Federal Register, Volume 76 Issue 88 (Friday, May 6, 2011)

[Federal Register Volume 76, Number 88 (Friday, May 6, 2011)]
[Proposed Rules]
[Pages 26364-26429]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-10555]

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Vol. 76

Friday,

No. 88

May 6, 2011

Part III

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 413, 424, and 455

Medicare Program; Prospective Payment System and Consolidated Billing
for Skilled Nursing Facilities; Disclosures of Ownership and Additional
Disclosable Parties Information; Proposed Rule

Federal Register / Vol. 76 , No. 88 / Friday, May 6, 2011 / Proposed
Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 413, 424, and 455

[CMS-1351-P]
RIN 0938-AQ29

Medicare Program; Prospective Payment System and Consolidated
Billing for Skilled Nursing Facilities; Disclosures of Ownership and
Additional Disclosable Parties Information

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule presents two options for updating the
payment rates used under the prospective payment system for skilled
nursing facilities (SNFs), for fiscal year 2012. In this context, it
examines recent changes in provider behavior relating to the
implementation of the Resource Utilization Groups, version 4 (RUG-IV)
case-mix classification system and considers a possible recalibration
of the case-mix indexes so that they more accurately reflect parity in
expenditures between RUG-IV and the previous case-mix classification
system. It also includes a discussion of a Non-Therapy Ancillary
component and outlier research currently under development within CMS.
In addition, this proposed rule discusses the impact of certain
provisions of the Affordable Care Act. It proposes to require for
fiscal year 2012 and subsequent fiscal years that the SNF market basket
percentage change be reduced by the multi-factor productivity
adjustment. It also proposes to require Medicare SNFs and Medicaid
nursing facilities to disclose certain information to the Secretary of
the United States Department of Health and Human Services (the
Secretary) and other entities regarding the ownership and
organizational structure of their facilities. Finally, it proposes
certain changes relating to the payment of group therapy services and
proposes new resident assessment policies.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on June 27, 2011.

ADDRESSES: In commenting, please refer to file code CMS-1351-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the instructions under
the ``More Search Options'' tab.
2. By regular mail. You may mail written comments to the following
address only: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-1351-P, P.O. Box 8016,
Baltimore, MD 21244-8016.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address only: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-1351-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments before the close of the comment period
to either of the following addresses:
a. Centers for Medicare & Medicaid Services, Department of Health
and Human Services, Room 445-G, Hubert H. Humphrey Building, 200
Independence Avenue, SW., Washington, DC 20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without Federal Government
identification, commenters are encouraged to leave their comments in
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing
by stamping in and retaining an extra copy of the comments being
filed.)
b. Centers for Medicare & Medicaid Services, Department of Health
and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
please call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:

Sandra Bastinelli, (410) 786-3630 (for disclosure of ownership).
Penny Gershman, (410) 786-6643 (for information related to clinical
issues).
John Kane, (410) 786-0557 (for information related to the development
of the payment rates and case-mix indexes). Kia Sidbury, (410) 786-7816
(for information related to the wage index).
Bill Ullman, (410) 786-5667 (for information related to level of care
determinations, consolidated billing, and general information).

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

Table of Contents

I. Background
A. Current System for Payment of SNF Services Under Part A of
the Medicare Program
B. Requirements of the Balanced Budget Act of 1997 (BBA) for
Updating the Prospective Payment System for Skilled Nursing
Facilities
C. The Medicare, Medicaid, and SCHIP Balanced Budget Refinement
Act of 1999 (BBRA)
D. The Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000 (BIPA)
E. The Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA)
F. The Affordable Care Act
G. Skilled Nursing Facility Prospective Payment--General
Overview
1. Payment Provisions--Federal Rate
2. FY 2012 Rate Updates Using the Skilled Nursing Facility
Market Basket Index
II. FY 2012 Annual Update of Payment Rates Under the Prospective
Payment System for Skilled Nursing Facilities
A. Federal Prospective Payment System
1. Costs and Services Covered by the Federal Rates

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2. Methodology Used for the Calculation of the Federal Rates
B. Case-Mix Adjustments
1. Background
2. Parity Adjustment
a. Option for Recalibration of the Parity Adjustment
b. Option for Application of Standard Update for FY 2012 Without
Recalibration
C. Wage Index Adjustment to Federal Rates
D. Updates to Federal Rates
E. Relationship of Case-Mix Classification System to Existing
Skilled Nursing Facility Level-of-Care Criteria
F. Example of Computation of Adjusted PPS Rates and SNF Payment
III. Resource Utilization Groups, Version 4 (RUG-IV)
A. Prospective Payment for SNF Non-Therapy Ancillary Costs
1. Previous Research
2. Conceptual Analysis
3. Analytic Sample
4. Approach to Analysis
5. Payment Methodology
a. Routine Non-Therapy Ancillary Payment
b. Tiered Non-Routine NTA Bundled Payment
c. Non-Routine NTA Outlier Payment
6. Temporary AIDS Add-On Payment Under Section 511 of the MMA
IV. Ongoing Initiatives Under the Affordable Care Act
A. Value-Based Purchasing (Section 3006)
B. Payment Adjustment for Hospital-Acquired Conditions (Section
3008)
C. Nursing Home Transparency and Improvement (Section 6104)
V. Other Issues
A. Required Disclosure of Ownership and Additional Disclosable
Parties Information (Section 6101)
B. Therapy Student Supervision
C. Group Therapy and Therapy Documentation
D. Proposed Changes to the MDS 3.0 Assessment Schedule and Other
Medicare-Required Assessments
E. Discussion of Possible Future Initiatives
VI. The Skilled Nursing Facility Market Basket Index
A. Use of the Skilled Nursing Facility Market Basket Percentage
B. Market Basket Forecast Error Adjustment
C. Multifactor Productivity Adjustment
1. Incorporating the Multifactor Productivity Adjustment Into
the Market Basket Update
D. Federal Rate Update Factor
VII. Consolidated Billing
VIII. Application of the SNF PPS to SNF Services Furnished by Swing-
Bed Hospitals
IX. Provisions of the Proposed Rule
X. Collection of Information Requirements
XI. Response to Comments
XII. Economic Analyses
A. Regulatory Impact Analysis
1. Introduction
2. Statement of Need
3. Overall Impacts
4. Detailed Economic Analysis
a. Impacts of Implementing the Recalibration Option for FY 2012
b. Impacts of Not Implementing the Recalibration Option for FY
2012
5. Alternatives Considered
6. Accounting Statement
7. Conclusion
B. Regulatory Flexibility Act Analysis
C. Unfunded Mandates Reform Act Analysis
D. Federalism Analysis
Regulation Text
Addendum:
FY 2012 CBSA-Based Wage Index Tables (Tables A & B)

Abbreviations

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

ABN Advance Beneficiary Notice
AIDS Acquired Immune Deficiency Syndrome
ARD Assessment Reference Date
ASAP Assessment Submission and Processing
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
CAH Critical Access Hospital
CBSA Core-Based Statistical Area
CCR Cost-to-Charge Ratio
CFR Code of Federal Regulations
CMI Case-Mix Index
CMS Centers for Medicare & Medicaid Services
COT Change of Therapy
EOT End of Therapy
EOT-R End of Therapy--Resumption
FQHC Federally Qualified Health Center
FR Federal Register
FY Fiscal Year
GAO Government Accountability Office
HAC Hospital-Acquired Condition
HCC Hierarchical Condition Category
HCPCS Healthcare Common Procedure Coding System
HR-III Hybrid Resource Utilization Groups, Version 3
IGI IHS (Information Handling Services) Global Insight, Inc.
MDS Minimum Data Set
MFP Multifactor Productivity
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
MPAF Medicare PPS Assessment Form
MSA Metropolitan Statistical Area
NTA Non-Therapy Ancillary
OMB Office of Management and Budget
OMRA Other Medicare-Required Assessment
ONTA Other Non-Therapy Ancillary
OSCAR Online Survey Certification and Reporting System
PAC-PRD Post Acute Care Payment Reform Demonstration
PECOS Medicare Provider Enrollment, Chain, and Ownership System
PPS Prospective Payment System
QIES Quality Improvement and Evaluation System
RAI Resident Assessment Instrument
RAVEN Resident Assessment Validation Entry
RFA Regulatory Flexibility Act, Public Law 96-354
RNP Routine NTA Bundled Payment
RHC Rural Health Clinic
RIA Regulatory Impact Analysis
RTM Reimbursable Therapy Minutes
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
STM Staff Time Measurement
STRIVE Staff Time and Resource Intensity Verification
TNP Tiered Non-routine NTA Payment
UMRA Unfunded Mandates Reform Act, Public Law 104-4

I. Background

Annual updates to the prospective payment system (PPS) rates for
skilled nursing facilities (SNFs) are required by section 1888(e) of
the Social Security Act (the Act), as added by section 4432 of the
Balanced Budget Act of 1997 (BBA, Public Law 105-33, enacted on August
5, 1997), and amended by subsequent legislation as discussed elsewhere
in this preamble. Our most recent annual update occurred in an update
notice with comment period (75 FR 42886, July 22, 2010) that set forth
updates to the SNF PPS payment rates for fiscal year (FY) 2011. We
subsequently published a correction notice (75 FR 55801, September 14,
2010) with respect to those payment rate updates. We will respond to
public comments which relate to the FY 2011 update notice, along with
those relating to this current proposed rule, in the FY 2012 final
rule.

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

Section 4432 of the BBA amended section 1888 of the Act to provide
for the implementation of a per diem PPS for SNFs, covering all costs
(routine, ancillary, and capital-related) of covered SNF services
furnished to beneficiaries under Part A of the Medicare program,
effective for cost reporting periods beginning on or after July 1,
1998. In this proposed rule, we would update the

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per diem payment rates for SNFs for FY 2012. Major elements of the SNF
PPS include:
Rates. As discussed in section I.G.1. of this proposed
rule, we established per diem Federal rates for urban and rural areas
using allowable costs from FY 1995 cost reports. These rates also
included a ``Part B add-on'' (an estimate of the cost of those services
that, before July 1, 1998, were paid under Part B but furnished to
Medicare beneficiaries in a SNF during a Part A covered stay). We
adjust the rates annually using a SNF market basket index, and we
adjust them by the hospital inpatient wage index to account for
geographic variation in wages. We also apply a case-mix adjustment to
account for the relative resource utilization of different patient
types. As further discussed in section I.G.1. of this proposed rule,
for FY 2012 this adjustment will utilize the Resource Utilization
Groups, version 4 (RUG-IV) case-mix classification, and will use
information obtained from the required resident assessments using
version 3.0 of the Minimum Data Set (MDS 3.0). (The resident assessment
is approved under OMB 0938-0739.) Additionally, as noted
elsewhere in this preamble, the payment rates at various times have
also reflected specific legislative provisions for certain temporary
adjustments.
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 case-mix 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. As
further discussed in section II.E. of this proposed rule, in FY 2012,
this approach includes an administrative presumption that utilizes a
beneficiary's initial classification in one of the upper 52 RUGs of the
66-group RUG-IV case-mix classification system to assist in making
certain SNF level of care determinations. In the July 30, 1999 final
rule (64 FR 41670), we indicated that we would announce any changes to
the guidelines for Medicare level of care determinations related to
modifications in the case-mix classification structure (see section
II.E. of this proposed rule for a more detailed discussion of the
relationship between the case-mix classification system and SNF level
of care determinations).
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 therapy,
occupational therapy, and speech-language pathology services that the
resident receives during a noncovered stay. The statute excludes a
small list of services from the consolidated billing provision
(primarily those of physicians and certain other types of
practitioners), which remain separately billable under Part B when
furnished to a SNF's Part A resident. A more detailed discussion of
this provision appears in section VII. of this proposed rule.
Application of the SNF PPS to SNF services furnished by
swing-bed hospitals. Section 1883 of the Act permits certain small,
rural hospitals to enter into a Medicare swing-bed agreement, under
which the hospital can use its beds to provide either acute or SNF
care, as needed. For critical access hospitals (CAHs), Part A pays on a
reasonable cost basis for SNF services furnished under a swing-bed
agreement. However, in accordance with section 1888(e)(7) of the Act,
these services furnished by non-CAH rural hospitals are paid under the
SNF PPS, effective with cost reporting periods beginning on or after
July 1, 2002. A more detailed discussion of this provision appears in
section VIII. of this proposed rule.

B. Requirements of the Balanced Budget Act of 1997 (BBA) for Updating
the Prospective Payment System for Skilled Nursing Facilities

Section 1888(e)(4)(H) of the Act requires that we provide for
publication annually in the Federal Register:
1. The unadjusted Federal per diem rates to be applied to days of
covered SNF services furnished during the upcoming FY.
2. The case-mix classification system to be applied with respect to
these services during the upcoming FY.
3. The factors to be applied in making the area wage adjustment
with respect to these services.
Along with other revisions discussed later in this preamble, this
proposed rule provides these required annual updates to the Federal
rates.

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

There were several provisions in the BBRA (Pub. L. 106-113, enacted
on November 29, 1999) 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 groups in the original, 44-
group Resource Utilization Groups, version 3 (RUG-III) case-mix
classification system. In accordance with section 101(c)(2) of the
BBRA, this temporary payment adjustment expired on January 1, 2006,
upon the implementation of a refined, 53-group version of the RUG-III
system, RUG-53 (see section I.G.1. of this proposed rule). We included
further information on BBRA provisions that affected the SNF PPS in
Program Memoranda A-99-53 and A-99-61 (December 1999).
Also, section 103 of the BBRA designated certain additional
services for exclusion from the consolidated billing requirement, as
discussed in section VII. of this proposed rule. Further, for swing-bed
hospitals with more than 49 (but less than 100) beds, section 408 of
the BBRA provided for the repeal of certain statutory restrictions on
length of stay and 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 (Pub. L. 106-554, enacted December 21, 2000) also included
several provisions that resulted in adjustments to the SNF PPS. We
described these provisions in detail in

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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.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.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 therapy, occupational
therapy, and speech-language pathology services) furnished to SNF
residents during noncovered stays, effective January 1, 2001. (A more
detailed discussion of this provision appears in section VII. of this
proposed rule.)
Section 314 of the BIPA corrected an anomaly involving
three of the RUGs that section 101(a) of the BBRA had designated to
receive the temporary payment adjustment discussed above in section
I.C. of this proposed rule. (As noted previously, in accordance with
section 101(c)(2) of the BBRA, this temporary payment adjustment
expired upon the implementation of case-mix refinements on January 1,
2006.)
Section 315 of the BIPA authorized us to establish a
geographic reclassification procedure that is specific to SNFs, but
only after collecting the data necessary to establish a SNF wage index
that is based on wage data from nursing homes. To date, this has proven
to be unfeasible 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.gov/transmittals/downloads/a0108.pdf.

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

The MMA (Pub. L. 108-173, enacted on December 8, 2003) included a
provision that resulted in a further adjustment to the SNF PPS.
Specifically, section 511 of the MMA amended section 1888(e)(12) of the
Act, to provide for a temporary increase of 128 percent in the PPS per
diem payment for any SNF residents with Acquired Immune Deficiency
Syndrome (AIDS), effective with services furnished on or after October
1, 2004. This special AIDS add-on was to remain in effect until ``* * *
the Secretary certifies that there is an appropriate adjustment in the
case mix * * * to compensate for the increased costs associated with
[such] residents * * *.'' The AIDS add-on is also discussed in Program
Transmittal 160 (Change Request 3291), issued on
April 30, 2004, which is available online at http://www.cms.gov/transmittals/downloads/r160cp.pdf. In the SNF PPS final rule for FY
2010 (74 FR 40288, August 11, 2009), we did not address the
certification of the AIDS add-on in that final rule's implementation of
the case-mix refinements for RUG-IV, 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 2009 data, we identified
less than 3,500 SNF residents with a diagnosis code of 042 (Human
Immunodeficiency Virus (HIV) Infection). For FY 2012, an urban facility
with a resident with AIDS in RUG-IV group ``HC2'' would have a case-mix
adjusted payment of $400.01 (see Table 5) 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 $912.02.
In addition, section 410 of the MMA contained a provision that
excluded from consolidated billing certain services furnished to SNF
residents by rural health clinics (RHCs) and Federally Qualified Health
Centers (FQHCs). (Further information on this provision appears in
section VII of this proposed rule.)

F. The Affordable Care Act

On March 23, 2010, the Patient Protection and Affordable Care Act,
Public Law 111-148, was enacted. Following the enactment of Public Law
111-148, the Health Care and Education Reconciliation Act of 2010 (Pub.
L. 111-152, enacted on March 30, 2010) amended certain provisions of
Public Law 111-148 and certain sections of the Social Security Act and,
in certain instances, included ``freestanding'' provisions (Pub. L.
111-148 and Pub. L. 111-152 are collectively referred to in this
proposed rule as ``the Affordable Care Act''). Section 10325 of the
Affordable Care Act included a provision involving the SNF PPS. Section
10325 postponed the implementation of the RUG-IV case-mix
classification system published in the FY 2010 SNF PPS final rule (74
FR 40288, August 11, 2009), requiring that the Secretary not implement
the RUG-IV case-mix classification system before October 1, 2011.
Notwithstanding this postponement of overall RUG-IV implementation,
section 10325 further specified that the Secretary implement, effective
October 1 2010, the changes related to concurrent therapy and the look-
back period that were finalized as components of RUG-IV (see 74 FR
40315-19, 40322-24, August 11, 2009). As we noted in the FY 2011 SNF
PPS update notice (75 FR 42889), implementing the particular
combination of RUG-III and RUG-IV features specified in section 10325
of the Affordable Care Act would require developing a revised grouper,
something that could not be accomplished by that provision's effective
date (October 1, 2010) without risking serious disruption to providers,
suppliers, and State agencies. Accordingly, in the FY 2011 update
notice (75 FR 42889), we announced our intention to proceed on an
interim basis with implementation of the full RUG-IV case-mix
classification system as of October 1, 2010, followed by a retroactive
claims adjustment, using a hybrid RUG-III (HR-III) system reflecting
the Affordable Care Act configuration, once we had developed a revised
grouper that could accommodate it. In that update notice, we also
invited public comment specifically on our plans for implementing
section 10325 of the Affordable Care Act in this manner.
However, on December 15, 2010, the President signed H.R. 4994, the
``Medicare and Medicaid Extenders Act of 2010'' (Pub. L. 111-309), in
which section 202 repeals section 10325 of the

[[Page 26368]]

Affordable Care Act. We will, therefore, leave in place permanently the
implementation of the full RUG-IV system as of FY 2011, as finalized in
the FY 2010 SNF PPS final rule (74 FR 40288). Moreover, as the repeal
of section 10325 of the Affordable Care Act has now eliminated the need
for a subsequent transition to the HR-III system, this also effectively
renders moot any further discussion of public comments that we had
invited on our planned implementation of that transition. In addition,
we note that implementation of version 3.0 of the Minimum Data Set (MDS
3.0) has proceeded as originally scheduled, with an effective date of
October 1, 2010. The MDS 3.0 RAI Manual and MDS 3.0 Item Set are
published on the MDS 3.0 Training Materials Web site, at http://www.cms.gov/NursingHomeQualityInits/45_NHQIMDS30TrainingMaterials.asp.
We note that a parity adjustment was applied to the RUG-53 nursing
case-mix weights when the RUG-III system was initially refined in 2006,
in order to ensure that the implementation of the refinements would not
cause any change in overall payment levels (70 FR 45031, August 4,
2005). A detailed discussion of the parity adjustment in the specific
context of the RUG-IV payment rates appears in the FY 2010 SNF PPS
proposed rule (74 FR 22236-38, May 12, 2009) and final rule (74 FR
40338-40339, August 11, 2009), and in the FY 2011 update notice (75 FR
42892-42893).
Accordingly, as discussed above, effective October 1, 2010, we
implemented and paid claims under the RUG-IV system that was finalized
in the FY 2010 SNF PPS final rule. In section IV. of this proposed
rule, we discuss certain ongoing Affordable Care Act initiatives that
relate to SNFs, and in section V.A., we discuss proposed revisions
involving section 6101 of the Affordable Care Act, regarding required
disclosure of ownership and additional disclosable parties information.

G. 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 methodology uses
prospective, case-mix adjusted per diem payment rates applicable to all
covered SNF services. These payment rates cover all costs of furnishing
covered skilled nursing services (routine, ancillary, and capital-
related costs) other than costs associated with approved educational
activities and bad debts. Covered SNF services include post-hospital
services for which benefits are provided under Part A, as well as those
items and services (other than physician and certain other services
specifically excluded under the BBA) which, before July 1, 1998, had
been paid under Part B but furnished to Medicare beneficiaries in a SNF
during a covered Part A stay. A comprehensive discussion of these
provisions appears in the May 12, 1998 interim final rule (63 FR
26252).
1. Payment Provisions--Federal Rate
The PPS uses per diem Federal payment rates based on mean SNF costs
in a base year (FY 1995) updated for inflation to the first effective
period of the PPS. We developed the Federal payment rates using
allowable costs from hospital-based and freestanding SNF cost reports
for reporting periods beginning in FY 1995. The data used in developing
the Federal rates also incorporated an estimate of the amounts that
would be payable under Part B for covered SNF services furnished to
individuals during the course of a covered Part A stay in a SNF.
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-IV
classification system uses beneficiary assessment data from the MDS 3.0
completed by SNFs to assign beneficiaries to one of 66 RUG-IV groups.
The original RUG-III case-mix classification system used beneficiary
assessment data from the MDS, version 2.0 (MDS 2.0) completed by SNFs
to assign beneficiaries to one of 44 RUG-III groups. Then, 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-III 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 RUG-53 system appeared in the
proposed and final rules for FY 2006 (70 FR 29070, May 19, 2005, and 70
FR 45026, August 4, 2005), and a detailed description of the current
66-group RUG-IV system appeared in the proposed and final rules for FY
2010 (74 FR 22208, May 12, 2009, and 74 FR 40288, August 11, 2009).
Further, in accordance with sections 1888(e)(4)(E)(ii)(IV) and
(e)(5) of the Act, the Federal rates in this proposed rule reflect an
update to the rates that we published in the update notice for FY 2011
(75 FR 42886, July 22, 2010) and the associated correction notice (75
FR 55801, September 14, 2010), equal to the full change in the SNF
market basket index, adjusted by the forecast error correction, if
applicable, and the Multifactor Productivity (MFP) adjustment for FY
2012. A more detailed discussion of the SNF market basket index and
related issues appears in sections I.G.2. and VI. of this proposed
rule.
2. FY 2012 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, adjusted in the manner described
below, to update the Federal rates on an annual basis. In the SNF PPS
final rule for FY 2008 (72 FR 43425 through 43430, August 3, 2007), we
revised and rebased the market basket, which included updating the base
year from FY 1997 to FY 2004. The proposed FY 2012 market basket
increase is 2.7 percent, which is based on IHS Global Insight, Inc.
(IGI) first quarter 2011 forecast with historical data through fourth
quarter 2010.
In addition, as explained in the final rule for FY 2004 (66 FR
46058, August 4, 2003) and in section VI.B. of this proposed rule, the
annual update of the payment rates includes, as appropriate, an
adjustment to account for market basket forecast error. As described in
the final rule for FY 2008, the threshold

[[Page 26369]]

percentage that serves to trigger an adjustment to account for market
basket forecast error is 0.5 percentage point effective for FY 2008 and
subsequent years. This adjustment takes into account the forecast error
from the most recently available FY for which there is final data, and
applies whenever the difference between the forecasted and actual
change in the market basket exceeds a 0.5 percentage point threshold.
For FY 2010 (the most recently available FY for which there is final
data), the estimated increase in the market basket index was 2.2
percentage points, while the actual increase was 2.0 percentage points,
resulting in the actual increase being 0.2 percentage point lower than
the estimated increase. 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 2012 do not
include a forecast error adjustment. As we stated in the final rule for
FY 2004 that first promulgated the forecast error adjustment (68 FR
46058, August 4, 2003), the adjustment will ``* * * reflect both upward
and downward adjustments, as appropriate.'' Table 1 shows the
forecasted and actual market basket amounts for FY 2010.

Table 1--Difference Between the Forecasted and Actual Market Basket Increases for FY 2010
----------------------------------------------------------------------------------------------------------------
Forecasted FY 2010 Actual FY 2010 increase
Index increase * ** FY 2010 difference
----------------------------------------------------------------------------------------------------------------
SNF............................... 2.2 2.0 -0.2
----------------------------------------------------------------------------------------------------------------
* Published in Federal Register; based on second quarter 2009 IHS Global Insight Inc. forecast (2004-based
index).
** Based on the first quarter 2011 IHS Global Insight forecast, with historical data through the fourth quarter
2010 (2004-based index).

Furthermore, effective FY 2012, as required by section 3401(b) of
the Affordable Care Act, the market basket percentage is reduced by a
productivity adjustment equal to ``the 10-year moving average of
changes in annual economy-wide private nonfarm business multi-factor
productivity (as projected by the Secretary for the 10-year period
ending with the applicable fiscal year, year, cost-reporting period or
other annual period)'' (the MFP adjustment). As discussed in greater
detail in section VI.C of this proposed rule, the proposed MFP
adjustment for FY 2012 is 1.2 percent.

II. FY 2012 Annual Update of Payment Rates Under the Prospective
Payment System for Skilled Nursing Facilities

A. Federal Prospective Payment System

This proposed rule sets forth a schedule of Federal prospective
payment rates applicable to Medicare Part A SNF services beginning
October 1, 2011. The schedule incorporates per diem Federal rates that
provide Part A payment for almost all costs of services furnished to a
beneficiary in a SNF during a Medicare-covered stay.
1. Costs and Services Covered by the Federal Rates
In accordance with section 1888(e)(2)(B) of the Act, the Federal
rates apply to all costs (routine, ancillary, and capital-related) of
covered SNF services other than costs associated with approved
educational activities as defined in Sec. 413.85. Under section
1888(e)(2)(A)(i) of the Act, covered SNF services include post-hospital
SNF services for which benefits are provided under Part A (the hospital
insurance program), as well as all items and services (other than those
services excluded by statute) that, before July 1, 1998, were paid
under Part B (the supplementary medical insurance program) but
furnished to Medicare beneficiaries in a SNF during a Part A covered
stay. (These excluded service categories are discussed in greater
detail in section V.B.2 of the May 12, 1998 interim final rule (63 FR
26295 through 26297)).
2. Methodology Used for the Calculation of the Federal Rates
The FY 2012 rates reflect an update using the latest market basket
index, reduced by the MFP adjustment. The FY 2012 market basket
increase factor is 2.7 percent, which as discussed in section VI.C of
this proposed rule, is reduced by a 1.2 percent MFP adjustment. 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. As explained
above in section I.C of this proposed rule, under section 101(c)(2) of
the BBRA, the previous temporary increases in the per diem adjusted
payment rates for certain designated RUGs (as specified in section
101(a) of the BBRA and section 314 of the BIPA) are no longer in effect
due to the implementation of case-mix refinements as of January 1,
2006. However, the temporary increase of 128 percent in the per diem
adjusted payment rates for SNF residents with AIDS, enacted by section
511 of the MMA, remains in effect.
We used the SNF market basket to adjust each per diem component of
the Federal rates forward to reflect cost increases occurring between
the midpoint of the Federal FY beginning October 1, 2010, and ending
September 30, 2011, and the midpoint of the Federal FY beginning
October 1, 2011, and ending September 30, 2012, to which the payment
rates apply. In accordance with sections 1888(e)(4)(E)(ii)(IV) and
(e)(5) of the Act, we update the payment rates for FY 2012 by a factor
equal to the market basket index percentage increase, as discussed in
sections I.G.2 and VI. of this proposed rule. As further explained in
sections I.G.2 and VI. of this proposed rule, as applicable, we adjust
the market basket index by the forecast error from the most recently
available FY for which there is final data and apply this adjustment
whenever the difference between the forecasted and actual change in the
market basket exceeds a 0.5 percentage point threshold. In addition, as
further explained in sections I.G.2 and VI. of this proposed rule,
effective FY 2012 and each subsequent fiscal year, we are required to
reduce the market basket percentage by the MFP adjustment. 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 2012, prior to adjustment for case-
mix.

