[Federal Register Volume 83, Number 89 (Tuesday, May 8, 2018)]
[Proposed Rules]
[Pages 21018-21101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-09015]



[[Page 21017]]

Vol. 83

Tuesday,

No. 89

May 8, 2018

Part IV





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 411, 413 and 424





Medicare Program; Prospective Payment System and Consolidated Billing 
for Skilled Nursing Facilities (SNF) Proposed Rule for FY 2019, SNF 
Value-Based Purchasing Program, and SNF Quality Reporting Program; 
Proposed Rule

  Federal Register / Vol. 83 , No. 89 / Tuesday, May 8, 2018 / Proposed 
Rules  

[[Page 21018]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 411, 413, and 424

[CMS-1696-P]
RIN 0938-AT24


Medicare Program; Prospective Payment System and Consolidated 
Billing for Skilled Nursing Facilities (SNF) Proposed Rule for FY 2019, 
SNF Value-Based Purchasing Program, and SNF Quality Reporting Program

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) 2019. This proposed rule also proposes to 
replace the existing case-mix classification methodology, the Resource 
Utilization Groups, Version IV (RUG-IV) model, with a revised case-mix 
methodology called the Patient-Driven Payment Model (PDPM) effective 
October 1, 2019. It also proposes revisions to the regulation text that 
describes a beneficiary's SNF ``resident'' status under the 
consolidated billing provision and the required content of the SNF 
level of care certification. The proposed rule also includes proposals 
for the SNF Quality Reporting Program (QRP) and the Skilled Nursing 
Facility Value-Based Purchasing (VBP) Program that will affect Medicare 
payment to 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 26, 2018.

ADDRESSES: In commenting, please refer to file code CMS-1696-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    Comments, including mass comment submissions, must be submitted in 
one of the following three ways (please choose only one of the ways 
listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    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-1696-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-1696-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    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 SNF PPS 
clinical issues.
    John Kane, (410) 786-0557, for information related to the 
development of the payment rates and case-mix indexes.
    Kia Sidbury, (410) 786-7816, for information related to the wage 
index.
    Bill Ullman, (410) 786-5667, for information related to level of 
care determinations, consolidated billing, and general information.
    Mary Pratt, (410) 786-6867, for information related to skilled 
nursing facility quality reporting program.
    Celeste Bostic, (410) 786-5603, for information related to the 
skilled nursing facility value-based purchasing program.

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 
website as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that website to 
view public comments.

Availability of Certain Tables Exclusively Through the Internet on the 
CMS Website

    As discussed in the FY 2014 SNF PPS final rule (78 FR 47936), 
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 are no longer published in the Federal Register. Instead, 
these tables are available exclusively through the internet on the CMS 
website. The wage index tables for this proposed rule can be accessed 
on the SNF PPS Wage Index home page, at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html.
    Readers who experience any problems accessing any of these online 
SNF PPS wage index tables 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
    D. Improving Patient Outcomes and Reducing Burden Through 
Meaningful Measures
    E. Advancing Health Information Exchange
II. Background on SNF PPS
    A. Statutory Basis and Scope
    B. Initial Transition for the SNF PPS
    C. Required Annual Rate Updates
III. SNF PPS Rate Setting Methodology and FY 2019 Update
    A. Federal Base Rates
    B. SNF Market Basket Update
    C. Case-Mix Adjustment
    D. Wage Index Adjustment
    E. SNF Value-Based Purchasing Program
    F. 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. Proposed Revisions to SNF PPS Case-Mix Classification Methodology
    A. Issues Relating to the Current Case-Mix System for Payment of 
Skilled Nursing Facility Services Under Part A of the Medicare 
Program
    B. Summary of the Skilled Nursing Facility Payment Models 
Research Project
    C. Revisions to SNF PPS Federal Base Payment Rate Components
    D. Proposed Design and Methodology for Case-Mix Adjustment of 
Federal Rates
    E. Use of the Resident Assessment Instrument--Minimum Data Set, 
Version 3
    F. Proposed Revisions to Therapy Provision Policies Under the 
SNF PPS
    G. Proposed Interrupted Stay Policy
    H. Proposed Relationship of PDPM to Existing Skilled Nursing 
Facility Level of Care Criteria
    I. Effect of Proposed PDPM on Temporary AIDS Add-On Payment
    J. Potential Impacts of Implementing the Proposed PDPM and 
Proposed Parity Adjustment
VI. Other Issues
    A. Other Proposed Revisions to the Regulation Text
    B. Skilled Nursing Facility (SNF) Quality Reporting Program 
(QRP)
    C. Skilled Nursing Facility Value-Based Purchasing Program (SNF 
VBP)
VII. Request for Information on Promoting Interoperability and 
Electronic Healthcare Information Exchange Through Possible 
Revisions to the CMS Patient Health and Safety Requirements for 
Hospitals and Other Medicare- and

[[Page 21019]]

Medicaid-Participating Providers and Suppliers
VIII. Collection of Information Requirements
IX. Response to Comments
X. Economic Analyses
    A. Regulatory Impact Analysis
    B. Regulatory Flexibility Act Analysis
    C. Unfunded Mandates Reform Act Analysis
    D. Federalism Analysis
    E. Congressional Review Act
    F. Regulatory Review Costs

I. Executive Summary

A. Purpose

    This proposed rule would update the SNF prospective payment rates 
for FY 2019 as required under section 1888(e)(4)(E) of the Social 
Security Act (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 (FY), certain specified information relating to the 
payment update (see section II.C. of this proposed rule). This proposed 
rule also proposes to replace the existing case-mix classification 
methodology, the Resource Utilization Groups, Version IV (RUG-IV) 
model, with a revised case-mix methodology called the Patient-Driven 
Payment Model (PDPM) effective October 1, 2019. This proposed rule also 
proposes updates to the Skilled Nursing Facility Quality Reporting 
Program (SNF QRP) and Skilled Nursing Facility Value-Based Purchasing 
Program (SNF VBP).

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 
2018 (82 FR 36530), as corrected in the FY 2018 SNF PPS correction 
notice (82 FR 46163), which reflects the SNF market basket update for 
FY 2019, as required by section 1888(e)(5)(B)(iv) of the Act (as added 
by section 53111 of the Bipartisan Budget Act of 2018) . This proposed 
rule also proposes to replace the existing case-mix classification 
methodology, the Resource Utilization Groups, Version IV (RUG-IV) 
model, with a revised case-mix methodology called the Patient-Driven 
Payment Model (PDPM). It also proposes revisions at 42 CFR 
411.15(p)(3)(iv), which describes a beneficiary's SNF ``resident'' 
status under the consolidated billing provision, and 42 CFR 
424.20(a)(1)(i), which describes the required content of the SNF level 
of care certification. Furthermore, in accordance with section 1888(h) 
of the Act, this proposed rule proposes, beginning October 1, 2018, to 
reduce the adjusted federal per diem rate determined under section 
1888(e)(4)(G) of the Act by 2 percent, and to adjust the resulting rate 
by the value-based incentive payment amount earned by the SNF for that 
fiscal year under the SNF VBP Program. Additionally, this proposed rule 
proposes to update requirements for the SNF VBP, including requirements 
that would apply to the FY 2021 SNF VBP program year, changes to the 
SNF VBP scoring methodology, and an Extraordinary Circumstances 
Exception policy for the SNF VBP Program. Finally, this rule proposes 
to update requirements for the SNF QRP, including adopting a new 
quality measure removal factor and codifying in our regulations a 
number of requirements.

C. Summary of Cost and Benefits

                       Table 1--Cost and Benefits
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         Provision description                   Total transfers
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Proposed FY 2019 SNF PPS payment rate    The overall economic impact of
 update.                                  this proposed rule would be an
                                          estimated increase of $850
                                          million in aggregate payments
                                          to SNFs during FY 2019.
Proposed FY 2019 SNF VBP changes.......  The overall economic impact of
                                          the SNF VBP Program is an
                                          estimated reduction of $211
                                          million in aggregate payments
                                          to SNFs during FY 2019.
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D. Improving Patient Outcomes and Reducing Burden Through Meaningful 
Measures

    Regulatory reform and reducing regulatory burden are high 
priorities for us. To reduce the regulatory burden on the healthcare 
industry, lower health care costs, and enhance patient care, in October 
2017, we launched the Meaningful Measures Initiative.\1\ This 
initiative is one component of our agency-wide Patients Over Paperwork 
Initiative,\2\ which is aimed at evaluating and streamlining 
regulations with a goal to reduce unnecessary cost and burden, increase 
efficiencies, and improve beneficiary experience. The Meaningful 
Measures Initiative is aimed at identifying the highest priority areas 
for quality measurement and quality improvement in order to assess the 
core quality of care issues that are most vital to advancing our work 
to improve patient outcomes. The Meaningful Measures Initiative 
represents a new approach to quality measures that fosters operational 
efficiencies, and will reduce costs including, the collection and 
reporting burden while producing quality measurement that is more 
focused on meaningful outcomes.
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    \1\ Meaningful Measures web page: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/MMF/General-info-Sub-Page.html.
    \2\ See Remarks by Administrator Seema Verma at the Health Care 
Payment Learning and Action Network (LAN) Fall Summit, as prepared 
for delivery on October 30, 2017 https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2017-Fact-Sheet-items/2017-10-30.html.
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    The Meaningful Measures Framework has the following objectives:
     Address high-impact measure areas that safeguard public 
health;
     Patient-centered and meaningful to patients;
     Outcome-based where possible;
     Fulfill each program's statutory requirements;
     Minimize the level of burden for health care providers 
(for example, through a preference for EHR-based measures where 
possible, such as electronic clinical quality measures);
     Significant opportunity for improvement;
     Address measure needs for population based payment through 
alternative payment models; and
     Align across programs and/or with other payers.
    In order to achieve these objectives, we have identified 19 
Meaningful Measures areas and mapped them to six overarching quality 
priorities as shown in Table 2:

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    Table 2--Meaningful Measures Framework Domains and Measure Areas
------------------------------------------------------------------------
            Quality priority                 Meaningful measure area
------------------------------------------------------------------------
Making Care Safer by Reducing Harm       Healthcare-Associated
 Caused in the Delivery of Care.          Infections. Preventable
                                          Healthcare Harm.
Strengthen Person and Family Engagement  Care is Personalized and
 as Partners in Their Care.               Aligned with Patient's Goals.
                                         End of Life Care according to
                                          Preferences.
                                         Patient's Experience of Care.
                                         Patient Reported Functional
                                          Outcomes.
Promote Effective Communication and      Medication Management.
 Coordination of Care.                   Admissions and Readmissions to
                                          Hospitals.
                                         Transfer of Health Information
                                          and Interoperability.
Promote Effective Prevention and         Preventive Care.
 Treatment of Chronic Disease.           Management of Chronic
                                          Conditions.
                                         Prevention, Treatment, and
                                          Management of Mental Health.
                                         Prevention and Treatment of
                                          Opioid and Substance Use
                                          Disorders.
                                         Risk Adjusted Mortality.
Work with Communities to Promote Best    Equity of Care.
 Practices of Healthy Living.            Community Engagement.
Make Care Affordable...................  Appropriate Use of Healthcare.
                                         Patient-focused Episode of
                                          Care.
                                         Risk Adjusted Total Cost of
                                          Care.
------------------------------------------------------------------------

    By including Meaningful Measures in our programs, we believe that 
we can also address the following cross-cutting measure criteria:
     Eliminating disparities;
     Tracking measurable outcomes and impact;
     Safeguarding public health;
     Achieving cost savings;
     Improving access for rural communities; and
     Reducing burden.
    We believe that the Meaningful Measures Initiative will improve 
outcomes for patients, their families, and health care providers while 
reducing burden and costs for clinicians and providers and promoting 
operational efficiencies.

E. Advancing Health Information Exchange

    The Department of Health and Human Services (HHS) has a number of 
initiatives designed to encourage and support the adoption of 
interoperable health information technology and to promote nationwide 
health information exchange to improve health care. The Office of the 
National Coordinator for Health Information Technology (ONC) and CMS 
work collaboratively to advance interoperability across settings of 
care, including post-acute care.
    The IMPACT Act requires assessment data to be standardized and 
interoperable to allow for exchange of the data among post-acute 
providers and other providers. To further interoperability in post-
acute care, CMS is developing a Data Element Library to serve as a 
publicly available centralized, authoritative resource for standardized 
data elements and their associated mappings to health IT standards. 
These interoperable data elements can reduce provider burden by 
allowing the use and reuse of healthcare data, support provider 
exchange of electronic health information for care coordination, 
person-centered care, and support real-time, data driven, clinical 
decision making. Once available, standards in the Data Element Library 
can be referenced on the CMS website and in the ONC Interoperability 
Standards Advisory (ISA). The 2018 Interoperability Standards Advisory 
(ISA) is available at https://www.healthit.gov/standards-advisory.
    Most recently, the 21st Century Cures Act (Pub. L. 114-255), 
enacted in late 2016, requires HHS to take new steps to enable the 
electronic sharing of health information ensuring interoperability for 
providers and settings across the care continuum. Specifically, 
Congress directed ONC to ``develop or support a trusted exchange 
framework, including a common agreement among health information 
networks nationally.'' This framework (https://beta.healthit.gov/topic/interoperability/trusted-exchange-framework-and-common-agreement) 
outlines a common set of principles for trusted exchange and minimum 
terms and conditions for trusted exchange in order to enable 
interoperability across disparate health information networks. In 
another important provision, Congress defined ``information blocking'' 
as practices likely to interfere with, prevent, or materially 
discourage access, exchange, or use of electronic health information, 
and established new authority for HHS to discourage these practices.
    We invite providers to learn more about these important 
developments and how they are likely to affect SNFs.

II. Background on SNF PPS

A. Statutory Basis and Scope

    As amended by section 4432 of the Balanced Budget Act of 1997 (BBA 
1997, 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 physicians' 
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_04152015.pdf.
    Section 215(a) of Protecting Access to Medicare Act of 2014 (Pub. 
L. 113-93, enacted on April 1, 2014) (PAMA) added section 1888(g) to 
the Act requiring the Secretary to specify an all-cause all-condition 
hospital readmission

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measure and an all-condition risk-adjusted potentially preventable 
hospital readmission measure for the SNF setting. Additionally, section 
215(b) of PAMA added section 1888(h) to the Act requiring the Secretary 
to implement a VBP program for SNFs. Finally, section 2(c)(4) of the 
IMPACT Act added section 1888(e)(6) to the Act, which requires the 
Secretary to implement a quality reporting program for SNFs under which 
SNFs report data on measures and resident assessment data.

B. Initial Transition for the SNF PPS

    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 facility's first 3 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 
2018 (82 FR 36530), as corrected in the FY 2018 SNF PPS correction 
notice (82 FR 46163).
    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 proposed 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 2019.

