[Federal Register Volume 79, Number 87 (Tuesday, May 6, 2014)]
[Proposed Rules]
[Pages 25767-25797]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-10319]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 488

[CMS-1605-P]
RIN 0938-AS07


Medicare Program; Prospective Payment System and Consolidated 
Billing for Skilled Nursing Facilities for FY 2015

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would update the payment rates used under 
the prospective payment system (PPS) for skilled nursing facilities 
(SNFs) for fiscal year (FY) 2015. In addition, it includes a proposal 
to adopt the most recent Office of Management and Budget (OMB) 
statistical area delineations to identify a facility's urban or rural 
status for the purpose of determining which set of rate tables would 
apply to the facility and to determine the SNF PPS wage index including 
a proposed one-year transition with a blended wage index for all 
providers for FY 2015. It also includes a discussion of the SNF therapy 
payment research currently underway within CMS. This proposed rule also 
proposes a revision to policies related to the Change of Therapy (COT) 
Other Medicare Required Assessment (OMRA). This proposed rule includes 
a discussion of a provision related to the

[[Page 25768]]

Affordable Care Act involving Civil Money Penalties. Finally, this 
proposed rule includes a discussion of observed trends related to 
therapy utilization among SNF providers and a discussion of 
accelerating health information exchange in SNFs.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on June 30, 2014.

ADDRESSES: In commenting, please refer to file code CMS-1605-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. Within the search bar, enter 
the Regulation Identifier Number associated with this regulation, 0938-
AS07, and then click on the ``Comment Now'' box.
    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-1605-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-1605-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:
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.
Karen Tritz, (410) 786-8021, for information related to Civil Money 
Penalties.
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.

Availability of Certain Tables Exclusively Through the Internet on the 
CMS Web Site

    In the past, tables setting forth the Wage Index for Urban Areas 
Based on CBSA Labor Market Areas and the Wage Index Based on CBSA Labor 
Market Areas for Rural Areas were published in the Federal Register as 
an Addendum to the annual SNF PPS rulemaking (that is, the SNF PPS 
proposed and final rules or, when applicable, the current update 
notice). However, as finalized in the FY 2014 SNF PPS final rule (78 FR 
47936, 47964), beginning in FY 2015, these wage index tables are no 
longer published in the Federal Register. Instead, these tables will be 
available exclusively through the Internet. The wage index tables for 
this proposed rule are available exclusively through the Internet on 
the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html.
    Readers who experience any problems accessing any of the tables 
that are posted on the CMS Web sites identified above should contact 
Kia Sidbury at (410) 786-7816.
    To assist readers in referencing sections contained in this 
document, we are providing the following Table of Contents.

Table of Contents

I. Executive Summary
    A. Purpose
    B. Summary of Major Provisions
    C. Summary of Cost and Benefits
II. Background
    A. Statutory Basis and Scope
    B. Initial Transition
    C. Required Annual Rate Updates
III. SNF PPS Rate Setting Methodology and FY 2015 Update
    A. Federal Base Rates
    B. SNF Market Basket Update
    1. SNF Market Basket Index
    2. Use of the SNF Market Basket Percentage
    3. Forecast Error Adjustment
    4. Multifactor Productivity Adjustment
    a. Incorporating the Multifactor Productivity Adjustment Into 
the Market Basket Update
    5. Market Basket Update Factor for FY 2015
    C. Case-Mix Adjustment
    D. Wage Index Adjustment
    E. Adjusted Rate Computation Example
IV. Additional Aspects of the SNF PPS
    A. SNF Level of Care--Administrative Presumption
    B. Consolidated Billing
    C. Payment for SNF-Level Swing-Bed Services
V. Other Issues
    A. Proposed Changes to SNF PPS Wage Index
    1. Background
    2. Proposed Implementation of New Labor Market Definitions
    a. Micropolitan Areas
    b. Urban Counties Becoming Rural
    c. Rural Counties Becoming Urban
    d. Urban Counties Moving to a Different Urban CBSA
    e. Transition Period
    3. Labor-Related Share
    B. SNF Therapy Research Project
    C. Proposed Revisions to Policies Related to the Change of 
Therapy (COT) Other Medicare Required Assessment (OMRA)

[[Page 25769]]

    D. Civil Money Penalties (Section 6111 of the Affordable Care 
Act)
    E. Observations on Therapy Utilization Trends
    F. Accelerating Health Information Exchange in the SNF PPS
VI. Provisions of the Proposed Rule
VII. Collection of Information Requirements
VIII. Response to Comments
IX. Economic Analyses
Regulation Text

Acronyms

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

AIDS Acquired Immune Deficiency Syndrome
ARD Assessment reference date
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999, Pub. L. 106-113
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000, Pub. L. 106-554
CAH Critical access hospital
CBSA Core-based statistical area
CFR Code of Federal Regulations
CMI Case-mix index
CMP Civil money penalties
CMS Centers for Medicare & Medicaid Services
COT Change of therapy
ECI Employment Cost Index
eCQM Electronically specified clinical quality measures
EHR Electronic health record
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
HCPCS Healthcare Common Procedure Coding System
HIE Health information exchange
HIT Health information technology
HOMER Home office Medicare records
ICR Information Collection Requirements
IGI IHS (Information Handling Services) Global Insight, Inc.
IPPS Inpatient Prospective Payment System
MDS Minimum data set
MFP Multifactor productivity
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Pub. L. 108-173
MSA Metropolitan statistical area
NAICS North American Industrial Classification System
NF Nursing facility
OMB Office of Management and Budget
OMRA Other Medicare Required Assessment
PAMA Protecting Access to Medicare Act of 2014, Pub. L 113-93
PPS Prospective Payment System
RAI Resident assessment instrument
RAVEN Resident assessment validation entry
RFA Regulatory Flexibility Act, Pub. L. 96-354
RHC Rural health clinic
RIA Regulatory impact analysis
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
UMRA Unfunded Mandates Reform Act, Pub. L. 104-4

I. Executive Summary

A. Purpose

    This proposed rule would update the SNF prospective payment rates 
for FY 2015 as required under section 1888(e)(4)(E) of the Act. It 
would also respond 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, 
certain specified information relating to the payment update (see 
section II.C.).

B. Summary of Major Provisions

    In accordance with sections 1888(e)(4)(E)(ii)(IV) and 1888(e)(5) of 
the Act, the federal rates in this proposed rule would reflect an 
update to the rates that we published in the SNF PPS final rule for FY 
2014 (78 FR 47936) which reflects the SNF market basket index, adjusted 
by the forecast error correction, if applicable, and the multifactor 
productivity adjustment for FY 2015.

C. Summary of Cost and Benefits

------------------------------------------------------------------------
       Provision description                   Total transfers
------------------------------------------------------------------------
Proposed FY 2015 SNF PPS payment    The overall economic impact of this
 rate update.                        proposed rule would be an estimated
                                     increase of $750 million in
                                     aggregate payments to SNFs during
                                     FY 2015.
------------------------------------------------------------------------

II. Background

A. Statutory Basis and Scope

    As amended by section 4432 of the Balanced Budget Act of 1997 (BBA, 
Pub. L. 105-33, enacted on August 5, 1997), section 1888(e) of the Act 
provides for the implementation of a PPS for SNFs. This methodology 
uses prospective, case-mix adjusted per diem payment rates applicable 
to all covered SNF services defined in section 1888(e)(2)(A) of the 
Act. The SNF PPS is effective for cost reporting periods beginning on 
or after July 1, 1998, and covers all costs of furnishing covered SNF 
services (routine, ancillary, and capital-related costs) other than 
costs associated with approved educational activities and bad debts. 
Under section 1888(e)(2)(A)(i) of the Act, covered SNF services include 
post-hospital extended care services for which benefits are provided 
under Part A, as well as those items and services (other than a small 
number of excluded services, such as physician services) for which 
payment may otherwise be made under Part B and which are furnished to 
Medicare beneficiaries who are residents 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). In addition, a detailed 
discussion of the legislative history of the SNF PPS is available 
online at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/Legislative_History_07302013.pdf.
    As noted in section I.F. of that legislative history, on March 23, 
2010, the Patient Protection and Affordable Care Act (Pub. L. 111-148) 
was enacted. Then, the Health Care and Education Reconciliation Act of 
2010 (Pub. L. 111-152, enacted on March 30, 2010) amended certain 
provisions of Pub. L. 111-148 and certain sections of the Social 
Security Act and, in certain instances, included ``freestanding'' 
provisions. In this proposed rule, Public Law 111-148 and Public Law 
111-152 are collectively referred to as the ``Affordable Care Act.'' In 
section V. of this proposed rule, we include discussions of one 
specific provision related to the Affordable Care Act involving Civil 
Money Penalties (as discussed in section V.D.).

B. Initial Transition

    Under sections 1888(e)(1)(A) and 1888(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

[[Page 25770]]

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 for SNFs entirely on the adjusted federal 
per diem rates, we no longer include adjustment factors under the 
transition related to facility-specific rates for the upcoming FY.

C. Required Annual Rate Updates

    Section 1888(e)(4)(E) of the Act requires the SNF PPS payment rates 
to be updated annually. The most recent annual update occurred in a 
final rule that set forth updates to the SNF PPS payment rates for FY 
2014 (78 FR 47936, August 6, 2013). We subsequently published two 
correction notices (78 FR 61202, October 3, 2013, and 79 FR 63, January 
2, 2014) with respect to that final rule, as well as a notice that made 
corrections to the January 2, 2014 correction notice (79 FR 1742, 
January 10, 2014).
    Section 1888(e)(4)(H) of the Act specifies that we provide for 
publication annually in the Federal Register of the following:
     The unadjusted federal per diem rates to be applied to 
days of covered SNF services furnished during the upcoming FY.
     The case-mix classification system to be applied for these 
services during the upcoming FY.
     The factors to be applied in making the area wage 
adjustment for these services.
    Along with other revisions discussed later in this preamble, this 
proposed rule would provide the required annual updates to the per diem 
payment rates for SNFs for FY 2015.

III. SNF PPS Rate Setting Methodology and FY 2015 Update

A. Federal Base Rates

    Under section 1888(e)(4) of the Act, the SNF 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 a ``Part B add-on,'' which is an estimate of the 
amounts that, prior to the SNF PPS, would have been 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 
geographic variations in wages and for the costs of facility 
differences in case mix. 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, and adjusted the portion of the federal rate 
attributable to wage-related costs by a wage index to reflect 
geographic variations in wages.

B. SNF Market Basket Update

1. SNF Market Basket Index
    Section 1888(e)(5)(A) 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. 
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. 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 2014 (78 FR 47939 through 47946), we revised and rebased the 
market basket, which included updating the base year from FY 2004 to FY 
2010.
    For the FY 2015 proposed rule, the FY 2010-based SNF market basket 
growth rate is estimated to be 2.4 percent, which is based on the IHS 
Global Insight, Inc. (IGI) first quarter 2014 forecast with historical 
data through fourth quarter 2013. In section III.B.5. of this proposed 
rule, we discuss the specific application of this adjustment to the 
forthcoming annual update of the SNF PPS payment rates.
2. Use of the SNF 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 midpoint of the previous FY to the midpoint of the current FY. For 
the federal rates set forth in this proposed rule, we use the 
percentage change in the SNF market basket index to compute the update 
factor for FY 2015. This is based on the IGI first quarter 2014 
forecast (with historical data through the fourth quarter 2013) of the 
FY 2015 percentage increase in the FY 2010-based SNF market basket 
index for routine, ancillary, and capital-related expenses, which is 
used to compute the update factor in this proposed rule. As discussed 
in sections III.B.3. and III.B.4. of this proposed rule, this market 
basket percentage change would be reduced by the forecast error 
correction (as described in Sec.  413.337(d)(2)) if applicable, and by 
the multifactor productivity adjustment as required by section 
1888(e)(5)(B)(ii) of the Act. Finally, as discussed in section II.B. of 
this proposed rule, we no longer compute update factors to adjust a 
facility-specific portion of the SNF PPS rates, because the initial 
three-phase transition period from facility-specific to full federal 
rates that started with cost reporting periods beginning in July 1998 
has expired.
3. 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 for market basket forecast error 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 to the FY 2004 update. 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 
the difference between the forecasted and actual change in the market 
basket when the difference 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 
for FY 2008 and subsequent fiscal years. As we stated in the final rule 
for FY 2004 that first issued the market basket forecast error 
adjustment (68 FR 46058, August 4, 2003), the adjustment will ``. . . 
reflect both upward and

[[Page 25771]]

downward adjustments, as appropriate.''
    For FY 2013 (the most recently available FY for which there is 
final data), the estimated increase in the market basket index was 2.5 
percentage points, while the actual increase for FY 2013 was 2.2 
percentage points, resulting in the actual increase being 0.3 
percentage point lower than the estimated increase. Accordingly, as the 
difference between the estimated and actual amount of change in the 
market basket index does not exceed the 0.5 percentage point threshold, 
the payment rates for FY 2015 do not include a forecast error 
adjustment. Table 1 shows the forecasted and actual market basket 
amounts for FY 2013.

            Table 1--Difference Between the Forecasted and Actual Market Basket Increases for FY 2013
----------------------------------------------------------------------------------------------------------------
                                                                Forecasted FY    Actual FY 2013      FY 2013
                            Index                              2013 increase *    increase **       difference
----------------------------------------------------------------------------------------------------------------
SNF..........................................................             2.5              2.2             -0.3
----------------------------------------------------------------------------------------------------------------
* Published in Federal Register; based on second quarter 2012 IGI forecast (2004-based index).
** Based on the first quarter 2014 IHS Global Insight forecast, with historical data through the fourth quarter
  2013 (2004-based index).

4. 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) of the Act 
is to be reduced annually by the productivity adjustment described in 
section 1886(b)(3)(B)(xi)(II) of the Act. Section 1886(b)(3)(B)(xi)(II) 
of the Act, added by section 3401(a) of the Affordable Care Act, 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 (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 multifactor productivity 
(MFP). Please see http://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. 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. This process is described 
in greater detail in section III.F.3. of the FY 2012 SNF PPS final rule 
(76 FR 48527 through 48529).
a. 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.'' 
Section 1888(e)(5)(B)(ii) of the Act, added by section 3401(b) of the 
Affordable Care Act, 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) of the Act 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) of 
the Act would be negative, and such rates would decrease relative to 
the prior FY.
    For the FY 2015 update, the MFP adjustment is calculated as the 10-
year moving average of changes in MFP for the period ending September 
30, 2015, which is 0.4 percent. Consistent with section 
1888(e)(5)(B)(i) of the Act and Sec.  413.337(d)(2) of the regulations, 
the market basket percentage for FY 2015 for the SNF PPS is based on 
IGI's first quarter 2014 forecast of the SNF market basket update, and 
is estimated to be 2.4 percent. In accordance with section 
1888(e)(5)(B)(ii) of the Act (as added by section 3401(b) of the 
Affordable Care Act) and Sec.  413.337(d)(3), 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, 2015) of 
0.4 percent, which is calculated as described above and based on IGI's 
first quarter 2014 forecast. The resulting MFP-adjusted SNF market 
basket update is equal to 2.0 percent, or 2.4 percent less 0.4 
percentage point.
5. Market Basket Update Factor for FY 2015
    Sections 1888(e)(4)(E)(ii)(IV) and 1888(e)(5)(i) of the Act require 
that the update factor used to establish the FY 2015 unadjusted federal 
rates be at a level equal to the market basket index percentage change. 
Accordingly, we determined the total growth from the average market 
basket level for the period of October 1, 2013 through September 30, 
2014 to the average market basket level for the period of October 1, 
2014 through September 30, 2015. This process yields an update factor 
of 2.4 percent. As further explained in section III.B.3. of this 
proposed rule, as applicable, we adjust the market basket update factor 
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 percentage change in the market 
basket exceeds a 0.5 percentage point threshold. Since the difference 
between the forecasted FY 2013 SNF market basket percentage change and 
the actual FY 2013 SNF market basket percentage change (FY 2013 is the 
most recently available FY for which there is final data) does not 
exceed 0.5 percentage point, the FY 2015 market basket of 2.4 percent 
would not be adjusted by the applicable difference. In addition, for FY 
2015, section 1888(e)(5)(B)(ii) of the Act requires us to reduce the 
market basket percentage by the MFP adjustment (the 10-year moving 
average of changes in MFP for the period ending September 30, 2015) of 
0.4 percent, as described in section III.B.4. of this proposed rule.

[[Page 25772]]

The resulting MFP-adjusted SNF market basket update would be equal to 
2.0 percent, or 2.4 percent less 0.4 percentage point. We note that if 
more recent data become available (for example, a more recent estimate 
of the SNF market basket, MFP adjustment, and/or FY 2004-based SNF 
market basket used for the forecast error calculation), we would use 
such data, if appropriate, to determine the FY 2015 SNF market basket 
update, FY 2015 labor-related share relative importance, and MFP 
adjustment in the FY 2015 SNF PPS final rule. We used the SNF market 
basket, adjusted as described above, to adjust each per diem component 
of the federal rates forward to reflect the change in the average 
prices for FY 2015 from average prices for FY 2014. We would 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 2015, prior to adjustment for case-
mix.
    While we would continue to compute and apply separate federal per 
diem rates for SNFs located in urban and rural areas as we have in the 
past, we propose to use the revised OMB statistical area delineations 
discussed in Section V.A below to identify a facility's urban or rural 
status for the purpose of determining which set of rate tables would 
apply to a facility beginning on October 1, 2014. We believe that the 
most current OMB delineations more accurately reflect the contemporary 
urban and rural nature of areas across the country, and that use of 
such delineations would allow us to more accurately determine the 
appropriate rate tables to apply under the SNF PPS. Thus, we believe it 
is appropriate to use the most current OMB delineations for this 
purpose, in order to enhance the accuracy of payments under the SNF 
PPS. We invite comments on this proposal.