[[Page 26370]]

Table 2--FY 2012 Unadjusted Federal Rate per Diem Urban
----------------------------------------------------------------------------------------------------------------
Therapy-- non-case-
Rate component Nursing-- case-mix Therapy-- case-mix mix Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount................. $160.20 $120.68 $15.90 $81.76
----------------------------------------------------------------------------------------------------------------

Table 3--FY 2012 Unadjusted Federal Rate Per Diem Rural
----------------------------------------------------------------------------------------------------------------
Therapy-- non-case-
Rate component Nursing-- case-mix Therapy-- case-mix mix Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount................. $153.07 $139.15 $16.97 $83.28
----------------------------------------------------------------------------------------------------------------

B. Case-Mix Adjustments

1. Background
Section 1888(e)(4)(G)(i) of the Act requires the Secretary to make
an adjustment to account for case mix. The statute specifies that the
adjustment is to reflect both a resident classification system that the
Secretary establishes to account for the relative resource use of
different patient types, as well as resident assessment and other data
that the Secretary considers appropriate. In first implementing the SNF
PPS (63 FR 26252, May 12, 1998), we developed the RUG-III case-mix
classification system, which tied the amount of payment to resident
resource use in combination with resident characteristic information.
Staff time measurement (STM) studies conducted in 1990, 1995, and 1997
provided information on resource use (time spent by staff members on
residents) and resident characteristics that enabled us not only to
establish RUG-III, but also to create case-mix indexes (CMIs).
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 case-mix adjustment derived
from a classification system based on comprehensive resident
assessments using the MDS. Case-mix classification is based, in part,
on the beneficiary's need for skilled nursing care and therapy. The
case-mix classification system uses clinical data from the MDS, and
wage-adjusted staff time measurement data, to assign a case-mix group
to each patient record that is then used to calculate a per diem
payment under the SNF PPS. Because the MDS is a payment as well as a
clinical document, we have provided extensive training on proper coding
and the time frames for MDS completion in our Resident Assessment
Instrument (RAI) Manual. For an MDS to be considered valid for use in
determining payment, the MDS assessment must be completed in compliance
with the instructions in the RAI Manual in effect at the time the
assessment is completed. For payment and quality monitoring purposes,
the RAI Manual consists of both the Manual instructions and the
interpretive guidance and policy clarifications posted on the
appropriate MDS Web site at http://www.cms.gov/NursingHomeQualityInits/25_NHQIMDS30.asp.
The original RUG-III grouper logic was based on clinical data
collected in 1990, 1995, and 1997. As discussed in the SNF PPS proposed
rule for FY 2010 (74 FR 22208, May 12, 2009), we subsequently conducted
a multi-year data collection and analysis under the Staff Time and
Resource Intensity Verification (STRIVE) project to update the case-mix
classification system for FY 2011. The resulting RUG-IV case-mix
classification system reflected the data collected in 2006-2007 during
the STRIVE project, and was finalized in the FY 2010 SNF PPS final rule
(74 FR 40288, August 11, 2009) to take effect in FY 2011 concurrently
with an updated new resident assessment instrument, the MDS 3.0, which
collects the clinical data used for case-mix classification under RUG-
IV.
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.G of this proposed rule,
the payment rates set forth herein reflect the use of the RUG-IV case-
mix classification system from October 1, 2011, through September 30,
2012.
2. Parity Adjustment
As discussed further below, we are considering two options for the
CMIs that would be applied to the FY 2012 RUG-IV payment rates.
a. Option for Recalibration of the Parity Adjustment
As explained in the FY 2011 SNF PPS notice with comment period (75
FR 42886, 42892, July 22, 2010), we applied an upward adjustment of 61
percent to the RUG-IV nursing CMIs to achieve parity between the RUG-53
and RUG-IV models, based on an analysis using final FY 2009 claims
data. Our calculation of the parity adjustment used the most recent
data available to estimate RUG-IV utilization. As we stated in the FY
2010 SNF PPS final rule (74 FR 40339), in the absence of actual RUG-IV
utilization for FY 2011, we believed the most recent data represented
the best source available, by virtue of being the closest to the FY
2011 timeframe. We also stated that as actual data for RUG-IV
utilization became available, we intended to assess the effectiveness
of the parity adjustment in maintaining budget neutrality and, if
necessary, to recalibrate the adjustment in future years (see 74 FR
40339).
Since the FY 2011 SNF PPS update notice was published, actual first
quarter RUG-IV claims data became available. Our continued monitoring
of recent claims data indicates that actual RUG-IV utilization patterns
differ significantly from those we had projected using the FY 2009
claims data. In particular, the proportion of patients grouped in the
highest-paying RUG therapy categories, such as Ultra High
Rehabilitation, greatly exceeded our expectations. This is likely due
to the significant reduction in the use of concurrent therapy, which
first quarter 2011 RUG-IV claims data suggest has been reduced to less
than 5 percent of all therapy utilization. These first quarter 2011
RUG-IV claims also suggest a significant increase in the utilization of
individual and group therapy, which, given current MDS coding
instructions, may also account for the high proportion of SNF residents
classified in the Ultra High Rehabilitation RUG categories.
Based on this initial RUG-IV claims data, it would appear that
rather than simply achieving parity, the FY 2011 parity adjustment may
have inadvertently triggered a significant increase in overall payment
levels. We

[[Page 26371]]

believe that if this preliminary assessment is confirmed as further FY
2011 RUG-IV claims data become available, a recalibration of the parity
adjustment may become warranted in the FY 2012 final rule, in order to
ensure that the adjustment continues to serve as intended to make the
transition from RUG-53 to RUG-IV in a budget-neutral manner. As
discussed in the FY 2010 SNF PPS final rule (74 FR 40296), we believe
that ensuring parity (that is, ensuring that the RUG-IV classification
system is implemented as intended on a budget-neutral basis) is
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. Accordingly, in
this proposed rule, we include the following analysis based on first
quarter RUG-IV data in order to provide the public with information on
the potential scope and impact of the recalibration we are considering
for FY 2012.
To determine a specific parity adjustment factor that, under the
initial RUG-IV claims data currently available, would be needed to
reestablish budget neutrality, we used approximately 920,000 first
quarter 2011 claims (the most current data available at the time) to
compare the distribution of payment days by RUG category under the
original RUG-53 model with the distribution of payment days observed in
the first quarter of 2011 under the RUG-IV model. Using a file which
linked these 920,000 claims to the corresponding MDS assessments, we
determined the appropriate RUG group for the patients covered by the
aforementioned set of claims under RUG-53. This permitted a more
precise comparison of the same patients under both systems, to control
for potential variations in case-mix or patient volume. Given the RUG
assignments for this set of SNF residents under both RUG-53 and RUG-IV,
we were able to determine a distribution of RUG assignments.
To determine the appropriate parity adjustment, consistent with the
methodology described in the FY 2010 SNF PPS final rule (74 FR 40296)
and detailed in the FY 2006 SNF PPS proposed rule (70 FR 29077 through
29079), we determined the total number of first quarter FY 2011 RUG-IV
payment days, as well as the number of first quarter FY 2011 payment
days of each RUG-IV category based on the first quarter FY 2011 SNF PPS
claims. By linking these FY 2011 claims with the corresponding MDS 3.0
data, we were able to determine the appropriate RUG-53 category for
each FY 2011 SNF resident represented in the sample of FY 2011 claims.
We multiplied the percentage of SNF residents in each RUG-IV and RUG-53
category by the total number of first quarter FY 2011 payment days of
service in order to determine a distribution of RUG-IV and RUG-53
payment days, given the first quarter FY 2011 claims and linked MDS 3.0
data. We then multiplied the projected RUG-IV and RUG-53 days of
service by the FY 2012 unadjusted Federal per diem payment rate
components, multiplied by the unadjusted case mix indexes to establish
expenditures under the RUG-53 and RUG-IV systems. The parity adjustment
used to ensure that the transition between the two systems is budget-
neutral and does not create, in and of itself, an increase in the
amount of SNF expenditures, was determined as the percent increase
necessary for the nursing CMIs to generate estimated expenditure levels
under the RUG-IV system that were equal to those estimated under the
RUG-53 system. Based on the first quarter FY 2011 RUG-IV claims data,
we determined that the adjustment, which had originally produced an
increase of 61 percent to the nursing CMIs as discussed in the FY 2011
SNF PPS update notice, would need to be decreased to 22.55 percent to
achieve budget neutrality, if we were to apply the parity adjustment
equally to all nursing CMIs as we have done in the past. However, given
that the most notable differences between expected and actual
utilization patterns occurred within the therapy RUG categories, we
believe that rather than applying the new parity adjustment percentage
to all the nursing CMIs, it would be more appropriate to achieve budget
neutrality between the RUG-53 and RUG-IV systems by maintaining the 61
percent parity adjustment to the nursing CMIs for the RUG-IV non-
therapy groups, and reducing the 61 percent parity adjustment as it
applied to the nursing CMIs for the RUG-IV therapy groups. Using this
recalibration methodology described above, we found that the adjustment
to the nursing CMIs of the RUG-IV therapy groups necessary to achieve
parity, while maintaining the 61 percent parity adjustment for RUG-IV
non-therapy groups, would be an updated adjustment of 19.81 percent. An
analysis of recent utilization patterns is provided in Table 4. In this
proposed rule, we are including Tables 5A and 6A, which illustrate the
payment rates that would be derived from nursing CMIs reflecting this
recalibration methodology.

Table 4--FY 2011 Projected versus Actual RUG-IV Utilization Distribution
as Percent of Total Days of Service
------------------------------------------------------------------------
Projected Actual
RUG-IV group (percent) (percent)
------------------------------------------------------------------------
RUX........................................... 0.18 0.60
RUL........................................... 0.05 0.75
RVX........................................... 0.36 0.41
RVL........................................... 0.53 0.56
RHX........................................... 0.43 0.17
RHL........................................... 0.72 0.19
RMX........................................... 0.76 0.33
RML........................................... 0.79 0.28
RLX........................................... 0.00 0.01
RUC........................................... 3.56 12.68
RUB........................................... 3.26 16.19
RUA........................................... 2.12 12.80
RVC........................................... 5.49 7.82
RVB........................................... 7.17 9.67
RVA........................................... 8.61 9.13
RHC........................................... 6.34 3.77
RHB........................................... 7.09 3.54
RHA........................................... 11.41 3.54
RMC........................................... 4.95 3.06
RMB........................................... 6.84 2.42
RMA........................................... 8.74 2.41
RLB........................................... 0.21 0.07
RLA........................................... 0.23 0.06
ES3........................................... 0.52 0.14
ES2........................................... 0.17 0.14
ES1........................................... 0.35 0.29
HE2........................................... 0.04 0.10
HE1........................................... 1.40 0.32
HD2........................................... 0.32 0.09
HD1........................................... 1.30 0.42
HC2........................................... 0.78 0.06
HC1........................................... 1.33 0.33
HB2........................................... 0.78 0.07
HB1........................................... 0.61 0.31
LE2........................................... 0.05 0.12
LE1........................................... 0.70 0.65
LD2........................................... 0.28 0.12
LD1........................................... 1.31 0.78
LC2........................................... 0.26 0.07
LC1........................................... 0.60 0.57
LB2........................................... 0.02 0.04
LB1........................................... 0.34 0.23
CE2........................................... 0.15 0.04
CE1........................................... 0.21 0.21
CD2........................................... 0.58 0.07
CD1........................................... 0.70 0.46
CC2........................................... 0.36 0.07
CC1........................................... 0.67 0.53
CB2........................................... 0.65 0.05
CB1........................................... 0.53 0.44
CA2........................................... 0.32 0.07
CA1........................................... 1.41 0.66
BB2........................................... 0.07 0.02
BB1........................................... 0.27 0.22
BA2........................................... 0.01 0.01
BA1........................................... 0.26 0.17
PE2........................................... 0.03 0.02
PE1........................................... 0.07 0.17
PD2........................................... 0.00 0.03
PD1........................................... 0.38 0.38
PC2........................................... 0.01 0.05
PC1........................................... 1.26 0.51
PB2........................................... 0.02 0.01
PB1........................................... 0.59 0.25
PA2........................................... 0.05 0.01

[[Page 26372]]

PA1........................................... 0.40 0.24
------------------------------------------------------------------------
Note: Projected utilization data based on STRIVE study results. Actual
utilization data based on first quarter 2011 claims data.

We want to emphasize that any such recalibration would be
implemented on a prospective basis only, which we believe would be the
most equitable approach with regard to its potential impact on
providers. For FY 2012, the aggregate impact of the recalibration
described in this proposed rule would be the difference between the
increase of 61 percent for all nursing CMIs (as set forth in the FY
2011 update notice), and the recalibrated increase of 19.81 percent for
the nursing CMIs for the RUG-IV therapy groups (maintaining the 61
percent parity adjustment to the nursing CMIs for the RUG-IV non-
therapy groups), or a negative $4.47 billion. We note that the negative
$4.47 billion would be partly offset by the FY 2012 market basket
adjustment factor of 1.5 percent, or $530 million, with a net result of
a negative $3.94 billion update for FY 2012 (an aggregate negative
impact of 11.3 percent).
We note that as an alternative to the preceding recalibration
methodology, we initially considered applying a recalibration to all
nursing CMIs, irrespective of RUG category. However, we found that such
a recalibration most drastically affected non-therapy RUG groups, such
as the Extensive Services RUG-IV group, which seemed incongruent with
the perceived reasons for differences between expected and actual
utilization patterns, as noted in Table 4. In addition, we considered
using an analytical approach that would reflect implementing partial
adjustments to the case-mix indexes over multiple years until parity is
achieved. However, we believe that such an approach 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. We believe that stabilizing the baseline is a
necessary first step toward properly implementing and maintaining the
integrity of the RUG-IV classification methodology and the SNF PPS as a
whole.
As explained above, in determining the parity adjustment in the FY
2011 update notice, we used CY 2009 data as representing the most
recent final claims data available at that time. However, we believe
that it is appropriate to standardize the new model for the time period
in which it is used, and we believe that using actual claims data under
RUG-IV would allow us to calibrate the RUG-IV model more precisely.
While, in the past, we have waited for a full year of claims data
before recalibrating the CMIs, under the recalibration methodology
discussed above, we are considering using partial FY 2011 claims data
(that is, FY 2011 RUG-IV claims data available at the time of the final
rule) to recalibrate the CMIs for FY 2012 if our analysis of such data
prior to the final rule confirms our initial assessment (based on first
quarter FY 2011 claims data) that the parity adjustment implemented in
the FY 2011 update notice has inadvertently triggered an increase in
overall payments as discussed above. We believe it would be reasonable
and appropriate to use actual RUG-IV claims data from FY 2011 to
estimate utilization under RUG-IV, as we believe that it provides the
most recent, clear evidence of utilization patterns and evolving
provider behaviors under RUG-IV. Additionally, using FY 2010 claims
data, we analyzed the quality of representation of the first quarter of
FY 2010, in terms of both the volume of claims received and RUG
distribution, for FY 2010 as a whole and found there to be no examples
of seasonality which would affect predictions of SNF volume or
utilization patterns. Given this analysis, we believe that using the
partial FY 2011 claims data would provide a representative and
reasonable sample from which to project FY 2011 utilization patterns
and expenditures. We invite comments on the recalibration methodology
considered above, as well as on potential alternative methodologies for
recalibrating the parity adjustment in an accurate and equitable
manner.
We also note that any measures taken to achieve parity for RUG-IV
may happen to coincide with the introduction of various revisions under
the RUG-IV system (for example, the original RUG-IV parity adjustment
took effect on October 1, 2010, along with the allocation of concurrent
therapy time). As noted in our discussion of the proposed allocation of
group therapy time that appears later in this proposed rule in section
V.C, preliminary data indicate a recent significant increase in the
provision of individual and group therapy services, which have not, to
date, been subject to the allocation requirement, and a corresponding
decrease in the provision of concurrent therapy, which has been subject
to the allocation requirement. We anticipate that imposing a similar
allocation requirement for group therapy time (as discussed further in
section V.C of this proposed rule) would eliminate an existing
incentive to substitute such therapy for either concurrent or
individual therapy.
However, even if the distribution of therapy minutes between
individual, concurrent, and group therapy changes, this does not mean
that a reduction in the parity adjustment for the RUG-IV therapy groups
would be inappropriate. As explained previously, the purpose of the
parity adjustment is simply to ensure that the transition from the RUG-
53 model to the RUG-IV model does not trigger, in and of itself, an
increase or decrease in overall payment levels. Because the FY 2011
first quarter RUG-IV utilization trends indicated that the most notable
differences between expected and actual RUG-IV utilization patterns
occurred within the therapy RUG categories, we believe that focusing
any recalibration on these groups would provide for budget neutrality
in an equitable manner given the RUG-IV utilization.
Moreover, even under the previous RUG-53 model, it is clear that
the predominant mode of therapy that the payment rates were designed to
address was individual therapy rather than concurrent or group therapy.
As far back as the SNF PPS final rule for FY 2000, we specified that
the minutes of group therapy received by the beneficiary may account
for no more than 25 percent of the therapy (per discipline) received in
a 7-day period (64 FR 41662, July 30, 1999). In addition, the SNF PPS
rulemaking has on numerous occasions included discussions of concurrent
therapy: In the FY 2002 proposed rule (66 FR 23991-23992, May 10, 2001)
and final rule (66 FR 39567-68, July 31, 2001); in the FY 2006 proposed
rule (70 FR 29082-29083, May 19, 2005) and final rule (70 FR 45036-
45037, August 4, 2005); and, most recently, in the FY 2010 proposed
rule (74 FR 22222-23, May 12, 2009) and final rule (74 FR 40315-19,
August 11, 2009). These discussions clearly establish that we have
always considered concurrent therapy as an infrequent exception rather
than the norm. However, as discussed previously, the significant
increase in individual and group therapy services and the reduction in
concurrent therapy utilization reflected

[[Page 26373]]

in the first quarter RUG-IV data indicate that actual RUG-IV
utilization patterns differ significantly from those we had projected
using FY 2009 claims data in calculating the parity adjustment. The
resulting unintended and significant increase in overall payment levels
has prompted the need to reexamine the parity adjustment.
Thus, under the Medicare program, the standard of practice in the
SNF setting has always been individual therapy, which is generally
necessary to ensure that the services being delivered provide the high
degree of individualized treatment and complex skill level required for
Medicare coverage. We recognize that some SNFs may have actually used a
less intensive combination of therapy modalities in the past year for
some patients in response to the way in which therapy minutes were
counted. However, the SNF PPS payment rates themselves have always
reflected a standard of practice in which individual therapy is the
predominant treatment modality. Further, because the overall payment
rates under the previous RUG-III model were constructed to be
sufficient to accommodate this level of resource intensity, we believe
that the adequacy of those payment rates in this context would carry
over to the payment rates under the current RUG-IV model, even if
modified by an updated parity adjustment.
Given the apparent magnitude of the recalibration that would be
needed to restore parity based on the initial RUG-IV claims data
currently available (as discussed in the preceding analysis), we have
provided in Tables 5A and 6A the case-mix adjusted RUG-IV payment rates
which reflect the parity adjustment recalibration considered above
based on our preliminary analysis using first quarter FY 2011 claims
data. As further FY 2011 RUG-IV data become available, before we
publish the final rule, we would review such additional data to confirm
our preliminary assessment of the recalibration that would be necessary
to achieve parity between the RUG-53 and RUG-IV models and would revise
the parity adjustment in the final rule as necessary based on this
additional data. We believe that the very magnitude of the potential
recalibration, based on first quarter FY 2011 data, would make it
inappropriate for us merely to consider payment rates for FY 2012 that
solely reflect the standard update methodology without regard to the
need for maintaining parity, as such an approach ultimately could
result in continuing to make overall payments that significantly exceed
their intended levels for an indefinite period.
b. Option for Application of Standard Update for FY 2012 Without
Recalibration
Although our preliminary analysis of the RUG-IV data currently
available suggests that recalibration of the parity adjustment would be
needed to restore parity between the RUG-53 and RUG-IV models, in the
circumstances discussed below, we are also considering not
recalibrating the CMIs for FY 2012 and applying the standard update to
the FY 2011 payment rates. As we observed in the preceding discussion
of the recalibration option, it would appear from the currently
available FY 2011 claims data that overall payments under the parity
adjustment are significantly exceeding their intended levels. However,
it is also possible that the apparent magnitude of the overpayments may
itself represent a temporary aberrance resulting from the limited FY
2011 data that are available at this point in time. Moreover, we note
that as with any significant programmatic change, the transition from
the previous case-mix classification system to RUG-IV has been
accompanied by a learning curve for providers, as they work to
familiarize themselves with the requirements of the new system. As a
consequence, it is possible that as additional FY 2011 claims data
become available, they may indicate utilization patterns that are more
consistent with our projections, and expenditures that are more in
parity with those under the previous RUG-53 model. For this reason, we
reserve the option to not implement in the final rule the type of
recalibration discussed above, and instead to apply the standard update
of the payment rates for FY 2012 if we find that the additional RUG-IV
claims data collected prior to publication of the final rule are
consistent with parity in expenditures between the current RUG-IV and
previous RUG-53 models.
Accordingly, in this proposed rule, we are considering two separate
options regarding the FY 2012 payment rates: One that incorporates the
kind of recalibration discussed above which, based on the initial RUG-
IV claims data currently available, may be necessary to restore overall
payments under the parity adjustment to their intended levels (which
recalibration may be adjusted based on further FY 2011 RUG-IV claims
data that become available prior to publication of the final rule), and
another that simply reflects the standard update to the FY 2011 payment
rates without a recalibration of the FY 2011 parity adjustment. We
solicit comments on these options as described above.
We list the case-mix adjusted RUG-IV payment rates which would
exist if we choose to move forward with the recalibration of the parity
adjustment described throughout this section, provided separately for
urban and rural SNFs in Tables 5A and 6A, with the corresponding case-
mix values which reflect the parity adjustment recalibration discussed
above. Similarly, the case-mix adjusted RUG-IV rates, which would occur
in the absence of such a recalibration of the parity adjustment, are
listed in Tables 5B and 6B. 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 5A--RUG-IV Case-Mix Adjusted Federal Rates and Associated Indexes (Including Parity Adjustment Recalibration)
[Urban]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nursing Therapy Non-case mix Non-case mix
RUG-IV category Nursing index Therapy index component component therapy comp component Total rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUX..................................... 2.67 1.87 $427.73 $225.67 .............. $81.76 $735.16
RUL..................................... 2.57 1.87 411.71 225.67 .............. 81.76 719.14
RVX..................................... 2.61 1.28 418.12 154.47 .............. 81.76 654.35
RVL..................................... 2.19 1.28 350.84 154.47 .............. 81.76 587.07
RHX..................................... 2.55 0.85 408.51 102.58 .............. 81.76 592.85
RHL..................................... 2.15 0.85 344.43 102.58 .............. 81.76 528.77
RMX..................................... 2.47 0.55 395.69 66.37 .............. 81.76 543.82
RML..................................... 2.19 0.55 350.84 66.37 .............. 81.76 498.97
RLX..................................... 2.26 0.28 362.05 33.79 .............. 81.76 477.60

[[Page 26374]]

RUC..................................... 1.56 1.87 249.91 225.67 .............. 81.76 557.34
RUB..................................... 1.56 1.87 249.91 225.67 .............. 81.76 557.34
RUA..................................... 0.99 1.87 158.60 225.67 .............. 81.76 466.03
RVC..................................... 1.51 1.28 241.90 154.47 .............. 81.76 478.13
RVB..................................... 1.11 1.28 177.82 154.47 .............. 81.76 414.05
RVA..................................... 1.10 1.28 176.22 154.47 .............. 81.76 412.45
RHC..................................... 1.45 0.85 232.29 102.58 .............. 81.76 416.63
RHB..................................... 1.19 0.85 190.64 102.58 .............. 81.76 374.98
RHA..................................... 0.91 0.85 145.78 102.58 .............. 81.76 330.12
RMC..................................... 1.36 0.55 217.87 66.37 .............. 81.76 366.00
RMB..................................... 1.22 0.55 195.44 66.37 .............. 81.76 343.57
RMA..................................... 0.84 0.55 134.57 66.37 .............. 81.76 282.70
RLB..................................... 1.50 0.28 240.30 33.79 .............. 81.76 355.85
RLA..................................... 0.71 0.28 113.74 33.79 .............. 81.76 229.29
ES3..................................... 3.58 .............. 573.52 .............. 15.90 81.76 671.18
ES2..................................... 2.67 .............. 427.73 .............. 15.90 81.76 525.39
ES1..................................... 2.32 .............. 371.66 .............. 15.90 81.76 469.32
HE2..................................... 2.22 .............. 355.64 .............. 15.90 81.76 453.30
HE1..................................... 1.74 .............. 278.75 .............. 15.90 81.76 376.41
HD2..................................... 2.04 .............. 326.81 .............. 15.90 81.76 424.47
HD1..................................... 1.60 .............. 256.32 .............. 15.90 81.76 353.98
HC2..................................... 1.89 .............. 302.78 .............. 15.90 81.76 400.44
HC1..................................... 1.48 .............. 237.10 .............. 15.90 81.76 334.76
HB2..................................... 1.86 .............. 297.97 .............. 15.90 81.76 395.63
HB1..................................... 1.46 .............. 233.89 .............. 15.90 81.76 331.55
LE2..................................... 1.96 .............. 313.99 .............. 15.90 81.76 411.65
LE1..................................... 1.54 .............. 246.71 .............. 15.90 81.76 344.37
LD2..................................... 1.86 .............. 297.97 .............. 15.90 81.76 395.63
LD1..................................... 1.46 .............. 233.89 .............. 15.90 81.76 331.55
LC2..................................... 1.56 .............. 249.91 .............. 15.90 81.76 347.57
LC1..................................... 1.22 .............. 195.44 .............. 15.90 81.76 293.10
LB2..................................... 1.46 .............. 233.89 .............. 15.90 81.76 331.55
LB1..................................... 1.14 .............. 182.63 .............. 15.90 81.76 280.29
CE2..................................... 1.68 .............. 269.14 .............. 15.90 81.76 366.80
CE1..................................... 1.50 .............. 240.30 .............. 15.90 81.76 337.96
CD2..................................... 1.56 .............. 249.91 .............. 15.90 81.76 347.57
CD1..................................... 1.38 .............. 221.08 .............. 15.90 81.76 318.74
CC2..................................... 1.29 .............. 206.66 .............. 15.90 81.76 304.32
CC1..................................... 1.15 .............. 184.23 .............. 15.90 81.76 281.89
CB2..................................... 1.15 .............. 184.23 .............. 15.90 81.76 281.89
CB1..................................... 1.02 .............. 163.40 .............. 15.90 81.76 261.06
CA2..................................... 0.88 .............. 140.98 .............. 15.90 81.76 238.64
CA1..................................... 0.78 .............. 124.96 .............. 15.90 81.76 222.62
BB2..................................... 0.97 .............. 155.39 .............. 15.90 81.76 253.05
BB1..................................... 0.90 .............. 144.18 .............. 15.90 81.76 241.84
BA2..................................... 0.70 .............. 112.14 .............. 15.90 81.76 209.80
BA1..................................... 0.64 .............. 102.53 .............. 15.90 81.76 200.19
PE2..................................... 1.50 .............. 240.30 .............. 15.90 81.76 337.96
PE1..................................... 1.40 .............. 224.28 .............. 15.90 81.76 321.94
PD2..................................... 1.38 .............. 221.08 .............. 15.90 81.76 318.74
PD1..................................... 1.28 .............. 205.06 .............. 15.90 81.76 302.72
PC2..................................... 1.10 .............. 176.22 .............. 15.90 81.76 273.88
PC1..................................... 1.02 .............. 163.40 .............. 15.90 81.76 261.06
PB2..................................... 0.84 .............. 134.57 .............. 15.90 81.76 232.23
PB1..................................... 0.78 .............. 124.96 .............. 15.90 81.76 222.62
PA2..................................... 0.59 .............. 94.52 .............. 15.90 81.76 192.18
PA1..................................... 0.54 .............. 86.51 .............. 15.90 81.76 184.17
--------------------------------------------------------------------------------------------------------------------------------------------------------

Table 5B--RUG-IV Case-Mix Adjusted Federal Rates and Associated Indexes (Without Parity Adjustment Recalibration)
[Urban]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nursing Therapy Non-case mix Non-case mix
RUG-IV category Nursing index Therapy index component component therapy comp component Total rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUX..................................... 3.59 1.87 $575.12 $225.67 .............. $81.76 $882.55
RUL..................................... 3.45 1.87 552.69 225.67 .............. 81.76 860.12

[[Page 26375]]

RVX..................................... 3.51 1.28 562.30 154.47 .............. 81.76 798.53
RVL..................................... 2.95 1.28 472.59 154.47 .............. 81.76 708.82
RHX..................................... 3.43 0.85 549.49 102.58 .............. 81.76 733.83
RHL..................................... 2.89 0.85 462.98 102.58 .............. 81.76 647.32
RMX..................................... 3.31 0.55 530.26 66.37 .............. 81.76 678.39
RML..................................... 2.95 0.55 472.59 66.37 .............. 81.76 620.72
RLX..................................... 3.04 0.28 487.01 33.79 .............. 81.76 602.56
RUC..................................... 2.10 1.87 336.42 225.67 .............. 81.76 643.85
RUB..................................... 2.10 1.87 336.42 225.67 .............. 81.76 643.85
RUA..................................... 1.33 1.87 213.07 225.67 .............. 81.76 520.50
RVC..................................... 2.02 1.28 323.60 154.47 .............. 81.76 559.83
RVB..................................... 1.49 1.28 238.70 154.47 .............. 81.76 474.93
RVA..................................... 1.48 1.28 237.10 154.47 .............. 81.76 473.33
RHC..................................... 1.94 0.85 310.79 102.58 .............. 81.76 495.13
RHB..................................... 1.60 0.85 256.32 102.58 .............. 81.76 440.66
RHA..................................... 1.23 0.85 197.05 102.58 .............. 81.76 381.39
RMC..................................... 1.83 0.55 293.17 66.37 .............. 81.76 441.30
RMB..................................... 1.63 0.55 261.13 66.37 .............. 81.76 409.26
RMA..................................... 1.13 0.55 181.03 66.37 .............. 81.76 329.16
RLB..................................... 2.01 0.28 322.00 33.79 .............. 81.76 437.55
RLA..................................... 0.95 0.28 152.19 33.79 .............. 81.76 267.74
ES3..................................... 3.58 .............. 573.52 .............. 15.90 81.76 671.18
ES2..................................... 2.67 .............. 427.73 .............. 15.90 81.76 525.39
ES1..................................... 2.32 .............. 371.66 .............. 15.90 81.76 469.32
HE2..................................... 2.22 .............. 355.64 .............. 15.90 81.76 453.30
HE1..................................... 1.74 .............. 278.75 .............. 15.90 81.76 376.41
HD2..................................... 2.04 .............. 326.81 .............. 15.90 81.76 424.47
HD1..................................... 1.60 .............. 256.32 .............. 15.90 81.76 353.98
HC2..................................... 1.89 .............. 302.78 .............. 15.90 81.76 400.44
HC1..................................... 1.48 .............. 237.10 .............. 15.90 81.76 334.76
HB2..................................... 1.86 .............. 297.97 .............. 15.90 81.76 395.63
HB1..................................... 1.46 .............. 233.89 .............. 15.90 81.76 331.55
LE2..................................... 1.96 .............. 313.99 .............. 15.90 81.76 411.65
LE1..................................... 1.54 .............. 246.71 .............. 15.90 81.76 344.37
LD2..................................... 1.86 .............. 297.97 .............. 15.90 81.76 395.63
LD1..................................... 1.46 .............. 233.89 .............. 15.90 81.76 331.55
LC2..................................... 1.56 .............. 249.91 .............. 15.90 81.76 347.57
LC1..................................... 1.22 .............. 195.44 .............. 15.90 81.76 293.10
LB2..................................... 1.46 .............. 233.89 .............. 15.90 81.76 331.55
LB1..................................... 1.14 .............. 182.63 .............. 15.90 81.76 280.29
CE2..................................... 1.68 .............. 269.14 .............. 15.90 81.76 366.80
CE1..................................... 1.50 .............. 240.30 .............. 15.90 81.76 337.96
CD2..................................... 1.56 .............. 249.91 .............. 15.90 81.76 347.57
CD1..................................... 1.38 .............. 221.08 .............. 15.90 81.76 318.74
CC2..................................... 1.29 .............. 206.66 .............. 15.90 81.76 304.32
CC1..................................... 1.15 .............. 184.23 .............. 15.90 81.76 281.89
CB2..................................... 1.15 .............. 184.23 .............. 15.90 81.76 281.89
CB1..................................... 1.02 .............. 163.40 .............. 15.90 81.76 261.06
CA2..................................... 0.88 .............. 140.98 .............. 15.90 81.76 238.64
CA1..................................... 0.78 .............. 124.96 .............. 15.90 81.76 222.62
BB2..................................... 0.97 .............. 155.39 .............. 15.90 81.76 253.05
BB1..................................... 0.90 .............. 144.18 .............. 15.90 81.76 241.84
BA2..................................... 0.70 .............. 112.14 .............. 15.90 81.76 209.80
BA1..................................... 0.64 .............. 102.53 .............. 15.90 81.76 200.19
PE2..................................... 1.50 .............. 240.30 .............. 15.90 81.76 337.96
PE1..................................... 1.40 .............. 224.28 .............. 15.90 81.76 321.94
PD2..................................... 1.38 .............. 221.08 .............. 15.90 81.76 318.74
PD1..................................... 1.28 .............. 205.06 .............. 15.90 81.76 302.72
PC2..................................... 1.10 .............. 176.22 .............. 15.90 81.76 273.88
PC1..................................... 1.02 .............. 163.40 .............. 15.90 81.76 261.06
PB2..................................... 0.84 .............. 134.57 .............. 15.90 81.76 232.23
PB1..................................... 0.78 .............. 124.96 .............. 15.90 81.76 222.62
PA2..................................... 0.59 .............. 94.52 .............. 15.90 81.76 192.18
PA1..................................... 0.54 .............. 86.51 .............. 15.90 81.76 184.17
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 26376]]