III. SNF PPS Rate Setting Methodology and FY 2019 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 1997 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. In the SNF 
PPS final rule for FY 2018 (82 FR 36548 through 36566), we revised and 
rebased the market basket index, which included updating the base year 
from FY 2010 to 2014.
    The SNF market basket index is used to compute the market basket 
percentage change that is used to update the SNF federal rates on an 
annual basis, as required by section 1888(e)(4)(E)(ii)(IV) of the Act. 
This market basket percentage update is adjusted by a forecast error 
correction, if applicable, and then further adjusted by the application 
of a productivity adjustment as required by section 1888(e)(5)(B)(ii) 
of the Act and described in section III.B.4. of this proposed rule. For 
FY 2019, the growth rate of the 2014-based SNF market basket is 
estimated to be 2.7 percent, which is based on the IHS Global Insight, 
Inc. (IGI) first quarter 2018 forecast with historical data through 
fourth quarter 2017, before the multifactor productivity adjustment is 
applied.
    However, we note that section 53111 of the Bipartisan Budget Act of 
2018 (Pub. L. 115-123, enacted on February 9, 2018) (BBA 2018) amended 
section 1888(e) of the Act to add section 1888(e)(5)(B)(iv) of the Act. 
Section 1888(e)(5)(B)(iv) of the Act establishes a special rule for FY 
2019 that requires the market basket percentage, after the application 
of the productivity adjustment, to be 2.4 percent. In accordance with 
section 1888(e)(5)(B)(iv) of the Act, we will use a market basket 
percentage of 2.4 percent to update the federal rates set forth in this 
proposed rule. We propose to revise Sec.  413.337(d) to reflect this 
statutorily required 2.4 percent market basket percentage for FY 2019. 
In addition, to conform with section 1888(e)(5)(B)(iii) of the Act, we 
propose to update the regulations to reflect the 1 percent market 
basket percentage required for FY 2018 (as discussed in the FY 2018 SNF 
PPS final rule, 82 FR 36533). Accordingly, we are proposing to revise 
paragraph (d)(1) of Sec.  413.337, which sets forth the market basket 
update formula, by revising paragraph (d)(1)(v), and by adding 
paragraphs (d)(1)(vi) and (d)(1)(vii). The proposed revision to add 
paragraph (d)(1)(vi) would reflect section 1888(e)(5)(B)(iii) of the 
Act (as added by section 411(a) of the Medicare Access and CHIP 
Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10)), which 
establishes a special rule for FY 2018 that requires the market basket 
percentage, after the application of the productivity adjustment, to be 
1.0 percent. The proposed revision to add paragraph (d)(1)(vii) would 
reflect section 1888(e)(5)(B)(iv) of the Act (as added by section 53111 
of BBA 2018), which establishes a special rule for FY 2019

[[Page 21022]]

that requires the market basket percentage, after the application of 
the productivity adjustment, to be 2.4 percent. These statutory 
provisions are self-implementing and do not require the exercise of 
discretion by the Secretary. In section III.B.5. of this proposed rule, 
we discuss the specific application of the BBA 2018-specified market 
basket adjustment to the forthcoming annual update of the SNF PPS 
payment rates. In addition, in section III.B.5 of this proposed rule, 
we discuss the 2 percent reduction applied to the market basket update 
for those SNFs that fail to submit measures data as required by section 
1888(e)(6)(A) of the Act.
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. 
Absent the addition of section 1888(e)(5)(B)(iv) of the Act, added by 
section 53111 of BBA 2018, we would have used the percentage change in 
the SNF market basket index to compute the update factor for FY 2019. 
This factor is based on the IGI first quarter 2018 forecast (with 
historical data through the fourth quarter 2017) of the FY 2019 
percentage increase in the 2014-based SNF market basket index 
reflecting routine, ancillary, and capital-related expenses. The 
estimated SNF market basket percentage is 2.7 percent for FY 2019. 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 applicable 
forecast error correction (as described in Sec.  413.337(d)(2)) and by 
the MFP adjustment as required by section 1888(e)(5)(B)(ii) of the Act. 
As noted previously, section 1888(e)(5)(B)(iv) of the Act, added by 
section 53111 of the BBA 2018, requires us to update the SNF PPS rates 
for FY 2019 using a 2.4 percent market basket percentage change, 
instead of the estimated 2.7 percent market basket percentage change 
adjusted by the multifactor productivity adjustment as described below. 
Additionally, 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), Sec.  413.337(d)(2) provides 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 FYs. 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 
downward adjustments, as appropriate.
    For FY 2017 (the most recently available FY for which there is 
final data), the estimated increase in the market basket index was 2.7 
percentage points, while the actual increase for FY 2017 was 2.7 
percentage points, resulting in the actual increase being the same as 
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 FY 2019 market 
basket percentage change of 2.7 percent would not have been adjusted to 
account for the forecast error correction. Table 3 shows the forecasted 
and actual market basket amounts for FY 2017.

            Table 3--Difference Between the Forecasted and Actual Market Basket Increases for FY 2017
----------------------------------------------------------------------------------------------------------------
                                                                Forecasted  FY  Actual  FY 2017      FY 2017
                            Index                              2017 increase *    increase **       difference
----------------------------------------------------------------------------------------------------------------
SNF..........................................................             2.7              2.7              0.0
----------------------------------------------------------------------------------------------------------------
* Published in Federal Register; based on second quarter 2016 IGI forecast (2010-based index).
** Based on the first quarter 2018 IGI forecast, with historical data through the fourth quarter 2017 (2010-
  based index).

4. Multifactor Productivity Adjustment
    Section 1888(e)(5)(B)(ii) of the Act, as added by section 3401(b) 
of the Patient Protection and Affordable Care Act (Pub. L. 111-148, 
enacted on March 23, 2010) (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 multifactor productivity (MFP) adjustment 
described in section 1886(b)(3)(B)(xi)(II) of the Act. Section 
1886(b)(3)(B)(xi)(II) of the Act, in turn, defines the MFP 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 FY, 
year, cost-reporting period, or other annual period). The Bureau of 
Labor Statistics (BLS) is the agency that publishes the official 
measure of private nonfarm business MFP. We refer readers to the BLS 
website at http://www.bls.gov/mfp for the BLS historical published MFP 
data.
    MFP is derived by subtracting the contribution of labor and capital 
inputs growth from output growth. The projections of the components of 
MFP are currently produced by IGI, a nationally recognized economic 
forecasting firm with which CMS contracts to forecast the components of 
the market baskets and MFP. To generate a forecast of MFP, IGI 
replicates the MFP measure calculated by the BLS, using a series of 
proxy variables derived from IGI's U.S. macroeconomic models. For a 
discussion of the MFP projection methodology, we refer readers to the 
FY 2012 SNF PPS final rule (76 FR 48527 through 48529) and the FY 2016 
SNF PPS final rule (80 FR 46395). A

[[Page 21023]]

complete description of the MFP projection methodology is available on 
our website at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html.
a. Incorporating the MFP Adjustment Into the Market Basket Update
    Per section 1888(e)(5)(A) of the Act, the Secretary shall 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. 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) of the Act (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 being 
less than such payment rates for the preceding fiscal year.
    The MFP adjustment, calculated as the 10-year moving average of 
changes in MFP for the period ending September 30, 2019, is estimated 
to be 0.8 percent. Also, consistent with section 1888(e)(5)(B)(i) of 
the Act and Sec.  413.337(d)(2), the market basket percentage for FY 
2019 for the SNF PPS would be based on IGI's first quarter 2018 
forecast of the SNF market basket percentage, which is estimated to be 
2.7 percent.
    If not for the enactment of section 53111 of the BBA 2018, the FY 
2019 update would be calculated in accordance with section 
1888(e)(5)(B)(i) and (ii) of the Act, pursuant to which the market 
basket percentage determined under section 1888(e)(5)(B)(i) of the Act 
(that is, 2.7 percent) would be reduced by the MFP adjustment (the 10-
year moving average of changes in MFP for the period ending September 
30, 2019) of 0.8 percent, which would be calculated as described above 
and based on IGI's first quarter 2018 forecast. Absent the enactment of 
section 53111 of the BBA 2018, the resulting MFP-adjusted SNF market 
basket update would have been equal to 1.9 percent, or 2.7 percent less 
0.8 percentage point. However, as discussed above, section 
1888(e)(5)(B)(iv) of the Act, added by section 53111 of the BBA 2018, 
requires us to apply a 2.4 percent market basket percentage increase in 
determining the FY 2019 SNF payment rates set forth in this proposed 
rule (without regard to the MFP adjustment described above).
5. Market Basket Update Factor for FY 2019
    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 2019 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, 2017, through September 30, 
2018 to the average market basket level for the period of October 1, 
2018, through September 30, 2019. This process yields a percentage 
change in the 2014-based SNF market basket of 2.7 percent.
    As further explained in section III.B.3. of this proposed rule, as 
applicable, we adjust the market basket percentage change 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 2017 SNF market basket percentage change and the 
actual FY 2017 SNF market basket percentage change (FY 2017 is the most 
recently available FY for which there is historical data) did not 
exceed the 0.5 percentage point threshold, the FY 2019 market basket 
percentage change of 2.7 percent would not be adjusted by the forecast 
error correction.
    If not for the enactment of section 53111 of the BBA 2018, the SNF 
market basket for FY 2019 would be determined in accordance with 
section 1888(e)(5)(B)(ii) of the Act, which requires us to reduce the 
market basket percentage change by the MFP adjustment (the 10-year 
moving average of changes in MFP for the period ending September 30, 
2019) of 0.8 percent, as described in section III.B.4. of this proposed 
rule. Thus, absent the enactment of the BBA 2018, the resulting net SNF 
market basket update would equal 1.9 percent, or 2.7 percent less the 
0.8 percentage point MFP adjustment. We note that our policy has been 
that, if more recent data become available (for example, a more recent 
estimate of the SNF market basket and/or MFP adjustment), we would use 
such data, if appropriate, to determine the SNF market basket 
percentage change, labor-related share relative importance, forecast 
error adjustment, and MFP adjustment in the SNF PPS final rule.
    Historically, we have 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 from one year to 
the next. However, section 1888(e)(5)(B)(iv) of the Act, as added by 
section 53111 of the BBA 2018, requires us to use a market basket 
percentage of 2.4 percent, after application of the MFP to adjust the 
federal rates for FY 2019. Under section 1888(e)(5)(B)(iv) of the Act, 
the market basket percentage increase used to determine the federal 
rates set forth in this proposed rule will be 2.4 percent for FY 2019. 
Tables 4 and 5 reflect the updated components of the unadjusted federal 
rates for FY 2019, prior to adjustment for case-mix.

                            Table 4--FY 2019 Unadjusted Federal Rate Per Diem--Urban
----------------------------------------------------------------------------------------------------------------
                                               Nursing--case-   Therapy--case-   Therapy-- non-
               Rate component                       mix              mix            case-mix       Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount.............................         $181.50          $136.71           $18.01           $92.63
----------------------------------------------------------------------------------------------------------------


                            Table 5--FY 2019 Unadjusted Federal Rate Per Diem--Rural
----------------------------------------------------------------------------------------------------------------
                                               Nursing--case-   Therapy--case-   Therapy-- non-
               Rate component                       mix              mix            case-mix       Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount.............................         $173.39          $157.65           $19.23           $94.34
----------------------------------------------------------------------------------------------------------------


[[Page 21024]]

    In addition, we note that section 1888(e)(6)(A)(i) of the Act 
provides that, beginning with FY 2018, SNFs that fail to submit data, 
as applicable, in accordance with sections 1888(e)(6)(B)(i)(II) and 
(III) of the Act for a fiscal year will receive a 2.0 percentage point 
reduction to their market basket update for the fiscal year involved, 
after application of section 1888(e)(5)(B)(ii) of the Act (the MFP 
adjustment) and section 1888(e)(5)(B)(iii) of the Act (the 1 percent 
market basket increase for FY 2018). In addition, section 
1888(e)(6)(A)(ii) of the Act states that application of the 2.0 
percentage point reduction (after application of section 
1888(e)(5)(B)(ii) and (iii) of the Act) may result in the market basket 
index percentage change being less than 0.0 for a fiscal year, and may 
result in payment rates for a fiscal year being less than such payment 
rates for the preceding fiscal year. Section 1888(e)(6)(A)(iii) of the 
Act further specifies that the 2.0 percentage point reduction is 
applied in a noncumulative manner, so that any reduction made under 
section 1888(e)(6)(A)(i) of the Act applies only with respect to the 
fiscal year involved, that the reduction cannot be taken into account 
in computing the payment amount for a subsequent fiscal year.
    Accordingly, we propose that for SNFs that do not satisfy the 
reporting requirements for the FY 2019 SNF QRP, we would apply a 2.0 
percentage point reduction to the SNF market basket percentage change 
for that fiscal year, after application of any applicable forecast 
error adjustment as specified in Sec.  413.337(d)(2) and the MFP 
adjustment as specified in Sec.  413.337(d)(3). For FY 2019, the 
application of this reduction to SNFs that have not met the 
requirements for the FY 2019 SNF QRP would result in a market basket 
index percentage change for FY 2019 that is less than zero 
(specifically, a net update of negative 0.1 percentage point, derived 
by subtracting 2 percent from the MFP-adjusted market basket update of 
1.9 percent), and would also result in FY 2019 payment rates that are 
less than such payment rates for the preceding FY. We invite comments 
on these proposals.

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 
through 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 website 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 (Pub. L. 108-173, 
enacted December 8, 2003) (MMA) amended section 1888(e)(12) of the Act 
to provide for a temporary increase of 128 percent in the PPS per diem 
payment for any SNF residents with Acquired Immune Deficiency Syndrome 
(AIDS), effective with services furnished on or after October 1, 2004. 
This special add-on for SNF residents with AIDS was to remain in effect 
only 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 MMA add-on for SNF residents with 
AIDS is also discussed in Program Transmittal #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 this certification 
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 time being. (We discuss in section V.I. 
of this proposed rule the specific payment adjustments that we are 
proposing under the proposed PDPM to provide for an appropriate 
adjustment in the case mix to compensate for the increased costs 
associated with such residents.)
    For the limited number of SNF residents that qualify for the MMA 
add-on, there is a significant increase in payments. As explained in 
the FY 2016 SNF PPS final rule (80 FR 46397 through 46398), on October 
1, 2015 (consistent with section 212 of PAMA), we converted to using 
ICD-10-CM code B20 to identify those residents for whom it is 
appropriate to apply the AIDS add-on established by section 511 of the 
MMA. For FY 2019, an urban facility with a resident with AIDS in RUG-IV 
group ``HC2'' would have a case-mix adjusted per diem payment of 453.68 
(see Table 6) before the application of the MMA adjustment. After an 
increase of 128 percent, this urban facility would receive a case-mix

[[Page 21025]]

adjusted per diem payment of approximately 1,034.39.
    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 FY 2019 payment rates set forth in this proposed rule 
reflect the use of the RUG-IV case-mix classification system from 
October 1, 2018, through September 30, 2019. We list the proposed case-
mix adjusted RUG-IV payment rates for FY 2019, provided separately for 
urban and rural SNFs, in Tables 6 and 7 with corresponding case-mix 
values. We use the revised OMB delineations adopted in the FY 2015 SNF 
PPS final rule (79 FR 45632, 45634) to identify a facility's urban or 
rural status for the purpose of determining which set of rate tables 
would apply to the facility. Tables 6 and 7 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). Additionally, Tables 6 and 7 do not reflect adjustments 
which may be made to the SNF PPS rates as a result of either the SNF 
Quality Reporting Program (QRP), discussed in section VI.B. of this 
proposed rule, or the SNF Value Based-Purchasing (VBP) program, 
discussed in section VI.C. of this proposed rule.