                             Table 2--FY 2015 Unadjusted Federal Rate Per Diem Urban
----------------------------------------------------------------------------------------------------------------
                                               Nursing--case-   Therapy--case-   Therapy--non-
               Rate component                       mix              mix            case-mix       Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount.............................         $169.14          $127.41           $16.78           $86.32
----------------------------------------------------------------------------------------------------------------


                             Table 3--FY 2015 Unadjusted Federal Rate Per Diem Rural
----------------------------------------------------------------------------------------------------------------
                                               Nursing--case-   Therapy--case-   Therapy--non-
               Rate component                       mix              mix            case-mix       Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount.............................         $161.59          $146.90           $17.92           $87.92
----------------------------------------------------------------------------------------------------------------

C. Case-Mix Adjustment
    Under section 1888(e)(4)(G)(i) of the Act, the federal rate also 
incorporates an adjustment to account for facility case-mix, using a 
classification system that accounts for the relative resource 
utilization of different patient types. 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 data and other 
data that the Secretary considers appropriate. In the interim final 
rule with comment period that initially implemented 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). 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), 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 Resource Utilization Groups, Version 4 (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) to take effect in FY 2011 concurrently 
with an updated new resident assessment instrument, version 3.0 of the 
Minimum Data Set (MDS 3.0), which collects the clinical data used for 
case-mix classification under RUG-IV.
    We note that case-mix classification is based, in part, on the 
beneficiary's need for skilled nursing care and therapy services. The 
case-mix classification system uses clinical data from the MDS to 
assign a case-mix group to each patient that is then used to calculate 
a per diem payment under the SNF PPS. As discussed in section IV.A. of 
this proposed rule, the clinical orientation of the case-mix 
classification system supports the SNF PPS's use of an administrative 
presumption that considers a beneficiary's initial case-mix 
classification to assist in making certain SNF level of care 
determinations. Further, because the MDS is used as a basis for 
payment, as well as a clinical assessment, 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/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/NursingHomeQualityInits/MDS30RAIManual.html.
    In addition, we note that section 511 of the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003 (MMA, Pub. L. 108-173) 
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 add-
on for SNF residents with AIDS 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 add-on for SNF residents with AIDS is 
also discussed in Program Transmittal

[[Page 25773]]

160 (Change Request 3291), issued on April 30, 2004, 
which is available online at www.cms.gov/transmittals/downloads/r160cp.pdf. In the SNF PPS final rule for FY 2010 (74 FR 40288), we did 
not address the certification of the add-on for SNF residents with AIDS 
in that final rule's implementation of the case-mix refinements for 
RUG-IV, thus allowing the add-on payment required by section 511 of the 
MMA to remain in effect. For the limited number of SNF residents that 
qualify for this add-on, there is a significant increase in payments. 
For example, using FY 2012 data, we identified fewer than 4,355 SNF 
residents with a diagnosis code of 042 (Human Immunodeficiency Virus 
(HIV) Infection). For FY 2015, an urban facility with a resident with 
AIDS in RUG-IV group ``HC2'' would have a case-mix adjusted per diem 
payment of $422.77 (see Table 4) before the application of the MMA 
adjustment. After an increase of 128 percent, this urban facility would 
receive a case-mix adjusted per diem payment of approximately $963.92.
    Currently, we use the International Classification of Diseases, 9th 
revision, Clinical Modification (ICD-9-CM) code 042 to identify those 
residents for whom it is appropriate to apply the AIDS add-on 
established by section 511 of the MMA. In this context, we note that 
the Department published a final rule in the September 5, 2012 Federal 
Register (77 FR 54664) which requires us to stop using ICD-9-CM on 
September 30, 2014, and begin using the International Classification of 
Diseases, 10th revision, Clinical Modification (ICD-10-CM), on October 
1, 2014. Regarding the above-referenced ICD-9-CM diagnosis code of 042, 
in the FY 2014 SNF PPS proposed rule (78 FR 26444, May 6, 2013), we 
proposed to transition to the equivalent ICD-10-CM diagnosis code of 
B20 upon the overall conversion to ICD-10-CM on October 1, 2014, and we 
subsequently finalized that proposal in the FY 2014 SNF PPS final rule 
(78 FR 47951 through 47952).
    However, on April 1, 2014, the Protecting Access to Medicare Act of 
2014 (PAMA) (Pub. L. No. 113-93) was enacted. Section 212 of PAMA, 
titled ``Delay in Transition from ICD-9 to ICD-10 Code Sets,'' provides 
that ``[t]he Secretary of Health and Human Services may not, prior to 
October 1, 2015, adopt ICD-10 code sets as the standard for code sets 
under section 1173(c) of the Social Security Act (42 U.S.C. 1320d-2(c)) 
and section 162.1002 of title 45, Code of Federal Regulations.'' As of 
now, the Secretary has not implemented this provision under HIPAA. In 
light of PAMA, the effective date of the change from ICD-9-CM code 042 
to ICD-10-CM code B20 for purposes of applying the AIDS add-on would be 
the date when ICD-10 becomes the required medical data code set for use 
on Medicare SNF claims. Until that time, we would continue to use ICD-
9-CM code 042 for this purpose.
    Under section 1888(e)(4)(H), each update of the payment rates must 
include the case-mix classification methodology applicable for the 
upcoming FY. The payment rates set forth in this proposed rule reflect 
the use of the RUG-IV case-mix classification system from October 1, 
2014, through September 30, 2015. We list the proposed case-mix 
adjusted RUG-IV payment rates, provided separately for urban and rural 
SNFs, in Tables 4 and 5 with corresponding case-mix values. As 
discussed above, facilities would use the proposed revised OMB 
delineations in order to identify their urban or rural status for the 
purpose of determining which set of rate tables would apply to them 
beginning on October 1, 2014. These tables do not reflect the add-on 
for SNF residents with AIDS enacted by section 511 of the MMA, which we 
apply only after making all other adjustments (such as wage index and 
case-mix).

                                      Table 4-- RUG-IV Case-Mix Adjusted Federal Rates and Associated Indexes 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         $451.60         $238.26  ..............          $86.32         $776.18
RUL.....................................            2.57            1.87          434.69          238.26  ..............           86.32          759.27
RVX.....................................            2.61            1.28          441.46          163.08  ..............           86.32          690.86
RVL.....................................            2.19            1.28          370.42          163.08  ..............           86.32          619.82
RHX.....................................            2.55            0.85          431.31          108.30  ..............           86.32          625.93
RHL.....................................            2.15            0.85          363.65          108.30  ..............           86.32          558.27
RMX.....................................            2.47            0.55          417.78           70.08  ..............           86.32          574.18
RML.....................................            2.19            0.55          370.42           70.08  ..............           86.32          526.82
RLX.....................................            2.26            0.28          382.26           35.67  ..............           86.32          504.25
RUC.....................................            1.56            1.87          263.86          238.26  ..............           86.32          588.44
RUB.....................................            1.56            1.87          263.86          238.26  ..............           86.32          588.44
RUA.....................................            0.99            1.87          167.45          238.26  ..............           86.32          492.03
RVC.....................................            1.51            1.28          255.40          163.08  ..............           86.32          504.80
RVB.....................................            1.11            1.28          187.75          163.08  ..............           86.32          437.15
RVA.....................................            1.10            1.28          186.05          163.08  ..............           86.32          435.45
RHC.....................................            1.45            0.85          245.25          108.30  ..............           86.32          439.87
RHB.....................................            1.19            0.85          201.28          108.30  ..............           86.32          395.90
RHA.....................................            0.91            0.85          153.92          108.30  ..............           86.32          348.54
RMC.....................................            1.36            0.55          230.03           70.08  ..............           86.32          386.43
RMB.....................................            1.22            0.55          206.35           70.08  ..............           86.32          362.75
RMA.....................................            0.84            0.55          142.08           70.08  ..............           86.32          298.48
RLB.....................................            1.50            0.28          253.71           35.67  ..............           86.32          375.70
RLA.....................................            0.71            0.28          120.09           35.67  ..............           86.32          242.08
ES3.....................................            3.58  ..............          605.52  ..............           16.78           86.32          708.62
ES2.....................................            2.67  ..............          451.60  ..............           16.78           86.32          554.70
ES1.....................................            2.32  ..............          392.40  ..............           16.78           86.32          495.50
HE2.....................................            2.22  ..............          375.49  ..............           16.78           86.32          478.59
HE1.....................................            1.74  ..............          294.30  ..............           16.78           86.32          397.40
HD2.....................................            2.04  ..............          345.05  ..............           16.78           86.32          448.15
HD1.....................................            1.60  ..............          270.62  ..............           16.78           86.32          373.72
HC2.....................................            1.89  ..............          319.67  ..............           16.78           86.32          422.77
HC1.....................................            1.48  ..............          250.33  ..............           16.78           86.32          353.43

[[Page 25774]]

 
HB2.....................................            1.86  ..............          314.60  ..............           16.78           86.32          417.70
HB1.....................................            1.46  ..............          246.94  ..............           16.78           86.32          350.04
LE2.....................................            1.96  ..............          331.51  ..............           16.78           86.32          434.61
LE1.....................................            1.54  ..............          260.48  ..............           16.78           86.32          363.58
LD2.....................................            1.86  ..............          314.60  ..............           16.78           86.32          417.70
LD1.....................................            1.46  ..............          246.94  ..............           16.78           86.32          350.04
LC2.....................................            1.56  ..............          263.86  ..............           16.78           86.32          366.96
LC1.....................................            1.22  ..............          206.35  ..............           16.78           86.32          309.45
LB2.....................................            1.45  ..............          245.25  ..............           16.78           86.32          348.35
LB1.....................................            1.14  ..............          192.82  ..............           16.78           86.32          295.92
CE2.....................................            1.68  ..............          284.16  ..............           16.78           86.32          387.26
CE1.....................................            1.50  ..............          253.71  ..............           16.78           86.32          356.81
CD2.....................................            1.56  ..............          263.86  ..............           16.78           86.32          366.96
CD1.....................................            1.38  ..............          233.41  ..............           16.78           86.32          336.51
CC2.....................................            1.29  ..............          218.19  ..............           16.78           86.32          321.29
CC1.....................................            1.15  ..............          194.51  ..............           16.78           86.32          297.61
CB2.....................................            1.15  ..............          194.51  ..............           16.78           86.32          297.61
CB1.....................................            1.02  ..............          172.52  ..............           16.78           86.32          275.62
CA2.....................................            0.88  ..............          148.84  ..............           16.78           86.32          251.94
CA1.....................................            0.78  ..............          131.93  ..............           16.78           86.32          235.03
BB2.....................................            0.97  ..............          164.07  ..............           16.78           86.32          267.17
BB1.....................................            0.90  ..............          152.23  ..............           16.78           86.32          255.33
BA2.....................................            0.70  ..............          118.40  ..............           16.78           86.32          221.50
BA1.....................................            0.64  ..............          108.25  ..............           16.78           86.32          211.35
PE2.....................................            1.50  ..............          253.71  ..............           16.78           86.32          356.81
PE1.....................................            1.40  ..............          236.80  ..............           16.78           86.32          339.90
PD2.....................................            1.38  ..............          233.41  ..............           16.78           86.32          336.51
PD1.....................................            1.28  ..............          216.50  ..............           16.78           86.32          319.60
PC2.....................................            1.10  ..............          186.05  ..............           16.78           86.32          289.15
PC1.....................................            1.02  ..............          172.52  ..............           16.78           86.32          275.62
PB2.....................................            0.84  ..............          142.08  ..............           16.78           86.32          245.18
PB1.....................................            0.78  ..............          131.93  ..............           16.78           86.32          235.03
PA2.....................................            0.59  ..............           99.79  ..............           16.78           86.32          202.89
PA1.....................................            0.54  ..............           91.34  ..............           16.78           86.32          194.44
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                      Table 5--RUG-IV Case-Mix Adjusted Federal Rates and Associated Indexes 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         $431.45         $274.70  ..............          $87.92         $794.07
RUL.....................................            2.57            1.87          415.29          274.70  ..............           87.92          777.91
RVX.....................................            2.61            1.28          421.75          188.03  ..............           87.92          697.70
RVL.....................................            2.19            1.28          353.88          188.03  ..............           87.92          629.83
RHX.....................................            2.55            0.85          412.05          124.87  ..............           87.92          624.84
RHL.....................................            2.15            0.85          347.42          124.87  ..............           87.92          560.21
RMX.....................................            2.47            0.55          399.13           80.80  ..............           87.92          567.85
RML.....................................            2.19            0.55          353.88           80.80  ..............           87.92          522.60
RLX.....................................            2.26            0.28          365.19           41.13  ..............           87.92          494.24
RUC.....................................            1.56            1.87          252.08          274.70  ..............           87.92          614.70
RUB.....................................            1.56            1.87          252.08          274.70  ..............           87.92          614.70
RUA.....................................            0.99            1.87          159.97          274.70  ..............           87.92          522.59
RVC.....................................            1.51            1.28          244.00          188.03  ..............           87.92          519.95
RVB.....................................            1.11            1.28          179.36          188.03  ..............           87.92          455.31
RVA.....................................            1.10            1.28          177.75          188.03  ..............           87.92          453.70
RHC.....................................            1.45            0.85          234.31          124.87  ..............           87.92          447.10
RHB.....................................            1.19            0.85          192.29          124.87  ..............           87.92          405.08
RHA.....................................            0.91            0.85          147.05          124.87  ..............           87.92          359.84
RMC.....................................            1.36            0.55          219.76           80.80  ..............           87.92          388.48
RMB.....................................            1.22            0.55          197.14           80.80  ..............           87.92          365.86
RMA.....................................            0.84            0.55          135.74           80.80  ..............           87.92          304.46
RLB.....................................            1.50            0.28          242.39           41.13  ..............           87.92          371.44
RLA.....................................            0.71            0.28          114.73           41.13  ..............           87.92          243.78
ES3.....................................            3.58  ..............          578.49  ..............           17.92           87.92          684.33
ES2.....................................            2.67  ..............          431.45  ..............           17.92           87.92          537.29
ES1.....................................            2.32  ..............          374.89  ..............           17.92           87.92          480.73
HE2.....................................            2.22  ..............          358.73  ..............           17.92           87.92          464.57
HE1.....................................            1.74  ..............          281.17  ..............           17.92           87.92          387.01
HD2.....................................            2.04  ..............          329.64  ..............           17.92           87.92          435.48
HD1.....................................            1.60  ..............          258.54  ..............           17.92           87.92          364.38

[[Page 25775]]

 
HC2.....................................            1.89  ..............          305.41  ..............           17.92           87.92          411.25
HC1.....................................            1.48  ..............          239.15  ..............           17.92           87.92          344.99
HB2.....................................            1.86  ..............          300.56  ..............           17.92           87.92          406.40
HB1.....................................            1.46  ..............          235.92  ..............           17.92           87.92          341.76
LE2.....................................            1.96  ..............          316.72  ..............           17.92           87.92          422.56
LE1.....................................            1.54  ..............          248.85  ..............           17.92           87.92          354.69
LD2.....................................            1.86  ..............          300.56  ..............           17.92           87.92          406.40
LD1.....................................            1.46  ..............          235.92  ..............           17.92           87.92          341.76
LC2.....................................            1.56  ..............          252.08  ..............           17.92           87.92          357.92
LC1.....................................            1.22  ..............          197.14  ..............           17.92           87.92          302.98
LB2.....................................            1.45  ..............          234.31  ..............           17.92           87.92          340.15
LB1.....................................            1.14  ..............          184.21  ..............           17.92           87.92          290.05
CE2.....................................            1.68  ..............          271.47  ..............           17.92           87.92          377.31
CE1.....................................            1.50  ..............          242.39  ..............           17.92           87.92          348.23
CD2.....................................            1.56  ..............          252.08  ..............           17.92           87.92          357.92
CD1.....................................            1.38  ..............          222.99  ..............           17.92           87.92          328.83
CC2.....................................            1.29  ..............          208.45  ..............           17.92           87.92          314.29
CC1.....................................            1.15  ..............          185.83  ..............           17.92           87.92          291.67
CB2.....................................            1.15  ..............          185.83  ..............           17.92           87.92          291.67
CB1.....................................            1.02  ..............          164.82  ..............           17.92           87.92          270.66
CA2.....................................            0.88  ..............          142.20  ..............           17.92           87.92          248.04
CA1.....................................            0.78  ..............          126.04  ..............           17.92           87.92          231.88
BB2.....................................            0.97  ..............          156.74  ..............           17.92           87.92          262.58
BB1.....................................            0.90  ..............          145.43  ..............           17.92           87.92          251.27
BA2.....................................            0.70  ..............          113.11  ..............           17.92           87.92          218.95
BA1.....................................            0.64  ..............          103.42  ..............           17.92           87.92          209.26
PE2.....................................            1.50  ..............          242.39  ..............           17.92           87.92          348.23
PE1.....................................            1.40  ..............          226.23  ..............           17.92           87.92          332.07
PD2.....................................            1.38  ..............          222.99  ..............           17.92           87.92          328.83
PD1.....................................            1.28  ..............          206.84  ..............           17.92           87.92          312.68
PC2.....................................            1.10  ..............          177.75  ..............           17.92           87.92          283.59
PC1.....................................            1.02  ..............          164.82  ..............           17.92           87.92          270.66
PB2.....................................            0.84  ..............          135.74  ..............           17.92           87.92          241.58
PB1.....................................            0.78  ..............          126.04  ..............           17.92           87.92          231.88
PA2.....................................            0.59  ..............           95.34  ..............           17.92           87.92          201.18
PA1.....................................            0.54  ..............           87.26  ..............           17.92           87.92          193.10
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Wage Index Adjustment

    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 the Secretary determines appropriate. Since the 
inception of the SNF PPS, we have used hospital inpatient wage data in 
developing a wage index to be applied to SNFs. We propose to continue 
this practice for FY 2015, as we continue to believe that in the 
absence of SNF-specific wage data, using the hospital inpatient wage 
index data is appropriate and reasonable for the SNF PPS. As explained 
in the update notice for FY 2005 (69 FR 45786), 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. For FY 2015, the updated wage data are for hospital cost 
reporting periods beginning on or after October 1, 2010 and before 
October 1, 2011 (FY 2011 cost report data).
    We note that section 315 of the Medicare, Medicaid, and SCHIP 
Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-
554, enacted on December 21, 2000) 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. However, 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.
    In addition, we propose to 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 2015 SNF PPS wage index. For rural geographic areas that do not 
have hospitals, and therefore, lack hospital wage data on which to base 
an area wage adjustment, we would use the average wage index from all 
contiguous Core-Based Statistical Areas (CBSAs) as a reasonable proxy. 
For FY 2015, there are no rural geographic areas that do not have 
hospitals, and thus, this methodology would not be applied. For rural 
Puerto Rico, we would not apply this methodology due to the distinct 
economic circumstances that exist there (for example, due to the close 
proximity to one another of almost all of Puerto Rico's various urban 
and non-urban areas, this methodology would produce a wage index for 
rural Puerto Rico that is higher than that in half of its urban areas); 
instead, we would continue to use the most recent wage index previously 
available for that area. For urban areas without specific hospital wage 
index data, we would use the average wage indexes of all of the urban 
areas within the state to serve as a reasonable proxy for the wage 
index of that urban CBSA. For FY 2015, the only urban area without wage 
index data

[[Page 25776]]

available is CBSA 25980, Hinesville-Fort Stewart, GA.
    Once calculated, we would apply the wage index adjustment to the 
labor-related portion of the federal rate. Each year, we calculate a 
revised labor-related share, based on the relative importance of labor-
related cost categories (that is, those cost categories that are 
sensitive to local area wage costs) in the input price index. In the 
SNF PPS final rule for FY 2014 (78 FR 47944 through 47946), we 
finalized a proposal to revise the labor-related share to reflect the 
relative importance of the revised FY 2010-based SNF market basket cost 
weights for the following cost categories: wages and salaries; employee 
benefits; the labor-related portion of nonmedical professional fees; 
administrative and facilities support services; all other--labor-
related services; and a proportion of capital-related expenses.
    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 2015. 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 2015 than the base year weights 
from the SNF market basket.
    We calculate the labor-related relative importance for FY 2015 in 
four steps. First, we compute the FY 2015 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 
2015 price index level for that cost category by the total market 
basket price index level. Third, we determine the FY 2015 relative 
importance for each cost category by multiplying this ratio by the base 
year (FY 2010) weight. Finally, we add the FY 2015 relative importance 
for each of the labor-related cost categories (wages and salaries, 
employee benefits, the labor-related portion of non-medical 
professional fees, administrative and facilities support services, all 
other: labor-related services, and a portion of capital-related 
expenses) to produce the FY 2015 labor-related relative importance. 
Tables 6 and 7 show the RUG-IV case-mix adjusted federal rates by 
labor-related and non-labor-related components. As discussed above, the 
proposed new OMB delineations would be used to identify a facility's 
urban or rural status for the purpose of determining which set of rate 
tables would apply to them beginning on October 1, 2014. Table 12 in 
section V.A.3. provides the FY 2015 labor-related share components 
based on the SNF market basket.