Table 6A--Rug-IV Case-Mix Adjusted Federal Rates and Associated Indexes (Including Parity Adjustment Recalibration)
[Rural]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nursing Therapy Non-case mix Non-case mix
RUG-IV category Nursing index Therapy index component component therapy comp component Total rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUX..................................... 2.67 1.87 $408.70 $260.21 .............. $83.28 $752.19
RUL..................................... 2.57 1.87 393.39 260.21 .............. 83.28 736.88
RVX..................................... 2.61 1.28 399.51 178.11 .............. 83.28 660.90
RVL..................................... 2.19 1.28 335.22 178.11 .............. 83.28 596.61
RHX..................................... 2.55 0.85 390.33 118.28 .............. 83.28 591.89
RHL..................................... 2.15 0.85 329.10 118.28 .............. 83.28 530.66
RMX..................................... 2.47 0.55 378.08 76.53 .............. 83.28 537.89
RML..................................... 2.19 0.55 335.22 76.53 .............. 83.28 495.03
RLX..................................... 2.26 0.28 345.94 38.96 .............. 83.28 468.18
RUC..................................... 1.56 1.87 238.79 260.21 .............. 83.28 582.28
RUB..................................... 1.56 1.87 238.79 260.21 .............. 83.28 582.28
RUA..................................... 0.99 1.87 151.54 260.21 .............. 83.28 495.03
RVC..................................... 1.51 1.28 231.14 178.11 .............. 83.28 492.53
RVB..................................... 1.11 1.28 169.91 178.11 .............. 83.28 431.30
RVA..................................... 1.10 1.28 168.38 178.11 .............. 83.28 429.77
RHC..................................... 1.45 0.85 221.95 118.28 .............. 83.28 423.51
RHB..................................... 1.19 0.85 182.15 118.28 .............. 83.28 383.71
RHA..................................... 0.91 0.85 139.29 118.28 .............. 83.28 340.85
RMC..................................... 1.36 0.55 208.18 76.53 .............. 83.28 367.99
RMB..................................... 1.22 0.55 186.75 76.53 .............. 83.28 346.56
RMA..................................... 0.84 0.55 128.58 76.53 .............. 83.28 288.39
RLB..................................... 1.50 0.28 229.61 38.96 .............. 83.28 351.85
RLA..................................... 0.71 0.28 108.68 38.96 .............. 83.28 230.92
ES3..................................... 3.58 .............. 547.99 .............. 16.97 83.28 648.24
ES2..................................... 2.67 .............. 408.70 .............. 16.97 83.28 508.95
ES1..................................... 2.32 .............. 355.12 .............. 16.97 83.28 455.37
HE2..................................... 2.22 .............. 339.82 .............. 16.97 83.28 440.07
HE1..................................... 1.74 .............. 266.34 .............. 16.97 83.28 366.59
HD2..................................... 2.04 .............. 312.26 .............. 16.97 83.28 412.51
HD1..................................... 1.60 .............. 244.91 .............. 16.97 83.28 345.16
HC2..................................... 1.89 .............. 289.30 .............. 16.97 83.28 389.55
HC1..................................... 1.48 .............. 226.54 .............. 16.97 83.28 326.79
HB2..................................... 1.86 .............. 284.71 .............. 16.97 83.28 384.96
HB1..................................... 1.46 .............. 223.48 .............. 16.97 83.28 323.73
LE2..................................... 1.96 .............. 300.02 .............. 16.97 83.28 400.27
LE1..................................... 1.54 .............. 235.73 .............. 16.97 83.28 335.98
LD2..................................... 1.86 .............. 284.71 .............. 16.97 83.28 384.96
LD1..................................... 1.46 .............. 223.48 .............. 16.97 83.28 323.73
LC2..................................... 1.56 .............. 238.79 .............. 16.97 83.28 339.04
LC1..................................... 1.22 .............. 186.75 .............. 16.97 83.28 287.00
LB2..................................... 1.46 .............. 223.48 .............. 16.97 83.28 323.73
LB1..................................... 1.14 .............. 174.50 .............. 16.97 83.28 274.75
CE2..................................... 1.68 .............. 257.16 .............. 16.97 83.28 357.41
CE1..................................... 1.50 .............. 229.61 .............. 16.97 83.28 329.86
CD2..................................... 1.56 .............. 238.79 .............. 16.97 83.28 339.04
CD1..................................... 1.38 .............. 211.24 .............. 16.97 83.28 311.49
CC2..................................... 1.29 .............. 197.46 .............. 16.97 83.28 297.71
CC1..................................... 1.15 .............. 176.03 .............. 16.97 83.28 276.28
CB2..................................... 1.15 .............. 176.03 .............. 16.97 83.28 276.28
CB1..................................... 1.02 .............. 156.13 .............. 16.97 83.28 256.38
CA2..................................... 0.88 .............. 134.70 .............. 16.97 83.28 234.95
CA1..................................... 0.78 .............. 119.39 .............. 16.97 83.28 219.64
BB2..................................... 0.97 .............. 148.48 .............. 16.97 83.28 248.73
BB1..................................... 0.90 .............. 137.76 .............. 16.97 83.28 238.01
BA2..................................... 0.70 .............. 107.15 .............. 16.97 83.28 207.40
BA1..................................... 0.64 .............. 97.96 .............. 16.97 83.28 198.21
PE2..................................... 1.50 .............. 229.61 .............. 16.97 83.28 329.86
PE1..................................... 1.40 .............. 214.30 .............. 16.97 83.28 314.55
PD2..................................... 1.38 .............. 211.24 .............. 16.97 83.28 311.49
PD1..................................... 1.28 .............. 195.93 .............. 16.97 83.28 296.18
PC2..................................... 1.10 .............. 168.38 .............. 16.97 83.28 268.63
PC1..................................... 1.02 .............. 156.13 .............. 16.97 83.28 256.38
PB2..................................... 0.84 .............. 128.58 .............. 16.97 83.28 228.83
PB1..................................... 0.78 .............. 119.39 .............. 16.97 83.28 219.64
PA2..................................... 0.59 .............. 90.31 .............. 16.97 83.28 190.56
PA1..................................... 0.54 .............. 82.66 .............. 16.97 83.28 182.91
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 26377]]

Table 6B--RUG-IV Case-Mix Adjusted Federal Rates and Associated Indexes: Without Parity Adjustment Recalibration)
[Rural]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nursing Therapy Non-case mix Non-case mix
RUG-IV category Nursing index Therapy index component component therapy comp component Total rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUX..................................... 3.59 1.87 $549.52 $260.21 .............. $83.28 $893.01
RUL..................................... 3.45 1.87 528.09 260.21 .............. 83.28 871.58
RVX..................................... 3.51 1.28 537.28 178.11 .............. 83.28 798.67
RVL..................................... 2.95 1.28 451.56 178.11 .............. 83.28 712.95
RHX..................................... 3.43 0.85 525.03 118.28 .............. 83.28 726.59
RHL..................................... 2.89 0.85 442.37 118.28 .............. 83.28 643.93
RMX..................................... 3.31 0.55 506.66 76.53 .............. 83.28 666.47
RML..................................... 2.95 0.55 451.56 76.53 .............. 83.28 611.37
RLX..................................... 3.04 0.28 465.33 38.96 .............. 83.28 587.57
RUC..................................... 2.10 1.87 321.45 260.21 .............. 83.28 664.94
RUB..................................... 2.10 1.87 321.45 260.21 .............. 83.28 664.94
RUA..................................... 1.33 1.87 203.58 260.21 .............. 83.28 547.07
RVC..................................... 2.02 1.28 309.20 178.11 .............. 83.28 570.59
RVB..................................... 1.49 1.28 228.07 178.11 .............. 83.28 489.46
RVA..................................... 1.48 1.28 226.54 178.11 .............. 83.28 487.93
RHC..................................... 1.94 0.85 296.96 118.28 .............. 83.28 498.52
RHB..................................... 1.60 0.85 244.91 118.28 .............. 83.28 446.47
RHA..................................... 1.23 0.85 188.28 118.28 .............. 83.28 389.84
RMC..................................... 1.83 0.55 280.12 76.53 .............. 83.28 439.93
RMB..................................... 1.63 0.55 249.50 76.53 .............. 83.28 409.31
RMA..................................... 1.13 0.55 172.97 76.53 .............. 83.28 332.78
RLB..................................... 2.01 0.28 307.67 38.96 .............. 83.28 429.91
RLA..................................... 0.95 0.28 145.42 38.96 .............. 83.28 267.66
ES3..................................... 3.58 .............. 547.99 .............. $16.97 83.28 648.24
ES2..................................... 2.67 .............. 408.70 .............. 16.97 83.28 508.95
ES1..................................... 2.32 .............. 355.12 .............. 16.97 83.28 455.37
HE2..................................... 2.22 .............. 339.82 .............. 16.97 83.28 440.07
HE1..................................... 1.74 .............. 266.34 .............. 16.97 83.28 366.59
HD2..................................... 2.04 .............. 312.26 .............. 16.97 83.28 412.51
HD1..................................... 1.60 .............. 244.91 .............. 16.97 83.28 345.16
HC2..................................... 1.89 .............. 289.30 .............. 16.97 83.28 389.55
HC1..................................... 1.48 .............. 226.54 .............. 16.97 83.28 326.79
HB2..................................... 1.86 .............. 284.71 .............. 16.97 83.28 384.96
HB1..................................... 1.46 .............. 223.48 .............. 16.97 83.28 323.73
LE2..................................... 1.96 .............. 300.02 .............. 16.97 83.28 400.27
LE1..................................... 1.54 .............. 235.73 .............. 16.97 83.28 335.98
LD2..................................... 1.86 .............. 284.71 .............. 16.97 83.28 384.96
LD1..................................... 1.46 .............. 223.48 .............. 16.97 83.28 323.73
LC2..................................... 1.56 .............. 238.79 .............. 16.97 83.28 339.04
LC1..................................... 1.22 .............. 186.75 .............. 16.97 83.28 287.00
LB2..................................... 1.46 .............. 223.48 .............. 16.97 83.28 323.73
LB1..................................... 1.14 .............. 174.50 .............. 16.97 83.28 274.75
CE2..................................... 1.68 .............. 257.16 .............. 16.97 83.28 357.41
CE1..................................... 1.50 .............. 229.61 .............. 16.97 83.28 329.86
CD2..................................... 1.56 .............. 238.79 .............. 16.97 83.28 339.04
CD1..................................... 1.38 .............. 211.24 .............. 16.97 83.28 311.49
CC2..................................... 1.29 .............. 197.46 .............. 16.97 83.28 297.71
CC1..................................... 1.15 .............. 176.03 .............. 16.97 83.28 276.28
CB2..................................... 1.15 .............. 176.03 .............. 16.97 83.28 276.28
CB1..................................... 1.02 .............. 156.13 .............. 16.97 83.28 256.38
CA2..................................... 0.88 .............. 134.70 .............. 16.97 83.28 234.95
CA1..................................... 0.78 .............. 119.39 .............. 16.97 83.28 219.64
BB2..................................... 0.97 .............. 148.48 .............. 16.97 83.28 248.73
BB1..................................... 0.90 .............. 137.76 .............. 16.97 83.28 238.01
BA2..................................... 0.70 .............. 107.15 .............. 16.97 83.28 207.40
BA1..................................... 0.64 .............. 97.96 .............. 16.97 83.28 198.21
PE2..................................... 1.50 .............. 229.61 .............. 16.97 83.28 329.86
PE1..................................... 1.40 .............. 214.30 .............. 16.97 83.28 314.55
PD2..................................... 1.38 .............. 211.24 .............. 16.97 83.28 311.49
PD1..................................... 1.28 .............. 195.93 .............. 16.97 83.28 296.18
PC2..................................... 1.10 .............. 168.38 .............. 16.97 83.28 268.63
PC1..................................... 1.02 .............. 156.13 .............. 16.97 83.28 256.38
PB2..................................... 0.84 .............. 128.58 .............. 16.97 83.28 228.83
PB1..................................... 0.78 .............. 119.39 .............. 16.97 83.28 219.64
PA2..................................... 0.59 .............. 90.31 .............. 16.97 83.28 190.56
PA1..................................... 0.54 .............. 82.66 .............. 16.97 83.28 182.91
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 26378]]

C. Wage Index Adjustment to Federal Rates

Section 1888(e)(4)(G)(ii) of the Act requires that we adjust the
Federal rates to account for differences in area wage levels, using a
wage index that we find appropriate. Since the inception of a PPS for
SNFs, we have used hospital wage data in developing a wage index to be
applied to SNFs. We are maintaining that practice for FY 2012, as we
continue to believe that in the absence of SNF-specific wage data,
using the hospital inpatient wage index is appropriate and reasonable
for the SNF PPS. As explained in the update notice for FY 2005 (69 FR
45786, July 30, 2004), the SNF PPS does not use the hospital area wage
index's occupational mix adjustment, as this adjustment serves
specifically to define the occupational categories more clearly in a
hospital setting; moreover, the collection of the occupational wage
data also excludes any wage data related to SNFs. Therefore, we believe
that using the updated wage data exclusive of the occupational mix
adjustment continues to be appropriate for SNF payments.
Finally, we continue to use 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 2012 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 use the average wage index from all contiguous Core-
Based Statistical Areas (CBSAs) as a reasonable proxy. This methodology
was used to construct the wage index for rural Massachusetts for FY
2011. However, there is now a rural hospital with wage data upon which
to base an area wage index for rural Massachusetts. Therefore, it is
not necessary to apply this methodology to rural Massachusetts for FY
2012. For rural Puerto Rico, we do not apply this methodology due to
the distinct economic circumstances that exist there, but instead
continue using the most recent wage index previously available for that
area. For urban areas without specific hospital wage index data, we 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. For
FY 2012, there is an additional urban area without hospital wage index
data. Therefore, for FY 2012, the two urban areas without wage index
data available are CBSA 25980, Hinesville-Fort Stewart, GA, and CBSA
49700, Yuba City, CA.
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 68.805 percent of the total rate. This percentage reflects the
labor-related relative importance for FY 2012, using the revised and
rebased FY 2004-based market basket. The labor-related relative
importance for FY 2011 was 69.311, as shown in Table 11. 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 2012. 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 2012 than the base year weights from the SNF market
basket.
We calculate the labor-related relative importance for FY 2012 in
four steps. First, we compute the FY 2012 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
2012 price index level for that cost category by the total market
basket price index level. Third, we determine the FY 2012 relative
importance for each cost category by multiplying this ratio by the base
year (FY 2004) weight. Finally, we add the FY 2012 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
2012 labor-related relative importance. Tables 7A and 8A show the case-
mix adjusted RUG-IV Federal rates by labor-related and non-labor-
related components that would exist if we choose to move forward with
the parity adjustment recalibration described in section II.B.2.
Similarly, Tables 7B and 8B show the case-mix adjusted RUG-IV Federal
rates by labor-related and non-labor related components in the absence
of such a parity adjustment recalibration.

Table 7A--RUG-IV Case-Mix Adjusted Federal Rates for Urban SNFs by Labor
and Non-Labor Component
[Including parity adjustment recalibration]
------------------------------------------------------------------------
Total Labor Non-labor
RUG-IV category rate portion portion
------------------------------------------------------------------------
RUX..................................... $735.16 $505.83 $229.33
RUL..................................... 719.14 494.80 224.34
RVX..................................... 654.35 450.23 204.12
RVL..................................... 587.07 403.93 183.14
RHX..................................... 592.85 407.91 184.94
RHL..................................... 528.77 363.82 164.95
RMX..................................... 543.82 374.18 169.64
RML..................................... 498.97 343.32 155.65
RLX..................................... 477.60 328.61 148.99
RUC..................................... 557.34 383.48 173.86
RUB..................................... 557.34 383.48 173.86
RUA..................................... 466.03 320.65 145.38
RVC..................................... 478.13 328.98 149.15
RVB..................................... 414.05 284.89 129.16
RVA..................................... 412.45 283.79 128.66
RHC..................................... 416.63 286.66 129.97
RHB..................................... 374.98 258.00 116.98
RHA..................................... 330.12 227.14 102.98
RMC..................................... 366.00 251.83 114.17
RMB..................................... 343.57 236.39 107.18
RMA..................................... 282.70 194.51 88.19
RLB..................................... 355.85 244.84 111.01
RLA..................................... 229.29 157.76 71.53
ES3..................................... 671.18 461.81 209.37
ES2..................................... 525.39 361.49 163.90
ES1..................................... 469.32 322.92 146.40
HE2..................................... 453.30 311.89 141.41
HE1..................................... 376.41 258.99 117.42
HD2..................................... 424.47 292.06 132.41
HD1..................................... 353.98 243.56 110.42
HC2..................................... 400.44 275.52 124.92
HC1..................................... 334.76 230.33 104.43
HB2..................................... 395.63 272.21 123.42
HB1..................................... 331.55 228.12 103.43
LE2..................................... 411.65 283.24 128.41
LE1..................................... 344.37 236.94 107.43
LD2..................................... 395.63 272.21 123.42
LD1..................................... 331.55 228.12 103.43
LC2..................................... 347.57 239.15 108.42
LC1..................................... 293.10 201.67 91.43
LB2..................................... 331.55 228.12 103.43
LB1..................................... 280.29 192.85 87.44
CE2..................................... 366.80 252.38 114.42
CE1..................................... 337.96 232.53 105.43
CD2..................................... 347.57 239.15 108.42
CD1..................................... 318.74 219.31 99.43
CC2..................................... 304.32 209.39 94.93
CC1..................................... 281.89 193.95 87.94
CB2..................................... 281.89 193.95 87.94
CB1..................................... 261.06 179.62 81.44
CA2..................................... 238.64 164.20 74.44
CA1..................................... 222.62 153.17 69.45
BB2..................................... 253.05 174.11 78.94
BB1..................................... 241.84 166.40 75.44
BA2..................................... 209.80 144.35 65.45
BA1..................................... 200.19 137.74 62.45
PE2..................................... 337.96 232.53 105.43
PE1..................................... 321.94 221.51 100.43
PD2..................................... 318.74 219.31 99.43
PD1..................................... 302.72 208.29 94.43
PC2..................................... 273.88 188.44 85.44
PC1..................................... 261.06 179.62 81.44
PB2..................................... 232.23 159.79 72.44
PB1..................................... 222.62 153.17 69.45
PA2..................................... 192.18 132.23 59.95
PA1..................................... 184.17 126.72 57.45
------------------------------------------------------------------------

[[Page 26379]]

Table 7B--RUG-IV Case-Mix Adjusted Federal Rates for Urban SNFs by Labor
and Non-Labor Component
[Without parity adjustment recalibration]
------------------------------------------------------------------------
Total Labor Non-labor
RUG-IV category rate portion portion
------------------------------------------------------------------------
RUX..................................... $882.55 $607.24 $275.31
RUL..................................... 860.12 591.81 268.31
RVX..................................... 798.53 549.43 249.10
RVL..................................... 708.82 487.70 221.12
RHX..................................... 733.83 504.91 228.92
RHL..................................... 647.32 445.39 201.93
RMX..................................... 678.39 466.77 211.62
RML..................................... 620.72 427.09 193.63
RLX..................................... 602.56 414.59 187.97
RUC..................................... 643.85 443.00 200.85
RUB..................................... 643.85 443.00 200.85
RUA..................................... 520.50 358.13 162.37
RVC..................................... 559.83 385.19 174.64
RVB..................................... 474.93 326.78 148.15
RVA..................................... 473.33 325.67 147.66
RHC..................................... 495.13 340.67 154.46
RHB..................................... 440.66 303.20 137.46
RHA..................................... 381.39 262.42 118.97
RMC..................................... 441.30 303.64 137.66
RMB..................................... 409.26 281.59 127.67
RMA..................................... 329.16 226.48 102.68
RLB..................................... 437.55 301.06 136.49
RLA..................................... 267.74 184.22 83.52
ES3..................................... 671.18 461.81 209.37
ES2..................................... 525.39 361.49 163.90
ES1..................................... 469.32 322.92 146.40
HE2..................................... 453.30 311.89 141.41
HE1..................................... 376.41 258.99 117.42
HD2..................................... 424.47 292.06 132.41
HD1..................................... 353.98 243.56 110.42
HC2..................................... 400.44 275.52 124.92
HC1..................................... 334.76 230.33 104.43
HB2..................................... 395.63 272.21 123.42
HB1..................................... 331.55 228.12 103.43
LE2..................................... 411.65 283.24 128.41
LE1..................................... 344.37 236.94 107.43
LD2..................................... 395.63 272.21 123.42
LD1..................................... 331.55 228.12 103.43
LC2..................................... 347.57 239.15 108.42
LC1..................................... 293.10 201.67 91.43
LB2..................................... 331.55 228.12 103.43
LB1..................................... 280.29 192.85 87.44
CE2..................................... 366.80 252.38 114.42
CE1..................................... 337.96 232.53 105.43
CD2..................................... 347.57 239.15 108.42
CD1..................................... 318.74 219.31 99.43
CC2..................................... 304.32 209.39 94.93
CC1..................................... 281.89 193.95 87.94
CB2..................................... 281.89 193.95 87.94
CB1..................................... 261.06 179.62 81.44
CA2..................................... 238.64 164.20 74.44
CA1..................................... 222.62 153.17 69.45
BB2..................................... 253.05 174.11 78.94
BB1..................................... 241.84 166.40 75.44
BA2..................................... 209.80 144.35 65.45
BA1..................................... 200.19 137.74 62.45
PE2..................................... 337.96 232.53 105.43
PE1..................................... 321.94 221.51 100.43
PD2..................................... 318.74 219.31 99.43
PD1..................................... 302.72 208.29 94.43
PC2..................................... 273.88 188.44 85.44
PC1..................................... 261.06 179.62 81.44
PB2..................................... 232.23 159.79 72.44
PB1..................................... 222.62 153.17 69.45
PA2..................................... 192.18 132.23 59.95
PA1..................................... 184.17 126.72 57.45
------------------------------------------------------------------------

Table 8A--RUG-IV Case-Mix Adjusted Federal Rates for Rural SNFs by Labor
and Non-Labor Component
[Including parity adjustment recalibration]
------------------------------------------------------------------------
Total Labor Non-labor
RUG-IV category rate portion portion
------------------------------------------------------------------------
RUX..................................... $752.19 $517.54 $234.65
RUL..................................... 736.88 507.01 229.87
RVX..................................... 660.90 454.73 206.17
RVL..................................... 596.61 410.50 186.11
RHX..................................... 591.89 407.25 184.64
RHL..................................... 530.66 365.12 165.54
RMX..................................... 537.89 370.10 167.79
RML..................................... 495.03 340.61 154.42
RLX..................................... 468.18 322.13 146.05
RUC..................................... 582.28 400.64 181.64
RUB..................................... 582.28 400.64 181.64
RUA..................................... 495.03 340.61 154.42
RVC..................................... 492.53 338.89 153.64
RVB..................................... 431.30 296.76 134.54
RVA..................................... 429.77 295.70 134.07
RHC..................................... 423.51 291.40 132.11
RHB..................................... 383.71 264.01 119.70
RHA..................................... 340.85 234.52 106.33
RMC..................................... 367.99 253.20 114.79
RMB..................................... 346.56 238.45 108.11
RMA..................................... 288.39 198.43 89.96
RLB..................................... 351.85 242.09 109.76
RLA..................................... 230.92 158.88 72.04
ES3..................................... 648.24 446.02 202.22
ES2..................................... 508.95 350.18 158.77
ES1..................................... 455.37 313.32 142.05
HE2..................................... 440.07 302.79 137.28
HE1..................................... 366.59 252.23 114.36
HD2..................................... 412.51 283.83 128.68
HD1..................................... 345.16 237.49 107.67
HC2..................................... 389.55 268.03 121.52
HC1..................................... 326.79 224.85 101.94
HB2..................................... 384.96 264.87 120.09
HB1..................................... 323.73 222.74 100.99
LE2..................................... 400.27 275.41 124.86
LE1..................................... 335.98 231.17 104.81
LD2..................................... 384.96 264.87 120.09
LD1..................................... 323.73 222.74 100.99
LC2..................................... 339.04 233.28 105.76
LC1..................................... 287.00 197.47 89.53
LB2..................................... 323.73 222.74 100.99
LB1..................................... 274.75 189.04 85.71
CE2..................................... 357.41 245.92 111.49
CE1..................................... 329.86 226.96 102.90
CD2..................................... 339.04 233.28 105.76
CD1..................................... 311.49 214.32 97.17
CC2..................................... 297.71 204.84 92.87
CC1..................................... 276.28 190.09 86.19
CB2..................................... 276.28 190.09 86.19
CB1..................................... 256.38 176.40 79.98
CA2..................................... 234.95 161.66 73.29
CA1..................................... 219.64 151.12 68.52
BB2..................................... 248.73 171.14 77.59
BB1..................................... 238.01 163.76 74.25
BA2..................................... 207.40 142.70 64.70
BA1..................................... 198.21 136.38 61.83
PE2..................................... 329.86 226.96 102.90
PE1..................................... 314.55 216.43 98.12
PD2..................................... 311.49 214.32 97.17
PD1..................................... 296.18 203.79 92.39
PC2..................................... 268.63 184.83 83.80
PC1..................................... 256.38 176.40 79.98
PB2..................................... 228.83 157.45 71.38
PB1..................................... 219.64 151.12 68.52
PA2..................................... 190.56 131.11 59.45
PA1..................................... 182.91 125.85 57.06
------------------------------------------------------------------------

Table 8B--RUG-IV Case-Mix Adjusted Federal Rates for Rural SNFs by Labor
and Non-Labor Component
[Without parity adjustment recalibration]
------------------------------------------------------------------------
Total Labor Non-Labor
RUG-IV category rate portion portion
------------------------------------------------------------------------
RUX..................................... 893.01 $614.44 $278.57
RUL..................................... 871.58 599.69 271.89
RVX..................................... 798.67 549.52 249.15
RVL..................................... 712.95 490.55 222.40
RHX..................................... 726.59 499.93 226.66
RHL..................................... 643.93 443.06 200.87
RMX..................................... 666.47 458.56 207.91
RML..................................... 611.37 420.65 190.72
RLX..................................... 587.57 404.28 183.29
RUC..................................... 664.94 457.51 207.43
RUB..................................... 664.94 457.51 207.43
RUA..................................... 547.07 376.41 170.66
RVC..................................... 570.59 392.59 178.00
RVB..................................... 489.46 336.77 152.69
RVA..................................... 487.93 335.72 152.21
RHC..................................... 498.52 343.01 155.51
RHB..................................... 446.47 307.19 139.28
RHA..................................... 389.84 268.23 121.61
RMC..................................... 439.93 302.69 137.24
RMB..................................... 409.31 281.63 127.68
RMA..................................... 332.78 228.97 103.81
RLB..................................... 429.91 295.80 134.11
RLA..................................... 267.66 184.16 83.50
ES3..................................... 648.24 446.02 202.22
ES2..................................... 508.95 350.18 158.77
ES1..................................... 455.37 313.32 142.05
HE2..................................... 440.07 302.79 137.28
HE1..................................... 366.59 252.23 114.36
HD2..................................... 412.51 283.83 128.68
HD1..................................... 345.16 237.49 107.67
HC2..................................... 389.55 268.03 121.52
HC1..................................... 326.79 224.85 101.94
HB2..................................... 384.96 264.87 120.09
HB1..................................... 323.73 222.74 100.99
LE2..................................... 400.27 275.41 124.86
LE1..................................... 335.98 231.17 104.81
LD2..................................... 384.96 264.87 120.09
LD1..................................... 323.73 222.74 100.99
LC2..................................... 339.04 233.28 105.76
LC1..................................... 287.00 197.47 89.53
LB2..................................... 323.73 222.74 100.99
LB1..................................... 274.75 189.04 85.71
CE2..................................... 357.41 245.92 111.49
CE1..................................... 329.86 226.96 102.90
CD2..................................... 339.04 233.28 105.76
CD1..................................... 311.49 214.32 97.17
CC2..................................... 297.71 204.84 92.87
CC1..................................... 276.28 190.09 86.19
CB2..................................... 276.28 190.09 86.19
CB1..................................... 256.38 176.40 79.98
CA2..................................... 234.95 161.66 73.29
CA1..................................... 219.64 151.12 68.52
BB2..................................... 248.73 171.14 77.59
BB1..................................... 238.01 163.76 74.25
BA2..................................... 207.40 142.70 64.70
BA1..................................... 198.21 136.38 61.83
PE2..................................... 329.86 226.96 102.90
PE1..................................... 314.55 216.43 98.12
PD2..................................... 311.49 214.32 97.17
PD1..................................... 296.18 203.79 92.39
PC2..................................... 268.63 184.83 83.80
PC1..................................... 256.38 176.40 79.98
PB2..................................... 228.83 157.45 71.38
PB1..................................... 219.64 151.12 68.52
PA2..................................... 190.56 131.11 59.45
PA1..................................... 182.91 125.85 57.06
------------------------------------------------------------------------

[[Page 26380]]

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 2012 (Federal rates effective October 1,
2011), 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 2011 to the weighted average wage adjustment factor for
FY 2012. For this calculation, we use the same 2010 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 1.0001. The wage index applicable to FY 2012 is set forth in Tables
A and B, which appear in the Addendum of this proposed rule.
In the SNF PPS final rule for FY 2006 (70 FR 45026, August 4,
2005), we adopted the changes discussed in the Office of Management and
Budget (OMB) Bulletin No. 03-04 (June 6, 2003), available online at
http://www.whitehouse.gov/omb/bulletins/b03-04.html, which announced
revised definitions for Metropolitan Statistical Areas (MSAs), and the
creation of Micropolitan Statistical Areas and Combined Statistical
Areas. In addition, OMB published subsequent bulletins regarding CBSA
changes, including changes in CBSA numbers and titles. As indicated in
the FY 2008 SNF PPS final rule (72 FR 43423, August 3, 2007), this and
all subsequent SNF PPS rules and notices are considered to incorporate
the CBSA changes published in the most recent OMB bulletin that applies
to the hospital wage data used to determine the current SNF PPS wage
index. The OMB bulletins are available online at http://www.whitehouse.gov/omb/bulletins/index.html.
In adopting the OMB CBSA geographic designations, we provided for a
1-year transition with a blended wage index for all providers. For FY
2006, the wage index for each provider consisted of a blend of 50
percent of the FY 2006 MSA-based wage index and 50 percent of the FY
2006 CBSA-based wage index (both using FY 2002 hospital data). We
referred to the blended wage index as the FY 2006 SNF PPS transition
wage index. As discussed in the SNF PPS final rule for FY 2006 (70 FR
45041), subsequent to the expiration of this 1-year transition on
September 30, 2006, we used the full CBSA-based wage index values, as
now presented in Tables A and B in the Addendum of this proposed rule.