                                      Table 6--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         $484.61         $255.65  ..............          $92.63         $832.89
RUL.....................................            2.57            1.87          466.46          255.65  ..............           92.63          814.74
RVX.....................................            2.61            1.28          473.72          174.99  ..............           92.63          741.34
RVL.....................................            2.19            1.28          397.49          174.99  ..............           92.63          665.11
RHX.....................................            2.55            0.85          462.83          116.20  ..............           92.63          671.66
RHL.....................................            2.15            0.85          390.23          116.20  ..............           92.63          599.06
RMX.....................................            2.47            0.55          448.31           75.19  ..............           92.63          616.13
RML.....................................            2.19            0.55          397.49           75.19  ..............           92.63          565.31
RLX.....................................            2.26            0.28          410.19           38.28  ..............           92.63          541.10
RUC.....................................            1.56            1.87          283.14          255.65  ..............           92.63          631.42
RUB.....................................            1.56            1.87          283.14          255.65  ..............           92.63          631.42
RUA.....................................            0.99            1.87          179.69          255.65  ..............           92.63          527.97
RVC.....................................            1.51            1.28          274.07          174.99  ..............           92.63          541.69
RVB.....................................            1.11            1.28          201.47          174.99  ..............           92.63          469.09
RVA.....................................            1.10            1.28          199.65          174.99  ..............           92.63          467.27
RHC.....................................            1.45            0.85          263.18          116.20  ..............           92.63          472.01
RHB.....................................            1.19            0.85          215.99          116.20  ..............           92.63          424.82
RHA.....................................            0.91            0.85          165.17          116.20  ..............           92.63          374.00
RMC.....................................            1.36            0.55          246.84           75.19  ..............           92.63          414.66
RMB.....................................            1.22            0.55          221.43           75.19  ..............           92.63          389.25
RMA.....................................            0.84            0.55          152.46           75.19  ..............           92.63          320.28
RLB.....................................            1.50            0.28          272.25           38.28  ..............           92.63          403.16
RLA.....................................            0.71            0.28          128.87           38.28  ..............           92.63          259.78
ES3.....................................            3.58  ..............          649.77  ..............           18.01           92.63          760.41
ES2.....................................            2.67  ..............          484.61  ..............           18.01           92.63          595.25
ES1.....................................            2.32  ..............          421.08  ..............           18.01           92.63          531.72
HE2.....................................            2.22  ..............          402.93  ..............           18.01           92.63          513.57
HE1.....................................            1.74  ..............          315.81  ..............           18.01           92.63          426.45
HD2.....................................            2.04  ..............          370.26  ..............           18.01           92.63          480.90
HD1.....................................            1.60  ..............          290.40  ..............           18.01           92.63          401.04
HC2.....................................            1.89  ..............          343.04  ..............           18.01           92.63          453.68
HC1.....................................            1.48  ..............          268.62  ..............           18.01           92.63          379.26
HB2.....................................            1.86  ..............          337.59  ..............           18.01           92.63          448.23
HB1.....................................            1.46  ..............          264.99  ..............           18.01           92.63          375.63
LE2.....................................            1.96  ..............          355.74  ..............           18.01           92.63          466.38
LE1.....................................            1.54  ..............          279.51  ..............           18.01           92.63          390.15
LD2.....................................            1.86  ..............          337.59  ..............           18.01           92.63          448.23
LD1.....................................            1.46  ..............          264.99  ..............           18.01           92.63          375.63
LC2.....................................            1.56  ..............          283.14  ..............           18.01           92.63          393.78
LC1.....................................            1.22  ..............          221.43  ..............           18.01           92.63          332.07
LB2.....................................            1.45  ..............          263.18  ..............           18.01           92.63          373.82
LB1.....................................            1.14  ..............          206.91  ..............           18.01           92.63          317.55
CE2.....................................            1.68  ..............          304.92  ..............           18.01           92.63          415.56
CE1.....................................            1.50  ..............          272.25  ..............           18.01           92.63          382.89
CD2.....................................            1.56  ..............          283.14  ..............           18.01           92.63          393.78
CD1.....................................            1.38  ..............          250.47  ..............           18.01           92.63          361.11
CC2.....................................            1.29  ..............          234.14  ..............           18.01           92.63          344.78
CC1.....................................            1.15  ..............          208.73  ..............           18.01           92.63          319.37
CB2.....................................            1.15  ..............          208.73  ..............           18.01           92.63          319.37
CB1.....................................            1.02  ..............          185.13  ..............           18.01           92.63          295.77
CA2.....................................            0.88  ..............          159.72  ..............           18.01           92.63          270.36
CA1.....................................            0.78  ..............          141.57  ..............           18.01           92.63          252.21
BB2.....................................            0.97  ..............          176.06  ..............           18.01           92.63          286.70
BB1.....................................            0.90  ..............          163.35  ..............           18.01           92.63          273.99
BA2.....................................            0.70  ..............          127.05  ..............           18.01           92.63          237.69
BA1.....................................            0.64  ..............          116.16  ..............           18.01           92.63          226.80
PE2.....................................            1.50  ..............          272.25  ..............           18.01           92.63          382.89

[[Page 21026]]

 
PE1.....................................            1.40  ..............          254.10  ..............           18.01           92.63          364.74
PD2.....................................            1.38  ..............          250.47  ..............           18.01           92.63          361.11
PD1.....................................            1.28  ..............          232.32  ..............           18.01           92.63          342.96
PC2.....................................            1.10  ..............          199.65  ..............           18.01           92.63          310.29
PC1.....................................            1.02  ..............          185.13  ..............           18.01           92.63          295.77
PB2.....................................            0.84  ..............          152.46  ..............           18.01           92.63          263.10
PB1.....................................            0.78  ..............          141.57  ..............           18.01           92.63          252.21
PA2.....................................            0.59  ..............          107.09  ..............           18.01           92.63          217.73
PA1.....................................            0.54  ..............           98.01  ..............           18.01           92.63          208.65
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                      Table 7--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         $462.95         $294.81  ..............          $94.34         $852.10
RUL.....................................            2.57            1.87          445.61          294.81  ..............           94.34          834.76
RVX.....................................            2.61            1.28          452.55          201.79  ..............           94.34          748.68
RVL.....................................            2.19            1.28          379.72          201.79  ..............           94.34          675.85
RHX.....................................            2.55            0.85          442.14          134.00  ..............           94.34          670.48
RHL.....................................            2.15            0.85          372.79          134.00  ..............           94.34          601.13
RMX.....................................            2.47            0.55          428.27           86.71  ..............           94.34          609.32
RML.....................................            2.19            0.55          379.72           86.71  ..............           94.34          560.77
RLX.....................................            2.26            0.28          391.86           44.14  ..............           94.34          530.34
RUC.....................................            1.56            1.87          270.49          294.81  ..............           94.34          659.64
RUB.....................................            1.56            1.87          270.49          294.81  ..............           94.34          659.64
RUA.....................................            0.99            1.87          171.66          294.81  ..............           94.34          560.81
RVC.....................................            1.51            1.28          261.82          201.79  ..............           94.34          557.95
RVB.....................................            1.11            1.28          192.46          201.79  ..............           94.34          488.59
RVA.....................................            1.10            1.28          190.73          201.79  ..............           94.34          486.86
RHC.....................................            1.45            0.85          251.42          134.00  ..............           94.34          479.76
RHB.....................................            1.19            0.85          206.33          134.00  ..............           94.34          434.67
RHA.....................................            0.91            0.85          157.78          134.00  ..............           94.34          386.12
RMC.....................................            1.36            0.55          235.81           86.71  ..............           94.34          416.86
RMB.....................................            1.22            0.55          211.54           86.71  ..............           94.34          392.59
RMA.....................................            0.84            0.55          145.65           86.71  ..............           94.34          326.70
RLB.....................................            1.50            0.28          260.09           44.14  ..............           94.34          398.57
RLA.....................................            0.71            0.28          123.11           44.14  ..............           94.34          261.59
ES3.....................................            3.58  ..............          620.74  ..............           19.23           94.34          734.31
ES2.....................................            2.67  ..............          462.95  ..............           19.23           94.34          576.52
ES1.....................................            2.32  ..............          402.26  ..............           19.23           94.34          515.83
HE2.....................................            2.22  ..............          384.93  ..............           19.23           94.34          498.50
HE1.....................................            1.74  ..............          301.70  ..............           19.23           94.34          415.27
HD2.....................................            2.04  ..............          353.72  ..............           19.23           94.34          467.29
HD1.....................................            1.60  ..............          277.42  ..............           19.23           94.34          390.99
HC2.....................................            1.89  ..............          327.71  ..............           19.23           94.34          441.28
HC1.....................................            1.48  ..............          256.62  ..............           19.23           94.34          370.19
HB2.....................................            1.86  ..............          322.51  ..............           19.23           94.34          436.08
HB1.....................................            1.46  ..............          253.15  ..............           19.23           94.34          366.72
LE2.....................................            1.96  ..............          339.84  ..............           19.23           94.34          453.41
LE1.....................................            1.54  ..............          267.02  ..............           19.23           94.34          380.59
LD2.....................................            1.86  ..............          322.51  ..............           19.23           94.34          436.08
LD1.....................................            1.46  ..............          253.15  ..............           19.23           94.34          366.72
LC2.....................................            1.56  ..............          270.49  ..............           19.23           94.34          384.06
LC1.....................................            1.22  ..............          211.54  ..............           19.23           94.34          325.11
LB2.....................................            1.45  ..............          251.42  ..............           19.23           94.34          364.99
LB1.....................................            1.14  ..............          197.66  ..............           19.23           94.34          311.23
CE2.....................................            1.68  ..............          291.30  ..............           19.23           94.34          404.87
CE1.....................................            1.50  ..............          260.09  ..............           19.23           94.34          373.66
CD2.....................................            1.56  ..............          270.49  ..............           19.23           94.34          384.06
CD1.....................................            1.38  ..............          239.28  ..............           19.23           94.34          352.85
CC2.....................................            1.29  ..............          223.67  ..............           19.23           94.34          337.24
CC1.....................................            1.15  ..............          199.40  ..............           19.23           94.34          312.97
CB2.....................................            1.15  ..............          199.40  ..............           19.23           94.34          312.97
CB1.....................................            1.02  ..............          176.86  ..............           19.23           94.34          290.43
CA2.....................................            0.88  ..............          152.58  ..............           19.23           94.34          266.15
CA1.....................................            0.78  ..............          135.24  ..............           19.23           94.34          248.81
BB2.....................................            0.97  ..............          168.19  ..............           19.23           94.34          281.76
BB1.....................................            0.90  ..............          156.05  ..............           19.23           94.34          269.62

[[Page 21027]]

 
BA2.....................................            0.70  ..............          121.37  ..............           19.23           94.34          234.94
BA1.....................................            0.64  ..............          110.97  ..............           19.23           94.34          224.54
PE2.....................................            1.50  ..............          260.09  ..............           19.23           94.34          373.66
PE1.....................................            1.40  ..............          242.75  ..............           19.23           94.34          356.32
PD2.....................................            1.38  ..............          239.28  ..............           19.23           94.34          352.85
PD1.....................................            1.28  ..............          221.94  ..............           19.23           94.34          335.51
PC2.....................................            1.10  ..............          190.73  ..............           19.23           94.34          304.30
PC1.....................................            1.02  ..............          176.86  ..............           19.23           94.34          290.43
PB2.....................................            0.84  ..............          145.65  ..............           19.23           94.34          259.22
PB1.....................................            0.78  ..............          135.24  ..............           19.23           94.34          248.81
PA2.....................................            0.59  ..............          102.30  ..............           19.23           94.34          215.87
PA1.....................................            0.54  ..............           93.63  ..............           19.23           94.34          207.20
--------------------------------------------------------------------------------------------------------------------------------------------------------

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 2019, 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 2019, the updated wage data are for hospital cost 
reporting periods beginning on or after October 1, 2014 and before 
October 1, 2015 (FY 2015 cost report data).
    We note that section 315 of the Medicare, Medicaid, and SCHIP 
Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554, 
enacted on December 21, 2000) (BIPA) authorized us to establish a 
geographic reclassification procedure that is specific to SNFs, but 
only after collecting the data necessary to establish a SNF wage index 
that is based on wage data from nursing homes. 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. More specifically, auditing all SNF 
cost reports, similar to the process used to audit inpatient hospital 
cost reports for purposes of the Inpatient Prospective Payment System 
(IPPS) wage index, would place a burden on providers in terms of 
recordkeeping and completion of the cost report worksheet. Adopting 
such an approach would require a significant commitment of resources by 
CMS and the Medicare Administrative Contractors, potentially far in 
excess of those required under the IPPS given that there are nearly 
five times as many SNFs as there are inpatient hospitals. Therefore, 
while we continue to believe that the development of such an audit 
process could improve SNF cost reports in such a manner as to permit us 
to establish a SNF-specific wage index, we do not regard an undertaking 
of this magnitude as being feasible within the current level of 
programmatic resources.
    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 2019 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 2019, 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 2019, the only urban area without wage 
index data available is CBSA 25980, Hinesville-Fort Stewart, GA. The 
proposed wage index applicable to FY 2019 is set forth in Tables A and 
B available on the CMS website at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html.
    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), 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 
1-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 1-year transition on 
September 30, 2006, we have used the full CBSA-based wage index values.
    In the FY 2015 SNF PPS final rule (79 FR 45644 through 45646), we 
finalized 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 1-year transition with a blended wage index for FY 
2015. OMB Bulletin No.

[[Page 21028]]

13-01 established revised delineations for Metropolitan Statistical 
Areas, Micropolitan Statistical Areas, and Combined Statistical Areas 
in the United States and Puerto Rico based on the 2010 Census, and 
provided guidance on the use of the delineations of these statistical 
areas using standards published on June 28, 2010 in the Federal 
Register (75 FR 37246 through 37252). Subsequently, on July 15, 2015, 
OMB issued OMB Bulletin No. 15-01, which provides minor updates to and 
supersedes OMB Bulletin No. 13-01 that was issued on February 28, 2013. 
The attachment to OMB Bulletin No. 15-01 provides detailed information 
on the update to statistical areas since February 28, 2013. The updates 
provided in OMB Bulletin No. 15-01 are based on the application of the 
2010 Standards for Delineating Metropolitan and Micropolitan 
Statistical Areas to Census Bureau population estimates for July 1, 
2012 and July 1, 2013. As we previously stated in the FY 2008 SNF PPS 
proposed and final rules (72 FR 25538 through 25539, and 72 FR 43423), 
we wish to note that this and all subsequent SNF PPS rules and notices 
are considered to incorporate any updates and revisions set forth in 
the most recent OMB bulletin that applies to the hospital wage data 
used to determine the current SNF PPS wage index.
    On August 15 2017, OMB announced that one Micropolitan Statistical 
Area now qualifies as a Metropolitan Statistical Areas (OMB Bulletin 
No. 17-01). The new urban CBSA is as follows:
     Twin Falls, Idaho (CBSA 46300). This CBSA is comprised of 
the principal city of Twin Falls, Idaho in Jerome County, Idaho and 
Twin Falls County, Idaho. The OMB bulletin is available on the OMB 
website at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/bulletins/2017/b-17-01.pdf. We note, we did not have sufficient time to 
include this change in the computation of the proposed FY 2019 wage 
index, rate setting, and tables. This new CBSA may affect the budget 
neutrality factor and wage indexes, depending on the impact of the 
overall payments of the hospital located in this new CBSA. In this 
proposed rule, we are providing an estimate of this new area's wage 
index based on the estimated average hourly wage, unadjusted for 
occupational mix, for new CBSA 46300 and the national average hourly 
wages from the wage data for the proposed FY 2019 wage index. 
Currently, provider 130002 is the only hospital located in Twin Falls 
County, Idaho, and there are no hospitals located in Jerome County, 
Idaho. Thus, the proposed wage index for CBSA 46300 is calculated using 
the average hourly wage data for one provider (provider 130002).
    Taking the estimated unadjusted average hourly wage of 35.833564813 
of new CBSA 46300 and dividing by the national average hourly wage of 
42.990625267 results in the estimated wage index of 0.8335 for CBSA 
46300.
    In the final rule, we would incorporate this change into the final 
FY 2019 wage index, rate setting and tables. Thus, for FY 2019, we 
would use the OMB delineations that were adopted beginning with FY 2015 
to calculate the area wage indexes, with updates as reflected in OMB 
Bulletin Nos. 15-01 and 17-01. As noted above, the proposed wage index 
applicable to FY 2019 (without the CBSA update from OMB Bulletin No. 
17-01 specified above) is set forth in Tables A and B available on the 
CMS website at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html.
    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 labor-
intensive and vary with the local labor market) in the input price 
index. In the SNF PPS final rule for FY 2018 (82 FR 36548 through 
36566), we finalized a proposal to revise the labor-related share to 
reflect the relative importance of the 2014-based SNF market basket 
cost weights for the following cost categories: Wages and Salaries; 
Employee Benefits; Professional Fees: Labor-Related; Administrative and 
Facilities Support Services; Installation, Maintenance, and Repair 
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 2019. 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 2019 than the base year weights 
from the SNF market basket.
    We calculate the labor-related relative importance for FY 2019 in 
four steps. First, we compute the FY 2019 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 
2019 price index level for that cost category by the total market 
basket price index level. Third, we determine the FY 2019 relative 
importance for each cost category by multiplying this ratio by the base 
year (2014) weight. Finally, we add the FY 2019 relative importance for 
each of the labor-related cost categories (Wages and Salaries, Employee 
Benefits, Professional Fees: Labor-Related, Administrative and 
Facilities Support Services, Installation, Maintenance, and Repair 
Services, All Other: Labor-related services, and a portion of Capital-
Related expenses) to produce the FY 2019 labor-related relative 
importance. Table 8 summarizes the proposed updated labor-related share 
for FY 2019, compared to the labor-related share that was used for the 
FY 2018 SNF PPS final rule.