 Table 6--RUG-IV Case-Mix Adjusted Federal Rates for Urban SNFs by Labor
                         and Non-Labor Component
------------------------------------------------------------------------
                                            Total     Labor    Non-labor
             RUG-IV Category                rate     portion    portion
------------------------------------------------------------------------
RUX.....................................    776.18   $539.55     $236.63
RUL.....................................    759.27    527.79      231.48
RVX.....................................    690.86    480.24      210.62
RVL.....................................    619.82    430.86      188.96
RHX.....................................    625.93    435.10      190.83
RHL.....................................    558.27    388.07      170.20
RMX.....................................    574.18    399.13      175.05
RML.....................................    526.82    366.21      160.61
RLX.....................................    504.25    350.52      153.73
RUC.....................................    588.44    409.04      179.40
RUB.....................................    588.44    409.04      179.40
RUA.....................................    492.03    342.02      150.01
RVC.....................................    504.80    350.90      153.90
RVB.....................................    437.15    303.88      133.27
RVA.....................................    435.45    302.69      132.76
RHC.....................................    439.87    305.77      134.10
RHB.....................................    395.90    275.20      120.70
RHA.....................................    348.54    242.28      106.26
RMC.....................................    386.43    268.62      117.81
RMB.....................................    362.75    252.16      110.59
RMA.....................................    298.48    207.48       91.00
RLB.....................................    375.70    261.16      114.54
RLA.....................................    242.08    168.28       73.80
ES3.....................................    708.62    492.58      216.04
ES2.....................................    554.70    385.59      169.11
ES1.....................................    495.50    344.44      151.06
HE2.....................................    478.59    332.68      145.91
HE1.....................................    397.40    276.24      121.16
HD2.....................................    448.15    311.52      136.63
HD1.....................................    373.72    259.78      113.94
HC2.....................................    422.77    293.88      128.89
HC1.....................................    353.43    245.68      107.75
HB2.....................................    417.70    290.36      127.34
HB1.....................................    350.04    243.32      106.72
LE2.....................................    434.61    302.11      132.50
LE1.....................................    363.58    252.74      110.84
LD2.....................................    417.70    290.36      127.34
LD1.....................................    350.04    243.32      106.72
LC2.....................................    366.96    255.08      111.88
LC1.....................................    309.45    215.11       94.34
LB2.....................................    348.35    242.15      106.20
LB1.....................................    295.92    205.70       90.22
CE2.....................................    387.26    269.20      118.06
CE1.....................................    356.81    248.03      108.78
CD2.....................................    366.96    255.08      111.88
CD1.....................................    336.51    233.92      102.59
CC2.....................................    321.29    223.34       97.95
CC1.....................................    297.61    206.88       90.73
CB2.....................................    297.61    206.88       90.73
CB1.....................................    275.62    191.59       84.03
CA2.....................................    251.94    175.13       76.81
CA1.....................................    235.03    163.38       71.65
BB2.....................................    267.17    185.72       81.45
BB1.....................................    255.33    177.49       77.84
BA2.....................................    221.50    153.97       67.53
BA1.....................................    211.35    146.92       64.43
PE2.....................................    356.81    248.03      108.78
PE1.....................................    339.90    236.27      103.63
PD2.....................................    336.51    233.92      102.59
PD1.....................................    319.60    222.16       97.44
PC2.....................................    289.15    201.00       88.15
PC1.....................................    275.62    191.59       84.03
PB2.....................................    245.18    170.43       74.75
PB1.....................................    235.03    163.38       71.65
PA2.....................................    202.89    141.03       61.86
PA1.....................................    194.44    135.16       59.28
------------------------------------------------------------------------


 Table 7--RUG-IV Case-Mix Adjusted Federal Rates for Rural SNFs by Labor
                         and Non-Labor Component
------------------------------------------------------------------------
                                            Total     Labor    Non-labor
             RUG-IV Category                rate     portion    portion
------------------------------------------------------------------------
RUX.....................................    794.07   $551.98     $242.09
RUL.....................................    777.91    540.75      237.16
RVX.....................................    697.70    484.99      212.71
RVL.....................................    629.83    437.81      192.02
RHX.....................................    624.84    434.35      190.49
RHL.....................................    560.21    389.42      170.79
RMX.....................................    567.85    394.73      173.12
RML.....................................    522.60    363.27      159.33
RLX.....................................    494.24    343.56      150.68
RUC.....................................    614.70    427.30      187.40
RUB.....................................    614.70    427.30      187.40
RUA.....................................    522.59    363.27      159.32
RVC.....................................    519.95    361.43      158.52
RVB.....................................    455.31    316.50      138.81
RVA.....................................    453.70    315.38      138.32
RHC.....................................    447.10    310.79      136.31
RHB.....................................    405.08    281.58      123.50
RHA.....................................    359.84    250.14      109.70
RMC.....................................    388.48    270.04      118.44
RMB.....................................    365.86    254.32      111.54
RMA.....................................    304.46    211.64       92.82
RLB.....................................    371.44    258.20      113.24
RLA.....................................    243.78    169.46       74.32
ES3.....................................    684.33    475.70      208.63
ES2.....................................    537.29    373.49      163.80
ES1.....................................    480.73    334.17      146.56
HE2.....................................    464.57    322.94      141.63
HE1.....................................    387.01    269.02      117.99
HD2.....................................    435.48    302.72      132.76
HD1.....................................    364.38    253.29      111.09
HC2.....................................    411.25    285.87      125.38
HC1.....................................    344.99    239.81      105.18
HB2.....................................    406.40    282.50      123.90
HB1.....................................    341.76    237.57      104.19
LE2.....................................    422.56    293.73      128.83
LE1.....................................    354.69    246.56      108.13
LD2.....................................    406.40    282.50      123.90
LD1.....................................    341.76    237.57      104.19
LC2.....................................    357.92    248.80      109.12
LC1.....................................    302.98    210.61       92.37
LB2.....................................    340.15    236.45      103.70
LB1.....................................    290.05    201.62       88.43
CE2.....................................    377.31    262.28      115.03
CE1.....................................    348.23    242.07      106.16
CD2.....................................    357.92    248.80      109.12
CD1.....................................    328.83    228.58      100.25
CC2.....................................    314.29    218.47       95.82
CC1.....................................    291.67    202.75       88.92
CB2.....................................    291.67    202.75       88.92
CB1.....................................    270.66    188.14       82.52
CA2.....................................    248.04    172.42       75.62

[[Page 25777]]

 
CA1.....................................    231.88    161.19       70.69
BB2.....................................    262.58    182.53       80.05
BB1.....................................    251.27    174.67       76.60
BA2.....................................    218.95    152.20       66.75
BA1.....................................    209.26    145.46       63.80
PE2.....................................    348.23    242.07      106.16
PE1.....................................    332.07    230.83      101.24
PD2.....................................    328.83    228.58      100.25
PD1.....................................    312.68    217.35       95.33
PC2.....................................    283.59    197.13       86.46
PC1.....................................    270.66    188.14       82.52
PB2.....................................    241.58    167.93       73.65
PB1.....................................    231.88    161.19       70.69
PA2.....................................    201.18    139.85       61.33
PA1.....................................    193.10    134.23       58.87
------------------------------------------------------------------------

    Section 1888(e)(4)(G)(ii) of the Act also requires that we apply 
this wage index in a manner that does not result in aggregate payments 
under the SNF PPS that are greater or less than would otherwise be made 
if the wage adjustment had not been made. For FY 2015 (federal rates 
effective October 1, 2014), we would apply an adjustment to fulfill the 
budget neutrality requirement. We would meet this requirement by 
multiplying each of the components of the unadjusted federal rates by a 
budget neutrality factor equal to the ratio of the weighted average 
wage adjustment factor for FY 2014 to the weighted average wage 
adjustment factor for FY 2015, based on the blended wage index for FY 
2015 as proposed later in this proposed rule. For this calculation, we 
use the same FY 2013 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 FY 2015 would be 1.0001.
    In the SNF PPS final rule for FY 2006 (70 FR 45026, August 4, 
2005), we adopted the changes discussed in the OMB Bulletin No. 03-04 
(June 6, 2003), available online at www.whitehouse.gov/omb/bulletins/b03-04.html, which announced revised definitions for MSAs, and the 
creation of micropolitan statistical areas and combined statistical 
areas.
    In adopting the CBSA geographic designations, we provided for a 
one-year transition in FY 2006 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), since the expiration of this one-year transition on 
September 30, 2006, we have used the full CBSA-based wage index values.
    On February 28, 2013, OMB issued OMB Bulletin No. 13-01, announcing 
revisions to the delineation of MSAs, Micropolitan Statistical Areas, 
and Combined Statistical Areas, and guidance on uses of the delineation 
of these areas. A copy of this bulletin is available online at http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. 
This bulletin states that it ``provides the delineations of all 
Metropolitan Statistical Areas, Metropolitan Divisions, Micropolitan 
Statistical Areas, Combined Statistical Areas, and New England City and 
Town Areas in the United States and Puerto Rico based on the standards 
published on June 28, 2010, in the Federal Register (75 FR 37246-37252) 
and Census Bureau data.''
    While the revisions OMB published on February 28, 2013 are not as 
sweeping as the changes made when we adopted the CBSA geographic 
designations for FY 2006, the February 28, 2013 bulletin does contain a 
number of significant changes. For example, there are new CBSAs, urban 
counties that become rural, rural counties that become urban, and 
existing CBSAs that are being split apart.
    As discussed in the SNF PPS proposed rule for FY 2014 (78 FR 
26448), the changes made by the bulletin and their ramifications 
required extensive review by CMS before using them for the SNF PPS wage 
index. Having completed our assessment, we are proposing changes to the 
SNF PPS wage index based on the newest OMB delineations, as described 
in OMB Bulletin No. 13-01, beginning in FY 2015, including a proposed 
one-year transition with a blended wage index for FY 2015. These 
proposed changes are discussed further in section V.A. of this proposed 
rule. The proposed wage index applicable to FY 2015 is set forth in 
Table A available on the CMS Web site at http://cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html. Table A 
provides a crosswalk between the FY 2015 wage index for a provider 
using the current OMB delineations in effect in FY 2014 and the FY 2015 
wage index using the proposed revised OMB delineations, as well as the 
proposed transition wage index values that would be in effect in FY 
2015 if these proposed changes are finalized.

E. Adjusted Rate Computation Example

    Using the hypothetical SNF XYZ described below, Table 8 shows the 
adjustments made to the federal per diem rates to compute the 
provider's actual per diem PPS payment. We derive the Labor and Non-
labor columns from Table 6. The wage index used in this example is 
based on the proposed transition wage index, which may be found in 
Table A as referenced above. As illustrated in Table 8, SNF XYZ's total 
PPS payment would equal $42,299.26.

                                                       Table 8--Adjusted Rate Computation Example
                                       SNF XYZ: Located in Cedar Rapids, IA (Urban CBSA 16300) Wage Index: 0.8883
                                                   [See Proposed Transition Wage Index in Table A] \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Adjusted                  Adjusted     Percent      Medicare
                  RUG-IV Group                       Labor      Wage index     labor      Non-labor       rate      adjustment      days       Payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
RVX.............................................      $480.24       0.8883      $426.60      $210.62      $637.22      $637.22           14    $8,921.08
ES2.............................................       385.59       0.8883       342.52       169.11       511.63       511.63           30    15,348.90
RHA.............................................       242.28       0.8883       215.22       106.26       321.48       321.48           16     5,143.68
CC2 *...........................................       223.34       0.8883       198.39        97.95       296.34       675.66           10     6,756.60
BA2.............................................       153.97       0.8883       136.77        67.53       204.30       204.30           30     6,129.00
                                                  ...........  ...........  ...........  ...........  ...........  ...........          100    42,299.26
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Reflects a 128 percent adjustment from section 511 of the MMA.
\1\ Available on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html.


[[Page 25778]]

IV. Additional Aspects of the SNF PPS

A. SNF Level of Care--Administrative Presumption

    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 discussed in 
section III.C. of this proposed rule. 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 accordance with section 1888(e)(4)(H)(ii) of the Act and the 
regulations at 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), 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 five-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 five-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 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. In this proposed rule, we would continue 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), 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.

B. Consolidated Billing

    Sections 1842(b)(6)(E) and 1862(a)(18) of the Act (as added by 
section 4432(b) of the BBA) require a SNF to submit consolidated 
Medicare bills to its Medicare Administrative Contractor for almost all 
of the services that its residents receive during the course of a 
covered Part A stay. In addition, section 1862(a)(18) places the 
responsibility with the SNF for billing Medicare for physical therapy, 
occupational therapy, and speech-language pathology services that the 
resident receives during a noncovered stay. Section 1888(e)(2)(A) of 
the Act excludes a small list of services from the consolidated billing 
provision (primarily those services furnished by physicians and certain 
other types of practitioners), which remain separately billable under 
Part B when furnished to a SNF's Part A resident. 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).
    A detailed discussion of the legislative history of the 
consolidated billing provision is available on the SNF PPS Web site at 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/Legislative_History_07302013.pdf. In particular, section 
103 of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act 
of 1999 (BBRA) (Pub. L. 106-113, enacted on November 29, 1999) amended 
section 1888(e)(2)(A) of the Act by further excluding a number of 
individual ``high-cost, low probability'' services, identified by 
Healthcare Common Procedure Coding System (HCPCS) codes, within several 
broader categories (chemotherapy items, chemotherapy administration 
services, radioisotope services, and customized prosthetic devices) 
that otherwise remained subject to the provision. We discuss this BBRA 
amendment in greater detail in the SNF PPS 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 www.cms.gov/transmittals/downloads/ab001860.pdf.
    As explained in the FY 2001 proposed rule (65 FR 19232), 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) of the BBRA ``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

[[Page 25779]]

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), 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 HCPCS 
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 amendment (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, 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, 2014). 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.

C. Payment for SNF-Level Swing-Bed Services

    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-level care, as needed. For 
critical access hospitals (CAHs), Part A pays on a reasonable cost 
basis for SNF-level 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. As explained in the FY 2002 final rule (66 FR 39562), this 
effective date is consistent with the statutory provision to integrate 
swing-bed rural hospitals into the SNF PPS by the end of the transition 
period, June 30, 2002.
    Accordingly, all non-CAH swing-bed rural hospitals have now come 
under the SNF PPS. 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 FY 2002 final rule (66 FR 39562) and in 
the FY 2010 final rule (74 FR 40288). 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 at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/index.html.