D. Updates to the Federal Rates

In accordance with section 1888(e)(4)(E) of the Act as amended by
section 311 of the BIPA, and section 1888(e)(5)(B) of the Act as
amended by section 3401(b) of the Affordable Care Act, the payment
rates in this proposed rule reflect an update equal to the full SNF
market basket, estimated at 2.7 percentage points, reduced by the MFP
adjustment. As discussed in sections I.G.2 and VI.C of this proposed
rule, the annual update includes a 1.2 percentage point reduction to
account for the MFP adjustment described in the latter section, for a
net update of 1.5 percent for FY 2012. 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.

E. Relationship of Case-Mix 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. As set forth
in the FY 2011 SNF PPS update notice (75 FR 42910, July 22, 2010), this
designation reflects an administrative presumption under the 66-group
RUG-IV system that beneficiaries who are correctly assigned to one of
the upper 52 RUG-IV groups on the initial 5-day, Medicare-required
assessment are automatically classified as meeting the SNF level of
care definition up to and including the assessment reference date on
the 5-day Medicare-required assessment.
A beneficiary assigned to any of the lower 14 RUG-IV groups is not
automatically classified as either meeting or not meeting the
definition, but instead receives an individual level of care
determination using the existing administrative criteria. This
presumption recognizes the strong likelihood that beneficiaries
assigned to one of the upper 52 RUG-IV groups during the immediate
post-hospital period require a covered level of care, which would be
less likely for those beneficiaries assigned to one of the lower 14
RUG-IV groups.
In this proposed rule, we once again propose to designate the upper
52 RUG-IV groups for purposes of this administrative presumption,
consisting of all groups encompassed by the following RUG-IV
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.
However, we note that this administrative presumption policy does
not supersede the SNF's responsibility to ensure that its decisions
relating to level of care are appropriate and timely, including a
review to confirm that the services prompting the beneficiary's
assignment to one of the upper 52 RUG-IV groups (which, in turn, serves
to trigger the administrative presumption) are themselves medically
necessary. As we explained in the FY 2000 SNF PPS final rule (64 FR
41667, July 30, 1999), the administrative presumption

* * * is itself rebuttable in those individual cases in which
the services actually received by the resident do not meet the basic
statutory criterion of being reasonable and necessary to diagnose or
treat a beneficiary's condition (according to section 1862(a)(1) of
the Act). Accordingly, the presumption would not apply, for example,
in those situations in which a resident's assignment to one of the
upper * * * groups is itself based on the receipt of services that
are subsequently determined to be not reasonable and necessary.

Moreover, we want to stress the importance of careful monitoring for
changes in each patient's condition to determine the continuing need
for Part A SNF benefits after the assessment reference date of the 5-
day assessment.

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

Using the hypothetical SNF XYZ described below, Tables 9A and 9B
show the adjustments made to the Federal per diem rates to compute the
provider's actual per diem PPS payment under each of the described
scenarios (that is, with a parity adjustment recalibration and without
a parity adjustment recalibration). SNF XYZ's 12-month cost reporting
period begins October 1, 2011. As illustrated in Table 9A, SNF XYZ's
total PPS payment would equal $40,021.02 with the application of a
parity adjustment recalibration (calculated using first quarter FY 2011
data), as described in section II.B.2 above. SNF XYZ's total PPS
payment would equal $42,636.62

[[Page 26381]]

without the application of the parity adjustment recalibration
considered in section II.B.2, as illustrated in Table 9B. We derive the
Labor and Non-labor columns from Tables 7A and 7B.

Table 9A--RUG-IV--Including Parity Adjustment Recalibration SNF XYZ: Located in Cedar Rapids, IA
[(Urban CBSA 16300) Wage Index: 0.8857]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Adjusted Percent Medicare
RUG-IV group Labor Wage index labor Non-labor rate adjustment days Payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
RVX............................................. $450.23 0.8857 $398.77 $204.12 $602.89 $602.89 14 $8,440.46
ES2............................................. 361.49 0.8857 320.17 163.90 484.07 484.07 30 14,522.10
RHA............................................. 227.14 0.8857 201.18 102.98 304.16 304.16 16 4,866.56
CC2 *........................................... 209.39 0.8857 185.46 94.93 280.39 639.29 10 6,392.90
BA2............................................. 144.35 0.8857 127.85 65.45 193.30 193.30 30 5,799.00
-------------------------
100 40,021.02
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Reflects a 128 percent adjustment from section 511 of the MMA.

Table 9B--RUG-IV--Without Parity Adjustment Recalibration SNF XYZ: Located in Cedar Rapids, IA
[(Urban CBSA 16300) Wage Index: 0.8857]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Adjusted Percent Medicare
RUG-IV group Labor Wage index labor Non-labor rate adjustment days Payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
RVX............................................. $549.43 0.8857 $486.63 $249.10 $735.73 $735.73 14 $10,300.22
ES2............................................. 361.49 0.8857 320.17 163.90 484.07 484.07 30 14,522.10
RHA............................................. 262.42 0.8857 232.43 118.97 351.40 351.40 16 5,622.40
CC2*............................................ 209.39 0.8857 185.46 94.93 280.39 639.29 10 6,392.90
BA2............................................. 144.35 0.8857 127.85 65.45 193.30 193.30 30 5,799.00
-------------------------
100 42,636.62
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Reflects a 128 percent adjustment from section 511 of the MMA.

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

A. Prospective Payment for SNF Non-therapy Ancillary Costs

1. Previous Research
We have conducted several studies since 1999 to refine the
reimbursement methodology for non-therapy ancillary (NTA) services
covered by the SNF PPS. At the inception of the SNF PPS, payment for
NTA services was included in the 44-group RUG system of case-mix
groups. Analysis showed that there was only a weak correlation between
NTA services costs and the RUG-III classification group. As the current
RUG-IV system, similar to the RUG-III system, has maintained NTA costs
coverage as part of the nursing CMIs, we believe that the present
methodology for case-mix adjusting the NTA payment amount may not be
the most accurate predictor of NTA costs. We are particularly concerned
that the present system could underestimate NTA costs for the patients
with the highest NTA needs, which could lead to restricted access to
care for those patients.
As a result of research conducted in the late 1990s, one proposal
included in the FY 2001 proposed rule was to modify the RUG system by
adding 14 additional RUG groups (65 FR 19193-19194, 19203, April 10,
2000). These additional groups were designed to recognize that patients
qualifying for both a Rehabilitation RUG and an Extensive Services RUG
incurred NTA costs estimated to be as much as three times higher than
those of patients who qualify solely for a Rehabilitation RUG.
As noted in the 2006 Report to Congress on case-mix refinements
(available online at http://www.cms.gov/SNFPPS/Downloads/RC_2006_PC-PPSSNF.pdf), additional research conducted by Abt Associates in the
late 1990s experimented with several mathematical models of NTA costs.
Results from this work could have practical application as an ancillary
``add-on'' index based on the beneficiary's predicted, per diem NTA
costs. As discussed in the FY 2001 SNF PPS proposed rule (65 FR 19195,
April 10, 2000), NTA index models (both weighted and unweighted) were
tested after exploring MDS variables that appeared to be predictive of
NTA costs. In the unweighted model, cost predictions were based on
counts of qualifying patient characteristics (characteristics such as
respiratory infection or skin wounds). In the weighted models, a small
set of payment groups were defined from ``index models'' that weighted
the predictors where the weights were proportional to the marginal
impact of a patient characteristic on estimated NTA costs. The array of
predicted costs generated by the equation could be subdivided into
ranges of costs, or intervals, in order to define a small number of
payment groups. As discussed in the Technical Appendix to the FY 2001
proposed rule (65 FR 19240, 19248, April 10, 2000), variations were
created by applying the index models to alternative sets of RUG groups.
As further discussed in the FY 2001 proposed rule (65 FR 19196), we
proposed a separate unweighted NTA index to be applied to certain RUG
categories based on clinical variables on the MDS. In addition, to
facilitate the incorporation of this proposed refinement into the case-
mix classification system, we proposed to create a new component of the
payment rates for NTA services (65 FR 19192).
As explained in the FY 2001 SNF PPS final rule (65 FR 46773, July
31, 2000), while the expanded RUG groups approach and the NTA index
approach initially appeared to improve payment accuracy in comparison
to the existing case-mix system, attempts to validate the results on a
later national PPS data set did not confirm the initial findings. As a
result, we did not finalize the proposals made in April 2000.

[[Page 26382]]

We sponsored subsequent research by the Urban Institute using
claims samples from 2001. This work led to the FY 2006 final rule (70
FR 45026, 45030-34, August 4, 2005), which essentially implemented a
variation of the 58-group RUG proposal developed by Abt Associates
discussed above. In that rule, we finalized a system composed of 53
groups, by augmenting the original 44-group system with nine additional
groups identifying patients simultaneously qualifying for the Extensive
Services and Rehabilitation groups. This incremental change to the
grouping system was accompanied by an across-the-board increase in the
case-mix weights for the payment component that includes NTA costs.
Both of these modifications were intended to enable the original RUG-
III payment model to account more accurately for variation in NTA
costs.
Using the 2001 data set, the Urban Institute also experimented with
prediction models that were extensions of the original Abt Associates
NTA index approaches. A small number of additional variables (for
example, age) and improvements to the methodology used to measure
independent variables in the data base led to potential improvements
over the earlier model. The Urban Institute also explored substantially
more complex models that incorporated variables derived from qualifying
hospital stay claims; these models were estimated separately for
patients after subdividing them into one of three groups: Acute,
chronic, or rehabilitation.
In 2008, the Medicare Payment Advisory Commission (MedPAC)
sponsored analyses by researchers from the Urban Institute extending
some of the Institute's earlier work. This led to a MedPAC proposal
that was based on the most promising results of the Institute's earlier
work. The study used 2003 Medicare data. It resulted in a prediction
equation for NTA services that used a large number of variables derived
from the MDS assessments and hospital claims (for example, diagnosis),
a measure of length of stay, as well as patient age (Bowen Garrett and
Douglas A. Wissoker, ``Modeling Alternative Designs for a Revised PPS
for Skilled Nursing Facilities: A study conducted by staff from the
Urban Institute for the Medicare Payment Advisory Commission,'' June,
2008; available online at http://www.medpac.gov/documents/Jun08_SNF_PPS_CONTRACTOR_CC.pdf). MedPAC did not propose a system of NTA case-
mix groups based on the prediction equation. However, the basic
equation could be used to generate an array of predictions in the
population and to group the predictions into cost intervals for
defining a smaller number of payment groups. This is the same approach
that Abt Associates took with its index model.
In a June 2010 memo to MedPAC (available online at http://www.medpac.gov/documents/Oct10_SNF_NonTherapyAncillary_CONTRACTOR_CC.pdf), the Urban Institute described a series of refinements to
MedPAC's 2008 proposed model. Most importantly, with their 2010 model,
the Urban Institute sought to reduce the number of indicators from
nearly 70 and ensure that all indicators are derived from information
based on available administrative data. Additionally, when the Urban
Institute used 2007 SNF data files (as compared to the 2003 data files
used to support the previous model), they found that the predictive
ability of the model was reduced slightly from 23 percent to 21
percent.
After completing a revised statistical analysis and eliminating
indicators for conditions that were either relatively rare or had
little impact on NTA costs, the Urban Institute advanced a 20-variable
``streamlined'' model that maintained almost equivalent predictive
accuracy to MedPAC's 2008 proposed model described above. The
streamlined model included many of the ``high-impact'' variables
contained in the 69-variable model, such as IV medication use and
respiratory services. Additionally, the streamlined model included
variables suggested by CMS, such as the nursing case-mix index and the
MDS diabetes diagnosis, which were also found to be strong indicators
of anticipated NTA costs.
2. Conceptual Analysis
Based on our initial research, we continue to believe that an
administratively feasible and equitable approach to prospective
payments for NTA costs would incorporate the following criteria:
Uses information from available administrative data (data
available on claims or on the MDS assessment);
Uses predictor variables that represent meaningful
correlates of NTA services that are highly predictive, clinically
sensible, sensitive to patient NTA variation, and do not promote
undesirable incentives for providers;
Is developed by using the best and most recently available
data sources, in order to assure that it reflects current care
practices and resource utilization;
Results in a separate NTA component and index that uses a
minimal number of payment groups, or tiers, to limit the complexity of
the SNF PPS as a whole; and
Uses payment groups and predictor variables that are
readily understandable and clinically intuitive.
These criteria and our initial research intent were discussed in
the FY 2010 SNF PPS proposed rule (74 FR 22238 through 22241, May 12,
2009), and responses to comments on this initial research proposal were
part of the FY 2010 SNF PPS final rule (74 FR 40341 through 40342,
August 11, 2009). These comments helped to guide our initial research
to develop the conceptual model discussed in this proposed rule.
In addition to the criteria specified above, our research is also
guided by the results of multiple recent studies, such as those
conducted by the Urban Institute, regarding the relationship between
NTA utilization and resident condition. Most relevant to our work in
this area, these studies suggest that the highest-cost ancillary
services (such as respiratory services, enteral and parenteral feeding,
and treatment of chronic conditions, such as AIDS) are used by a small
subset of the SNF population, and that the high and varied cost of
individual services or drugs by these populations--rather than the
volume of NTA utilization--can at least partially explain the wide
variance in NTA costs.
To continue our analytic work for developing a payment methodology
for NTA costs, we have utilized a large analytic data file that
combines Medicare SNF claims, cost reports, and MDS assessments from FY
2007. The file has been used to study relationships between reported
claims charges for NTA-related revenue centers and predictor variables
defined from items on the MDS. We augmented the analytic file with
diagnosis information from the patient's qualifying hospital stay as a
way of compensating for potentially incomplete diagnosis reporting on
MDS and on SNF claims. (As noted earlier, it is not our intention to
use hospital-assigned diagnoses directly in any tiered system we may
propose.) Because three-quarters of the NTA costs are pharmacy-related,
we have summarized the patient's recent diagnoses using the diagnosis
classification system CMS developed for Medicare Part D risk
adjustment. This is known as the RxHCC system. The RxHCC system was
developed from the Hierarchical Condition Categories (HCCs) used for
risk-adjustment in Medicare Part C. We also continue to examine the
performance of the diagnosis flags from Section I of the MDS.
Now that more recent data are available, we are developing a
similar

[[Page 26383]]

file using FY 2009 data, which may be used to test our initial model
formulas and monitor any recent changes to NTA utilization patterns. We
solicit comment on the criteria specified above and the conceptual
model discussed in the following sections.
3. Analytic Sample
To develop the analytic sample, we linked FY 2007 SNF cost reports
with SNF Medicare Part A claims covering services delivered during the
SNF's cost reporting period. The actual cost of the NTA services is
determined by adjusting claims charges for NTA services in accordance
with cost-to-charge ratios (CCRs) from the cost report. The NTA costs
are then used as the dependent variable in all subsequent analyses,
while MDS items and claims diagnoses act as the independent variables.
We collected all claims, and used only those claims submitted within
the reporting period for the cost reports available. Requiring a
matched cost report eliminated some SNFs represented in the 2007
National Claims History. The SNFs that do not meet this threshold tend
to be smaller SNFs, though this requirement does not adversely affect
the representativeness of the analytic sample.
We have studied the same three general categories of NTAs as
previous research has suggested: Respiratory-related costs (for
example, ventilator services), drug-related costs, and other non-
therapy ancillary (ONTA) costs (for example, wound dressings). We
derive category-specific CCRs for each facility's cost report remaining
in the sample. An additional requirement for an SNF to be in the sample
is that it reports some drug and ONTA charges on the claims; otherwise,
the facility's data may not be accurate enough to be used in the
sample. Positive respiratory charges are not necessary, as these types
of charges are not always reported. One reason is that some respiratory
charges, such as oxygen-related supplies, are reported as ONTAs, based
on certain reporting standards.
We trimmed the sample to eliminate facilities with extreme values
for CCRs, as outlying CCRs could skew the results of our analysis.
Finally, we compared the drug and ONTA charges on the claims to the
SNF's cost report drug and ONTA charges, since wide differences could
be the result of incomplete or inaccurate reporting. Facilities that
were found to exhibit such wide differences were dropped from the
sample. For our analysis, accurate charge reporting is critical for the
measurement of our dependent-variable, CCR-adjusted NTA charges.
4. Approach to Analysis
The dependent variable in our analysis is the NTA charges, adjusted
by CCRs. The independent variables are diagnosis groupings and
variables selected from the matched MDS assessments. With the recent
implementation of the MDS 3.0, we will monitor any changes in our
selected set of variables and, based on research conducted as part of
the Post Acute Care Payment Reform Demonstration (PAC-PRD), we may
explore changes to the MDS assessment which would allow us to collect
more detailed information on NTA costs and utilization. However, as our
current analytic database is based on FY 2007 and FY 2009 data, our
analysis still utilizes the MDS 2.0. The following sections of the MDS
2.0 contribute variables to be tested for their predictive value:

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

Our study of the ability of particular MDS items and diagnosis
groupings to predict NTA costs builds on previous research discussed
above and adheres to the criteria outlined earlier in this section. Now
that we have completed the initial phase of this research, we are in a
better position to understand the relationship between NTA costs and
certain classes of illness. Understanding these relationships has led
us to explore potential groupings of conditions, distinct from the RUG
classification or qualifying hospital condition, which could suggest a
feasible system for NTA payment tiers.
5. Payment Methodology
The payments associated with a new NTA component of the SNF PPS
would be financed by reallocating that portion of the current nursing
component which has been previously considered to account for NTA
costs. Our intent in adding a separate NTA component, distinct from the
nursing component, would be to provide greater predictive ability,
promote more equitable NTA reimbursement, and achieve a more cost-
effective payment structure for SNFs.
The NTA payment would be broken into two parts: A routine NTA
bundled payment (RNP) and a tiered non-routine NTA payment (TNP).
a. Routine Non-Therapy Ancillary Payment
The RNP would constitute a base payment for every patient day,
distinct from the tiered NTA payment described below and separate from
the nursing component, to cover the cost of routine NTA services
(drugs, laboratory services, etc.) that are commonly given to a wide
range of SNF patients. CMS is currently analyzing SNF claims data
linked to specially collected data from Medicare research projects,
such as the STRIVE study and the PAC-PRD project, to help determine the
specific drugs and services that would be included in the RNP and an
appropriate per diem amount to cover their purchase and administration.
Examples of such routine NTAs could include high blood pressure
medication, common analgesics, anti-infective agents, sleep aids,
laxatives, and standard blood tests, among others. The RNP would help
capture the daily cost of administering these types of routine NTAs,
thereby allowing for a more clearly defined and appropriate tiered NTA
bundled payment to cover non-routine NTA services, as well as a more
transparent payment for such routine costs incurred by providers. We
also believe that, in conjunction with a possible NTA outlier policy
(discussed below), having an RNP component would limit the
administrative burdens associated with reporting that might be required
to administer outlier payments.
As with the other components of the SNF PPS, the RNP piece of the
NTA component would be updated annually to account for changes in the
market basket and other relevant adjustments. It would operate in much
the same way as the non-therapy non-case mix adjusted component of the
current SNF PPS, in that it would constitute a flat amount added to the
payment for all applicable SNF claims.
b. Tiered Non-Routine NTA Bundled Payment
The TNP would operate as a variation of the model previously
discussed in the FY 2001 SNF PPS proposed rule (65 FR 19188, April 10,
2000). Specifically, we are in the process of developing a tiered NTA
bundled payment, where payment tiers track relative variations in NTA
costs and utilization. The June 2008 Urban Institute report referenced
above (Garrett and Wissoker, June 2008) suggested that average wage-
adjusted per diem NTA costs were approximately $68, with a standard
deviation of $94, which would support the use of multiple case-mix-
adjusted tiers.

[[Page 26384]]

The TNP is designed to capture the average cost of the drugs and
services, given the patient's clinical characteristics, excluding the
drugs and services covered by the RNP or those already excluded from
the SNF PPS altogether under the consolidated billing requirements.
Such a cost schedule and tier structure is currently under development,
using recent Medicare Part A claims data and data from the PAC-PRD.
We have focused on developing an index model in which predictions
are arrayed and then subdivided into fixed ranges of cost values to
form distinct payment groups, or tiers, as we believe this type of
approach is better equipped to handle the number of explanatory
variables needed to predict NTA costs reasonably well. The tiers which
constitute the TNP will be based on average NTA costs as measured from
available administrative data. Generally, based on the resident's case
mix and the variables selected for predicting NTA costs, if the
resident's expected NTA costs exceed a particular threshold, then the
facility would be paid a prospective amount, which would be added to
the base RNP amount.
c. Non-Routine NTA Outlier Payment
Though we currently lack explicit statutory authority to establish
an SNF outlier policy, we are continuing to explore how such a policy
could be implemented in the event that we receive statutory authority.
Results of the STRIVE study suggest that it is the cost of individual
high-cost pharmaceuticals and other NTAs, rather than a particular
patient's use of a high volume of NTA services, which creates high NTA
costs. Given the effect of specific high-cost items like prescription
drugs or respiratory services, it is clear that any type of averaging
system (such as the conceptual NTA model discussed here) will not in
all cases account for the cost of such items. It will be insufficiently
sensitive to high NTA costs deriving from variations among costs of
individual medications and ONTAs.
Accordingly, we are currently reviewing the available data to
determine how an outlier approach could be designed to address patient-
specific expenditures that exceed the routine and non-routine NTA
payments that we would make, while allowing for an outlier threshold.
While we have not yet fully simulated a potential SNF outlier payment
policy, we believe it is appropriate to conduct analysis at the stay
level, because NTA utilization can fluctuate significantly during a
given SNF stay. Using a stay-level analysis of potential NTA cost
outliers would help us to predict NTA costs more accurately over the
course of a given SNF stay. Any further developments in this area will
be discussed in future rulemaking.
6. Temporary AIDS Add-On Payment Under Section 511 of the MMA
As discussed in section I.E of this proposed rule, section 511 of
the MMA amended section 1888(e)(12) of the Act to provide for a
temporary increase of 128 percent in the PPS per diem payment for any
SNF residents with Acquired Immune Deficiency Syndrome (AIDS),
effective for 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.
* * *'' We know, as a result of the STRIVE study and a review of SNF
cost data, that SNF residents with AIDS require much greater and more
costly care than those without AIDS and that much of this additional
cost is the result of NTAs, specifically high-cost medications.
Accordingly, as we have not yet completed work on the NTA component
or an SNF outlier policy, we cannot yet determine whether such policy
changes would be sufficient to compensate facilities for the costs
associated with the treatment of residents with AIDS, in accordance
with section 511 of the MMA. We will continue to study the relationship
between NTA costs and resource use as they pertain to this population
in order to develop an ``appropriate adjustment'' to account for such
costs, as envisioned in the MMA.

IV. Ongoing Initiatives Under the Affordable Care Act

The Affordable Care Act contains a number of provisions that
involve ongoing initiatives relating to SNFs. Here, we highlight
several of these initiatives.

A. Value-Based Purchasing (Section 3006)

Section 3006(a) of the Affordable Care Act directs the Secretary to
develop a plan to implement a value-based purchasing program for SNFs,
with a report to Congress due by October 1, 2011. As we discussed
previously in the SNF PPS proposed rule (73 FR 25932, May 7, 2008) and
final rule (73 FR 46431-32, August 8, 2008) for FY 2009, value-based
purchasing programs are intended to tie payment to performance in such
a way as to reduce inappropriate or poorly provided care and identify
and reward those who provide effective and efficient patient care.
We are in the process of developing the SNF value-based purchasing
implementation plan and report. In accordance with section 3006(a) of
the Affordable Care Act, we will be consulting with stakeholders in
developing the implementation plan, as well as considering the outcomes
of any recent demonstration projects related to value-based purchasing
which we believe might be relevant to the SNF setting. We anticipate
being able to provide further information on the progress of our
efforts in future rulemaking.

B. Payment Adjustment for Hospital-Acquired Conditions (Section 3008)

As we discussed previously in the SNF PPS proposed rule for FY 2009
(73 FR 25932, May 7, 2008), ``The preventable hospital-acquired
conditions (HAC) payment provision for IPPS hospitals is another of
CMS' value-based purchasing initiatives. The principal behind the HAC
payment provision (Medicare not paying more for healthcare-associated
conditions) could be applied to the Medicare payment systems for other
settings of care.'' Section 3008 of the Affordable Care Act amends
section 1886 of the Act by adding a new subsection (p) to establish a
payment adjustment beginning in FY 2015 for subsection (d) hospitals
that fall in the top quartile of national, risk-adjusted HAC rates. For
such hospitals, the payment amount under section 1886, section
1814(b)(3), or section 1814(l)(4) of the Act for all discharges would
be reduced by 1 percent. Section 3008(b) of the Affordable Care Act
goes on to direct the Secretary to conduct a study on expanding the
already-existing HAC policy found in section 1886(d)(4)(D) of the Act
to payments made in various post-acute settings, including SNFs. In
developing this study, the Secretary is directed to include the impact
of expanding the HAC policy on patient care, safety, and overall
payments.
In accordance with section 3008 of the Affordable Care Act, we are
in the process of developing such a study, the outcomes of which are to
be reported to Congress no later than January 1, 2012. As with the
value-based purchasing program described above, we plan to consult with
stakeholders in developing this study, and anticipate being able to
provide information on our progress in future rulemaking.

[[Page 26385]]

C. Nursing Home Transparency and Improvement (Section 6104)

This provision of the Affordable Care Act requires SNFs to report
expenditures separately for direct care staff wages and benefits on the
Medicare cost report, for cost reporting periods beginning on or after
2 years after its enactment. Not later than 1 year after enactment of
this section of the Affordable Care Act, the Secretary must redesign
the cost report after consultation with private sector accountants
experienced with Medicare and Medicaid nursing facility home cost
reports. Within 30 months of its enactment, the provision requires the
Secretary, in consultation with the Medicare Payment Advisory
Commission (MedPAC), the Medicaid and CHIP Payment and Access
Commission, the Inspector General of the United States Department of
Health and Human Services, and other expert parties the Secretary
determines appropriate, to categorize expenditures for each SNF into
specific functional accounts on an annual basis. The provision also
requires the Secretary to establish procedures to make information on
the expenditures available to interested parties upon request, subject
to the requirements the Secretary may specify under such procedures. A
discussion of the information collection requirements currently being
proposed in connection with this provision appears in a notice that was
published in the March 11, 2011 Federal Register (76 FR 13415 through
13418).