     Table 8--Labor-Related Relative Importance, FY 2018 and FY 2019
------------------------------------------------------------------------
                                             Relative        Relative
                                            importance,     importance,
                                          labor-related,  labor-related,
                                           FY 2018 17:2    FY 2019 18:1
                                           forecast \1\    forecast \2\
------------------------------------------------------------------------
Wages and salaries......................            50.3            50.3
Employee benefits.......................            10.2            10.2
Professional Fees: Labor-Related........             3.7             3.7
Administrative and facilities support                0.5             0.5
 services...............................
Installation, Maintenance and Repair                 0.6             0.6
 Services...............................
All Other: Labor Related Services.......             2.5             2.5

[[Page 21029]]

 
Capital-related (.391)..................             3.0             2.9
                                         -------------------------------
    Total...............................            70.8            70.7
------------------------------------------------------------------------
\1\ Published in the Federal Register; based on second quarter 2017 IGI
  forecast.
\2\ Based on first quarter 2018 IGI forecast, with historical data
  through fourth quarter 2017.

    Tables 9 and 10 show the proposed RUG-IV case-mix adjusted federal 
rates for FY 2019 by labor-related and non-labor-related components. 
Tables 9 and 10 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). Additionally, 
Tables 9 and 10 do not reflect adjustments which may be made to the SNF 
PPS rates as a result of either the SNF Quality Reporting Program 
(QRP), discussed in section VI.B. of this proposed rule, or the SNF 
Value Based-Purchasing (VBP) program, discussed in section VI.C. of 
this proposed rule.

         Table 9--RUG-IV Case-Mix Adjusted Federal Rates for Urban SNFs by Labor and Non-Labor Component
----------------------------------------------------------------------------------------------------------------
                                                                                                     Non-Labor
                         RUG-IV category                            Total rate     Labor portion      portion
----------------------------------------------------------------------------------------------------------------
RUX.............................................................         $832.89         $588.85         $244.04
RUL.............................................................          814.74          576.02          238.72
RVX.............................................................          741.34          524.13          217.21
RVL.............................................................          665.11          470.23          194.88
RHX.............................................................          671.66          474.86          196.80
RHL.............................................................          599.06          423.54          175.52
RMX.............................................................          616.13          435.60          180.53
RML.............................................................          565.31          399.67          165.64
RLX.............................................................          541.10          382.56          158.54
RUC.............................................................          631.42          446.41          185.01
RUB.............................................................          631.42          446.41          185.01
RUA.............................................................          527.97          373.27          154.70
RVC.............................................................          541.69          382.97          158.72
RVB.............................................................          469.09          331.65          137.44
RVA.............................................................          467.27          330.36          136.91
RHC.............................................................          472.01          333.71          138.30
RHB.............................................................          424.82          300.35          124.47
RHA.............................................................          374.00          264.42          109.58
RMC.............................................................          414.66          293.16          121.50
RMB.............................................................          389.25          275.20          114.05
RMA.............................................................          320.28          226.44           93.84
RLB.............................................................          403.16          285.03          118.13
RLA.............................................................          259.78          183.66           76.12
ES3.............................................................          760.41          537.61          222.80
ES2.............................................................          595.25          420.84          174.41
ES1.............................................................          531.72          375.93          155.79
HE2.............................................................          513.57          363.09          150.48
HE1.............................................................          426.45          301.50          124.95
HD2.............................................................          480.90          340.00          140.90
HD1.............................................................          401.04          283.54          117.50
HC2.............................................................          453.68          320.75          132.93
HC1.............................................................          379.26          268.14          111.12
HB2.............................................................          448.23          316.90          131.33
HB1.............................................................          375.63          265.57          110.06
LE2.............................................................          466.38          329.73          136.65
LE1.............................................................          390.15          275.84          114.31
LD2.............................................................          448.23          316.90          131.33
LD1.............................................................          375.63          265.57          110.06
LC2.............................................................          393.78          278.40          115.38
LC1.............................................................          332.07          234.77           97.30
LB2.............................................................          373.82          264.29          109.53
LB1.............................................................          317.55          224.51           93.04
CE2.............................................................          415.56          293.80          121.76
CE1.............................................................          382.89          270.70          112.19
CD2.............................................................          393.78          278.40          115.38
CD1.............................................................          361.11          255.30          105.81
CC2.............................................................          344.78          243.76          101.02
CC1.............................................................          319.37          225.79           93.58

[[Page 21030]]

 
CB2.............................................................          319.37          225.79           93.58
CB1.............................................................          295.77          209.11           86.66
CA2.............................................................          270.36          191.14           79.22
CA1.............................................................          252.21          178.31           73.90
BB2.............................................................          286.70          202.70           84.00
BB1.............................................................          273.99          193.71           80.28
BA2.............................................................          237.69          168.05           69.64
BA1.............................................................          226.80          160.35           66.45
PE2.............................................................          382.89          270.70          112.19
PE1.............................................................          364.74          257.87          106.87
PD2.............................................................          361.11          255.30          105.81
PD1.............................................................          342.96          242.47          100.49
PC2.............................................................          310.29          219.38           90.91
PC1.............................................................          295.77          209.11           86.66
PB2.............................................................          263.10          186.01           77.09
PB1.............................................................          252.21          178.31           73.90
PA2.............................................................          217.73          153.94           63.79
PA1.............................................................          208.65          147.52           61.13
----------------------------------------------------------------------------------------------------------------


        Table 10--RUG-IV Case-Mix Adjusted Federal Rates for Rural SNFs by Labor and Non-Labor Component
----------------------------------------------------------------------------------------------------------------
                                                                                                     Non-Labor
                         RUG-IV category                            Total rate     Labor portion      portion
----------------------------------------------------------------------------------------------------------------
RUX.............................................................         $852.10         $602.43         $249.67
RUL.............................................................          834.76          590.18          244.58
RVX.............................................................          748.68          529.32          219.36
RVL.............................................................          675.85          477.83          198.02
RHX.............................................................          670.48          474.03          196.45
RHL.............................................................          601.13          425.00          176.13
RMX.............................................................          609.32          430.79          178.53
RML.............................................................          560.77          396.46          164.31
RLX.............................................................          530.34          374.95          155.39
RUC.............................................................          659.64          466.37          193.27
RUB.............................................................          659.64          466.37          193.27
RUA.............................................................          560.81          396.49          164.32
RVC.............................................................          557.95          394.47          163.48
RVB.............................................................          488.59          345.43          143.16
RVA.............................................................          486.86          344.21          142.65
RHC.............................................................          479.76          339.19          140.57
RHB.............................................................          434.67          307.31          127.36
RHA.............................................................          386.12          272.99          113.13
RMC.............................................................          416.86          294.72          122.14
RMB.............................................................          392.59          277.56          115.03
RMA.............................................................          326.70          230.98           95.72
RLB.............................................................          398.57          281.79          116.78
RLA.............................................................          261.59          184.94           76.65
ES3.............................................................          734.31          519.16          215.15
ES2.............................................................          576.52          407.60          168.92
ES1.............................................................          515.83          364.69          151.14
HE2.............................................................          498.50          352.44          146.06
HE1.............................................................          415.27          293.60          121.67
HD2.............................................................          467.29          330.37          136.92
HD1.............................................................          390.99          276.43          114.56
HC2.............................................................          441.28          311.98          129.30
HC1.............................................................          370.19          261.72          108.47
HB2.............................................................          436.08          308.31          127.77
HB1.............................................................          366.72          259.27          107.45
LE2.............................................................          453.41          320.56          132.85
LE1.............................................................          380.59          269.08          111.51
LD2.............................................................          436.08          308.31          127.77
LD1.............................................................          366.72          259.27          107.45
LC2.............................................................          384.06          271.53          112.53
LC1.............................................................          325.11          229.85           95.26
LB2.............................................................          364.99          258.05          106.94
LB1.............................................................          311.23          220.04           91.19
CE2.............................................................          404.87          286.24          118.63
CE1.............................................................          373.66          264.18          109.48
CD2.............................................................          384.06          271.53          112.53

[[Page 21031]]

 
CD1.............................................................          352.85          249.46          103.39
CC2.............................................................          337.24          238.43           98.81
CC1.............................................................          312.97          221.27           91.70
CB2.............................................................          312.97          221.27           91.70
CB1.............................................................          290.43          205.33           85.10
CA2.............................................................          266.15          188.17           77.98
CA1.............................................................          248.81          175.91           72.90
BB2.............................................................          281.76          199.20           82.56
BB1.............................................................          269.62          190.62           79.00
BA2.............................................................          234.94          166.10           68.84
BA1.............................................................          224.54          158.75           65.79
PE2.............................................................          373.66          264.18          109.48
PE1.............................................................          356.32          251.92          104.40
PD2.............................................................          352.85          249.46          103.39
PD1.............................................................          335.51          237.21           98.30
PC2.............................................................          304.30          215.14           89.16
PC1.............................................................          290.43          205.33           85.10
PB2.............................................................          259.22          183.27           75.95
PB1.............................................................          248.81          175.91           72.90
PA2.............................................................          215.87          152.62           63.25
PA1.............................................................          207.20          146.49           60.71
----------------------------------------------------------------------------------------------------------------

    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 2019 (federal rates 
effective October 1, 2018), 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 2018 to the weighted average wage 
adjustment factor for FY 2019. For this calculation, we would use the 
same FY 2017 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 2019 would be 1.0002.
    As discussed above, we have historically used, and propose to 
continue using, pre-reclassified IPPS hospital wage data, unadjusted 
for occupational mix and the rural and imputed floors, as the basis for 
the SNF wage index. That being said, we note that we have received 
recurring comments in prior rulemaking (most recently in the FY 2018 
SNF PPS final rule (82 FR 36539 through 36541)) regarding the 
development of a SNF-specific wage index. It has been suggested that we 
develop a SNF-specific wage index utilizing SNF cost report wage data 
instead of hospital wage data. We have noted, in response that 
developing such a wage index would require a resource-intensive audit 
process similar to that used for IPPS hospital data, to improve the 
quality of the SNF cost report data in order for it to be used as part 
of this analysis. This audit process is quite extensive in the case of 
approximately 3,300 hospitals, and it would be significantly more so in 
the case of approximately 15,000 SNFs. As discussed previously in this 
rule, we believe auditing all SNF cost reports, similar to the process 
used to audit inpatient hospital cost reports for purposes of the IPPS 
wage index, would place a burden on providers in terms of recordkeeping 
and completion of the cost report worksheet. We also believe that 
adopting such an approach would require a significant commitment of 
resources by CMS and the Medicare Administrative Contractors, 
potentially far in excess of those required under the IPPS given that 
there are nearly five times as many SNFs as there are hospitals. 
Therefore, while we continue to review all available data and 
contemplate the potential methodological approaches for a SNF-specific 
wage index in the future, we continue to believe that in the absence of 
the appropriate SNF-specific wage data, using the pre-reclassified, 
pre-rural and imputed floor hospital inpatient wage data (without the 
occupational mix adjustment) is appropriate and reasonable for the SNF 
PPS.
    As an alternative to a SNF-specific wage index, it has also been 
suggested that we consider adopting certain wage index policies in use 
under the IPPS, such as geographic reclassification or rural floor. 
Although we have the authority under section 315 of BIPA to establish a 
geographic reclassification procedure specific to SNFs under certain 
conditions, as discussed previously, under BIPA, we cannot adopt a 
reclassification policy until we have collected the data necessary to 
establish a SNF-specific wage index. Thus, we cannot adopt a 
reclassification procedure at this time. With regard to adopting a 
rural floor policy, as we stated in the FY 2017 SNF PPS final rule (82 
FR 36540), MedPAC has recommended eliminating the rural floor policy 
(which actually sets a floor for urban hospitals) from the calculation 
of the IPPS wage index (see, for example, Chapter 3 of MedPAC's March 
2013 Report to Congress on Medicare Payment Policy, available at http://medpac.gov/docs/default-source/reports/mar13_ch03.pdf, which notes on 
page 65 that in 2007, MedPAC had ``. . . recommended eliminating these 
special wage index adjustments and adopting a new wage index system to 
avoid geographic inequities that can occur due to current wage index 
policies (Medicare Payment Advisory Commission 2007b.''). As we stated 
in the FY 2017 SNF PPS final rule, if we were to adopt the rural floor 
under the SNF PPS, we believe that the SNF PPS wage index could become 
vulnerable to problems similar to those that MedPAC

[[Page 21032]]

identified in its March 2013 Report to Congress.
    Given the perennial nature of these comments and responses on the 
SNF PPS wage index policy, we are requesting further comments on the 
issues discussed above. Specifically, we request comment on how a SNF-
specific wage index may be developed without creating significant 
administrative burdens for providers, CMS, or its contractors. Further, 
we request comments on specific alternatives we may consider in future 
rulemaking which could be implemented in advance of, or in lieu of, a 
SNF-specific wage index.

E. SNF Value-Based Purchasing Program

    Beginning with payment for services furnished on October 1, 2018, 
section 1888(h) of the Act requires the Secretary to reduce the 
adjusted Federal per diem rate determined under section 1888(e)(4)(G) 
of the Act otherwise applicable to a SNF for services furnished during 
a fiscal year by 2 percent, and to adjust the resulting rate for a SNF 
by the value-based incentive payment amount earned by the SNF based on 
the SNF's performance score for that fiscal year under the SNF VBP 
Program. To implement these requirements, we propose to add a new 
paragraph (f) to Sec.  413.337. See section VI.C. of this proposed rule 
for further information regarding the SNF VBP Program, including a 
discussion of the methodology we would use to make the payment 
adjustments.

F. Adjusted Rate Computation Example

    Using the hypothetical SNF XYZ, Table 11 shows the adjustments made 
to the federal per diem rates (prior to application of any adjustments 
under the SNF QRP and SNF VBP programs as discussed above) to compute 
the provider's actual per diem PPS payment for FY 2019. We derive the 
Labor and Non-labor columns from Table 9. The wage index used in this 
example is based on the proposed wage index, which may be found in 
Table A available on the CMS website at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html. As illustrated 
in Table 11, SNF XYZ's total PPS payment for FY 2019 would equal 
$48,801.32.

                   Table 11--Adjusted Rate Computation Example SNF XYZ: Located in Frederick, MD (Urban CBSA 43524) Wage Index: 0.9882
                                                        [See Proposed Wage Index in Table A] \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   Adjusted                Adjusted     Percent    Medicare
                      RUG-IV group                           Labor    Wage index     labor     Non-labor     rate     adjustment     days       Payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
RVX.....................................................     $524.13      0.9882     $517.95     $217.21     $735.16     $735.16          14  $10,292.24
ES2.....................................................     $420.84      0.9882     $415.87     $174.41     $590.28     $590.28          30  $17,708.40
RHA.....................................................     $264.42      0.9882     $261.30     $109.58     $370.88     $370.88          16   $5,934.08
CC2\2\..................................................     $243.76      0.9882     $240.88     $101.02     $341.90     $779.53          10   $7,795.30
BA2.....................................................     $168.05      0.9882     $166.07      $69.64     $235.71     $235.71          30   $7,071.30
                                                                                                                                 -----------------------
                                                          ..........  ..........  ..........  ..........  ..........  ..........         100  $48,801.32
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Available on the CMS website at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html.
\2\ Reflects a 128 percent adjustment from section 511 of the MMA.