V. Other Issues

A. Proposed Changes to SNF PPS Wage Index

1. Background
    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 the Secretary determines appropriate. Since the 
inception of the SNF PPS, we have used hospital inpatient wage data, 
exclusive of the occupational mix adjustment, in developing a wage 
index to be applied to SNFs. As noted previously in section III.D of 
this proposed rule, we are proposing to continue that practice for FY 
2015. The wage index used for the SNF PPS is calculated using the 
Inpatient Prospective Payment System (IPPS) wage index data on the 
basis of the labor market area in which the acute care hospital is 
located, but without taking into account geographic reclassifications 
under section 1886(d)(8) and (d)(10) of the Act, and without applying 
the IPPS rural floor under section 4410 of the BBA, the IPPS imputed 
rural floor under 42 CFR 412.64(h), and the outmigration adjustment 
under section 1886(d)(13) (see the FY 2006 SNF PPS proposed rule (70 FR 
29090 through 29092)). The applicable SNF wage index value is assigned 
to a SNF on the basis of the labor market area in which the SNF is 
geographically located. Under section 1888(e)(4)(G)(ii) of the Act, 
beginning with FY 2006, we delineate labor market areas based on the 
Core-Based Statistical Areas (CBSAs) established by the Office of 
Management and Budget (OMB). The current statistical areas used in FY 
2014 are based on OMB standards published on December 27, 2000 (65 FR 
82228) and Census 2000 data and Census Bureau population estimates for 
2007 and 2008 (OMB Bulletin No. 10-02). For a discussion of OMB's 
delineations of CBSAs and our implementation of the CBSA definitions, 
we refer readers to the preamble of the FY 2006 SNF PPS proposed rule 
(70 FR 29090 through 29096) and final rule (70 FR 45040 through 45041). 
As stated in the FY 2014 SNF PPS proposed rule (78 FR 26448) and final 
rule (78 FR 47952), on February 28, 2013, OMB issued OMB Bulletin No. 
13-01, which established revised delineations for Metropolitan 
Statistical Areas, Micropolitan Statistical Areas, and Combined 
Statistical Areas, and provided guidance on the use of the delineations 
of these statistical areas. A copy of this bulletin may be obtained at 
http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. According to OMB, ``[t]his bulletin provides the delineations 
of all Metropolitan Statistical Areas, Metropolitan Divisions, 
Micropolitan Statistical Areas, Combined Statistical Areas, and New 
England City and Town Areas in the United States and Puerto Rico based 
on the standards published

[[Page 25780]]

on June 28, 2010, in the Federal Register (75 FR 37246-37252) and 
Census Bureau data.''
    While the revisions OMB published on February 28, 2013 are not as 
sweeping as the changes made when we adopted the CBSA geographic 
designations for FY 2006, the February 28, 2013 OMB bulletin does 
contain a number of significant changes. For example, there are new 
CBSAs, urban counties that have become rural, rural counties that have 
become urban, and existing CBSAs that have been split apart. However, 
because the bulletin was not issued until February 28, 2013, with 
supporting data not available until later, and because the changes made 
by the bulletin and their ramifications needed to be extensively 
reviewed and verified, we were unable to undertake such a lengthy 
process before publication of the FY 2014 SNF PPS proposed rule and, 
thus, did not implement changes to the wage index for FY 2014 based on 
these new OMB delineations. In the FY 2014 SNF PPS final rule (78 FR 
47952), we stated that we intended to propose changes to the wage index 
based on the most current OMB delineations in this FY 2015 SNF PPS 
proposed rule. As discussed below, in this proposed rule, we are 
proposing to implement the new OMB delineations as described in the 
February 28, 2013 OMB Bulletin No. 13-01, for SNF PPS wage index 
beginning in FY 2015.
2. Proposed Implementation of New Labor Market Delineations
    As discussed in the FY 2014 SNF PPS proposed rule (78 FR 26448) and 
final rule (78 FR 47952), CMS delayed implementing the new OMB 
statistical area delineations to allow for sufficient time to assess 
the new changes. We believe it is important for the SNF PPS to use the 
latest OMB delineations available in order to maintain a more accurate 
and up-to-date payment system that reflects the reality of population 
shifts and labor market conditions. While CMS and other stakeholders 
have explored potential alternatives to the current CBSA-based labor 
market system (we refer readers to the CMS Web site at www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Reform.html), no consensus has been achieved regarding how best to 
implement a replacement system. As discussed in the FY 2005 IPPS final 
rule (69 FR 49027), ``While we recognize that MSAs are not designed 
specifically to define labor market areas, we believe they do represent 
a useful proxy for this purpose.'' We further believe that using the 
most current OMB delineations would increase the integrity of the SNF 
PPS wage index by creating a more accurate representation of geographic 
variation in wage levels. We have reviewed our findings and impacts 
relating to the new OMB delineations, and have concluded that there is 
no compelling reason to further delay implementation. Because we 
believe that we have broad authority under section 1888(e)(4)(G)(ii) to 
determine the labor market areas used for the SNF PPS wage index, and 
because we also believe that the most current OMB delineations 
accurately reflect the local economies and wage levels of the areas in 
which hospitals are currently located, we are proposing to implement 
the new OMB delineations as described in the February 28, 2013 OMB 
Bulletin No. 13-01, for the SNF PPS wage index effective beginning in 
FY 2015. As discussed further below, we are proposing to implement a 
one-year transition with a blended wage index for all providers in FY 
2015 to assist providers in adapting to the new OMB delineations (if we 
finalize implementation of such delineations for the SNF PPS wage index 
beginning in FY 2015). We invite comments on this proposal. This 
proposed transition is discussed in more detail below.
a. Micropolitan Statistical Areas
    As discussed in the FY 2006 SNF PPS proposed rule (70 FR 29093 
through 29094) and final rule (70 FR 45041), CMS considered how to use 
the Micropolitan Statistical Area definitions in the calculation of the 
wage index. OMB defines a ``Micropolitan Statistical Area'' as a CBSA 
``associated with at least one urban cluster that has a population of 
at least 10,000, but less than 50,000'' (75 FR 37252). We refer to 
these as Micropolitan Areas. After extensive impact analysis, 
consistent with the treatment of these areas under the IPPS as 
discussed in the FY 2005 IPPS final rule (69 FR 49029 through 49032), 
CMS determined the best course of action would be to treat Micropolitan 
Areas as ``rural'' and include them in the calculation of each state's 
SNF PPS rural wage index (see 70 FR 29094 and 70 FR 45040 through 
45041)). Thus, the SNF PPS statewide rural wage index is determined 
using IPPS hospital data from hospitals located in non-MSA areas, and 
the statewide rural wage index is assigned to SNFs located in those 
areas. Because Micropolitan Areas tend to encompass smaller population 
centers and contain fewer hospitals than MSAs, we determined that if 
Micropolitan Areas were to be treated as separate labor market areas, 
the SNF PPS wage index would have included significantly more single-
provider labor market areas. As we explained in the FY 2006 SNF PPS 
proposed rule (70 FR 29094), recognizing Micropolitan Areas as 
independent labor markets would generally increase the potential for 
dramatic shifts in year-to-year wage index values because a single 
hospital (or group of hospitals) could have a disproportionate effect 
on the wage index of an area. Dramatic shifts in an area's wage index 
from year to year are problematic and create instability in the payment 
levels from year to year, which could make fiscal planning for SNFs 
difficult if we adopted this approach. For these reasons, we adopted a 
policy to include Micropolitan Areas in the state's rural wage area for 
purposes of the SNF PPS wage index, and have continued this policy 
through the present.
    Based upon the new 2010 Decennial Census data, a number of urban 
counties have switched status and have joined or became Micropolitan 
Areas, and some counties that once were part of a Micropolitan Area, 
have become urban. Overall, there are fewer Micropolitan Areas (541) 
under the new OMB delineations based on the 2010 Census than existed 
under the latest data from the 2000 Census (581). We believe that the 
best course of action would be to continue the policy established in 
the FY 2006 SNF PPS final rule and include Micropolitan Areas in each 
state's rural wage index. These areas continue to be defined as having 
relatively small urban cores (populations of 10,000 to 49,999). We do 
not believe it would be appropriate to calculate a separate wage index 
for areas that typically may include only a few hospitals for the 
reasons discussed in the FY 2006 SNF PPS proposed rule, and as 
discussed above. Therefore, in conjunction with our proposal to 
implement the new OMB labor market delineations beginning in FY 2015 
and consistent with the treatment of Micropolitan Areas under the IPPS, 
we are proposing to continue to treat Micropolitan Areas as ``rural'' 
and to include Micropolitan Areas in the calculation of the state's 
rural wage index.
b. Urban Counties Becoming Rural
    As previously discussed, we are proposing to implement the new OMB 
statistical area delineations (based upon the 2010 decennial Census 
data) beginning in FY 2015 for the SNF PPS wage index. Our analysis 
shows that a total of 37 counties (and county equivalents) that are 
currently considered part of an urban CBSA would be considered located 
in a rural

[[Page 25781]]

area, beginning in FY 2015, if we adopt the new OMB delineations. Table 
9 below lists the 37 urban counties that would be rural if we finalize 
our proposal to implement the new OMB delineations.

                                                     Table 9--Counties That Would Lose Urban Status
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 County                               State               Previous CBSA              Previous urban area (constituent counties)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Greene County...........................  IN                                        14020  Bloomington, IN.
Anson County............................  NC                                        16740  Charlotte-Gastonia-Rock Hill, NC-SC.
Franklin County.........................  IN                                        17140  Cincinnati-Middletown, OH-KY-IN.
Stewart County..........................  TN                                        17300  Clarksville, TN-KY.
Howard County...........................  MO                                        17860  Columbia, MO.
Delta County............................  TX                                        19124  Dallas-Fort Worth-Arlington, TX.
Pittsylvania County.....................  VA                                        19260  Danville, VA.
Danville City...........................  VA                                        19260  Danville, VA.
Preble County...........................  OH                                        19380  Dayton, OH.
Gibson County...........................  IN                                        21780  Evansville, IN-KY.
Webster County..........................  KY                                        21780  Evansville, IN-KY.
Franklin County.........................  AR                                        22900  Fort Smith, AR-OK.
Ionia County............................  MI                                        24340  Grand Rapids-Wyoming, MI.
Newaygo County..........................  MI                                        24340  Grand Rapids-Wyoming, MI.
Greene County...........................  NC                                        24780  Greenville, NC.
Stone County............................  MS                                        25060  Gulfport-Biloxi, MS.
Morgan County...........................  WV                                        25180  Hagerstown-Martinsburg, MD-WV.
San Jacinto County......................  TX                                        26420  Houston-Sugar Land-Baytown, TX.
Franklin County.........................  KS                                        28140  Kansas City, MO-KS.
Tipton County...........................  IN                                        29020  Kokomo, IN.
Nelson County...........................  KY                                        31140  Louisville/Jefferson County, KY-IN.
Geary County............................  KS                                        31740  Manhattan, KS.
Washington County.......................  OH                                        37620  Parkersburg-Marietta-Vienna, WV-OH.
Pleasants County........................  WV                                        37620  Parkersburg-Marietta-Vienna, WV-OH.
George County...........................  MS                                        37700  Pascagoula, MS.
Power County............................  ID                                        38540  Pocatello, ID.
Cumberland County.......................  VA                                        40060  Richmond, VA.
King and Queen County...................  VA                                        40060  Richmond, VA.
Louisa County...........................  VA                                        40060  Richmond, VA.
Washington County.......................  MO                                        41180  St. Louis, MO-IL.
Summit County...........................  UT                                        41620  Salt Lake City, UT.
Erie County.............................  OH                                        41780  Sandusky, OH.
Franklin County.........................  MA                                        44140  Springfield, MA.
Ottawa County...........................  OH                                        45780  Toledo, OH.
Greene County...........................  AL                                        46220  Tuscaloosa, AL.
Calhoun County..........................  TX                                        47020  Victoria, TX.
Surry County............................  VA                                        47260  Virginia Beach-Norfolk-Newport News, VA-NC.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We are proposing that the wage data for all hospitals located in 
the counties listed above would now be considered rural when 
calculating their respective state's rural wage index value, which 
rural wage index value would be used under the SNF PPS. Furthermore, 
for SNF providers currently located in an urban county that would be 
considered rural, should this proposal be finalized, CMS would utilize 
the rural unadjusted per-diem rates, found in Table 3 above, as the 
basis for determining this facility's payment rates beginning on 
October 1, 2014.
c. Rural Counties Becoming Urban
    Analysis of the new OMB delineations (based upon the 2010 decennial 
Census data) shows that a total of 105 counties (and county 
equivalents) that are currently located in rural areas would be located 
in urban areas, if we finalize our proposal to implement the new OMB 
delineations. Table 10 below lists the 105 rural counties that would be 
urban if we finalize this proposal.

                                                     Table 10--Counties That Would Gain Urban Status
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 County                               State                  New CBSA                    Urban area (constituent counties)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Utuado Municipio........................  PR                                        10380  Aguadilla-Isabela, PR.
Linn County.............................  OR                                        10540  Albany, OR.
Oldham County...........................  TX                                        11100  Amarillo, TX.
Morgan County...........................  GA                                        12060  Atlanta-Sandy Springs-Roswell, GA.
Lincoln County..........................  GA                                        12260  Augusta-Richmond County, GA-SC.
Newton County...........................  TX                                        13140  Beaumont-Port Arthur, TX.
Fayette County..........................  WV                                        13220  Beckley, WV.
Raleigh County..........................  WV                                        13220  Beckley, WV.
Golden Valley County....................  MT                                        13740  Billings, MT.
Oliver County...........................  ND                                        13900  Bismarck, ND.

[[Page 25782]]

 
Sioux County............................  ND                                        13900  Bismarck, ND.
Floyd County............................  VI                                        13980  Blacksburg-Christiansburg-Radford, VA.
De Witt County..........................  IL                                        14010  Bloomington, IL.
Columbia County.........................  PA                                        14100  Bloomsburg-Berwick, PA.
Montour County..........................  PA                                        14100  Bloomsburg-Berwick, PA.
Allen County............................  KY                                        14540  Bowling Green, KY.
Butler County...........................  KY                                        14540  Bowling Green, KY.
St. Mary's County.......................  MD                                        15680  California-Lexington Park, MD.
Jackson County..........................  IL                                        16060  Carbondale-Marion, IL.
Williamson County.......................  IL                                        16060  Carbondale-Marion, IL.
Franklin County.........................  PA                                        16540  Chambersburg-Waynesboro, PA.
Iredell County..........................  NC                                        16740  Charlotte-Concord-Gastonia, NC-SC.
Lincoln County..........................  NC                                        16740  Charlotte-Concord-Gastonia, NC-SC.
Rowan County............................  NC                                        16740  Charlotte-Concord-Gastonia, NC-SC.
Chester County..........................  SC                                        16740  Charlotte-Concord-Gastonia, NC-SC.
Lancaster County........................  SC                                        16740  Charlotte-Concord-Gastonia, NC-SC.
Buckingham County.......................  VA                                        16820  Charlottesville, VA.
Union County............................  IN                                        17140  Cincinnati, OH-KY-IN.
Hocking County..........................  OH                                        18140  Columbus, OH.
Perry County............................  OH                                        18140  Columbus, OH.
Walton County...........................  FL                                        18880  Crestview-Fort Walton Beach-Destin, FL.
Hood County.............................  TX                                        23104  Dallas-Fort Worth-Arlington, TX.
Somervell County........................  TX                                        23104  Dallas-Fort Worth-Arlington, TX.
Baldwin County..........................  AL                                        19300  Daphne-Fairhope-Foley, AL.
Monroe County...........................  PA                                        20700  East Stroudsburg, PA.
Hudspeth County.........................  TX                                        21340  El Paso, TX.
Adams County............................  PA                                        23900  Gettysburg, PA.
Hall County.............................  NE                                        24260  Grand Island, NE.
Hamilton County.........................  NE                                        24260  Grand Island, NE.
Howard County...........................  NE                                        24260  Grand Island, NE.
Merrick County..........................  NE                                        24260  Grand Island, NE.
Montcalm County.........................  MI                                        24340  Grand Rapids-Wyoming, MI.
Josephine County........................  OR                                        24420  Grants Pass, OR.
Tangipahoa Parish.......................  LA                                        25220  Hammond, LA.
Beaufort County.........................  SC                                        25940  Hilton Head Island-Bluffton-Beaufort, SC.
Jasper County...........................  SC                                        25940  Hilton Head Island-Bluffton-Beaufort, SC.
Citrus County...........................  FL                                        26140  Homosassa Springs, FL.
Butte County............................  ID                                        26820  Idaho Falls, ID.
Yazoo County............................  MS                                        27140  Jackson, MS.
Crockett County.........................  TN                                        27180  Jackson, TN.
Kalawao County..........................  HI                                        27980  Kahului-Wailuku-Lahaina, HI.
Maui County.............................  HI                                        27980  Kahului-Wailuku-Lahaina, HI.
Campbell County.........................  TN                                        28940  Knoxville, TN.
Morgan County...........................  TN                                        28940  Knoxville, TN.
Roane County............................  TN                                        28940  Knoxville, TN.
Acadia Parish...........................  LA                                        29180  Lafayette, LA.
Iberia Parish...........................  LA                                        29180  Lafayette, LA.
Vermilion Parish........................  LA                                        29180  Lafayette, LA.
Cotton County...........................  OK                                        30020  Lawton, OK.
Scott County............................  IN                                        31140  Louisville/Jefferson County, KY-IN.
Lynn County.............................  TX                                        31180  Lubbock, TX.
Green County............................  WI                                        31540  Madison, WI.
Benton County...........................  MS                                        32820  Memphis, TN-MS-AR.
Midland County..........................  MI                                        33220  Midland, MI.
Martin County...........................  TX                                        33260  Midland, TX.
Le Sueur County.........................  MN                                        33460  Minneapolis-St. Paul-Bloomington, MN-WI.
Mille Lacs County.......................  MN                                        33460  Minneapolis-St. Paul-Bloomington, MN-WI.
Sibley County...........................  MN                                        33460  Minneapolis-St. Paul-Bloomington, MN-WI.
Maury County............................  TN                                        34980  Nashville-Davidson-Murfreesboro-Franklin, TN.
Craven County...........................  NC                                        35100  New Bern, NC.
Jones County............................  NC                                        35100  New Bern, NC.
Pamlico County..........................  NC                                        35100  New Bern, NC.
St. James Parish........................  LA                                        35380  New Orleans-Metairie, LA.
Box Elder County........................  UT                                        36260  Ogden-Clearfield, UT.
Gulf County.............................  FL                                        37460  Panama City, FL.
Custer County...........................  SD                                        39660  Rapid City, SD.
Fillmore County.........................  MN                                        40340  Rochester, MN.