V. Other Issues

A. Required Disclosure of Ownership and Additional Disclosable Parties
Information (Section 6101)

Section 6101 of the Affordable Care Act was enacted in March 2010
to improve transparency of information in all Medicare SNFs and
Medicaid nursing facilities. Specifically, it requires these facilities
to make available on request by the Secretary and others certain
information on ownership, including a description of the governing body
and organizational structure of the relevant Medicare SNF or Medicaid
nursing facility, and information regarding additional disclosable
parties. Thus, we are proposing additional information that must be
disclosed by Medicare SNFs and Medicaid nursing facilities in order for
them to maintain their enrollment in Medicare and/or Medicaid.
According to nursing home quality data collected by CMS in 2008,
about 1.5 million Americans reside in the Nation's 16,000 nursing homes
on any given day. More than 3 million Americans rely on services
provided by a nursing home at some point during the year. Those
individuals, and an even larger number of their family members,
friends, and relatives, must be able to count on nursing homes to
provide reliable care of consistently high quality.
In 2007, the New York Times analyzed trends at nursing homes
purchased by private investment groups. It subsequently reported that
upon ownership by these private investment firms, the facilities'
managers quickly cut costs by significantly decreasing the number of
registered nurses, budgets for nursing supplies, resident activities,
and other services. CMS's data revealed that of those homes bought by
large private investment groups from 2000 to 2006, in 60 percent of
those acquisitions, managers cut the number of clinical registered
nurses far below levels required by the Medicare long-term care
facility participation requirements under 42 CFR 483.30. Nursing homes
owned by large private investment firms provided one clinical
registered nurse for every 20 residents, which was 35 percent below the
national average.
In its 2010 report to Congress entitled ``Nursing Homes: Complexity
of Private Investment Purchases Demonstrates Need for CMS to Improve
the Usability and Completeness of Ownership Data'' (GAO-10-710,
available online at http://www.gao.gov/new.items/d10710.pdf), the GAO
reported similar findings. The GAO found that, although certain
information on ownership was available to the public upon request, that
information was not transparent because it did not establish the
relationship of each owner to the nursing home and to one another.
Also, it was found that the information was not being utilized by the
State agencies for review purposes.
Hearings were conducted in November and December of 2007 by the
House Committee on Ways and Means, the United States Senate Special
Committee on Aging, and the United States Senate Committee on Finance,
seeking information on investor-owned nursing homes. Congress found
through several hearings that legal schemes were being used by
investment firms to shield themselves from liability and, in effect, to
deny residents and their families legal remedy against the nursing
home. Congress believed that these complex legal structures can also
result in a lack of transparency regarding who is responsible for
resident care and the operation of investor-owned nursing homes.
We currently collect ownership information on nursing homes using
the Medicare Provider Enrollment, Chain, and Ownership System (PECOS).
In addition, we currently capture ownership information on Medicaid
nursing facilities using the Online Survey Certification and Reporting
System (OSCAR). Nursing home providers, along with any other provider
or supplier, must report information about any individual or entity
with a 5 percent ownership interest. As discussed in section IX. of
this proposed rule, we are hereby proposing to revise the reporting
requirements that Medicare SNFs and Medicaid nursing facilities must
disclose at the time of enrollment and when any change in ownership
occurs, in order to implement section 6101 of the Affordable Care Act.

B. Therapy Student Supervision

In this proposed rule, we are proposing to revise a policy that
originally appeared in the SNF PPS final rule for FY 2000 (64 FR 41644,
July 30, 1999). The preamble in that final rule had indicated (at 64 FR
41661) that a therapy student in the SNF setting must ``* * * be under
the `line-of-sight' level of supervision of the professional
therapist.'' We note that the corresponding standards for the other
inpatient settings under Part A (such as acute care hospitals and
inpatient rehabilitation facilities) are silent on the issue of therapy
student supervision and currently do not impose this type of
restriction, so that each provider is free to determine for itself the
most appropriate manner of supervision in this context, consistent with
applicable State and local laws and practice standards. Because we
consider it inequitable for SNFs to be subject to a more restrictive
set of standards in this regard than the other inpatient settings, we
believe that line-of-sight supervision should no longer be required in
the SNF setting. Instead, as with other inpatient settings, each SNF
would determine for itself the appropriate manner of supervision of
therapy students, consistent with applicable State and local laws and
practice standards. Accordingly, we are proposing to revise our current
policy regarding supervision of therapy students, such that a therapy
student working in an SNF would no longer be required to be in the
supervising therapist's line of sight. We invite comments on our
proposed revision to the supervision requirements for therapy students
working in SNFs, and note that we plan to continue

[[Page 26386]]

monitoring the provision of therapy services in the SNF setting. We
also note that we may revisit this issue in the future; however,
consistent with the aim of promoting greater uniformity across
inpatient settings on this point, we believe that such an analysis
would most appropriately take place in the broader context of therapy
standards that pertain to inpatient settings generally.

C. Group Therapy and Therapy Documentation

When the original RUG-III model was developed, most therapy
services were furnished on a one-to-one basis, and the minutes reported
on the MDS served as a proxy for the staff resource time needed to
provide the therapy care. However, the results of our multi-year STRIVE
project showed that provider practice patterns had changed and that a
significant amount of therapy was provided on a concurrent basis, which
at that time was defined as simultaneous treatment of multiple patients
who were receiving different types of therapy services. In the FY 2010
final rule (74 FR 40315), we stated that as Medicare and Medicaid
patients are among the frailest and most vulnerable populations in
nursing homes, we believed the most appropriate mode of providing
therapy would usually be individual therapy, not concurrent therapy.
Further, we expressed concern that the method for reporting concurrent
therapy on the MDS under RUG-III created an inappropriate payment
incentive to perform concurrent therapy in place of individual therapy,
because the method of reporting under RUG-III permitted concurrent
therapy time to be counted in the same manner as individual therapy
time. As we stated in the SNF PPS final rule for FY 2010 (74 FR 40315),
the SNF PPS is based on resource allocation 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. As a result, with the introduction of RUG-IV, we
modified the way providers report and are reimbursed for concurrent
therapy services such that allocated concurrent therapy minutes are
used to assign patients to RUG-IV groups. Providers can no longer be
reimbursed for one hour's therapy time for each of the two Medicare
beneficiaries treated concurrently for one hour. Effective October 1,
2010, providers are required to report on the MDS 3.0 for each patient
the total unallocated minutes of concurrent therapy and specify the
mode as concurrent. We then divide the total concurrent therapy time
(60 minutes in this case) between the two patients in determining each
patient's RUG-IV payment level (74 FR 40315-19). As we stated in the FY
2010 final rule (74 FR 40318), allocating concurrent therapy time
reflects resource utilization more accurately for this type of therapy,
and allows for more accurate RUG classification as well as the
application of more appropriate CMIs. We note that in the FY 2010 final
rule (74 FR 40317), we limited the number of concurrent therapy
participants to two.
In comparison, we also considered the treatment of group therapy in
the FY 2010 final rule (74 FR 40318); that is, simultaneous treatment
of no more than four individuals (regardless of payer source) doing
similar activities directed by a single therapist. Our STRIVE data
showed that group therapy was used sparingly, and that utilization had
not changed significantly since the inception of the SNF PPS in 1998.
Further, in the FY 2010 proposed rule (74 FR 22223), we noted the
difference between group and concurrent therapy. In group therapy,
patients are performing similar activities, and by interacting with one
another, group therapy patients observe and learn from each other and
apply this new information to their own therapy program to progress and
benefit from the group therapy setting. By contrast, in concurrent
therapy, patients are not performing similar activities and often do
not interact with each other. Because we had not proposed in the FY
2010 proposed rule to change the method in which group therapy minutes
are used in RUG-IV classification, and the amount of group therapy
being provided was low, in the FY 2010 final rule (74 FR 40318), we
retained the original SNF PPS policy for payment of group therapy
services, that is, group therapy minutes were not allocated but were
limited to no more than 25 percent of the total weekly minutes per
discipline for a particular patient. However, in the FY 2010 final rule
(74 FR 40318), we discussed our intent ``* * * to monitor therapy
provided in the group setting, analyze data associated with group
therapy, and, if needed, address any issues at a later time'' in order
to update these reporting requirements as necessary to maintain the
accuracy and integrity of the RUG-IV payment system.
Using our STRIVE data as a baseline, we have identified two very
significant changes in provider behavior related to the provision of
therapy services to Medicare beneficiaries in SNFs under RUG-IV. First,
we saw a major decrease in the amount of concurrent therapy performed
in SNFs. At the same time, we found a significant increase in the
amount of group therapy services which are not subject to the
allocation requirement. Given this increase in group therapy services,
we are concerned that the current method for reporting group therapy on
the MDS creates an inappropriate payment incentive to perform the less
intensive group therapy in place of individual therapy, because the
current method of reporting group therapy time does not require
allocation among patients. In addition, the allocation of concurrent
therapy minutes effective FY 2011 may have created an incentive to
perform group therapy in place of concurrent therapy in situations
where concurrent therapy may have otherwise been appropriate. After
further reviewing data associated with group therapy, we are proposing
to change our policies relating to group therapy as further discussed
below.
As noted above, we believe there are unique benefits to group
therapy. In group therapy, patients are performing similar activities.
Thus, in contrast to concurrent therapy, group therapy gives patients
the opportunity to benefit from each other's therapy regimen by
observing and interacting with one another, and applying the lessons
learned from others to one's own therapy program in order to progress.
Large groups, such as those of five or more participants, can make it
difficult for the participants to engage with one another over the
course of the session. In addition, we have long believed that
therapists could not adequately supervise large groups, and, since the
inception of the SNF PPS in July 1998, we have capped the number of
residents at four.
Furthermore, we believe that groups of fewer than four participants
do not maximize the group therapy benefit for the participants. As
discussed above, and in the FY 2010 proposed rule (74 FR 22223), the
unique benefit of group therapy comes from the interaction between
multiple patients, which permits them to observe and learn from one
another and apply the new information to their own program to progress
and benefit from the group therapy setting. We believe that in groups
of 2 or 3 participants, the opportunities for patients in the group to
interact and learn from each other are significantly diminished given
the small size of the group. Thus, we believe that groups of two or
three participants, given their small size, significantly limit the
ability of patients to derive the unique benefits associated with group

[[Page 26387]]

therapy. In such small groups, these limitations become even more
accentuated whenever one or two patients are absent from the therapy
session (in fact, with groups of two participants, if one patient is
absent from the session, there are no longer any patients with whom the
remaining participant can interact, thereby eliminating any benefit
that could be derived from participation in a group). Thus, for the
reasons discussed above, we believe that the most appropriate group
therapy size for the SNF setting is four, which we believe is the size
that permits the therapy participants to derive the maximum benefit
from the group therapy setting.
As discussed in the FY 2010 final rule, we are responsible for
determining Medicare 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''
(74 FR 40316). Thus, for purposes of payment under the Medicare SNF
PPS, for the reasons discussed above, we are proposing to establish a
standard that defines group therapy as therapy provided simultaneously
to four patients who are performing similar therapy activities.
Furthermore, as we have stated previously, the SNF PPS is based on
resource utilization and costs. We believe that when a therapist treats
four patients in a group for an hour, it does not cost the SNF four
times the amount (or four hours of a therapist's salary) to provide
those services. The therapist would appropriately receive one hour's
salary for the hour of therapy provided. Accordingly, we believe that
allocating group therapy minutes among the four group therapy
participants best captures the resource utilization associated with
providing a maximally beneficial group therapy intervention. For
therapists treating patients in a group setting, the full time spent by
the therapist with these patients would be divided by 4 (the number of
patients that comprise a group). For example, if a therapist spends 1
hour with four residents in a group therapy session, regardless of
payer source, then the time used to determine the appropriate RUG-IV
classification for each Medicare beneficiary receiving SNF care
benefits as part of a qualified Part A stay will be 15 minutes, or 60
minutes of total therapist time divided by four. These 15 minutes,
which may be referred to as the therapist's ``reimbursable therapy
minutes'' (RTM), are those minutes used to classify a patient for
therapy purposes. For each of the RUG-IV categories, it is the number
of reimbursable therapy minutes that is used to classify a given
patient into a therapy RUG-IV group. For example, if a therapist
provides 400 minutes of individual therapy, 200 minutes of concurrent
therapy, and 120 minutes of group therapy (given the proposed policy
change to group therapy discussed here), then the therapist's total RTM
would be 530, or 400 RTM for individual therapy, 100 RTM for concurrent
therapy, and 30 RTM for group therapy. The total of 530 RTM is what
would be used to determine the patient's appropriate RUG-IV
classification. We hope that defining this concept of a reimbursable
therapy minute will help clarify the number of minutes necessary to
reach certain RUG-IV categories, given the allocation policies
discussed here and in the FY 2010 proposed and final rules.
As is currently the procedure, the SNF would report the total
unallocated group therapy minutes on the MDS 3.0 (60 minutes in the
scenario above) for each patient. In terms of RUG-IV classification,
this total time would be allocated (that is, divided) among the four
group therapy participants to determine the appropriate number of RTM
and, therefore, the appropriate RUG-IV therapy group and payment level,
for each participant. The 25 percent cap on group therapy minutes, as
defined in the July 30, 1999 final rule (64 FR 41662) will remain in
effect, as we continue to believe that group therapy should serve only
as an adjunct to individual therapy. The 25 percent cap would be
applied to the patient's reimbursable group therapy minutes. In
addition, consistent with our current policy (64 FR 41662), the
supervising therapist may not be supervising any individuals other than
the four individuals who are in the group at the time of the therapy
session. We invite comments on our proposals to revise our group
therapy policies as discussed above, including the proposal to
establish a standard that defines group therapy as a service provided
to four patients, and the proposal to allocate group therapy minutes.
While we believe that group therapy can play an important role in
SNF patient care, we note that group therapy is not appropriate for
either all patients or for all conditions, and is primarily effective
as a supplement to individual therapy, which we maintain should be
considered the primary therapy mode and standard of care in therapy
services provided to SNF residents. As evidenced by the application of
a cap on the amount of group therapy services that may be provided to
SNF residents, we do not believe that a SNF providing the preponderance
of therapy in the form of group therapy would be demonstrating the
intensity of therapy appropriate to this most frail and vulnerable
nursing home population. Accordingly, we believe it is important to
clarify our expectations regarding the clinical documentation needed to
support each patient's plan of care, including the patient's prescribed
group therapy interventions, as further discussed below. Additionally,
we specifically solicit comments on the types of patients for which
group therapy may be appropriate, and the specific amounts of group
therapy that may be beneficial for these types of patients. We
anticipate using this information to assess the appropriate use of
group therapy in SNFs and may revise standards of group therapy care in
SNFs accordingly.
SNFs are currently required to prescribe the type, amount,
frequency, and duration of physical therapy, occupational therapy, and
speech-language pathology services in a patient's plan of care. Under
Sec. 409.23(c), Medicare pays for therapy services if they are
furnished, among other things, in accordance with a plan that meets the
requirements of Sec. 409.17(b) through (d). Section 409.17(c)(1)
states that the plan must prescribe ``the type, amount, frequency, and
duration of the physical therapy, occupational therapy, or speech-
language pathology services to be furnished to the individual.'' As
evidenced by the discussion of care planning and the qualifications for
skilled therapy services in Chapter 3, Section O of the RAI manual in
relation to item O0400, SNFs are expected to include supporting
documentation in each patient's medical record on an ongoing basis. We
further believe that such medical record documentation is needed so
that SNFs can verify that the plan of care is being followed. In
addition, we believe that such clinical documentation has always been
necessary so that SNFs can identify when significant changes in a
patient's medical condition occur requiring an unscheduled assessment,
such as a Significant Change in Status assessment. In fact, even when
the clinical change is unrelated to the therapy program, these
unscheduled assessments require completion of Section O, which reports
therapy minutes by individual, concurrent, and group modes. Finally, we
believe that such documentation has always been required so that
contractors can verify medical necessity when they review SNF claims.
Additionally, under Sec. 409.17(c)(2), SNFs must indicate ``the
diagnosis and anticipated goals'' associated with the

[[Page 26388]]

therapy services prescribed in accordance with Sec. 409.17(c)(1), as
described above. It is incumbent upon providers to ensure that skilled
therapy services provided to a given SNF resident are appropriate to
the goals of the patient's individualized plan of care. Thus, it should
be clear, based on the patient's medical record, therapy notes, and/or
other related documentation, how the prescribed skilled therapy
services contribute to the patient's anticipated progression toward the
prescribed goals. Because group therapy is not appropriate for either
all patients or all conditions, and in order to verify that group
therapy is medically necessary and appropriate to the needs of each
beneficiary, SNFs should include in the patient's plan of care an
explicit justification for the use of group, rather than individual or
concurrent, therapy. This description should include, but need not be
limited to, the specific benefits to that particular patient of
including the documented type and amount of group therapy; that is, how
the prescribed type and amount of group therapy will meet the patient's
needs and assist the patient in reaching the documented goals. In
addition, we believe that the above documentation is necessary to
demonstrate that the SNF is providing services to attain or maintain
the highest practicable physical, mental, and psychosocial well-being
of each resident in accordance with section 1819(b)(2) of the Act.
Should the actual utilization of therapy services deviate
significantly from the patient's plan of care, we expect the facility
to update the plan of care to prescribe the new type, amount,
frequency, and duration of physical therapy, occupational therapy, and
speech-language pathology services. Furthermore, we believe that such
changes to the mode and/or intensity of therapy must be justified by
changes in the beneficiary's underlying health condition; thus, in
order to demonstrate that such changes are medically necessary, the
provider should clearly describe in the plan of care the reasons for
deviating from the original care plan. Consistent with Sec. 409.17(c),
the revised care plan must outline the updated goals and the revised
type (that is, mode), amount, frequency, and duration of physical
therapy, occupational therapy, and speech-language pathology services
to be furnished to the patient.
In addition, with approximately 90 percent of the beneficiaries in
Medicare stays receiving therapy, changes in the mode, amount,
frequency, and/or duration of therapy services can have significant
payment implications when such changes also result in a
reclassification of the beneficiary's case-mix group. Under Sec.
413.343(b), SNFs are required to perform assessments on the 5th, 14th,
30th, 60th, and 90th days of posthospital SNF care, ``and such other
assessments that are necessary to account for changes in patient care
needs.'' The unscheduled assessments exist to capture changes in a
resident's skilled nursing or therapy needs outside the observation
window used for the scheduled PPS assessments. We expect that the data
reported in these required assessments, both scheduled and unscheduled,
provide an accurate representation of the skilled therapy and nursing
needs of the patient. Thus, if providers find changes in clinical and
therapy status which would affect the accuracy of a resident's most
recent assessment, then we would expect (as discussed above) that these
changes would be recorded in the patient's plan of care and medical
record, as well as through the use of unscheduled assessments, to
determine if a subsequent change in payment is necessary. However,
based on the available data, we believe that changes in resident status
outside the observation window do not always generate an unscheduled
assessment, as the changes, while significant for payment, do not
always rise to the level of a significant change in clinical status.
Additionally, in some cases, changes in therapy utilization levels may
even be unrelated to the patient's clinical condition but may be caused
by staffing constraints or facility practices. For these reasons, we
are proposing alternative solutions which would help capture perceived
changes in resident status, as discussed in section V.D below.

D. Proposed Changes to the MDS 3.0 Assessment Schedule and Other
Medicare-Required Assessments

Under section 1888(e)(6) of the Act, SNFs are required to provide
the Secretary, in a manner and within the timeframes prescribed by the
Secretary, the resident assessment data necessary to develop and
implement the payment rates. In order to receive proper payment for
services provided during Part A Medicare SNF stays, SNFs must perform
patient assessments in accordance with the assessment schedule outlined
in the May 12, 1998 interim final rule (63 FR 26265-26268) and, under
the discussion in that interim final rule, in accordance with the
guidelines found in the RAI Manual, version 3.0. As discussed
previously, the RAI Manual also includes the clarifications to the RAI
Manual posted on the MDS Web site at http://www.cms.gov/NursingHomeQualityInits/25_NHQIMDS30.asp. Following this schedule,
SNFs must currently ``perform patient assessments by the 5th day
(although there is a grace period that allows performance by the 8th
day) of the SNF stay, again by the 14th day, by the 30th day, and every
30 days thereafter as long as the patient is in a Medicare Part A
stay'' (63 FR 26265) (though there is a 5-day grace period for each of
the 14-, 30-, 60-, and 90-day assessments as reflected in sections 2.8
and 2.9 of the RAI Manual, version 3.0). The current assessment
schedule is also described at Sec. 413.343(b). As set forth in
sections 2.8 and 2.9 of the RAI Manual, version 3.0, these Medicare-
required assessments must be performed based on an Assessment Reference
Date (ARD) within the specified window, which is the end-point of the
observation period for the relevant MDS assessment.
After further review of the MDS 3.0 assessment schedule, we believe
that the combination of the current grace period allowance and
observation period could cause MDS assessments to be performed in such
a way that some of the information coded on a subsequent assessment is
duplicative of the previous assessment. For example, if a 5-day
assessment is completed with an ARD of day 8 of the Part A stay, and
the ARD for the 14-day assessment is set for day 11, then the patient's
status for four days of the stay will be coded twice for some items,
that is, on the 5-day Medicare-required assessment and the 14-day
Medicare-required assessment (because, given the 7-day lookback period
for some items, days 5 through 8 would overlap between the two
assessments). The intended purpose of the Medicare assessment schedule
was to capture the changes in the patient's status, especially during
the first few weeks of the Medicare stay. However, because the
observation periods overlap so closely, changes in the patient's status
are not reflected as originally intended. In addition, the ARD of the
30-day Medicare-required assessment may be set as early as day 21 of
the Medicare Part A stay, in which case, for some items the first day
of the observation period may be as early as day 15 (for items with a
7-day look back). For example, the patient may have the Brief Interview
for Mental Status (BIMS) conducted on day 15 and thus coded on the 30-
day Medicare-required assessment, which determines the RUG-IV group for
payment days 31-60. Thus, the payment based on the assessment would not
reflect the

[[Page 26389]]

patient's cognitive status near the 30th day of the stay, but instead
would actually reflect that status at the 15th day of the stay.
Given the implications of these scenarios for both care quality and
payment accuracy, we propose to modify the current Medicare-required
assessment schedule (Table 10A) to incorporate new assessment windows
and grace days, as indicated in Table 10B, with appropriate changes to
be made in the RAI Manual.

Table 10A--Current MDS 3.0 Assessment Schedule
----------------------------------------------------------------------------------------------------------------
Reason for Assessment
Medicare MDS assessment type assessment Assessment reference reference date Applicable medicare
(A0310B code) date window grace days payment days
----------------------------------------------------------------------------------------------------------------
5 day........................ 01 Days 1-5............. 6-8 1 through 14.
14 day....................... 02 Days 11-14........... 15-19 15 through 30.
30 day....................... 03 Days 21-29........... 30-34 31 through 60.
60 day....................... 04 Days 50-59........... 60-64 61 through 90.
90 day....................... 05 Days 80-89........... 90-94 91 through 100.
----------------------------------------------------------------------------------------------------------------

Table 10B--Proposed MDS 3.0 Assessment Schedule
----------------------------------------------------------------------------------------------------------------
Reason for Assessment
Medicare MDS assessment type assessment Assessment reference reference date Applicable medicare
(A0310B code) date window grace days payment days
----------------------------------------------------------------------------------------------------------------
5 day *...................... 01 Days 1-5............. 6-8 1 through 14.
14 day....................... 02 Days 13-14........... 15-18 15 through 30.
30 day....................... 03 Days 27-29........... 30-33 31 through 60.
60 day....................... 04 Days 57-59........... 60-63 61 through 90.
90 day....................... 05 Days 87-89........... 90-93 91 through 100.
----------------------------------------------------------------------------------------------------------------
* Changes would also apply to Readmission/Return Assessment (A0310B code = 06).

We believe that these proposed changes to the Medicare-required
assessment schedule will result in less duplication of information
coded on subsequent assessments, and will better capture the patient's
change in status, as well as the change in services/treatments, over
the course of the stay without creating undue burden on providers. We
also believe that ensuring the passage of a greater amount of time
between assessments would improve patient and provider satisfaction and
care quality, as it would not be necessary to repeat interview
questions and assessment items required on the MDS assessments within
such a short period of time. We solicit comments regarding these
proposed changes to the current MDS 3.0 assessment schedule.
In addition, with regard to the completion of unscheduled PPS
assessments, we wish to clarify a policy which first appeared in the FY
2010 final rule (74 FR 40347 through 40348). In the FY 2010 final rule
(74 FR 40347 through 40348), we finalized the policy that the ARD for
an End-of-Therapy (EOT) OMRA must be set 1 to 3 days after the
discontinuation of all therapies (speech-language pathology services
and occupational and physical therapies). Based on this policy, the EOT
OMRA must be completed, at the latest, when a patient has not received
therapy for three consecutive days (although we note that, as finalized
in the FY 2010 final rule (74 FR 40348), in determining the ARD, days
currently are counted differently for facilities that provide therapy
services 5 days per week as compared to facilities that provide therapy
services 7 days per week, as further discussed below). Further, in the
FY 2010 final rule (74 FR 40348), we cite the ``daily basis'' criteria
at Sec. 409.34(b) in order to clarify that a break in therapy of 1 or
2 days (such as may result from a brief illness or extreme fatigue),
would not necessarily result in a provider having to complete an EOT
OMRA. Thus, we are clarifying that, consistent with this policy and our
policy regarding setting the ARD for the completion of an EOT OMRA, an
EOT OMRA must be completed once such therapy services cease for three
consecutive days, regardless of the reason.
We note that some SNFs have expressed concern over the use of the
phrase ``discontinuation of therapy services.'' Therefore, we wish to
clarify what is meant by the phrase ``discontinuation of therapy
services'' as it applies to our policies governing completion of PPS
assessments. We recognize that there may be two types of
``discontinuation of therapy services.'' A discontinuation in therapy
services may be temporary; for example, in cases of illness, patient
refusal, or visits to a doctor's office. Such breaks in therapy
generally cannot be predicted in the plan of care and they may be
characterized as an ``unplanned'' discontinuation of therapy services.
These types of discontinuations usually reflect an expectation that
therapy will resume at some point. Alternatively, a discontinuation of
therapy services may be characterized as a ``planned'' discontinuation,
that is, the discontinuation is consistent with the patient's plan of
care such as when the patient has reached the prescribed therapy goals.
In the FY 2010 final rule, in finalizing our policy related to setting
the ARD for an EOT OMRA at 1 to 3 days after discontinuation of therapy
services, we did not distinguish between planned and temporary
unplanned discontinuation of therapy. Thus, the ARD for the EOT OMRA
must be set for Day 1 to 3 after the discontinuation, planned or
unplanned, of all therapy services. Accordingly, we are clarifying that
providers must complete an EOT OMRA for a patient classified in a RUG-
IV therapy group if that patient goes three consecutive days without
being furnished any therapy services, regardless of the reason for the
discontinuation of therapy. We believe this clarification of the policy
related to setting the ARD for the EOT OMRA, is consistent with the
intent of this policy as expressed in the FY 2010 proposed and final
rules (that is, to allow for more accurate classification of patients
based on services needed and provided to the patient) (74 FR 22246, 74
FR 40347-48), the discussion of this policy found in section 2.9.07 of
the MDS 3.0 RAI

[[Page 26390]]

