVE data, the conclusion of 
the STRIVE project concerning resource utilization of SNF residents who 
received extensive services in the hospital may be wrong.
    Response: It is true that some patients with very short stays 
(discharge within two days of admission) were not included in the final 
STRIVE results. This occurred because residents were excluded unless 
complete nursing time was available for both days of the nursing time 
study in a facility. If a resident was admitted or discharged on a 
nursing time study day, then only incomplete nursing time data were 
available for that day, and inclusion of the resident would have 
resulted in an underestimation of nursing time. This led to exclusion 
of residents with a length of stay of 2 days or less (as well as any 
other residents seen in the first or last 2 days of their longer stay).
    However, we do not believe that excluding patients with stays of 2 
days or less skewed the nursing time and nursing case-mix weights. The 
STRIVE methodology only excluded nursing facility stays with lengths of 
stay of 1 or 2 days. Other short SNF stays (for example, length of stay 
of 3 days) were included in all analyses.
    We note that the results submitted by one commenter indicating that 
short-stay SNF residents have higher acuity were based on the MS-DRG 
CMIs for the cost of hospital care preceding the SNF stay rather than 
on the cost of the SNF stay itself, and that using the hospital cost as 
a proxy for the SNF cost might not be accurate. Further, the hospital 
CMIs do not show ``substantially higher resource utilization'' for 
short stays excluded by STRIVE (1 to 2 days) versus short stays 
included by STRIVE (for example, 3 to 7 days). The MS-DRG CMI decrease 
for 3- to 7-day stays versus 1- to 2-day stays is 2.9 percent for 
short-stay SNF patients readmitted to the hospital, 4.1 percent for 
short-stay SNF patients who die in the SNF after a short stay, and 3.0 
percent for short-stay SNF patients who are discharged to another 
setting. While the hospital acuity for the very short 1- to 2-day stays 
is somewhat higher than 3- to 7-day stays, it certainly is not 
``substantially higher.''
    Again, we were very concerned by the assertion that very short 
stays involving 21 percent of all SNF stays were excluded, and after 
reviewing the data carefully, we found the claim to be at least 
partially inaccurate. The 21 percent of stays refers to stays involving 
1 to 7 days. STRIVE only excluded 1- to 2-day stays, and this comprises 
only 5.4 percent of all SNF stays. Even this 5.4 percent of stays 
greatly overestimates the actual impact of the excluded stays. The 
excluded very short stays of 1 to 2 days represent only 0.2 percent of 
all SNF paid days of service for a year. We do not believe that 
excluding these stays has much impact at all on (a) patterns of 
resident classification, (b) the nursing and therapy weights underlying 
RUG-IV, or (c) the resulting payments to providers. However, we do 
believe that additional research is needed to determine the reasons for 
the high

[[Page 40311]]

volume of discharges within the first 7 days of SNF admission.
    Finally, exclusion of very short 1- to 2-day stays does not 
invalidate STRIVE project results concerning resource utilization of 
SNF residents who received extensive services in the hospital. Pre-
admission hospital services were captured for residents who were 
admitted 1 to 6 days before the nursing staff time study, as long as 
they were not discharged during that 2-day study. The STRIVE results 
included over 500 residents who were assessed for extensive services 
received in the hospital within 7 days prior to SNF admission. Thus, 
the exclusion of very short 1- to 2-day stays did not preclude valid 
analysis of pre-admission extensive services.
    Comment: A few commenters stated that we should have stratified by 
the type of assessment for each resident (5-, 14-, 30-, 60-, 90-day, 
quarterly, annual, etc.), and indicated that not doing so could have 
introduced biases. One commenter referenced MedPAC's analysis that 
resource use and case-mix can frequently vary by provider type, noting 
that in California, hospital-based SNFs tend to provide more medically-
intensive services to a more acutely ill and injured patient population 
than do freestanding SNFs. The commenter indicated that in the proposed 
rule, it is unclear that CMS measured STRIVE data differences between 
hospital-based and freestanding SNFs, and argued that if these 
differences remain unmeasured and unaccounted for, they will ultimately 
lead to less accurate payment under RUG-IV and perpetuate the 
persistent decline of hospital-based SNFs.
    Response: We note that it would not have been possible to perform 
such stratification given our study design. Once a nursing home and its 
nursing units were selected for inclusion in the study, all residents 
within those nursing units were included in the study regardless of any 
other characteristic, including the type of assessment that was due 
next. Because the sample-weighted STRIVE sample represents a cross-
section of nursing home residents nationally, we believe that the 
sample should approximate the national distribution with regard to the 
type of assessment that is due next for each resident.
    Moreover, while we recognize that hospital-based, proprietary, and 
nonprofit SNFs have some different facility characteristics, CMS does 
not have the authority to create separate classification models by 
provider type. During the STRIVE project, we did collect data on all 3 
provider types for future analysis. In this way, we can continue to 
monitor the accuracy of our payment system and adjust for changes in 
patient acuity and staff resource needs.
    Comment: Some commenters alleged that the sample under-represented 
Medicare residents, specifically those in a Medicare Part A stay. They 
asserted that the number of weighted Medicare cases in the STRIVE 
sample represented only 14.1 percent of the sample, while Medicare 
cases comprise 35 percent of national MDS data.
    Response: This statistic apparently was derived from an analysis of 
the national MDS database in which each assessment was classified as 
PPS or non-PPS and in which the percent of assessments that were PPS 
was considered to be identical to the percent of residents who are 
Medicare residents. However, we believe this 35 percent figure is 
misleading for two reasons. First, we have performed work where we have 
matched Medicare Part A claims with MDS data, and have observed that a 
fairly large proportion of assessments that have a PPS reason for 
assessment are not actually linked with a SNF stay. Thus, depending 
upon MDS PPS assessments to identify Medicare residents leads to an 
overestimate of the number of those residents. Second, if the comment 
was based upon an analysis of a longitudinal data set, for example, a 
year's worth of MDS data, rather than a cross-section, the Medicare 
percentage will be further inflated. One reason for this is that 
Medicare residents have shorter lengths of stay and higher turnover 
than non-Medicare residents and, therefore, are over-represented when 
data are analyzed longitudinally. In addition, Medicare residents have 
more assessments per resident than non-Medicare residents, because PPS 
assessments must be completed more frequently than OBRA assessments. 
Therefore, the longitudinal approach will over-represent the number of 
Medicare residents present on any given day.
    In order to produce counts that can be validly compared with the 
STRIVE data, an MDS snapshot must be produced that represents the 
latest assessment for each resident who is active on a given day. As 
part of our sampling process, we built a snapshot file for March 1, 
2006 and matched Part A claims with this file. Based upon this 
analysis, we estimated that about 13.5 percent of nursing home 
residents are in SNF stays, which closely matches the national estimate 
from the STRIVE sample (14.1 percent).
    Comment: One commenter presented a series of tables that compared 
STRIVE statistics on a number of MDS variables with corresponding 
statistics from the MDS national database. These tables broke down both 
the STRIVE sample and the national statistics by Medicare versus non-
Medicare, and purported to show not only that Medicare distributions 
were different from non-Medicare distributions, but that the STRIVE 
distributions were different from the national distributions, thereby 
demonstrating significant bias in the STRIVE sample.
    The commenter stated that unlike the change from RUG-44 to RUG-53, 
the estimate of distribution of days under the proposed RUG-IV is not 
directly calculated based on a linked MDS/claims data file, but rather, 
inferred using the STRIVE data to estimate the distribution of paid 
days in each of the RUG-66 groups. The commenter questioned the 
accuracy of the payment impact analysis based on these estimated 
distributions.
    Response: For the reasons described previously, we believe that the 
commenter's analyses are flawed in how they classified the national 
data as Medicare/non-Medicare. While we acknowledge that there are 
clinical differences between Medicare and non-Medicare residents, these 
analyses appeared to reflect the premise that all STRIVE analyses were 
based upon Medicare residents only and that the results are, therefore, 
misleading when applied to the nation, stating, ``STRIVE uses the 
Medicare portion of the sample to refine the existing Resource 
Utilization Group (RUG) classification system.'' However, this 
statement is incorrect. STRIVE RUG development used both Medicare and 
non-Medicare cases, relying upon a \2/3\ development sample and a \1/3\ 
validation sample that included both types of cases. Furthermore, the 
calculation of mean nursing and therapy times that served as the basis 
for CMI calculation was based upon all valid cases. The only time that 
we limited analysis to Medicare cases was in producing the transition 
matrix used in estimating RUG-IV Medicare days of service from actual 
RUG-III paid days of service. All other development and rate setting 
analyses used both Medicare and non-Medicare cases.
    It is true, as noted in the comments, that the fiscal estimates 
hinge upon the Medicare transition matrix. Ideally, fiscal estimates 
would be based upon an existing national assessment database. However, 
RUG-IV classifications cannot be performed on existing MDS 2.0 data, 
and MDS 3.0 will not be implemented for over a year, so the only way to 
make financial projections based on currently

[[Page 40312]]

available data is with the transition matrix.
    We do not agree, however, that this is a critically flawed 
methodology. While there may be instances in which estimates for 
individual RUG-IV groups are not precisely accurate, any estimation 
errors should be random, with estimates for some groups being too high 
and others being too low compared with actual values. When estimates 
are made across all groups, however, these random estimation errors 
will tend to offset each other, and the overall estimates will have 
much greater precision.
    Further, the fiscal impact estimates have other sources of error 
(for example, changes in provider behavior, changes in the cost of 
specific services, etc.) that cannot be remedied even if a national MDS 
3.0 database were available. Estimation error due to the STRIVE 
transition matrix is likely to be a relatively small portion of the 
total error. Therefore, we believe that the overall fiscal estimates 
are as precise as possible, given the uncertainties associated with 
implementing a new payment model.
    Finally, we recognize the difficulty of implementing changes to a 
payment system that cannot be verified by a review of historical data. 
In this case, we estimated changes to the distribution of paid days 
across the RUG-IV model, because the RUG-IV grouper utilizes clinical 
data that will not be collected until we introduce the MDS 3.0. In 
adopting this methodology, we recognize that there is a tradeoff 
between timely updating of the case-mix system to ensure more accurate 
distribution of SNF PPS payments and the potential weakness of using 
estimated data. For this reason, we have committed to post-
implementation monitoring of the accuracy of the system calibration. We 
will, if needed, recalibrate the CMIs in the RUG-IV model using actual 
data if our analyses indicate that an adjustment is needed.
    Comment: A number of commenters expressed concern about overall 
sample bias, specifically questioning how accurately the STRIVE sample 
represents residents nationally. One commenter stated the patient mix 
in the STRIVE sample is not representative of the national SNF Medicare 
cases, and thus, is not reliable in developing the RUG-IV system. The 
commenter asserted that based on the information available, it is 
readily apparent that the STRIVE sample is not representative and 
cannot be used as a basis for redefining the RUG system. The commenter 
argued that comparisons of behavioral and activity-level responses 
between STRIVE Medicare cases and Minimum Data Set 2.0 (``MDS'') 
Medicare cases reveal a significant disparity, and offered the 
following as examples:
     The activities of daily living (``ADL'') Index component 
for Self-Performance item G1aa (Bed Mobility Self-Performance) reveals 
a significant difference between the STRIVE Medicare cases and MDS 
Medicare cases for the Extensive Assistance category.
     Similarly, the ADL Index component for Self-Performance 
item G1ba (Transfer Self-Performance) shows a significant difference 
between the STRIVE Medicare cases and MDS Medicare cases for the 
Extensive Assistance categories.
     The ADL Index component for Self-Performance item G1ha 
(Eating Self-Performance) shows a significant difference between the 
STRIVE Medicare cases and MDS Medicare cases for the Extensive 
Assistance category.

     Finally, the ADL Index component for Self-Performance item 
G1ia (Toilet Use Self-Performance) shows a significant difference 
between the STRIVE Medicare cases and MDS Medicare cases for the 
Extensive Assistance category.
Thus, the commenter stated that the comparison of behavioral and 
activity-level responses between STRIVE Medicare cases and MDS Medicare 
cases provides additional support for the commenter's conclusion that 
there are serious issues with the representativeness of the STRIVE 
sample.
    Response: As discussed above, we acknowledge that there were 
factors in the sampling procedures which, though unavoidable, may have 
introduced sampling bias. To test this, we assembled a snapshot 
database of MDS data and compared the results with the STRIVE sample on 
selected variables.
    Table 11 compares STRIVE statistics for the entire sample with 
national MDS statistics. For these comparisons, a cross-section of MDS 
data was selected, which contained the latest assessment for every 
resident who was active in a nursing home on a given date. March 1, 
2006 was selected for this analysis, so that the data would be as 
contemporaneous as possible with the STRIVE data. Variables important 
to case-mix determination were selected for analysis. Chi-square tests 
were performed to determine whether the distribution of scores on each 
variable deviated significantly from the national distribution. The 
columns in Table 11 show the MDS variable, the number and percent of 
cases for each value of the variable for the nation and for STRIVE, and 
an indicator of whether or not the chi-square test showed the STRIVE 
distribution to be significantly different from the national 
distribution.

                                                    Table 11
----------------------------------------------------------------------------------------------------------------
                                                 MDS national snapshot    STRIVE: sample weighted
        MDS variable               Value      ----------------------------------------------------  Signif diff
                                                  Freq         Pcnt         Freq         Pcnt        (p < 0.05)
----------------------------------------------------------------------------------------------------------------
G1AA (bed mobility self-      0. Independent.    393,296         28.4%       2,724         27.9%   Yes.
 performance).
                              1. Supervision.     86,778          6.3          612          6.3
                              2. Limited         241,342         17.4        1,638         16.8
                               assist.
                              3. Extens          438,795         31.7        2,871         29.4
                               assist.
                              4. Total depend    224,203         16.2        1,918         19.6
                              8. Did not             634          0.0            2          0.0
                               occur.
                                              ----------------------------------------------------
                               Total.........  1,385,048        100.0        9,766        100.0
                                              ====================================================
G1BA (transferring self-      0. Independent.    271,891         19.6        1,600         16.4    Yes.
 performance).
                              1. Supervision.     96,985          7.0          602          6.2
                              2. Limited         258,049         18.6        1,946         19.9
                               assist.
                              3. Extens          432,545         31.2        3,115         31.9
                               assist.
                              4. Total depend    313,808         22.7        2,410         24.7
                              8. Did not          11,817          0.9           93          0.9
                               occur.
                                              ----------------------------------------------------

[[Page 40313]]

 
                               Total.........  1,385,095        100.0        9,766        100.0
                                              ====================================================
G1HA (eating self-            0. Independent.    599,025         43.2        3,556         36.4    Yes.
 performance).
                              1. Supervision.    327,129         23.6        2,448         25.1
                              2. Limited         128,760          9.3        1,046         10.7
                               assist.
                              3. Extens          123,645          8.9        1,019         10.4
                               assist.
                              4. Total depend    206,050         14.9        1,696         17.4
                              8. Did not             478          0.0            1          0.0
                               occur.
                                              ----------------------------------------------------
                               Total.........  1,385,087        100.0        9,766        100.0
                                              ====================================================
G1IA (toileting self-         0. Independent.    206,103         14.9        1,048         10.7    Yes.
 performance).
                              1. Supervision.     79,396          5.7          450          4.6
                              2. Limited         215,647         15.6        1,548         15.9
                               assist.
                              3. Extens          451,917         32.6        3,338         34.2
                               assist.
                              4. Total depend    427,881         30.9        3,181         32.6
                              8. Did not           4,154          0.3          200          2.1
                               occur.
                                              ----------------------------------------------------
                               Total.........  1,385,098        100.0        9,766        100.0
                                              ====================================================
Verbal/physical abuse.......  No.............  1,373,940         99.2        9,737         99.3    No.
                              Yes............     11,173          0.8           66          0.7
                                              ----------------------------------------------------
                               Total.........  1,385,113        100.0        9,802        100.0
                                              ====================================================
K5A (perenteral/IV).........  No.............  1,343,588         98.3        9,634         98.3    No.
                              Yes............     22,972          1.7          163          1.7
                                              ----------------------------------------------------
                               Total.........  1,366,560        100.0        9,798        100.0
                                              ====================================================
K5B (feeding tube)..........  No.............  1,295,170         93.7        9,036         92.2    Yes.
                              Yes............     87,738          6.3          762          7.8
                                              ----------------------------------------------------
                               Total.........  1,382,908        100.0        9,798        100.0
                                              ====================================================
P1AC (IV medication)........  No.............  1,255,886         91.7        9,138         93.3    Yes.
                              Yes............    113,052          8.3          661          6.7
                                              ----------------------------------------------------
                               Total.........  1,368,938        100.0        9,799        100.0
                                              ====================================================
P1AG (oxygen therapy).......  No.............  1,198,577         87.6        8,656         88.3    Yes.
                              Yes............    170,392         12.4        1,143         11.7
                                              ----------------------------------------------------
                               Total.........  1,368,969        100.0        9,799        100.0
                                              ====================================================
P1AI (suctioning)...........  No.............  1,354,628         99.0        9,595         97.9    Yes.
                              Yes............     14,356          1.0          203          2.1
                                              ----------------------------------------------------
                               Total.........  1,368,984        100.0        9,799        100.0
                                              ====================================================
P1AJ (tracheostomy care)....  No.............  1,355,834         99.0        9,618         98.2    Yes.
                              Yes............     13,150          1.0          181          1.8
                                              ----------------------------------------------------
                               Total.........  1,368,984        100.0        9,799        100.0
                                              ====================================================
I1A (diabetes mellitus).....  No.............    971,074         71.0        6,824         69.6    Yes.
                              Yes............    397,044         29.0        2,975         30.4
                                              ----------------------------------------------------
                               Total.........  1,368,118        100.0        9,799        100.0
                                              ====================================================
I1V (hemiplegia/hemiparesis)  No.............  1,231,378         90.0        8,807         89.9    No.
                              Yes............    137,410         10.0          993         10.1
                                              ----------------------------------------------------
                               Total.........  1,368,788        100.0        9,799        100.0
                                              ====================================================
I1Z (quadriplegia)..........  No.............  1,358,262         99.2        9,722         99.2    No.
                              Yes............     10,531          0.8           77          0.8
                                              ----------------------------------------------------
                               Total.........  1,368,793        100.0        9,799        100.0
                                              ====================================================
M2A (stage 3 or 4 pressure    No.............  1,346,209         97.2        9,419         96.4    Yes.
 ulcer).

[[Page 40314]]

 
                              Yes............     38,827          2.8          348          3.6
                                              ----------------------------------------------------
                               Total.........  1,385,036        100.0        9,767        100.0
----------------------------------------------------------------------------------------------------------------

    While several of the variables that were analyzed showed no 
significant difference, there were significant differences between the 
sample and the nation on a number of other variables. On the ADLs, for 
example, there was a consistent trend for residents in the sample to 
show slightly more dependence than residents nationally. On each of the 
ADLs, the percent of STRIVE cases in the ``total dependence'' category 
exceeded the national percentage by between 1.7 and 3.4 percentage 
points. Conversely, the percent of residents in the ``independent'' 
category was lower for the STRIVE sample by between 0.5 and 6.8 
percentage points. The picture was mixed on the services items that 
displayed significant differences. Among these items, the STRIVE 
residents were slightly more likely to receive feeding tubes, 
suctioning, and tracheostomy care, but less likely to receive IV 
medications or oxygen therapy. Slightly more STRIVE residents had 
diabetes mellitus and Stage 3 or 4 pressure ulcers than was seen 
nationally.
    The overall picture from these comparisons is that the STRIVE 
sample has somewhat higher acuity than the nation. This could have been 
due to the last stage in the sample selection process, where nursing 
units within larger nursing homes were selected for inclusion in the 
study. In selecting units for inclusion, the protocol used by data 
monitors tended to favor SNF units and other specialty units that 
likely had higher acuity. Because of a lack of data that would have 
allowed for correction of this bias, it is possible that a greater 
proportion of higher-acuity residents were included in the sample, and 
that the sample weights did not correct for this.
    However, the impact of this bias should be small. First, while 
those differences displayed above were statistically significant due to 
the large sample sizes involved, they were not substantial. Second, the 
RUG-III and RUG-IV classification models are designed specifically to 
classify residents into groups with similar acuity levels; for example, 
ADL scores are used explicitly to subdivide residents falling into each 
of the major hierarchical groups. While the impact of this bias might 
have been to place slightly more residents into heavier care nursing 
groups, this bias should have been corrected when using national days 
of service (from claims data) to standardize the RUG-IV distribution.
    We note that even if the STRIVE sample's RUG distribution exactly 
matched the national cross-sectional distribution, this cross-sectional 
distribution must be standardized against the national days of service 
distribution, which accumulates paid days over an entire year. To the 
extent that the distribution of residents, even if perfectly 
representative of the nation, does not match the distribution of paid 
days, this standardization step is necessary. Thus, standardizing the 
RUG distribution to paid days should remove the relatively small amount 
of bias that was observed above.
Data Collection Process
    Comment: Some commenters noted the process for collecting therapy 
data from the participating sites resulted in several problems, 
highlighting inconsistencies in training, data-collection methods, and 
oversight for the therapists submitting data that they asserted 
affected the accuracy of the study. Commenters were concerned that the 
assessment instrument and accompanying ``instruction manual'' used in 
STRIVE was changed during the study. The implication was that any 
changes that were made could have weakened or invalidated the study.
    Response: The STRIVE data collection effort spanned approximately 
18 months. During that period, we updated our training materials based 
on feedback from participating facility staff. Updating and fine tuning 
the training materials and project protocols is a standard method used 
to ensure the collection of the most accurate data possible. We do not 
believe these changes weakened the effectiveness of the study. In fact, 
we would be more concerned about the reliability of any study where the 
project staff made no effort to enhance their training efforts over 
such a long collection period.
    As stated in our discussion of the collection and adjustment of 
therapy minutes, our analysis indicated that therapy minutes were 
underreported. When the therapists reported staff time data, we found 
it to be reasonably accurate. The problem was that therapists did not 
consistently report the services that they provided to patients. The 
omissions in the data collection process do not appear to be related to 
changes in the training process. We provided training and technical 
assistance to all therapists who participated in the study. STRIVE 
staff were available either onsite or by phone during the entire study, 
and the facility staff received copies of the training materials. While 
direct oversight of therapists' data collection for the entire 7-day 
time study period was not feasible, ample training and resource 
materials were available to guide them. However, some therapists simply 
did not submit data for the entire 7-day time study period. Again, we 
do not believe the underreporting can be associated with changes in the 
training manuals or in the data collection procedures.
    Comment: One commenter noticed that the proposed rule does not list 
physical therapist assistants as a SNF staff participant in the STRIVE 
project. The commenter asked us for clarification in the final rule 
confirming the inclusion of physical therapist assistants in the STRIVE 
project.
    Response: In the proposed rule, we inadvertently neglected to list 
physical therapy assistants and occupational therapy assistants as 
participating in the STRIVE study. We noted this error on our Web site 
at http://www.cms.hhs.gov/SNFPPS/02_Spotlight.asp. Physical therapy 
assistants and occupational therapy assistants did, in fact, 
participate in the STRIVE study, which included their resource times.
MDS 3.0 Data
    Comment: A few commenters questioned our ability to assess the 
impact of the proposed RUG-IV model, as national claims data are not 
available for either the RUG-IV grouper or the MDS 3.0. Similarly, they 
were concerned that stakeholders could not

[[Page 40315]]

fully assess the impact of the proposed changes. These commenters 
recommended delaying the implementation of RUG-IV for 2 years, allowing 
for the collection of actual MDS 3.0 data to undertake a detailed 
impact analysis, and appropriately adjust the SNF PPS so that the 
transition from RUG-III to RUG-IV is budget neutral.
    Response: We recognize the difficulty of precisely calibrating a 
new case-mix model using estimated data. However, by waiting for actual 
data to become available, we risk perpetuating systems that become 
progressively less able to target payments accurately to acuity levels.
    In this instance, we worked closely with our MDS development team 
to integrate payment needs into the structure of the MDS 3.0 
assessment. We also made available a RUG-IV grouper and our estimates 
on the distribution of patient days to allow stakeholders to assess the 
impact of the new case-mix model.
    Finally, we have made provision for correcting discrepancies in the 
estimates used to introduce the RUG-IV model. In this final rule, we 
have committed to monitoring the accuracy of our projections and, when 
actual data becomes available, to recalibrate the system to ensure that 
the conversion to RUG-IV was budget neutral. This recalibration would 
be data driven, and could result in either payment increases or 
decreases. Therefore, we do not agree that the introduction of the RUG-
IV case-mix system should be delayed beyond October 1, 2010.
b. Developing the Analytical Database
    In the FY 2010 proposed rule (74 FR 22208, 22221, May 12, 2009), we 
noted that information acquired through the STRIVE research pointed to 
the need for modifications to the RUG-IV model in a number of specific 
areas, which we discuss in the following sections.
i. Concurrent Therapy
    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).
    In the FY 2010 proposed rule (74 FR 22208, 22222, May 12, 2009), we 
noted a significant shift in the provision of therapy from individual 
one-on-one treatment to a concurrent basis. We stated that given that 
Medicare and Medicaid patients are among the frailest and most 
vulnerable populations in nursing homes, we believed that the most 
appropriate mode of providing therapy would usually be individual, and 
not concurrent therapy. We indicated that concurrent therapy should 
never be the sole mode of delivering therapy to a SNF patient; rather, 
it should be used as an adjunct to individual therapy when clinically 
appropriate. Further, we expressed concern 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. Accordingly, we proposed that, effective with the 
introduction of RUG-IV, concurrent therapy time provided in a Part A 
SNF setting would no longer be counted as individual therapy time for 
each of the patients involved; rather, for each discipline, we would 
require allocating concurrent therapy minutes among the individual 
patients receiving it before reporting total therapy minutes on the MDS 
3.0. The comments that we received on this issue, and our responses, 
appear below.
    Comment: Several commenters stated that the data reported in the 
proposed rule showing concurrent therapy as representing a majority of 
the delivery of all therapy services are inconsistent with industry 
data. Some stated they were not able to replicate the STRIVE findings 
that two-thirds of therapy provided is concurrent. A few reported that 
when they ``polled'' their rehabilitation staff, the estimates they 
received were that approximately 33 percent of therapy is delivered 
concurrently.
    Response: In order to determine whether the STRIVE results may have 
overstated the amount of concurrent therapy, we re-examined the raw 
data and methodology we used to distinguish between individual and 
concurrent therapy. We determined that the amount of concurrent therapy 
that we reported in the March 2009 TEP and later cited in the proposed 
rule was overstated, and that the amount of concurrent therapy based on 
the ``time-slice'' method discussed later in this section of the final 
rule is actually 28.26 percent. Nevertheless, we continue to believe 
that concurrent therapy should be allocated when assigning a RUG-IV 
classification. The SNF PPS is based on resource utilization and costs. 
When a therapist treats two patients concurrently for an hour, it does 
not cost the SNF twice the amount (or 2 hours of the therapist's 
salary) to provide those services. The therapist would appropriately 
receive one hour's salary for the hour of therapy provided, regardless 
of whether the therapist treated one patient individually or two 
patients concurrently for that hour. Therefore, as proposed, we will 
utilize allocated concurrent therapy minutes to establish the RUG-IV 
group to which patients are assigned. In addition, we will require the 
therapist to track and report the three different delivery modes of 
therapy (individual, concurrent, and group) on the MDS 3.0, as 
explained later in this section.
    Comment: Most commenters agreed with CMS that concurrent therapy is 
a legitimate mode of delivering therapy services, based on individual 
care needs as determined by the therapist's professional judgment. Many 
commenters stated that when used appropriately, concurrent therapy 
produces positive patient outcomes and does not result in poor quality 
of care, while others reported there are no studies to support that 
concurrent therapy is inferior to individual. Several commenters stated 
that the patients are fully engaged throughout the entire concurrent 
therapy session with the therapist directly supervising both patients, 
and some reported that rest periods are a necessary part of treatment 
and concurrent therapy allows the therapist to be more efficient. 
However, there were others who reported that the therapist is not 
always directly supervising with the patient in line-of-sight, and in 
fact, some commenters reported that therapists would leave the 
treatment area to conduct other tasks or treatments and that patients 
are not always engaged.
    Response: We did not propose to eliminate concurrent therapy. We 
agree that the there are times when patients may interact with one 
another during a concurrent session, and that these interactions may be 
beneficial. However, as noted by some commenters, this may not always 
be the case. We are concerned that some commenters reported that 
therapists do not always have the patient in line-of-