[[Page 25783]]

 
Yates County............................  NY                                        40380  Rochester, NY.
Sussex County...........................  DE                                        41540  Salisbury, MD-DE.
Worcester County........................  MA                                        41540  Salisbury, MD-DE.
Highlands County........................  FL                                        42700  Sebring, FL.
Webster Parish..........................  LA                                        43340  Shreveport-Bossier City, LA.
Cochise County..........................  AZ                                        43420  Sierra Vista-Douglas, AZ.
Plymouth County.........................  IA                                        43580  Sioux City, IA-NE-SD.
Union County............................  SC                                        43900  Spartanburg, SC.
Pend Oreille County.....................  WA                                        44060  Spokane-Spokane Valley, WA.
Stevens County..........................  WA                                        44060  Spokane-Spokane Valley, WA.
Augusta County..........................  VA                                        44420  Staunton-Waynesboro, VA.
Staunton City...........................  VA                                        44420  Staunton-Waynesboro, VA.
Waynesboro City.........................  VA                                        44420  Staunton-Waynesboro, VA.
Little River County.....................  AR                                        45500  Texarkana, TX-AR.
Sumter County...........................  FL                                        45540  The Villages, FL.
Pickens County..........................  AL                                        46220  Tuscaloosa, AL.
Gates County............................  NC                                        47260  Virginia Beach-Norfolk-Newport News, VA-NC.
Falls County............................  TX                                        47380  Waco, TX.
Columbia County.........................  WA                                        47460  Walla Walla, WA.
Walla Walla County......................  WA                                        47460  Walla Walla, WA.
Peach County............................  GA                                        47580  Warner Robins, GA.
Pulaski County..........................  GA                                        47580  Warner Robins, GA.
Culpeper County.........................  VA                                        47894  Washington-Arlington-Alexandria, DC-VA-MD-WV.
Rappahannock County.....................  VA                                        47894  Washington-Arlington-Alexandria, DC-VA-MD-WV.
Jefferson County........................  NY                                        48060  Watertown-Fort Drum, NY.
Kingman County..........................  KS                                        48620  Wichita, KS.
Davidson County.........................  NC                                        49180  Winston-Salem, NC.
Windham County..........................  CT                                        49340  Worcester, MA-CT.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We are proposing that when calculating the area wage index, the 
wage data for hospitals located in these counties would be included in 
their new respective urban CBSAs. Furthermore, for SNF providers 
currently located in a rural county that would be considered urban, 
should this proposal be finalized, CMS would utilize the urban 
unadjusted per-diem rates, found in Table 2 above, as the basis for 
determining this facility's payment rates beginning on October 1, 2014
d. Urban Counties Moving to a Different Urban CBSA
    In addition to rural counties becoming urban and urban counties 
becoming rural, several urban counties would shift from one urban CBSA 
to another urban CBSA under our proposal to adopt the new OMB 
delineations. In other cases, applying the new OMB delineations would 
involve a change only in CBSA name or number, while the CBSA continues 
to encompass the same constituent counties. For example, CBSA 29140 
(Lafayette, IN), would experience both a change to its number and its 
name, and would become CBSA 29200 (Lafayette-West Lafayette, IN), while 
all of its three constituent counties would remain the same. We are not 
discussing these proposed changes in this section because they are 
inconsequential changes with respect to the SNF PPS wage index. 
However, in other cases, if we adopt the new OMB delineations, counties 
would shift between existing and new CBSAs, changing the constituent 
makeup of the CBSAs.
    In one type of change, an entire CBSA would be subsumed by another 
CBSA. For example, CBSA 37380 (Palm Coast, FL) currently is a single 
county (Flagler, FL) CBSA. Flagler County would be a part of CBSA 19660 
(Deltona-Daytona Beach-Ormond Beach, FL) under the new OMB 
delineations.
    In another type of change, some CBSAs have counties that would 
split off to become part of or to form entirely new labor market areas. 
For example, CBSA 37964 (Philadelphia Metropolitan Division of MSA 
37980) currently is comprised of five Pennsylvania counties (Bucks, 
Chester, Delaware, Montgomery, and Philadelphia). If we adopt the new 
OMB delineations, Montgomery, Bucks, and Chester counties would split 
off and form the new CBSA 33874 (Montgomery County-Bucks County-Chester 
County, PA Metropolitan Division of MSA 37980), while Delaware and 
Philadelphia counties would remain in CBSA 37964.
    Finally, in some cases, a CBSA would lose counties to another 
existing CBSA if we adopt the new OMB delineations. For example, 
Lincoln County and Putnam County, WV would move from CBSA 16620 
(Charleston, WV) to CBSA 26580 (Huntington-Ashland, WV-KY-OH). CBSA 
16620 would still exist in the new labor market delineations with fewer 
constituent counties. Table 11 lists the urban counties that would move 
from one urban CBSA to another urban CBSA if we adopt the new OMB 
delineations.

        Table 11--Counties That Would Change to a Different CBSA
------------------------------------------------------------------------
      Prior CBSA            New CBSA           County          State
------------------------------------------------------------------------
11300................              26900  Madison County.  IN.

[[Page 25784]]

 
11340................              24860  Anderson County  SC.
14060................              14010  McLean County..  IL.
37764................              15764  Essex County...  MA.
16620................              26580  Lincoln County.  WV.
16620................              26580  Putnam County..  WV.
16974................              20994  DeKalb County..  IL.
16974................              20994  Kane County....  IL.
21940................              41980  Ceiba Municipio  PR.
21940................              41980  Fajardo          PR.
                                           Municipio.
21940................              41980  Luquillo         PR.
                                           Municipio.
26100................              24340  Ottawa County..  MI.
31140................              21060  Meade County...  KY.
34100................              28940  Grainger County  TN.
35644................              35614  Bergen County..  NJ.
35644................              35614  Hudson County..  NJ.
20764................              35614  Middlesex        NJ.
                                           County.
20764................              35614  Monmouth County  NJ.
20764................              35614  Ocean County...  NJ.
35644................              35614  Passaic County.  NJ.
20764................              35084  Somerset County  NJ.
35644................              35614  Bronx County...  NY.
35644................              35614  Kings County...  NY.
35644................              35614  New York County  NY.
35644................              20524  Putnam County..  NY.
35644................              35614  Queens County..  NY.
35644................              35614  Richmond County  NY.
35644................              35614  Rockland County  NY.
35644................              35614  Westchester      NY.
                                           County.
37380................              19660  Flagler County.  FL.
37700................              25060  Jackson County.  MS.
37964................              33874  Bucks County...  PA.
37964................              33874  Chester County.  PA.
37964................              33874  Montgomery       PA.
                                           County.
39100................              20524  Dutchess County  NY.
39100................              35614  Orange County..  NY.
41884................              42034  Marin County...  CA.
41980................              11640  Arecibo          PR.
                                           Municipio.
41980................              11640  Camuy Municipio  PR.
41980................              11640  Hatillo          PR.
                                           Municipio.
41980................              11640  Quebradillas     PR.
                                           Municipio.
48900................              34820  Brunswick        NC.
                                           County.
49500................              38660  Gu[aacute]nica   PR.
                                           Municipio.
49500................              38660  Guayanilla       PR.
                                           Municipio.
49500................              38660  Pe[ntilde]uelas  PR.
                                           Municipio.
49500................              38660  Yauco Municipio  PR.
------------------------------------------------------------------------

    If providers located in these counties move from one CBSA to 
another under the new OMB delineations, there may be impacts, both 
negative and positive, upon their specific wage index values. As 
discussed below, we propose to implement a transition wage index to 
adjust for these possible impacts.
e. Transition Period
    Overall, we believe implementing the new OMB delineations would 
result in wage index values being more representative of the actual 
costs of labor in a given area. Further, we recognize that some 
providers (15 percent) would have a higher wage index due to our 
proposed implementation of the new labor market area delineations. 
However, we also recognize that more providers (22 percent) would 
experience decreases in wage index values as a result of our proposed 
implementation of the new labor market area delineations. Therefore, we 
believe it would be appropriate to consider, as we did in FY 2006, 
whether or not a transition period should be used in order to implement 
these proposed changes to the wage index.
    We considered having no transition period and fully implementing 
the proposed new OMB delineations beginning in FY 2015. This would mean 
that we would adopt the revised OMB delineations for all providers on 
October 1, 2014. However, this would not provide any time for providers 
to adapt to the new OMB delineations. As discussed above, more 
providers would experience a decrease in wage index due to 
implementation of the proposed new OMB delineations than would 
experience an increase. Thus, we believe that it would be appropriate 
to provide for a transition period to mitigate the resulting short-term 
instability and negative impacts on these providers, and to provide 
time for providers to adjust to their new labor market area 
delineations. Furthermore, in light of the comments received during the 
FY 2006 rulemaking cycle on our proposal in the FY 2006 SNF PPS 
proposed rule (70 FR 29094-29095) to adopt the new CBSA definitions 
without a transition period, we anticipate that providers would have 
similar concerns with not having a transition period for the proposed 
new OMB delineations. Therefore, as further discussed below, similar to 
the policy

[[Page 25785]]

adopted in the FY 2006 SNF PPS final rule (70 FR 45041) when we first 
adopted OMB's CBSA definitions for purposes of the SNF PPS wage index, 
we are proposing a one-year transition blended wage index for all SNFs 
to assist providers in adapting to the new OMB delineations (should we 
finalize implementation of such delineations for the SNF PPS wage index 
beginning in FY 2015). In determining an appropriate transition 
methodology, consistent with the objectives set forth in the FY 2006 
SNF PPS final rule (70 FR 45041), we looked for approaches that would 
provide relief to the largest percentage of adversely-affected SNFs 
with the least impact to the rest of the facilities.
    First, we considered transitioning the wage index to the revised 
OMB delineations over a number of years in order minimize the impact of 
the proposed wage index changes in a given year. However, we also 
believe this must be balanced against the need to ensure the most 
accurate payments possible, which argues for a faster transition to the 
revised OMB delineations. As discussed above in section V.A.2 of this 
proposed rule, we believe that using the most current OMB delineations 
would increase the integrity of the SNF PPS wage index by creating a 
more accurate representation of geographic variation in wage levels. As 
such, we believe that utilizing a one-year (rather than a multiple 
year) transition with a blended wage index in FY 2015 would strike the 
best balance.
    Second, we considered what type of blend would be appropriate for 
purposes of the transition wage index. We are proposing that providers 
would receive a one-year blended wage index using 50 percent of their 
FY 2015 wage index based on the proposed new OMB delineations and 50 
percent of their FY 2015 wage index based on the OMB delineations used 
in FY 2014. We believe that a 50/50 blend would best mitigate the 
negative payment impacts associated with the implementation of the 
proposed new OMB delineations. While we considered alternatives to the 
50/50 blend, we believe this type of split balances the increases and 
decreases in wage index values associated with this proposal, as well 
as provides a readily understandable calculation for providers.
    Next, we considered whether or not the blended wage index should be 
used for all providers or for only a subset of providers, such as those 
providers that would experience a decrease in their respective wage 
index values due to implementation of the revised OMB delineations. If 
we were to apply the transition policy only to those providers that 
would experience a decrease in their respective wage index values due 
to the implementation of the revised OMB delineations, then providers 
that would experience either no change in wage index or an increase in 
wage index due to the revised OMB delineations would be immediately 
transitioned to the FY 2015 wage index under the revised OMB 
delineations. As required in Section 1888(e)(4)(G)(ii) of the Act, the 
wage index adjustment must be implemented in a budget-neutral manner. 
As such, if we were to apply the transition policy only to those 
providers that would experience a decrease in their respective wage 
index values due to implementation of the revised OMB delineations, the 
budget neutrality factor, discussed in section III.D, calculated based 
on this this approach would be 0.9986, which would result in reduced 
base rates for all providers as compared to the budget neutrality 
factor of 1.0001 which would result from applying the blended wage 
index to all providers. Furthermore, based on our analysis of the wage 
index changes associated with fully implementing the revised OMB 
delineations, we determined that the new OMB delineations would only 
affect the wage index values of approximately 37 percent of facilities. 
Given that our goal is to provide relief to the largest percentage of 
adversely-affected SNFs with the least impact to the rest of the 
facilities (whose wage index values either would remain the same or 
would increase), we believe that using a blended wage index for all 
providers would be the best option. This option would assist the 22 
percent of providers that would be adversely affected by the proposed 
implementation of the new OMB delineations without reducing the base 
rates for all providers, 63 percent of which would otherwise be 
unaffected by the proposed implementation of the new OMB delineations. 
In other words, this option is based on a balance between the interests 
of all SNF providers, including the 15 percent of providers that would 
experience an increase in their wage index value due to the proposed 
implementation of the new OMB delineations, the 22 percent of providers 
that would experience a decrease in their wage index value due to the 
proposed implementation of the new OMB delineations, and the 63 percent 
of providers that would be unaffected by the proposed implementation of 
the new OMB delineations. As discussed above, if we were to apply the 
blended wage index only to the 22 percent of providers that would 
experience a decrease in their respective wage index values due to the 
proposed implementation of the new OMB delineations in an effort to 
preserve the full increase in wage index value for the 15 percent of 
providers that would experience such an increase due to the proposed 
implementation of the new OMB delineations, the budget neutrality 
factor of 1.0001 referenced in section III.D, which is based on 
applying the blended wage index to all providers, would be revised to 
0.9986. As such, this would mean a reduction in the base rate for all 
providers, most notably the 63 percent of providers that would be 
unaffected by the proposed implementation of the new OMB delineations, 
but also for that 15 percent of providers that would experience an 
increase in their wage index value.
    Moreover, while providers experience wage index changes from year 
to year based on updating the wage data, full implementation of the 
proposed new OMB delineations would dramatically increase the magnitude 
of those changes for some providers. Year-to-year wage index changes 
usually vary from decreases as high as 10 percent to increases as high 
as 10 percent. Using FY 2011 wage data (the data used for the FY 2015 
wage index), the range of changes in the wage index values due solely 
to full implementation of the proposed OMB delineations would span from 
decreases of over 20 percent to increases of over 30 percent. 
Therefore, in addition to mitigating the impact of the proposed OMB 
delineations on the facilities that are adversely affected by them and 
providing a period to adjust, we believe a transition wage index could 
also mitigate the volatility of the SNF PPS wage index caused by these 
proposed changes.
    Therefore, for the reasons discussed above, if we finalize 
implementation of the new OMB delineations, we are proposing to apply a 
one-year transition with a 50/50 blended wage index for all providers 
in FY 2015. We propose to calculate the FY 2015 wage indexes using both 
the current FY 2014 and proposed new labor market delineations. 
Specifically, providers would receive 50 percent of their FY 2015 wage 
index based on the new OMB delineations, and 50 percent of their FY 
2015 wage index based on the labor market area delineations for FY 2014 
(both using FY 2011 hospital wage data). This ultimately results in an 
average of the two values. As we stated in the FY 2006 SNF PPS final 
rule (70 FR 45041), we believe that our proposed transition approach 
would best achieve our objective of providing relief to the largest 
percentage of adversely-affected

[[Page 25786]]

SNFs with the least impact to the rest of the facilities, because it 
reduces the impact of the transition on the base rates for all 
providers. For the reasons discussed above, and based on provider 
reaction during the FY 2006 rulemaking cycle to the proposed adoption 
of the new CBSA definitions, we are proposing to provide a one-year 
blended wage index for all SNFs to assist providers in adapting to 
these proposed changes. We refer to this blended wage index as the FY 
2015 SNF PPS transition wage index. This transition policy would be for 
a one-year period, going into effect October 1, 2014, and continuing 
through September 30, 2015. Thus, beginning October 1, 2015, the wage 
index for all SNFs would be fully based on the new OMB delineations. We 
invite comments on our proposed transition methodology, as well as on 
the other transition options discussed above.
    The proposed wage index applicable to FY 2015 is set forth in Table 
A available on the CMS Web site at http://cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html. Table A provides a 
crosswalk between the FY 2015 wage index for a provider using the 
current OMB delineations in effect in FY 2014 and the FY 2015 wage 
index using the proposed revised OMB delineations, as well as the 
proposed transition wage index values that would be in effect in FY 
2015 if these proposed changes are finalized.
3. Labor-Related Share
    Each year, we calculate a revised labor-related share based on the 
relative importance of labor-related cost categories in the SNF market 
basket as discussed in Section III.D of this proposed rule. Table 12 
summarizes the proposed updated labor-related share for FY 2015, 
compared to the labor-related share that was used for the FY 2014 SNF 
PPS final rule.

                        Table 12--Labor-Related Relative Importance, FY 2014 and FY 2015
----------------------------------------------------------------------------------------------------------------
                                                                  Relative importance,     Relative importance,
                                                                 labor-related, FY 2014   labor-related, FY 2015
                                                                   13:2 forecast \1\        14:1 forecast \2\
----------------------------------------------------------------------------------------------------------------
Wages and salaries............................................                   49.118                   49.116
Employee benefits.............................................                   11.423                   11.373
Nonmedical Professional fees: labor-related...................                    3.446                    3.460
Administrative and facilities support services................                    0.499                    0.503
All Other: Labor-related services.............................                    2.287                    2.285
Capital-related (.391)........................................                    2.772                    2.776
                                                               -------------------------------------------------
    Total.....................................................                   69.545                   69.513
----------------------------------------------------------------------------------------------------------------
\1\ Published in the Federal Register; based on second quarter 2013 IGI forecast.
\2\ Based on first quarter 2014 IGI forecast, with historical data through fourth quarter 2013.

B. SNF Therapy Research Project

    As discussed in the FY 2014 SNF PPS proposed rule (78 FR 26466, May 
6, 2013), CMS contracted with Acumen, LLC and the Brookings Institution 
to identify potential alternatives to the existing methodology used to 
pay for therapy services received under the SNF PPS. Under the current 
payment model, the therapy payment rate component of the SNF PPS is 
based solely on the amount of therapy provided to a patient during the 
7-day look-back period, regardless of the specific patient 
characteristics. The amount of therapy a patient receives is used to 
classify the resident into a RUG category, which then determines the 
per diem payment for that resident. In the FY 2014 SNF PPS proposed 
rule (78 FR 26466, May 6, 2013), we invited public comment on this 
project. In the FY 2014 SNF PPS final rule (78 FR 47963, August 6, 
2013), we discussed the comments we received on this project, all of 
which supported the overall goals and objective of the project, and a 
few highlighted the importance of maintaining contact with the 
stakeholder community.
    In this proposed rule, we are taking the opportunity to update the 
public on the current state of this project. In September 2013, we 
completed the first phase of the research project, which included a 
literature review, stakeholder outreach, supplementary analyses, and a 
comprehensive review of options for a viable alternative to the current 
therapy payment model. CMS produced a report outlining the most 
promising and viable options that we plan to pursue in the second phase 
of the project. The report is available on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.
    During the second phase of the project, which began in September 
2013, our team will further develop the options outlined in the 
aforementioned report and perform more comprehensive data analysis to 
determine which of these options would work best as a potential 
replacement for the existing therapy payment model. In keeping with the 
public comments we received on this project previously, we also plan to 
engage the stakeholder community by convening a Technical Expert Panel 
during this second phase of the project to discuss the available 
alternatives, as well as present some of the initial data analysis that 
is currently being conducted. We hope that by convening this Technical 
Expert Panel, we can best ensure that we utilize the expertise of the 
stakeholder community in identifying the most viable alternative to the 
current therapy payment model.
    As before, comments may be included as part of comments on this 
proposed rule. We are also soliciting comments outside the rulemaking 
process and these comments should be sent via email to 
[email protected]. Information regarding this project can 
be found on the project Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.