Manual and MDS 3.0 training materials, which may be found at http://www.cms.gov/NursingHomeQualityInits/45_NHQIMDS30TrainingMaterials.asp,
as well as with the criteria set forth in 42 CFR 409.34(b), as
discussed above.
Accordingly, providers are required to complete an EOT OMRA in
cases where a resident who is currently assigned to a therapy RUG-IV
group has not received any therapy services for three consecutive days.
By completing the EOT OMRA, SNFs will be paid at the appropriate non-
therapy RUG-IV rate (starting the day following the last day that
therapy services were furnished to the patient), depending on other
relevant characteristics of the patient's condition. If therapy
resumes, the SNF may complete the optional Start-of-Therapy (SOT) OMRA,
which can be used to reclassify the patient into a therapy RUG-IV group
at any point during a resident's Part A SNF stay until completion of
the next regularly scheduled PPS assessment.
Following publication of the FY 2010 final rule, some SNFs have
expressed concern regarding the difficulty in determining if a given
facility should be considered a 5-day or 7-day facility, for the
purposes of setting the ARD for the EOT OMRA (that is, whether a
facility should be considered as providing therapy services 5 days per
week or 7 days per week). In the FY 2010 final rule, we discussed the
days to be counted toward the establishment of the ARD for the EOT
OMRA. In that rule (74 FR 40348), we stated ``when a facility only
provides therapy 5 days a week * * * the weekend days would not be
counted toward the establishment of the ARD for the end-of-therapy
OMRA.'' This policy has since caused significant confusion for
providers who might use weekends to make up for therapy that was not
provided during the week or who might only provide therapy on weekend
days when a holiday falls on a weekday, as it is unclear to such
providers whether they would be considered a 5-day facility or a 7-day
facility. As such, to alleviate this confusion and add greater clarity
and consistency to our policy regarding setting the ARD for the EOT
OMRA as discussed above, we propose to eliminate the distinction
between 5-day and 7-day facilities for purposes of setting the ARD for
the EOT OMRA. Accordingly, we propose that, effective October 1, 2011,
an EOT OMRA for a patient classified in a RUG-IV therapy group would be
required if that patient goes three consecutive calendar days without
being furnished any therapy services, regardless of whether the
facility is a 5-day or 7-day facility or the reason for the
discontinuation in therapy services. However, while the ARD for the EOT
OMRA would be required to be set by the third consecutive calendar day
after discontinuation of therapy services, as we discuss above and in
the FY 2010 final rule, the SNF also has the option of setting the ARD
for the EOT OMRA on day 1 or day 2 after therapy services have been
discontinued. Thus, if a facility (regardless of whether it is a 5-day
or 7-day facility) discontinues therapy on a Friday, the ARD for the
EOT OMRA would be required to be set for the immediately following
Saturday, Sunday, or Monday, if the patient has not been provided
therapy services in the interim. We believe that this proposed policy
of requiring all SNFs to set the ARD for the EOT OMRA by the third
consecutive calendar day after a patient's therapy services have been
discontinued, appropriately reflects that the frail and vulnerable
populations within SNFs require consistent therapy without significant
breaks in services. In addition, this policy is consistent with our
discussion of 42 CFR 409.34(b) in the FY 2010 final rule, in which a
break of 1 or 2 days would not necessarily result in a provider having
to complete an EOT OMRA. We invite comments on this proposed change to
our policy related to setting the assessment ARD for the EOT OMRA.
In addition, some providers have suggested that the completion of
an EOT OMRA and subsequent SOT OMRA may not be necessary for all
patients, particularly in cases where therapy services resume at the
same mode and intensity as the patient was receiving before the
discontinuation of therapy service. We have considered this issue and
we believe that, in some cases where an EOT OMRA has been completed and
therapy resumes shortly thereafter, an SOT OMRA may not be necessary to
establish the patient's clinical condition, specifically where the RUG-
IV classification level has not changed (as further discussed below).
For the reasons discussed below, we propose that, effective for
services provided on or after October 1, 2011, when an EOT OMRA has
been completed and therapy subsequently resumes, SNFs may complete an
End-of-Therapy Resumption (EOT-R) OMRA, rather than an SOT OMRA, in
cases where therapy services have ceased for a period of no more than 5
consecutive calendar days, and have resumed at the same RUG-IV
classification level that had been in effect prior to the EOT OMRA. In
the situation where therapy services have resumed within such a short
period of time at the same RUG-IV classification level, we do not
believe that a new therapy evaluation and SOT OMRA would be necessary
to reclassify the patient back into a RUG-IV therapy group because,
given that the therapy resumed at the same RUG-IV classification level,
it is likely that the patient's clinical condition has not changed.
Instead, the EOT-R OMRA may be used if the resumption date is no more
than 5 consecutive calendar days after the date of the last therapy
service furnished prior to the temporary discontinuation of therapy
service reported on the EOT OMRA. To allow resumption of therapy
reporting, two new items, O0450A and O0450B (Resumption of Therapy),
would be added to the EOT OMRA item set so that it may be used as an
EOT-R OMRA to report a resumption of therapy. These two new items would
only be completed on an EOT OMRA (A0310C = 2 or 3) when therapy has
resumed in the circumstances discussed above, for purposes of reporting
the resumption of therapy services. As discussed above, we propose that
the resumption of therapy must occur no more than 5 calendar days after
the date that all therapy ends in order for completion of an EOT-R ORMA
to be appropriate. For example, if therapy services are discontinued on
Day 35 of a stay, then therapy services must resume for that patient
(at the same level as the patient's RUG-IV classification prior to the
discontinuation) by Day 39 of the stay in order for SNFs to have the
option to complete an EOT-R OMRA for that patient. If therapy does not
resume until Day 40 or later, then the SNF may not choose to complete
an EOT-R OMRA under these circumstances. The resumption of therapy date
is reported on the EOT OMRA if that EOT OMRA has not been submitted and
accepted in the Quality Improvement and Evaluation System (QIES)
Assessment Submission and Processing (ASAP) system. If the EOT OMRA has
already been accepted in the ASAP system without a resumption of
therapy date, then the prior EOT OMRA record should be modified to add
the resumption of therapy date. No other changes should be made with
this modification.
In cases where therapy resumes more than five consecutive calendar
days from the discontinuation of therapy service, we believe it is
likely that the patient's clinical condition needs to be evaluated to
identify changes in clinical and/or therapy needs. Thus, in this case,
the SNF could either perform an optional SOT OMRA to classify the

[[Page 26391]]

patient into a RUG-IV therapy group, or wait until the completion of
the next regularly scheduled PPS assessment to classify the patient
into a RUG-IV therapy group, if such a classification is clinically
appropriate. In these situations, the therapist would be required to
conduct a therapy evaluation and establish a new therapy care plan for
the patient.
As discussed above, SNFs would set the ARD for the EOT OMRA 1 to 3
calendar days after the discontinuation of all therapies (speech-
language pathology services and occupational and physical therapies).
The EOT-R OMRA would include the same items as the EOT OMRA with the
addition of O0450A and O0450B as described above. We note that the EOT-
R OMRA would be an optional assessment. If therapy resumes after
completion of an EOT OMRA and the criteria are met for performance of
an EOT-R OMRA (as discussed above), the SNF would have the option of
performing the EOT-R OMRA, an SOT OMRA, or waiting until the next
regularly scheduled PPS assessment to assess the patient's clinical
condition. We solicit comments on our proposal to allow providers the
option to complete an EOT-R OMRA in the circumstances described above.
In accordance with section 2.9.07 of the RAI Manual, Version 3.0
(available online at https://www.cms.gov/NursingHomeQualityInits/45_NHQIMDS30TrainingMaterials.asp), completion of an EOT OMRA is required
``* * * when the resident was classified in a RUG-IV Rehabilitation
Plus Extensive Services or Rehabilitation group and continues to need
Part A SNF-level services after the discontinuation of all
rehabilitation therapies'' (emphasis added). Accordingly, we note that
a SNF's completion of an EOT OMRA does not automatically result in the
immediate termination of Part A coverage. Typically, a resident in this
situation will have ongoing medical conditions that are clearly of
sufficient intensity to justify continued coverage under one of the
non-therapy RUGs, based on the need for daily skilled nursing services.
Even when it may not be readily apparent that this is, in fact, the
case (for example, when a resident is assigned to one of the less
intensive RUGs, such as one that would result in receiving an
individual level of care determination under the administrative
presumption described in section II.E of this proposed rule), there may
still be a need for continued skilled services, as when skilled
observation is indicated for a resident whose overall medical condition
is precluding the resident from undergoing further therapy.
Moreover, even in situations where skilled rehabilitation is the
sole reason for the SNF stay, the temporary discontinuation of therapy
may not in itself necessarily have the effect of terminating coverage,
if it is followed shortly thereafter by a resumption of therapy. For
example, in discussing the effect of a brief absence from the facility
on a resident's continued ability to meet the SNF level of care
criterion of ``daily'' skilled rehabilitation, we noted in the FY 2000
final rule (64 FR 41670, July 30, 1999) that ``* * * the requirement
for daily skilled services should not be applied so strictly that it
would not be met merely because there is a brief, isolated absence from
the facility in a situation where discharge from the facility would not
be practical.'' Similarly, a resident who does not leave the facility
at all may nonetheless experience a temporary inability to undergo
therapy for such a brief period that discharge from the facility would
not be practical, as described in 42 CFR 409.34(b). However, as
discussed above, an EOT OMRA would need to be completed if the patient
goes three consecutive calendar days without therapy services,
regardless of the reason for the discontinuation of therapy services.
A related point on which we have recently received inquiries is the
manner in which these policies relate to the requirements for providing
an Advance Beneficiary Notice of Noncoverage (ABN). As explained in
Sec. 50.2.1 of the Medicare Claims Processing Manual, chapter 30
(available online at http://www.cms.gov/manuals/downloads/clm104c30.pdf), an ABN serves to notify a beneficiary of the provider's
belief ``* * * that an otherwise covered item or service may be denied
either as not reasonable and necessary under Sec. 1862(a)(1) of the
Act or because the item or service constitutes custodial care under
Sec. 1862(a)(9) of the Act.'' Section 70.2.3.1 describes the
triggering events for issuance of an SNF ABN.
In this context, it has been suggested by some providers that when
a facility furnishes therapy only on weekdays, it should routinely
issue an ABN every Friday afternoon in order to anticipate the
possibility that a given resident might be unable or unwilling to
undergo therapy on the following Monday, thereby triggering an EOT OMRA
and potentially causing the patient to drop below a covered level of
care in the SNF.
We would note at the outset that under the current policy set forth
in the FY 2010 final rule (74 FR 40348), a facility that provides
therapy services 5 days per week would not count the weekend days in
determining the ARD for the EOT OMRA and, thus, an EOT OMRA would not
necessarily be triggered if the patient were to be unwilling or unable
to undergo therapy on the following Monday. Nevertheless, we note that,
as discussed above, we are proposing in this rule to eliminate the
distinction between 5 and 7-day facilities for purposes of setting the
ARD for the EOT OMRA. Even so, it is still important to bear in mind
that, in this situation, the decision to issue an ABN is an
individualized action, and should not be applied across the board to
all patients. The ABN should not be provided merely because of the
possibility that the patient might be unwilling or unable to
participate in therapy the next day. There must be an actual
discontinuation of therapy before the SNF can anticipate that the
patient may enter into custodial care. In addition, it may not be the
case for every patient that the continued SNF stay would become
noncovered custodial care as a result of the cessation of therapy.
Thus, it is not until that point has actually been reached that the
issuance of an ABN would become appropriate. The ABN should inform the
beneficiary of the provider's belief that Medicare will no longer pay
for the SNF stay because the patient is unwilling or unable to continue
therapy and that therapy was the only reason the SNF stay was covered
by Medicare. This information will help the patient make an informed
decision about the potential consequences of failing to undergo the
therapy session.
However, we expect that these unplanned discontinuations in service
will be relatively rare. If such unplanned discontinuations in service
occur on a repeated basis, the provider should carefully evaluate
whether or not the patient continues to meet Medicare coverage
criteria.
Finally, as noted in section V.C above, we have found some cases
where therapy services recorded on a given PPS assessment did not
provide an accurate account of the therapy provided to a given resident
outside the observation window used for the most recent assessment. We
believe that when service levels change, whether inside or outside the
observation period, such changes should be based on medical evidence.
However, we have found that the current range of PPS assessments may
not permit SNFs adequate flexibility to report such changes in therapy
services outside the observation window. As discussed

[[Page 26392]]

above, based on the available data, we believe that changes in resident
status outside the observation window do not always generate an
unscheduled assessment, because the changes, while significant for
payment, do not always rise to the level of a significant change in
clinical status under Sec. 483.20(b)(2)(ii). Additionally, in some
cases, changes in therapy utilization levels may even be unrelated to
the patient's clinical condition but may be caused by staffing
constraints or facility practices.
Accordingly, we propose that, effective for services provided on or
after October 1, 2011, SNFs would be required to complete a Change of
Therapy (COT) OMRA, for patients classified into a RUG-IV therapy
group, whenever the intensity of therapy (that is, the total RTM
delivered) changes to such a degree that it would no longer reflect the
RUG-IV classification and payment assigned for a given SNF resident
based on the most recent assessment used for Medicare payment. The COT
OMRA would be a new type of required PPS assessment, which would use
the same item set as the current EOT OMRA. The ARD for the COT OMRA
would be set for Day 7 of a COT observation period, which is a rolling
7-day window beginning on the day following the ARD set for the most
recent scheduled or unscheduled PPS assessment (or beginning the day
therapy resumes in cases where an EOT-R OMRA is completed, as further
discussed below), and ending every 7 calendar days thereafter. For
example, if a facility sets the ARD for its 14-day assessment to Day
14, then Day 1 for the purposes of the COT observation period would be
Day 15 of the SNF stay, and the facility would be required to review
its therapy minutes for the week consisting of Days 15 through 21. The
ARD for the COT OMRA would then be set for Day 21, if the facility were
to determine that the total RTM has changed such that the RUG
classification found on the 14-day assessment (assuming no intervening
assessments) is no longer accurate. If the SNF were to determine that
the total RTM has not changed to such an extent that the RUG
classification on the 14-day assessment is no longer accurate (assuming
no intervening assessments), then the COT OMRA would not be completed
and the next evaluation of the patient's total RTM, for the purposes of
completing a COT OMRA, would occur on Day 28. We want to stress that
SNFs would be required to complete a COT OMRA only if a patient's total
RTM changes to such an extent that the patient's RUG classification,
based on their last PPS assessment, is no longer an accurate
representation of their current clinical condition. However, an
evaluation of the necessity for a COT OMRA (that is, an evaluation of
the patient's total RTM) must be completed every seven calendar days
starting from the day following the ARD set for the most recent
scheduled or unscheduled PPS assessment (or in the case of an EOT-R
OMRA, starting the day that therapy resumes, as discussed below).
In cases when an unscheduled assessment must be completed within a
COT observation period, then Day 1, for the purposes of setting the ARD
for the COT OMRA would be the day after the ARD set for the intervening
assessment or, in a case where the intervening assessment is an EOT-R
OMRA, Day 1 would be the day that therapy resumed. For example,
consider a patient for whom the ARD of the 30-day PPS assessment is set
to Day 30 and is classified into a RUG-IV therapy group. The patient
receives therapy on Days 31 through 35, does not receive therapy on
Days 36 through 39, but is expected to resume therapy on Day 40. In
this case, the SNF would have evaluated the patient's total RTM on Day
37. Assuming that the patient's total RTM is consistent with the
patient's RUG classification on the 30-day assessment (most recent
scheduled or unscheduled PPS assessment), then the next assessment that
the SNF must complete, given the above scenario, would be an EOT OMRA
with an ARD set for Day 36, Day 37, or Day 38 (given that therapy is
expected to resume on Day 40, we would advise the SNF to hold off on
submitting the EOT OMRA until after therapy has resumed, so that the
EOT OMRA may be modified into an EOT-R OMRA with an accurate resumption
date). Assuming therapy resumes on Day 40 at the same RUG
classification level and an EOT-R OMRA is completed, the COT
observation period for this patient would then begin on Day 40, and the
next evaluation of the patient's total RTM would be necessary on Day
46. In terms of payment for this patient, the SNF would be paid
beginning Day 31 at the rate for the RUG-IV therapy group determined on
the basis of the patient's clinical condition reported on the 30-day
assessment, paid for Days 36 through 39 at the corresponding non-
therapy rate, based on the patient's clinical condition reported on the
30-day assessment (because therapy services were discontinued on Day 36
and an EOT OMRA was completed) and, beginning Day 40, would resume
payment at the previous therapy rate (because therapy services resumed
at the same RUG classification level and an EOT-R OMRA was completed).
Given this scenario, the next evaluation of the patient's total RTM
should occur on Day 46.
It should be noted that this proposed policy regarding the COT
observation period and setting the ARD for completion of the COT OMRA
would be independent of the policy for setting the ARD for the EOT OMRA
as described previously. That is, if a patient classified in a RUG-IV
therapy group does not receive any therapy services for three
consecutive calendar days, then the provider would be required to
complete an EOT OMRA with an ARD not later than the third calendar day
(in accordance with the proposed policy discussed previously for
setting the ARD for an EOT OMRA), even if the provider completed a COT
OMRA during the temporary discontinuation of therapy service. For
example, in contrast to the previous scenario, if the evaluation of the
patient's total RTM on Day 37 reveals that the intensity of therapy
provided to the patient has changed to such a degree that it no longer
reflects the patient's RUG-IV classification as reported on the 30-day
assessment, then the SNF would be required to complete a COT OMRA, with
an ARD set for Day 37, which is the last day of that patient's COT
observation period. Assuming the patient is still classified into a
RUG-IV therapy group after completion of the COT OMRA, and all other
conditions of the above scenario remain the same, then the SNF would be
paid at the revised therapy RUG-IV rate beginning Day 31, the
corresponding non-therapy rate for Days 36 through 39, and would resume
payment at the revised RUG-IV therapy group rate beginning Day 40
(assuming therapy resumes at the same RUG classification level as
determined on the COT OMRA). As in the above scenario, the next
evaluation of the patient's total RTM would occur on Day 46. Thus, the
new RUG-IV group resulting from the COT OMRA would be billed starting
the first day of the COT observation period for which the COT OMRA was
completed, and would remain at this level until a new assessment is
completed which changes the patient's RUG-IV classification.
We believe that the COT OMRA would allow us to track changes in the
patient's condition and in the provision of therapy services more
accurately, resulting in improving the accuracy of reimbursement for
therapy services and enhancing the SNF's ability to provide quality
care to SNF residents. We invite

[[Page 26393]]

comments on this proposal to require a COT OMRA when the total RTM
changes to such a degree as to affect RUG-IV classification and
payment.

E. Discussion of Possible Future Initiatives

We are considering a number of possible future initiatives that may
help to ensure the long-term stability of the SNF PPS and further
improve the accuracy of the rate-setting process. Along with our broad,
ongoing objectives of ensuring stability and promoting accuracy of the
SNF PPS, this analysis has been prompted in particular by our recent
experience of needing to recalibrate the CMIs in 2 of the last 3 years.
Accordingly, we have begun to consider a number of possible future
modifications to certain aspects of the SNF PPS. We note that we are
not proposing new Medicare policy in this discussion of possible future
modifications, as we recognize that depending on how such modifications
are ultimately formulated, their actual implementation may require new
statutory authority.
We note that previous research by the Urban Institute, as cited in
Chapter 8 of MedPAC's June 2007 Report to Congress entitled ``Promoting
Greater Efficiency in Medicare'' (available online at http://www.medpac.gov/documents/jun07_entirereport.pdf), has recommended an
approach to therapy reimbursement based on actual patient need. This
approach would consider patient diagnosis and service needs to predict
and reimburse prospectively for an appropriate level of therapy. While
this methodology would eliminate reliance on the actual minutes of
therapy provided, we are evaluating ways to verify utilization to
prevent underutilization or overutilization of therapy services.
We are also more closely examining certain methodologies that could
make at least partial payment prospectively for therapy services based
on anticipated patient need, rather than solely on actual service
utilization. This could resemble the methodology already in use under
the home health PPS, in which the projected number of therapy visits on
the assessment completed at the start of the episode serves as the
initial basis for payment, but that projection is subsequently verified
against the actual visit information submitted in line-item detail on
the claim (please refer to Sec. 10.1.19.1 in Chapter 10 of the
Medicare Claims Processing Manual, which is available online at http://www.cms.gov/manuals/downloads/clm104c10.pdf). The advantage of this
type of approach is that it could target therapy payments and the
intensity of therapy provided to patients with those diagnoses and
conditions that are most likely to require such services.
A third possible approach would be to consider recalibrating the
CMIs every year in order to account for significant fluctuations and
changes in provider practices. Such a practice would be consistent with
findings in a December 2010 OIG report entitled ``Questionable Billing
by Skilled Nursing Facilities'' (report no. OEI-02-09-00202, available
online at http://oig.hhs.gov/oei/reports/oei-02-09-00202.pdf), in which
OIG noted a recent increase in questionable billings for higher-paying
RUGs. In addition, we note that MedPAC recently cited plans to examine
changes in SNF care costs and practice patterns as a possible prelude
to considering the desirability of totally rebasing the system (please
refer to page 10 of ``Assessing Payment Adequacy: Skilled Nursing
Facilities,'' January 13, 2011, available online at http://www.medpac.gov/transcripts/SNF%20Jan%202011%20public.pdf). Such an
approach, while not a change in the payment methodology per se, would
reestablish baseline expenditure levels using more recent data than the
1995 cost reports.

VI. The Skilled Nursing Facility Market Basket Index

Section 1888(e)(5)(A) of the Act requires us to establish a SNF
market basket index (input price index), that reflects changes over
time in the prices of an appropriate mix of goods and services included
in the SNF PPS. This proposed rule incorporates the latest available
projections of the SNF market basket index. We will incorporate updated
projections based on the latest available data when we publish the SNF
final rule. Accordingly, we have developed a SNF market basket index
that encompasses the most commonly used cost categories for SNF routine
services, ancillary services, and capital-related expenses.
Each year, we calculate a revised labor-related share based on the
relative importance of labor-related cost categories in the input price
index. Table 11 summarizes the updated labor-related share for FY 2012.

Table 11--Labor-Related Relative Importance, FY 2011 and FY 2012
------------------------------------------------------------------------
Relative Relative
importance, importance,
labor-related, labor-related,
FY 2011 10:2 FY 2012 11:1
forecast* forecast **
------------------------------------------------------------------------
Wages and salaries...................... 50.654 50.231
Employee benefits....................... 11.511 11.514
Nonmedical professional fees............ 1.320 1.308
Labor-intensive services................ 3.427 3.390
Capital-related (.391).................. 2.399 2.362
-------------------------------
Total............................... 69.311 68.805
------------------------------------------------------------------------
* Published in Federal Register; based on second quarter 2010 IHS Global
Insight Inc. forecast.
** Based on the first quarter 2011 IHS Global Insight forecast, with
historical data through the fourth quarter 2010.

A. Use of the Skilled Nursing Facility Market Basket Percentage

Section 1888(e)(5)(B) of the Act defines the SNF market basket
percentage as the percentage change in the SNF market basket index from
the average of the previous FY to the average of the current FY. For
the Federal rates established in this proposed rule, we use the
percentage increase in the SNF market basket index to compute the
update factor for FY 2012. This is based on the IGI (formerly DRI-WEFA)
first quarter 2011 forecast (with historical data through the fourth
quarter 2010) of the FY 2012 percentage increase in the FY 2004-based
SNF market basket index for routine,

[[Page 26394]]

ancillary, and capital-related expenses, which is used to compute the
update factor in this proposed rule. As discussed in section VI.C of
this proposed rule, this market basket percentage change is reduced by
the MFP adjustment as required by section 1888(e)(5)(B)(ii) of the Act.
Finally, as discussed in section I.A of this proposed rule, we no
longer compute update factors to adjust a facility-specific portion of
the SNF PPS rates, because the initial 3-phase transition period from
facility-specific to full Federal rates that started with cost
reporting periods beginning in July 1998 has expired.

B. Market Basket Forecast Error Adjustment

As discussed in the June 10, 2003, supplemental proposed rule (68
FR 34768) and finalized in the August 4, 2003, final rule (68 FR 46057
through 46059), 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, resulting in an increase of 3.26 percent.
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.G.2 of this proposed rule, as the difference between the estimated
and actual amounts of increase in the market basket index for FY 2010
(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
2012 do not include a forecast error adjustment.

C. Multifactor Productivity Adjustment

Section 3401(b) of the Affordable Care Act requires that, in FY
2012 (and in subsequent FYs), the market basket percentage under the
SNF payment system as described in section 1888(e)(5)(B)(i) is to be
reduced annually by the productivity adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act. As explained in the Senate Finance
Committee report that accompanied S.1796 (``America's Healthy Future
Act of 2009,'' the Senate's initial version of the health reform
legislation), the purpose of this type of productivity adjustment is to
help ensure that the market basket update, in accounting for changes in
the costs of goods and services used to provide patient care, also
reflects ``* * * increases in provider productivity that could reduce
the actual cost of providing services (such as through new technology,
fewer inputs, etc.)'' (S. Rep. No. 111-89 at 261). Specifically,
section 3401(a) of the Affordable Care Act amends section 1886(b)(3)(B)
of the Act to add clause (xi)(II), which sets forth the definition of
this productivity adjustment. The statute defines the productivity
adjustment to be equal to the 10-year moving average of changes in
annual economy-wide private nonfarm business multi-factor productivity
(MFP) (as projected by the Secretary for the 10-year period ending with
the applicable fiscal year, year, cost reporting period, or other
annual period) (the ``MFP adjustment''). The Bureau of Labor Statistics
(BLS) is the agency that publishes the official measure of private
nonfarm business MFP. Please see http:[sol][sol]www.bls.gov/mfp to
obtain the BLS historical published MFP data.
The projection of MFP is currently produced by IGI, an economic
forecasting firm. In order to generate a forecast of MFP, IGI
replicated the MFP measure calculated by the BLS, using a series of
proxy variables derived from IGI's U.S. macroeconomic models. These
models take into account a very broad range of factors that influence
the total U.S. economy. IGI forecasts the underlying proxy components,
such as Gross Domestic Product (GDP), capital, and labor inputs
required to estimate MFP, and then combines those projections according
to the BLS methodology. In Table 12, we identify each of the major MFP
component series employed by the BLS to measure MFP. We also provide
the corresponding concepts forecasted by IGI and determined to be the
best available proxies for the BLS series.

Table 12--Multifactor Productivity Component Series Employed by the
Bureau of Labor Statistics and IHS Global Insight
------------------------------------------------------------------------
BLS series IGI series
------------------------------------------------------------------------
Real value-added output, constant 2005 Non-housing non-government non-
dollars. farm real GDP, Billions of
chained 2005 dollars--annual
rate.
Private non-farm business sector labor Hours of all persons in private
input; 2005 = 100.00. nonfarm establishments, 2005 =
100.00, adjusted for labor
composition effects.
Aggregate capital inputs; 2005 = 100.00 Real effective capital stock
used for full employment GDP,
Billions of chained 2005
dollars.
------------------------------------------------------------------------

IGI found that the historical growth rates of the BLS components
used to calculate MFP and the IGI components identified are consistent
across all series and, therefore, suitable proxies for calculating MFP.
We have included below a more detailed description of the methodology
used by IGI to construct a forecast of MFP, which is aligned closely
with the methodology employed by the BLS. For more information
regarding the BLS method for estimating productivity, please see the
following link: http://www.bls.gov/mfp/mprtech.pdf.
At the time of this proposed rule, the BLS has published a
historical time series of private nonfarm business MFP for 1987 through
2009, with 2009 being a preliminary value. Using this historical MFP
series and the IGI forecasted series, IGI has developed a forecast of
MFP for 2010 through 2021, as described below.
To create a forecast of BLS' MFP index, the forecasted annual
growth rates of the ``non-housing, nongovernment, non-farm, real GDP,''
``hours of all persons in private nonfarm establishments adjusted for
labor composition,'' and ``real effective capital stock'' series
(ranging from 2010 to 2021) are used to ``grow'' the levels of the
``real value-added output,'' ``private non-farm business sector labor
input,'' and ``aggregate capital input'' series published by the BLS.
Projections of the ``hours of all persons'' measure are calculated
using the difference between

[[Page 26395]]

the projected growth rates of real output per hour and real GDP. This
difference is then adjusted to account for changes in labor composition
in the forecast interval. Using these three key concepts, MFP is
derived by subtracting the contribution of labor and capital inputs
from output growth. However, in order to estimate MFP, we need to
understand the relative contributions of labor and capital to total
output growth. Therefore, two additional measures are needed to
operationalize the estimation of the IGI MFP projection: Labor
compensation and capital income. The sum of labor compensation and
capital income represents total income. The BLS calculates labor
compensation and capital income (in current dollar terms) to derive the
nominal values of labor and capital inputs. IGI uses the
``nongovernment total compensation'' and ``flow of capital services
from the total private non-residential capital stock'' series as
proxies for the BLS's income measures. These two proxy measures for
income are divided by total income to obtain the shares of labor
compensation and capital income to total income. In order to estimate
labor's contribution and capital's contribution to the growth in total
output, the growth rates of the proxy variables for labor and capital
inputs are multiplied by their respective shares of total income. These
contributions of labor and capital to output growth are subtracted from
total output growth to calculate the ``change in the growth rates of
multifactor productivity'' using the following formula:

MFP = Total output growth -- ((labor input growth * labor compensation
share) + (capital input growth * capital income share))