[[Page 40316]]

sight (and may actually leave the treatment area). In fact, some 
commenters reported that the patient is not always engaged during the 
entire concurrent time, and that there are potentially instances when 
treatment decisions are influenced by facility or provider productivity 
requirements. We agree that the delivery of therapy services should be 
based on the therapist's professional and clinical judgment solely 
according to the individual needs of each patient. Considering the 
potential for inappropriate care, and that in some cases, patients may 
not be fully interacting with each other or the therapist throughout 
the concurrent therapy session, we believe that allocating concurrent 
therapy minutes is appropriate.
    Comment: Several commenters stated that CMS does not have the 
authority to dictate the practice of therapy and, therefore, cannot 
instruct therapists to allocate concurrent therapy.
    Response: We agree that CMS does not have the authority to dictate 
clinical practice. However, we do have the authority and the 
responsibility to determine coverage and payment policy, that is, the 
scope of services that will be paid for by the Medicare program under 
the SNF PPS and the manner in which those services will be reported and 
paid. We again acknowledge that concurrent therapy may be an 
appropriate mode to provide therapy services under certain 
circumstances, but we also note that the SNF PPS is based on resource 
utilization and costs. When a therapist treats two patients 
concurrently for an hour, it does not cost the SNF twice the amount (or 
2 hours of the therapist's salary) to provide those services. The 
therapist would appropriately receive one hour's salary for the hour of 
therapy provided, regardless of whether the therapist treated one 
patient individually or two patients concurrently for that hour. 
Therefore, as proposed, we will use allocated concurrent therapy 
minutes to establish the RUG-IV group to which the patient is assigned. 
In addition, we will require the therapist to report concurrent therapy 
minutes on the MDS 3.0, as discussed later in this section.
    Comment: We received a large number of comments on the potential 
effects of the proposed allocation of concurrent therapy. Many of the 
commenters agreed that therapy time should be allocated, and offered a 
variety of justifications, such as: Abuse of therapy being reported; 
therapists being coerced to maximize minutes (and, therefore, 
reimbursement); lack of existing research to support the efficacy of 
concurrent therapy; and, the need to use Medicare funds appropriately 
and as intended. In fact, one commenter requested that allocation of 
concurrent therapy begin in FY 2010, prior to implementation of RUG-IV. 
Another commenter believed that an increased use of individual therapy 
would have a positive impact on their SNFs by raising the SNF case mix 
and, therefore, attracting patients with more advanced therapy needs to 
their facilities. Many commenters believed that concurrent therapy, 
when provided appropriately, is a valid method for providing therapy 
that has many benefits (for example, psychosocial and educational), and 
that patients motivate and learn from each other. Additionally, many 
commenters agreed that concurrent therapy should be an adjunct to 
individual therapy.
    Many other commenters opposed any allocation whatsoever for 
concurrent therapy. Some of those commenters argued that allocation 
would, in effect, reduce the therapy provided to patients. Others 
expressed concern that some patients would not receive therapy at all 
in parts of the country (particularly rural areas) where therapists are 
scarce. Some believed that by allocating therapy, CMS would actually 
incur a greater cost to the Medicare program, as there would be a 
greater rate of re-hospitalizations. Others stated that allocating 
concurrent therapy would increase labor costs to SNFs and, thus, would 
``force'' contract therapy providers to increase their charges to SNFs.
    Response: As stated in the proposed rule, we believe 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 delivering care; 
and should represent an exception rather than the standard of care. As 
noted previously, we did not propose to eliminate concurrent therapy 
altogether. Rather, we proposed to allocate the minutes of the 
therapist's time when providing concurrent therapy among the patients 
to accurately reflect the therapist's time treating patients.
    We do not agree that allocating concurrent therapy minutes means 
that patients will not receive needed therapy. Assuming that concurrent 
therapy is being used appropriately, the allocation requirements do not 
change the actual provision of services. The only change is in the way 
the therapist records the time he or she spends with each patient. In 
fact, we believe therapists will continue to provide therapy services 
in a combination of individual, concurrent, and group as appropriate 
based on the therapist's professional judgment of the individual's 
needs and in accordance with Medicare coverage requirements. Similarly, 
the requirement to track concurrent therapy does not, in and of itself, 
increase labor costs to SNFs. We are aware, however, that by allocating 
concurrent therapy minutes to assign the RUG-IV category, the total 
number of therapist staff minutes may not be sufficient to keep a 
patient in the same therapy group for payment purposes. For example, 
under RUG-III, a patient receiving a combination of 325 individual and 
(unallocated) concurrent therapy minutes would be assigned to a RUG-III 
High Rehabilitation group. Under RUG-IV, the patient might be 
classified into a lower-paying therapy group if the adjusted therapist 
time falls below the 325-minute threshold needed to qualify for High 
Rehabilitation. We regard it as likely that providers will ask 
therapists to modify their treatment plans to make sure that patients 
qualify for the higher therapy groups. However, this type of behavioral 
adjustment, even if it increases labor cost, may not be reflective of 
actual patient need. We also see no imperative in this reporting change 
that would ``force'' contract therapy providers to increase their 
charges to SNFs. However, the specific details of contractual 
arrangements between SNFs and therapy contractors are essentially 
private business arrangements that are outside the scope of this rule. 
Finally, we are extremely concerned that some commenters believe that 
allocating therapy minutes will result in poor patient outcomes, such 
as underutilization and rehospitalizations. While we believe these 
negative outcomes are unlikely, we intend to alert our Survey and 
Quality Monitoring staff to the possibility so that we can monitor 
facility practices to ensure quality care for all SNF residents.
    Comment: A few commenters requested CMS to provide specific 
guidelines on when concurrent therapy may occur, such as limiting the 
number of patients that can be seen concurrently. Of those commenters 
that favored setting a numerical limit, a majority recommended allowing 
the therapist to treat no more than two patients concurrently. A few 
suggested a maximum of three or four patients for concurrent therapy, 
while others stated that treating three or four patients at the same 
time should instead constitute group therapy. Some suggested that we 
apply a cap similar to the one that

[[Page 40317]]

already exists for group therapy (in which we limit the number of 
individuals and the amount to be coded on the MDS). One commenter 
stated that if the requirements set forth in the Medicare Benefit 
Policy Manual (Pub. L. 100-2), chapter 8, section 30.4.1.1 are met, 
then the therapy services are skilled and the mode of therapy delivered 
does not matter (individual, concurrent, or group). On the other hand, 
some requested that CMS work with the professional and industry 
associations and stakeholders to develop criteria and guidelines. One 
commenter stated that concurrent therapy is neither individual nor 
group therapy and, therefore, should not be allowed.
    Response: As we explained in the proposed rule (74 FR 22222), 
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 delivering care; 
and should represent an exception rather than the standard of care.
    We agreed with those commenters who supported placing some limits 
on concurrent therapy. Commenters who supported concurrent therapy 
almost unanimously stated that when concurrent therapy is properly 
delivered, patients are fully engaged during the entire treatment time 
and that the therapist is able to direct the entire treatment session 
for each participant. We believe that in order for the therapist to be 
able to direct the entire treatment session and ensure that the 
patients are fully engaged, the number of participants should be 
limited to two. We agree with the commenters who pointed out that, once 
a clinician has to divide his/her time between three or more patients, 
the therapist's ability to direct the entire treatment session for each 
individual and ensure that the patients are fully engaged can become 
problematic. In addition, in order for a therapist to direct the entire 
treatment session of both participants and ensure that they are fully 
engaged, the therapist must have line-of-sight of both patients. Both 
the American Physical Therapy Association (APTA) and the American 
Occupational Therapy Association (AOTA) recommended limiting concurrent 
therapy to two patients. In fact, the AOTA reports in their comment on 
the FY 2010 SNF PPS proposed rule, and on their Web site at http://www.aota.org/Practitioners/Reimb/Pay/Medicare/FactSheets/37784.aspx, 
that they have been advising their members to limit the provision of 
concurrent therapy in this manner for some time: ``For a number of 
years, AOTA has been informally advising members that the number of 
patients should be limited to 2 as a best practice standard.'' We 
believe the clinical knowledge and expertise of the therapy 
associations is a proper benchmark for determining the allowable number 
of patients during a concurrent session, and we agree that a therapist 
(or assistant) should treat no more than two patients concurrently. At 
this time, we do not agree that CMS should impose a specific cap, 
similar to the one for group therapy, on the amount of concurrent 
therapy to be coded on the MDS. However, we are revising the MDS, as 
noted later in this section, to capture therapy data by mode of 
therapy. We will then be able to analyze the data on therapy, including 
the delivery mode, and will be able to better understand the rates of 
provision and develop other requirements as deemed appropriate, 
including but not limited to a cap on concurrent therapy. Therefore, 
under RUG-IV, in order to code minutes on the MDS, the following 
criteria must be met:
     Individual therapy; or
     Concurrent therapy consisting of no more than 2 patients 
(regardless of payer source), both of whom must be in line-of-sight of 
the treating therapist (or assistant); or
     Group therapy consisting of 2 to 4 patients (regardless of 
payer source), who are performing similar activities, and are 
supervised by a therapist (or assistant) who is not supervising any 
other individuals.
    In instances that involve a therapist treating 3 or more patients 
that do not meet the definition of group therapy, that is, similar 
activities are not being performed by the participants, then for 
purposes of MDS reporting, the definition of concurrent therapy is not 
met and, thus, those therapy minutes may not be coded.
    We agree that requirements set forth in the Medicare Benefit Policy 
Manual (Pub. L. 100-2), chapter 8, section 30.4.1.1 should be met for 
medical review purposes. However, as stated previously, from a payment 
perspective, the SNF PPS is based on resource utilization and costs. 
When a therapist treats two patients concurrently for an hour, it does 
not cost the SNF twice the amount (or 2 hours of the therapist's 
salary) to provide those services. The therapist would appropriately 
receive one hour's salary for the hour of therapy provided, regardless 
of whether the therapist treated one patient individually or two 
patients concurrently for that hour. Therefore, Medicare should pay for 
the one hour of the therapist's time.
    Furthermore, the criteria set forth in section 30 for skilled 
nursing facility level of care must be met in order for a beneficiary 
to meet the requirements for a SNF Part A stay. These requirements are:
     The patient requires skilled nursing services or skilled 
rehabilitation services, that is, services that must be performed by or 
under the supervision of professional or technical personnel (see 
Sec. Sec.  30.2-30.4); are ordered by a physician and the services are 
rendered for a condition for which the patient received inpatient 
hospital services or for a condition that arose while receiving care in 
a SNF for a condition for which he received inpatient hospital 
services;
     The patient requires these skilled services on a daily 
basis (see Sec.  30.6);
     As a practical matter, considering economy and efficiency, 
the daily skilled services can be provided only on an inpatient basis 
in a SNF (see Sec.  30.7.); and
     The services must be reasonable and necessary for the 
treatment of a patient's illness or injury, that is, be consistent with 
the nature and severity of the individual's illness or injury, the 
individual's particular medical needs, and accepted standards of 
medical practice. The services must also be reasonable in terms of 
duration and quantity.
    We also believe that, when appropriate, therapy services should be 
treated uniformly across the PAC settings and under Parts A and B. We 
intend to work with the professional organizations and within the 
various CMS components to analyze and explore the various issues that 
affect therapy services in the various provider types and payment 
systems.
    We realize that establishing guidelines, requirements, and criteria 
for therapy services is a complex matter regardless of setting. For 
instance, we must be cognizant of multiple issues that may affect the 
delivery of therapy services to patients, such as:
     Patient rights (patient preference for a particular 
treatment method (for example, individually and not with others, either 
concurrently or in a group setting), and whether this preference is 
honored);
     Infection precautions (whether therapists follow standard 
infection control practices when treating more than one patient at 
time);
     Facility layout (logistical feasibility of treating 
multiple patients and maintaining proper and adequate supervision).

[[Page 40318]]

    Comment: A few commenters stated that when the RUG-III model was 
developed, all modes of therapy were being provided, and the minutes 
and staff time were weighted to reflect concurrent therapy. Some 
commenters reported that concurrent therapy became the norm after the 
inception of the SNF PPS, and that individual therapy was previously 
the primary mode of therapy being delivered.
    Response: We do not disagree that the different modes of therapy 
were being provided prior to SNF PPS. For the purpose of this final 
rule, we are considering how the current distribution of therapy time 
affects the accuracy of the payments that will be made under the RUG-IV 
model. For RUG-IV, we are using the therapist's time (individual 
minutes, concurrent therapy minutes allocated, and the group therapy 
minutes unallocated with 25 percent cap) to establish the minimum 
therapy minutes for each of the rehabilitation categories. We do not 
believe that Medicare payments should exceed the cost of the services 
rendered. As stated previously, when a therapist provides concurrent 
therapy services for an hour, no matter how many patients he or she 
treats, the therapist is only providing and being paid for an hour of 
time. Payments made to the SNF under the SNF PPS should reflect that 
same principle. As we did not propose to change the method in which 
group therapy minutes are used in RUG-IV classification and the amount 
of group therapy being provided is low, therapists will still be 
allowed to count the entire group session for each patient (as long as 
they maintain the patient limitation and supervision requirements) in 
accordance with the 25 percent cap. However, we will monitor therapy 
provided in the group setting, analyze data associated with group 
therapy, and, if needed, address any issues at a later time.
    Comment: Some commenters suggested updating the MDS 3.0 in order to 
record the three modes of therapy: individual, concurrent, and group. 
Some believed that this would allow a method to track and analyze the 
amount of concurrent therapy being provided. One commenter suggested 
developing a ``take back'' if concurrent therapy exceeded 50 percent of 
the therapy time. One commenter urged CMS to consider a documentation 
method that would not be burdensome. Another commenter stated that 
tracking concurrent therapy would be tedious. Another commenter stated 
that providers would be vulnerable to post-payment audits and denials 
if CMS did not develop documentation instructions. Lastly, one 
commenter stated that reporting the therapist time and not the resident 
time would alter the ``patient-centric'' intent of the MDS.
    Response: Under Medicare Part B therapy services, CMS has issued 
documentation requirements. When these requirements were developed, CMS 
worked closely with the Medicare contractors, professional therapy 
associations, and multiple components within CMS. We intend to address 
therapy documentation issues for SNF PPS in a similar fashion to 
determine the most appropriate documentation requirements. We will 
update the MDS 3.0 so that the assessor codes the actual total patient 
minutes associated with the three modes of delivering therapy services 
(individual, concurrent, and group) and, thereby, reports them 
separately (thus keeping the MDS patient-centric). We believe that 
requiring providers to report total therapy time by mode of therapy on 
the MDS 3.0 will not pose a significant burden for providers, as 
providers will not be required to allocate concurrent therapy minutes 
before recording them on the MDS, but instead will only be required to 
identify those minutes as concurrent. This method of reporting will 
allow us to track and analyze the amount of each type of therapy being 
provided and determine appropriate reimbursement. Under RUG-IV, the 
recording of therapy minutes on the MDS will be as follows:
     Individual--Report entire amount of individual therapy.
     Concurrent--Report the entire unallocated minutes of 
concurrent therapy.
     Group--Report the entire unallocated minutes of group 
therapy (as long as the patient limitation is not exceeded and the 
supervision requirement is maintained).
This method for recording therapy minutes will reflect the resident's 
entire time receiving therapy. However, as stated earlier, we will 
assign the RUG-IV category based on allocated concurrent therapy 
minutes and maintain the 25 percent cap on group therapy. The RUG-IV 
data specifications will account for these requirements.
    We do not agree with the suggestion to implement a ``take back'' 
policy at this time. However, as the MDS 3.0 will require the therapist 
to code the minutes for each mode of therapy being delivered, we will 
be able to analyze the data and, if need be, address any issues in the 
future. Thus, we will update our policy based on data, not on a pre-
defined limit. In addition, we will need to conduct further analysis to 
determine an appropriate amount of allowed concurrent therapy, as well 
as the appropriate fiscal penalty if we were to implement a ``take 
back'' policy.
    Comment: Several commenters argued that allocating concurrent 
minutes to the RUG-IV model and then also applying CMIs represents a 
``double hit.'' Others characterized concurrent therapy allocation as a 
method of cost control.
    Response: As stated in the proposed rule (74 FR 22222-23), and as 
discussed above, allocating concurrent therapy time reflects resource 
use more accurately for this type of therapy. Patients are classified 
into RUGs based on average resource use, and allocating therapy minutes 
allows for better measurement of resource use, more accurate RUG 
classification, and application of more appropriate CMIs. For example, 
when a therapist treats 2 patients concurrently for an hour, a full 
hour of therapy time is counted for each of the 2 patients under 
existing procedures. However, the therapist is not actually providing 2 
hours of his/her time to treat the patients; rather, the therapist is 
providing a total 1 hour of therapy time. Thus, rather than 
representing a ``double hit'' or a method of cost control, allocating 
concurrent therapy minutes to the RUG-IV model results in more accurate 
payment under the SNF PPS, and allows for a more appropriate reflection 
of resources used. Further, as stated in the proposed rule, we 
maintained budget neutrality with the implementation of RUG-IV, which 
also serves to refute the characterization of allocating concurrent 
therapy as a cost control method.
    Comment: One commenter agreed that the role of therapy aides is to 
provide support services to the therapists and, thus, disagreed with 
our concern that placing limits on concurrent therapy could result in 
an inappropriate substitution of therapy aides for therapists and 
assistants and that the RAI manual should be updated. In addition, a 
commenter requested that we maintain the policy that therapy provided 
by therapy students should continue to be counted on the MDS.
    Response: We would also like to reiterate that therapy aides are 
expected to provide support services to the therapists and cannot be 
used to provide skilled therapy services. As we stated in the proposed 
rule, based on the STRIVE data, it appears therapy aides are being used 
appropriately. However, as we stated, we intend to monitor the use of 
therapy aides, and if necessary, propose changes to MDS reporting 
requirements in the future. Further, we agree that, as set forth 
previously in the correction

[[Page 40319]]

notice for the FY 2000 SNF PPS final rule (64 FR 60122, November 4, 
1999), providers should record minutes of skilled therapy provided by a 
therapy student on the MDS when the student is in the therapist's line-
of-sight.
    Therefore, as we proposed in the FY 2010 proposed rule, effective 
with RUG-IV, we will use allocated concurrent therapy minutes to 
establish the RUG-IV group to which the patient is assigned. In 
addition, as discussed above, a therapist (or assistant) will be 
permitted to treat no more than two patients concurrently. In addition, 
we will require the therapist to report the three different delivery 
modes of therapy (individual, concurrent, and group) on the MDS 3.0 in 
the manner discussed above.
ii. Adjustments to STRIVE Therapy Minutes
    Under the SNF PPS, 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 FY 2010 proposed rule (74 FR 
22208, 22223, May 12, 2009), we noted that the STRIVE analysis included 
an examination of therapy services reimbursed under RUG-III, and we 
included a detailed explanation of the STRIVE therapy data collection 
methodology. The comments that we received on this subject, and our 
responses, appear below.
    Comment: Several commenters questioned the collection and the 
analysis of therapy time, including the utilization of the unsupervised 
recording of therapy times during the collection of data on weekends.
    Response: During the STRIVE study, we made every effort to train 
staff and provide data monitors to assist staff when questions or 
problems arose. However, very few onsite facility studies, including 
STRIVE, can provide monitoring on a 24-hour, 7-days-a-week basis. In 
general, the staff at the participating facilities worked hard to 
collect the staff time accurately, especially for the days where data 
were collected on an automated basis. It is apparent from our analysis 
that the therapy data were partially compromised by incomplete 
recording of therapy times during the days where the data were 
collected manually on paper forms. We believe we have provided 
sufficient information in both the proposed rule (74 FR 22223-25) and 
the TEP slides (available online at http://www.cms.hhs.gov/SNFPPS/10_TimeStudy.asp), and especially at the TEP meeting on March 11, 2009, on 
how we have identified this potential problem, and have adjusted the 
therapy time used in our analysis to address it. Information provided 
at the TEP meeting demonstrated that these adjustments had little 
impact on the RUG-IV case-mix indexes, and corresponded with the 
results in STRIVE facilities that had more complete therapy data 
collection. At the same time, the adjustments appeared to adjust 
therapy time successfully in more problematic facilities (where therapy 
time was much lower and appeared to be incomplete on days where staff 
used the paper tool versus days using PDAs), so that residents were 
distributed among therapy groups more consistently with the national 
pattern from Medicare claims than they would have been if unadjusted 
data were used.
    We do recognize from the comments that one of the statistics 
provided in the proposed rule and in Slide 33 of the March 11 
TEP presentation was incorrect: the percentage of all time collected 
that was concurrent therapy. Our contractor located a mistake made in 
the computation for this statistic alone that substantially inflated 
this percentage. As noted previously, the correct percentage of 
concurrent time is 28.26 percent. This error only affected the 
calculations performed to produce this one slide; the numbers used in 
all other analyses, the allocation of concurrent time, the derivation 
of RUG-IV, and the released public database were correct.
    After this error was found, all calculations concerning concurrent 
therapy were reviewed. Our initial method of allocating concurrent time 
was to combine all resident time records for a staff member where there 
was any continuous overlap among the residents. These records were then 
used to calculate the time in therapy for each resident involved and 
the unduplicated staff time involved. The staff time was then allocated 
to each resident in proportion to resident time in therapy, yielding 
the allocated concurrent time for each resident. This method led to 
minor inaccuracies when a resident left an ongoing concurrent therapy 
group or a new resident entered an ongoing concurrent therapy group.
    Based on the comments that we received, we reviewed our allocation 
method described above, and developed a more sensitive method based on 
a ``time slice'' approach. A staff member's time was divided into 1-
minute ``time slices.'' When there was only one resident in a 1-minute 
time slice, the entire minute was assigned to that resident as 
individual therapy time. If there were multiple residents, the minute 
was divided equally among the residents as concurrent therapy time. All 
current time for a specific resident under the treatment of a specific 
staff member was then accumulated, separately as individual and 
concurrent time. This more accurate allocation caused only minor 
changes for individual residents, and had very little impact on 
aggregate results. The results referenced in this final rule 
incorporate these changes.
    The two methods are contrasted in the following example. Assume 
that the therapist has a session of 30 minutes involving three 
residents. The first resident (``A'') arrives at the beginning of the 
session and stays for the entire 30 minutes. The second resident 
(``B'') arrives 10 minutes after the session begins and stays until the 
end (that is, 20 minutes). The third resident (``C'') arrives 20 
minutes after the session begins and also stays until the session's end 
(that is, 10 minutes). The original research used a proportional 
method, in which each resident's time was considered as a percentage of 
the total person-minutes. This can be seen in Table 12. ``Resident A'' 
received 30 minutes of therapy, Resident B 20 minutes, and Resident C 
10 minutes, for a total of 60 person-minutes. The proportional method 
would thus compute Resident A as having 30/60 (that is, 50 percent) of 
the 30-minute session time, or 15 minutes. The other two residents' 
times would be calculated similarly.

                                                                        Table 12
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Proportional method                                      Time slice method
                                         ---------------------------------------------------------------------------------------------------------------
                Resident                   Resident time   Proportion of
                                            in therapy     resident time  Allocated time      Slice 1         Slice 2         Slice 3          Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
A.......................................              30          50.00%           15.00           10.00            5.00            3.33           18.33
B.......................................              20           33.33           10.00            0.00            5.00            3.33            8.33

[[Page 40320]]

 
C.......................................              10           16.67            5.00            0.00            0.00            3.33            3.33
Total...................................              60          100.00           30.00  ..............  ..............  ..............           30.00
Session length..........................              30  ..............  ..............           10.00           10.00           10.00  ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We now determined that a more accurate approach would be to divide 
the session into ``slices,'' beginning when a resident joins or leaves 
the session. The minutes in each time slice are divided equally among 
all the residents receiving therapy during that time slice. In the 
example above, the first slice would consist of the first 10 minutes of 
the session, the second slice is minutes 11-20 of the session, and the 
third slice is minutes 21 to 30. As only one person is receiving 
therapy in the first slice, Resident A is credited with all 10 minutes 
of that slice (which is now reported as ``individual'' therapy time). 
In the second slice, there are two residents, so both Resident A and B 
each receive half of the 10 minutes in that slice, or 5 minutes each. 
Finally, in the third slice, there are three residents receiving 
therapy, so each receives a third of 10 minutes, or 3.33 minutes each. 
Summing across all three slices, Resident A is credited with 10 + 5 + 
3.33 minutes, or 18.33 minutes of time. This example demonstrates that 
the improved methodology does make minor differences in time 
allocation, although the total allocated therapy time is not affected. 
Moreover, the two methods will provide identical results when all 
individuals receive therapy for the full session. Thus, the 
recomputation of therapy sessions using the time slice methodology, 
while more accurate, made only minor changes for individual residents.
    Comment: Several commenters questioned the adjustment performed on 
therapy minutes, raising two issues: The first relates to ``forcing the 
data to approximate existing distributions of therapy times across RUG-
53 categories,'' by which nothing new is learned. The second regards 
the paper survey data as part of the calculation of therapy weights and 
the commenters' opinion that it should be considered invalid and should 
not be used. While acknowledging the need to adjust the therapy minutes 
data, the commenter added that the proposed retroactive therapy data 
adjustments bring into question the accuracy and usefulness of the 
STRIVE data, especially in light of the small sample size. The 
commenter believed that these issues also affect the reorganization of 
residents within the RUG hierarchy, and invalidate the therapy and 
nursing weights and the subsequent budget neutrality adjustment. In 
addition, the commenter observed that retroactively adjusting the 
therapy minutes collected directly from therapists treating SNF 
patients appears contrary to the purpose and design of the time study, 
which was real-time, bedside measurement of the resources provided to 
SNF patients.
    Response: While we are confident that the analyses conducted during 
the study are sufficient to adjust the therapy data for use in the RUG-
IV model, we understand the commenters' concerns. As we have described 
in detail, the process used to adjust the therapy minutes (imputation 
of data elements that are missing or incorrect) is a standard 
statistical practice, with many methods available; thus, we do not 
believe it is contrary to the purpose and design of the time study. In 
STRIVE, changes in therapy minutes had little effect on the therapy 
CMIs of therapy groups as, once in a group, any statistical average 
will be relatively stable. However, revising the therapy times did have 
a substantial effect on the classification of individual residents. 
This was significant, as only those not meeting the RUG-IV therapy 
criteria would be eligible for the non-therapy categories from 
Extensive Services down through Reduced Physical Function, and the 
research to determine which characteristics differentiated the nursing 
time of these individuals would be properly focused. Alternately 
stated, while adjusting the therapy time did not substantially affect 
the CMI of the rehabilitation groups, it did change the classification 
of individual residents and was critical to proper analysis. Contrary 
to the assertions of these commenters, we believe that failure to 
adjust the therapy minutes would have had a negative impact on the 
classification of residents requiring complex medical care. Without the 
adjustment, we believe the therapy minutes would have been 
underreported, resulting in inaccurate classification of residents, 
with some residents inappropriately classified in lower-level RUGs. 
Thus, we are confident that our efforts to adjust for underreporting of 
therapy minutes actually increased the accuracy of the RUG-IV case-mix 
classification model.
    Our approach to adjusting therapy addressed our concern that, in 
some facilities, therapists under-reported resident therapy time on 
weekends and other ``non-PDA'' days, including days where there was no 
supervision, either by STRIVE data monitors or by staff at the 
participating facility, of the data collection. However, at least a 
quarter of the facilities did report patterns of therapy time that 
appeared reasonable. We took care to include these times, even if paper 
based, when they seemed appropriate.
    We found that the data obtained from facilities where the data 
collection had been most complete, closely matched the therapy time 
extrapolated to the entire week from the 3-day period where data had 
been collected electronically. A final comparison was made to verify 
the therapy minutes reported on the MDS that was completed during the 
time study. Again, the reported minutes were consistent with the 
extrapolation procedure we used. In addition, the RUG distribution, 
after the adjustment of therapy time, more closely matches the expected 
therapy RUG national distribution. This comparison was aimed solely at 
validating the accuracy of our adjustment procedures by comparing our 
study's RUG-III distribution with the known national distribution. It 
did not constrain in any way our ability to test alternative approaches 
to RUG classification. Thus, we are confident that the procedures we 
used to adjust for data collection were appropriate, and that the 
therapy analyses conducted during STRIVE accurately reflect therapy 
utilization overall. Accordingly, we do not believe that it is 
necessary to discard the paper surveys as the commenter suggested. 
However, we are also cognizant of the importance of therapy services in 
the RUG model, and plan to continue our analyses as part of our 
implementation and post-utilization monitoring of the RUG-IV system.