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 current 66-group RUG-
IV case-mix classification system to assist in making certain SNF level 
of care determinations.
    In accordance with the regulations at Sec.  413.345, we include in 
each update of the federal payment rates in the Federal Register a 
discussion of the resident classification system that provides the 
basis for case-mix adjustment. Under that discussion, we designate 
those specific classifiers under the case-mix 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 5-day, 
Medicare-required assessment are automatically classified as meeting 
the SNF level of care definition up to and including the assessment 
reference date (ARD) on the 5-day Medicare-required assessment.
    A beneficiary assigned to any of the lower 14 RUG-IV groups is not 
automatically classified as either meeting or not meeting the 
definition, but instead receives an individual level of care 
determination using the existing administrative criteria. This 
presumption recognizes the strong likelihood that beneficiaries 
assigned to one of the upper 52 RUG-IV groups during the immediate 
post-hospital period require a covered level of care, which would be 
less likely for those beneficiaries assigned to one of the lower 14 
RUG-IV groups.
    In 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. The FY 2018 final rule (82 FR 36544) further specified that 
we would henceforth disseminate the standard description of the 
administrative presumption's designated groups via the SNF PPS website 
at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/index.html (where such designations appear in the paragraph 
entitled ``Case Mix Adjustment''), and would publish such designations 
in rulemaking only to the extent that we actually intend to make 
changes in them. (We discuss in section V.H. of this proposed rule the 
modifications to the administrative level of care presumption that we 
are proposing in order to accommodate the case-mix classification 
system under the proposed PDPM.)

[[Page 21033]]

    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 assignment of one of 
the designated case-mix classifiers (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 ARD 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 1997) require a SNF to submit consolidated 
Medicare bills to its Medicare Administrative Contractor (MAC) 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) of the Act 
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. (Please 
refer to section VI.A. of this rule for a discussion of a proposed 
revision to the regulation text that describes a beneficiary's status 
as a SNF ``resident'' for consolidated billing purposes.) 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 website at 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/Legislative_History_04152015.pdf. In particular, section 103 
of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999 (Pub. L. 106-113, enacted on November 29, 1999) (BBRA) 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 PPS. 
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, the amendments enacted in 
section 103 of the BBRA do not designate for exclusion any of the 
remaining services within those four categories (thus, leaving all of 
those services subject to SNF consolidated billing), because they are 
relatively inexpensive and are furnished routinely in SNFs.
    As we further explained in the final rule for FY 2001 (65 FR 
46790), and as is consistent with 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, 2018). By 
making any new exclusions in this manner, we could similarly accomplish 
routine

[[Page 21034]]

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, SNF-level 
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 through 40357), 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 website at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/index.html. We refer 
readers to section V.E.2. of this proposed rule for a discussion of the 
revisions we are proposing to the MDS 3.0 swing-bed assessment 
effective October 1, 2019.

V. Proposed Revisions to SNF PPS Case-Mix Classification Methodology

A. Issues Relating to the Current Case-Mix System for Payment of 
Skilled Nursing Facility Services Under Part A of the Medicare Program

    Section 1888(e)(4)(G)(i) of the Act requires the Secretary to make 
an adjustment to the per diem rates to account for case-mix. The 
statute specifies that the adjustment is to be based on both a resident 
classification system that the Secretary establishes that accounts for 
the relative resource use of different resident types, as well as 
resident assessment and other data that the Secretary considers 
appropriate.
    In general, the case-mix classification system currently used under 
the SNF PPS classifies residents into payment classification groups, 
called RUGs, based on various resident characteristics and the type and 
intensity of therapy services provided to the resident. Under the 
existing SNF PPS methodology, there are two case-mix-adjusted 
components of payment: Nursing and therapy. Each RUG is assigned a CMI 
for each payment component to reflect relative differences in cost and 
resource intensity. The higher the CMI, the higher the expected 
resource utilization and cost associated with residents assigned to 
that RUG. The case-mix-adjusted nursing component of payment reflects 
relative differences in a resident's associated nursing and non-therapy 
ancillary (NTA) costs, based on various resident characteristics, such 
as resident comorbidities, and treatments. The case-mix-adjusted 
therapy component of payment reflects relative differences in a 
resident's associated therapy costs, which is based on a combination of 
PT, OT, and SLP services. Resident classification under the existing 
therapy component is based primarily on the amount of therapy the SNF 
chooses to provide to a SNF resident. Under the RUG-IV model, residents 
are classified into rehabilitation groups, where payment is determined 
primarily based on the intensity of therapy services received by the 
resident, and into nursing groups, based on the intensity of nursing 
services received by the resident and other aspects of the resident's 
care and condition. However, only the higher paying of these groups is 
used for payment purposes. For example, if a resident is classified 
into a both the RUA (Rehabilitation) and PA1 (Nursing) RUG-IV groups, 
where RUA has a higher per-diem payment rate than PA1, the RUA group is 
used for payment purposes. It should be noted that the vast majority of 
Part A covered SNF days (over 90 percent) are paid using a 
rehabilitation RUG. A variety of concerns have been raised with the 
current SNF PPS, specifically the RUG-IV model, which we discuss below.
    When the SNF PPS was first implemented in 1998 (63 FR 26252), we 
developed the RUG-III case-mix classification model, 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 CMIs. 
This initial RUG-III model was refined by changes finalized in the FY 
2006 SNF PPS final rule (70 FR 45032), which included adding nine case-
mix groups to the top of the original 44-group RUG-III hierarchy, which 
created the RUG-53 case-mix model.
    In the FY 2010 SNF PPS proposed rule (74 FR 22208), we proposed the 
RUG-IV model based on, among other reasons, concerns that incentives in 
the SNF PPS had changed the relative amount of nursing resources 
required to treat SNF residents (74 FR 22220). These concerns led us to 
conduct a new Staff Time Measurement (STM) study, the Staff Time and 
Resource Intensity Verification (STRIVE) project, which served as the 
basis for developing the current SNF PPS case-mix classification model, 
RUG-IV, which became effective in FY 2011. At that time, we considered 
alternative case mix models, including predictive models of therapy 
payment based on resident characteristics; however, we had a ``great 
deal of concern that by separating payment from the actual provision of 
services, the system, and more importantly, the beneficiaries would be 
vulnerable to underutilization.'' (74 FR 22220) Other options 
considered at the time included a non-therapy ancillary (NTA) payment 
model based on resident characteristics (74 FR 22238) and a DRG-based 
payment model that relied on information from the prior inpatient stay 
(74 FR 22220); these and other options are discussed in detail in a CMS 
Report to Congress issued in December 2006 (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/RC_2006_PC-PPSSNF.pdf).
    In the years since we implemented the SNF PPS, finalized RUG-IV, 
and made statements regarding our concerns about underutilization of 
services in previously considered models, we have witnessed a 
significant trend that has caused us to reconsider these concerns. More 
specifically, as discussed in section V.E. of the FY 2015 SNF PPS 
proposed rule (79 FR 25767), we documented and discussed trends 
observed in therapy utilization in a memo entitled ``Observations on 
Therapy Utilization Trends'' (which

[[Page 21035]]

may be accessed at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/Therapy_Trends_Memo_04212014.pdf). The 
two most notable trends discussed in that memo were that the percentage 
of residents classifying into the Ultra-High therapy category has 
increased steadily and, of greater concern, that the percentage of 
residents receiving just enough therapy to surpass the Ultra-High and 
Very-High therapy thresholds has also increased. In that memo, we state 
``the percentage of claims-matched MDS assessments in the range of 720 
minutes to 739 minutes, which is just enough to surpass the 720 minute 
threshold for RU groups, has increased from 5 percent in FY 2005 to 33 
percent in FY 2013'' and this trend has continued since that time. 
While it might be possible to attribute the increasing share of 
residents in the Ultra-High therapy category to increasing acuity 
within the SNF population, we believe the increase in ``thresholding'' 
(that is, of providing just enough therapy for residents to surpass the 
relevant therapy thresholds) is a strong indication of service 
provision predicated on financial considerations rather than resident 
need. We discussed this issue in response to comments in the FY 2015 
SNF PPS final rule, where, in response to comments regarding the lack 
of ``current medical evidence related to how much therapy a given 
resident should receive,'' we stated the following:

    With regard to the comments which highlight the lack of existing 
medical evidence for how much therapy a given resident should 
receive, we would note that . . . the number of therapy minutes 
provided to SNF residents within certain therapy RUG categories is, 
in fact, clustered around the minimum thresholds for a given therapy 
RUG category. However, given the comments highlighting the lack of 
medical evidence related to the appropriate amount of therapy in a 
given situation, it is all the more concerning that practice 
patterns would appear to be as homogenized as the data would 
suggest. (79 FR 45651)

    In response to comments related to factors which may explain the 
observed trends, we stated the following:

    With regard to the comment which highlighted potential 
explanatory factors for the observed trends, such as internal 
pressure within SNFs that would override clinical judgment, we find 
these potential explanatory factors troubling and entirely 
inconsistent with the intended use of the SNF benefit. Specifically, 
the minimum therapy minute thresholds for each therapy RUG category 
are certainly not intended as ceilings or targets for therapy 
provision. As discussed in Chapter 8, Section 30 of the Medicare 
Benefit Policy Manual (Pub. 100-02), to be covered, the services 
provided to a SNF resident must be ``reasonable and necessary for 
the treatment of a patient's illness or injury, that is, are 
consistent with the nature and severity of the individual's illness 
or injury, the individual's particular medical needs, and accepted 
standards of medical practice.'' (emphasis added) Therefore, 
services which are not specifically tailored to meet the 
individualized needs and goals of the resident, based on the 
resident's condition and the evaluation and judgment of the 
resident's clinicians, may not meet this aspect of the definition 
for covered SNF care, and we believe that internal provider rules 
should not seek to circumvent the Medicare statute, regulations and 
policies, or the professional judgment of clinicians. (79 FR 45651 
through 45652)

    In addition to this discussion of observed trends, others have also 
identified potential areas of concern within the current SNF PPS. The 
two most notable sources are the Office of the Inspector General (OIG) 
and the Medicare Payment Advisory Commission (MedPAC).
    For the OIG, three recent OIG reports describe the OIG's concerns 
with the current SNF PPS. In December 2010, the OIG released a report 
entitled ``Questionable Billing by Skilled Nursing Facilities'' (which 
may be accessed at https://oig.hhs.gov/oei/reports/oei-02-09-00202.pdf). In this report, among its findings, the OIG found that 
``from 2006 to 2008, SNFs increasingly billed for higher paying RUGs, 
even though beneficiary characteristics remained largely unchanged'' 
(OEI-02-09-00202, ii), and among other things, recommended that we 
should ``consider several options to ensure that the amount of therapy 
paid for by Medicare accurately reflects beneficiaries' needs'' (OEI-
02-09-00202, iii). Further, in November 2012, the OIG released a report 
entitled ``Inappropriate Payments to Skilled Nursing Facilities Cost 
Medicare More Than a Billion Dollars in 2009'' (which may be accessed 
at https://oig.hhs.gov/oei/reports/oei-02-09-00200.pdf). In this 
report, the OIG found that ``SNFs billed one-quarter of all claims in 
error in 2009'' and that the ``majority of the claims in error were 
upcoded; many of these claims were for ultrahigh therapy.'' (OEI-02-09-
00200, Executive Summary). Among its recommendations, the OIG stated 
that ``the findings of this report provide further evidence that CMS 
needs to change how it pays for therapy'' (OEI-02-09-00200, 15). 
Finally, in September 2015, the OIG released a report entitled ``The 
Medicare Payment System for Skilled Nursing Facilities Needs to be 
Reevaluated'' (which may be accessed at https://oig.hhs.gov/oei/reports/oei-02-13-00610.pdf). Among its findings, the OIG found that 
``Medicare payments for therapy greatly exceed SNFs' costs for 
therapy,'' further noting that ``the difference between Medicare 
payments and SNFs' costs for therapy, combined with the current payment 
method, creates an incentive for SNFs to bill for higher levels of 
therapy than necessary'' (OEI-02-13-00610, 7). Among its 
recommendations, the OIG stated that CMS should ``change the method of 
paying for therapy``, further stating that ``CMS should accelerate its 
efforts to develop and implement a new method of paying for therapy 
that relies on beneficiary characteristics or care needs.'' (OEI-02-13-
00610, 12).
    For MedPAC's recommendations in this area, Chapter 8 of MedPAC's 
March 2017 Report to Congress (available at http://www.medpac.gov/docs/default-source/reports/mar17_medpac_ch8.pdf) includes the following 
recommendation: ``The Congress should . . . direct the Secretary to 
revise the prospective payment system (PPS) for skilled nursing 
facilities'' and ``. . . make any additional adjustments to payments 
needed to more closely align payment with costs.'' (March 2017 MedPAC 
Report to Congress, 220). This recommendation is seemingly predicated 
on MedPAC's own analysis of the current SNF PPS, where they state that 
``almost since its inception the SNF PPS has been criticized for 
encouraging the provision of excessive rehabilitation therapy services 
and not accurately targeting payments for nontherapy ancillaries'' 
(March 2017 MedPAC Report to Congress, 202). Finally, with regard to 
the possibility of changing the existing SNF payment system, MedPAC 
stated that ``since 2015, [CMS] has gathered four expert panels to 
receive input on aspects of possible design features before it proposes 
a revised PPS'' and further that ``the designs under consideration are 
consistent with those recommended by the Commission'' (March 2017 
MedPAC Report to Congress, 203).
    The combination of the observed trends in the current SNF PPS 
discussed above (which strongly suggest that providers may be basing 
service provision on financial reasons rather than resident need), the 
issues raised in the OIG reports discussed above, and the issues raised 
by MedPAC, has caused us to consider significant revisions to the 
existing SNF PPS, in keeping with our overall responsibility to ensure 
that payments under the SNF PPS accurately reflect both resident needs 
and resource utilization.
    Under the RUG-IV system, therapy service provision determines not 
only

[[Page 21036]]

therapy payments but also nursing payments. This is because, as noted 
above, payment is based on the highest RUG category that the resident 
could be assigned to, so only one of a resident's assigned RUG groups, 
rehabilitation or nursing, is used for payment purposes. Each 
rehabilitation group is assigned a nursing CMI to reflect relative 
differences in nursing costs for residents in those rehabilitation 
groups, which is less specifically tailored to the individual nursing 
costs for a given resident than the nursing CMIs assigned for the 
nursing RUGs. Given that, as mentioned above, most resident days are 
paid using a rehabilitation RUG, and since assignment into a 
rehabilitation RUG is based on therapy service provision, this means 
that therapy service provision effectively determines nursing payments 
for those residents who are assigned to a rehabilitation RUG. Thus, we 
believe any attempts to revise the SNF PPS payment methodology to 
better account for therapy service provision under the SNF PPS would 
need to be comprehensive and affect both the therapy and nursing case-
mix components. Moreover, in the FY 2015 SNF PPS final rule, in 
response to comments regarding access for certain ``specialty'' 
populations (such as those with complex nursing needs), we stated the 
following:

    With regard to the comment on specialty populations, we agree 
with the commenter that access must be preserved for all categories 
of SNF residents, particularly those with complex medical and 
nursing needs. As appropriate, we will examine our current 
monitoring efforts to identify any revisions which may be necessary 
to account appropriately for these populations. (79 FR 45651)

    In addition, MedPAC, in its March 2017 Report to Congress, stated 
that it has previously recommended that we revise the current SNF PPS 
to ``base therapy payments on patient characteristics (not service 
provision), remove payments for NTA services from the nursing 
component, [and] establish a separate component within the PPS that 
adjusts payments for NTA services'' (March 2017 MedPAC Report to 
Congress, 202). Accordingly, we note that included among the proposed 
revisions we discuss in this proposed rule, are revisions to the SNF 
PPS to address longstanding concerns regarding the ability of the RUG-
IV system to account for variation in nursing and NTA services, as 
described in sections V.D.3.e. of this proposed rule.
    In May 2017, CMS released an Advance Notice of Proposed Rulemaking 
with comment (82 FR 20980) (the ANPRM), in which we discussed the 
history of and analyses conducted during the SNF Payment Models 
Research (PMR) project, which sought to address these concerns with the 
RUG-IV model, and sought comments on a possible replacement to the 
current RUG-IV model, which we called the Resident Classification 
System, Version I (RCS-I). This model was intended as an improvement 
over the RUG-IV model because it would better account for resident 
characteristics and care needs, thus better aligning SNF PPS payments 
with resource use and eliminating therapy provision-related financial 
incentives inherent in the current payment model used in the SNF PPS. 
We received many comments from stakeholders on a wide variety of 
aspects of the RCS-I model. After considering these comments, we made 
significant revisions to the RCS-I model to account for the concerns or 
questions raised by stakeholders, resulting in a revised case-mix 
classification model which we are proposing in this rule. To make clear 
the purpose and intent of replacing the existing RUG-IV system, the 
model we are proposing in this rule is called the Patient-Driven 
Payment Model (PDPM).
    In the sections that follow, we describe the comprehensive proposed 
revisions to the current SNF PPS case-mix classification system and its 
replacement with PDPM, effective October 1, 2019. Specifically, we 
discuss a proposed alternative to the existing RUG-IV, called the 
Patient-Driven Payment Model (PDPM), effective for payments beginning 
October 1, 2019. As further detailed below, we believe that the PDPM 
represents an improvement over the RUG-IV model and the RCS-I model 
because it would better account for resident characteristics and care 
needs while reducing both systemic and administrative complexity. To 
better ensure that resident care decisions appropriately reflect each 
resident's actual care needs, we believe it is important to remove, to 
the extent possible, service-based metrics from the SNF PPS and derive 
payment from verifiable resident characteristics.