The change in the growth rates (also referred to as the compound growth
rates) of the IGI MFP are multiplied by 100 in order to calculate the
percent change in growth rates (the percent change in growth rates is
published by the BLS for its historical MFP measure). Finally, the
growth rates of the IGI MFP are converted to index levels based to 2005
to be consistent with the BLS' methodology. For benchmarking purposes,
the historical growth rates of IGI's proxy variables were used to
estimate a historical measure of MFP, which was compared to the
historical MFP estimate published by the BLS. The comparison revealed
that the growth rates of the components were consistent across all
series and, therefore, validated the use of the proxy variables in
generating the IGI MFP projections. The resulting MFP index was then
interpolated to a quarterly frequency using the Bassie method for
temporal disaggregation. The Bassie technique utilizes an indicator
(pattern) series for its calculations. IGI uses the index of output per
hour (published by the BLS) as an indicator when interpolating the MFP
index.
1. Incorporating the Multifactor Productivity Adjustment Into the
Market Basket Update
According to section 1888(e)(5)(A) of the Act, the Secretary
``shall establish a skilled nursing facility market basket index that
reflects changes over time in the prices of an appropriate mix of goods
and services included in covered skilled nursing facility services.''
As described in section I.G.2 of this proposed rule, we are proposing
to estimate the SNF PPS market basket percentage for FY 2012 under
section 1888(e)(5)(B)(i) of the Act based on the FY 2004-based SNF
market basket. Section 3401(b) of the Affordable Care Act amends
section 1888(e)(5)(B) of the Act, in part, by adding a new clause (ii),
which requires that for FY 2012 and each subsequent FY, after
determining the market basket percentage described in section
1888(e)(5)(B)(i) of the Act, ``the Secretary shall reduce such
percentage by the productivity adjustment described in section
1886(b)(3)(B)(xi)(II)'' (which we refer to as the MFP adjustment).
Section 1888(e)(5)(B)(ii) of the Act further states that the reduction
of the market basket percentage by the MFP adjustment may result in the
market basket percentage being less than zero for a FY, and may result
in payment rates under section 1888(e) of the Act for a FY being less
than such payment rates for the preceding FY. Thus, if the application
of the MFP adjustment to the market basket percentage calculated under
section 1888(e)(5)(B)(i) results in an MFP-adjusted market basket
percentage that is less than zero, then the annual update to the
unadjusted Federal per diem rates under section 1888(e)(4)(E)(ii) would
be negative, and such rates would decrease relative to the prior FY.
To calculate the MFP-adjusted update for the SNF PPS, we propose
that the MFP percentage adjustment will be subtracted from the FY 2012
market basket percentage calculated using the FY 2004-based SNF market
basket. We propose that the end of the 10-year moving average of
changes in the MFP should coincide with the end of the appropriate FY
update period. Since the market basket percentage is reduced by the MFP
adjustment to determine the annual update for the SNF PPS, we believe
it is appropriate for the numbers associated with both components of
the calculation (the market basket percentage and the productivity
adjustment) to be projected as of the same end date so that changes in
market conditions are aligned. Therefore, for the FY 2012 update, the
MFP adjustment would be calculated as the 10-year moving average of
changes in MFP for the period ending September 30, 2012. We propose to
round the final annual adjustment to the one-tenth of one percentage
point level up or down as applicable according to conventional rounding
rules (that is, if the number we are rounding is followed by 5, 6, 7,
8, or 9, we will round the number up; if the number we are rounding is
followed by 0, 1, 2, 3, or 4, we will round the number down).
In accordance with section 1888(e)(5)(B)(i) of the Act, the market
basket percentage for FY 2012 for the SNF PPS is based on the 1st
quarter 2011 forecast of the FY 2004-based SNF market basket update,
which is estimated to be 2.7 percent. In accordance with section
1888(e)(5)(B)(ii) of the Act (as added by section 3401(b) of the
Affordable Care Act), this market basket percentage would then be
reduced by the MFP adjustment (the 10-year moving average of changes in
MFP for the period ending September 30, 2012) of 1.2 percent, which is
calculated as described above and based on IGI's 1st quarter 2011
forecast. The resulting MFP-adjusted market basket update would be
equal to 1.5 percent, or 2.7 percent less 1.2 percentage points.
Furthermore, in fiscal years where a forecast error adjustment is
applicable, we would first apply the forecast error adjustment to the
market basket percentage, before applying the MFP adjustment. As
discussed previously, in determining whether a forecast error
adjustment should be applied, CMS compares the forecasted market basket
percentage computed under section 1888(e)(5)(B)(i) of the Act for the
most recently available fiscal year for which there is final data to
the actual market basket percentage for that fiscal year. Because the
forecast error adjustment is intended to address errors in the forecast
of the market basket percentage, we believe that this adjustment is
part of the establishment of the appropriate market basket percentage
under section 1888(e)(5)(B)(i) of the Act. Section 1888(e)(5)(B)(ii) of
the Act (as added by section 3401(b) of the Affordable Care Act)
requires the MFP adjustment to be applied ``after determining the
percentage described in clause (i).'' Thus, we would apply the forecast
error adjustment (when applicable) to the market basket percentage
prior to

[[Page 26396]]

applying the MFP adjustment, to determine the update to the unadjusted
Federal per diem rates for a fiscal year.
Accordingly, we propose to revise Sec. 413.337 by adding a new
paragraph (d)(3) to require, for FY 2012 and each subsequent FY, that
the market basket index percentage change (as modified by any
applicable forecast error adjustment) be reduced by the MFP adjustment
described in section 1886(b)(3)(B)(xi)(II) of the Act in determining
the annual update of the unadjusted Federal per diem rates. Consistent
with section 1888(e)(5)(B)(ii) of the Act (as added by section 3401(b)
of the Affordable Care Act), Sec. 413.337(d)(3) would also state that
the reduction of the market basket percentage change by the MFP
adjustment may result in the market basket percentage change being less
than zero for a fiscal year, and may result in the unadjusted Federal
payment rates for a fiscal year being less than such payment rates for
the preceding fiscal year.
In addition, we propose to revise existing paragraphs (d)(1) and
(d)(2) of Sec. 413.337, as discussed below. First, we are proposing to
revise Sec. 413.337(d)(1) so that the text more accurately tracks the
corresponding statutory requirements at section 1888(e)(4)(E) of the
Act. Currently, Sec. 413.337(d)(1) does not reflect the amendments
made to section 1888(e)(4)(E)(ii) by section 311 of the BIPA (see
section I.D of this proposed rule). While we have always updated the
unadjusted Federal per diem rates in accordance with the requirements
set forth in section 1888(e)(4)(E)(ii) of the Act as amended by section
311 of the BIPA, we have inadvertently failed to update the regulation
text to conform with the BIPA requirements. Therefore, we now propose
to revise Sec. 413.337(d)(1) to conform with the current statutory
language in section 1888(e)(4)(E) as amended by section 311 of the
BIPA. Second, we propose to revise Sec. 413.337(d)(2) to specify the
existing thresholds we employ in determining whether a forecast error
adjustment is applicable.

D. Federal Rate Update Factor

Section 1888(e)(4)(E)(ii)(IV) of the Act requires that the update
factor used to establish the FY 2011 unadjusted Federal rates be at a
level equal to the 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, 2010 through
September 30, 2011 to the average market basket level for the period of
October 1, 2011 through September 30, 2012. Using this process, the
market basket update factor for FY 2012 SNF PPS unadjusted Federal
rates would be 2.7 percent. As required by section 1888(e)(5)(B) of the
Act, this market basket percentage is then reduced by the MFP
adjustment (the 10-year moving average of changes in MFP for the period
ending September 30, 2012) of 1.2 percent as described in section VI.C.
The resulting MFP-adjusted market basket update would be equal to 1.5
percent, or 2.7 percent less 1.2 percentage points. We used this MFP-
adjusted market basket update factor to compute the SNF PPS rate shown
in Tables 2 and 3.

VII. Consolidated Billing

Section 4432(b) of the BBA established a consolidated billing
requirement that places the Medicare billing responsibility for
virtually all of the services that the SNF's residents receive with the
SNF, except for a small number of services that the statute
specifically identifies as being excluded from this provision. As noted
previously in section I. of this proposed rule, subsequent legislation
enacted a number of modifications in the consolidated billing
provision.
Specifically, section 103 of the BBRA amended this provision by
further excluding a number of individual ``high-cost, low-probability''
services, identified by the Healthcare Common Procedure Coding System
(HCPCS) codes, within several broader categories (chemotherapy and its
administration, radioisotope services, and customized prosthetic
devices) that otherwise remained subject to the provision. We discuss
this BBRA amendment in greater detail in the proposed and final rules
for FY 2001 (65 FR 19231 through 19232, April 10, 2000, and 65 FR 46790
through 46795, July 31, 2000), as well as in Program Memorandum AB-00-
18 (Change Request 1070), issued March 2000, which is
available online at http://www.cms.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 therapy, occupational therapy, and speech-language
pathology services 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 through 24021, May
10, 2001, and 66 FR 39587 through 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 through 45819,
July 30, 2004), as well as in Medicare Learning Network (MLN) Matters
article MM3575, which is available online at http://www.cms.gov/MLNMattersArticles/downloads/MM3575.pdf.
Further, while not substantively revising the consolidated billing
requirement itself, a related provision was enacted in the Medicare
Improvements for Patients and Providers Act of 2008 (MIPPA, Pub. L.
110-275). Specifically, section 149 of MIPPA amended section
1834(m)(4)(C)(ii) of the Act to add subclause (VII), which adds SNFs
(as defined in section 1819(a) of the Act) to the list of entities that
can serve as a telehealth ``originating site'' (that is, the location
at which an eligible individual can receive, through a
telecommunications system, services of 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
Physician Fee Schedule final rule (73 FR 69726), 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

[[Page 26397]]

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 MLN Matters article
MM6215, which is available online at http://www.cms.gov/MLNMattersArticles/downloads/MM6215.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 * * *.'' By
contrast, we noted that the Congress declined to designate for
exclusion any of the remaining services within those four categories
(thus leaving all of those services subject to SNF consolidated
billing), because they are relatively inexpensive and are furnished
routinely in SNFs.
As we further explained in the final rule for FY 2001 (65 FR 46790,
July 31, 2000), and as our longstanding policy, any additional service
codes that we might designate for exclusion under our discretionary
authority must meet the same statutory criteria used in identifying the
original codes excluded from consolidated billing under section 103(a)
of the BBRA: They must fall within one of the four service categories
specified in the BBRA, and they also must meet the same standards of
high cost and low probability in the SNF setting, as discussed in the
BBRA Conference report. Accordingly, we characterized this statutory
authority to identify additional service codes for exclusion ``* * * as
essentially affording the flexibility to revise the list of excluded
codes in response to changes of major significance that may occur over
time (for example, the development of new medical technologies or other
advances in the state of medical practice)'' (65 FR 46791). In this
proposed rule, we specifically invite public comments identifying codes
in any of these four service categories (chemotherapy items,
chemotherapy administration services, radioisotope services, and
customized prosthetic devices) representing recent medical advances
that might meet our criteria for exclusion from SNF consolidated
billing. We may consider excluding a particular service if it meets our
criteria for exclusion as specified above. Commenters should identify
in their comments the specific HCPCS code that is associated with the
service in question, as well as their rationale for requesting that the
identified HCPCS code(s) be excluded.
We note that the original BBRA legislation (as well as the
implementing regulations) identified a set of excluded services by
means of specifying HCPCS codes that were in effect as of a particular
date (in that case, as of July 1, 1999). Identifying the excluded
services in this manner made it possible for us to utilize program
issuances as the vehicle for accomplishing routine updates of the
excluded codes, in order to reflect any minor revisions that might
subsequently occur in the coding system itself (for example, the
assignment of a different code number to the same service).
Accordingly, in the event that we identify through the current
rulemaking cycle any new services that would actually represent a
substantive change in the scope of the exclusions from SNF consolidated
billing, we would identify these additional excluded services by means
of the HCPCS codes that are in effect as of a specific date (in this
case, as of October 1, 2011). By making any new exclusions in this
manner, we could similarly accomplish routine future updates of these
additional codes through the issuance of program instructions.

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

In accordance with section 1888(e)(7) of the Act, as amended by
section 203 of the BIPA, Part A pays critical access hospitals (CAHs)
on a reasonable cost basis for SNF services furnished under a swing-bed
agreement. However, effective with cost reporting periods beginning on
or after July 1, 2002, the swing-bed services of non-CAH rural
hospitals are paid under the SNF PPS. As explained in the final rule
for FY 2002 (66 FR 39562, July 31, 2001), we selected this effective
date consistent with the statutory provision to integrate swing-bed
rural hospitals into the SNF PPS by the end of the SNF transition
period, June 30, 2002.
Accordingly, all non-CAH swing-bed rural hospitals have come under
the SNF PPS as of June 30, 2003. Therefore, all rates and wage indexes
outlined in earlier sections of this proposed rule for the SNF PPS also
apply to all non-CAH swing-bed rural hospitals. A complete discussion
of assessment schedules, the MDS and the transmission software (RAVEN-
SB for Swing Beds) appears in the final rule for FY 2002 (66 FR 39562,
July 31, 2001) and in the final rule for FY 2010 (74 FR 40288, August
11, 2009). As finalized in the FY 2010 SNF PPS final rule (74 FR 40356-
57), effective October 1, 2010, non-CAH swing-bed rural hospitals are
required to complete an MDS 3.0 swing-bed assessment which is limited
to the required demographic, payment, and quality items. The latest
changes in the MDS for swing-bed rural hospitals appear on the SNF PPS
Web site, http://www.cms.gov/snfpps.

[[Page 26398]]

IX. Provisions of the Proposed Rule

In this proposed rule, in addition to accomplishing the required
annual update of the SNF PPS payment rates, we also propose making the
following revisions to the regulation text:
As discussed previously in section VI.C of this proposed rule, we
are proposing to implement section 3401(b) of the Affordable Care Act
by revising Sec. 413.337. We would add a new paragraph (d)(3) to that
section to require that, for FY 2012 and each subsequent FY, the market
basket percentage change (as modified by any applicable forecast error
adjustment) be reduced by the MFP adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act in determining the annual update of
the unadjusted Federal per diem rates. In addition, consistent with
section 1888(e)(5)(B)(ii) of the Act (as added by section 3401(b) of
the Affordable Care Act), Sec. 413.337(d)(3) would also state that the
reduction of the market basket percentage change by the MFP adjustment
may result in the market basket percentage change being less than zero
for a fiscal year, and may result in the unadjusted Federal payment
rates for a fiscal year being less than such payment rates for the
preceding fiscal year.
Further, as discussed in section VI.C., we propose to revise
existing paragraphs (d)(1) and (d)(2) of Sec. 413.337 so that the text
more accurately tracks the corresponding statutory requirements at
section 1888(e)(4)(E) of the Act (Sec. 413.337(d)(1)), and to specify
the existing thresholds we apply in determining whether a forecast
error adjustment is appropriate (Sec. 413.337(d)(2)).
In addition, to implement section 6101 of the Affordable Care Act
as discussed previously in section V.A. of this proposed rule, we are
proposing to revise the reporting requirements that Medicare SNFs and
Medicaid nursing facilities must disclose at the time of enrollment and
when any change in ownership occurs. These reporting requirements will
occur in PECOS for Medicare SNFs, which will be revised to capture the
additional requirements. We are proposing to add a definition for
``additional disclosable party'' and ``organizational structure.'' We
also plan to require that these additional reporting requirements be
included among the changes that must be reported in accordance with
Sec. 424.516(e) and Sec. 455.104. Consistent with the requirements
set forth in section 6101 of the Affordable Care Act, we propose to
define an ``additional disclosable party'' to mean, with respect to a
Medicare SNF or Medicaid nursing facility, any person or entity (such
as a contractor, full- and part-time employee or consultant) that
exercises financial, operational, or managerial control over the
facility (or a part thereof); provides policies or procedures for any
of the operations of the facility, including policies or procedures
that establish clinical decision making capabilities directly related
to resident care; provides financial or cash management services to the
facility; leases or subleases real property to the facility or owns a
whole or part interest equal to or exceeding 5 percent of the total
value of such real property; or provides management or administrative
services, management or clinical consulting services, or accounting or
financial services to the facility. Broadly defined, this proposed
definition mirrors the statutory definition of ``additional disclosable
party,'' which is set forth at section 1124(c)(5)(A) of the Act. Given
the potentially broad nature of the term ``additional disclosable
parties,'' we understand that it may be difficult for SNFs and Medicaid
nursing facilities, under certain circumstances, to reasonably know
without explicit guidance which parties and individuals associated with
their facility are subject to the disclosure requirements discussed in
this section. Therefore, we specifically solicit comment on how best to
narrow the scope of the definition of this term to ensure that the
additional reporting requirements described in this section apply only
to those parties and individuals that are capable of exercising actual
operational, financial, or managerial control over the given facility
or performing any of the other functions specified in section 6101 of
the Affordable Care Act.
In addition, our proposed definition for ``organizational
structure'' mirrors the statutory definition for that term, which is
set forth at section 1124(c)(5)(D) of the Act. With respect to the
additional reporting requirements at Sec. 424.516(e) addressed by this
proposed rule, for a Medicare SNF defined at section 1819(a) of the
Act, we propose to define a ``managing employee'' to include
consultants and any individual who directly or indirectly manages,
advises or supervises any element of the practices, finances, or
operations of the facility.
In Sec. 424.516, we are proposing to add new paragraphs (e)(4) and
(e)(5). Paragraph (e)(4) includes the requirement that a Medicare SNF
or Medicaid nursing facility must report the name, title, and period of
service for each disclosable party. It observes that each Medicare SNF
or Medicaid nursing facility must also report the organizational
structure of each additional disclosable party of the facility and a
description of each additional disclosable party's relationship to the
facility and to one another. Proposed paragraph (e)(5) states that
Medicare SNFs (as defined in section 1819(a) of the Act) must certify
as a condition of participation and payment under the program under
Title XVIII of the Act that the information reported by the facility in
accordance with these regulations is, to the best of the facility's
knowledge, accurate and correct.
While we propose (as discussed in the preceding paragraph) to
collect the required information consistent with the requirements set
forth in Sec. 424.516, we also seek comment on a potential alternative
approach in which we would collect this information only upon
revalidation consistent with the requirements set forth in Sec.
424.515. In accordance with Sec. 424.515, Medicare SNFs generally
would be subject to revalidation requirements every 5 years. Paragraph
(d) of Sec. 424.515, however, provides for off-cycle revalidations. We
believe that an approach that requires a Medicare SNF to report the
additional requirements covered by this rule at the same time CMS
requires the Medicare SNF to revalidate with the Medicare program may
not only allow us to satisfy the legislative intent of collecting the
required additional information, but also may generally represent a
decreased burden on Medicare SNFs. Thus, we seek comment on this
approach.
We also propose to amend the definition of ``managing employee'' at
Sec. 455.101, with respect to a Medicaid nursing facility as defined
by section 1919(a) of the Act, to include a consultant who directly or
indirectly manages, advises or supervises any element of the practices,
finances, or operations of the facility. In addition, we propose to
include at Sec. 455.101 definitions of ``additional disclosable
party'' and ``organizational structure.'' Finally, we propose to add a
requirement to Sec. 455.104 regarding these new disclosure
requirements by Medicaid nursing facilities, which includes a
certification as a condition of participation and payment under the
program under Title XIX of the Act that the information reported by the
facility in accordance with these regulations is, to the best of the
facility's knowledge, accurate and correct.

[[Page 26399]]

X. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995 (PRA), we are required to
provide a 60-day notice in the Federal Register and solicit public
comments before a collection of information requirement is submitted to
OMB for review and approval. In order to evaluate fairly whether an
information collection should be approved by OMB, section 3506(c)(2)(A)
of the PRA requires that we solicit comments on the following issues:
Need for the information collection and its usefulness in
carrying out the proper functions of our agency.
Accuracy of our estimate of the information collection
burden.
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.
The information collection requirements referenced in this proposed
rule with regard to resident assessment information used to determine
facility payments are currently approved under OMB 0938-0739,
which relates to the Medicare PPS Assessment Form (MPAF) information
collection, and OMB 0938-0872, which relates to the Minimum
Data Set for Swing-Bed Hospitals. We note that this proposed rule will
not affect the burden associated with either of those collections.
With regard to the disclosure of information requirements included
in section V.A of this rule, we currently require nursing home
providers, including Medicare SNFs and Medicaid nursing facilities, to
report information about any individual or entity with a 5 percent or
greater ownership interest. As discussed in section IX. of this
proposed rule, we are proposing to revise existing regulations to
require that Medicare SNFs and Medicaid nursing facilities report the
following at the time of enrollment and when any change in ownership
occurs:
Each member of the governing body of the facility,
including the name, title, and period of service of each such member;
Each person or entity who is an officer, director, member,
partner, trustee, or managing employee of the facility, including the
name, title, and period of service of each such person or entity; and
Each person or entity who is an additional disclosable
party of the facility.
We are also requiring information on the organizational structure
of each additional disclosable party of the facility and a description
of the relationship of each such additional disclosable party to the
facility and to one another.
In connection with the proposed implementation of the disclosure of
ownership provisions set forth in section 6101 of the Affordable Care
Act, we note that if a provider wants to enroll in Medicare or maintain
its Medicare enrollment status, then the provider must complete the
application for enrollment (Form CMS-855A) and submit it to the
appropriate Medicare Administrative Contractor or Fiscal Intermediary.
Form CMS-855A will be revised so that it collects the additional
information required by this proposed rule from Medicare providers. (We
are seeking OMB approval for the revisions under notice and comment
periods separate from those associated with this proposed rule.) The
burden associated with this requirement is the time and effort
necessary to complete and submit the Form CMS-855A. While this
requirement is subject to the PRA, the associated burden has been
approved under OMB control number 0938-0685 with an expiration date of
1/31/2012.
Section V.D. of this proposed rule also contains a discussion of
information collections related to a new required resident assessment,
the COT OMRA. The following is a discussion of this new required PPS
assessment.
As discussed previously in section V.D of this proposed rule, we
are proposing to make certain modifications in the existing
requirements for completing OMRAs. We propose to introduce a new COT
OMRA, to be completed whenever the intensity of therapy (that is, the
total RTM) changes to such an extent that it would no longer reflect
the RUG-IV classification and payment assigned for a given SNF
resident, based on the resident's most recent assessment used for
Medicare payment. This will help to ensure that the SNF's payments
accurately reflect the amount of therapy actually being provided. We
have submitted a copy of this proposed rule to OMB for its review and
approval of the information collection requirements discussed herein.
SNFs would be required to complete a COT OMRA only when the
intensity of therapy actually being furnished changes to such a degree
that it would no longer reflect the RUG-IV classification and payment
assigned for a given SNF resident based on the most recent assessment
used for Medicare payment. The burden associated with this requirement
is the time and effort necessary to complete the COT OMRA, coding the
appropriate responses, and data reporting timeframes. Because providers
currently are not required to report RTM that occur outside the
observation window of a given PPS assessment, we do not have the
relevant data to predict with certainty the number of COT OMRAs that
may be required per year. However, we have attempted to use the
administrative data currently available as a reasonable proxy to
determine estimates of provider burden. We estimate that, based on
average burden associated with the EOT OMRA, which uses the same basic
item set as the proposed COT OMRA, it will take 50 minutes (0.83 hours)
to collect the information necessary for coding a COT OMRA, 10 minutes
(0.17 hours) to code the responses, and 2 minutes (0.03 hours) to
transmit the results, or a total of 62 minutes (1.03 hours) to complete
a single COT OMRA. The estimated cost per COT OMRA is $33.84, as
discussed below.
Based on information from the Bureau of Labor Statistics of May,
2009 and a 30 percent benefits rate, we estimated hourly wage rates for
a Registered Nurse (RN), and for a data operator. MDS preparation costs
were estimated using RN hourly wage rates based on $56,060 per year,
which amounts to $0.45 per minute without consideration of employee
benefits, and $0.58 per minute after increasing the rate by 30 percent
to account for employee benefit compensation. For coding functions, we
used a blended rate of $41,090; this was the average for RNs ($56,060/
year) and data operators ($26,120/year). The blended rate calculates to
$0.33 per minute without consideration of employee benefits, and $0.43
per minute after increasing the rate by 30 percent to account for
employee benefit compensation. The blended rate of RN and data operator
wages reflects that SNF providers historically have used both RN and
support staff for the data entry function. For transmission personnel,
we used data operator wages of $26,120 per year, or $0.21 per minute
without consideration of employee benefits, and $0.27 per minute after
increasing the rate by 30 percent to account for employee benefit
compensation. The total amount of time for a single COT OMRA is 62
minutes (1.03 hours), consisting of 50 minutes (0.8333 hours) of RN
time for preparation, 10 minutes (0.1667 hours) of blended RN/data
operator time for coding, and 2 minutes (0.0333 hours) for data
operator time for transmission. This results in an average estimated
cost per COT OMRA of $33.84.

[[Page 26400]]

The number of stays for 2009 was approximately 2.26 million. Based
on a 30-day average length of stay for RUG-IV, we believe the average
number of times that a COT OMRA would need to be completed due to a
decrease in therapy is once per stay. Based on our review of FY 2011
first quarter data, we found that approximately 40 percent of the
claims resulted in assignment to a higher-than-projected Rehabilitation
RUG. A possible reason for the difference between projected and actual
FY 2011 RUG-IV case-mix utilization could involve instances where the
intensity of therapy actually being furnished changed (that is,
decreased) within the payment period to such a degree that it no longer
reflected the RUG-IV classification and payment assigned for a given
SNF resident based on the most recent assessment used for Medicare
payment. As discussed previously, if such changes or decreases in
therapy utilization occur outside the observation window of a given PPS
assessment, such changes currently are not captured on a resident
assessment, and the provider would continue to be reimbursed under a
higher-paying Rehabilitation RUG until the next PPS assessment.
For FY 2012, providers would be required to complete a COT OMRA in
these situations. Although we believe that only some of the 40 percent
difference is likely attributable to these instances, the 40 percent
would provide a quantifiable maximum burden estimate for these cases.
At this time, we are unable to determine other quantifiable estimates
for decreases in therapy utilization necessitating a COT OMRA. Using
the percentage of claims resulting in a higher-than-projected
Rehabilitation RUG as a way to estimate the maximum number of times
that a therapy decrease could result in the need for a COT OMRA, 40
percent or 813,074 stays could be affected. The total number of
estimated COT OMRAs per SNF for FY 2011 would be 57.
In addition, the COT OMRA can be used when providers increase the
amount of therapy provided. The Start-of-Therapy (SOT) OMRA represents
situations where therapy has increased to a level significant enough to
change the RUG to a therapy RUG. The estimate for the possible number
of times that a COT OMRA would be required due to an increase in
therapy uses the number of SOT OMRAs as a proxy. Using the number of
SOT OMRAs completed in the first quarter of FY 2011 projected for the
entire year, we estimate that the total COT OMRAs required due to an
increase in therapy would be 142,660, or 10 times per facility per
year. Therefore, the estimated total number of COT OMRAs per facility
per year is 67. The total annual hour burden for completing COT OMRAs
is estimated to be 796,414 hours for reporting, 159,320 hours for
coding, and 31,826 hours for transmission for a total burden of 987,560
hours for all 14,266 SNFs. Based on an average estimated cost per COT
OMRA of $33.84, we estimate that the additional annual cost across all
SNFs would be approximately $32.34 million, or $2,267.02 per facility.
Further, we note that the completion of an EOT-R OMRA, as proposed in
section V.D, would be entirely voluntary on the part of the facility
and, thus, would not represent the imposition of a mandatory burden.
If you comment on these information collection and recordkeeping
requirements, please do either of the following: Submit your comments
electronically as specified in the ADDRESSES section of this proposed
rule; or Mail copies to the address specified in the ADDRESSES section
of this proposed rule and to the Office of Information and Regulatory
Affairs, Room 10235, New Executive Office Building, Washington, DC
20503.
ATTN: CMS Desk Officer (CMS-1351-P).
Fax: (202) 395-6974.

XI. Response to Comments

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

XII. Economic Analyses

A. Regulatory Impact Analysis

1. Introduction
We have examined the impacts of this proposed rule as required by
Executive Order 12866 on Regulatory Planning and Review (September 30,
1993), Executive Order 13563 on Improving Regulation and Regulatory
Review (January 18, 2011), the Regulatory Flexibility Act (RFA)
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act,
section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA, March
22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August
4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct 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). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility. This rule has been designated an economically significant
rule, under section 3(f)(1) of Executive Order 12866. Accordingly, we
have prepared a regulatory impact analysis (RIA) as further discussed
below. Also, the rule has been reviewed by the Office of Management and
Budget.
2. Statement of Need
This proposed rule would update the SNF prospective payment rates
for fiscal year 2012 as required under section 1888(e)(4)(E) of the
Act. It also responds to section 1888(e)(4)(H) of the Act, which
requires the Secretary to ``provide for publication in the Federal
Register'' before the August 1 that precedes the start of each fiscal
year, the unadjusted Federal per diem rates, the case-mix
classification system, and the wage index values used in computing the
prospective payment rates for that fiscal year. As these statutory
provisions prescribe a detailed methodology for calculating and
disseminating payment rates under the SNF PPS, we do not have the
discretion to adopt an alternative approach.
3. Overall Impacts
If we implement the recalibration option in FY 2012, as described
above in section II.B.2, we estimate the aggregate impact would be a
net decrease of $3.94 billion in payments to SNFs, resulting from a
$530 million increase from the update to the payment rates and a $4.47
billion reduction from the recalibration of the case-mix adjustment.
However, if we implement the option of applying the standard update
without a recalibration for FY 2012, as described above in section
II.B.2, we estimate the aggregate impact would be a net increase of
$530 million in payments to SNFs, resulting from the update to the
payment rates. Accordingly, we have prepared a RIA that, to the best of
our ability, presents the costs and benefits of the rulemaking, with
respect to the two options presented in section II.B.2. of this
proposed rule
The update set forth in this proposed rule applies to payments in
FY 2012. Accordingly, the analysis that follows

[[Page 26401]]

only describes the impact of this single year. In accordance with the
requirements of the Act, we will publish a notice for each subsequent
FY that will provide for an update to the payment rates and include an
associated impact analysis.
The two options being considered regarding the recalibration of the
case-mix indexes are presented in section II.B.2. A detailed economic
impact analysis of these two options appears below.
4. Detailed Economic Analysis
This proposed rule sets forth updates of the SNF PPS rates
contained in the update notice for FY 2011 (75 FR 42886, July 22, 2010)
and the associated correction notice (75 FR 55801, September 14, 2010).
Based on the above, if we implement the recalibration option for FY
2012, we estimate that the aggregate impact would be a net decrease of
$3.94 billion in payments to SNFs, resulting from a $530 million
increase from the update to the payment rates and a $4.47 billion
reduction from the recalibration of the case-mix adjustment. If we do
not recalibrate the CMIs for FY 2012, as discussed in section II.B.2,
we estimate that the aggregate impact would be a net increase of $530
million in payments to SNFs, resulting primarily from the update to the
payment rates. The impact analysis of this proposed rule represents the
projected effects of the changes in the SNF PPS from FY 2011 to FY 2012
for each of these two possible options. We assess the effects by
estimating payments under each of the two options while holding all
other payment-related variables constant. Although the best data
available are 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.
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) and (e)(5) of the Act, we
update the payment rates for FY 2011 by a factor equal to the market
basket index percentage increase adjusted by the FY 2010 forecast error
adjustment (if applicable) and the MFP adjustment to determine the
payment rates for FY 2012. As discussed previously, for FY 2012 and
each subsequent FY, as required by section 1888(e)(5)(B) of the Act as
amended by section 3401(b) of the Affordable Care Act, the market
basket percentage is reduced by the MFP adjustment. 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 less than 3,500 beneficiaries who qualify for
the AIDS add-on payment. The impact to Medicare is included in the
``total'' column of Tables 13A and 13B. In updating the rates for FY
2012, we made a number of standard annual revisions and clarifications
mentioned elsewhere in this proposed rule (for example, the update to
the wage and market basket indexes used for adjusting the Federal
rates).
We estimate that if we were to implement the recalibration option
for FY 2012, the aggregate impact would be a net decrease of $3.94
billion in payments to SNFs, resulting from a $530 million increase
from the update to the payment rates and a $4.47 billion reduction from
the recalibration of the case-mix adjustment. If we do not implement
the recalibration option for FY 2012, we estimate that the aggregate
impact would be a net increase of $530 million in payments to SNFs,
resulting from the update to the payment rates. The FY 2012 impacts
that would result from implementing the recalibration option in FY 2012
are presented in Table 13A. The FY 2012 impacts that would result from
not implementing the recalibration of the case-mix indexes in FY 2012
are presented in Table 13B.

a. Impacts of Implementing the Recalibration Option for FY 2012

The breakdown of the various categories of data in Table 13A is as
follows.
The first column shows the breakdown of all SNFs by urban or rural
status, hospital-based or freestanding status, and census region.
The ``total'' row shows 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 19 rows show the
effects on urban versus rural status by census region. The last 3 rows
show the effects on ownership by government, profit and non-profit
status.
The second column in Table 13A shows the number of facilities in
the impact database.
The third column in Table 13A shows the effects of recalibrating
the nursing CMIs of the RUG-IV therapy groups. As explained previously
in section II.B.2 of this proposed rule, we are considering this
recalibration so that the CMIs more accurately reflect parity in
expenditures under the RUG-IV system introduced in FY 2011 relative to
payments under the previous RUG-53 system, based on our review of
initial FY 2011 claims data. The total impact of this change is a
decrease of 12.6 percent. We note that some individual providers may
experience larger decreases in payment than others due to case-mix
utilization.
The fourth column of Table 13A 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 fifth column of Table 13A shows the effect of all of the
changes on the FY 2012 payments. The update of 1.5 percent, consisting
of the market basket increase of 2.7 percentage points, reduced by the
1.2 percentage point MFP adjustment 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 11.3 percent,
assuming that facilities do not change their care delivery and billing
practices in response.
As shown in Table 13A, the combined effects of all of the changes
vary by specific types of providers and by location.