[[Page 40321]]

    Comment: One commenter observed that no adjustments were made for 
variation in State practice laws with respect to supervision of 
physical therapy assistants, occupational therapy assistants and aides, 
and that due to an acute shortage of therapists in many rural 
communities, there is a tendency to use more therapy assistants under 
therapist supervision to the extent that State law allows such 
practices.
    Response: While the commenter is correct that we did not examine 
State practice acts, we did collect data on the use of therapy 
assistants in nursing homes. To the best of our knowledge, all States 
recognize and license or certify therapy assistants. We found that the 
use of therapy assistants has increased significantly since the 1995/
1997 time studies. We consider the use of therapy assistants to be 
appropriate to deliver therapy services when under the supervision of a 
therapist and within the scope of practice allowed by State law. We 
presume that the increasing use of therapy assistants is partially 
related to a current labor shortage for therapists, and partially 
related to payment incentives rewarding efficient delivery of care. The 
applicable State regulations governing aides are more heterogeneous. 
However, in the STRIVE study, we found that aides are being 
appropriately utilized to furnish support services to the licensed/
certified therapists, a role that would be allowed in most if not all 
States.
    Comment: One commenter expressed concern about extrapolating 3 days 
of therapy to 7. The commenter stated that it is inappropriate because 
weekend days and weekdays are not similar, and that Mondays and Fridays 
differ from mid-week (Tuesdays through Thursdays) due to admissions and 
meetings.
    Response: We agree that it would have been inappropriate to 
directly extrapolate 3 days of therapy to 7, because 2 of those days 
(Saturday and Sunday) generally have very low amounts of therapy. 
However, we did not take the approach described by the commenter. Our 
adjustment procedure made use only of those weekend days that were 
actually reported; we never imputed a weekend therapy session. The only 
adjustment that we made to weekend sessions was to assume that the 
duration of those sessions matched the average duration of weekday 
sessions reported for the resident.
    Generally, most participating SNFs provide therapy 5 days a week, 
and only a small subset provide therapy on weekends. Therefore, we 
agree with the commenter that weekend days and weekdays differ in the 
amount of therapy provided. However, the STRIVE study took this into 
account and gave credit only for weekend therapy when it was reported 
on the paper data collection tool. We did not extrapolate weekday 
therapy time to the weekend days, and agree with the commenter that 
such a practice would be inappropriate.
    Although we noticed a significant reduction in therapy time when 
data were collected with the paper tool, we believe this is due to the 
data collection method and does not indicate a consistent pattern of 
significantly less therapy being delivered on Mondays or Fridays due to 
admissions and meetings. In several facilities, PDA data collection was 
used on Wednesday through Friday rather than Tuesday through Thursday. 
When the PDA was used on Friday, 21 percent of all therapy time was 
recorded for Friday. This is close to the 23 percent of time reported 
for Thursday. When paper data collection was used on Friday, only 12 
percent of all therapy time was recorded, indicating a loss of data 
with the paper collection. If admissions and meetings were the cause of 
a significant decrease in therapy time, we would expect to see this 
pattern for all Fridays. Therefore, we believe that our adjustment 
methodology is a more accurate reflection of the services actually 
provided during the study.

iii. 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. In the FY 2010 proposed rule (74 FR 22208, 22225-
26, May 12, 2009), we proposed 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. The comments 
that we received on this issue, and our responses, appear below.
    Comment: Many commenters agreed with the ADL adjustments, stating 
that the scale is more sensitive to functional status and allows for a 
finer analysis of changes in functional status over time. In addition, 
they agreed with standardizing the ADL index across the various levels 
of the RUG hierarchy.
    Some commenters stated that the ADL scale does not capture provider 
burden as only 4 ADL areas are used in the calculation, and suggested 
that other ADL activities such as dressing and bathing should be 
included. A few commenters were concerned that by starting the ADL 
score at `0,' some providers may perceive a `0' as requiring no staff 
time, and that this may cause providers to discharge patients early, 
refuse to admit certain patients, or not provide the needed supervision 
or assistance. One commenter stated ``The staff time required to 
provide `limited' assistance with bed mobility, transferring, 
toileting, and/or eating does not vary significantly enough from the 
staff time required to provide `extensive' assistance for the same ADL 
activities.'' One commenter stated that changing the coding of 
``Activity Did Not Occur During the Entire 7 Day Period'' from a code 
of (8) to a code of (0) for both self-performance and staff support was 
logical because the activity did not occur and, therefore, no resources 
were used to support the activity. However, one commenter expressed 
concern regarding the ADL score of ``0'' when the component ADL 
activity did not occur during the entire 7-day period, and suggested 
that it should be modified to take into consideration end-of-life 
situations. For patients in these situations, the commenter stated the 
ADL score may be low, but the level of resources to care for the 
resident may be significant, which would not be reflected in their ADL 
score.
    Response: We agree that the new ADL scale is more sensitive and 
that standardization of the ADL index across all RUG hierarchies will 
improve our ability to measure functional status accurately. We did 
include other ADL areas during our analysis of STRIVE data including, 
but not limited to, bathing, dressing, and ambulation, as we did with 
the original analyses that established the RUG-III case-mix 
methodology. In both studies, we found that eating, bed mobility, 
transfers, and toileting were the strongest predictors of resource use, 
and included these four ADLs in the case-mix system. However, the 
resource time associated with all ADLs is captured in the nursing 
minutes assigned to each time study resident, and is reflected in 
payments under the SNF PPS. In addition, we do not believe that a 
change in the MDS coding requirements will result in premature 
discharge of patients or that a score of ``0'' will be incorrectly 
interpreted as indicating no need for care. First, we will provide 
instructions on the

[[Page 40322]]

meaning of the ADL codes in the MDS manual. Second and more 
importantly, a decision that a patient is able to be discharged should 
be based on clinical judgment, and should follow standardized facility 
operating protocols rather than be determined by an ADL index score 
recorded on an MDS.
    Thus, we do not agree with the commenter's conclusion that the 
change in coding ADLs will have a negative impact on the care provided 
to patients in nursing homes. However, we will incorporate training on 
the new ADL index in our upcoming ``train-the-trainer'' sessions to 
mitigate concerns on the new scale and interpretation of its purpose.
    We do not agree with the commenter who stated that there is no 
significant difference in staff resource time when providing limited 
assistance compared to extensive assistance. STRIVE data demonstrate a 
difference in staff resources among the various levels of assistance 
that are provided to nursing home residents. We do, however, agree that 
if resources are not provided for an ADL, then the ADL index should not 
reflect that care was rendered. It is important to note that the ADL 
index is based on the 4 late-loss ADL areas and, therefore, while one 
ADL activity (for example, transferring) may not have occurred during 
the entire 7-day look-back period, the other ADLs are usually occurring 
and would be included in the ADL index. We agree with the commenter 
that the ADL index may not fully reflect care needs for patients 
nearing the end of life. However, we note that the ADL index is only 
one factor used to determine resource use. The intensity of nursing 
staff time and resources for these individuals is reflected more 
completely in the STRIVE minutes and categorical classification.
    Comment: Comments about the proposed ADL eating component changes 
were mixed, expressing both support and concern. A few commenters were 
pleased that we proposed to use both the Self-Performance and Support 
Provided items for eating, indicating that adding the ``support 
provided'' factor to the ADL eating component score is logical and in 
correlation with the other late-loss ADLs. One commenter was pleased to 
have Parenteral/IV and feeding tube items removed from the eating ADL, 
as they have been concerned that this may have been an incentive for 
providers to use feeding tubes rather than providing assistance to 
those residents who are able to eat through oral means. One commenter 
was concerned that the removal of feeding tubes from the ADL score for 
eating would not take into account the resources required to care for 
residents who must rely on tube feedings for nutrition, and that they 
would not be adequately reimbursed.
    One commenter cited the statement, ``In the STRIVE analysis, we 
found that patients receiving One Person Physical Assist or more needed 
comparable staff resources to patients who were being fed by artificial 
means * * * the RUG-IV ADL component score does not use Parenteral/IV 
or feeding tube items.'' The commenter believed that the statement 
about comparable staff resources is inaccurate, as parenteral/IV or 
feeding tube assistance can only be done by a licensed nurse, while one 
person physical assist is most often that of a certified nurse 
assistant; thus, these are not comparable staff resources.
    Response: The data from the STRIVE project indicate that using both 
the Self-Performance and Support Provided items for the eating ADL for 
all residents achieves a better categorization of residents who require 
assistance. In RUG-III, a person who receives nutrition via a feeding 
tube or parenteral/IV is assigned a ``3'' (the most dependent score for 
eating) regardless of the coding in section G, Physical Functioning and 
Structural Problems, specifically item G1Ah (eating, self-performance). 
In RUG-IV, instead of this person being automatically assigned the most 
dependent score for eating, the score will be based on both the Self-
Performance and Support Provided codes. For the MDS 2.0 and the MDS 
3.0, the assessor is to code how the resident eats and drinks, 
including nutritional intake via artificial means; for example, tube 
feeding, total parenteral nutrition. The assessor is expected to enter 
codes for eating when a person receives nutrition orally or through a 
feeding tube or other means. Therefore, the resources to care for a 
patient with tube feeding are captured on the MDS and in the ADL index 
and, thus, in reimbursement. We would like to clarify that when we 
discuss staff resources, we are using wage-weighted minutes. For 
example, when the licensed nurse provides nutrition to a resident via a 
feeding tube, the cost is more per hour but the time it takes is less 
relative to a situation in which an aide feeds a resident who requires 
total assistance. When an aide feeds a resident who requires total 
assistance, the cost per hour is less but the time required is greater. 
Therefore, the wage-weighted resource time is comparable. This was 
validated by the STRIVE study data.
    In this final rule, we are finalizing the revisions to the RUG-IV 
ADL index as proposed in the FY 2010 proposed rule (74 FR 22225-27).
iv. ``Look-Back'' Period
    In the RUG-III case-mix classification system, we identified five 
services that the data showed to require the highest levels of staff 
time use: Ventilator/respirator, tracheostomy, suctioning, IV 
medications, and transfusions. The instructions for coding these items 
in the MDS 2.0 specified that the item should be coded if it was 
furnished within the prior 14 days, even if the services were provided 
to the resident prior to admission to the SNF. In this way, the MDS 2.0 
would collect data that should be considered during the patient care 
planning process. When the RUG-III system was developed, we retained 
the MDS 2.0 coding procedure regarding these 5 items, based on a 
clinical analysis suggesting that they would serve as a proxy for 
medical complexity and higher resource use after admission to the SNF. 
However, in the SNF PPS final rule for FY 2000 (64 FR 41668-69, July 
30, 1999), we reserved the right to reconsider this policy in the 
future ``* * * if it should become evident in actual practice that this 
is not the case.'' In the FY 2010 proposed rule (74 FR 22208, 22227, 
May 12, 2009), we noted that we analyzed the STRIVE data to test the 
effectiveness of including services furnished during the prior hospital 
stay in the classification system. We found that, for these five 
services, utilization during the prior hospital stay does not, in fact, 
provide an effective proxy for medical complexity for SNF residents, 
and instead results in payments that are inappropriately high in many 
cases. Accordingly, we proposed to modify the look-back period under 
RUG-IV for items in section P1a, Special Treatments and Procedures, of 
the MDS 2.0, to include only those services that are provided after 
admission (or readmission) to the SNF. The comments that we received on 
this issue, and our responses, appear below.
    Comment: Many commenters agreed that the look-back to the prior 
hospital stay should be changed so that only services furnished during 
the SNF stay are reflected in the SNF case-mix classification. In 
particular, in States that have rate equalization (that is, the 
private-pay resident must pay the rate established by the case-mix 
system), private-pay residents would now pay only for services received 
while a SNF resident. Several commenters believed that the SNF staff 
need to be aware of services provided to the resident during the acute 
stay, in order to develop an appropriate plan of care and ensure that

[[Page 40323]]

adequate services are provided during the SNF stay. However, some 
believed that this information does not need to be collected on the 
MDS, and recommended removing the first column for the Special 
Treatments, Procedures, and Programs (Section O) draft MDS 3.0 or 
making that column optional. Others disagreed with CMS changing the 
look-back into the hospital stay. Many argued that such a change would 
fail to account for the severity of the patient's condition upon 
arrival at the SNF. Others believed that eliminating the look-back 
would negatively affect quality of care provided to SNF residents and 
could result in increased readmissions back to the acute setting. 
Finally, one commenter stated ``limiting the look-back in section P1a 
to exclude hospital services would unfairly punish SNFs that provide 
valuable services to high-acuity rehabilitation patients whose care is 
more costly to provide.''
    Response: As we stated in the proposed rule, we specifically 
collected staff time data on special treatments that are often provided 
in a hospital but are not often provided in a SNF after hospital 
discharge. 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 compared to those who received 
those services while a resident of the SNF. In fact, the resources 
provided to patients who received treatments provided only prior to 
admission are similar to patients who never received those treatments 
in either setting. Again, the look-back does not provide an effective 
proxy for medical complexity and, thus, has resulted in payments that 
are inappropriately high for many cases. However, we do believe that 
for care planning purposes, the SNF staff should be aware of the 
services that were provided during the acute stay and, thus, we did not 
propose to eliminate the look-back from the assessment tool for these 
Special Treatments and Procedures. Instead, we proposed to expand the 
MDS 3.0 for these items to two columns. The first column allows 
providers to code those services that were provided prior to admission 
for care planning purposes.
    We are concerned that commenters believe that eliminating the look-
back to the hospital stay from the payment system will result in poor 
quality of care provided to SNF residents. The SNF is expected to 
provide the care required to achieve and/or maintain the resident's 
highest practicable level of well-being. However, as this concern was 
raised by several commenters, we will monitor the re-admission rates to 
hospitals and other proxies that may indicate poor care outcomes, such 
as QMs. In addition, we will work with the other CMS components to 
ensure that facilities are adhering to survey and certification 
requirements, including providing appropriate care to residents.
    Further, we do not believe that limiting the look-back period for 
P1a services would unfairly punish SNFs that provide services to high-
acuity patients. As stated above, the STRIVE data do not support the 
premise that services provided only during the hospital stay to SNF 
residents result in higher costs to the SNF. Limiting the look-back 
period helps to ensure that adequate and appropriate payments are made 
for services received during the SNF stay, while eliminating 
inappropriately high reimbursement for services that are provided 
solely prior to admission. Thus, if a patient receives high-acuity 
services during the SNF stay, those services should be adequately 
reimbursed. Therefore, we will eliminate the look-back period into the 
hospital stay for those specific services in section P1a on MDS 2.0, 
but we will maintain the ability for the provider to code those 
services provided prior to admission to the SNF on the MDS 3.0 by 
expanding the MDS 3.0 for these items to 2 columns. We believe that 
coding for these pre-admission services on the MDS 3.0 will allow 
providers to effectively capture these services for care planning 
purposes.
    Comment: One commenter pointed out that the study for MDS 3.0 
conducted by the RAND Corporation (RAND), a non-partisan economic and 
social policy research group, showed ``look-back periods were 
highlighted as a significant issue across the assessment (MDS 2.0) 
tool.'' The commenter further stated that CMS did not consider the 
findings on the STRIVE project with those of the RAND MDS 3.0 
validation study. A few commenters were concerned that the changes to 
the look-back period made after the conclusion of the RAND analysis 
resulted in added burden in completing the MDS. They suggested that, 
prior to introducing the MDS 3.0, a new study should be done to 
validate the estimated time needed to complete the MDS 3.0.
    Response: We do not agree with the assertion that we did not 
consider the RAND data when developing RUG-IV and establishing look-
back periods for the various items used in payment. We concur with the 
RAND study that having multiple look-back periods on the assessment 
tool (for example, 7 days for some items, 30 days for others; some 
requiring look-back prior to admission to the SNF, while others only 
since admission to the SNF; and other look-back differences among the 
different items of the MDS) may lead to more opportunities for errors 
in coding, increase record review time and, thus, increase assessment 
burden. In making the final decisions on the look-back periods that 
would be applied to each MDS 3.0 item, we worked to balance three 
concerns: Data collection burden to the provider, consistency of look-
back periods across items, and the sufficiency of the data points (that 
is, days of care) to assign an accurate case-mix classification for 
payment. Several of the look-back periods recommended by RAND were 
adjusted later by CMS to maximize their utility for payment and quality 
monitoring. In fact, RAND also reconsidered the 5-day therapy look-back 
period used in their study. They concluded that the 5-day look-back was 
too short to capture the therapy staff utilization and, thus, SNFs 
would be substantially underpaid if we adopted a shorter look-back. 
Therefore, both RAND and CMS favored changes to the look-back periods 
to enhance the accuracy of the MDS 3.0 responses. Finally, we do not 
believe a validation study is needed to estimate the time needed to 
complete the MDS 3.0, as none of the changes to the MDS 3.0 look-back 
periods extend the amount of data to be collected beyond the current 
MDS 2.0 collection period, and do not represent an additional burden to 
providers.
    Comment: One commenter stated that the STRIVE analysis on look-back 
to services rendered solely in the hospital is flawed as only 5 
treatments were used as the basis for this decision, and that some of 
these modalities are not widely available in the SNF setting. Another 
commenter stated that if our analysis on the items in section P1a of 
the MDS 2.0 assessment is accurate (specifically, that the staff 
resources involved when services were furnished solely during the 
hospital stay are significantly lower than when those services are 
furnished during the SNF stay), then MDS coding for Parenteral/IV 
feedings (K5a) should also specify that these services should only be 
coded when provided during the SNF stay, and not during the hospital 
stay.
    Response: We do not agree that the change to the look-back period 
is based on a flawed analysis. The change to the look-back period 
affects only a small subset of the items reported on the MDS. Of these, 
we collected data on 6

[[Page 40324]]

of the 9 Special Treatment and Procedures that are currently used in 
the RUG-III classification system on the STRIVE Addendum (we 
inadvertently did not list oxygen therapy in the proposed rule as one 
of the special treatments and procedures on which we collected pre- and 
post-admission data; therefore, in response to this comment, we are now 
clarifying that we also collected data on oxygen therapy on the STRIVE 
Addendum). We considered a 7-day look-back period for services rendered 
prior to admission and after admission to the SNF on the STRIVE 
Addendum. We believe that we looked at a sufficient number of P1a 
services used in the RUG-III model to conclude appropriately that 
utilization of P1a services during the prior hospital stay is not an 
effective proxy for medical complexity during the SNF stay. The 
frequency of the services coded on the MDS based on the MDS Active 
Resident Information Report (found at http://www.cms.hhs.gov/MDSPubQIandResRep.asp) for the treatments we targeted on the STRIVE 
Addendum are as follows (first quarter 2006, STRIVE data collection 
began June 2006):

P1ac IV medications 9.5 percent
P1ag Oxygen 13.3 percent
P1ai Suctioning 1.2 percent
P1aj Tracheostomy care 1.1 percent
P1ak Transfusions 1.0 percent
P1al Ventilator or respirator .5 percent

    For the 3 P1a services used in the RUG-III model for which we did 
not collect extra data on the STRIVE Addendum, the frequencies for 
coding for the same time frame are:

P1aa Chemotherapy .5 percent
P1ab Dialysis 1.5 percent
P1ah Radiation .1 percent

    Of these, all 3 services are furnished to a small volume of SNF 
patients. Moreover, the actual service may sometimes be performed 
outside the SNF, and at least some of the individual services within 
each of these 3 categories are excluded from SNF consolidated billing 
and paid separately under Part B, outside of the bundled SNF PPS rate. 
Therefore, we believe it was appropriate to focus on the 6 P1a services 
listed above.
    As noted above, we focused on certain services that, while they are 
frequently provided in a hospital, are furnished less frequently after 
the admission to the SNF. One of the main purposes of including P1a 
services on the STRIVE Addendum was to gather data to determine if 
utilization of these treatments in the hospital serves as a proxy for 
medical complexity for a SNF patient, as well as a predictor of SNF 
staff resource utilization. In fact, we collected data on all of the 
items used as qualifiers for the RUG-III Extensive Services category, 
as well as oxygen therapy, a Clinically Complex treatment coded 
frequently on the MDS 2.0. As discussed above, our analysis of 6 of the 
9 look-back items listed above clearly indicated that utilization 
during a prior hospital stay is not an effective proxy for medical 
complexity for a SNF patient. Based on this, we believe that it is 
appropriate to eliminate the look-back period to the prior hospital 
stay for all P1a Special Treatments and Procedures to ensure that 
accurate and appropriate payments are made based on resources used 
during the SNF stay.
    Finally, one commenter asked us to limit the look-back period for 
Parenteral/IV feedings (K5a) so that these services are coded on the 
MDS only when provided during the SNF stay, and not during the hospital 
stay.
    We did include 2 items on the STRIVE Addendum for parenteral 
feedings. The first item asked the assessor to report the number of 
days that the parenteral feeding was administered in the facility over 
the last 7 days, while the second asked for the date on which the 
parenteral feeding was last administered. However, we were not able to 
use this information to determine with absolute certainty when the 
patient received the service in the SNF. When the data indicated a 
higher probability that the feeding was provided during the SNF stay as 
opposed to solely during the hospital stay, the resources were similar 
to when the data indicated that the feeding was provided exclusively in 
the hospital. In other words, for this particular treatment, the staff 
resources to care for a patient who received parenteral feeding only 
during the hospital stay and the staff resources to care for a patient 
who received the parenteral feeding in the SNF appeared to be 
comparable and, thus, indistinguishable. Therefore, based on the 
limited nature of the information we have available at this time, we do 
not believe that it would be appropriate to limit the look-back period 
for Parenteral/IV feedings (K5a) so that these services are coded on 
the MDS only when provided during the SNF stay (and not during the 
hospital stay). Thus, we will maintain our current MDS instructions for 
coding Parenteral/IV feedings (K5a), such that patients may be coded as 
receiving parenteral/IV feedings, regardless of whether they receive 
them before or after admission to the SNF.
    Comment: One commenter stated that SNFs are admitting more complex 
patients and, thus, by eliminating the look-back into the hospital 
stay, CMS is ``reinforcing a compartmental approach towards assessing a 
patient's care needs.''
    Response: We do not agree. As stated earlier, we will continue to 
have providers code services that are provided during the acute 
hospital stay on the MDS 3.0 for care planning purposes. Therefore, we 
continue to encourage the sharing of information between settings, and 
believe that the SNF will still be able to properly assess and develop 
an appropriate care plan based on services provided prior to SNF 
admission.
    Comment: One commenter characterized the elimination of the look-
back period into the hospital stay as a ``rate cutting measure.''
    Response: Neither the MDS 3.0 nor the RUG-IV were designed as or 
function as ``rate-cutting measures.'' As discussed above, limiting the 
look-back period for P1a Special Treatments and Procedures ensures that 
adequate and appropriate payments are made for patients that actually 
receive these services during a SNF stay, while eliminating 
inappropriately high reimbursement for services that are provided 
solely prior to admission. Furthermore, by introducing the RUG-IV 
classification system in a budget neutral manner, we ensure that parity 
is maintained between aggregate payments to SNFs under RUG-III and RUG-
IV. For FY 2011, the system is being designed so that overall payments 
under RUG-IV will be at the same level as what overall payments would 
have been under RUG-III if we had not changed to the new model. 
Although aggregate payments do not change, the distribution of payments 
does change, which is why the payment rates for the complex medical 
groups (that is, Extensive Care, Special Care, and Clinically Complex) 
will increase significantly.
    As proposed in the FY 2010 proposed rule (74 FR 22227-28), we are 
modifying the look-back period under RUG-IV for the Special Treatment 
and Procedures currently listed in section P1a of the MDS 2.0, to 
include only those services that are provided after admission (or 
readmission) to the SNF. In addition, we will expand the MDS 3.0 for 
these items to 2 columns. The first column will allow providers to code 
services that were provided prior to SNF admission for care planning 
purposes.

[[Page 40325]]

v. Organizing the Nursing and Therapy Minutes
    In the FY 2010 proposed rule (74 FR 22208, 22228, May 12, 2009), we 
discussed the proposed organization of nursing and therapy minutes 
under the RUG-IV model. The comments that we received on this subject 
have been addressed in detail in section III.C.1.b.ii of this final 
rule.
vi. Data Dissemination
    Comment: One commenter stated lack of access to data limited the 
ability to determine whether or not the sample can be relied upon to 
generalize nationally. Another commenter said that the STRIVE data 
disseminated to date provided little information about the study's 
findings on resource utilization by provider type, size, and case mix.
    Response: We do not agree with the comments indicating that we have 
provided insufficient data to evaluate this effort. Rather, from its 
very inception, we have taken every opportunity to seek input on and 
share available information about the progress of our research, not 
only through the rulemaking process, but also in Open Door Forums, at 
numerous Technical Expert Panels and other meetings, and on our Web 
site. In fact, we regard the exceptionally detailed and varied nature 
of the commenters' critiques of our supporting data as at least in part 
a direct reflection of the unusually large amount of data that we have 
made available to the public throughout this process. We note that even 
after the issuance of the FY 2010 SNF PPS proposed rule, we continued 
to respond to requests for technical assistance. We took questions on a 
daily basis, and posted additional technical materials on our Web sites 
so that all stakeholders could have access to the technical questions 
that we received. In addition, we note that in section III.C.1 of this 
final rule, we have addressed comments regarding the representativeness 
of the STRIVE sample.
    We also wish to note that one of the large provider groups 
submitted a detailed report by an independent contractor, stating that 
the lack of available data precluded ruling out the possibility that 
the study was seriously flawed. While we appreciate the concerns raised 
in this report, we have no way of knowing what data were provided to 
the researcher in order to conduct the analysis, as we did not receive 
any requests for technical information or clarification. Thus, in 
section III.C.1 of this final rule, we have provided detailed responses 
to the independent researcher's report, but cannot accept the 
researcher's more global conclusions on methodological flaws and the 
validity of the study.
    Finally, a few commenters expressed their concern that CMS has not 
provided them with the raw data used in the study, and cited the 
unavailability of raw data as the reason they could not adequately 
evaluate the RUG-IV model. CMS does not typically release analytic data 
files that contain data on participating facilities, participating 
employees, or on individual patients whose data are HIPAA-protected. We 
did, however, eliminate the personally identifiable data, and made a 
detailed analytic file available to all stakeholders. We believe that 
this file, in conjunction with the RUG-IV grouper, data on the 
anticipated redistribution of patient days under the RUG-IV, and the 
CMIs calculated for use in the RUG-IV model, provided more than 
sufficient data to evaluate the impact of the conversion to RUG-IV. 
Thus, we do not agree with the commenters who claimed that we failed to 
provide adequate data for the evaluation of the RUG-IV model.
    Comment: One commenter requested CMS to provide the public with 
additional information about how occupational therapists were asked to 
record their time and interventions with residents using HCPCS codes 
through personal data assistants (PDAs) and a paper-based tool. The 
commenter expressed concern that therapists unfamiliar with HCPCS codes 
would be confused reconciling Medicare Part B HCPCS coding policies 
(CCI edits, 8 minute rule, etc.) with the ``click on/click off'' 
mentality of the STRIVE data collection PDA tool. The commenter was 
concerned that the inexperience of occupational therapists with these 
HCPCS codes could have skewed the study results.
    Response: As part of the STRIVE study preparation, we worked with 
the therapists at the participating facilities, and trained them on 
study procedures. The therapists were not required to use HCPCS codes 
to report the modalities provided to each patient. Instead, the 
description of the services was included in the PDA by name, and the 
HCPCS code was listed next to it to assist those therapists who were 
more familiar with the codes than with the modality descriptions. We 
did not receive any complaints from the participating therapists that 
they were either unfamiliar with or did not know how to use HCPCS codes 
within the context of the STRIVE data collection.
    Comment: A few commenters indicated that using an ``unvalidated 
RUG-IV grouper'' with a new MDS 3.0 assessment instrument is 
inconsistent with CMS's policies in developing the PPS for other 
Medicare providers, and does not meet OMB standards that regulatory 
analysis should be transparent and the results must be reproducible. In 
addition, a commenter noted that, in the interest of full disclosure 
and transparency, CMS has an obligation to disclose project limitations 
and uncertainties, and should consider additional research prior to 
rulemaking to evaluate such limitations.
    Response: We do not agree with the commenters' assertions that we 
are proposing an ``unvalidated RUG-IV grouper.'' The methodology used 
to develop the RUG-IV grouper applies the same analytical procedures to 
the STRIVE data as were used to create the original RUG-III grouper. 
The validation process used to update the case-mix classification 
system to RUG-IV is described in detail in section III.C.1 of this 
final rule. In addition, we conducted detailed comparisons of the MDS 
2.0 and MDS 3.0 to develop crosswalks, and tested these crosswalks to 
ensure that the RUG-IV grouper classified residents to the same groups 
using either the MDS 2.0 or MDS 3.0. These crosswalks have been posted 
on the CMS Web site at http://www.cms.hhs.gov/nursinghomequalityinits/25_nhqimds30.asp.
    In addition, as evidenced by the detailed discussion in section 
III.C.1 of this final rule, we are confident that we have met OMB's 
requirements for regulatory analysis and full disclosure. Moreover, we 
evaluated the STRIVE findings at every stage of our research over the 
past 3\1/2\ years, and conducted additional analyses to test our 
findings and strengthen the validity of the RUG-IV model. As the 
evaluation of project findings was built into the project plan, we do 
not accept the assertion that additional research is needed before 
introducing the RUG-IV case-mix model for FY 2011.
2. The RUG-IV Classification System
    In the FY 2010 proposed rule (74 FR 22208, 22229, May 12, 2009), we 
discussed the various features of the proposed RUG-IV model, and 
compared the proposed model to the existing RUG-III model that is 
currently in use. The comments that we received on this subject, and 
our responses, appear below.
General Comments
    Comment: We received a variety of comments regarding the Medicare 
RUG-IV model, with some commenters expressing support and others