C. Proposed Revisions to Policies Related to the Change of Therapy 
(COT) Other Medicare Required Assessment (OMRA)

    On October 1, 2011, CMS introduced the Change of Therapy (COT) 
Other Medicare Required Assessment (OMRA), which is an assessment 
designed to capture changes in the therapy services provided to a given 
SNF resident during the past 7 days. As discussed in the FY 2012 SNF 
PPS final rule, this assessment was implemented because we had found 
that in certain cases, ``the therapy 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'' (76 FR 48518).

[[Page 25787]]

    To address this situation, effective for services provided on or 
after October 1, 2011, we required facilities to complete a COT OMRA 
for patients classified into a RUG-IV therapy category, whenever the 
intensity of therapy (that is, the total reimbursable therapy minutes 
delivered or other therapy category qualifiers, such as the number of 
days the patient received therapy during the week or the number of 
therapy disciplines) 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 
(see 76 FR 48525). In addition, as discussed in the FY 2012 SNF PPS 
final rule (76 FR 48523 through 48524, 48526), the COT OMRA policy also 
applies to patients who are receiving a level of therapy sufficient for 
classification into a therapy RUG, but are classified into a nursing 
RUG because of index maximization. An evaluation of the necessity for a 
COT OMRA must be completed every 7 calendar days starting from the day 
following the Assessment Reference Date (ARD) set for the most recent 
scheduled or unscheduled PPS assessment (or in the case of an End of 
Therapy-Resumption-OMRA, starting the day that therapy resumes). This 
rolling 7-day window is called the COT observation period. As discussed 
in the FY 2012 SNF PPS final rule (76 FR 48523), the purpose of the COT 
OMRA is to track changes in a patient's condition and in the provision 
of therapy services more accurately to ensure that the patient is 
placed in the appropriate RUG category, thereby improving the accuracy 
of reimbursement.
    As discussed above, the resident must be classified into a RUG-IV 
therapy category or into a nursing RUG because of index maximization 
(while receiving a level of therapy sufficient for classification into 
a RUG-IV therapy category) in order for the COT OMRA requirements to 
apply. However, since implementation of this assessment, we have 
learned that, in rare cases where a resident has been classified into a 
RUG-IV therapy category, therapy services provided to the resident 
during a COT observation period may not be sufficient to continue to 
qualify the resident for any therapy RUG, resulting in classification 
of the resident into a non-therapy RUG. During a subsequent week when 
the therapy services are sufficient to again qualify the resident for a 
therapy RUG, providers have indicated that they cannot complete a 
subsequent COT OMRA to reclassify the resident into a therapy RUG 
because the resident is no longer in a therapy RUG or in a nursing RUG 
because of index maximization as discussed above (pursuant to the 
conditions set forth in the FY 2012 SNF PPS final rule and in Section 
2.9 of the MDS 3.0 RAI manual). As a result, providers are unable to 
use the COT OMRA to capture the increased therapy services provided to 
the resident to ensure accurate payment for the services provided, 
which is the express purpose of the COT OMRA.
    Accordingly, we propose to revise the existing COT OMRA policy to 
permit providers to complete a COT OMRA for a resident who is not 
currently classified into a RUG-IV therapy group, or receiving a level 
of therapy sufficient for classification into a RUG-IV therapy group as 
discussed above, but only in those rare cases where the resident had 
qualified for a RUG-IV therapy group on a prior assessment during the 
resident's current Medicare Part A stay and had no discontinuation of 
therapy services between Day 1 of the COT observation period for the 
COT OMRA that classified the resident into his/her current non-therapy 
RUG-IV group and the ARD of the COT OMRA that reclassified the patient 
into a RUG-IV therapy group. Under the proposed policy, while a COT 
OMRA may be used to reclassify a resident into a therapy RUG in the 
circumstances described above, it may not be used to initially classify 
a resident into a therapy RUG. We believe it is appropriate to revise 
the COT OMRA policy in this manner to provide for more accurate payment 
for services provided to those residents who have qualified for a RUG-
IV therapy group during their Medicare Part A stay and continue to 
receive skilled therapy services during their Medicare Part A stay 
(even though they may have been classified into a non-therapy RUG as 
discussed above).
    Consider, for example, if Mr. A. was classified into the RUG group 
RUA on his 30-day assessment with an ARD set for Day 30 of his stay. On 
Day 37, the facility checks how much therapy was provided to Mr. A. and 
finds that while Mr. A. did receive the requisite number of therapy 
minutes to qualify for this RUG category, he only received therapy on 4 
distinct calendar days, which would make it impossible for him to 
qualify for an Ultra-High Rehabilitation RUG group. Moreover, due to 
the lack of 5 distinct calendar days of therapy and the lack of any 
restorative nursing services, Mr. A. does not qualify for any therapy 
RUG group. As a result, the facility must complete a COT OMRA for Mr. 
A., on which he may only classify to a non-therapy RUG group. Let us 
further assume that the facility continues to provide Mr. A. with 
skilled therapy and that, when looking back on Mr. A.'s services from 
Day 44 (7 days after the ARD of the COT OMRA), Mr. A. again qualifies 
for classification in the RUG group RUA.
    Under the existing COT OMRA policy, it would not be possible for 
this provider to reclassify Mr. A. back into RUA from the non-therapy 
group by using a COT OMRA. Instead, Mr. A. could only be classified 
into a therapy RUG either by discontinuing his therapy using an End of 
Therapy (EOT) OMRA and beginning a new therapy program and completing a 
Start of Therapy (SOT) OMRA, or by waiting until the next scheduled 
assessment. Under our proposed revised policy, this provider would be 
permitted to complete a COT OMRA with an ARD of Day 44 in order to 
reclassify Mr. A. back into the RUA group. The facility would then 
continue to review the therapy services provided to Mr. A. in order to 
ensure that these services continue to reflect Mr. A.'s current RUG-IV 
therapy classification.
    To further clarify the scope of this proposal, consider a slightly 
different example in which Mr. A. is classified into the RUG group RUA 
on his 30-day assessment with an ARD set for Day 30 of his stay. On Day 
37, the facility checks the amount of therapy that was provided to Mr. 
A. and finds that while Mr. A. did receive the requisite number of 
therapy minutes to qualify for this RUG category, he only received 
therapy on 4 distinct calendar days, which would make it impossible for 
him to qualify for an Ultra-High Rehabilitation RUG group. Moreover, 
due to the lack of 5 distinct calendar days of therapy and the lack of 
any restorative nursing services, Mr. A. does not qualify for any 
therapy RUG group. As a result, the facility must complete a COT OMRA 
for Mr. A., on which he may only classify for a non-therapy RUG group. 
However, as opposed to the previous situation where the resident's 
therapy continued during the week following the COT OMRA, let us assume 
that the facility decides to discontinue his therapy services by 
completing an End of Therapy OMRA with an ARD set for Day 39, resulting 
in a non-therapy RUG classification for Mr. A. The facility 
subsequently decides to restart Mr. A.'s therapy services, beginning on 
Day 41 of his stay. The facility looks back from Day 47 (7 days 
following the day therapy began on Day 41, including Day 41) to review 
the therapy services provided to Mr. A. during the prior week and finds 
that Mr. A. would qualify for the RUG group RVA.

[[Page 25788]]

    As in the prior example, under the existing COT OMRA policy, it 
would not be possible for this provider to classify Mr. A. into RVA 
from the non-therapy group by using a COT OMRA. However, as opposed to 
the prior example, under the revised COT OMRA policy proposed in this 
proposed rule, the facility would still not be permitted to complete 
the COT OMRA in this instance, as a discontinuation of therapy services 
had occurred between Day 1 of the COT observation period for the COT 
OMRA that classified the resident into his/her current non-therapy RUG-
IV group and the ARD of the COT OMRA that would have been used to 
reclassify the patient into a RUG-IV therapy group if it had been 
permitted. Based on this example, in order to reclassify the resident 
into a RUG-IV therapy group, the provider would need to either complete 
a Start of Therapy OMRA or wait until the next regularly scheduled 
assessment.
    We believe this proposal would address the concern of those 
providers who have experienced the rare occurrence of a COT OMRA 
classifying a resident into a non-therapy RUG group from a therapy RUG 
group, where the patient continues to receive therapy and later 
qualifies again for a therapy RUG. We believe this proposed revision to 
the COT OMRA policy would ensure the most accurate payment for therapy 
services furnished to such residents by allowing providers to capture 
variations in therapy services on a weekly basis. As with other similar 
policy changes, if this revision is finalized, then we intend to 
monitor the impact of this revision to ensure that is has the intended 
effect. We invite comments on this proposed change to the existing COT 
OMRA policy.

D. Civil Money Penalties (Section 6111 of the Affordable Care Act)

    Sections 6111 of the Patient Protection and Affordable Care Act 
(Affordable Care Act), amended sections 1819(h) and 1919(h) of the Act 
to incorporate specific provisions pertaining to the imposition and 
collection of civil money penalties (CMPs). Sections 
1819(h)(2)(B)(ii)(IV)(ff) and 1919(h)(3)(C)(ii)(IV)(ff) of the Act 
specifies that some portion of such amounts collected may be used to 
support activities that benefit residents, including assistance to 
support and protect residents of a facility that closes (voluntarily or 
involuntarily) or is decertified (including offsetting costs of 
relocating residents to home and community-based settings or another 
facility), projects that support resident and family councils and other 
consumer involvement in assuring quality care in facilities, and 
facility improvement initiatives approved by the Secretary (including 
joint training of facility staff and surveyors, technical assistance 
for facilities implementing quality assurance programs, the appointment 
of temporary management firms, and other activities approved by the 
Secretary). These changes were implemented in a final rule published on 
March 18, 2011 entitled ``Medicare and Medicaid Programs; Civil Money 
Penalties for Nursing Homes.'' At Sec.  488.433, we specify that these 
funds may not be used for survey and certification operations but must 
be used entirely for activities that protect or improve the quality of 
care for residents and that these activities must be approved by CMS.
    This proposed rule would clarify statutory requirements as 
specified in section 6111 of the Affordable Care Act regarding the 
approval and use of CMPs imposed by CMS. It is important to note that 
these clarifications not only apply to the Federal share of collected 
CMP funds granted for approved projects that benefit residents under 
Sec.  488.433, but they also apply to the portion of the CMPs collected 
by CMS that is disbursed to the states based on the proportion of 
Medicaid eligible nursing home residents under Sec.  488.442(e)(2) and 
(f). The amendments made by section 6111 of the Affordable Care Act 
makes it clear that the specified use of CMP funds collected from SNFs, 
SNF/NFs, and NF-only facilities as a result of CMPs imposed by CMS, 
must be approved by CMS by specifying that the activities that CMP 
funds are used for must be approved by the Secretary. Sections 
1819(h)(2)(B)(ii)(IV)(ff) and 1919(h)(3)(C)(ii)(IV)(ff) of the Act also 
provide for flexibility on how CMP funds imposed by CMS may be used 
within the bounds established by law. The regulations at Sec.  488.433 
specify that collected CMP funds must be used entirely for activities 
that protect or improve the quality of care for residents, and may not 
be used for survey and certification operations. However, we are aware 
of instances in which states have used federal CMP funds without 
obtaining prior approval from CMS, have used these funds even though 
CMS had disapproved their intended use, have not used these funds at 
all, or have used these funds for purposes other than to support 
activities that benefit residents as specified in statute and 
regulation. For example, information reported by the CMS Regional 
Offices for CY 2012 indicates that 24 states had not approved any 
projects using CMP funds. While some states have only small amounts of 
CMP funds available and seek to maintain a core reserve in the event of 
emergencies or involuntary termination that necessitates timely 
relocation for resident safety and well-being, other states maintain 
significant amounts of funds. One state, for example, maintained more 
than $15 million in FY 2012. While it is very prudent to maintain a 
reserve fund for emergencies, we believe that maintenance of large 
amounts of unused CMP funds is not desirable or consistent with 
ensuring that collected CMP funds be used to benefit nursing home 
residents. In addition, large amounts of unused CMP funds may create 
the appearance that CMPs are being levied for purposes other than to 
benefit nursing home residents.
    A key function of the CMP remedy is to prompt quick compliance with 
the federal health and safety requirements. These monies must be used 
to support projects or activities that will benefit nursing home 
residents. Entities applying for approval of projects utilizing CMP 
funds must demonstrate that the planned use will benefit nursing home 
residents and promote compliance with the regulations.
    We propose changes to the CMS enforcement regulations at Sec.  
488.433 to clarify and strengthen these provisions to provide more 
specific instructions to states regarding the use of CMPs and the 
approval process, and to permit an opportunity for greater transparency 
and accountability of CMP monies utilized by States.
    We invite public comment on our proposed changes. This proposed 
rule would explicitly clarify the intended use and statutory 
requirements of collected CMP funds. Specifically, we propose to: (1) 
Specify that CMP funds may not be used for state management operations 
except for the reasonable costs that are consistent with managing 
projects utilizing CMP funds; (the rationale for this clarification is 
explained further in section VI.); (2) clarify CMS's expectations that 
States must obtain prior approval for use of these CMP funds; (3) 
outline specific requirements that must be included in proposals 
submitted for CMS approval; (4) specify that CMPs funds may not be used 
for projects that have been disapproved by CMS; (5) specify that states 
are responsible for having an acceptable plan to solicit, accept, 
monitor and track projects utilizing CMP funds and make the results of 
all approved projects publicly available on at least an annual basis; 
(6) specify that state plans must ensure that a core amount of civil 
money penalty funds will be held in reserve for emergencies,

[[Page 25789]]

such as relocation of residents in the event of involuntary termination 
from Medicare and Medicaid, and (7) specify that if a state is not 
spending collected CMPs in accordance with the law or not at all, that 
CMS has authority to take appropriate steps to ensure that these funds 
are used for their intended purpose, such as withholding future 
disbursements of CMP amounts. We do not believe this has significant 
cost implications and it will benefit nursing home residents to ensure 
that CMP funds will be used for their intended purpose. We further 
invite public comment on CMS's proposed methods to ensure compliance 
with these requirements.

E. Observations on Therapy Utilization Trends

    In the FY 2014 SNF PPS final rule (78 FR 47959 through 47960), we 
discussed our monitoring efforts associated with the impact of certain 
policy changes finalized in the FY 2012 SNF PPS final rule (76 FR 
48486). We noted that we would continue these monitoring efforts and 
report any new information as appropriate. We are not proposing new 
Medicare policy in this discussion of observed trends but merely 
highlighting that we will continue to monitor these observed trends 
which may serve as the basis for future policy development.
    In the FY 2014 SNF PPS proposed rule (78 FR 26464), we presented 
data which compared various utilization metrics including, in 
particular, the case-mix distribution for the RUG-IV therapy categories 
(Ultra-High Rehabilitation or RU, Very-High Rehabilitation or RV, High 
Rehabilitation or RH, Medium Rehabilitation or RM, and Low 
Rehabilitation or RL), for FY 2011 and FY 2012. It was observed based 
on those data that the percentage of billed days of service being 
classified into the RU RUG groups had increased from 44.8 percent in FY 
2011 to 48.6 percent in FY 2012, while utilization in all other therapy 
RUG categories either remained stable or declined. We have since 
updated this data set using data from FY 2013 and have posted a memo to 
the SNF PPS Web site (available at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Spotlight.html) which 
demonstrates that the percentage of billed service days in the RU RUG 
groups has increased to over 50 percent. These revised data in the 
aforementioned memo are presented in a slightly different format than 
they have been presented in the past, which is to show how, over the 
course of the past 3 years since October of 2010, the percentage of 
residents classified into one of these Ultra-High Rehabilitation groups 
has not only increased, but done so rather steadily.
    The second identified trend that we would highlight here and is 
discussed in the memo referenced above is that, most notably in the 
cases of RU and RV RUG groups, the amount of therapy reported on the 
MDS is just enough to surpass the relevant therapy minute threshold for 
a given therapy RUG category. For example, as demonstrated in Figure 2 
in the aforementioned memo, the percentage of claims-matched MDS 
assessments in the range of 720 minutes to 739 minutes, which is just 
enough to surpass the therapy minute threshold for RU RUG groups of 720 
minutes, has increased from 21 percent in FY 2011 to 33 percent in FY 
2013. As stated above, this trend also holds for residents classified 
into a RV RUG group, where the largest percentage of service days were 
provided in the 500 to 520 minutes range, which just surpasses the 
therapy minute threshold for the RV RUG groups of 500 minutes.
    We invite comment on the data presented here and the discussion of 
observed trends.