[[Page 26402]]

Table 13A--RUG-IV Projected Impact to the SNF PPS for FY 2012
[Includes recalibration of the case-mix indexes]
----------------------------------------------------------------------------------------------------------------
Number of Update wage Total FY 2012
facilities FY Revised CMIs data change
2012 (percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
Group:
Total....................................... 14,266 -12.6 0.0 -11.3
Urban....................................... 10,049 -12.8 0.0 -11.5
Rural....................................... 4,217 -11.9 0.1 -10.5
Hospital based urban........................ 421 -12.4 0.1 -11.1
Freestanding urban.......................... 9,628 -12.8 0.0 -11.5
Hospital based rural........................ 310 -11.4 0.0 -10.2
Freestanding rural.......................... 3,907 -11.9 0.1 -10.5
Urban by region: .............. .............. .............. ..............
New England................................. 792 -12.6 0.0 -11.3
Middle Atlantic............................. 1,391 -12.9 0.2 -11.5
South Atlantic.............................. 1,682 -12.8 -0.3 -11.7
East North Central.......................... 1,962 -12.9 -0.4 -11.9
East South Central.......................... 482 -12.7 -0.4 -11.8
West North Central.......................... 819 -12.8 0.3 -11.2
West South Central.......................... 1,134 -12.7 0.5 -10.9
Mountain.................................... 459 -12.8 0.2 -11.3
Pacific..................................... 1,325 -12.8 0.2 -11.3
Outlying.................................... 3 -3.7 1.1 -1.1
Rural by region: .............. .............. .............. ..............
New England................................. 137 -11.7 1.1 -9.4
Middle Atlantic............................. 233 -12.4 -0.1 -11.1
South Atlantic.............................. 546 -11.8 -0.1 -10.6
East North Central.......................... 867 -12.1 -0.1 -10.9
East South Central.......................... 455 -11.8 -0.5 -10.9
West North Central.......................... 984 -12.1 0.4 -10.4
West South Central.......................... 679 -11.7 0.9 -9.6
Mountain.................................... 204 -11.8 0.4 -10.2
Pacific..................................... 112 -11.8 -0.5 -11.0
Ownership: .............. .............. .............. ..............
Government.................................. 710 -12.5 -0.1 -11.3
Profit...................................... 9,959 -12.6 0.0 -11.3
Non-profit.................................. 3,597 -12.7 0.0 -11.4
----------------------------------------------------------------------------------------------------------------
Note: The Total column includes the 2.7 percent market basket increase, reduced by the 1.2 percentage point MFP
adjustment. Additionally, we found no SNFs in rural outlying areas.

b. Impacts of Not Implementing the Recalibration Option for FY 2012

The first column of Table 13B shows the breakdown of all SNFs by
urban or rural status, hospital-based or freestanding status, and
census region.
The ``total'' row of Table 13B 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 19 rows
show the effects on urban versus rural status by census region. The
last 3 rows show the effects on ownership by government, profit and
non-profit status.
The second column in Table 13B shows the number of facilities in
the impact database.
The third column in Table 13B 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 of Table 13B shows the effect of all of the
changes on the FY 2012 payments. The update of 1.5 percent, consisting
of the market basket increase of 2.7 percentage points, reduced by the
1.2 percentage point MFP adjustment is constant for all providers and,
though not shown individually, is included in the total column. It is
projected that aggregate payments will increase by 1.5 percent,
assuming that facilities do not change their care delivery and billing
practices in response.
As shown in Table 13B, the combined effects of all of the changes
vary by specific types of providers and by location.

Table 13B--RUG-IV Projected Impact to the SNF PPS for FY 2012
[Does not include recalibration of the case-mix indexes]
----------------------------------------------------------------------------------------------------------------
Number of Wage index Total impact
facilities (percent) (percent)
----------------------------------------------------------------------------------------------------------------
Group:
Total....................................................... 14,266 0.0 1.5
Urban....................................................... 10,049 0.0 1.5
Rural....................................................... 4,217 0.1 1.6
Hospital based urban........................................ 421 0.1 1.6
Freestanding urban.......................................... 9,628 0.0 1.5
Hospital based rural........................................ 310 0.0 1.5

[[Page 26403]]

Freestanding rural.......................................... 3,907 0.1 1.6
Urban by region:
New England................................................. 792 0.0 1.5
Middle Atlantic............................................. 1,391 0.2 1.7
South Atlantic.............................................. 1,682 -0.3 1.2
East North Central.......................................... 1,962 -0.4 1.1
East South Central.......................................... 482 -0.4 1.1
West North Central.......................................... 819 0.3 1.8
West South Central.......................................... 1,134 0.5 2.1
Mountain.................................................... 459 0.2 1.7
Pacific..................................................... 1,325 0.2 1.7
Outlying.................................................... 3 1.1 2.7
Rural by region:
New England................................................. 137 1.1 2.6
Middle Atlantic............................................. 233 -0.1 1.4
South Atlantic.............................................. 546 -0.1 1.4
East North Central.......................................... 867 -0.1 1.4
East South Central.......................................... 455 -0.5 1.0
West North Central.......................................... 984 0.4 1.9
West South Central.......................................... 679 0.9 2.4
Mountain.................................................... 204 0.4 1.9
Pacific..................................................... 112 -0.5 1.0
Ownership:
Government.................................................. 710 -0.1 1.4
Profit...................................................... 9,959 0.0 1.5
Non-profit.................................................. 3,597 0.0 1.5
----------------------------------------------------------------------------------------------------------------

The proposed implementation of the disclosure of ownership
requirements set forth in section 6101 of the Affordable Care Act (as
discussed previously in section V.A. of this proposed rule) will affect
all Medicaid nursing facilities and Medicare SNFs providing care to a
Medicare and/or Medicaid beneficiary. Currently, these facilities are
required to disclose information and maintain up-to-date information in
PECOS and/or OSCAR. Thus, these new requirements are an extension of
requirements to which the facility should already be accustomed to
maintain compliance. Also, the proposed new disclosure requirements do
not appear to impose any labor- or system-intensive burden on the
facilities.
We solicit comment on the economic impact analysis of the two
options presented in section II.B.2 (that is, recalibration and no
recalibration for FY 2012).
5. Alternatives Considered
As described above, if we implement the recalibration option for FY
2012, the aggregate impact would be a net decrease of $3.94 billion in
payments to SNFs, resulting from a $530 million increase from the
update to the payment rates and a $4.47 billion reduction from the
recalibration of the case-mix adjustment. If we move forward with the
option of applying the standard update without a recalibration for FY
2012, we estimate that the aggregate impact would be a net increase of
$530 million in payments to SNFs, resulting from the update to the
payment rates. 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). Further, 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.
Using our authority to establish an appropriate adjustment for case
mix under section 1888(e)(4)(G)(i) of the Act, this proposed rule
considers a recalibration of the adjustment to the nursing case-mix
indexes based on actual FY 2011 data. In the FY 2010 SNF PPS final rule
(74 FR 40339), we committed to monitoring the accuracy and
effectiveness of the parity adjustment to maintain budget neutrality.
We believe that using actual FY 2011 claims data to perform the
recalibration analysis may result in case-mix weights that better
reflect the resources used, produce more accurate payment, and
represent an appropriate case-mix adjustment. Using FY 2011 data would
be consistent with our intent to make the change from the RUG-53 model
to the RUG-IV model in a budget neutral manner, as described in the SNF
PPS final rule for FY 2010 (74 FR 40339).
In reviewing our initial projections, we found that the disparity
which formed the basis for our considering a recalibration of the
nursing case-mix indexes was at least partially the result of a shift
in the mode of therapy provided to beneficiaries in a Part A stay under
RUG-IV. The amount of concurrent therapy decreased significantly from
historical levels, with a portion of the SNFs reporting 0

[[Page 26404]]

minutes of concurrent therapy for all MDS 3.0s submitted during the FY
2011 sampling period. Many of these facilities reported large increases
in the amount of group therapy provided during the same time period.
During the period before we publish the final rule for FY 2012, we plan
to continue to collect and analyze MDS 3.0 and SNF PPS claims data to
confirm our preliminary assessment of the parity adjustment considered
in this rule. Then, in the final rule, we would use the expanded FY
2011 MDS 3.0 data and SNF PPS claims data to decide whether or not to
pursue the considered FY 2012 recalibration of the SNF PPS rates.
We considered various alternatives for implementing a recalibrated
case-mix adjustment. Most notably, as described previously in section
II.B.2 of this proposed rule, we considered applying a recalibration to
all nursing CMIs, irrespective of RUG category. However, we found that
such a recalibration most drastically affected non-therapy RUG groups,
which seemed incongruent with the perceived reasons for differences
between expected and actual utilization patterns, as noted in Table 4.
We will continue to monitor utilization trends in case such a
methodology might become more viable in the future.
In addition, we considered implementing partial adjustments to the
case-mix indexes over multiple years until parity was achieved.
However, we believe that this alternative 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
properly implementing and maintaining the integrity of the RUG-IV
classification methodology and the SNF PPS as a whole. Therefore, for
FY 2012, we are considering only the two options described in section
II.B.2 above. We solicit comment on the alternatives considered in this
analysis.
6. Accounting Statement
As required by OMB Circular A-4 (available online at http://www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/a-4.pdf), in Table 14, we have prepared an accounting statement
showing the classification of the expenditures associated with the
provisions of this proposed rule, based on whether or not we implement
the recalibration of the case-mix indexes. Tables 14A and 14B provide
our best estimate of the possible changes in Medicare payments under
the SNF PPS as a result of the policies in this proposed rule, based on
the data for 14,266 SNFs in our database. All expenditures are
classified as transfers to Medicare providers (that is, SNFs).

Table 14A--Accounting Statement: Classification of Estimated
Expenditures, From the 2011 SNF PPS Fiscal Year to the 2012 SNF PPS
Fiscal Year
[Including recalibration of case-mix indexes]
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............ -$3.94 billion.*
From Whom To Whom? Federal Government to SNF
Medicare Providers.
------------------------------------------------------------------------
* The net decrease of $3.94 billion in transfer payments is a result of
the decrease of $4.47 billion due to the proposed recalibration of the
case mix adjustment, together with the proposed market basket increase
of $530 million.

Table 14B--Accounting Statement: Classification of Estimated
Expenditures, From the 2011 SNF PPS Fiscal Year to the 2012 SNF PPS
Fiscal Year
[Without recalibration of case-mix indexes]
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............ $530 million. *
From Whom To Whom? Federal Government to SNF
Medicare Providers.
------------------------------------------------------------------------
* The net increase of $530 million in transfer payments is a result of
the proposed market basket increase of 1.5 percent.

7. Conclusion
If we implement the recalibration of the case-mix indexes, the
overall estimated payments for SNFs in FY 2012 are projected to
decrease by $3.94 billion, or 11.3 percent, compared with those in FY
2011. With this option, we estimate that under RUG-IV, SNFs in urban
and rural areas would experience, on average, an 11.5 and 10.5 percent
decrease, respectively, in estimated payments compared with FY 2011.
Providers in the urban East North Central region would experience the
largest estimated decrease in payments of approximately 11.9 percent.
If we do not implement the recalibration of the case-mix indexes for FY
2012, the overall estimated payments for SNFs in FY 2012 are projected
to increase by $530 million, or 1.5 percent, compared with FY 2011. We
estimate that under this option, SNFs in urban and rural areas would
experience, on average, a 1.5 and 1.6 percent increase, respectively,
in estimated RUG-IV payments compared with FY 2011. Outlying urban
providers and providers in the rural New England region would
experience the largest estimated increase in payments of 2.7 and 2.6
percent, respectively.
The disclosure of ownership requirements in section 6101 of the
Affordable Care Act that we now propose to implement involve necessary
information that would provide the public with a greater assurance that
there is transparency and, thus, improved oversight. We believe it was
the intent of Congress to complement that information which is already
being supplied by the facility. With that in mind, we propose specific
disclosure information that would identify the unique business and
operating structures of Medicare SNFs and Medicaid nursing facilities.
By providing PECOS and OSCAR with this more detailed facility ownership
information, this proposed revision would help ensure that program
expenditures are made in the most efficient and appropriate manner.

B. Regulatory Flexibility Act Analysis

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 entities. For purposes of the RFA, small entities
include small businesses, non-profit organizations, and small
governmental jurisdictions. Most SNFs and most other providers and
suppliers are small entities, either by their non-profit status or by
having revenues of $13.5 million or less in any 1 year. For purposes of
the RFA, approximately 91 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 details, see the Small Business Administration's Web site at
http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=2465b064ba6965cc1fbd2eae60854b11&rgn=div8&view=text&node=
13:1.0.1.1.16.1.266.9&idno=13). Individuals and States are not included
in the definition of a small entity. In addition, approximately 21
percent of SNFs classified as small entities are non-profit
organizations. Finally, the estimated number of small business entities
does not distinguish provider establishments that are within a single
firm and, therefore, the number of SNFs classified as small entities
may

[[Page 26405]]

be higher than the estimate above. We expect that the disclosure
requirements discussed in section V.A of this proposed rule will aid us
in determining which providers may be appropriately classified as small
entities.
This proposed rule updates the SNF PPS rates published in the
update notice for FY 2011 (75 FR 42886, July 22, 2010) and the
associated correction notice (75 FR 55801, September 14, 2010). We
estimate that implementing the recalibration option considered under
section II.B.2 above would result in a net decrease of $3.94 billion in
payments to SNFs for FY 2012. This would reflect a $530 million
increase from the update to the payment rates and a $4.47 billion
reduction from the recalibration of the case-mix adjustment. As
indicated in Table 13A, the estimated effect of this recalibration
option on facilities for FY 2012 would be an aggregate negative impact
of 11.3 percent. While it is projected in Table 13A that all providers
would experience a net decrease in payments, we note that some
individual providers may experience larger decreases in payments than
others due to the distributional impact of the FY 2012 wage indexes and
the degree of Medicare utilization.
Alternatively, we estimate that not implementing the recalibration
option considered under section II.B.2 above would result in a net
increase of $530 million in payments to SNFs for FY 2012, reflecting
the standard update to the payment rates. As indicated in Table 13B,
the estimated effect of this option on facilities for FY 2012 would be
an aggregate positive impact of 1.5 percent. While it is projected in
Table 13B that all providers would experience a net increase in
payments, we note that some individual providers may experience larger
increases in payments than others due to the distributional impact of
the FY 2012 wage indexes and the degree of Medicare utilization.
Guidance issued by the Department of Health and Human Services on
the proper assessment of the impact on small entities in rulemakings,
utilizes a cost or revenue impact of 3 to 5 percent as a significance
threshold under the RFA. According to MedPAC, Medicare covers
approximately 12 percent of total patient days in freestanding
facilities and 23 percent of facility revenue (March 2011). However, it
is worth noting that the distribution of days and payments is highly
variable. That is, the majority of SNFs have significantly lower
Medicare utilization. As a result, for most facilities, when all payers
are included in the revenue stream, the overall impact effect to total
revenues should be substantially less than those presented in Table
13A, which reflects the impacts of implementing the recalibration of
the case-mix indexes. However, not implementing the recalibration of
the case-mix indexes, as presented in Table 13B, yields an aggregate
positive net impact of 1.5 percent on all SNF providers, with outlying
urban providers and providers in the rural New England region
experiencing the largest estimated increase in payments of 2.7 and 2.6
percent, respectively. Therefore, the Secretary has determined that
this proposed rule may have a significant impact on a substantial
number of small entities, depending on the option considered (that is,
recalibration of the parity adjustment for FY 2012 or application of
the standard update without recalibration for FY 2012).
We offer an analysis of the alternatives considered in section
XII.A.5 of this proposed rule. The analysis above, together with the
remainder of this preamble, constitutes the initial regulatory
flexibility analysis. We solicit comment on the RFA analysis.
In addition, section 1102(b) of the Social Security Act requires us
to prepare a regulatory impact analysis if a rule may have a
significant impact on the operations of a substantial number of small
rural hospitals. This analysis must conform to the provisions of
section 603 of the RFA. For purposes of section 1102(b) of the Act, we
define a small rural hospital as a hospital that is located outside of
a Metropolitan Statistical Area and has fewer than 100 beds. The
proposed rule would 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 would be similar
to the impact on SNF providers overall. Therefore, the Secretary has
determined that this proposed rule may have a significant impact on the
operations of a substantial number of small rural hospitals, depending
on the option considered, as discussed above (that is, recalibration of
the parity adjustment for FY 2012 or application of the standard update
without recalibration for FY 2012).

C. Unfunded Mandates Reform Act Analysis

Section 202 of the Unfunded Mandates Reform Act of 1995 (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 2011, that
threshold is approximately $136 million. This proposed rule would not
impose spending costs on State, local, or Tribal governments in the
aggregate, or by the private sector, of $136 million.

D. Federalism Analysis

Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that impose substantial direct requirement costs on State
and local governments, preempts State law, or otherwise has Federalism
implications. This proposed rule would have no substantial direct
effect on State and local governments, preempt State law, or otherwise
have Federalism implications.

List of Subjects

42 CFR Part 413

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

42 CFR Part 424

Emergency medical services, Health facilities, Health professions,
Medicare, Reporting and recordkeeping requirements.

42 CFR Part 455

Fraud, Grant programs--health, Health facilities, Health
professions, Investigations, Medicaid, Reporting and recordkeeping
requirements.

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

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

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

Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and
(n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act
(42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n),
1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of
Public Law 106-133 (113 Stat. 1501A-332).

Subpart J--Prospective Payment for Skilled Nursing Facilities

2. Section 413.337 is amended by--
A. Revising paragraphs (d)(1) and (d)(2).
B. Adding paragraph (d)(3).

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The revisions and addition read as follows:

Sec. 413.337 Methodology for calculating the prospective payment
rates.

* * * * *
(d) * * *
(1) Update formula. The unadjusted Federal payment rate shall be
updated as follows:
(i) For the initial period beginning on July 1, 1998, and ending on
September 30, 1999, the unadjusted Federal payment rate is equal to the
rate computed under paragraph (b)(5)(iii) of this section increased by
a factor equal to the SNF market basket index percentage change for
such period minus 1 percentage point.
(ii) For fiscal year 2000, the unadjusted Federal payment rate is
equal to the rate computed for the initial period described in
paragraph (d)(1)(i) of this section increased by a factor equal to the
SNF market basket index percentage change for that period minus 1
percentage point.
(iii) For fiscal year 2001, the unadjusted Federal payment rate is
equal to the rate computed for the previous fiscal year increased by a
factor equal to the SNF market basket index percentage change for the
fiscal year.
(iv) For fiscal years 2002 and 2003, the unadjusted Federal payment
rate is equal to the rate computed for the previous fiscal year
increased by a factor equal to the SNF market basket index percentage
change for the fiscal year involved minus 0.5 percentage points.
(v) For each subsequent fiscal year, the unadjusted Federal payment
rate is equal to the rate computed for the previous fiscal year
increased by a factor equal to the SNF market basket index percentage
change for the fiscal year involved.
(2) Forecast error adjustment. Beginning with fiscal year 2004, an
adjustment to the annual update of the previous fiscal year's rate will
be computed to account for forecast error. The initial adjustment (in
fiscal year 2004) to the update of the previous fiscal year's rate will
take into account the cumulative forecast error between fiscal years
2000 and 2002. Subsequent adjustments in succeeding fiscal years will
take into account the forecast error from the most recently available
fiscal year for which there is final data. The forecast error
adjustment applies whenever the difference between the forecasted and
actual percentage change in the SNF market basket index exceeds the
following threshold:
(i) 0.25 percentage points for fiscal years 2004 through 2007; and
(ii) 0.5 percentage points for fiscal year 2008 and subsequent
fiscal years.
(3) Multifactor productivity (MFP) adjustment. For fiscal year 2012
and each subsequent fiscal year, the SNF market basket index percentage
change for the fiscal year (as modified by any applicable forecast
error adjustment under paragraph (d)(2) of this section) shall be
reduced by the MFP adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act. The reduction of the market basket
percentage change by the MFP adjustment may result in the market basket
percentage change being less than zero for a fiscal year, and may
result in the unadjusted Federal payment rates for a fiscal year being
less than such payment rates for the preceding fiscal year.
* * * * *

PART 424--CONDITIONS FOR MEDICARE PAYMENT

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

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

Subpart P--Requirements for Establishing and Maintaining Medicare
Billing Privileges

4. Section 424.502 is amended by--
A. Adding the definitions of ``Additional disclosable party'' and
``Organizational structure'' in alphabetical order.
B. Revising the definition of ``Managing employee''.
The revision and additions read as follows:

Sec. 424.502 Definitions.

* * * * *
Additional disclosable party means, with respect to a skilled
nursing facility defined at section 1819(a) of the Act, any person or
entity who--
(1) Exercises operational, financial, or managerial control over
the facility or a part thereof, or provides policies or procedures for
any of the operations of the facility, or provides financial or cash
management services to the facility;
(2) Leases or subleases real property to the facility, or owns a
whole or part interest equal to or exceeding 5 percent of the total
value of such real property; or
(3) Provides management or administrative services, management or
clinical consulting services, or accounting or financial services to
the facility.
* * * * *
Managing employee means a general manager, business manager,
administrator, director, or other individual that exercises operational
or managerial control over, or who directly or indirectly conducts, the
day-to-day operation of the provider or supplier, either under contract
or through some other arrangement, whether or not the individual is a
W-2 employee of the provider or supplier. With respect to the
additional requirements at Sec. 424.516(e) of this chapter for a
skilled nursing facility defined at section 1819(a) of the Act, a
``managing employee'' means an individual, including a general manager,
business manager, administrator, director, or consultant, who directly
or indirectly manages, advises, or supervises any element of the
practices, finances, or operations of the facility.
* * * * *
Organizational structure means, with respect to a skilled nursing
facility defined at section 1819(a) of the Act, in the case of--
(1) A corporation, the officers, directors, and shareholders of the
corporation who have an ownership interest in the corporation which is
equal to or exceeds 5 percent;
(2) A limited liability company, the members and managers of the
limited liability company including, as applicable, what percentage
each member and manager has of the ownership interest in the limited
liability company;
(3) A general partnership, the partners of the general partnership;
(4) A limited partnership, the general partners and any limited
partners of the limited partnership who have an ownership interest in
the limited partnership which is equal to or exceeds 10 percent;
(5) A trust, the trustees of the trust; and
(6) An individual, contact information for the individual.
* * * * *
6. Section 424.516 is amended by adding paragraphs (e)(4) and
(e)(5) to read as follows:

Sec. 424.516 Additional provider and supplier requirements for
enrolling and maintaining active enrollment status in the Medicare
program.

* * * * *
(e) * * *
(4) In addition, a skilled nursing facility (as defined by section
1819(a) of the Act) must report upon enrollment and within 30 days of
any change to the following information:
(i) The identity of and information on all of the following:
(A) Each member of the governing body of the facility, including
the name,

[[Page 26407]]

title, and period of service for each member.
(B) Each person or entity who is an officer, director, member,
partner, trustee, or managing employee (as defined in Sec. 424.502) of
the facility, including the name, title, and period of service of each
such person or entity.
(C) Each person or entity who is an additional disclosable party of
the facility, as defined in Sec. 424.502.
(ii) The organizational structure (as defined in Sec. 424.502 of
this chapter) of each additional disclosable party of the facility and
a description of the relationship of each such additional disclosable
party to the facility and to one another.
(5) A skilled nursing facility (as defined by section 1819(a) of
the Act) must certify as a condition of participation and payment under
the program under Title XVIII of the Act that the information reported
by the facility in accordance with these regulations is, to the best of
the facility's knowledge, accurate and current.
* * * * *

PART 455--PROGRAM INTEGRITY: MEDICAID

7. The authority citation for part 455 continues to read as
follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C.
1302).

Subpart B--Disclosure of Information by Providers and Fiscal Agents

8. Section 455.101 is amended by--
A. Adding the definitions of ``Additional disclosable party'' and
``Organizational structure'' in alphabetical order.
B. Revising the definition of ``Managing employee''.
The revision and additions read as follows:

Sec. 455.101 Definitions.

Additional disclosable party means any person or entity who--
(1) Exercises operational, financial, or managerial control over
the facility or a part thereof, or provides policies or procedures for
any of the operations of the facility, or provides financial or cash
management services to the facility;
(2) Leases or subleases real property to the facility, or owns a
whole or part interest equal to or exceeding 5 percent of the total
value of such real property; or
(3) Provides management or administrative services, management or
clinical consulting services, or accounting or financial services to
the facility.
* * * * *
Managing employee means a general manager, business manager,
administrator, director, or other individual who exercises operational
or managerial control over, or who directly or indirectly controls the
day-to-day operation of an institution, organization, or agency. With
respect to nursing facilities defined by section 1919(a) of the Act, a
``managing employee'' means an individual, including a general manager,
business manager, administrator, director, or consultant who directly
or indirectly manages, advises, or supervises any element of the
practices, finances, or operations of the facility.
Organizational structure means, in the case of--
(1) A corporation, the officers, directors, and shareholders of the
corporation who have an ownership interest in the corporation which is
equal to or exceeds 5 percent;
(2) A limited liability company, the members and managers of the
limited liability company including, as applicable, what percentage
each member and manager has of the ownership interest in the limited
liability company;
(3) A general partnership, the partners of the general partnership;
(4) A limited partnership, the general partners and any limited
partners of the limited partnership who have an ownership interest in
the limited partnership which is equal to or exceeds 10 percent;
(5) A trust, the trustees of the trust; and
(6) An individual, contact information for the individual.
* * * * *
9. Section 455.104 is amended by--
A. Redesignating paragraph (e) as paragraph (f).
B. Adding a new paragraph (e).
The addition reads as follows:

Sec. 455.104 Disclosure by Medicaid providers and fiscal agents:
Information on ownership and control.

* * * * *
(e) Disclosures from Medicaid nursing facilities. (1) What
disclosures must be provided. Medicaid nursing facilities must provide
all disclosures required for disclosing entities, above. In addition,
Medicaid nursing facilities (as defined by section 1919(a) of the Act)
must provide disclosures regarding additional disclosable parties,
organizational structure, and managing employees of the Medicaid
nursing facility, as defined in Sec. 455.101 of this part.
(i) These disclosures must include the identity of and information
on all of the following:
(A) Each member of the governing body of the facility, including
the name, title, and period of service for each member.
(B) Each person or entity who is an officer, director, member,
partner, trustee, or managing employee (as defined in Sec. 455.101) of
the facility, including the name, title, and period of service of each
such person or entity.
(C) Each person or entity who is an additional disclosable party
(as defined in Sec. 455.101) of the facility.
(ii) The organizational structure (as defined in Sec. 455.101) of
each additional disclosable party of the facility and a description of
the relationship of each such additional disclosable party to the
facility and to one another.
(2) When the disclosures must be provided. Medicaid nursing
facilities must provide all the disclosures to the State Medicaid
agency upon enrollment; on an annual basis to be determined by the
State Medicaid agency; and within 30 days after any change to any of
the above disclosures.
(3) Medicaid nursing facility's certification. Nursing facilities
(as defined by section 1919(a) of the Act) must certify as a condition
of participation and payment under the program under Title XIX of the
Act that the information reported by the facility in accordance with
these regulations is, to the best of the facility's knowledge, accurate
and current.
* * * * *

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

Dated: March 24, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
Approved: April 26, 2011.
Kathleen Sebelius,
Secretary.

[Note: The following Addendum will not appear in the Code of Federal
Regulations]

Addendum--FY 2012 CBSA Wage Index Tables

In this addendum, we provide the wage index tables referred to in
the preamble to this proposed rule. Tables A and B display the CBSA-
based wage index values for urban and rural providers.
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[FR Doc. 2011-10555 Filed 4-28-11; 4:15 pm]
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