[[Page 40326]]

expressing concern over the proposed changes. One commenter 
characterized it as an improvement over the current Medicare RUG-III 
model that better represents the clinical needs and resource 
utilization of nursing home residents. Another commenter noted that, 
while a Medicaid model of RUG-IV has yet to be published, if the 
changes parallel the Medicare model, the result will be a more 
appropriate case-mix reimbursement system that fairly classifies 
residents. Commenters from a major industry organization commended CMS 
on its efforts to expand RUG-IV classifications accounting for the 
relative resource utilization of different case-mix groups. They 
believe the modification of the eight levels of hierarchy and the 
increase in the number of case-mix groups from 53 to 66 is a step in 
the right direction for allowing SNFs and therapists to define and 
document the patient's needs and resources more accurately, thus 
improving the quality of care. They encourage CMS's continued efforts 
in this area.
    Other commenters questioned the accuracy of the RUG-IV model in 
capturing changes in acuity, such as the higher nursing complexity for 
patients in rehabilitation groups. While several commenters appreciated 
the added levels for extremely complex patients with ventilators and/or 
isolation, they were concerned that the RUG-IV model did not adequately 
recognize patients that had high-cost IV medication and pharmaceutical 
needs.
    Response: The RUG-IV model was derived from the STRIVE data, and we 
believe that it reflects current practice and resource use in SNFs. 
However, we recognize that, no matter how accurately we identify 
typical practices and resource needs, there are atypical cases. In the 
FY 2010 SNF PPS proposed rule, we discussed our efforts to develop a 
separate method to reimburse for non-therapy ancillaries (NTAs), such 
as the IV medications and pharmaceuticals discussed by these 
commenters. We are committed to developing an NTA classification system 
as quickly as possible to recognize these higher costs.
Extensive Category
    Comment: Several commenters supported the proposed changes in the 
Extensive Services Category in the RUG-IV model. A few commenters 
expressed concern over the removal of suctioning, noting if that if it 
is removed, Medicare will provide little reimbursement or incentive for 
SNFs to admit respiratory patients. One commenter noted that the 
frequent suctioning required by far utilizes increased nursing and 
respiratory therapist resources, even more so than trachesotomy care. 
The commenter stated that the proposal to move suctioning from the 
Extensive Care Category to a lower RUG category would significantly 
decrease their reimbursement.
    Response: In the vast majority of cases, the STRIVE data showed 
that suctioning was highly correlated with the tracheostomy or 
ventilator services. Even in the absence of these two Extensive Care 
services, suctioning was associated with other respiratory conditions 
that are included in RUG-IV Special Care categories. We did find a 
small number of cases where suctioning was recorded on the MDS in the 
absence of any other respiratory condition or service. The data show 
that the staff resource time captured for this subset of suctioning 
patients was significantly lower than for patients reporting both 
suctioning and respiratory conditions. Eliminating suctioning as a RUG-
IV qualifier only affects this smaller group where the service appears 
unrelated to respiratory conditions. Thus, we do not believe that the 
removal of suctioning as an independent qualifier will reduce the 
incentive for SNFs to admit respiratory patients or decrease 
reimbursement.
Special Care High and Special Care Low Categories
    Comment: Several commenters supported the RUG-IV expansion and 
splitting of the RUG-III Special Care Categories into the Special Care 
High and Special Care Low Categories. These commenters also stated that 
while the addition of several new case-mix groups adds complexity to 
the model, the splitting of Special Care into a High and Low category 
adds finer distinctions of resource utilization and, thus, payment 
rates.
    Response: CMS acknowledges the support of the commenters and 
concurs with the point of finer distinctions of resource utilization 
and payment rates by implementing a split of RUG-III Special Care 
Category into Special Care High and Special Care Low Categories in RUG-
IV.
Fever with Dehydration
    Comment: One commenter questioned the inclusion of dehydration as a 
qualifier with accompanying fever in the Special Care High Category 
versus the removal of dehydration alone as a qualifier in the 
Clinically Complex Category. To the commenter, the proposed rule 
appeared to indicate that dehydration as a qualifier has been removed 
from ``any'' category, implying that dehydration, even in combination 
with fever, would not contribute as a qualifying element to any RUG 
classification. The commenter questioned whether it was CMS's intention 
to leave dehydration as a qualifier in the Special Care High Category, 
in combination with fever; if so, then CMS should clarify the statement 
about dehydration in the proposed rule.
    Response: As discussed in the FY 2010 proposed rule (74 FR 22231-
34), dehydration was dropped as a qualifier in any category based on a 
finding by the American Medical Association (AMA) that there is no 
standard definition of dehydration among providers (see Faes, MC, 
``Dehydration in Geriatrics,'' Geriatric Aging, 2007: 10(9): 590-596, 
available online at http://www.medscape.com/viewarticle/567678). We 
further stated that based on our MDS review, we believe that this 
qualifier is subject to a wide range of interpretation and, therefore, 
is unreliable as a standard for RUG classification. The inclusion of 
dehydration in conjunction with fever was inadvertent. In dropping 
dehydration as a qualifier in any category, for the reasons set forth 
above, dehydration should have been dropped as a qualifier accompanying 
fever. Thus, in response to the comment, we are clarifying that in RUG-
IV, we are dropping dehydration as a qualifier accompanying fever in 
the Special Care High category. However, we are clarifying that fever 
in combination with pneumonia, vomiting, or weight loss are still 
qualifiers in the Special Care High category under RUG-IV.
    Comment: One commenter indicated that the amount of nursing 
resources is directly correlated with the number of wounds a patient 
has, and that patients with multiple wounds would be better reflected 
in the Special Care High RUG category. For example, Patient A requires 
skilled treatment for two stage 2 wounds. The nurse is able to complete 
the wound care independently. Patient B requires skilled treatment for 
two stage 2, one stage 3, and two stage 4 wounds on various locations 
of the body; the nurse is able to complete the wound care 
independently, but it may take a significant amount of time to care for 
the wounds. The commenter believed that the more wounds a patient has, 
the more resources they will require.
    Another commenter believed that Stage 2 pressure ulcers should be 
in Special Care Low, and that Stage 3 and 4 should be in Special Care 
High, because they require more nursing time and treatments than Stage 
2 ulcers. One commenter was concerned that venous

[[Page 40327]]

and arterial ulcers may be misclassified, and that definitions should 
be available for the different types of ulcers.
    Response: Based on these comments, we conducted numerous reviews of 
the STRIVE data regarding staff resources used to treat ulcers, and 
have determined that the research supports that we classify venous and 
arterial ulcers for payment purposes with pressure ulcers; however, it 
does not support separating wound care into 2 separate categories. We 
will maintain the policy outlined in the proposed rule and keep 
pressure ulcers in the Special Care Low category based on resource use 
associated with these conditions. As proposed, the patient will qualify 
for this category if 1 of the following is present along with 2 or more 
skin treatments:
     2 or more Stage 2 pressure ulcers; or
     1 or more Stage 3 or Stage 4 pressure ulcers.

In addition, based on our review of the STRIVE data, the patient will 
also qualify in the Special Care Low category if 1 of the following is 
present along with 2 or more skin treatments:
     2 or more venous/arterial ulcers; or
     1 Stage 2 pressure ulcer and 1 venous/arterial ulcer.

We will define the different types of ulcers in the RAI manual as the 
commenter suggested.
    Comment: A few commenters questioned the elimination of several 
Special Care qualifiers. These included fever with tube feeding, and 
aphasia with tube feeding. While the commenters understood that CMS has 
proposed these changes as a result of the data derived from the STRIVE 
time study, they regarded the conclusion as counterintuitive to what is 
known to be in practice: For example, in the case of both fever and 
aphasia, it is clear that these conditions seriously complicate the 
course of treatment and result in significant added resources of both 
staff time and medical supplies. While the commenters commended the 
statistical analysis and modeling that went into these decisions, they 
asked that CMS reserve final judgment on these issues for review prior 
to finalization of RUG-IV.
    Response: We believe that the STRIVE data accurately reflect wage-
weighted staff time resources for aphasia with tube feeding. As 
discussed in the proposed rule (74 FR 22231), we are dropping aphasia 
based on the average staff resource time associated with that 
condition. As discussed in the FY 2010 proposed rule, we dropped the 
aphasia requirement because, based on the results of the STRIVE 
analysis, aphasia no longer correlated with tube feeding. Thus, we are 
retaining tube feeding as a Special Care Low qualifier, but are 
dropping aphasia. The mechanism of placement in a specific RUG group is 
such that a patient qualifying for the particular group had no other 
qualifiers for placement in a higher group. Had that been the case, 
then the patient would have been included in the higher group 
reflecting more resource utilization. Patients with aphasia frequently 
qualify for a higher Rehabilitation Category, because aphasia is often 
accompanied by another condition that warrants such a RUG 
classification. All of these medical factors blend into the overall 
resource utilization statistical mosaic for the RUG-IV system.
    Based on the comments received, we reviewed the data on the staff 
resources required to treat patients with feeding tubes. We found that 
fever was a complicating factor and that the resources needed to treat 
a patient with both fever and a feeding tube were significantly higher 
than for a feeding tube alone. Thus, we will keep fever with tube 
feeding as a qualifier in the Special Care High category. Again, tube 
feeding alone remains as a Special Care Low item.
Clinically Complex Category
    Comment: A few commenters responded positively to the expansion in 
the number of groups from 6 to 10 in the RUG-IV Clinically Complex 
Category. They noted that the expansion is due to increasing the number 
of ADL score breaks, particularly for moderate and more independent 
functioning residents.
    Response: CMS acknowledges the support of the commenters and 
believes the expansion will capture a more accurate reflection of 
resource utilization in the SNF.
Pneumonia and Oxygen Therapy
    Comment: One commenter stated that there appeared to be better 
reimbursement for pneumonia and oxygen therapy and was pleased that it 
would help with the care of these patients. Another commenter expressed 
concerns regarding oxygen therapy, stating this item can be gamed very 
easily. They recommended that CMS define what oxygen therapy is and 
specify a minimum amount of time/days for classification in the 
Clinically Complex Category. They pointed out that currently, SNFs can 
code this item if there is oxygen available on a PRN (``as needed'') 
basis, and that the resident needs to use it only once to qualify for 
the category.
    Response: CMS has considered the suggestion of the commenters and 
reviewed the STRIVE data. In doing so, we have determined that, based 
on average resource use, oxygen therapy with respiratory failure, 
rather than oxygen therapy alone, should qualify for the Special Care 
Low Category, as the average resource time for oxygen therapy with 
respiratory failure is more consistent with the average resource use 
associated with the Special Care Low category. Oxygen therapy alone, 
based on average resource time, will qualify for the Clinically Complex 
Category. Regarding the suggestion for defined oxygen therapy regimens 
for classification in the Clinically Complex category, we note that the 
patient must require skilled services, and under the regulations at 42 
CFR 409.33(b)(8), services that qualify as skilled nursing services 
include the initial phases of a regimen involving the administration of 
medical gases. Because the initial phases of an oxygen therapy regimen 
qualify as SNF services, we are not going to require a minimum number 
of days or amount of time for classification, and will maintain the MDS 
2.0 coding instructions for oxygen therapy for use in the RUG-IV model.
Physician Orders
    Comment: One commenter supported dropping physician orders as a 
qualifier due to lack of specificity and the variable nature of this 
qualifier, making it an unreliable predictor of resource use. Another 
commenter expressed confusion about the physician order qualifier, and 
whether it was CMS's intention to remove all physician orders as 
qualifiers in any category. A few commenters disagreed with the 
statement about physician orders being an unreliable predictor of 
resource use. One commenter with a background in nursing noted that it 
does not make sense to say that it does not take significant time to 
review new orders, carry them out, order medications from the pharmacy, 
order labs, etc., and that this is one of the major reasons sub-acute 
units are busier than long-term care units. Another commenter stated 
that physician order changes are a good way to capture instability, and 
that the care of unstable residents can be more costly due to their 
increased use of lab tests, new medications, and nursing time.
    Response: While the RUG-III model has used physician order changes 
as a proxy for instability, analysis of the STRIVE data did not support 
its continued use because of its lack of

[[Page 40328]]

specificity and variable nature. In an effort to achieve greater 
clarity and prevent misinterpretation, as we proposed, we are 
eliminating the physician orders qualifier from the Clinically Complex 
Category in RUG-IV. However, we are clarifying that we are retaining 
physician order changes in association with diabetes (that is, 
requiring daily insulin injections and physician insulin order changes 
on 2 or more days) in the Special Care High category because the STRIVE 
data show that physician orders in combination with diabetes with 
injections is a reliable predictor of resource use. The MDS 3.0 is 
being modified to collect physician order changes specifically related 
to the patient's diabetic condition.
Internal Bleeding
    Comment: One commenter noted that as a result of the STRIVE study, 
internal bleeding was dropped as a qualifier. While the commenter 
understood that CMS has proposed these changes as a result of the data 
derived from the study, the commenter regarded the conclusion as 
counterintuitive to what is known to be in practice: This condition 
seriously complicates the course of treatment and the result is 
significant added resources of both staff time and medical supplies. 
Another commenter pointed out that transfusion services are costly to 
SNFs, and favored their inclusion as an indicator for RUG payment 
calculation, not simply for care planning purposes.
    Response: CMS recognizes that internal bleeding can be a serious 
medical condition requiring an unusual amount of staff resources and 
supplies to control. However, the resource minutes derived from the 
STRIVE study were significantly lower than other conditions classified 
into the Clinically Complex category. These results suggest a high 
degree of variation in the conditions coded as internal bleeding that 
makes the item unreliable for use in a case-mix classification model. 
We wish to note that transfusions have been retained as a Clinically 
Complex qualifier in the RUG-IV model.
Dehydration
    Comment: There were several comments about the removal of the 
dehydration qualifier for the Clinically Complex Category. Comments 
from a major industry organization agreed with CMS regarding the lack 
of a standard definition of dehydration, and that the signs and 
symptoms of dehydration may be vague and even absent in older adults. 
Commenters believed that continuing to use dehydration as a qualifier 
could result in inaccuracy in RUG classification. The commenters did 
not minimize the potentially serious nature of dehydration and the need 
for prompt medical attention in some cases, but rather, supported 
dropping it as a qualifier in order to improve coding accuracy.
    Another commenter cited the American Medical Directors 
Association's (AMDA's) newly revised clinical practice guideline, 
``Dehydration and Fluid Maintenance in the Long-Term Care Setting'' 
(see http://www.cpgnews.org/DF/index.cfm). Specifically, the commenter 
cited the AMDA as concluding that the confusion over the definition of 
the nonspecific, generic term dehydration results in confusion about 
the clinical diagnosis of dehydration in the long-term care (LTC) 
setting. According to the commenter, AMDA has concluded that 
dehydration is an unreliable quality of care indicator.
    A number of commenters stated that while dehydration may be 
difficult to quantify (as stated in the proposed rule), the requirement 
to assess, plan, intervene, evaluate, and revise care plans for the 
patient at high risk of dehydration remains a significant clinical 
issue. The commenters further stated that instances whereby facilities 
fail to complete such assessment and documentation is not a valid 
reason to eliminate appropriate reimbursement for facilities that do 
provide the necessary standard of care.
    Response: CMS agrees with the commenters stating that continuing 
use of dehydration as a qualifier could result in inaccuracy in RUG 
classification. As demonstrated by the wage-weighted staff time 
resource utilization, dehydration is an unreliable indicator of 
resource use. Therefore, dehydration has been removed as a qualifier 
from the Clinically Complex category of RUG-IV, and has also been 
removed as a qualifier accompanying fever in the Special Care High 
category. However, we would like to emphasize that we agree with the 
commenters regarding the severity of dehydration and the requirement 
for prompt medical attention. We expect that dehydration is seen in 
association with other services and conditions that are used as RUG-IV 
qualifiers. Thus, we do not expect that this change will discourage 
appropriate care or eliminate reimbursement for Medicare patients with 
skilled care needs.
IV Medications
    Comment: Some commenters did not support the movement of the IV 
medications qualifier from the Extensive Services Category to the 
Clinically Complex category. The commenters indicated that IV 
medications drive high cost to the SNF, and this downward movement of 
IV medication will not cover the cost of purchasing most IV 
medications. The commenters recommended further study of the type of 
residents seen in the SNF setting, and reviewing the cost of providing 
that care in relationship to IV medications. If the shift to the 
Clinical Complex category would occur, the commenters recommended 
excluding the High cost IV medications from SNF consolidated billing.
    Some commenters believed the inclusion of IV medications as an 
Extensive Services qualifier, as it is in the RUG-III classification 
system, appropriately captures the cost of providing the critical 
treatment these therapies offer to ill and injured patients.
    Response: Although certain medications may have high costs, the 
STRIVE study data show that the average resource times related to IV 
medications are more reflective of conditions in the Clinically Complex 
category than the Extensive Services category. CMS recognizes the 
impact of high-cost medications on SNFs and is presently developing a 
protocol to assess the impact of non-therapy ancillaries, as discussed 
in the FY 2010 proposed rule (74 FR 22238-41). However, as discussed 
further in section III.G of this final rule, we currently do not have 
the statutory authority to exclude items such as IV medications from 
consolidated billing.
Look-Back Period for IV Medications
    Comment: Some commenters expressed concern that the proposed RUG-IV 
model will eliminate all services provided in the acute setting, such 
as IV medications, as a qualifier for higher RUG categories. The 
commenters stated this eliminates the ``presumption of coverage'' that 
we clarified in the SNF PPS final rule of July 30, 1999 (64 FR 41666-
41670), which allows a beneficiary who was in the acute setting for 
pneumonia, septicemia, and infectious diseases to be considered 
``skilled'' through the first assessment reference date. The commenters 
stated that the removal of the IV fluid ``14-day hospital look-back'' 
qualifier for the SNF Extensive Services Category in RUG-IV fails to 
recognize the high risk of relapsing conditions with this patient 
population. The commenters believe this should be a consideration in 
skilled nursing assessment during the initial five-day assessment 
period, and that such care should be appropriately reimbursed, as it is 
in the current RUG

[[Page 40329]]

structure. These commenters stated that removal of this qualifier will 
lower the payment to SNFs, and that when IV medication does qualify, 
moving from Extensive Services to Clinically Complex will also result 
in lower payment. The commenters believed the nursing care of 
administering the IV will no longer count as a key factor in obtaining 
a refinement RUG and will essentially eliminate the refinement RUGs in 
most if not all Medicare stays. In addition, they believed that the 
reimbursement will not be enough to pay for the cost of the IV, let 
alone the cost of providing the nursing care required to administer the 
IV.
    Several commenters believed the appropriate and necessary 
monitoring of the patient to prevent recurrence or exacerbation of the 
condition for which the IV medication was provided is a reason for 
inclusion in the Extensive Services category, and that it has not been 
considered in the removal of IV medication in the look-back period.
    Some commenters noted that the STRIVE data analysis of the 14-day 
``look back'' period for IV medication and 7-day ``look back'' period 
for IV fluids did not demonstrate a statistically significant 
difference in nursing time. The commenters suggested that CMS look at 
the nursing time spent monitoring when a resident has had an IV 
medication administered within the last 7 days, and factor it into the 
nursing component. The commenters believed that residents receiving IV 
medication in this time frame require a significant amount of nursing 
time to monitor side effects of the medications, as well as disease 
exacerbations. The commenters referenced literature indicating that 
SNFs have a lower rate of return to the hospital than other post acute 
settings; therefore, the time spent monitoring residents, notifying 
physicians of condition changes, and implementing care plan changes 
must be taken into consideration when making changes in the RUG system. 
The commenters recommended shortening the window as opposed to removing 
the provision altogether, that is, a 7-day look-back to capture IV 
meds. The commenters requested alternatives be considered before the 
proposed rule is implemented.
    Response: CMS recognizes the concern of the nursing home community 
regarding levels of reimbursement. However, as discussed above in 
section III.C.1.b.iv of this final rule and in the proposed rule (74 FR 
22228), our analysis of the STRIVE data supported the conclusion that 
the capture of certain preadmission services by the look-back does not 
provide an effective proxy for medical complexity in the SNF, and thus 
is not an effective predictor of subsequent resource intensity during 
the SNF stay. Therefore, we believe it is appropriate to eliminate the 
look-back to the hospital stay for P1a services, rather than adopt a 
shorter look-back period. However, we noted in the proposed rule that 
it is still important that the SNF consider preadmission services for 
care planning purposes and we have designed the MDS 3.0 accordingly. 
Regarding the IV medications qualifier, as discussed above, the STRIVE 
data showed that the average resource times related to IV medications 
are more reflective of conditions in the Clinically Complex category. 
Therefore, we believe that under RUG-IV, facilities will be 
appropriately reimbursed according to the wage-weighted resource staff 
time associated with a patient's condition. As discussed above, CMS 
recognizes the impact of high-cost IV medications on SNFs, and is 
developing a protocol to assess the impact of non-therapy ancillaries, 
as discussed in the FY 2010 proposed rule (74 FR 22238-41). Finally, we 
do not agree that eliminating the look-back period to the hospital stay 
eliminates the presumption of coverage, because even in the absence of 
the look-back, it remains possible for a resident to be assigned on the 
initial 5-day, Medicare-required assessment to one of the RUGs that we 
have designated as qualifying the resident for the presumption.
Patient Acuity and RN Care
    Comment: Several commenters noted that the residents requiring IV 
medications are sick, as evidenced by the infection causing the need 
for IV antibiotics, and require extra nursing observation in addition 
to the RN time for IV starts, IV ordering, and IV administration. The 
commenters supported not coding the IVs that were given in the 
hospital, but questioned whether we are adequately accounting for the 
amount of care provided to residents receiving rehabilitation and in-
house IVs, noting that there is no longer a provision for them to get a 
higher RUG rate. These commenters did not support dropping the IV 
medications and fluids to a lower RUG group, arguing that this is a 
situation requiring the presence, vigilance, and assessment skills of a 
RN. In addition, these commenters asserted that the complex nature of 
the residents of some SNFs can involve co-morbidities, non-verbal 
status with varying communication methods, various levels of cognitive 
abilities, and difficult feeding strategies that can best be treated 
within a specific type of facility, and that the patients are 
discharged from acute care much earlier than the typical geriatric 
resident.
    Response: CMS appreciates the support of the recommendation not to 
include a 14-day IV look-back as a qualifier for the RUG-IV 
classification. We recognize and value the presence, vigilance, and 
assessment skills of an RN. However, all of the elements mentioned in 
the comment, including nursing observation time, IV starts, IV 
ordering, and IV administration, were captured in all of the nursing 
homes participating in the STRIVE time study. The STRIVE data did not 
reflect a statistically significant increase in wage-weighted staff 
time resource utilization for the patient population receiving IV 
medications, and the average staff resource time for these patients was 
more reflective of the Clinically Complex category.
Non-Patient Nursing Time
    Comment: Some commenters objected to moving the IV medication 
qualifier to the Clinically Complex category and stated that the RUG-IV 
nursing case-mix index assigned to IV medications does not account for 
the additional expended nurse resources. They noted that those 
resources are affiliated with the increase in documentation associated 
with IV medication administration, and the specific nurse training 
required for effective administration and management of patients 
receiving IV medications; for example, when caring for a patient 
receiving IV medications, the nurse's time requirements go beyond the 
time he/she spends directly with the patient, and include completing 
detailed IV assessment flow sheets, preparing the IV medication, 
reviewing lab work and consulting with the pharmacist, and becoming IV 
certified.
    Response: Administrative documentation and other non-patient 
nursing time were incorporated into the STRIVE time study. In addition, 
the costs of training and administrative documentation were captured in 
the 1995 base year for the SNF PPS's bundled rate; any bedside training 
and administrative documentation performed during the time study would 
have been captured. Further, as discussed above, the STRIVE results 
supported moving the IV medications qualifier to the Clinically Complex 
category.
Financial Hardship
    Comment: Several commenters believed that dropping IV medications 
from the Rehabilitation/Extensive Services category and the Extensive

[[Page 40330]]

Services category will cause financial hardship to long-term care 
facilities, and undue stress to the residents. The commenters cited the 
following reasons:
     They are very expensive, which may be a factor for 
consideration in determining potential admissions to long-term care 
facilities. It is hard enough now not to lose money on patients 
requiring expensive IV medications.
     They are used for very ill residents who require more 
nursing hours than any of the conditions included in any of the 
Extensive Care or Special Care categories.
    The commenters did not question the general findings of the STRIVE 
project, but expressed concern about the specific implications of those 
findings for IV medications used in the facilities.
    One commenter requested that data analyses be performed to compare 
nursing home residents admitted with IV therapy to those admitted 
without IV therapy, both for their facilities' residents and for a 
benchmark of nursing home residents nationwide. The commenter presented 
the results of one such study. The national benchmark was constructed 
using MDS data for all clients from a specific organization and its 
members and includes more than 2,700 facilities nationwide with more 
than 400,000 MDS assessments. Two MDS variables were used in this 
analysis: (1) Item P1ac (IV medications), and (2) item K5a (IV fluids). 
The commenter's analysis of data from the specific facilities and from 
the national data showed statistically significant differences between 
the group with IV therapy and the group without IV therapy, with the 
former group having a higher level of acuity and a greater need for 
skilled nursing resources. The commenters questioned the validity of 
the STRIVE study, which demonstrated no time difference between giving 
a patient an oral antibiotic versus administering an IV antibiotic.
    The commenters stated that most of the patients receiving IV 
therapy are elderly and have suffered a major illness or 
hospitalization and, thus, require the IV therapy they are receiving. 
These commenters questioned the incentive for SNFs to continue to 
provide IV therapy services if the RUG-IV system is implemented as 
proposed.
    Another commenter pointed out that IV medications and IV fluids 
provided in a SNF require the presence of an RN in most States, and 
that facilities must employ RNs specifically to provide the residents 
with IV services, which can be costly in rural areas where there are 
shortages of healthcare professionals. The commenter asserted that 
prior to the RUG-53 refinement to the SNF PPS, residents requiring IV 
medications or fluids were frequently rejected by SNFs because of the 
expense and difficulty in finding nurses to provide care. The commenter 
expressed concern that bumping the IV medications down to the 
Clinically Complex category will again adversely affect resident 
admissions to nursing homes.
    Response: The STRIVE study captured, and the data reflects, 
resource time expended by all staff levels. As discussed above, the 
STRIVE study indicated that the average resource times associated with 
IV medications are more reflective of conditions in the Clinically 
Complex category.
    Thus, we believe that classification and reimbursement under the 
Clinically Complex category for IV medications is appropriate, and 
should not result in financial hardship. Under RUG-IV, reimbursement 
for patients with complex nursing needs such as IV therapy will 
increase significantly, and should be sufficient to cover the cost 
associated with these patients. We will, of course, continue to monitor 
utilization practices to determine whether there is any impact on 
access to or quality of care.
    Still, as the payment under RUG-IV reflects the nursing resources 
and patient complexity associated with the provision of IV medications, 
we do not believe that access to care will be adversely affected. As 
discussed above, CMS recognizes the impact of high-cost medications on 
SNFs and is presently developing a protocol to assess the impact of 
non-therapy ancillaries as discussed in the FY 2010 proposed rule (74 
FR 22238-41).
Behavioral Symptoms and Cognitive Performance Category
    Comment: One commenter supported the combined Behavior Symptoms and 
Cognitive Performance Category in the RUG-IV model. This category 
combines the two separate categories of Impaired Cognition and Behavior 
Problems in RUG-III into the single new category with a combined total 
of 4 RUG groups as opposed to 4 in Impaired Cognition and another 4 in 
Behavior Problems.
    One commenter noted that while patients would classify in this 
group when they display only behavioral symptoms, or when they display 
only issues of cognition, they also remain in this group even when they 
have both conditions. The commenter added that many residents have 
issues with both dementia and behavioral problems and probably require 
more resources or staff time to deal with both issues. The commenter 
believes that there needs to be an additional category with a higher 
CMI that recognizes the combination of both issues.
    Response: During the meeting of the Technical Expert Panel in 
Spring 2009, this issue was discussed at some length. Unlike the 
results from other countries, the United States STRIVE time study 
analysis did not indicate that there was an increased wage-weighted 
staff time resource utilization with patients exhibiting both 
behavioral and cognitive issues. Reasons for this may include 
effective, monitored medication, and specialized, well-equipped nursing 
facility settings in this country. In addition, we need to consider 
whether the needs of individuals with cognitive impairment or serious 
behavior problems are addressed through specialized State programs 
similar to the Intermediate Care Facilities for the Mentally Retarded 
(ICFs/MR) for targeted populations.
Reduced Physical Function Category
    Comment: One commenter supported the increased case-mix 
classification assigned to patients receiving restorative therapy in 
the Reduced Physical Function Category. The commenter believes this 
will better reflect the amount of nursing resources needed to implement 
an effective and efficient restorative program. A few commenters 
responded to CMS's request for comments on the tertiary split for 
restorative nursing in the RUG-IV model. Specifically, they noted a 
discrepancy between the reported service and the nursing minutes; in 
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. 
Commenters suggested most of the nursing rehabilitation may be provided 
by individuals under the direction of nursing staff who are not 
classified as nursing personnel, such as nurse aides on the floor, 
therapy aides, and recreation therapy aides. This, coupled with the 
facilities limiting the time these residents might have received from 
licensed nurses, could yield the results seen. Commenters suggested 
that it might be helpful to see whether licensed nurse time has been 
reduced for these residents inappropriately or if an additional use of 
aides has appropriately reduced the level of licensed nurse need. 
Regardless, the commenters believed that the retention of this split is 
crucial, as it encourages continued help for residents to maintain 
their highest physical functioning. Another commenter concurred with 
the