B. Summary of the Skilled Nursing Facility Payment Models Research 
Project

    As noted above, since 1998, Medicare Part A has paid for SNF 
services on a per diem basis through the SNF PPS. Currently, therapy 
payments under the SNF PPS are based primarily on the amount of therapy 
furnished to a patient, regardless of that patient's specific 
characteristics and care needs. Beginning in 2013, we contracted with 
Acumen, LLC to identify potential alternatives to the existing 
methodology used to pay for services under the SNF PPS. The 
recommendations developed under this contract, entitled the SNF PMR 
project, form the basis of the proposals contained in the sections 
below.
    The SNF PMR operated in four phases. In the first phase of the 
project, which focused exclusively on therapy payment issues, Acumen 
reviewed past research studies and policy issues related to SNF PPS 
therapy payment and options for improving or replacing the current 
therapy payment methodology. After consideration of multiple potential 
alternatives, such as competitive bidding and a hybrid model combining 
resource-based pricing (for example, how therapy payments are made 
under the current SNF PPS) with resident characteristics, we identified 
a model that relies on resident characteristics rather than the amount 
of therapy received as the most appropriate replacement for the 
existing therapy payment model. As stated above, we believe that 
relying on resident characteristics would improve the resident-
centeredness of the model and discourage resident care decisions 
predicated on service-based financial incentives. A report summarizing 
Acumen's activities and recommendations during the first phase of the 
SNF PMR contract, the SNF Therapy Payment Models Base Year Final 
Summary Report, is available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/Summary_Report_20140501.pdf.
    In the second phase of the project, Acumen used the findings from 
the Base Year Final Summary Report as a guide to identify potential 
models suitable for further analysis. During this phase of the project, 
in an effort to establish a comprehensive approach to Medicare Part A 
SNF payment reform, we expanded the scope of the SNF PMR to encompass 
other aspects of the SNF PPS beyond therapy. Although we always 
intended to ensure that any revisions specific to therapy payment would 
be considered as part of an integrated approach with the remaining 
payment methodology, we believed it was prudent to examine potential 
improvements and refinements to the overall SNF PPS payment system as 
well.
    During this phase of the SNF PMR, Acumen hosted four Technical 
Expert Panels (TEPs), which brought together industry experts, 
stakeholders, and clinicians with the research team to

[[Page 21037]]

discuss different topics within the overall analytic framework. In 
February 2015, Acumen hosted a TEP to discuss questions and issues 
related to therapy case-mix classification. In November 2015, Acumen 
hosted a second TEP focused on questions and issues related to nursing 
case-mix classification, as well as to discuss issues related to 
payment for NTAs. In June 2016, Acumen hosted a third TEP to provide 
stakeholders with an outline of a potential revised SNF PPS payment 
structure, including new case-mix adjusted components and potential 
companion policies, such as variable per diem payment adjustments. 
Finally, in October 2016, Acumen hosted a fourth TEP, during which 
Acumen presented the case-mix components for a potential revised SNF 
PPS, as well as an initial impact analysis associated with the 
potential revised SNF PPS payment model. The presentation slides used 
during each of the TEPs, as well as a summary report for each TEP, is 
available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.
    In the third phase of the contract, we tasked Acumen to assist in 
developing supporting language and documentation, most notably a 
technical report (the SNF PMR technical report), related to an earlier 
version of the alternative SNF PPS case-mix classification model we 
were considering, which we named the Resident Classification System, 
Version I (RCS-I). The SNF PMR technical report associated with the 
ANPRM is available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.
    The final phase of the project, which began in October 2017, was 
focused on refinements to the alternative model. We received a large 
number of comments in response to the ANPRM introducing the RCS-I 
model. During the revision phase, Acumen conducted additional analyses 
based on the comments received and made a number of modifications to 
the payment model. The resulting case-mix classification model is the 
PDPM we are proposing. During the final phase of the project, Acumen 
produced a second technical report that presents the analyses and 
results that were used to develop the proposed revised payment model 
described in this proposed rule (the SNF PDPM technical report, 
available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html).
    In the sections below, we outline each aspect of the proposed PDPM, 
as well as additional revisions to the SNF PPS which we are proposing 
along with the proposed implementation of the PDPM. We invite comments 
on any and all aspects of the proposed PDPM, including the research 
analyses described in this proposed rule, the SNF PDPM technical report 
(available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html) and the SNF PMR technical report 
(available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html).

C. Revisions to SNF PPS Federal Base Payment Rate Components

1. Background on SNF PPS Federal Base Payment Rates and Components
    Section 1888(e)(4) of the Act requires that the SNF PPS per diem 
federal payment rates be based on FY 1995 costs, updated for inflation 
to the first effective period of the PPS. These base rates are then 
required to be adjusted to reflect differences among facilities in 
patient case-mix and in average wage levels by area. In keeping with 
this statutory requirement, the base per diem payment rates were set in 
1998 and reflect average SNF costs in a base year (FY 1995), updated 
for inflation to the first period of the SNF PPS, which was the 15-
month period beginning on July 1, 1998. The federal base payment rates 
were calculated separately for urban and rural facilities and based on 
allowable costs from the FY 1995 cost reports of hospital-based and 
freestanding SNFs, where allowable costs included all routine, 
ancillary, and capital-related costs (excluding those related to 
approved educational activities) associated with SNF services provided 
under Part A, and all services and items for which payment could be 
made under Part B prior to July 1, 1998.
    In general, routine costs are those included by SNFs in a daily 
service charge and include regular room, dietary, and nursing services, 
medical social services and psychiatric social services, as well as the 
use of certain facilities and equipment for which a separate charge is 
not made. Ancillary costs are directly identifiable to residents and 
cover specialized services, including therapy, drugs, and laboratory 
services. Lastly, capital-related costs include the costs of land, 
building, and equipment and the interest incurred in financing the 
acquisition of such items. (63 FR 26253)
    There are four federal base payment rate components which may 
factor into SNF PPS payment. Two of these components, ``nursing case-
mix'' and ``therapy case-mix,'' are case-mix adjusted components, while 
the remaining two components, ``therapy non-case-mix'' and ``non-case-
mix,'' are not case-mix adjusted. While we discuss the details of the 
proposed PDPM and justifications for certain associated policies we are 
proposing throughout section V of this proposed rule, we note that, as 
part of the PDPM case-mix model, we propose to bifurcate the ``nursing 
case-mix'' component of the federal base payment rate into two case-mix 
adjusted components and separate the ``therapy case-mix'' component of 
the federal base payment rate into three case-mix adjusted components, 
thereby creating five case-mix adjusted components of the federal base 
per diem rate. More specifically, we propose to separate the ``therapy 
case-mix'' rate component into a ``Physical Therapy'' (PT) component, 
``Occupational Therapy'' (OT) component, and a ``Speech-Language 
Pathology'' (SLP) component. Our rationale for separating the therapy 
case-mix component in this manner is presented in section V.D.3.b. of 
this proposed rule. Based on the results of the SNF PMR, we also 
propose to separate the ``nursing case-mix'' rate component into a 
``Nursing'' component and a ``Non-Therapy Ancillary'' (NTA) component. 
Our rationale for proposing to bifurcate the nursing case-mix component 
in this manner is presented in section V.D.3.d. of this proposed rule. 
Given that all SNF residents under PDPM would be assigned to a 
classification group for each of the three proposed therapy-related 
case-mix adjusted components as further discussed below, we propose 
eliminating the ``therapy non-case-mix'' rate component under PDPM and 
distributing the dollars associated with this current rate component 
amongst the proposed PDPM therapy components. The existing non-case-mix 
component would be maintained as it is currently constituted under the 
existing SNF PPS. Although the case-mix components of the proposed PDPM 
case-mix classification system would address costs associated with 
individual resident care based on an individual's specific needs and 
characteristics, the non-case-mix component addresses consistent costs 
that are incurred for all residents, such as room and board and various 
capital-related expenses. As these costs are not likely to change, 
regardless of what changes we might make to the SNF PPS, we propose to 
maintain the non-case-mix component as it is currently used.

[[Page 21038]]

    In the next section, we discuss the methodology used to create the 
proposed PDPM case-mix adjusted components, as well as the data sources 
used in this calculation. The proposed methodology does not calculate 
new federal base payment rates but simply proposes to modify the 
existing base rate case-mix components for therapy and nursing. The 
methodology and data used in this calculation are based on the data and 
methodology used in the calculation of the original federal payment 
rates in 1998, as further discussed below.
2. Data Sources Utilized for Proposed Revision of Federal Base Payment 
Rate Components
    Section II.A.2. of the interim final rule with comment period that 
initially implemented the SNF PPS (63 FR 26256 through 26260) provides 
a detailed discussion of the data sources used to calculate the 
original federal base payment rates in 1998. Except as discussed below, 
we propose to use the same data sources (that is, cost information from 
FY 1995 cost reports) to determine the portion of the therapy case-mix 
component base rate that would be assigned to each of the proposed 
therapy component base rates (PT, OT, and SLP). We believe that using 
the same data sources, to the extent possible, that were used to 
calculate the original federal base payment rates in 1998 results in 
base rates for the components that resemble as closely as possible what 
they would have been had these components initially been established in 
1998. The portion of the nursing component base rate that corresponds 
to NTA costs was already calculated using the same data source used to 
calculate the federal base payment rates in 1998. As explained below, 
we used the previously calculated percentage of the nursing component 
base rate corresponding to NTA costs to set the NTA base rate and 
verified this calculation with the analysis described in section V.C.3. 
of this proposed rule. Therefore, the steps described below address the 
calculations performed to separate out the therapy base rates alone.
    The percentage of the current therapy case-mix component of the 
federal base payment rates that would be assigned to the three proposed 
therapy components (PT, OT, and SLP) of the federal base payment rates 
was determined using cost information from FY 1995 cost reports, after 
making the following exclusions and adjustments: First, only settled 
and as-submitted cost reports for hospital-based and freestanding SNFs 
for periods beginning in FY 1995 and spanning 10 to 13 months were 
included. This set of restrictions replicates the restrictions used to 
derive the original federal base payment rates as set forth in the 1998 
interim final rule with comment period (63 FR 26256). Following the 
methodology used to derive the SNF PPS base rates, routine and 
ancillary costs from as-submitted cost reports were adjusted down by 
1.31 and 3.26 percent, respectively. As discussed in the 1998 interim 
final rule with comment period, the specific adjustment factors were 
chosen to reflect average adjustments resulting from cost report 
settlement and were based on a comparison of as-submitted and settled 
reports from FY 1992 to FY 1994 (63 FR 26256); these adjustments are in 
accordance with section 1888(e)(4)(A)(i) of the Act. We used similar 
data, exclusions, and adjustments as in the original base rates 
calculation so the resulting base rates for the components would 
resemble as closely as possible what they would have been had they been 
established in 1998. However, there were two ways in which the PT, OT, 
and SLP percentage calculations deviate from the 1998 base rates 
calculation. First, the 1998 calculation of the base rates excluded 
reports for facilities exempted from cost limits in the base year. The 
available data do not identify which facilities were exempted from cost 
limits in the base year, so this restriction was not implemented. We do 
not believe this had a notable impact on our estimate of the PT, OT, 
and SLP percentages, because only a small fraction of facilities were 
exempted from cost limits. Consistent with the 1998 base rates 
calculation, we excluded facilities with per diem costs more than three 
standard deviations higher than the geometric mean across facilities. 
Therefore, facilities with unusually high costs did not influence our 
estimate. Second, the 1998 calculation of the base rates excluded costs 
related to exceptions payments and costs related to approved 
educational activities. The available cost report data did not identify 
costs related to exceptions payments nor indicate what percentage of 
overall therapy costs or costs by therapy discipline were related to 
approved educational activities, so these costs are not excluded from 
the PT, OT, and SLP percentage calculations. Because exceptions were 
only granted for routine costs, we believe the inability to exclude 
these costs should not affect our estimate of the PT, OT, and SLP 
percentages as exceptions would not apply to therapy costs. 
Additionally, the data indicate that educational costs made up less 
than one-hundredth of 1 percent of overall SNF costs. Therefore, we 
believe that the inability to exclude educational costs should have a 
negligible impact on our estimates.
    In addition to Part A costs from the cost report data, the 1998 
federal base rates calculation incorporated estimates of amounts 
payable under Part B for covered SNF services provided to Part A SNF 
residents, as required by section 1888(e)(4)(A)(ii) of the Act. In 
calculating the PT, OT, and SLP percentages, we also estimated the 
amounts payable under Part B for covered SNF services provided to Part 
A residents. All Part B claims associated with Part A SNF claims 
overlapping with FY 1995 cost reports were matched to the corresponding 
facility's cost report. For each cost center (PT, OT, and SLP) in each 
cost report, a ratio was calculated to determine the amount by which 
Part A costs needed to be increased to account for the portion of costs 
payable under Part B. This ratio for each cost center was determined by 
dividing the total charges from the matched Part B claims by the total 
charges from the Part A SNF claims overlapping with the cost report. 
The 1998 interim final rule (63 FR 26256) states that to estimate the 
amounts payable under Part B for covered SNF services provided to Part 
A SNF residents, CMS (then known as HCFA) matched 100 percent of Part B 
claims associated with Part A covered SNF stays to the corresponding 
facility's cost report. Part B allowable charges were then incorporated 
at the facility level by the appropriate cost report center. Although 
the interim final rule does not provide further detail on how Part B 
allowable charges were incorporated at the facility level, we believe 
that our methodology reasonably approximates the methodology described 
in the interim final rule, and provides a reasonable estimate of the 
amounts payable under Part B for covered SNF services provided to Part 
A residents for purposes of calculating the PT, OT, and SLP 
percentages. Therefore, we believe it is reasonable to use this 
methodology to calculate the PT, OT, and SLP percentages of the therapy 
case-mix component.
    Finally, the 1998 federal base rates calculation standardized the 
cost data for each facility to control for the effects of case-mix and 
geographic-related wage differences, as required by section 
1888(e)(4)(C) of the Act. When calculating the PT, OT and SLP shares of 
the current therapy base rate, we replicated the method used in 1998 to 
standardize for wage differences, as