F. Accelerating Health Information Exchange in SNFs

    As we have stated in the past, we believe all patients, and others 
involved in the patient's care, and their healthcare providers should 
have consistent and timely access to their health information in a 
standardized format that can be securely exchanged between the patient, 
providers, and others involved in the patient's care. (HHS August 2013 
Statement, ``Principles and Strategies for Accelerating Health 
Information Exchange.'') The Department is committed to accelerating 
health information exchange (HIE) through the use of electronic health 
records (EHRs) and other types of health information technology (HIT) 
across the broader care continuum through a number of initiatives 
including: (1) Alignment of incentives and payment adjustments to 
encourage provider adoption and optimization of HIT and HIE services 
through Medicare and Medicaid payment policies; (2) adoption of common 
standards and certification requirements for interoperable HIT; (3) 
support for privacy and security of patient information across all HIE-
focused initiatives; and (4) governance of health information networks. 
These initiatives are designed to improve care delivery and 
coordination across the entire care continuum and encourage HIE among 
all health care providers, including professionals and hospitals 
eligible for the Medicare and Medicaid EHR Incentive Programs and those 
who are not eligible for the EHR Incentive Programs. To increase 
flexibility in ONC's HIT Certification Program and expand HIT 
certification, ONC has issued a proposed rule concerning a voluntary 
2015 Edition of EHR certification criteria which would more easily 
accommodate certification of HIT used in other types of health care 
settings where individual or institutional health care providers are 
not typically eligible for incentive payments under the Medicare and 
Medicaid EHR Incentive Programs, such as long-term and post-acute care 
and behavioral health settings.
    We believe that HIE and the use of certified EHRs by SNFs and other 
types of providers that are ineligible for the Medicare and Medicaid 
EHR Incentive Programs can effectively and efficiently help providers 
improve internal care delivery practices, support management of patient 
care across the continuum, and enable the reporting of electronically 
specified clinical quality measures (eCQMs). More information on the 
identification of EHR certification criteria and development of 
standards applicable to SNFs can be found at:
     http://healthit.gov/policy-researchers-implementers/standards-and-certification-regulations.
     http://www.healthit.gov/facas/FACAS/health-it-policy-committee/hitpc-workgroups/certificationadoption.
     http://wiki.siframework.org/LCC+LTPAC+Care+Transition+SWG.
     http://wiki.siframework.org/Longitudinal+Coordination+of+Care.

VI. Provisions of the Proposed Rule

    As discussed in section III. of this proposed rule, this proposed 
rule would update the payment rates under the SNF PPS for FY 2015 as 
required by section 1888(e)(4)(E)(ii) of the Act. In addition, we 
propose to use the most current OMB delineations (discussed in section 
V.A) to identify a facility's urban or rural status for the purpose of 
determining which set of rate tables would apply to the facility 
(section III.B.). Furthermore, as discussed in section V. of this 
proposed rule, we propose changes to the wage index based on the most 
current OMB delineations, including a one-year transition with a 
blended wage index for FY 2015 (section V.A.); propose to revise the 
policy governing use of the COT OMRA (section V.C.); and finally, 
propose changes to the enforcement regulations related to civil money 
penalties utilized by states (section V.D.).

[[Page 25790]]

    With reference to the civil money penalty provisions discussed in 
section V.D. of this proposed rule, we propose to modify current CMS 
regulations to provide further clarification to states and the public 
regarding prior approval and appropriate use of these federal-imposed 
civil money penalty funds.
    At Sec.  488.433, civil money penalties: Uses and approval of civil 
money penalties imposed by CMS, we propose to amend this regulation to 
specify that civil money penalties may not be used for state management 
operations except for the costs that are consistent with managing the 
civil money penalty funds, specify that all activities utilizing civil 
money penalty funds must be approved in advance by CMS, outline 
specific requirements that must be included in proposals submitted for 
CMS approval, specify that states are responsible for monitoring and 
tracking the results of all approved activities utilizing civil money 
penalties and making this information publicly available, specify that 
state plans must ensure that a core amount of civil money penalty funds 
will be held in reserve for emergencies, such as relocation of 
residents in the event of involuntary termination from Medicare and 
Medicaid, and specify steps CMS will take if civil money penalty funds 
are being used for disapproved purposes or not being used at all.
    The proposed CMS regulation would explicitly clarify the intended 
use of these civil money penalty funds including the processes for 
prior approval of all activities using civil money penalty funds by CMS 
and how CMS will address a state's use of civil money penalty funds for 
activities that have been disapproved by CMS or used by states for 
activities other than those explicitly specified in statute or 
regulations.
    At proposed Sec.  488.433(a), we would clarify that approved 
projects may work to improve residents' quality of life and not just 
quality of care. We would also clarify that states while states may not 
use funds for survey and certification operations or state expenses, 
they may use a reasonable amount of civil money penalty funds for the 
actual administration of grant awards, including the tracking, 
monitoring, and evaluating of approved projects. Some states have 
maintained that effective use and management of the civil money penalty 
funds requires more state oversight and planning than they are able to 
provide currently, and that an allowance for such management would 
remove a barrier to the effective use of these funds. We have not 
proposed a monetary or numeric limit on what might be considered 
reasonable, although one to 3 percent of available funds might be 
considered reasonable for an established fund. We invite comment on the 
question of appropriate limits.
    At proposed Sec.  488.433(b)(5), we would clarify in a new 
paragraph that in extraordinary situations involving closure of a 
facility, civil monetary penalty funds may be used to pay the salary of 
a temporary manager when CMS concludes that it is infeasible to ensure 
timely payment for such a manager by the facility. We have encountered 
situations, for example, in which a facility is in bankruptcy and the 
court has frozen all funds at the very time that residents are being 
relocated and closure is proceeding. In another situation involving 
involuntary termination from Medicare and impending closure of the 
facility, the facility was not making payments for staff or for its 
utilities, and residents were at risk due to the imminent departure of 
staff and the absence of a manager. While Sec.  489.55 permits Medicare 
and Medicaid payments to a facility to continue for up to 30 days after 
the effective date of a facility's termination or possibly longer (or 
shorter) if a facility has submitted a notification of closure under 
Sec.  483.75(r) in order to promote the orderly and safe relocation of 
residents, if the continued Medicare and Medicaid payments are being 
used to pay for facility operations during the relocation period but 
are being diverted elsewhere by the facility, then residents may be 
placed at increased risk. The proposed change at Sec.  488.433(b)(5) 
would clarify not only that CMS places a priority on resident 
protection and protection of the Trust Fund and allows such emergency 
use of civil money funds, but that CMS also intends to stop or suspend 
the payments to the facility under Sec.  489.55 when such a situation 
occurs.
    At new Sec.  488.433(c), we specify the requirements for all CMP 
fund proposals being submitted to CMS for approval.
    At new Sec.  488.433 (d), we state that CMP funds may not be used 
for activities that have been disapproved by CMS.
    At new Sec.  488.433(e), we propose that states must maintain an 
acceptable plan for the effective use of civil monetary penalty funds, 
including a description of methods by which the state will solicit, 
accept, monitor, and track approved projects funded by CMP amounts and 
make key information publicly available. Examples of information that 
must be publically available would include information on the projects 
that have been approved by CMS, the grantee and project recipients, the 
dollar amounts of projects approved, and the results of the projects. 
We also propose that these plans provide for a minimum amount of funds 
that will generally be held in reserve for emergencies, unless the 
state's plan demonstrates the availability of other funds to cover 
emergency situations, and a reasonable aggregate amount of civil money 
penalty funds, beyond the emergency reserve amount, that the state 
expects to disburse each year for grants or contracts of projects that 
benefit residents and are consistent with the statute and CMS 
regulations. We appreciate that states may wish to develop a multi-year 
plan and provide an approximate range of total amount that the state 
plans to disburse. The intent is to ensure there is an acceptable plan, 
and that a state is prepared to respond to emergencies while at the 
same time is not maintaining a large unused amount of civil monetary 
penalty funds.
    In Sec.  488.433(f), we propose that CMS may withhold future 
disbursement of collected civil money penalty funds to a state if CMS 
finds that the state has not spent such funds in accordance with the 
statute and regulations, fails to make use of funds to benefit the 
quality of care or life of residents, or fails to maintain an 
acceptable plan approved by CMS.

VII. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), we are required to 
publish a 60-day notice in the Federal Register and solicit public 
comments before a collection of information requirement is submitted to 
the Office of Management and Budget (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:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.

A. Information Collection Requirements (ICRs)

    While this proposed rule does not have any PRA implications, we are 
soliciting comment on the following:

[[Page 25791]]

1. ICRs Regarding the SNF PPS Rate Setting Methodology (preamble 
sections III and V)
    While sections III and V propose to revise certain policies related 
to the current rate setting methodology (such as the use of updated OMB 
delineations to assign a facility the urban or rural per diem rate and 
to calculate wage index adjustments), the provisions would not impose 
any new or revised reporting, recordkeeping, or third-party disclosure 
requirements. Nor would they require the development, acquisition, 
installation, and utilization of any new or revised technology or 
information systems. Consequently, they do not require review under the 
authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.).
    The information collection requirements discussed in section III.C. 
concerning the resident assessment instrument (MDS 3.0) are currently 
approved by OMB under OCN 0938-1140 (CMS-10387).
2. ICRs Regarding the COT OMRA (Preamble Section V.C.)
    While section V.C. proposes to revise current COT OMRA policy by 
permitting providers to complete a COT OMRA for a resident who is not 
currently classified into a RUG-IV therapy group in certain 
circumstances, this provision does not impose any new or revised 
reporting, recordkeeping, or third-party disclosure requirements. 
Consequently, it does not require review under the authority of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).
3. ICRs Regarding the Use of Civil Money Penalties (Sec.  488.433(c))
    In Sec.  488.433(c), states proposing to use civil money penalties 
for certain activities are required to submit descriptions of the 
intended outcomes, deliverables, sustainability, and methods by which 
the results will be assessed, including specific measures. Prior to 
using these funds, the activities must be approved by CMS under 
existing regulations. The proposed language in this rule provides 
methods to ensure that these requirements are followed and to promote 
additional transparency.
    The provision does not require additional OMB review under the 
authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.). In addition, as stated in the Civil Money Penalties for Nursing 
Homes final rule published on March 18, 2011 (76 FR 15125), sections 
4204(b) and 4214(d) of the Omnibus Budget Reconciliation Act of 1987 
(OBRA '87), Public Law 100-203, enacted on December 21, 1987, provide 
waivers of Office of Management and Budget review of information 
collection requirements for the purpose of implementing the nursing 
home reform amendments. The provisions of OBRA '87 that exempt agency 
actions to collect information from states or facilities relevant to 
survey and enforcement activities from the Paperwork Reduction Act are 
not time-limited.
4. ICRs Regarding Civil Money Penalty Plans (Sec.  488.433(e))
    In Sec.  488.433(e), states would be required to maintain an 
acceptable plan (approved by CMS) for the effective use of civil money 
funds. The plan must include a description of methods by which the 
state will: (1) Solicit, accept, monitor, and track projects utilizing 
civil money penalty funds; (2) make information about the use of civil 
money penalty funds publicly available, including key information about 
approved projects, the grantee or contract recipients, and the results 
of projects; (3) ensure that a core amount of civil money penalty funds 
will be held in reserve for emergencies, such as unplanned relocation 
of residents pursuant to an involuntary termination from Medicare and 
Medicaid; and (4) ensure that a reasonable amount of funds, beyond 
those held in reserve, will be awarded or contracted each year.
    Since current statute, regulations and/or CMS policy guidance 
released to the states already specifies that all proposed activities 
using civil money penalty funds must be submitted to CMS for approval 
and must contain information on the expected final outcomes of the 
activity and how the results of the activity will be assessed, states 
must already have plans in place to monitor and track the outcomes of 
all approved activities using these funds. Consequently, the proposed 
provision would not require any substantive revision to any state plans 
and would not impose any additional burden to states.
    Since the provisions in Sec.  488.433(e) would not impose any new 
or revised reporting, recordkeeping, or third-party disclosure 
requirements, they do not require additional OMB review under the 
authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.). In addition, as stated in the Civil Money Penalties for Nursing 
Homes final rule published on March 18, 2011 (76 FR 15125), sections 
4204(b) and 4214(d) of the Omnibus Budget Reconciliation Act of 1987 
(OBRA '87), Public Law 100-203, enacted on December 21, 1987, provides 
waivers of OMB review of information collection requirements for the 
purpose of implementing the nursing home reform amendments. The 
provisions of OBRA '87 that exempt agency actions to collect 
information from states or facilities relevant to survey and 
enforcement activities from the Paperwork Reduction Act are not time-
limited.

B. Submission of PRA-Related Comments

    If you comment on any of these information collection requirements, 
please submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule.
    Comments must be received on/by June 30, 2014.

VIII. 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.

IX. 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

[[Page 25792]]

Executive Order 12866. Accordingly, we have prepared a regulatory 
impact analysis (RIA) as further discussed below. Also, the rule has 
been reviewed by OMB.
2. Statement of Need
    This proposed rule would update the SNF prospective payment rates 
for FY 2015 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 factors to be applied in making the area wage adjustment. 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. In addition, 
this proposed rule would clarify statutory requirements and intent as 
specified in section 6111 of the Affordable Care Act regarding the 
approval and use of civil money penalties imposed by CMS.
3. Overall Impacts
    This proposed rule sets forth proposed updates of the SNF PPS rates 
contained in the SNF PPS final rule for FY 2014 (78 FR 47936). Based on 
the above, we estimate that the aggregate impact would be an increase 
of $750 million in payments to SNFs, resulting from the SNF market 
basket update to the payment rates, as adjusted by the MFP adjustment. 
The impact analysis of this proposed rule represents the projected 
effects of the changes in the SNF PPS from FY 2014 to FY 2015. 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 such 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 sections 1888(e)(4)(E) and 1888(e)(5) of the 
Act, we update the FY 2014 payment rates by a factor equal to the 
market basket index percentage change adjusted by the FY 2013 forecast 
error adjustment (if applicable) and the MFP adjustment to determine 
the payment rates for FY 2015. 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 fewer than 4,355 beneficiaries who qualify for 
the add-on payment for residents with AIDS. The impact to Medicare is 
included in the ``total'' column of Table 13. In updating the SNF PPS 
rates for FY 2015, 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).
    The annual update set forth in this proposed rule applies to SNF 
PPS payments in FY 2015. Accordingly, the analysis that follows only 
describes the impact of this single year. In accordance with the 
requirements of the Act, we will publish a notice or rule for each 
subsequent FY that will provide for an update to the SNF PPS payment 
rates and include an associated impact analysis.
    As discussed in Section V.D. of this proposed rule, we would also 
clarify statutory requirements and intent as specified in section 6111 
of the Affordable Care Act regarding the approval and use of civil 
money penalties imposed by CMS. There would be no impact to States 
unless they failed to follow the new regulations regarding the approval 
and use of civil money penalty funds. In FY 2011, the approximate total 
amount of civil money penalties returned to the states was $28 million. 
In FY 2012, the approximate total amount of civil money penalties 
returned to the states was $32 million. In FY 2013, the approximate 
total amount of civil money penalties returned to the states was $35 
million. The estimated amount that we expect to be returned to the 
states in FY2015, based on data from previous years, is approximately 
$33 million. These payments to the states would only be withheld in the 
event that states did not spend civil money penalty funds in accordance 
with the statute and this regulation, or failed to make use of funds to 
benefit the quality of care or life of residents, or failed to maintain 
an acceptable plan for the use of these funds. Even if CMP funds are 
withheld from a state, we expect that the state would eventually come 
into compliance and that the state would later gain access to the 
withheld funds.
4. Detailed Economic Analysis
    The FY 2015 impacts appear in Table 13. Using the most recently 
available data, in this case FY 2013, we apply the current FY 2014 wage 
index and labor-related share value to the number of payment days to 
simulate FY 2014 payments. Then, using the same FY 2013 data, we apply 
the FY 2015 wage index, as proposed in Section V.A above, and labor-
related share value to simulate FY 2015 payments. We tabulate the 
resulting payments according to the classifications in Table 13 (for 
example, facility type, geographic region, facility ownership), and 
compare the difference between current and proposed payments to 
determine the overall impact. The breakdown of the various categories 
of data in the table follows.
    The first column shows the breakdown of all SNFs by urban or rural 
status, hospital-based or freestanding status, census region, and 
ownership.
    The first row of figures 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 new OMB delineations that we are proposing to 
implement beginning in FY 2015. Facilities should use these proposed 
OMB delineations to identify their urban or rural status for purposes 
of identifying what areas of the impact table would apply to them 
beginning on October 1, 2014. The next nineteen rows show the effects 
on facilities by urban versus rural status by census region. The last 
three rows show the effects on facilities by ownership (that is, 
government, profit, and non-profit status).
    The second column shows the number of facilities in the impact 
database.

[[Page 25793]]

    The third column shows the effect of the annual update to the wage 
index. This represents the effect of using the most recent wage data 
available, without taking into account the proposed revised OMB 
delineations. That is, the impact represented in this column is solely 
that of updating from the FY 2014 wage index to the FY 2015 wage index 
without any changes to the OMB delineations. The total impact of this 
change is zero percent; however, there are distributional effects of 
the change.
    The fourth column shows the effect of adopting the updated OMB 
delineations (as set forth in OMB Bulletin No. 13-01) for wage index 
purposes for FY 2015, independent of the effect of using the most 
recent wage data available, captured in Column 3. That is, the impact 
represented in this column is that of the proposed use of the revised 
OMB delineations, utilizing the proposed blended wage index. The total 
impact of this change is zero percent; however, there are 
distributional effects of the change.
    The fifth column shows the effect of all of the changes on the FY 
2015 payments. The update of 2.0 percent (consisting of the market 
basket increase of 2.4 percentage points, reduced by the 0.4 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 2.0 percent, assuming 
facilities do not change their care delivery and billing practices in 
response.
    As illustrated in Table 13, the combined effects of all of the 
changes vary by specific types of providers and by location. For 
example, due to changes proposed in this rule, providers in the rural 
Pacific region would experience a 4.5 percent increase in FY 2015 total 
payments.