[[Page 40331]]

proposed rule's position that restorative nursing programs benefit all 
residents, and cited the findings of a Federal grant that studied 
nursing facilities in Colorado having good restorative nursing 
programs, including:
     Decrease in the number of acquired pressure ulcers.
     Increase in the number of residents ambulating 
independently.
     Increase in the number of residents feeding themselves.
     Decrease in the number of incontinent residents.
     Decrease in the number of Foley catheters.
     Decrease in the number of physical constraints.
     Increase in the number of residents involved in sensory 
stimulation, exercise, and grooming classes.
     Decrease in the number of contractures.
     Decrease in the number of accidents.
     Increase in the individual's mental stature and awareness.
    Response: We appreciate the possible explanations of the reduced 
nursing minutes for patients receiving restorative nursing. It is 
plausible that much of the nursing rehabilitation may now be provided 
by aides and that the wage-weighted staff time resource utilization for 
the licensed nurses is now less than the time attributed to the various 
types of aides and assistants. As we proposed, we are retaining the 
tertiary split for restorative nursing in RUG-IV, as we believe that it 
benefits all patients. As the commenter suggested, we will consider 
monitoring restorative nursing to see whether licensed nurse time has 
been reduced for these residents inappropriately or if an additional 
use of aides has appropriately reduced the level of licensed nurse 
need.
    Finally, we note that it was brought to our attention during the 
comment period that there were certain inconsistencies in our FY 2010 
proposed rule. We noted these inconsistencies on our Web site, at 
http://www.cms.hhs.gov/snfpps/02_spotlight.asp. First, we identified 
some inconsistencies between the preamble text at 74 FR 22231 and the 
tables in the proposed rule (Table 14 and Table C in the Addendum) 
regarding the qualifying conditions for the Special Care High, Special 
Care Low, and Clinically Complex categories. We are clarifying that the 
information in the tables was accurate, with the correction noted 
below. In addition, we identified a necessary technical correction to 
Table C in the Addendum of the FY 2010 proposed rule. The Special Care 
High, Special Care Low, and Clinically Complex categories for RUG-IV 
stated in the Notes section, ``Signs of depression used for end splits; 
PHQ score <= 9 or CPS >=3.'' This should have read, ``Signs of 
depression used for end splits consisted of PHQ score >=9.5.''
    Accordingly, we are finalizing the RUG-IV classification system as 
proposed in the FY 2010 proposed rule (74 FR 22229-36) for 
implementation in FY 2011, with the corrections noted above and with 
the following modifications:
     Fever with feeding tube has been added to Special Care 
High;
     We are clarifying that dehydration has been deleted as a 
qualifier in any category, including the Special Care and Clinically 
Complex categories;
     Respiratory failure in combination with oxygen therapy 
while a resident is added to Special Care Low;
     Oxygen therapy alone while a resident is moved to 
Clinically Complex; and
     A patient will also qualify in the Special Care Low 
category if 1 of the following is present along with 2 or more skin 
treatments:
    [cir] 2 or more venous/arterial ulcers; or
    [cir] 1 Stage 2 pressure ulcer and 1 venous/arterial ulcer.
BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C
3. Development of the FY 2011 Case-Mix Indexes
    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 in the previous section, we are finalizing the RUG-IV 
model to be implemented in FY 2011. The RUG-IV update uses data 
collected in 2006-2007 during the STRIVE project, and reflects current 
medical practice and resource use in SNFs across the country. Our 
description of the proposed RUG-IV model in the FY 2010 proposed rule 
included a discussion of the development of the case-mix indexes to be 
used under this model (74 FR 22208, 22236-22238, May 12, 2009).
    The case-mix indexes will 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 will classify each of their patients into a RUG-IV group 
based on assessment data from the MDS 3.0.
    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 III.B.2.b of this final rule), 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 in the proposed rule (74 FR 22208, 22236-
22238, May 12, 2009). We then compared the CMIs for the RUG-53 and RUG-
66 models in a way that is 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. In 
the FY 2010 proposed rule, we stated that 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. However, 
after the

[[Page 40339]]

proposed rule was published, final FY 2008 claims data became 
available. As we stated in the proposed rule, in the absence of actual 
RUG-IV utilization, we believe that the most recent final claims data 
are the best source available, as they are closest to the FY 2011 
timeframe. Because our intent, as expressed in the FY 2010 proposed 
rule, was to use the most recent data available, we updated our 
analysis using FY 2008 final claims data to enhance the accuracy of our 
calculation of the adjustment necessary to achieve parity between the 
RUG-53 model and RUG-IV. 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 III.B.2.b of this final rule), we proposed 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). Based on our analysis using FY 2008 claims data, the 
adjustment to the nursing weights necessary to achieve ``parity'' is an 
upward adjustment of 59.4 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 are the best source available, as they are 
closest to the FY 2011 timeframe. As actual data for RUG-IV utilization 
become 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.
    We intend to actively monitor the changes in beneficiary access and 
utilization patterns as a response to the 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 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.
    We are finalizing the RUG-IV CMIs utilizing the methodology 
discussed. The final RUG-IV CMIs reflecting the parity adjustment are 
displayed in Table 14 and, as discussed in the previous section, we 
will implement these CMIs with the RUG-IV system beginning in FY 2011.

                    Table 14--RUG-IV Case-Mix Indexes
------------------------------------------------------------------------
                   RUG                     Nursing index   Therapy index
------------------------------------------------------------------------
RUX.....................................            3.55            1.87
RUL.....................................            3.41            1.87
RVX.....................................            3.48            1.28
RVL.....................................            2.92            1.28
RHX.....................................            3.40            0.85
RHL.....................................            2.86            0.85
RMX.....................................            3.28            0.55
RML.....................................            2.92            0.55
RLX.....................................            3.01            0.28
RUC.....................................            2.08            1.87
RUB.....................................            2.08            1.87
RUA.....................................            1.32            1.87
RVC.....................................            2.00            1.28
RVB.....................................            1.48            1.28
RVA.....................................            1.47            1.28
RHC.....................................            1.92            0.85
RHB.....................................            1.59            0.85
RHA.....................................            1.22            0.85
RMC.....................................            1.81            0.55
RMB.....................................            1.62            0.55
RMA.....................................            1.12            0.55
RLB.....................................            1.99            0.28
RLA.....................................            0.94            0.28
ES3.....................................            3.55  ..............
ES2.....................................            2.65  ..............
ES1.....................................            2.29  ..............
HE2.....................................            2.20  ..............
HE1.....................................            1.72  ..............
HD2.....................................            2.02  ..............
HD1.....................................            1.58  ..............
HC2.....................................            1.87  ..............
HC1.....................................            1.47  ..............
HB2.....................................            1.84  ..............
HB1.....................................            1.45  ..............
LE2.....................................            1.94  ..............
LE1.....................................            1.52  ..............
LD2.....................................            1.84  ..............
LD1.....................................            1.45  ..............
LC2.....................................            1.54  ..............
LC1.....................................            1.21  ..............
LB2.....................................            1.44  ..............
LB1.....................................            1.13  ..............
CE2.....................................            1.66  ..............
CE1.....................................            1.49  ..............
CD2.....................................            1.54  ..............
CD1.....................................            1.37  ..............
CC2.....................................            1.28  ..............
CC1.....................................            1.14  ..............
CB2.....................................            1.14  ..............
CB1.....................................            1.01  ..............
CA2.....................................            0.87  ..............
CA1.....................................            0.77  ..............
BB2.....................................            0.96  ..............
BB1.....................................            0.89  ..............
BA2.....................................            0.69  ..............
BA1.....................................            0.64  ..............
PE2.....................................            1.49  ..............
PE1.....................................            1.39  ..............
PD2.....................................            1.37  ..............
PD1.....................................            1.27  ..............
PC2.....................................            1.09  ..............
PC1.....................................            1.01  ..............
PB2.....................................            0.83  ..............
PB1.....................................            0.77  ..............
PA2.....................................            0.58  ..............
PA1.....................................            0.54  ..............
------------------------------------------------------------------------

    The comments that we received on this subject, and our responses, 
appear below.
    Comment: Several commenters questioned our use of Bureau of Labor 
Statistics data to determine the wage-weighted staff time. Some 
suggested that we should have used industry sources instead. One 
commenter believed that the BLS data we used (2006) should be updated 
to 2008. A few commenters said that we did not include enough 
information about how the wage weights were calculated.
    Response: In the STRIVE study, wage-weighted nursing and 
rehabilitation staff times were computed at the resident level by 
multiplying the number of minutes of care that were provided by each 
staff type by a wage weight for that staff type, and then summing over 
all staff types.
    We believe we included sufficient information regarding how the 
wage weights were calculated in the FY 2010 proposed rule (74 FR 
22237). To establish wage weights for each staff type, the STRIVE study 
obtained national median wage values for staff types from the May 2006 
Bureau of Labor Statistics/Occupational Employment Statistics (BLS/
OES). Next, we computed the ratio of median salaries for the different 
nursing and rehabilitation therapy staff to the median salary of a 
certified nurse aide. These ratios were used as salary weights for each 
staff category. The BLS/OES provides national data by staff type for 
Nursing Care Facilities and is publicly available. We considered many 
other sources of wage data, such as the BLS National Compensation 
Survey Employer Cost for Employee Compensation product; however, this 
product does not provide national averages and is not very specific to 
nursing homes. We also considered survey data collected by the 
industry. We found that these data were less

[[Page 40340]]

nationally representative, as they were collected for a smaller number 
of facilities and for specific types of nursing homes. In addition, 
they were more limited in the staff types collected. BLS/OES data 
contained nearly all of the staff types we encountered during the 
STRIVE data collection.
    The STRIVE study allowed facilities to select from a wide range of 
staff type categories. For example, there were 11 different categories 
for non-licensed aide staff, as follows:
     Certified Medication Aide.
     Certified Nursing Assistant (CNA).
     Geriatric Nursing Assistant.
     Resident Care Technician.
     Restorative Aide.
     Feeding Aide.
     Transportation.
     Bath Aide.
     Non-certified care tech.
     Clinical Associate.
     Psychological Therapy Aide.
    When one of these staff categories appeared in the BLS/OES, then 
the corresponding median hourly wage for that category was used by the 
STRIVE study. The participating facilities used a variety of titles for 
staff with similar job duties; for example, different kinds of 
certified nurse assistants (CNAs) or aides. When a staff category did 
not appear in the BLS/OES, a decision was made to set the wage for 
STRIVE computations to a value relative to most comparable staff 
category available in BLS/OES. The relative value used was based on an 
assessment of the functions performed by the staff in relation to the 
functions performed by the most comparable staff category available in 
BLS/OES. For example, ``restorative aide'' did not occur in BLS/OES and 
the wage for restorative aide was set to the 75th percentile of CNA 
wage. ``Geriatric nursing assistant'' did not appear in the BLS/OES and 
the wage for this staff type was set to the median CNA wage. ``Bath 
aide'' was not listed in the BLS/OES and the wage for this staff type 
was set to the 25th percentile of CNA wage, as aides in this staffing 
category were restricted to a single function. Generally, the few staff 
categories that were not available in the BLS/OES reported very few 
resident-specific time minutes.
    BLS/OES is widely used as a source for average salary information. 
In fact, both MedPAC (``Report to Congress: Promoting Greater 
Efficiency in Medicare'', June 2007) and Acumen, LLC (http://www.acumenllc.com/reports/cms) have considered the BLS data for use in 
an alternative method to compute the wage index. Considering all of the 
alternatives, we believe that the BLS/OES represents the best source of 
data to establish the STRIVE wage weights.
    The following table presents the STRIVE study wages and 
corresponding wage weights. Wage weights were standardized so that the 
CNA value equaled 1.00. This allowed an interpretation of a wage-
weighted time as ``CNA equivalent minutes.''

                           Table 15--STRIVE Study Wages and Corresponding Wage Weights
----------------------------------------------------------------------------------------------------------------
                                                                                   Median hourly
                 Job title                                Decision *               wage  (2006$)    Wage weight
----------------------------------------------------------------------------------------------------------------
                                                  Nursing Staff
----------------------------------------------------------------------------------------------------------------
Registered Nurse...........................  Use BLS median.....................          $27.54            2.58
Nurse Practitioner.........................  Use median RN wage.................           27.54            2.58
Licensed Practical Nurse...................  Use BLS median.....................           17.57            1.65
Licensed Vocational Nurse..................  Use median Licensed Practical Nurse           17.57            1.65
                                              wage.
Certified Medication Aide..................  Use median CNA wage................           10.67            1.00
Certified Nursing Assistant (CNA)..........  Use BLS median.....................           10.67            1.00
Geriatric Nursing Assistant................  Use median CNA wage................           10.67            1.00
Resident Care Technician...................  Use median CNA wage................           10.67            1.00
Restorative Aide...........................  Use 75th percentile CNA wage.......           12.80            1.20
Feeding Aide...............................  Use 25th percentile CNA wage.......            9.09            0.85
Transportation.............................  Use 25th percentile CNA wage.......            9.09            0.85
Bath Aide..................................  Use 25th percentile CNA wage.......            9.09            0.85
Non-certified care tech....................  Use 25th percentile CNA wage.......            9.09            0.85
Clinical Associate.........................  Use median CNA wage................           10.67            1.00
Respiratory Therapist......................  Use BLS median.....................           22.80            2.14
Respiratory Therapy Assistant..............  Use BLS median.....................           18.81            1.76
Psychological Therapy Aide.................  Use BLS median.....................           11.49            1.08
----------------------------------------------------------------------------------------------------------------
                                                  Therapy Staff
----------------------------------------------------------------------------------------------------------------
Physical Therapist.........................  Use BLS median.....................           31.83            2.98
Physical Therapy Assistant.................  Use BLS median.....................           19.88            1.86
Physical Therapy Aide......................  Use BLS median.....................           10.61            0.99
Occupational Therapist.....................  Use BLS median.....................           29.07            2.72
Occupational Therapy Assistant.............  Use BLS median.....................           20.22            1.90
Occupational Therapy Aide..................  Use BLS median.....................           12.03            1.13
Speech Language Pathologist................  Use BLS median.....................           27.74            2.60
Audiologist................................  Use BLS median.....................           27.46            2.57
Therapy Aide...............................  Use the average of PT & OT aides...           11.32            1.06
Therapy Transport..........................  Use the average of PT & OT aides...           11.32            1.06
----------------------------------------------------------------------------------------------------------------

    We note that staff types not included in this table were not 
considered in calculating nursing time in the STRIVE study. Some staff 
types (for example, nurse practitioner and dialysis technician) were 
excluded because there was little or no time for this staff type in the 
STRIVE study. Others were excluded because their services are not 
covered under Medicare Part A (for example, acupuncturist) or their 
services are not included in the Medicare Part A nursing rate component 
(for example, dietitian).

[[Page 40341]]

    Finally, we used 2006 BLS/OES data to construct the wage weights, 
and although more recent data are available, we believe that the 2006 
data represent the wages related to the staffing patterns in use during 
a period of time when the STRIVE data were collected. Although the 
absolute wages change over time, we have evaluated the differences in 
the wage weights from 2006-2008 and find that wage weights for most 
staff types over this period are stable. In other words, although the 
absolute wages change, the relative wages between staff types are not 
changing significantly. Therefore, we are finalizing our decision to 
use the 2006 BLS/OES data to calculate the wage weights used to 
construct the case-mix indexes.
    Comment: Some commenters suggested that the parity adjustment be 
applied to both the nursing and therapy indexes.
    Response: We considered this as an alternative to applying the 
parity adjustment entirely to the nursing CMIs. However, we believe it 
is most appropriate to apply the parity adjustment to the nursing CMIs. 
The parity adjustment accounts for the difference in payments between 
the RUG-III and RUG-IV systems accumulated across all RUGs. The nursing 
CMIs are applied to each of the 66 RUGs in the RUG-IV payment system 
and, therefore, we believe it is most appropriate to apply that 
adjustment to all RUGs. When applying a portion of the parity 
adjustment to the therapy CMIs, aggregate payment rates for therapy 
RUGs do not uniformly increase compared to aggregate payment rates for 
therapy RUGs if calculated by applying the entire parity adjustment to 
the nursing CMIs. The nursing component, even for most therapy groups, 
is usually the largest contributor to the aggregate payment rate.
    Comment: One commenter noted RUB and RUC, and RVA and RVB have the 
same case-mix index for RUG-IV. For RUG-III, ``B'' ADL pays more than 
``A,'' and ``C'' pays more than ``B.'' The commenter stated that this 
does not account for the increased resources used when providing care 
for a patient with ``B'' ADLs versus ``C'' ADLs, or ``A'' ADLs versus 
``B'' ADLs.
    Response: The RUG-IV CMIs are based on the time resource data from 
the STRIVE project. In the situations that the commenter cites, the 
STRIVE data indicated less nursing time for RUC than RUB and the 
resulting CMI for RUC would be less than that for RUB. A situation 
where the time resource use for groups within a category does not 
increase with increasing ADL scores is often referred to as an ``ADL 
inversion.'' The STRIVE data produced a few of these types of 
inversions, and they have existed in previous time studies as well. 
Previous time studies have adjusted for most of these inversions before 
calculating final CMIs. We believe it is appropriate to adjust these 
inversions so that the CMIs reflect higher resource use for more 
dependent patients and eliminate payment incentives that may cause 
practice patterns to be altered. Therefore, using the method described 
in section III.C.1.a of this final rule, we decided to ``smooth'' the 
inversion by combining a pair of groups and assigning the weighted 
average across the 2 groups as the mean resource time for each group. 
This is why the final means, and therefore the CMIs, for RUB and RUC 
are equal. We believe this is preferable to allowing the reimbursement 
for less dependent patients to be higher than the reimbursement for 
patients that are more dependent. We note that the CMI for RVB is 
slightly higher than the CMI for RVA using the final database.
4. Relationship of RUG-IV Classification System to Existing Skilled 
Nursing Facility Level-of-Care Criteria
    As discussed previously in section III.B.5 of this final rule, the 
existing level of care presumption currently applies to the upper 35 
groups of the refined 53-group RUG-III model. In the FY 2010 proposed 
rule (74 FR 22208, 22238, May 12, 2009), we proposed that under the new 
66-group RUG-IV model, this presumption would apply to the upper 52 
groups, as 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. We received no comments on this proposal, 
and in this final rule, we are implementing this provision as proposed.
5. Prospective Payment for SNF Nontherapy Ancillary Costs
    The FY 2010 proposed rule discussed the issue of payment for 
nontherapy ancillary costs under the SNF PPS (74 FR 22208, 22238-22241, 
May 12, 2009). This discussion described the previous research that has 
been conducted in this area as well as current policy and analysis, and 
also specifically examined this issue as it relates to the temporary 
AIDS add-on payment established by section 511 of the MMA (see section 
I.E of this final rule). The comments that we received on this subject, 
and our responses, appear below.
    Comment: A commenter stated that payments for ventilator services 
are inadequate to prevent ventilator patients from experiencing access 
barriers in SNFs. The commenter urged CMS to consider MedPAC's proposal 
to adjust payments to account specifically for nontherapy ancillary 
services, of which non-nursing ventilator services are a part. Several 
commenters also stated that CMS should provide for a rate adjustment 
specific to providers of ventilator services to compensate them for 
ventilator-related costs not covered under the PPS as currently 
configured or as proposed to be modified in the proposed rule. Further, 
commenters proposed that an outlier payment or add-on similar to the 
AIDS add-on be adopted for ventilator patients as an interim measure.
    Response: Ventilator patients are addressed in our proposal for a 
redefined Extensive Services group. Our proposal does not make any 
changes in the method of paying for NTA costs; all such payments 
continue to be proportional to the nursing costs paid in the relevant 
case-mix group. Because the nursing component weight for Extensive 
Services will rise substantially under our refinements, payments for 
NTA costs associated with these patients will also rise substantially. 
However, we recognize the need for further research to revise the 
payment methodology for NTA costs, as described in our approach to the 
analysis in the proposed rule (74 FR 22238). We are reviewing MedPAC's 
NTA cost predictors as part of this work. The suggestion of an outlier 
payment or add-on payment cannot be implemented under current law, as 
we have no statutory authority to make such a change.
    Comment: A commenter stated that the criteria we described for a 
system to adjust payments for NTA services by case mix appear 
reasonable, but went on to emphasize that CMS has not been able to 
identify appropriate case-mix adjustments for NTA in multiple prior 
efforts. The commenter further looks forward to seeing whether the new 
criteria produce a methodology that explains more than 20 percent of 
the variation in NTA needs of patients.
    Response: We acknowledge that past efforts have not been uniformly 
successful and resulted in no implementable proposals. We have not 
targeted any specific level of ``goodness of fit'' for a future 
methodology. However, we note that the quality of the data available to 
conduct this research could significantly affect the explanatory power 
of any model that we may develop.

[[Page 40342]]

    Comment: Several commenters recommended that we consider an outlier 
payment for NTA services or specifically, for intravenous medications. 
One commenter cited facilities that are losing money due to the high 
cost of the IV medications. Another commenter stated that under our 
proposal, bariatric, wound care, and certain chemotherapy patients, 
among others, incur unaccounted-for equipment and/or drug costs, 
resulting in restricted access for these patients. The commenter 
suggested that an outlier payment structure would remedy this 
situation.
    Response: As we note elsewhere in this final rule, we have no 
statutory authority at this time to implement an outlier policy for NTA 
services. We welcome information about the incidence of high-cost IV 
medication days, bariatric patient days requiring special equipment, 
and other incidence information which could inform future efforts to 
design an outlier policy, if it is authorized.
    Comment: A commenter stated that a payment add-on for non-therapy 
ancillary costs would be worth exploring.
    Response: As discussed above, we do not have statutory authority to 
implement an outlier or add-on payment for NTA services. However, we 
discussed the possibility of implementing a case-mix adjustment for NTA 
services in the proposed rule. We believe that we currently have 
authority to create a separate NTA component of the Federal per diem 
rate, which would be carved out of the existing nursing component. Such 
a proposal would be contingent on developing a workable methodology for 
predicting NTA costs per day. The discussion in the proposed rule 
described the criteria that we envision for such a system. At the 
inception of the SNF PPS, average daily NTA costs were included in the 
nursing component. Any new, carved-out component would, in effect, 
recover the original costs from the nursing component and adjust them 
separately for case mix, using information that better predicts NTA 
costs than does the RUG methodology. However, this does not mean that 
overall expenditures under the SNF PPS would increase as a result of 
the creation of this NTA component and index.
    Comment: A commenter criticized the RUG-IV proposal for removing IV 
patients from the Extensive Services group on the basis that staff time 
caring for such patients is not sufficiently large, noting that the 
actual drug costs for IV patients were not included in the staff time 
data.
    Response: We recognize that the RUG-IV proposal did not take drug 
costs directly into account. The STRIVE study showed that collecting 
accurate and complete primary data on drug costs was not feasible. We 
anticipate that future work on paying for NTA costs, of which IV drugs 
are a part, will rely on administrative data resources. Under RUG-III, 
nursing weights for IV patients ranged from 1.17 to 1.72. However, the 
changes we are implementing to the case-mix classification system 
reallocated to the nursing component of the SNF PPS payment savings 
derived from more accurate accounting for therapy time. As a result, 
nursing weights for IV therapy patients range from .73 to 3.43, 
depending on whether IV therapy co-occurs with other qualifying 
conditions, such as infection isolation, septicemia, etc.
    Comment: A commenter stated that ventilator-dependent patients 
should have their own classification.
    Response: The revised Extensive Services group includes only three 
types of patients: Tracheostomy, ventilator/respirator, and infection 
isolation. Analysis of the STRIVE time study data suggested that these 
patients had similarly high nursing costs. Thus, it is likely that 
subdividing this group to classify ventilator patients separately would 
needlessly complicate the SNF PPS.
    Comment: A number of commenters, while urging us to maintain the 
existing AIDS add-on until an alternate payment methodology can be 
developed, also indicated that we should consider creating a similar 
add-on payment mechanism for anti-rejection drugs, low molecular weight 
heparin, appetite stimulating agents, and erythropoiesis stimulating 
agents.
    Response: We note that in contrast to the AIDS add-on (which was 
specifically created by section 511 of the MMA), the law contains no 
similar add-on payment authority for the other services mentioned.

D. 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 regulations at 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. The FY 2010 proposed 
rule included an examination of various aspects of a new version of the 
MDS, MDS 3.0 (74 FR 22208, 22241, May 12, 2009), as discussed in the 
following sections.
1. Description of the MDS 3.0
    The FY 2010 proposed rule described the major features of the MDS 
3.0 (74 FR 22241). We determined that including information on the MDS 
3.0 would be beneficial to stakeholders, as RUG-IV and MDS 3.0 will be 
introduced at the same time, as requested by virtually all stakeholders 
last year. Even though we included a discussion of the MDS 3.0 in the 
SNF PPS proposed rule, the instrument itself was not proposed. However, 
we did receive many comments on the MDS 3.0, which we summarize below.
    Comment: Some of the general comments regarding the MDS 3.0 
conveyed support, while others raised concerns about burden and the 
amount of testing that has been performed on the instrument. There were 
many comments that sought clarification or offered suggestions for 
items included in the draft MDS 3.0 item set posted at http://www.cms.hhs.gov/NursingHomeQualityInits/Downloads/MDS30DraftItemSetv26.pdf.
    Response: We chose to use the SNF PPS rule to announce the upcoming 
October 2010 scheduled implementation of the MDS 3.0 and appreciates 
the comments in support of it. Concerning the comments about the 
possibility of increased burden and the need for additional testing of 
the instrument before implementation, findings from the pilot testing 
of MDS 3.0 in 2008 did not suggest that the MDS 3.0 was overly 
burdensome. We believe that any more recent changes made to the MDS 3.0 
are minor and not substantive and, thus, that additional testing is not 
necessary.
    Concerning the comments seeking clarification of the draft MDS 3.0 
item set, CMS believes that these issues will be addressed with the MDS 
3.0 RAI Manual and MDS 3.0 Final Item Set that are scheduled to be 
published on the CMS Web site, http://www.cms.hhs.gov, in October 2010. 
The specific recommendations for new or revised items for the MDS 3.0 
instrument have been forwarded to the MDS 3.0 development team at CMS 
for review and consideration. The MDS 3.0 RAI Manual, Data Set, and 
Data Specifications are scheduled to be

[[Page 40343]]

published in October 2009 with subsequent implementation of the MDS 3.0 
in October 2010. This time frame provides for an entire year for CMS, 
its contractors, and SNFs to prepare and train in anticipation of the 
October 1, 2010 implementation date.
    Comment: Some comments discussed the MDS 3.0 item set content and 
format of the ``paper'' tool. Among the issues raised were: Maintaining 
the MDS 2.0 section G, ADL items, and DAVE discrepancy rates; the order 
of section A being problematic for the paper version when reviewing the 
assessment; adopting the OASIS diagnosis format; providing greater 
resident involvement by implementing interview tools; the need for 
pressure ulcer items to be more clinically based; suggestions for 
adding specific diagnoses to section I; and concerns that section Q may 
affect State agency staff resources. One commenter suggested that CMS 
simply address the specific problem areas with MDS 2.0, such as 
pressure ulcers, and not change any other aspects of it. Another 
commenter requested that the RAI manual be made available by August 1, 
2009.
    Response: We will take into consideration the suggestions submitted 
in response to the SNF PPS proposed rule. We agree that the MDS 3.0 
provides a greater resident involvement in care and that the items 
being surveyed are more clinically based than the existing MDS 2.0. 
However, given the current specifications of the MDS 2.0, we are unable 
to adopt the commenter's suggestion of simply revising certain 
problematic items, due to limitations in the data string.
    We understand the concern of maintaining the MDS 2.0 scoring system 
for ADLs. We have revised the ADL-Self-performance response codes to 
address a care planning concern raised by stakeholders. While we agree 
that the Data Assessment and Verification (DAVE) findings on 
discrepancy rates for the ADL items are high, the DAVE contractor did 
not, as part of its analysis, factor into account the degree or 
severity of the discrepancy. For example, in a situation where one 
assessor coded a resident as supervision, the DAVE project did not 
consider whether the second assessor coded the same person as limited 
assistance, extensive assistance, or total dependence, but simply 
determined whether the codes were the same. We are currently working 
with stakeholders to ensure that the MDS 3.0 RAI manual provides clear 
guidance.
    While we want to ensure that a paper version of the MDS 3.0 is 
user-friendly, we encourage providers and users to move toward an 
electronic model. We will take into consideration the concerns provided 
to us on the record layout.
    Comment: One commenter stated that CMS has ``tinkered'' with the 
assessment tool, which creates confusion and jeopardizes timely 
rollout. Another asserted that MDS 3.0 does not meet the criteria CMS 
set out to accomplish. One commenter requested CMS to ``batch'' 
revisions to the MDS 3.0 and implement in a systematic fashion. Another 
suggested that CMS provide a ``journal'' of all changes in a central 
location that is available to all users and assessors. One commenter 
remarked that the data gathered during the STRIVE project is not valid 
for evaluating the effectiveness of the proposed MDS 3.0 assessment.
    Response: Our goals for updating the assessment instrument used in 
nursing homes were to introduce advances in assessment measurement, 
increase relevance of items, improve accuracy and validity of the tool, 
and increase our knowledge of residents' experience of care by 
introducing more resident interview items. We believe we have achieved 
these goals, as evidenced by features such as the following:
     Addition of pressure ulcer items where the clinician 
reports the actual stage of the ulcer, not the appearance;
     Use of resident interview items for mood and other areas;
     Use of valid and reliable assessment tools, such as the 
Brief Interview for Mental Status; and
     Improvement of pain assessment items.
    Therefore, we do not agree with the assertion that we did not 
accomplish what we had intended.
    We have stated from the outset of releasing version 3.0 of the MDS 
that it was in draft form, and that providers and users should not 
consider the draft version final. We have built upon RAND's study to 
improve the assessment further and ensure that it meets, as much as 
possible, the needs of multiple users, such as Medicaid State Agencies 
for payment purposes and return-to-the-community initiatives. Lastly, 
the STRIVE project did not ``evaluate'' the effectiveness of the MDS 
3.0. RAND's responsibility was to improve the clinical effectiveness of 
the instrument. They were not required to ensure that quality measures 
and indicators or the RUG classification systems were kept fully 
``intact.'' RAND was aware of the other purposes of the MDS and did 
take this into consideration during their study and analysis. We did 
not approach the issue with the belief that a single project would meet 
the needs of all users, and have actually incorporated lessons learned 
from other CMS projects, such as the CARE tool. The STRIVE project did 
not evaluate the effectiveness of the MDS 3.0. In fact, the STRIVE 
study was conducted at the same time the RAND staff were testing the 
pilot MDS 3.0 instrument. The STRIVE contractor did conduct analysis to 
ensure that payment systems and quality measures were not negatively 
affected based on data collected under the MDS 3.0 project.
    Currently, we post updates to the MDS 2.0 on the CMS Web site so 
that all users and assessors are able to access the changes. Our 
expectation is that the MDS 3.0 instrument and RAI manual will not 
require updates for some time. However, the format, that is, the item 
numbering and layout, as well as the specifications, will provide us 
with the ability to update the tool in a simple and quick method when 
the need arises. Finally, we will take into consideration the comment 
on ``batching'' updates, and will work with stakeholders to ensure that 
they have access to the updates in a timely fashion.
    Comment: A few recommendations were received on the MDS 3.0's 
relationship to Health Information Technology (HIT) standards. The 
recommendations include:
     Increasing efforts in Federally-mandated initiatives to 
adopt cost-effective use of information technology in healthcare 
settings;
     Consider present and future data use and exchange 
requirements to format and exchange MDS 3.0 data;
     Incorporate all standardized terminology approved by 
Consolidated Health Informatics (CHI), Office of the National 
Coordinator for Health Information Technology (ONC), National Institute 
of Standards and Technology (NIST), or American National Standards 
Institute (ANSI) in all HIT projects; and
     Consider incorporating all available approved terminology 
and exchange standards for use in all Health Information Exchange or 
HIT projects.
    Contained in the comments was the suggestion that if CMS were 
unable to carry out the approach outlined in the bullets above for MDS 
3.0, then CMS should consider placing efforts on the CARE tool.
    Response: CMS appreciates the comments that were submitted with 
regard to HIT standards and will consider these comments as the MDS 3.0 
is implemented.