[[Page 21039]]

described in the 1998 interim final rule with comment period (63 FR 
26259 through 26260). We applied a hospital wage index to the labor-
related share of costs, estimated at 75.888 percent, and used an index 
composed of hospital wages from FY 1994. The PT, OT, and SLP percentage 
calculations did not include the case-mix adjustment used in the 1998 
calculation because the 1998 adjustment relied on the obsolete RUG-III 
classification system. In the 1998 federal base rates calculation, 
information from SNF and inpatient claims was mapped to RUG-III 
clinical categories at the resident level to case-mix adjust facility 
per diem costs. However, the 1998 interim final rule did not document 
this mapping, and the data used as the basis for this adjustment are no 
longer available, and therefore, this step could not be replicated. We 
believe that the inability to apply the case-mix adjustment likely has 
a small impact on our estimate of the PT, OT, and SLP percentages. The 
1998 interim final rule indicates that the case-mix adjustment was 
applied by dividing facility per diem costs for a given component by 
average facility case mix for that component; in other words, 
multiplying by the inverse of average facility case mix. As long as 
average facility case-mix values are within a relatively narrow range, 
adjustment for facility case mix should not have a large impact on the 
estimated PT, OT, and SLP percentages. Because the RUG-III case-mix 
indexes shown in the 1998 interim final rule are within a relatively 
narrow range (for example, therapy indexes range from 0.43 to 2.25), we 
do not expect the inability to apply the case-mix adjustment to 
facility per diem costs to have a large influence on the estimated PT, 
OT, and SLP percentages. These data sources are described in more 
detail in section 3.10. of the SNF PDPM technical report, available at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.
    We invite comments on the data sources used to determine the PT, 
OT, and SLP rate components, as discussed above.
3. Methodology Used for the Calculation of Proposed Federal Base 
Payment Rate Components
    As discussed previously in this section, we are proposing to 
separate the current therapy components into a PT component, an OT 
component, and an SLP component. To do this, we calculated the 
percentage of the current therapy component of the federal base rate 
that corresponds to each of the three proposed PDPM therapy components 
(PT, OT, and SLP) in accordance with the methodology set forth below.
    The data described in section V.C.2. of this proposed rule 
(primarily, cost information from FY 1995 cost reports) provides cost 
estimates for the Medicare Part A SNF population for each cost report 
that met the inclusion criteria. Cost reports stratify costs by a 
number of cost centers that indicate different types of services. For 
instance, costs are reported separately for each of the three therapy 
disciplines (PT, OT, and SLP). Cost reports also include the number of 
Medicare Part A utilization days during the cost reporting period. This 
allows us to calculate both average total therapy costs per day and 
average therapy costs by discipline in the facility during the cost 
reporting period. Therapy costs are defined as the sum of costs for the 
three therapy disciplines.
    The goal of this methodology is to estimate the fraction of therapy 
costs that corresponds to each of the three therapy disciplines. We use 
the facility-level per-diem costs developed from 1995 cost reports to 
derive average per diem amounts for both total therapy costs and for 
PT, OT, and SLP costs separately. To do this, we followed the 
methodology outlined in section II.A.3. of the 1998 interim final rule 
with comment period (63 FR 26260), which was used by CMS (then known as 
HCFA) to create the federal base payment rates:
    (1) For each of the four measures of cost (PT, OT, SLP, and total 
therapy costs per day), we computed the mean based on data from 
freestanding SNFs only. This mean was weighted by the total number of 
Medicare days of the facility.
    (2) For each of the four measures of cost (PT, OT, SLP, and total 
therapy costs per day), we computed the mean based on data from both 
hospital-based and freestanding SNFs. This mean was weighted by the 
total number of Medicare days of the facility.
    (3) For each of the four measures of cost (PT, OT, SLP, and total 
therapy costs per day), we calculated the arithmetic mean of the 
amounts determined under steps (1) and (2) above.
    In section 3.10.3. of the SNF PDPM technical report (available at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html), we show the results of these calculations.
    The three steps outlined above produce a measure of costs per day 
by therapy discipline and a measure of total therapy costs per day. We 
divided the discipline-specific (PT, OT, SLP) cost measure by the total 
therapy cost measure to obtain the percentage of the therapy component 
that corresponds to each therapy discipline. We believe that following 
a methodology to derive the discipline-specific therapy percentages 
that is consistent with the methodology used to determine the base 
rates in the 1998 interim final rule with comment period is appropriate 
because a consistent methodology helps to ensure that the resulting 
base rates for the components resemble what they would be had they been 
established in 1998. We found that PT, OT, and SLP costs correspond to 
43.4 percent, 40.4 percent, and 16.2 percent of the therapy component 
of the federal per diem rate for urban SNFs, and 42.9 percent, 39.4 
percent, and 17.7 percent of the therapy component of the federal per 
diem rate for rural SNFs. Under the proposed PDPM, the current therapy 
case-mix component would be separated into a Physical Therapy 
component, an Occupational Therapy component, and a Speech-Language 
Pathology component using the percentages derived above. This process 
would be done separately for urban and for rural facilities. In the 
appendix of the SNF PDPM technical report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html) we provide the specific cost centers used to 
identify PT, OT, and SLP costs.
    In addition, we propose to separate the current nursing case-mix 
component into a nursing case-mix component and an NTA component. 
Similar to the therapy component, we calculated the percentage of the 
current nursing component of the federal base rates that corresponds to 
each of the two proposed PDPM components (NTA and nursing). The 1998 
reopening of the comment period for the interim final rule (63 FR 
65561, November 27, 1998) states that NTA costs comprise 43.4 percent 
of the current nursing component of the urban federal base rate, and 
the remaining 56.6 percent accounts for nursing and social services 
salary costs. These percentages for the nursing component of the 
federal base rate for rural facilities are 42.7 percent and 57.3 
percent, respectively (63 FR 65561). Therefore, we propose to assign 43 
percent of the current nursing component of the federal base rates to 
the proposed new NTA component of the federal base rates and assign the 
remaining 57 percent to the new nursing component of the federal base 
rates to reflect what the base rates would have been for these 
components if they had been separately established in 1998.

[[Page 21040]]

    We verified the 1998 calculation of the percentages of the nursing 
component federal base rates that correspond to NTA costs by developing 
a measure of NTA costs per day for urban and rural facilities. We used 
the same data (that is, cost information from 1995 cost reports) and 
followed the same methodology described above to develop measures of 
PT, OT, and SLP costs per day and total therapy costs per day. The 
measure of NTA costs per day produced by this analysis is $47.70 for 
urban facilities and $47.30 for rural facilities. The original 1998 
federal base rates for the nursing component, which relied on a similar 
methodology, were $109.48 for urban facilities and $104.88 for rural 
facilities. Therefore, our measure of NTA costs in urban facilities was 
equivalent to 43.6 percent of the urban 1998 federal nursing base rate, 
and our measure of NTA costs in rural facilities was equivalent to 45.1 
percent of the rural 1998 federal nursing base rate. These results are 
similar to the estimates published in the 1998 reopening of the comment 
period for the interim final rule (63 FR 65561, November 27, 1998), 
which we believe supports the validity of the 43 percent figure stated 
above.
    For illustration purposes, Tables 12 and 13 set forth what the 
unadjusted federal per diem rates would be for each of the case-mix 
adjusted components if we were to apply the proposed PDPM to the 
proposed FY 2019 base rates given in Tables 4 and 5. These are derived 
by dividing the proposed FY 2019 SNF PPS base rates according to the 
percentages described above. Tables 12 and 13 also show what the 
unadjusted federal per diem rates for the non-case-mix component would 
be, which are not affected by the change in case-mix methodology from 
RUG-IV to PDPM. We use these unadjusted federal per diem rates in 
calculating the impact analysis discussed in section V.J. of this 
proposed rule.

                                           Table 12--FY 2019 PDPM Unadjusted Federal Rate Per Diem--Urban \3\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                  Rate component                        Nursing            NTA               PT               OT              SLP          Non-case-mix
--------------------------------------------------------------------------------------------------------------------------------------------------------
Per Diem Amount...................................         $103.46           $78.05           $59.33           $55.23           $22.15           $92.63
--------------------------------------------------------------------------------------------------------------------------------------------------------
\3\ The rates shown in Tables 12 and 13 illustrate what the unadjusted federal per diem rates would be for each of the case-mix adjusted components if
  we were to apply the proposed PDPM to the proposed FY 2019 base rates given in Tables 4 and 5.


                                             Table 13--FY 2019 PDPM Unadjusted Federal Rate Per Diem--Rural
--------------------------------------------------------------------------------------------------------------------------------------------------------
                  Rate component                        Nursing            NTA               PT               OT              SLP          Non-case-mix
--------------------------------------------------------------------------------------------------------------------------------------------------------
Per Diem Amount...................................          $98.83           $74.56           $67.63           $62.11           $27.90           $94.34
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We invite comments on the proposed data sources and proposed 
methodology for calculating the unadjusted federal per diem rates that 
would be used in conjunction with the proposed PDPM effective October 
1, 2019.
4. Proposed Updates and Wage Adjustments of Revised Federal Base 
Payment Rate Components
    In section III.B. of this proposed rule, we describe the process 
used to update the federal per diem rates each year. Additionally, as 
discussed in section III.B.4 of this proposed rule, SNF PPS rates are 
adjusted for geographic differences in wages using the most recent 
hospital wage index data. Under PDPM, we propose to continue to update 
the federal base payment rates and adjust for geographic differences in 
wages following the current methodology used for such updates and wage 
index adjustments under the SNF PPS. Specifically, we propose to 
continue the practice of using the SNF market basket, adjusted as 
described in section III.B. of this proposed rule to update the federal 
base payment rates and to adjust for geographic differences in wages as 
described in section III.B.4. of this proposed rule.

D. Proposed Design and Methodology for Case-Mix Adjustment of Federal 
Rates

1. Background on Proposed PDPM
    Section 1888(e)(4)(G)(i) of the Act requires that the Secretary 
provide an appropriate adjustment to account for case mix and that such 
an adjustment shall be based on a resident classification system that 
accounts for the relative resource utilization of different patient 
types. The current case-mix classification system uses a combination of 
resident characteristics and service intensity metrics (for example, 
therapy minutes) to assign residents to one of 66 RUGs, each of which 
corresponds to a therapy CMI and a nursing CMI, which are indicative of 
the relative cost to a SNF of treating residents within that 
classification category. However, as noted in section V.A. of this 
proposed rule, incorporating service-based metrics into the payment 
system can incentivize the provision of services based on a facility's 
financial considerations rather than resident needs. To better ensure 
that resident care decisions appropriately reflect each resident's 
actual care needs, we believe it is important to remove, to the extent 
possible, service-based metrics from the SNF PPS and derive payment 
from verifiable resident characteristics that are patient, and not 
facility, centered. To that end, the proposed PDPM was developed to be 
a payment model which derives payment classifications almost 
exclusively from verifiable resident characteristics.
    Additionally, the current RUG-IV case-mix classification system 
reduces the varied needs and characteristics of a resident into a 
single RUG-IV group that is used for payment. As of FY 2017, of the 66 
possible RUG classifications, over 90 percent of covered SNF PPS days 
are billed using one of the 23 Rehabilitation RUGs, with over 60 
percent of covered SNF PPS days billed using one of the three Ultra-
High Rehabilitation RUGs. The implication of this pattern is that more 
than half of the days billed under the SNF PPS effectively utilize only 
a resident's therapy minutes and Activities of Daily Living (ADL) score 
to determine the appropriate payment for all aspects of a resident's 
care. Both of these metrics, more notably a resident's therapy minutes, 
may not derive so much from the resident's own characteristics, but 
rather, from the type and amount of care the SNF decides to provide to 
the resident. Even assuming that the facility takes the resident's 
needs and unique characteristics into account in making these service 
decisions, the focus of payment remains centered, to a potentially 
great extent, on the facility's

[[Page 21041]]

own decision making and not on the resident's needs.
    While the RUG-IV model utilizes a host of service-based metrics 
(type and amount of care the SNF decides to provide) to classify the 
resident into a single RUG-IV group, the proposed PDPM would separately 
identify and adjust for the varied needs and characteristics of a 
resident's care and combine this information together to determine 
payment. We believe that the proposed PDPM would improve the SNF PPS by 
basing payments predominantly on clinical characteristics rather than 
service provision, thereby enhancing payment accuracy and strengthening 
incentives for appropriate care. For these reasons, we propose that, 
effective October 1, 2019, SNF residents would be classified using the 
PDPM, as further discussed below. As discussed in section V.J. below, 
we propose to implement the PDPM on October 1, 2019 to allow all 
stakeholders adequate time for systems updates and staff training 
needed to assure smooth implementation.
2. Data Sources Utilized for Developing Proposed PDPM
    To understand, research, and analyze the costs of providing Part A 
services to SNF residents, we utilized a variety of data sources in the 
course of research. In this section, we discuss these sources and how 
they were used in the SNF PMR in developing the proposed PDPM. A more 
thorough discussion of the data sources used during the SNF PMR is 
available in section 3.1. of the SNF PDPM technical report (available 
at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html).
a. Medicare Enrollment Data
    Beneficiary enrollment and demographic information was extracted 
from the CMS enrollment database (EDB) and Common Medicare Environment 
(CME). Beneficiaries' Medicare enrollment was used to apply 
restrictions to create a study population for analysis. For example, 
beneficiaries were required to have continuous Medicare Part A 
enrollment during a SNF stay. Demographic characteristics (for example, 
age) were incorporated as being predictive of resource use. 
Furthermore, enrollment and demographic information from these data 
sources were used to assess the impact of the proposed PDPM on 
subpopulations of interest. In particular, the EDB and CME include 
indicators for potentially vulnerable subpopulations, such as those 
dually-enrolled in Medicaid and Medicare.
b. Medicare Claims Data
    Medicare Parts A and B claims from the CMS Common Working File 
(CWF) were used to conduct claims analyses as part of the SNF PMR. SNF 
claims (CMS-1450 form, OMB control number 0938-0997), including type of 
bill (TOB) 21x (SNF Inpatient Part A) and 18x (hospital swing bed), 
were used to identify Medicare Part A stays paid under the SNF PPS. 
Part A stays were constructed by linking claims that share the same 
beneficiary, facility CMS Certification Number (CCN), and admission 
date. Stays created from SNF claims were linked to other claims data 
and assessment data via beneficiary identifiers.
    Acute care hospital stays that qualified the beneficiary for the 
SNF benefit were identified using Medicare inpatient hospital claims. 
The dates of the qualifying hospital stay listed in the span codes of 
the SNF claim were used to connect inpatient claims with those dates 
listed as the admission and discharge dates. Although there are 
exceptions, the claims from the preceding inpatient hospitalization 
commonly contain clinical and service information relevant to the care 
administered during a SNF stay. Components of this information were 
used in the regression models predicting therapy and NTA costs and to 
better understand patterns of post-acute care (PAC) referrals for 
patients requiring SNF services. Additionally, the most recent hospital 
stay was matched to the SNF stay, which often (though not always) was 
the same as the preceding inpatient hospitalization, and used in the 
regression models.
    Other Medicare claims, including outpatient hospital, physician, 
home health, hospice, durable medical equipment, and drug 
prescriptions, were incorporated, as necessary, into the analysis in 
one of three ways: (1) to verify information found on assessments or on 
SNF or inpatient claims; (2) to provide additional resident 
characteristics to test outside of those found in assessment and SNF 
and inpatient claims data; and (3) to stratify modeling results to 
identify effects of the system on beneficiary subpopulations. These 
claims were linked to SNF claims using beneficiary identifiers.
c. Assessment Data
    Minimum Data Set (MDS) assessments were the primary source of 
resident characteristic information used to explain resource 
utilization in the SNF setting. The data repositories include MDS 
assessments submitted by SNFs and swing-bed hospitals. MDS version 2.0 
assessments were submitted until October 2010, at which point MDS 
version 3.0 assessments began. MDS data were extracted from the Quality 
Improvement Evaluation System (QIES). MDS assessments were then matched 
to SNF claims data using the beneficiary identifier, assessment 
indicator, assessment date, and Resource Utilization Group (RUG).
d. Facility Data
    Facility characteristics, while not considered as explanatory 
variables when modeling service use, were used for impact analyses. By 
incorporating this facility-level information, we could identify any 
disproportionate effects of the proposed case-mix classification system 
on different types of facilities.
    Facility-level characteristics were taken from the Certification 
and Survey Provider Enhanced Reports (CASPER). From CASPER, we draw 
facility-level characteristics such as ownership, location, facility 
size, and facility type. CASPER data were supplemented with information 
from publicly available data sources. The principal data sources that 
are publicly available include the Medicare Cost Reports (Form 2540-10, 
2540-96, and 2540-92) extracted from the Healthcare Cost Report 
Information System (HCRIS) files, Provider-Specific Files (PSF), 
Provider of Service files (POS), and Nursing Home Compare (NHC). These 
data sources have information on facility costs, payment, and 
characteristics that directly affect PPS calculations.
3. Proposed Resident Classification Under PDPM
a. Background
    As noted above, section 1888(e)(4)(G)(i) of the Act requires that 
the Secretary provide for an appropriate adjustment to account for case 
mix and that such an adjustment shall be based on a resident 
classification system that accounts for the relative resource 
utilization of different patient types. The proposed PDPM was developed 
to be a payment model which derives almost exclusively from resident 
characteristics. The proposed PDPM would separately identify and adjust 
five different case-mix components for the varied needs and 
characteristics of a resident's care and then combine these together 
with the non-case-mix component to form the full SNF PPS per diem rate 
for that resident.
    As with any case-mix classification system based on resident 
characteristics, the proposed predictors that would be part of case-mix 
classification under