                          Table 13--RUG-IV Projected Impact to the SNF PPS for FY 2015
----------------------------------------------------------------------------------------------------------------
                                                     Number of                      Update OMB
                                                   facilities FY    Update wage    delineations    Total change
                                                       2015          data (%)           (%)             (%)
----------------------------------------------------------------------------------------------------------------
Group:
    Total.......................................          15,397             0.0             0.0             2.0
    Urban.......................................          10,860             0.0             0.0             2.0
    Rural.......................................           4,537             0.1            -0.2             1.9
    Hospital based urban........................             572             0.1             0.0             2.0
    Freestanding urban..........................          10,288             0.0             0.0             2.0
    Hospital based rural........................             640             0.1            -0.3             1.7
    Freestanding rural..........................           3,897             0.1            -0.2             1.9
Urban by region:
    New England.................................             803             0.9             0.0             2.9
    Middle Atlantic.............................           1,490             0.3             0.1             2.5
    South Atlantic..............................           1,853            -0.3             0.0             1.7
    East North Central..........................           2,054            -0.3             0.0             1.6
    East South Central..........................             544            -1.0             0.0             1.0
    West North Central..........................             889             0.0             0.0             2.0
    West South Central..........................           1,293            -0.4             0.0             1.6
    Mountain....................................             501             0.1            -0.1             2.0
    Pacific.....................................           1,427             0.3             0.0             2.3
    Outlying....................................               6             0.6            -0.2             2.4
Rural by region:
    New England.................................             144             0.7             0.1             2.8
    Middle Atlantic.............................             228             1.5            -1.6             1.8
    South Atlantic..............................             504            -0.4            -0.2             1.4
    East North Central..........................             925            -0.1             0.0             1.9
    East South Central..........................             533            -0.3            -0.2             1.4
    West North Central..........................           1,093             0.3            -0.2             2.2
    West South Central..........................             770             0.3            -0.4             1.9
    Mountain....................................             235            -0.7             0.0             1.3
    Pacific.....................................             105             2.6            -0.1             4.5
    Outlying....................................               0             0.0             0.0             2.0
Ownership:
    Government..................................             852             0.1             0.1             2.2
    Profit......................................          10,783             0.0             0.0             2.0
    Non-profit..................................           3,762             0.1             0.0             2.0
----------------------------------------------------------------------------------------------------------------
Note: The Total column includes the 2.4 percent market basket increase, reduced by the 0.4 percentage point MFP
  adjustment. Additionally, we found no SNFs in rural outlying areas.

5. Alternatives Considered
    As described above, we estimate that the aggregate impact for FY 
2015 would be an increase of $750 million in payments to SNFs, 
resulting from the SNF market basket update to the payment rates, as 
adjusted by the MFP adjustment.
    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, 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

[[Page 25794]]

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.
    With regard to the proposal discussed in section V.A of this rule 
related to our proposed adoption of the revised OMB delineations for 
purposes of calculating the wage index, we believe implementing the new 
OMB delineations would result in wage index values being more 
representative of the actual costs of labor in a given area. Further, 
we recognize that some providers (15 percent) would have a higher wage 
index due to our proposed implementation of the new labor market 
delineations. However, we also recognize that more providers (22 
percent) would experience decreases in wage index values as a result of 
our proposed implementation of the new labor market area delineations. 
Therefore, we believe it would be appropriate to consider, as we did in 
FY 2006, whether or not a transition period should be used in order to 
implement these proposed changes to the wage index.
    We considered having no transition period and fully implementing 
the proposed new OMB delineations beginning in FY 2015. This would mean 
that we would adopt the revised OMB delineations for all providers on 
October 1, 2014. However, this would not provide any time for providers 
to adapt to the new OMB delineations. As discussed above, more 
providers would experience a decrease in wage index due to 
implementation of the proposed new OMB delineations than would 
experience an increase. Thus, we believe that it would be appropriate 
to provide for a transition period to mitigate the resulting short-term 
instability and negative impact on these providers, and to provide time 
for providers to adjust to their new labor market area delineations. 
Furthermore, in light of the comments received during the FY 2006 
rulemaking cycle on our proposal in the FY 2006 SNF PPS proposed rule 
(70 FR 29094-29095) to adopt the new CBSA definitions without a 
transition period, we anticipate that providers would have similar 
concerns with not having a transition period for the proposed new OMB 
delineations. Therefore, as further discussed below, similar to the 
policy adopted in the FY 2006 SNF PPS final rule (70 FR 45041) when we 
first adopted OMB's CBSA definitions for purposes of the SNF PPS wage 
index, we are proposing a one-year transition blended wage index for 
all SNFs to assist providers in adapting to the new OMB delineations 
(should we finalize implementation of such delineations for the SNF PPS 
wage index beginning in FY 2015). In determining an appropriate 
transition methodology, consistent with the objectives set forth in the 
FY 2006 SNF PPS final rule (70 FR 45041), we looked for approaches that 
would provide relief to the largest percentage of adversely-affected 
SNFs with the least impact to the rest of the facilities
    First, we considered transitioning the wage index to the revised 
OMB delineations over a number of years in order minimize the impact of 
the proposed wage index changes in a given year. However, we also 
believe this must be balanced against the need to ensure the most 
accurate payments possible, which argues for a faster transition to the 
revised OMB delineations. As discussed above in section V.A.2 of this 
proposed rule, we believe that using the most current OMB delineations 
would increase the integrity of the SNF PPS wage index by creating a 
more accurate representation of geographic variation in wage levels. As 
such, we believe that utilizing a one-year (rather than a multiple 
year) transition with a blended wage index in FY 2015 would strike the 
best balance.
    Second, we considered what type of blend would be appropriate for 
purposes of the transition wage index. We are proposing that providers 
would receive a one-year blended wage index using 50 percent of their 
FY 2015 wage index based on the proposed new OMB delineations and 50 
percent of their FY 2015 wage index based on the FY 2014 OMB 
delineations. We believe that a 50/50 blend would best mitigate the 
negative payment impacts associated with the implementation of the 
proposed new OMB delineations. While we considered alternatives to the 
50/50 blend, we believe this type of split balances the increases and 
decreases in wage index values associated with this proposal, as well 
as provides a readily understandable calculation for providers.
    Next, we considered whether or not the blended wage index should be 
used for all providers or for only a subset of providers, such as those 
providers that would experience a decrease in their respective wage 
index values due to implementation of the revised OMB delineations. If 
we were to apply the transition policy only to those providers that 
would experience a decrease in their respective wage index values due 
to the implementation of the revised OMB delineations, then providers 
that would experience either no change in wage index or an increase in 
wage due to the revised OMB delineations would be immediately 
transitioned to the FY 2015 wage index under the revised OMB 
delineations. As required in section 1888(e)(4)(G)(ii) of the Act, the 
wage index adjustment must be implemented in a budget-neutral manner. 
As such, if we were to apply the transition policy only to those 
providers that would experience a decrease in their respective wage 
index values due to implementation of the revised OMB delineations, the 
budget neutrality factor, discussed in section III.D, calculated based 
on this this approach would be 0.9986, which would result in reduced 
base rates for all providers as compared to the budget neutrality 
factor of 1.0001 which would result from applying the blended wage 
index to all providers. Furthermore, based on our analysis of the wage 
index changes associated with fully implementing the revised OMB 
delineations, we determined that the new OMB delineations would only 
affect the wage index values of approximately 37 percent of facilities. 
Given that our goal is to provide relief to the largest percentage of 
adversely-affected SNFs with the least impact to the rest of the 
facilities (whose wage index values either would remain the same or 
increase), we believe that using a blended wage index for all providers 
would be the best option. This option would assist the 22 percent of 
providers that would be adversely affected by the proposed 
implementation of the new OMB delineations without reducing the base 
rates for all providers, 63 percent of which would otherwise be 
unaffected by the proposed implementation of the new OMB delineations. 
In other words, this option is based on a balance between the interests 
of all SNF providers, including the 15 percent of providers that would 
experience an increase in their wage index value due to the proposed 
implementation of the new OMB delineations, the 22 percent of providers 
that would experience a decrease in their wage index value due to the 
proposed implementation of the new OMB delineations, and the 63 percent 
of providers that would be unaffected by the proposed implementation of 
the new OMB delineations. As discussed above, if we were to apply the 
blended wage index only to the 22 percent of providers that would 
experience a decrease in their respective wage index values due to the 
proposed implementation of the new OMB delineations in an effort to 
preserve the full increase in wage index

[[Page 25795]]

value for the 15 percent of providers that would experience such an 
increase due to the proposed implementation of the new OMB 
delineations, the budget neutrality factor of 1.0001 referenced in 
section III.D, which is based on applying the blended wage index to all 
providers, would be revised to 0.9986. As such, this would mean a 
reduction in the base rate for all providers, most notably the 63 
percent of providers that would be unaffected by the proposed 
implementation of the new OMB delineations, but also for that 15 
percent of providers that would experience an increase in their wage 
index value.
    Moreover, while providers experience wage index changes from year 
to year based on updating the wage data, full implementation of the 
proposed new OMB delineations would dramatically increase the magnitude 
of those changes for some providers. Year-to-year wage index changes 
usually vary from decreases as high as 10 percent to increases as high 
as 10 percent. Using FY 2011 wage data (the data used for the FY 2015 
wage index), the range of changes in the wage index values due solely 
to full implementation of the proposed OMB delineations would span from 
decreases of over 20 percent to increases of over 30 percent. 
Therefore, in addition to mitigating the impact of the proposed OMB 
delineations on the facilities that are adversely affected by them and 
providing a period to adjust, we believe a transition wage index could 
also mitigate the volatility of the SNF PPS wage index for certain 
providers caused by these proposed changes.
    Therefore, if we finalize implementation of the new OMB 
delineations for the SNF PPS wage index, we are proposing to use a one-
year transition with a blended wage index for all providers in FY 2015, 
as outlined in Section V.A.2.e. For the reasons discussed above, we 
believe that this proposed transition approach appropriately balances 
the interests of all SNFs, and would best achieve our objective of 
providing relief to the largest percentage of adversely affected SNFs 
with the least impact to the rest of the facilities. We believe this 
approach would mitigate negative impacts on providers as well as the 
volatility of the SNF PPS wage index for certain providers resulting 
from implementation of the proposed new OMB delineations. We invite 
comments on the alternatives discussed in this analysis.
6. Accounting Statement
    As required by OMB Circular A-4 (available online at 
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. Table 14 provides 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 
15,397 SNFs in our database. All expenditures are classified as 
transfers to Medicare providers (that is, SNFs).

       Table 14--Accounting Statement: Classification of Estimated
   Expenditures, From the 2014 SNF PPS Fiscal Year to the 2015 SNF PPS
                               Fiscal Year
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  $750 million*.
From Whom To Whom?........................  Federal Government to SNF
                                             Medicare Providers.
------------------------------------------------------------------------
* The net increase of $750 million in transfer payments is a result of
  the MFP-adjusted market basket increase of $750 million.

7. Conclusion
    This proposed rule sets forth updates of the SNF PPS rates 
contained in the SNF PPS final rule for FY 2014 (78 FR 47936). Based on 
the above, we estimate the overall estimated payments for SNFs in FY 
2015 are projected to increase by $750 million, or 2.0 percent, 
compared with those in FY 2014. We estimate that in FY 2015 under RUG-
IV, SNFs in urban and rural areas would experience, on average, a 2.0 
and 1.9 percent increase, respectively, in estimated payments compared 
with FY 2014. Providers in the rural Pacific region would experience 
the largest estimated increase in payments of approximately 4.5 
percent. Providers in the urban East South Central region would 
experience the smallest increase in payments of 1.0 percent.

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 $25.5 million or less in any 1 year. We utilized the 
revenues of individual SNF providers (from recent Medicare Cost 
Reports) to classify a small business, and not the revenue of a larger 
firm they may be affiliated with. As a result, we estimate 
approximately 91 percent of SNFs are considered small businesses 
according to the Small Business Administration's latest size standards 
(NAICS 623110), with total revenues of $25.5 million or less in any 1 
year. (For details, see the Small Business Administration's Web site at 
http://www.sba.gov/category/navigation-structure/contracting/contracting-officials/eligibility-size-standards). In addition, 
approximately 25 percent of SNFs classified as small entities are non-
profit organizations. Finally, individuals and states are not included 
in the definition of a small entity.
    This proposed rule sets forth updates of the SNF PPS rates 
contained in the SNF PPS final rule for FY 2014 (78 FR 47936). Based on 
the above, we estimate that the aggregate impact would be an increase 
of $750 million in payments to SNFs, resulting from the SNF market 
basket update to the payment rates, as adjusted by the MFP adjustment. 
While it is projected in Table 13 that all providers would experience a 
net increase in payments, we note that some individual providers within 
the same region or group may experience different impacts on payments 
than others due to the distributional impact of the FY 2015 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 11 percent of total patient days in freestanding 
facilities and 22 percent of facility revenue (Report to the Congress: 
Medicare Payment Policy, March 2014, available at http://www.medpac.gov/documents/Mar14_EntireReport.pdf). 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 (Report to the Congress: Medicare Payment Policy, March 
2014, available at http://www.medpac.gov/documents/Mar14_EntireReport.pdf). As a result, for most facilities, when all payers 
are included in the revenue stream, the overall impact on total 
revenues should be substantially less than those impacts presented in 
Table 13. As indicated in Table 13, the effect on facilities is 
projected to be an aggregate positive impact of 2.0 percent. As the 
overall impact on the industry as a whole, and thus on small entities 
specifically, is

[[Page 25796]]

less than the 3 to 5 percent threshold discussed above, the Secretary 
has determined that this proposed rule would not have a significant 
impact on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. 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. This proposed rule would 
affect small rural hospitals that (1) furnish SNF services under a 
swing-bed agreement or (2) have a hospital-based SNF. We anticipate 
that the impact on small rural hospitals would be similar to the impact 
on SNF providers overall. Moreover, as noted in previous SNF PPS final 
rules (most recently the one for FY 2014 (78 FR 47968)), the category 
of small rural hospitals would be included within the analysis of the 
impact of this proposed rule on small entities in general. As indicated 
in Table 13, the effect on facilities is projected to be an aggregate 
positive impact of 2.0 percent. As the overall impact on the industry 
as a whole is less than the 3 to 5 percent threshold discussed above, 
the Secretary has determined that this proposed rule would not have a 
significant impact on a substantial number of small rural hospitals.

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 2014, that 
threshold is approximately $141 million. This proposed rule would not 
impose spending costs on state, local, or tribal governments in the 
aggregate, or by the private sector, of $141 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 in 42 CFR Part 488

    Administrative practice and procedure, Health facilities, Medicare, 
Reporting and recordkeeping requirements.

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

PART 488--SURVEY, CERTIFICATION AND ENFORCEMENT PROCEDURES

0
1. The authority citation for part 488 continues to read as follows:

    Authority: Secs. 1102, 1128I and 1871 of the Social Security 
Act, unless otherwise noted (42 U.S.C. 1302, 1320a-7j, and 1395hh); 
Pub. L. 110-149, 121 Stat. 1819.

0
2. Section 488.433 is revised to read as follows:


Sec.  488.433  Civil money penalties: Uses and approval of civil money 
penalties imposed by CMS.

    (a) Ten percent of the collected civil money penalty funds that are 
required to be held in escrow pursuant to Sec.  488.431 and that remain 
after a final administrative decision will be deposited with the 
Department of the Treasury in accordance with Sec.  488.442(f). The 
remaining ninety percent of the collected civil money penalty funds 
that are required to be held in escrow pursuant to Sec.  488.431 and 
that remain after a final administrative decision must be used entirely 
for activities that protect or improve the quality of care or quality 
of life for residents consistent with paragraph (b) of this section and 
may not be used for survey and certification operations or State 
expenses, except that reasonable expenses necessary to administer, 
monitor, or evaluate the effectiveness of projects utilizing civil 
money penalty funds may be permitted.
    (b) All activities and plans for utilizing civil money penalty 
funds, including any expense used to administer grants utilizing CMP 
funds, must be approved in advance by CMS and may include, but are not 
limited to:
    (1) Support and protection of residents of a facility that closes 
(voluntarily or involuntarily).
    (2) Time-limited expenses incurred in the process of relocating 
residents to home and community-based settings or another facility when 
a facility is closed (voluntarily or involuntarily) or downsized 
pursuant to an agreement with the State Medicaid agency.
    (3) Projects that support resident and family councils and other 
consumer involvement in assuring quality care in facilities.
    (4) Facility improvement initiatives, such as joint training of 
facility staff and surveyors or technical assistance for facilities 
implementing quality assurance and performance improvement programs.
    (5) Development and maintenance of temporary management or 
receivership capability such as but not limited to, recruitment, 
training, retention or other system infrastructure expenses. However, 
as specified in Sec.  488.415(c), a temporary manager's salary must be 
paid by the facility. In rare situations, if the facility is closing, 
CMS plans to stop or suspend continued payments to the facility under 
Sec.  489.55 of this chapter during the temporary manager's duty 
period, and CMS determines that extraordinary action is necessary to 
protect the residents until relocation efforts are successful, civil 
money penalty funds may be used to pay the manager's salary.
    (c) At a minimum, proposed activities submitted to CMS for prior 
approval must include a description of the intended outcomes, 
deliverables, and sustainability; and a description of the methods by 
which the activity results will be assessed, including specific 
measures.
    (d) Civil money penalty funds may not be used for activities that 
have been disapproved by CMS.
    (e) The State must maintain an acceptable plan for the effective 
use of civil money funds, including a description of methods by which 
the State will:
    (1) Solicit, accept, monitor, and track projects utilizing civil 
money penalty funds including any funds used for state administration.
    (2) Make information about the use of civil money penalty funds 
publicly available, including about the dollar amount awarded for 
approved projects, the grantee or contract recipients, the results of 
projects, and other key information.
    (3) Ensure that:
    (i) A core amount of civil money penalty funds will be held in 
reserve for emergencies, such as relocation of residents pursuant to an 
involuntary termination from Medicare and Medicaid.
    (ii) A reasonable amount of funds, beyond those held in reserve 
under paragraph (i) of this section, will be awarded or contracted each 
year for the purposes specified in this section.
    (f) If CMS finds that a State has not spent civil money penalty 
funds in accordance with this section, or fails to make use of funds to 
benefit the quality

[[Page 25797]]

of care or life of residents, or fails to maintain an acceptable plan 
for the use of funds that is approved by CMS, then CMS may withhold 
future disbursements of civil money penalty funds to the State until 
the State has submitted an acceptable plan to comply with this section.

    Dated: April 16, 2014.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.

    Approved: April 22, 2014.
Kathleen Sebelius,
Secretary.
[FR Doc. 2014-10319 Filed 5-1-14; 4:15 pm]
BILLING CODE 4120-01-P