[[Page 40344]]

2. MDS Elements, Common Definitions, and Resident Assessment Protocols 
(RAPs) Used under the MDS
    The FY 2010 proposed rule included a discussion of the MDS 3.0's 
MDS elements, common definitions, and RAPs (74 FR 22243). The comments 
that we received on this subject, and our responses, appear below.
    Comment: One commenter expressed concern about our proposal to 
remove language identifying MDS domains and common definitions at 
Sec. Sec.  483.315(e)(1) through (18) and instead reference the domain 
requirements at Sec.  483.20(b)(1)(i) through (xviii) and use the RAI 
manual for specific details regarding the MDS domains and common 
definitions. Although the commenter acknowledged the need for us to 
make timely MDS changes, the commenter stated that removing the MDS 
domains and common definitions could affect assessment reliability, 
consistency, accuracy, validity, and reimbursement, and could deny the 
public a meaningful voice in challenging proposed changes or offering 
official recommendations.
    Response: Rapid changes in clinical practice make it imperative for 
us to have the flexibility to change or add to the MDS domains and 
common definitions quickly in order to protect the health and safety of 
nursing home patients.
    For example, the CDC Advisory Committee on Immunization Practices 
(ACIP) has recommended vaccination against the varicella zoster virus 
(VZV, that is, chicken pox) for individuals over age 60. VZV can 
reactivate clinically decades after initial infection to cause herpes 
zoster (that is, shingles), a localized and generally painful cutaneous 
eruption that occurs most frequently among older adults and affects 
approximately 1 million individuals in the United States every year. A 
common complication of zoster is post-herpetic neuralgia (PHN), a 
chronic pain condition that can last months or even years. 
Complications include involvement of the eye that can threaten sight, 
bacterial super infections, and disfiguring facial scarring. Another 
example is the annual CDC ACIP recommendations regarding the provision 
of influenza vaccinations in relation to the timing and duration of the 
influenza season. Based on recommendations such as these, we need the 
flexibility to add or change vaccinations promptly to the MDS domains.
    In a December 23, 1997 final rule (62 FR 67174), we removed the MDS 
and its instructions from the regulation text that was inserted in the 
December 28, 1992 proposed rule (57 FR 61414). In that final rule, we 
noted this was necessary in order to allow us to easily modify the MDS 
so that it requires collection of information that is clinically 
relevant and meets evaluative needs as clinical practice evolves (62 FR 
67174, 67203). These notations still continue to reflect our current 
view.
    In the past, as we have proposed changes to the MDS domains and 
common definitions, we have given the public ample opportunity to 
comment through the use of CMS Open Door Forums and Town Hall meetings; 
dedicated mailboxes for comments; CMS Web site postings; and meetings 
with stakeholder organizations. We believe that in directly discussing 
and negotiating with affected parties, it will be possible to maintain 
an MDS assessment process that is clinically relevant while also 
obtaining public comment. We will continue to use these venues to 
solicit public comments on proposed changes, and we believe they are 
sufficient to allow robust public input and address the commenter's 
concerns. Therefore, we are not accepting the comment. Accordingly, 
this final rule removes the language identifying MDS domains and common 
definitions at Sec. Sec.  483.315(e)(1) through (18), and instead 
references the domain requirements at Sec.  483.20(b)(1)(i) through 
(xviii). We will use the RAI Manual for specific details regarding the 
MDS domains and common definitions.
    Comment: One commenter expressed concern that the proposed rule did 
not specify when an MDS is considered to be complete, noting that this 
information is currently available for the MDS 2.0 in the RAI User's 
Manual.
    Response: Federal regulations at 42 CFR 483.20(i)(1) and (2) 
require the RN assessment coordinator to sign and certify that the 
assessment is complete. This completion attestation is made when the 
MDS assessment is considered complete; the timing varies depending on 
the assessment type. Federal regulations at 42 CFR 483.20(b)(2) and (c) 
specify the timeframes for conducting the various assessment types. As 
the commenter noted, this specific information is currently available 
for MDS 2.0 in the RAI User's Manual. As this information will continue 
to be provided for MDS 3.0 in the RAI User's Manual and is already 
covered in the regulations text, we believe that this information is 
adequately provided.
    Comment: Although commenters expressed various concerns, several 
were supportive of the proposed changes to the MDS 3.0 RAPs.
    Response: We were pleased with the support expressed through the 
comments. While it is true that the structure of the proposed changes 
to the MDS 3.0 RAPs process was not fully specified in the proposed 
rule, CMS is aware of most of the issues raised in the comments, and 
has been actively working on them. We have provided responses to 
specific comments in the following paragraphs.
    Comment: We received a few comments requesting us to clarify that, 
while RAPs are no longer mandatory, it is CMS's intent that facilities 
must continue to use care area triggers (CATs) from the MDS and 
current, evidence-based clinical guidance or resources to assist them 
in the care planning process.
    Response: CMS values the opinions and insights provided by our 
stakeholders, and we plan to clarify that this is, in fact, our intent. 
As the planning for the RAI process instructions moves forward, we 
fully intend to clarify our instructions in this area and will continue 
to involve our stakeholders.
    Comment: Several commenters expressed concern about the level of 
burden that might be imposed by no longer mandating the use of the RAPs 
and, therefore, leaving the determination of what clinical guidance/
practice tools will be used in the care planning decision process to 
the discretion of the facilities. The commenters indicated that such a 
system would create inefficiencies and inequalities in the care 
delivery system, and also expressed concern about how CATs and outside 
resources will be utilized for guidance in the future.
    Response: When the RAPs were originally developed, facilities 
lacked easy access to Internet resources, which is no longer the case. 
A great many clinical practice guidelines have been developed by 
professional organizations and government agencies, many of which are 
available at no cost. The RAPs were limited in the number of topics 
they covered and, due to ongoing changes in clinical practice, they 
would need to be regularly updated by CMS, necessitating changes to the 
requirements. We believe this is no longer necessary or efficient, as 
the relevant information is now widely available from a variety of 
authoritative sources. At this phase in the planning effort, CMS has 
developed a set of tools (formerly known as RAPs) that will be 
available for facility use via the MDS manual; however, they will not 
be mandatory. We are also publishing in the manual a list of other 
resources that practitioners can use, most of which are available at no 
cost. The facility's

[[Page 40345]]

clinical team can use these resources or any others that they deem 
appropriate. We found the comments very helpful, and expect that these 
resources will minimize any burden as much as possible.
    Comment: We received a few comments pointing out the need for CMS 
to partner with its stakeholders and nursing home industry experts to 
design care planning practices, including development of a Technical 
Expert Panel. Commenters suggested including clarification in the RAI 
manual regarding the use of an interdisciplinary team approach.
    Response: We have reported on our work and progress regarding the 
care areas and care planning as part of the RAI process in stakeholder 
meetings and on Open Door Forum calls. As the planning for the RAI 
process instructions moves forward, we will continue to involve our 
stakeholders.
    Comment: Several commenters pointed out the need for CMS to 
reconsider the use of CATs in relation to the care planning process.
    Response: While it is true that the structure of the proposed 
changes to the MDS 3.0 RAPs process was not fully specified in the 
proposed rule, we agree that the proposed rule's language regarding the 
use of CATs did not adequately convey the proposed changes. We also 
acknowledge that CATs represent only one part of a dynamic process and 
may also cause industry confusion. Accordingly, the final rule includes 
the term ``Care Area Assessment'' (CAA) to denote the process that was 
formerly known as the RAPs process. However, CMS will continue to use 
the CATs terminology to represent the triggers from the MDS for a 
particular care area problem or issue. Of course, we plan to continue 
to involve our stakeholders as the planning for the RAI process 
instructions moves forward, and we will continue to work to clarify the 
care planning process.
    Comment: A few commenters questioned how the State Survey Agencies 
(SSAs) would handle their nursing home surveys without the direction of 
the RAPs.
    Response: The specific issues that were raised about the design of 
the nursing home survey program are beyond the scope of this final 
rule. However, it is important to note that CMS is fully aware of this 
issue and is working to provide direction to the SSAs about the full 
range of guidance or resources they may encounter, including 
instructions that are provided to facilities through the RAI manual. We 
appreciate the careful consideration that this comment reflected, and 
will bring it to the attention of appropriate CMS staff.
    Comment: In addition to the comments that we received on the 
proposed change to the RAPs, several commenters provided discussion of 
specific issues involving prescriptive care planning and the use of 
electronic RAPs for nursing homes.
    Response: The specific issues that were raised about the design of 
care planning and the use of electronic RAPs for nursing homes are 
beyond the scope of this final rule. However, we appreciate the careful 
consideration that these comments reflected, and will bring them to the 
attention of appropriate CMS staff.
3. Data Submission Requirements under the MDS 3.0
    The FY 2010 proposed rule included a discussion of data submission 
requirements under the MDS 3.0 (74 FR 22243). The comments that we 
received on this subject, and our responses, appear below.
    Comment: One commenter voiced concerns regarding whether the 
proposal for SNFs to submit resident assessment data to the national 
CMS system rather than to the States will require a change in 
electronic software programs at the facility level to accommodate 
reporting directly to the Federal level. The commenter also stated 
that, if this is the case, adequate time should be provided for this 
transition software.
    Response: There is no software program change required, as the MDS 
data will be collected centrally at the Federal level rather than from 
each State. However, there will be a new software program required to 
implement the new MDS 3.0 data and file specifications. CMS believes 
that adequate time is being provided for this development.
    Comment: One commenter noted that the proposed 14-day timeframe for 
transmission of MDS data will shorten the current time period by 2 
weeks. The commenter also observed that in some States, this 
requirement (or even a shorter time period) has already been imposed at 
the State level for a number of years. The commenter pointed out that 
the State of Washington, where submissions must be within 10 days of 
completion for the MDS to be considered timely, finds that this 
requirement has improved the quality of MDS submissions, with fewer 
submissions ``falling through the cracks.'' Another commenter remarked 
that State agencies will be able to better track those residents who 
would like to return to the community. A few commenters opposed 
shortening the submission requirement to 14 days, stating that this 
would pose a hardship on nurses who have ``other responsibilities,'' 
may be difficult in small nursing homes, and would increase the 
pressure to complete assessments.
    Response: We appreciate the comment informing CMS that some States 
currently have stricter submission requirements than the one we 
proposed. We are pleased to learn that a submission timeframe of 14 
days or less is working well in those States that already have such a 
requirement in place. We anticipate that there will be an equally 
smooth transition for facilities in the remaining States. Further, 
swing-bed facilities have been required to submit their MDS assessments 
within 14 days of completion since 2002. These facilities tend to have 
fewer SNF patients than most nursing homes and also tend to have 
shorter lengths of stay. In fact, swing-bed facilities do not appear to 
have difficulty meeting this requirement. Therefore, we do not agree 
that shortening the submission time frame to 14 days will be 
problematic or cause hardship on facilities. In fact, almost 75 percent 
of the MDS assessments are submitted by nursing homes within 14 days of 
completion. We are concerned with the comment that shortening the 
submission time frame will create pressure to complete assessments. We 
have outlined the requirements for completing MDS assessments in the 
RAI manual. The submission time frame is based on the completion date 
of the assessment. Thus, the submission time frame does not drive the 
completion of assessments; rather, the reverse is true--the completion 
of the assessment determines the submission date. Lastly, as noted by 
commenters' remarks on obtaining quality measures on swing beds as 
discussed below in section III.H of this final rule, we are simply 
holding both types of providers to the same standards.
    Comment: Several commenters expressed concern and confusion over 
the requirement that facilities have 7 days after completing a 
resident's assessment to be capable of transmitting that assessment 
data. They also questioned what the term ``capable'' meant, and whether 
this requirement re-instituted the ``locking'' concept that has been 
inactive for several years.
    Response: The regulations at 42 CFR 483.20(f)(2) regarding facility 
capability to transmit a resident's assessment data within 7 days of 
completing the assessment is not new, nor did we

[[Page 40346]]

propose it through this rule. What we did propose was changing the 
language to note that facilities must be capable of transmitting to the 
CMS System instead of to the State. It is not our intent to re-
institute the ``locking'' concept. The term ``capable'' as used in the 
regulations text here means that the facility has encoded the MDS 
assessment information and put that data into a format that conforms to 
standard record layouts and data dictionaries defined by CMS and the 
State.
    Comment: One commenter expressed confusion over the requirements 
regarding State responsibilities with respect to MDS 3.0 data. 
Specifically, the commenter questioned State responsibilities regarding 
supporting and maintaining the MDS State system and database, the 
receipt of facility data from CMS, and the resolution of all errors. 
The commenter noted that the States are not in a position to ensure 
that all errors are resolved, as some (such as a late submission) 
cannot be resolved.
    Response: The provision at 42 CFR 483.315(h) regarding the 
requirements for the State to maintain an MDS database and ensure that 
a facility resolves errors upon receipt of data is not new, nor did we 
propose it through this rule. What we did propose was changing the 
language to note that States must continue to maintain an MDS database 
for receipt of facility data from CMS. We also added the term 
``support'' to the regulations at 42 CFR 483.315(h)(1) to note that 
each State is still responsible for supporting all their users and uses 
of the MDS 3.0 data. It is our intent for the regulation text regarding 
facility data at 42 CFR 483.315(h)(3) to denote that MDS 3.0 data are 
received by the States from the CMS system. We agree with the commenter 
that some facility data errors, such as a late submission, may not be 
able to be resolved completely. Our intent through this language was 
simply to retain the requirement for States to work with their 
respective facilities to resolve errors. However, after further 
consideration of this issue, we are retracting our proposal to include 
the term ``all'' in the regulation text at 42 CFR 483.315(h)(3). In 
addition, as it has come to our attention that the regulation text at 
42 CFR 483.315(h) did not adequately convey who in the State had the 
responsibilities regarding the State MDS database, we have added the 
term ``agency,'' in order to indicate that these are responsibilities 
of the State Survey Agency.
4. Proposed Change to Section T of the Resident Assessment Instrument 
(RAI) under the MDS 3.0
    In the context of the MDS 3.0 discussion, the FY 2010 proposed rule 
proposed certain revisions to the reporting of therapy services 
effective October 1, 2010 (74 FR 22244). First, we proposed to 
eliminate Section T of the RAI. In addition, we proposed (a) to revise 
the therapy reporting procedures related to short-stay patients so that 
the appropriate therapy level is calculated using items that will be 
reported on the MDS 3.0 (using the procedures set forth in the proposed 
rule); (b) to provide SNFs with the option to use the Other Medicare 
Required Assessment (OMRA) to signal the start of therapy; and (c) to 
require SNFs to complete an OMRA with an ARD that is set 1 to 3 days 
(rather than 8 to 10 days) from the last day therapy services were 
provided. A more detailed description of the proposals appears in the 
SNF PPS proposed rule for FY 2010 (74 FR 22244). The comments that we 
received on these proposed revisions, and our responses, appear below.
    Comment: Several commenters supported the elimination of section T 
(items T1b, c, d) of the MDS, thereby preventing Medicare from paying 
for therapy services that were ordered, but not actually furnished to 
patients. They stated that these changes will increase the accuracy of 
payments to providers. Other commenters were opposed to the elimination 
of section T, indicating that the proposed change reflected a payment 
model more akin to fee-for-service than a prospective payment. Some 
commenters stated that eliminating section T would result in providers 
not being paid for therapy services that they actually provide during 
the first 14 days of a SNF stay. They also believed that there would be 
financial pressure to provide less care than the beneficiary needs.
    Response: As we stated in the proposed rule, the GAO found that 
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. Further, the GAO found 
that in 2001, half of the patients initially categorized in the Medium 
and High Rehabilitation groups did not actually receive the minimum 
amount of therapy required to be classified in those groups, due in 
part to the use of estimated therapy minutes. We agree that by 
eliminating section T, there is a risk that the therapy data would not 
be captured for some patient days where the service was actually 
provided. However, we also proposed to provide for an optional start-
of-therapy OMRA with an ARD that is set 5 to 7 days from the first day 
therapy services are provided. Based on this OMRA, payment for the 
start of therapy would begin the day that therapy is started. We 
proposed that a SNF may complete a start-of-therapy OMRA when therapy 
started between MDS observation periods. However, in response to 
comments stating that under our proposed revised reporting procedures, 
providers may not be paid for therapy services that they actually 
provide during the first 14 days, we are allowing SNFs to complete the 
optional start-of-therapy OMRA not only when therapy starts in between 
assessment windows, but also when therapy has started within the 
Medicare-required assessment window. For the second situation, the 
optional start-of-therapy OMRA may be completed as a stand-alone 
assessment or it may be combined with a scheduled Medicare-required 
assessment. For example, the SNF must complete a 5-day Medicare-
required assessment with an ARD between day 1 and day 8. If therapy 
begins on day 5 and if the provider chooses day 7 as the 5-day ARD, 
then only 3 days of therapy, at most, would have been provided by the 
ARD and, thus, a rehabilitation RUG would not have been assigned (or 
achieved). The provider may then complete an optional start-of-therapy 
OMRA with an ARD of day 9, 10, or 11. If the provider chooses day 11, 
then the start-of-therapy OMRA may be combined with the 14-day 
Medicare-required assessment (day 11 is in the assessment window of the 
14-day Medicare-required assessment). Payment for the rehabilitation 
RUG would begin on the day that therapy started, for example, day 5, 
and would continue until day 30 as long as the SNF level of care 
coverage requirements are met, and/or therapy was not discontinued, 
and/or another assessment was not required that resulted in a different 
RUG assignment. If the provider chooses day 9 or day 10 as the ARD for 
the optional start-of-therapy OMRA, the Rehabilitation RUG would also 
begin on the day therapy started, but the provider would also be 
required to complete a 14-day Medicare-required assessment as long as 
the patient continues to meet SNF level of care requirements and 
remains in the facility after day 14. Lastly, if the provider chooses 
not to complete the optional start-of-therapy OMRA, either as a stand-
alone or in combination with a Medicare-required assessment, the 
rehabilitation RUG would then begin

[[Page 40347]]

with the payment period of the next Medicare-required assessment. As 
the provider may complete the optional start-of-therapy OMRA in 
situations where therapy has started within the assessment window, but 
a rehabilitation RUG was not assigned because the daily requirement had 
not been met, we do not believe that eliminating section T will result 
in ``financial pressures'' to provide less care than the resident 
requires. Therefore, after review of the comments, effective October 1, 
2010, we will delete section T (T1b, c, d) from the MDS 3.0 as we 
proposed in the FY 2010 SNF PPS proposed rule. In addition, we will 
implement the optional start-of-therapy OMRA, which may be completed 
not only when therapy starts in between assessment windows, but also 
when therapy has started in a Medicare-required assessment window. As 
explained above, we believe that the option to use the start-of-therapy 
OMRA, regardless of when therapy starts, eliminates the risk that 
therapy data would not be captured for some patient days.
    Comment: Several commenters stated that eliminating the projection 
could result in a mismatch of the therapy plan of care with the 
beneficiary's needs or a misallocation of the therapy resources that 
the beneficiary requires, because section T assists the therapist in 
making clinical projections which, in turn, results in better 
coordination of care.
    Response: While we are eliminating the projection of therapy 
services in section T, we are also providing for a start-of-therapy 
OMRA. We rely on the clinician's judgment to make decisions on the need 
for and volume and frequency of therapy services. The documentation 
currently required in section T under the MDS 2.0 simply shows the 
results of the clinical evaluation. We do not believe that a projection 
methodology can serve to provide clinical guidance to a therapist and, 
thus, we do not expect that the elimination of this particular 
documentation requirement will adversely affect patient care.
    Comment: Several commenters supported the voluntary start-of-
therapy OMRA so that patients can be assigned to rehabilitation RUGs 
based on when therapy services are started, especially when therapy is 
started outside the assessment reference window. Many commenters also 
supported the change to the end-of-therapy assessment. They stated that 
these proposed changes will increase the accuracy of payments to 
providers. However, some commenters disagreed with introducing either 
the optional start-of-therapy OMRA or the end-of-therapy OMRA, stating 
that increasing the number of assessments providers will need to 
complete would represent an added burden. A few suggested that CMS 
should develop a methodology to compensate facilities for the added 
burden of work associated with the OMRAs. One commenter disagreed with 
changing the end-of-therapy OMRA ARD from 8-10 days after the 
discontinuation of therapy to the proposed 1 to 3 days, as a therapy 
RUG might still be assigned. One commenter suggested that requiring 
SNFs to complete an OMRA within 1 to 3 days following therapy discharge 
could affect the nurse's assessment of the need for skilled nursing 
services. These commenters also asserted that the proposed change would 
deny patients valuable time in recovery while being closely observed by 
nursing for 7 days following the discharge from therapy, and could 
potentially cause an inappropriate over-utilization of the OMRA by 
triggering additional assessments (which might not have been necessary 
if the patient had been maintained in a therapy group). Some commenters 
stated that when therapy is not provided for a few days due to an 
illness, an end-of-therapy OMRA would be required and then a start-of-
therapy OMRA once the patient is again able to participate in therapy. 
They believe this would increase the number of assessments required 
and, thus, would represent an added burden.
    Response: We agree with the commenters that the changes to provide 
for a voluntary start-of-therapy OMRA and a required end-of-therapy 
OMRA will result in more accurate payments to providers. Under current 
practice, the assessment reference date (ARD) for the OMRA is required 
to be set within 8 to 10 days of the end of all therapies. The proposed 
change that we are adopting in this final rule would simply require the 
ARD for the end-of-therapy OMRA to be set in a shorter time frame, that 
is, no more than 3 days following the cessation of all therapies, and 
would not increase the number of assessments. Further, the start-of-
therapy OMRA is completely voluntary and is not required and, thus, we 
do not believe it is an additional burden. In addition, because the 
provider would be able to combine the start-of-therapy OMRA with a 
Medicare-required assessment, there would be no additional burden. 
However, we are aware that completing the stand-alone voluntary start-
of-therapy OMRA might result in an increase of assessments. Therefore, 
in response to concerns expressed by commenters regarding the increase 
in the number of assessments, we will provide for an abbreviated OMRA 
for the stand-alone start-of-therapy OMRA, which will include only the 
required demographic information (needed for all assessment types), the 
therapy items, restorative therapy items and bladder and bowel training 
items, and the extensive services items. The other clinical payment 
items would not be required, as the purpose of the optional start-of-
therapy OMRA is to classify a person in a rehabilitation RUG (including 
Rehabilitation plus Extensive Services). In addition, we note that 
commenters expressed concern regarding the possibility that our revised 
ARD requirement for the end-of-therapy OMRA may increase the number of 
assessments needed. Although we do not agree that changing the ARD 
requirement for the end-of-therapy OMRA would increase the number of 
assessments required, in order to alleviate the commenter's concerns 
and because the MDS 3.0 gives us the capability, we will also shorten 
the end-of-therapy OMRA so that it consists only of the required 
demographic items and all of the payment items (unlike the MPAF, which 
includes all of the required demographic items, the payment items, and 
many other clinical items). However, as discussed above, we do not 
agree that CMS is requiring additional assessments. We note that the 
start-of-therapy OMRA is optional, thus making it entirely voluntary 
and not required. CMS has no authority to provide for additional 
reimbursement for this assessment itself; however, the voluntary start-
of-therapy OMRA would typically be completed when assignment to the new 
therapy group would result in higher reimbursement. The end-of-therapy 
OMRA is already required and, therefore, the cost of completing the 
end-of-therapy OMRA is already included in the payment rates for SNFs.
    In reality, we have actually reduced the burden associated with the 
end-of-therapy OMRA, by including only the required demographic items 
and payment items. As we stated in the proposed rule, we have included 
the ability to provide two Medicare RUG classifications. The first will 
be the ``therapy'' RUG, which is based on all of the payment items, 
including the rehabilitation items. The second RUG is the ``non-
therapy'' RUG. This RUG classification will not consider any of the 
rehabilitation items when assigning a RUG. Therefore, when submitting a 
claim for days of service after therapy has been discontinued, the 
provider would use the ``non-therapy'' RUG. We will provide detailed 
MDS coding and

[[Page 40348]]

billing instructions in the Internet-only Manuals and the RAI Manual.
    We do not agree that requiring SNFs to complete an OMRA within 1 to 
3 days following the discontinuation of therapy would result in 
patients being denied valuable recovery time by no longer paying for 
therapy services for 7 days after all therapy is discontinued. It is 
the responsibility of the professional therapist to determine when a 
patient has met the goals established for the patient in the therapy 
plan of care, and to avoid discontinuing therapy prematurely. If this 
determination is appropriately made by the therapist, we do not believe 
requiring an OMRA to be completed within 1 to 3 days after the 
discontinuation of therapy should cause inappropriate utilization of 
the OMRA triggering additional assessments. Also, we do not believe 
that changing the ARD for the end-of-therapy OMRA will affect the 
assessment of the need for continued skilled nursing services, as the 
nursing needs of a resident should not be affected by whether therapy 
is being provided. The SNF should be providing for all of the 
resident's needs during the entire SNF stay, regardless of when the ARD 
for the end-of-therapy OMRA is required to be set. In addition, if the 
patient continues to receive skilled nursing after the therapy has been 
discontinued, the patient will continue to be covered under the 
Medicare Part A benefit until such time as a skilled level of care is 
no longer required. For these reasons, we do not agree that additional 
assessments would be needed, or that additional days paid at the 
therapy RUG would affect the recovery of the patient or the assessment 
of the need for continued skilled nursing services.
    We do not agree with the commenters that a brief illness would 
increase the number of required assessments. As stated in the ``daily 
basis'' criteria at 42 CFR 409.34(b), ``a break of one to two days in 
the furnishing of rehabilitation services will not preclude coverage if 
discharge would not be practical for the one or two days during which, 
for instance, the physician has suspended the therapy sessions because 
the patient exhibited extreme fatigue.'' Therefore, according to these 
regulations, a brief illness would not necessarily result in the 
provider having to complete an end-of-therapy OMRA. Based on the 
concerns expressed by these commenters, we would like to take this 
opportunity to help ensure that the end-of-therapy OMRA is completed 
timely and appropriately. We proposed that the end-of-therapy OMRA be 
completed with an ARD of 1 to 3 days after the discontinuation of all 
therapies (speech-language pathology services and occupational and 
physical therapies). For purposes of the ARD for an end-of-therapy 
OMRA, the provider shall consider day 1 the day after all therapies are 
discontinued. When a facility provides rehabilitation therapies five 
days a week (Monday through Friday), we would like to clarify that day 
1 would correspond to the first day, following the cessation of therapy 
services, on which therapy services would normally be provided. For 
example, if all therapies are discontinued on October 15, 2010 (which 
is a Friday), the next day that therapy would normally be provided 
would be Monday, October 18, and this day would become day 1 after 
therapies were discontinued. The provider would have the ability to 
choose the ARD to be set on October 18 (day 1), October 19 (day 2), or 
October 20 (day 3). As set forth in 42 CFR 409.34(a)(2), when therapy 
services are not available 7 days a week, therapy services must be 
needed and provided at least 5 days a week. When a facility only 
provides therapy 5 days a week, the therapy department would not be 
open on the weekend. Therefore, the weekend days would not be counted 
toward the establishment of the ARD for the end-of-therapy OMRA. Again, 
as discussed above, we believe the ability to choose the ARD up to 3 
days after the discontinuation of all therapies will not lead to over-
utilization of OMRAs.
    Comment: Commenters had various understandings of what constitutes 
a short stay. In their comments regarding our revisions to section T 
and the therapy reporting procedures (that is, therapy reporting 
procedures for short-stay patients, implementation of a start-of-
therapy OMRA, and revised ARD for the end-of-therapy OMRA), a few 
commenters provided examples of a short-stay resident with different 
lengths of stay. Their remarks varied from the first ``few'' days to 
the first 5 days of the SNF stay. Comments regarding the STRIVE project 
on a short stay often cited 7 days as being a short stay (that is, a 
discharge before day 8).
    Response: We realize that our discussion in the FY 2010 SNF PPS 
proposed rule of the revised reporting of therapy services for short-
stay patients (74 FR 22245) may have caused confusion. When the SNF PPS 
was introduced in July 1998, we expanded the collection of MDS data to 
include new assessments that were primarily used to determine payment. 
These Medicare-required assessments were defined in our May 1998 SNF 
rule (63 FR 26252, 26265-69), and processing instructions are included 
in the MDS manual.
    For SNF PPS purposes, SNFs are required to complete the Medicare-
required 5-day assessment in order to initiate Medicare payment for the 
stay. The facility captures clinical data with an ARD from days 1 
through 8 of the covered stay on this Medicare-required 5-day 
assessment, which is then used to assign the patient to a RUG group. 
Generally, the RUG group assigned using the Medicare 5-day assessment 
is used to pay for up to 14 days of the covered stay.
    Since the inception of the SNF PPS, CMS has allowed providers to 
record therapy services based on a projection via section T of the MDS. 
This projection can only be made when two criteria are met. First, the 
need for therapy must have been established through a therapy 
evaluation and a physician's order. Second, therapy could not be 
initiated early enough in the beneficiary's stay to capture (on the 
Medicare-required 5-day assessment) the 5 days of therapy required to 
assign a therapy case-mix group. The projected therapy days and minutes 
are used in the calculation of the assigned RUG, thus allowing an SNF 
to receive payment for therapy services that it plans to provide to a 
beneficiary in the beginning of the stay. Even when patients are 
discharged before the Medicare 5-day assessment can be fully completed 
(that is, prior to day 8, the last allowed date that can be used to 
report the MDS clinical data), providers are still expected to complete 
section T as accurately as possible and submit at least a partial 
Medicare-required 5-day assessment. Because the Medicare-required 5 day 
assessment may be performed until day 8 of the resident's stay, we 
believe that it is appropriate to define a short-stay patient as one 
who is discharged on day 8 or earlier.
    Based on the comments that we received, it appears that our 
proposal regarding the revised therapy reporting procedures for short-
stay patients (74 FR 22245) may have caused some confusion among 
commenters, as we inadvertently described a short-stay patient as a 
patient who is discharged prior to day 14. Therefore, we are clarifying 
in this final rule that short-stay patients are patients who are 
discharged on day 8 or earlier, and that the revised reporting 
procedures for short-stay patients apply to those patients who are 
discharged on day 8 or earlier. The RUG-IV group established under this 
revised reporting procedure can then be used to reimburse SNFs at the 
therapy rate from day 1 to the date of short-stay discharge.

[[Page 40349]]

    Comment: A few commenters stated that our proposed methodology for 
determining the assigned rehabilitation RUG for short-stay patients did 
not account for therapy services that are provided at a higher level 
than Medium, even though the SNF may have provided greater amounts of 
therapy, such as one of the High rehabilitation groups. They expressed 
concern that by only allowing for Rehabilitation Low and Medium 
categories, SNFs would not be adequately reimbursed for providing a 
more intense level of therapy and, thus, some patients may not receive 
the appropriate and adequate amount of therapy in the beginning of the 
SNF stay.
    Response: We agree that for residents who are discharged early in 
the post-hospital stay (day 8 or earlier) and have not been able to 
complete 5 days of therapy, and when the SNF has provided therapy at 
the intensity of Rehabilitation High or greater, the resident should be 
able to be assigned to a rehabilitation RUG greater than Medium. We 
also agree that the SNF should be adequately reimbursed for the therapy 
services they provided. Thus, when calculating the rehabilitation RUG 
for a resident who is discharged early in the post-hospital stay (day 8 
or earlier) and when the patient has not been able to report delivery 
of 5 days of therapy on the 5-day MDS 3.0, a therapy RUG will be 
calculated by using items from the MDS 3.0. As proposed, these items 
will include: the actual number of therapy minutes provided, the date 
of admission, the date therapy started, the patient's ADL level, and 
the ARD. In addition, as stated in the proposed rule, if the average 
daily therapy minutes provided are between 15-29 minutes, the record 
will be assigned to the Rehabilitation Low category (RLx). In addition, 
in response to comments received, the assignment for other 
rehabilitation categories will be based on the average daily minutes of 
therapy provided, as follows:
     Average daily therapy minutes are between 30-64 minutes, a 
Rehabilitation Medium category (RMx).
     Average daily therapy minutes are between 65-99 minutes, a 
Rehabilitation High category (RHx).
     Average daily therapy minutes are between 100-143 minutes, 
a Rehabilitation Very High category (RVx).
     Average daily therapy minutes are 144 or greater, a 
Rehabilitation Ultra High category (RUx).
    We determined the minutes above for each rehabilitation RUG 
category by taking the minimum required minutes for each category and 
dividing by 5, which represents the minimum weekly required number of 
days of therapy according to the SNF level of care criteria's daily 
basis requirement (42 CFR 409.34). Accordingly, we are taking this 
opportunity to update the example that we provided in the FY 2010 
proposed rule regarding the therapy reporting procedure for short-stay 
patients. Physical therapy is started on day 4 and the resident is 
discharged on day 7; the resident received 65 minutes of individual 
therapy on day 4, 70 minutes of individual therapy on day 5, 73 minutes 
of individual therapy on day 6, and 67 minutes of individual therapy on 
day 7. The ARD on the assessment is day 7. The total physical therapy 
minutes provided are 275. The average number of daily therapy minutes 
is 68.75. The rehabilitation RUG assigned will be RHx (the average 
daily therapy minutes are between 65-99).
    We are reiterating that this policy only applies to the short-stay 
resident whose stay is 8 days or less and who received less than 5 days 
of therapy. Also, as stated in the proposed rule, the ADL index will be 
based on the ADL level reported on the MDS. Together, the ADL index and 
the average daily therapy minutes determine the RUG-IV group that will 
be assigned. We will provide detailed instructions in the online 
Medicare manuals and the MDS 3.0 RAI Manual.
    Comment: A few commenters requested that we clarify how the ARD 
should be set for the start-of-therapy OMRA. They believe CMS intended 
to say that the ARD would be set 4-6 days after the start of therapy, 
rather than 5-7.
    Response: We understand the confusion that may have arisen from the 
use of the phrase ``5-7 days after therapy starts.'' We will, 
therefore, take the opportunity to provide an example to clarify the 
policy. As we stated above, if therapy starts on day 5 of the stay, the 
provider may set the ARD for the optional start-of-therapy OMRA on day 
9, 10, or 11. The day that therapy starts is counted as day 1. The 
purpose of stating 5-7 days and counting the therapy start date as day 
1 was to coincide with the look-back period when completing the MDS. 
The look-back for the therapy items for days and minutes on the MDS is 
7 days. The concept is for the provider to capture the first day of 
therapy when completing the MDS. Therefore, 5 days from the start of 
therapy is day 9 (day 5=1, day 6=2, day 7=3, day 8=4, day 9=5). If, on 
the other hand, the SNF chooses day 7 after the start of therapy in the 
previous example (which would be day 11 of the stay), the day that 
therapy started (day 5) would still be captured in the look-back 
period. We will work with industry stakeholders to ensure that our 
instructions in Medicare manuals and the RAI Manual are clear.
    Comment: Several comments stated that changes in discontinuing 
therapy at a skilled level may create technical issues with regard to a 
resident receiving Part B therapy during a Part A stay.
    Response: This comment would appear to reflect a misunderstanding 
of the SNF benefit structure, as a resident cannot receive Part B 
therapy during a Part A stay. Under the SNF PPS, the Part A payment 
represents payment in full for all costs (routine, ancillary, and 
capital-related) incurred by the facility to provide care to the 
resident, including those services that were previously covered under 
Part B.
    Comment: Several commenters stated that reporting the dates that 
physical and/or occupational therapy and/or speech-language pathology 
services start and end on the claim when billing a rehabilitation RUG 
will be burdensome.
    Response: We are in the process of evaluating our data needs to 
support both RUG-IV and a possible separate NTA payment mechanism. 
Changes to billing requirements will be introduced through updated 
instructions in the claims processing manuals, and will be addressed in 
our FY 2011 SNF PPS proposed rule as appropriate.
    Therefore, effective October 1, 2010, we will eliminate section T 
of the MDS and revise the therapy reporting procedures as proposed in 
the FY 2010 proposed rule (74 FR 22244-46) (that is, reporting 
procedures for short-stay patients, implementation of an optional 
start-of-therapy OMRA, and revised ARD for the end-of-therapy OMRA), 
with the modifications and clarifications discussed above.

E. Other Issues

1. Invitation of Comments on Possible Quarterly Reporting of Nursing 
Home Staffing Data
    Although we did not propose specific regulatory language in this 
area under the FY 2010 proposed rule, we did request public comment on 
a possible requirement for nursing homes to report nursing staffing 
data to CMS on a quarterly basis.
    Comment: Although commenters expressed various concerns, most were 
supportive of the proposed quarterly payroll-based collection of 
staffing data.
    Response: We were pleased with the level of support expressed 
through the comments. While it is true that the design of the proposed 
electronic

[[Page 40350]]

payroll-based nursing home staffing data collection system was not 
fully specified in the proposed rule, CMS is aware of most of the 
issues raised in the comments, and has been actively working on them. 
We provide responses to specific comments in the following paragraphs.
    Comment: We received several comments pointing out the need for CMS 
to partner with its stakeholders during the design of any new staffing 
data collection.
    Response: CMS values the opinions and insights provided by our 
stakeholders. We have reported on our funded staffing studies and other 
efforts to improve the accuracy of nursing home staffing data in 
stakeholder meetings and conference calls, and on Open Door Forum 
calls. As the planning for a payroll-based data collection system moves 
forward, we certainly plan to continue to involve our stakeholders.
    Comment: Several commenters expressed concern about the level of 
administrative burden that might be imposed by a quarterly payroll-
based reporting system for staffing data. One commenter believed that 
such a system would create inefficiencies in the care delivery system.
    Response: CMS shares the commenters' concern about the need to 
avoid unnecessary administrative burden, and for this reason, we 
specifically requested comments in the proposed rule on the level of 
burden to nursing homes imposed by a quarterly payroll-based reporting 
system for staffing data. We would hope to minimize any burden to the 
extent possible, and we found the comments very helpful.
    Comment: A few commenters raised the issue of the financial cost to 
individual nursing homes of a computerized staffing collection system: 
For the cost of software and updates, initial costs for the 
introduction of a computerized payroll system, or added costs with 
payroll vendors.
    Response: The financial cost to nursing homes of providing 
quarterly payroll-based staffing data electronically is also an area of 
concern to CMS. As with the administrative burden, we would also hope 
to design and implement the system in such a way as to minimize any 
burden to the extent possible. The comments provided were very helpful 
to our planning.
    Comment: A few commenters expressed concern about issues of privacy 
involved with the use of payroll data.
    Response: This data collection effort is currently in a planning 
phase, but we want to be clear that it is not our intention to collect 
names, social security numbers, or wage data for staff members. CMS is 
interested in each staff member's time spent caring for residents, and 
in the start and end date of service in the facility. We envision each 
staff member's data being identified with a facility-level 
identification number and, within the facility data, an individual 
staff member identification number.
    Comment: One commenter pointed out the need under any new system 
for careful and consistent directions for coding of staff categories 
and for consistent directions on how to handle non-productive versus 
productive time.
    Response: We agree that clear, consistent directions for specifying 
staff categories and for handling non-productive time are vital to 
ensuring accuracy of any data collected.
    Comment: Several commenters pointed out the importance of including 
data in the proposed system that would allow the calculation of staff 
turnover and retention.
    Response: We agree that data to address turnover and retention are 
important to include in a staffing data collection system. Staff 
turnover and staff retention measures were developed as part of the 
CMS-funded ``Development of Staffing Quality Measures'' Project (2003-
2008). Both measures were found to be related to the quality of care in 
the nursing home.
    Comment: Several commenters pointed out the need to carefully 
address collection of contract and agency staff data. Specifically, one 
commenter was concerned with the burden of potentially having to hand-
sort invoices as a basis for data reporting.
    Response: An assessment of the best way to collect staffing data 
for contract and agency staff is currently being conducted under a CMS-
funded study. While we currently believe that an auditable source of 
data such as invoices would be preferable, we are awaiting the results 
of our study. We appreciate the comment, and are conscious of the level 
of effort entailed in a system requiring hand-sorting.
    Comment: A few commenters discussed the need for a data collection 
system to allow a ``complete staffing picture'' by including 
therapists, physician extenders, and other staff providing resident 
care.
    Response: This data collection effort is currently in a planning 
phase. At this point it is not entirely clear which staff categories 
will be included in the data collection. Being able to see a ``complete 
staffing picture'' for a facility would certainly be helpful, and we 
will take the comment into account.
    Comment: A commenter pointed out the need for any new system to be 
sensitive to the staffing patterns of culture change facilities and to 
allow the staff to be fairly represented.
    Response: We are aware of concerns that the currently used staffing 
form (CMS-671) does not well accommodate the broad range of newer 
nursing home care staff roles. The staffing patterns of culture change 
facilities are good examples of this issue. We will be sensitive to 
this concern in developing the definitions for the payroll-based data 
collection system.
    Comment: We received a few comments urging that any staffing data 
collected be standardized for acuity (or case-mix) of residents and for 
the facility census.
    Response: Facility-level staffing data that are currently posted on 
the CMS Nursing Home Compare Web site are expressed as hours of care 
per resident per day, so they are, in effect, standardized for the 
census of the facility. Although the staffing data used in the Five 
Star Quality Rating System calculations are case-mix adjusted using 
Resource Utilization Group categories, the case-mix adjusted measures 
themselves are not reported. We will give consideration to the comment 
as we plan for implementing the payroll-based system.
    Comment: Several commenters suggested that any quarterly collection 
of staffing data could be most easily accomplished through the use of 
the MDS reporting systems.
    Response: At this phase in the planning efforts, we are considering 
the use of the MDS reporting system, as well as several other options.
    Comment: A commenter suggested basing any new system on the 
publicly posted staffing information in each facility that is currently 
required by CMS. The data include nursing home census and staffing 
resources by shift.
    Response: We have been funding work concerned with ensuring the 
accuracy of nursing home staffing data since 1998, with the beginning 
of the Phase I Staffing Study (designed to investigate the 
appropriateness of minimum staffing ratios in nursing homes). The 
results of both the Phase I and the Phase II Staffing Studies suggested 
that using payroll data as a basis for staffing produced more accurate 
data than other sources, such as cost reports or the current Online 
Survey Certification and Reporting System (OSCAR), which houses the 
data collected at the time of survey. A later CMS-funded Study 
(Development of

[[Page 40351]]

Staffing Quality Measures (SQM)--2003-2008), following the advice of a 
panel of technical experts, provided a further assessment of the use of 
payroll data for staffing. This study assembled a database of payroll 
data from 1453 nursing homes and, using those data, developed a number 
of measures of direct care staffing, including turnover and retention. 
A comparison of these data with OSCAR data showed clear differences.
    While we have not assessed the relative accuracy of the staffing 
data posted publicly in each facility compared to payroll data, the 
research base supports the use of payroll data as a more accurate 
source for staffing data.
    Comment: Several commenters suggested uses of the data that 
involved collection of wage data in addition to staffing time data.
    Response: The payroll-based staffing data collection, as it is 
currently proposed, does not include collection of wage data.
    Comment: In addition to the comments that we received on the 
proposed quarterly staffing data collection, several commenters 
provided discussion of specific issues involving the CMS Five Star 
Quality Rating System for Nursing Homes.
    Response: The specific issues that were raised about the design of 
the Five Star Quality Rating System for Nursing Homes and the 
calculations involved in the rating system are beyond the scope of this 
final rule. However, we appreciate the careful consideration that these 
comments reflected, and we will direct them to the attention of 
appropriate staff in CMS.
2. Miscellaneous Technical Corrections and Clarifications
    In the FY 2010 proposed rule, we proposed to correct the paragraph 
heading in the regulations text at Sec.  483.75(j), by removing the 
phrase ``Level B requirement:'' and italicizing the remaining text in 
the heading (``Laboratory services''). We received no comments on this 
proposal, and in this final rule, we are revising this portion of the 
regulations text as proposed.

F. 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. In the FY 2010 proposed rule, we stated that the 
proposed rule incorporated the latest available projections of the SNF 
market basket index. In this final rule, we are updating projections 
based on the latest available projections at the time of publication. 
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.
    Comment: One commenter stated that the SNF market basket factor is 
defective and continues to understate compensation, pharmacy, and 
operating costs, and that current market basket weights do not reflect 
changing staffing, higher pharmacy costs, and rising liability 
insurance.
    Response: The 2004-based SNF market basket is a fixed-weight index 
that is intended to measure the price increases associated with the 
same mix of goods and services over time. The market basket is not 
intended to measure actual costs and, therefore, we do not accept the 
commenter's argument that the SNF market basket factor is defective and 
continues to understate compensation, pharmacy, and operating costs. 
The current FY 2010 market basket update factor of 2.2 percent is based 
on the IHS Global Insight (IGI) second quarter 2009 forecast, and 
reflects the projected price changes for all cost categories in the 
market basket (including those associated with compensation, pharmacy, 
and other operating costs). IGI is a nationally recognized economic and 
financial forecasting firm that contracts with CMS to forecast the 
components of the market baskets.
    We also do not agree with the commenter's claim that the market 
basket does not reflect changing staffing costs, higher pharmacy costs, 
and rising liability insurance. For the FY 2008 final rule (72 FR 
43424-43429), we adopted a revised and rebased 2004-based SNF market 
basket that reflected the 2004 cost structures of Medicare- 
participating SNFs. The previous SNF market basket was based on the 
1997 cost structures for Medicare-participating SNFs. The major cost 
weights of the 2004-based SNF market basket, which are inclusive of 
compensation, pharmacy, and professional liability insurance, were 
derived mainly from 2004 Medicare cost reports. During the rebasing 
process, we revised our methodology for calculating the pharmacy cost 
weight to incorporate an estimate of Medicaid drug expenses (72 FR 
43426) incurred by SNFs. The inclusion of these costs resulted in a 
pharmacy cost weight for the 2004-based SNF market basket that was 
twice as large as that of the 1997-based market basket pharmacy cost 
weight. We also explicitly designated a professional liability 
insurance cost category (which was not a separate cost category in the 
1997-based SNF market basket due to lack of sufficient data). As a 
result, we believe the current SNF market basket cost weights reflect 
the cost structures of Medicare-participating SNFs.
    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 summarizes the updated labor-related share for FY 2010.

                        Table 16--Labor-related Relative Importance, FY 2009 and FY 2010
----------------------------------------------------------------------------------------------------------------
                                                      Relative importance,  labor-   Relative importance, labor-
                                                          related, FY 2009 08:2         related, FY 2010 09:2
                                                               forecast\*\                    forecast
----------------------------------------------------------------------------------------------------------------
Wages and salaries..................................                        51.003                        51.078
Employee benefits...................................                        11.547                        11.533
Nonmedical professional fees........................                         1.331                         1.323
Labor-intensive services............................                         3.434                         3.446
Capital-related (.391)..............................                         2.468                         2.460
                                                     -----------------------------------------------------------
    Total...........................................                        69.783                        69.840
----------------------------------------------------------------------------------------------------------------
\*\Published in the Federal Register (73 FR 46434); based on the second quarter 2009 IHS Global Insight Inc.
  revised forecast.


[[Page 40352]]

1. 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 final 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) second quarter 2009 forecast (with historical data through 
the first quarter 2009) 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 final rule. 
Finally, as discussed in section I.A. of this final 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.
2. Market Basket Forecast Error Adjustment
    As discussed in the FY 2004 supplemental proposed rule (68 FR 
34768, June 10, 2003) and finalized in the FY 2004 final rule (68 FR 
46067, August 4, 2003), 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 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 final rule, 
because 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 payment rates for FY 2010 do not 
include a forecast error adjustment.
    Comment: One commenter suggested that CMS apply a cumulative 
forecast error to account for all of the variations in the market 
basket forecasts since FY 2004 (that is, as of when CMS implemented the 
market basket forecast error correction policy.) The commenter asserted 
that the forecast adjustment process did not work as intended, citing 
the lack of any annual adjustments in subsequent years as evidence. The 
commenter recommended that the policy be modified to provide for an FY 
2010 cumulative adjustment of 1.0 percent to restore these ``lost'' 
dollars to the SNF industry.
    Response: For FY 2004, CMS applied a one-time, cumulative forecast 
error correction of 3.26 percent (68 FR 46036, August 4, 2003). Since 
that time, the forecast errors have been relatively small and clustered 
near zero. We believe the forecast error correction should be applied 
only when the degree of forecast error in any given year is such that 
the SNF PPS base payment rate does not adequately reflect the 
historical price changes faced by SNFs. Accordingly, we continue to 
believe that the forecast error adjustment mechanism should 
appropriately be reserved for the type of major, unexpected change that 
initially gave rise to this policy, rather than the minor variances 
that are a routine and inherent aspect of this type of statistical 
measurement. Further, we note that all of the Medicare prospective 
systems use an annual market basket adjustment factor to update rates 
to reflect inflation in the prices of goods and services used by 
providers.
3. 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 market 
basket update factor for FY 2010 SNF PPS Federal rates is 2.2 percent. 
We used this update factor to compute the Federal portion of the SNF 
PPS rate shown in Tables 2 and 3.

G. 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 final 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 46790-46795, 
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 create a new subclause (VII), which 
adds SNFs (as defined in section 1819(a) of the Act)

[[Page 40353]]

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.
    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. * * * For 
example, * * * specific chemotherapy drugs * * * not typically 
administered in a SNF, or * * * requiring special staff expertise to 
administer * * *.'' By contrast, the remaining services within those 
four categories are not excluded (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 the FY 
2010 proposed rule, we specifically invited 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 (74 FR 22208, 22249, May 12, 2009). The comments that we 
received on this subject, and our responses, appear below.
    Comment: Several commenters submitted additional chemotherapy codes 
that they recommended for exclusion from consolidated billing.
    Response: A review of the particular chemotherapy codes that 
commenters submitted in response to the proposed rule's solicitation 
for comment revealed that many of them were codes that had already been 
submitted for consideration in past years, and which we had already 
decided previously not to exclude. Other codes that commenters 
submitted were themselves already in existence as of July 1, 1999, but 
did not fall within the specific code ranges statutorily designated for 
exclusion in the BBRA. As the statute does not specifically exclude 
these already-existing codes (and as further discussed later in this 
section of the final rule), we are not adding them to the exclusion 
list. Most of the other codes submitted represent services that, for 
various reasons, do not meet the statutory criteria for exclusion. For 
example, some represent oral medications that can be administered 
routinely in SNFs and are not reasonably characterized as ``requiring 
special staff expertise to administer'' in accordance with the 
previously-cited BBRA Conference report language. Other codes do not 
meet the BBRA

[[Page 40354]]

Conference report's threshold criteria of high cost (that is, an item 
whose ``* * * costs far exceed the payment [SNFs] receive under the 
prospective payment system'') and low probability that the Congress 
imposed in enacting this exclusion. Still others represent drugs that 
are administered in conjunction with chemotherapy to address side 
effects such as nausea; however, as such drugs are not in themselves 
inherently chemotherapeutic in nature, they do not fall within the 
excluded chemotherapy category designated in the BBRA. Two particular 
codes that a commenter offered as possible candidates for the 
chemotherapy exclusion actually are not anti-cancer drugs, but rather, 
are used in hormone therapy and for the treatment of certain types of 
anemia, respectively. Finally, some other codes that were submitted 
represent services that, in fact, are already excluded from 
consolidated billing under existing instructions.
    Comment: Some commenters reiterated previous suggestions on 
expanding the existing chemotherapy exclusion to encompass related 
drugs that are commonly administered in conjunction with chemotherapy 
in order to treat the side effects of the chemotherapy drugs. The 
commenters cited examples such as anti-emetics (anti-nausea drugs) and 
erythropoietin (EPO).
    Response: As we have noted previously in this final rule and in 
response to comments on this issue in the past (most recently, in the 
August 8, 2008 SNF PPS final rule for FY 2009 (73 FR 46437)), the BBRA 
authorizes us to identify additional services for exclusion only within 
those particular service categories--chemotherapy and its 
administration; radioisotope services; and, customized prosthetic 
devices--that it has designated for this purpose, and does not give us 
the authority to exclude other services which, though they may be 
related, fall outside of the specified service categories themselves. 
Thus, while anti-emetics, for example, are commonly administered in 
conjunction with chemotherapy, they are not themselves inherently 
chemotherapeutic in nature and, consequently, do not fall within the 
excluded chemotherapy category designated in the BBRA. We also 
explained in the FY 2008 final rule that the existing statutory 
exclusion from consolidated billing for EPO is effectively defined by 
the scope of coverage under the Part B EPO benefit at section 
1861(s)(2)(O) of the Act; that benefit, in turn, specifically limits 
EPO coverage to dialysis patients, and does not provide for such 
coverage in any other, non-dialysis situations such as chemotherapy (72 
FR 43432).
    Comment: One comment concerned our longstanding view, most recently 
discussed in the SNF PPS final rule for FY 2009 (73 FR 46436, August 8, 
2008) and the SNF PPS proposed rule for FY 2010 (74 FR 22249, May 12, 
2009), that the authority granted by the BBRA to identify additional 
codes for exclusion within the designated categories essentially serves 
to confer ``* * * 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)'' (emphasis added). Our 
position has always been that this discretionary authority applies 
solely to codes that were created subsequent to the enactment of the 
BBRA, and not to those codes that were already in existence as of July 
1, 1999 (the date that the legislation itself uses as the reference 
point for identifying those codes that it designates for exclusion). 
Implicit in this position is an assumption that if a particular code 
was already in existence as of that date but not designated for 
exclusion, this indicated the Congress's intent for that code to remain 
within the SNF PPS bundle.
    One commenter took exception to this position and cited the 
Conference report that accompanied the BBRA (H.R. Rep. No. 106-479 at 
854 (1999) (Conf. Rep.)), which gives two examples of potential 
problems with the practice of ``* * * excluding services or items from 
the [SNF] PPS by specifying codes in legislation'':
     Some already-existing items that meet the exclusion 
criteria may have inadvertently been left off of the original exclusion 
list.
     New, extremely costly items may come into use or codes may 
change over time.

    The commenter then asserted that our discretionary authority to 
identify additional codes for exclusion should apply not only to the 
latter concern, but also to the former one as well. As a result, the 
commenter argued that our periodic review of the codes for possible 
additional exclusions from consolidated billing should not be limited 
to only new and revised codes, but should also consider the entire set 
of codes that were already in existence as of the BBRA legislation's 
reference date, July 1, 1999.
    Response: In contrast to the new and revised codes that reflect an 
ongoing process of change within the coding system, the codes that were 
in existence as of the BBRA reference date (July 1, 1999) essentially 
comprise a closed code set at this point, one that remains static and 
unchanging from year to year. Accordingly, we do not believe that it 
would be either necessary or appropriate to conduct recurring reviews 
of this particular code set once it has received an initial review. 
Moreover, we note that after identifying the two potential problems 
with designating exclusions by code as discussed above, the BBRA 
Conference report that the commenter cites then goes on to issue two 
specific directives: it confers on the Secretary the authority ``* * * 
to review periodically and modify, as needed, the list of excluded 
services'' (emphasis added), and it also directs the GAO ``* * * to 
review the codes of the excluded items and make recommendations on 
whether the criteria for their exclusion are appropriate by July 1, 
2000'' (emphasis added). Accordingly, we believe it is clear that the 
GAO's short-term, one-time-only review of the exclusion codes would 
serve to encompass those codes already in existence as of the BBRA 
reference date, while the Secretary's ongoing authority to conduct 
reviews ``periodically'' was intended to address changes in the coding 
system that occur subsequent to that point.
    Comment: Although the FY 2010 SNF PPS proposed rule specifically 
invited comments on possible exclusions within the particular service 
categories identified in the BBRA legislation, a number of commenters 
took this opportunity to reiterate concerns about other aspects of 
consolidated billing. For example, some commenters reiterated past 
comments made on previous rules, urging CMS to unbundle additional 
service categories. The commenters identified services such as 
hyperbaric oxygen treatments, observation services, and blood 
transfusions as appropriate candidates for exclusion. They also 
repeated previous calls to expand the existing exclusion for certain 
high-intensity outpatient hospital services to encompass services 
furnished in other, nonhospital settings, arguing that such nonhospital 
services may be cheaper and more accessible in certain localities (such 
as rural settings) than those furnished by hospitals. Some commenters 
expressed support for expanding the existing, partial exclusion of 
ambulance services from consolidated billing to encompass all ambulance 
services, but they also acknowledged that creating such an exclusion of 
an entire service category would require legislation by the

[[Page 40355]]

Congress. Another commenter recommended conducting a comprehensive 
overhaul of the entire set of existing consolidated billing exclusions, 
in a way that would streamline and simplify the current complex set of 
exclusion rules and make it easier to administer.
    Response: As we have consistently stated (most recently, in the 
August 8, 2008 SNF PPS final rule for FY 2009 (73 FR 46436)), the BBRA 
authorizes us to identify additional services for exclusion only within 
those particular service categories--chemotherapy and its 
administration; radioisotope services; and, customized prosthetic 
devices--that it has designated for this purpose, and does not give us 
the authority to carve out entire service categories beyond those 
specified in the law. Accordingly, as the particular services that 
these commenters recommended for exclusion do not fall within one of 
the specific service categories designated for this purpose in the 
statute itself, these services remain subject to consolidated billing.
    We have also included in a number of previous rules an explanation 
of the setting-specific nature of the exclusion for certain high-
intensity outpatient hospital services--most recently, in the FY 2009 
SNF PPS final rule (73 FR 46436, August 8, 2008):

    We believe the comments that reflect previous suggestions for 
expanding this administrative exclusion to encompass services 
furnished in non-hospital settings indicate a continued 
misunderstanding of the underlying purpose of this provision. As we 
have consistently noted in response to comments on this issue in 
previous years * * * and as also explained in Medicare Learning 
Network (MLN) Matters article SE0432 (available online at http://www.cms.hhs.gov/MLNMattersArticles/downloads/SE0432.pdf), the 
rationale for establishing this exclusion was to address those types 
of services that are so far beyond the normal scope of SNF care that 
they require the intensity of the hospital setting in order to be 
furnished safely and effectively.
    Moreover, we note that when the Congress enacted the 
consolidated billing exclusion for certain RHC and FQHC services in 
section 410 of the MMA, the accompanying legislative history's 
description of present law acknowledged that the existing exclusions 
for exceptionally intensive outpatient services are specifically 
limited to ``* * * certain outpatient services from a Medicare-
participating hospital or critical access hospital * * *'' (emphasis 
added). (See the House Ways and Means Committee Report (H. Rep. No. 
108-178, Part 2 at 209), and the Conference Report (H. Conf. Rep. 
No. 108-391 at 641).) Therefore, these services are excluded from 
SNF consolidated billing only when furnished in the outpatient 
hospital or CAH setting, and not when furnished in other, 
freestanding (non-hospital or non-CAH) settings.

    Further, the authority for us to establish a categorical exclusion 
for these services that would apply irrespective of the setting in 
which they are furnished does not exist in current law. In addition, 
with regard to the relative availability of such services in hospital 
versus nonhospital settings, we have also noted previously that:

* * * to the extent that advances in medical practice over time may 
make it feasible to perform such a service more widely in a less 
intensive, nonhospital setting, this would not argue in favor of 
excluding the nonhospital performance of the service from 
consolidated billing under these regulations, but rather, would call 
into question whether the service should continue to be excluded 
from consolidated billing at all, even when performed in the 
hospital setting (70 FR 45049, August 4, 2005).

    Regarding the comment on ambulance services, we agree with the 
commenters that carving out an entire service category from 
consolidated billing would require legislation by the Congress, and 
cannot be accomplished administratively. Finally, with reference to the 
suggestion for a comprehensive overhaul of the existing consolidated 
billing rules, while the commenter's interest in promoting improved 
ease of administration is understandable, we note that current law 
contains no authority to adopt the suggested approach.
    Comment: Some comments cited ongoing concerns about the SNF PPS's 
ability to account accurately for the cost of NTAs, and suggested that 
we create additional consolidated billing exclusions for certain 
exceptionally high-cost drugs as a means of addressing those concerns.
    Response: We note that, as mentioned previously in section III.C.2 
of this final rule, we are continuing to conduct research relating to 
the treatment of NTAs under the SNF PPS, including the exploration of 
possible modifications in the case-mix classification system that might 
further improve its accuracy in accounting for these costs. However, as 
we indicated in the SNF PPS final rule for FY 2002 (66 FR 39588, July 
31, 2001), and again in the SNF PPS final rule for FY 2004 (68 FR 
46062, August 4, 2003), ``* * * we do not share the view * * * that the 
creation of additional exclusions from consolidated billing could 
serve, in effect, as an interim substitute for [such] refinements.'' 
Rather, we believe ``* * * that payment adjustments relating to case-
mix would best be accomplished directly through refinements in the 
case-mix classification system'' itself.
    Comment: In contrast to the preceding comments that advocated 
expanding the existing exclusion of certain exceptionally intensive 
outpatient services to encompass freestanding (nonhospital) settings, 
one commenter specifically acknowledged this exclusion's restriction to 
the hospital setting, and then proceeded to recommend a particular 
drug, natalizumab (Tysabri[supreg], HCPCS code J2323) for exclusion on 
this basis. Natalizumab is an intravenous infusion drug used for 
treating multiple sclerosis in cases where alternative therapies are 
not feasible. The commenter indicated that natalizumab not only meets 
the general criteria of high cost, low probability, and inelastic 
demand (that is, the service is unlikely to be overprovided even if 
separate payment under Part B becomes available for it) that 
characterize services under the exclusion, but also has a number of 
specific characteristics that could reasonably be viewed as requiring 
the intensity of the hospital setting for its safe and effective 
administration. The commenter noted that under the terms of this drug's 
approval by the Food and Drug Administration (FDA), natalizumab is 
subject to a complex risk minimization action plan (RiskMAP) protocol 
that requires highly specialized expertise in its administration. The 
commenter also cited an FDA notice in the Federal Register (73 FR 
16313, March 27, 2008), including natalizumab in a list of drugs that 
are deemed to have in effect an approved risk evaluation and mitigation 
strategy (REMS). (The REMS is designed to address certain drugs that, 
while providing an important benefit to patients, can be especially 
dangerous if not used properly.) The FDA notice also indicated that 
such drugs have in effect a number of elements to assure safe use, 
including their being ``* * * dispensed to patients only in certain 
health care settings, such as hospitals . * * *'' Accordingly, the 
commenter also suggested that we consider similarly excluding the other 
drugs identified in the FDA notice (which, like natalizumab, are deemed 
to have an approved REMS in effect).
    Response: We believe that the commenter's observations merit 
further study to determine whether drugs of this type might, in fact, 
meet the outpatient hospital services exclusion's longstanding 
threshold (most recently discussed, as noted previously, in the FY 2009 
SNF PPS final rule (74 FR 46436, August 8, 2008)) of being ``* * * so 
far beyond the normal scope of SNF care that they require the intensity 
of

[[Page 40356]]

the hospital setting in order to be furnished safely and effectively.'' 
Accordingly, we plan to examine the appropriateness of designating one 
or more of these drugs as exceptionally intensive outpatient hospital 
services for purposes of exclusion from consolidated billing. As we 
noted in the discussion of the outpatient hospital exclusion in the SNF 
PPS final rule for FY 2000 (64 FR 41676, July 30, 1999), while any 
broad refinements in the outpatient hospital exclusion's underlying 
policy itself (which might be necessitated by the development of the 
outpatient hospital PPS) ``* * * would be made through future 
rulemaking,'' modifying the list of individual services encompassed by 
the exclusion would occur ``* * * in future instructions.'' 
Accordingly, we would use program instructions as the vehicle for 
specifying any additional services that we may decide to designate as 
qualifying for exclusion on this basis.

H. 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 final 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 freestanding 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 point. 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 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, in the FY 2010 
proposed rule (74 FR 22208, 22250, May 12, 2009), we stated that we 
were 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 
proposed 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 
the FY 2010 proposed rule (74 FR 22208, 22250, May 12, 2009), we 
solicited 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. The comments that we received 
on this subject, and our responses, appear below.
    Comment: Some commenters supported the quality monitoring of swing-
bed services, while others opposed it. Those who opposed quality 
monitoring of swing-bed services asserted that the existing hospital 
quality review process is sufficient, and that the short length of 
stays for swing-bed patients would not result in reliable measures. The 
commenters were also concerned with the burden associated with 
additional paperwork. A few commenters stated that this would impose a 
burden on CAHs. Those who supported quality monitoring of swing-bed 
services argued that it would help achieve greater consistency between 
the swing-bed and SNF settings, and would allow consumers to make the 
same quality comparisons and evaluations for swing beds as for SNFs.
    Response: When the Congress enacted the swing-bed program, it 
described swing-bed services as ``* * * services of the type which, if 
furnished by a skilled nursing facility, would constitute extended care 
services'' (section 1883(a)(1) of the Act). Therefore, we believe it is 
appropriate and in the best interest of beneficiaries to monitor the 
quality of care provided in swing-bed hospitals similar to the manner 
in which we monitor quality of care for SNFs, and to be able to inform 
consumers of the various choices they have for post acute care services 
in their community. We are cognizant of the short length of stays in 
swing beds and realize that the current CMS quality measures may not be 
applicable in many instances for swing-bed providers. However, we will 
not be able to make a sound decision unless we first gather the data to 
determine the best avenue for measuring quality similar to SNFs. Based 
on comments received, we will limit the items to be collected in the 
MDS 3.0 swing-bed assessment to the required demographic, payment, and 
quality items. The MDS 3.0 swing-bed assessment will be similar to the 
MDS 3.0 MPAF; however, it will contain fewer items, as the MPAF 
includes clinical items that are not required for payment or quality 
measures. We will begin collecting the data from swing-bed facilities 
starting October 1, 2010, and then, once sufficient information is 
obtained, we will conduct an analysis

[[Page 40357]]

that includes (but is not limited to) the following: (1) Whether the 
length of stay in swing beds is adequate to measure changes (or 
outcomes) in patient care; (2) Whether these changes are measurable and 
attainable; and (3) Which quality measures are appropriate. We will 
also determine the best venue to share quality data on swing beds with 
consumers. Because CAHs are not subject to SNF PPS and MDS requirements 
at this time, they will not be required to complete the MDS 3.0 and, 
thus, are not affected by the policy to collect quality data from swing 
beds based on MDS data.

IV. Provisions of the Final Rule

    This final rule incorporates the provisions of the regulations text 
of the proposed rule (74 FR 22208), as herein modified. We have adopted 
the proposed changes from the above captioned proposed rule with regard 
to the Resident Assessment Instrument under the MDS 3.0 (including an 
implementation schedule) provision that will be introduced in 
conjunction with the RUG-IV classification system.
    In Sec.  483.315(h), we have removed the term ``survey'' and 
replaced it with ``agency''.
    In Sec.  483.315(h)(3), we have removed the word ``all''.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 30-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements (ICRs):

Section 483.20 Resident Assessment

    Section 483.20(b) requires the facility to make a comprehensive 
assessment of a resident's needs using the resident assessment 
instrument (RAI) provided by the State.
    Section 483.20(f)(3) requires upon completion of the RAI for the 
facility to electronically transmit encoded, accurate, complete MDS 
data to the CMS system.
    While there is burden associated with the requirements found under 
Section 483.20, they are currently approved under OMB 0938-
0739.

Section 483.315 Specification of Resident Assessment Instrument

    Section 483.315(h) requires the facility to support and maintain 
the CMS State system and database and analyze data and generate and 
transmit reports as specified by CMS.
    While there is burden associated with this requirement, we believe 
this requirement is exempt from the PRA as stated in sections 4204(b) 
and 4214(d) of the Omnibus Budget Reconciliation Act of 1987 (OBRA 
1987, Pub. L. 100-203), which specifically waive PRA requirements with 
respect to the revised requirements for participation introduced by the 
nursing home reform legislation.
    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, in the 
FY 2010 proposed rule (74 FR 22208, 22250, May 12, 2009), we invited 
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 III.H of this final rule. Specifically, 
we proposed to replace the SB-MDS with the MDS 3.0 version of the MPAF.
    If you comment on these information collection and recordkeeping 
requirements, please submit your comments to the Office of Information 
and Regulatory Affairs, Office of Management and Budget,
    Attention: CMS Desk Officer, [1410-F].
    Fax: (202) 395-6974; or
    E-mail: [email protected].

VI. 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 final 
rule is an economically significant rule under Executive Order 12866, 
because we estimate the FY 2010 impact reflects a $690 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 $360 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 update set forth in this final 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

[[Page 40358]]

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 http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf). Individuals and States are not included in the 
definition of a small entity. In addition, approximately 29 percent of 
SNFs are nonprofit organizations.
    This final rule updates 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 $360 million. As indicated in Table 17a, 
the effect on facilities will be a net negative impact of 1.1 percent. 
The total impact reflects a $1.05 billion reduction from the 
recalibration of the case-mix adjustment, offset by a $690 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 final 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 final 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 III.K.3 of this 
final 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 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. This final 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 final rule will not have a significant impact on the operations of 
a substantial number of small rural hospitals.
    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. This 
final rule would have no substantial direct effect on State and local 
governments, preempt State law, or otherwise have Federalism 
implications. Further, while we realize that there is an impact on the 
Federal portion of the Medicaid payment, we have not yet determined the 
specific amount of that impact. However, we are working closely with 
State survey and Medicaid agencies to gain a better understanding of 
the impact from the transition to MDS 3.0 and the RUG-IV model.
    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 $133 
million. This final rule would not impose spending costs on State, 
local, or Tribal governments in the aggregate, or by the private 
sector, of $133 million.

B. Anticipated Effects

    This final rule sets forth 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 
$360 million in payments to SNFs (this reflects a $1.05 billion 
reduction from the recalibration of the case-mix adjustment, offset by 
a $690 million increase from the update to the payment rates). The 
impact analysis of this final 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.
    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 updating the rates for FY 2010, we 
make a number of standard annual revisions and clarifications mentioned 
elsewhere in

[[Page 40359]]

this final rule (for example, the update to the wage and market basket 
indexes used for adjusting the Federal rates). These revisions increase 
payments to SNFs by approximately $690 million.
    We estimate the net decrease in payments associated with this final 
rule to be $360 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 $690 million, results in a net decrease of 
$360 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 final 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 2.2 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 1.1 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 a slight 
increase of 0.1 percent for 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
----------------------------------------------------------------------------------------------------------------
                                                                           Update wage    Revised      Total FY
                                                               Number of       data         CMIs     2010 change
                                                               facilities   (percent)    (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
Total.......................................................       15,307          0.0         -3.3         -1.1
Urban.......................................................       10,586          0.1         -3.3         -1.1
Rural.......................................................        4,721         -0.3         -3.1         -1.3
Hospital based urban........................................        1,675         -0.1         -3.4         -1.4
Freestanding urban..........................................        8,911          0.1         -3.3         -1.1
Hospital based rural........................................        1,065         -0.2         -3.3         -1.4
Freestanding rural..........................................        3,656         -0.3         -3.1         -1.3
Urban by region:
    New England.............................................          832          0.8         -3.4         -0.5
    Middle Atlantic.........................................        1,489         -0.1         -3.5         -1.4
    South Atlantic..........................................        1,742          0.0         -3.2         -1.1
    East North Central......................................        2,024         -0.2         -3.2         -1.3
    East South Central......................................          539         -0.4         -3.3         -1.5
    West North Central......................................          874          0.3         -3.3         -0.9
    West South Central......................................        1,200         -0.4         -3.2         -1.5
    Mountain................................................          478          0.8         -3.2         -0.3
    Pacific.................................................        1,402          0.4         -3.3         -0.8
    Outlying................................................            6         -0.1         -3.6         -1.5
Rural by region:
    New England.............................................          148         -0.8         -3.1         -1.8
    Middle Atlantic.........................................          254          0.0         -3.3         -1.2
    South Atlantic..........................................          593          0.0         -3.1         -1.0
    East North Central......................................          930         -0.5         -3.1         -1.5
    East South Central......................................          533         -0.2         -3.1         -1.2
    West North Central......................................        1,092         -0.5         -3.3         -1.6
    West South Central......................................          788         -0.5         -3.1         -1.4
    Mountain................................................          247          1.2         -3.2          0.1
    Pacific.................................................          134         -0.3         -3.2         -1.3
    Outlying................................................            2          1.1         -3.9         -0.7
Ownership:
    Government..............................................          652         -0.2         -3.5         -1.5
    Proprietary.............................................       11,302          0.0         -3.2         -1.1
    Voluntary...............................................        3,353          0.1         -3.4         -1.1
----------------------------------------------------------------------------------------------------------------
Note: The Total column includes the 2.2 percent market basket increase.


[[Page 40360]]

    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 1.3 
percent, while providers in the rural East North Central region show a 
decrease of 1.5 percent. In addition, voluntary providers show an 
increase of 0.2 percent, while there is no change for proprietary 
facilities in aggregate.

            Table 17b--Projected Impact of RUG-IV for FY 2011
------------------------------------------------------------------------
                                              Number of         RUG-IV
                                              facilities      (percent)
------------------------------------------------------------------------
Total...................................             15,443          0.0
Urban...................................             10,516          0.3
Rural...................................              4,927         -0.8
Hospital based urban....................                609         -1.4
Freestanding urban......................              9,907          0.4
Hospital based rural....................                426         -0.8
Freestanding rural......................              4,501         -0.8
Urban by region:
    New England.........................                833          1.3
    Middle Atlantic.....................              1,479          1.3
    South Atlantic......................              1,724         -0.6
    East North Central..................              2,018          0.0
    East South Central..................                523          1.2
    West North Central..................                864          0.1
    West South Central..................              1,169          0.9
    Mountain............................                472         -0.5
    Pacific.............................              1,427          0.2
    Outlying............................                  7          0.5
Rural by region:
    New England.........................                155         -1.3
    Middle Atlantic.....................                270          0.6
    South Atlantic......................                622         -0.9
    East North Central..................                945         -1.5
    East South Central..................                557         -0.1
    West North Central..................              1,123         -0.2
    West South Central..................                846         -1.2
    Mountain............................                265         -0.9
    Pacific.............................                144         -1.1
    Outlying............................                  0          0.0
Ownership:
    Government..........................                840          1.4
    Proprietary.........................             10,539          0.0
    Voluntary...........................              4,064          0.2
------------------------------------------------------------------------
Note: The wage index column is not included for FY 2011, as the FY 2011
  wage index is unknown. In addition, the Total column is not included
  for FY 2011, as the market basket is unknown.

    Comment: Several commenters expressed concern that the proposed 
RUG-IV case-mix classification system would adversely affect them from 
a fiscal standpoint. One commenter specifically cited the proposal to 
allocate concurrent therapy and the change in the method to calculate 
the ADL index.
    Response: The aggregate impact of the RUG-IV case-mix 
classification is budget neutral. We caution providers on determining 
the fiscal impact of RUG-IV based on only one or two areas of the 
entire system. Although we are making changes to the ADL index and 
allocation of concurrent therapy, the total payment rate is based on 
the combination of the nursing and therapy components. Total payment 
rates for therapy groups are not projected to decrease. Even after we 
consider that many patients will fall into lower rehabilitation RUGs 
under the allocation of concurrent therapy, because of the increase to 
the nursing CMIs to adjust for parity, total payment rates may actually 
be higher under RUG-IV for some comparable patients. We realize that 
there are distributional effects determined by an individual provider's 
case-mix utilization and some providers will be negatively affected. In 
examining the impacts presented in the table above for FY 2011, there 
are subsets of providers that are positively affected and other subsets 
that are negatively affected. However, in looking at large subsets such 
as the ownership type, proprietary owners are expected to be budget 
neutral, whereas voluntary providers are expected to see a slight 
increase in payments (0.2 percent) compared to RUG-III.
    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 show a slightly smaller decrease in the 
therapy portion of their payments. We expect that facilities providing 
more intensive

[[Page 40361]]

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                    (percent)   (percent)
------------------------------------------------------------------------
Nursing CMIs--Freestanding......................        21.8        20.7
Nursing CMIs--Hospital-Based....................        11.0        11.6
Therapy CMIs--Freestanding......................       -41.5       -41.2
Therapy CMIs--Hospital-Based....................       -41.1       -40.7
------------------------------------------------------------------------

    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.
    We recently conducted a survey asking each State to identify their 
likely transition scenarios and system costs and are beginning to 
analyze the information provided. We will continue to work with 
individual States and will develop a comprehensive transition plan that 
will include an analysis of the systems costs likely to be incurred 
under each transition approach; that is, maintaining a standard RUG-III 
payment structure, maintaining a customized RUG-III structure, and 
adopting all or part of RUG-IV.
    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.

C. Alternatives Considered

    We have determined that this final 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 $360 million in 
payments to SNFs, resulting from a $690 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 final rule 
recalibrates 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 III.B.2.b of this final rule and in the SNF PPS

[[Page 40362]]

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.C.2 of this final 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. However, we also recognize the need to allow sufficient lead 
time to ensure an orderly and successful transition. Accordingly, while 
we initially considered implementing the RUG-IV model for FY 2010, we 
are instead implementing 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 plan to implement RUG-IV for FY 2011.
    Comment: One commenter expressed concern that hierarchical 
maximization, instead of index maximization, was used to estimate the 
distribution of RUG-IV days.
    Response: We agree with the commenter that an index maximization 
approach provides the best estimation of the RUG-IV days of service 
distribution. The reason for this is that when RUG-IV is implemented 
for payment, an index maximizing approach will be used. However, use of 
RUG-IV hierarchical classification rather than index maximizing 
classification has very little impact on the fiscal estimates and 
simplified the work that was required to make those estimates.
    The final fiscal estimates are based on the distribution of RUG-IV 
days obtained by applying the STRIVE transition matrix that cross-
tabulated RUG-III classifications with RUG-IV classifications for 
STRIVE Medicare Part A residents. The RUG-III classification used index 
maximizing, but the RUG-IV classification used a hierarchical approach. 
Grouper code allowing RUG-IV index maximizing classification has not 
yet been developed and tested and, therefore, it was not possible to 
use the index maximizing approach for RUG-IV at this time.
    When making fiscal estimates, it is absolutely critical that index 
maximizing be used for RUG-III. Index maximizing causes major shifts in 
the days of service for RUG-III. Most importantly, with index 
maximizing, some residents in RVL and all residents in RHX and RHL 
shift to either RMX or RML. In contrast, the use of index maximizing 
RUG-IV classification has very little impact on the fiscal estimates, 
because fewer residents will shift into other groups after index 
maximizing. With RUG-IV, index maximizing will only affect rare groups, 
and not all residents in a group will shift to another group. Analyses 
indicate that the maximum possible impact of RUG-IV index maximizing 
would be a 0.23 percent increase in total estimated RUG-IV payments. 
The actual impact is likely to be much less, probably 0.1 percent or 
less.
    Comment: Several commenters expressed concern that the proposed 
rule's regulatory impact analysis significantly underestimated the 
total economic impact of the proposed policy changes, citing secondary 
effects such as indirect job losses and loss of tax revenue to the 
States.
    Response: As indicated in the impact analysis, the changes due to 
the recalibration of the CMIs are expected to result in a net decrease 
in Medicare payments to SNFs of about 3.3 percent. This estimate 
represents the direct impact on SNFs and does not include any of the 
``indirect,'' ``induced,'' or ``ripple'' effects that are raised by the 
commenters. Such secondary effects are extremely difficult to model and 
are highly uncertain as a result. Based on this uncertainty and the 
relatively small percentage of aggregate SNF revenues (from all payers) 
affected by this reduction, we cannot conclude with confidence that 
there will be significant impacts beyond those that are already 
described in the rule. Additionally, because these types of secondary 
effects are occurring within a dynamic, market-based economy, it is our 
expectation that the market will properly adjust its economic resources 
in reaction to the appropriately recalibrated SNF PPS payments. For 
these reasons, we believe that the regulatory impact analysis 
adequately estimates the proposed rule's economic impact.
    Comment: A few commenters said that they could not fully evaluate 
the impact of RUG-IV because CMS failed to provide the FY 2011 market 
basket and wage index.
    Response: Although the FY 2011 market basket and wage index are 
required to set the final FY 2011 payment rates, they are not necessary 
to evaluate the impact of RUG-IV. As discussed previously in this 
section, impacts are evaluated by determining the effect on payments of 
each policy change while holding all other payment-related variables 
constant. The market basket for FY 2011 will have the same impact for 
all providers. The FY 2011 wage index will produce the same 
distributional effect due to changes in wage data, regardless of the 
classification system. Thus, the market basket and wage index have no 
effect on the RUG-IV policy.

[[Page 40363]]

D. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 19, we have 
prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this final 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 final 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...  -$360 million. *
From Whom To Whom?...............  Federal Government to SNF Medicare
                                    Providers.
------------------------------------------------------------------------
* The net decrease of $360 million in transfer payments is a result of
  the decrease of $1.05 billion due to the recalibration of the case-mix
  adjustment, together with the market basket increase of $690 million.

E. Conclusion

    Overall estimated payments for SNFs in FY 2010 are projected to 
decrease by $360 million, or 1.1 percent, compared with those in FY 
2009. We estimate that SNFs in urban areas would experience a 1.1 
percent decrease in estimated payments compared with FY 2009. We 
estimate that SNFs in rural areas would experience a 1.3 percent 
decrease in estimated payments compared with FY 2009. Providers in the 
rural New England region would show decreases in payments of 1.8 
percent, the highest decreases for any region. This area shows the 
largest decrease in payments due to the wage index.
    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 1.5 percent for Rural East North Central facilities 
to an increase of 1.4 percent for Government 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.

0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV as set forth below:

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

0
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

0
2. Amend Sec.  483.20 by--
0
A. Republishing paragraph (b)(1) introductory text.
0
B. Revising paragraph (b)(1)(xvii).
0
C. Revising paragraph (f)(2).
0
D. Revising paragraph (f)(3) 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 assessment, a facility must electronically 
transmit encoded, accurate, and complete MDS data to the CMS System, 
including the following:
* * * * *

0
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

0
4. Amend Sec.  483.315 by--
0
A. Revising paragraph (d)(2).
0
B. Revising paragraph (e).
0
C. Removing and reserving paragraph (f).
0
D. Revising paragraph (h).
0
E. Revising paragraph (i) introductory text.
0
F. Revising paragraph (i)(2).
    The revisions read as follows:


Sec.  483.315  Specification of resident assessment instrument.

* * * * *
    (d) * * *
    (2) Care area assessment (CAA) guidelines and 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 database requirements. As part of facility 
agency responsibilities, the State Survey Agency 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.

[[Page 40364]]

    (3) Upon receipt of facility data from CMS, ensure that a facility 
resolves 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.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: July 23, 2009.
Charlene Frizzera,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: July 29, 2009.
Kathleen Sebelius,
Secretary.
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