[[Page 21042]]

PDPM are those which our analysis identified as associated with 
variation in costs for the given case-mix component. The proposed 
federal per diem rates discussed above serve as ``base rates'' 
specifically because they set the basic average cost of treating a 
typical SNF resident. Based on the presence of certain needs or 
characteristics, caring for certain residents may cost more or less 
than that average cost. A case-mix system identifies certain aspects of 
a resident or of a resident's care which, when present, lead to average 
costs for that group being higher or lower than the average cost of 
treating a typical SNF resident. For example, if we found that therapy 
costs were the same for two residents regardless of having a particular 
condition, then that condition would not be relevant in predicting 
increases in therapy costs. If, however, we found that, holding all 
else constant, the presence of a given condition was correlated with an 
increase in therapy costs for residents with that condition over those 
without that condition, then this could mean that this condition is 
indicative, or predictive, of increased costs relative to the average 
cost of treating SNF residents generally.
    In the subsections that follow, we describe each of the five 
proposed case-mix adjusted components under the proposed PDPM and the 
basis for each of the proposed predictors that would be used within the 
proposed PDPM to classify residents for payment purposes.
b. Proposed Physical and Occupational Therapy Case-Mix Classification
    A fundamental aspect of the proposed PDPM is to use resident 
characteristics to predict the costs of furnishing similarly situated 
residents with SNF care. Costs derived from the charges on claims and 
cost-to-charge ratios (CCRs) on facility cost reports were used as the 
measure of resource use to develop the proposed PDPM. Costs better 
reflect differences in the relative resource use of residents as 
opposed to charges, which partly reflect decisions made by providers 
about how much to charge payers for certain services. Costs derived 
from charges are reflective of therapy utilization as they are 
correlated to the therapy minutes recorded for each therapy discipline. 
Under the current RUG-IV case-mix model, therapy minutes for all three 
therapy disciplines (PT, OT, SLP) are added together to determine the 
appropriate case-mix classification for the resident. However, as shown 
in section 3.3.1. of the SNF PDPM technical report (available at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html), when we began to investigate resident 
characteristics predictive of therapy costs for each therapy 
discipline, we found that PT and OT costs per day are only weakly 
correlated with SLP costs per day (correlation coefficient of 0.04). 
The set of resident characteristics from the MDS that predicted PT and 
OT utilization was different than the set of characteristics predicting 
SLP utilization. Additionally, many predictors of high PT and OT costs 
per day predicted lower SLP costs per day, and vice versa. For example, 
residents with cognitive impairments receive less physical and 
occupational therapy but receive more speech-language pathology. As a 
result of this analysis, we found that basing case-mix classification 
on total therapy costs per day obscured differences in the determinants 
of PT, OT, and SLP utilization.
    In contrast, the correlation coefficient between PT and OT costs 
per day was high (0.62). Additionally, regression analyses found that 
predictors of high PT costs per day were also predictive of high OT 
costs per day. For example, the analyses found that late-loss ADLs are 
strong predictors of both PT and OT costs per day. We then used a range 
of resident characteristics to predict PT and OT costs per day 
separately and we found that the coefficients in both models followed 
similar patterns. Finally, resident characteristics were found to be 
better predictors of the sum of PT and OT costs per day than for either 
PT or OT costs separately. These analyses used a variety of items from 
the MDS as independent variables and used PT, OT, and SLP costs per day 
as dependent variables. More information on these analyses can be found 
in section 3.3.1. of the SNF PMR technical report that accompanied the 
ANPRM available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.
    Given the results of this analytic work as well as feedback from 
multiple stakeholders, we propose three separate case-mix adjusted 
components, one corresponding to each therapy discipline: PT, OT, and 
SLP. In the original RCS-I model presented in the ANPRM, we stated that 
we were considering addressing PT and OT services through a single 
component, given the strong correlation between PT and OT costs and our 
finding that very similar predictors explained variation in the 
utilization of both therapy disciplines. However, commenters on the 
ANPRM stated that having a single combined PT and OT component could 
encourage providers to inappropriately substitute PT for OT and vice 
versa. This belief comports with feedback received from professional 
organizations and other stakeholders during technical expert panels 
(TEPs). The TEP commenters stated that PT and OT services should be 
addressed via separate components given the different aims of the two 
therapy disciplines and differences in the clinical characteristics of 
the resident subpopulations for which PT or OT services are warranted. 
For example, clinicians consulted during development of PDPM advised 
that personal hygiene, dressing, and upper extremity motion may bear a 
closer clinical relationship to OT utilization, while lower extremity 
motion may be more closely related to PT utilization. While we do not 
believe that RCS-I, which included two separate components for PT/OT 
and SLP, contained stronger incentives for substitution across therapy 
disciplines compared to RUG-IV, which reimburses all three therapy 
disciplines through a single therapy component, we concur with the TEP 
commenters that PT and OT have different aims and that there are 
clinically relevant differences between residents who could benefit 
from PT, residents who could benefit from OT, and residents who could 
benefit from both disciplines. For the foregoing reasons, we decided to 
separate the combined PT/OT component presented in the ANPRM into two 
separate case-mix adjusted components in the proposed PDPM. Because of 
the strong correlation between the dependent variables used for both 
components and the similarity in predictors, we decided to maintain the 
same case-mix classification model for both components. In practice, 
this means that the same resident characteristics will determine a 
resident's classification for PT and OT payment. However, each resident 
will be assigned separate case-mix groups for PT and OT payment, which 
correspond to separate case-mix indexes and payment rates. We believe 
that providing separate case-mix-adjusted payments for PT and OT may 
allay concerns about inappropriate substitution across disciplines and 
encourage provision of these services according to clinical need. As 
clinical practices evolve independently of incentives created by the 
current RUG-IV payment model, we would re-evaluate the different sets 
of resident characteristics that are predictive of PT and OT 
utilization after the proposed PDPM is implemented. If based on this 
re-evaluation we determine that

[[Page 21043]]

different sets of characteristics are predictive of PT and OT resource 
utilization, we can consider revising the payment model to better 
reflect clinical differences between residents who receive PT services 
and those who receive OT services.
    After delineating the three separate case-mix adjusted therapy 
components, we continued our analysis by identifying resident 
characteristics that were best predictive of PT and OT costs per day. 
To accomplish this, we conducted cost regressions with a host of 
variables from the MDS assessment, the prior inpatient claims, and the 
SNF claims that were believed to be potentially predictive of relative 
increases in PT and OT costs. The variables were selected with the goal 
of being as inclusive as possible with respect to characteristics 
related to the SNF stay and the prior inpatient stay. The selection 
also incorporated clinical input. These initial costs regressions were 
exploratory and meant to identify a broad set of resident 
characteristics that are predictive of PT and OT resource utilization. 
The results were used to inform which variables should be investigated 
further and ultimately included in the payment system. A table of all 
of the variables considered as part of this analysis appears in the 
appendix of the SNF PMR technical report that accompanied the ANPRM 
available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html. Based on our regression analyses, 
we found that the three most relevant categories of predictors of PT 
and OT costs per day were the clinical reasons for the SNF stay, the 
resident's functional status, and the presence of a cognitive 
impairment. More information on this analysis can be found in section 
3.4.1. of the SNF PDPM technical report available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.
    Under the RUG-IV case-mix model, residents are first categorized 
based on being a rehabilitation resident or a non-rehabilitation 
resident, then categorized further based on additional aspects of the 
resident's care. Under the proposed PDPM, for the purposes of 
determining the resident's PT and OT groups and, as will be discussed 
below, the resident's SLP group, the resident would first be 
categorized based on the clinical reasons for the resident's SNF stay. 
Empirical analyses demonstrated that the clinical basis for the 
resident's stay (that is, the primary reason the resident is in the 
SNF) is a strong predictor of therapy costs. For example, all of the 
clinical categories (described below) developed to characterize the 
primary reason for a SNF stay (except the clinical category used as the 
reference group) were found to be statistically significant predictors 
of therapy costs per day. More detail on these analyses can be found in 
section 3.4.1. of the SNF PMR technical report that accompanied the 
ANPRM (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html). In consultation with 
stakeholders (industry representatives, beneficiary representatives, 
clinicians, and payment policy experts) at multiple technical expert 
panels (TEPs), we created a set of ten inpatient clinical categories 
that we believe capture the range of general resident types which may 
be found in a SNF. These proposed clinical categories are provided in 
Table 14.

               Table 14--Proposed PDPM Clinical Categories
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Major Joint Replacement or Spinal Surgery..  Cancer.
Non-Surgical Orthopedic/Musculoskeletal....  Pulmonary.
Orthopedic Surgery (Except Major Joint       Cardiovascular and
 Replacement or Spinal Surgery).              Coagulations.
Acute Infections...........................  Acute Neurologic.
Medical Management.........................  Non-Orthopedic Surgery.
------------------------------------------------------------------------

    We propose to categorize a resident into a PDPM clinical category 
using item I8000 on the MDS 3.0. Providers would use the first line in 
item I8000 to report the ICD-10-CM code that represents the primary 
reason for the resident's Part A SNF stay. This code would be mapped to 
one of the ten clinical categories provided in Table 14. The mapping 
between ICD-10-CM codes and the ten clinical categories is available at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html. The mapping indicates that in some cases, a 
single ICD-10-CM code maps to more than one clinical category because 
the care plan for a resident with this diagnosis may differ depending 
on the inpatient procedure history. In these cases, a resident may be 
categorized into a surgical clinical category if the resident received 
a surgical procedure during the immediately preceding inpatient stay 
that relates to the primary reason for the Part A SNF stay and 
typically requires extensive post-surgical rehabilitation or nursing 
care. If the resident did not receive a related surgical procedure 
during the prior inpatient stay that typically requires extensive post-
surgical rehabilitation or nursing care, the resident may be 
categorized into a non-surgical clinical category. For example, certain 
wedge compression fractures that were treated with an invasive surgical 
procedure such as a fusion during the prior inpatient stay would be 
categorized as Major Joint Replacement or Spinal Surgery, but if these 
cases were not treated with a surgical procedure they would be 
categorized as Non-Surgical Orthopedic/Musculoskeletal. For residents 
who received a related surgical procedure during the prior inpatient 
stay, a provider would need to indicate the type of surgical procedure 
performed for the resident to be appropriately classified under PDPM. 
Thus, in these cases we are proposing to require providers to record 
the type of inpatient surgical procedure performed during the prior 
inpatient stay so that residents can be appropriately classified into a 
PDPM clinical category for purposes of PT, OT, and SLP classification. 
We propose that providers record the type of surgical procedure 
performed during the prior inpatient stay by coding an ICD-10-PCS code 
that corresponds to the inpatient surgical procedure in the second line 
of item I8000 in cases where inpatient surgical information is required 
to appropriately categorize a resident under PDPM. If we were to use 
the second line of item I8000 to record inpatient surgical information, 
we would provide a list of ICD-10-PCS codes that map to the surgical 
clinical categories. We believe this approach would allow for patients 
to be appropriately classified under the PDPM because it would provide 
sufficient information on the primary reason for SNF care and inpatient 
surgical procedures to assign a resident to the appropriate surgical or 
non-surgical clinical category. We invite comments on this proposal. In 
addition, we solicit comments on alternative methods for recording the 
type of inpatient surgical procedure to

[[Page 21044]]

appropriately classify a patient into a clinical category. The clinical 
category into which the resident is classified would be used to 
classify the resident into a PT and OT category as discussed below, as 
well as an SLP category, as explained in section V.D.3.c. of this 
proposed rule.
    As discussed above, we propose to categorize a resident into a PDPM 
clinical category for purposes of PT, OT, and SLP classification using 
the ICD-10-CM code in the first line of item I8000, and if applicable, 
the ICD-10 PCS code in the second line of item I8000. As an alternative 
to using item I8000 to classify a resident into a clinical category, we 
are considering using a resident's primary diagnosis as reflected in 
MDS item I0020 as the basis for assigning the resident to a clinical 
category, and are evaluating the categories provided in item I0020 to 
determine if there is sufficient overlap between the categories used in 
item I0020 and the proposed PDPM clinical categories provided in Table 
14 above that this item could serve as the basis for a resident's 
initial classification into a clinical category under PDPM. The MDS 
item I0020 would require facilities to select a primary diagnosis from 
a pre-populated list of primary diagnoses representing the most common 
types of beneficiaries treated in a SNF, while item I8000, if used to 
assign residents to clinical categories, would require facilities to 
code a specific ICD-10-CM code that corresponds to the primary reason 
for the resident's Part A SNF stay. As indicated above, we are also 
proposing that providers would code a specific ICD-10-PCS code in the 
second line of item I8000 when surgical information from the prior 
inpatient stay is necessary to assign a resident to a clinical 
category. If we were to use item I0020 to categorize residents under 
PDPM, we would not require providers to record additional information 
on inpatient surgical procedures as we expect the primary diagnosis 
information provided through item I0020 to be adequate to appropriately 
assign a resident to a clinical category. We invite comments on our 
proposal to categorize a resident into a PDPM clinical category using 
the ICD-10-CM code recorded in the first line of item I8000 on the MDS 
3.0, and the ICD-10-PCS code recorded on the second line of item I8000 
on the MDS 3.0. In addition, we solicit comments on the alternative of 
using item I0020 on the MDS 3.0, as discussed above, as the basis for 
resident classification into one of the ten clinical categories in 
Table 14.
    Once we identified these clinical categories as being generally 
predictive of resource utilization in a SNF, we then undertook the 
necessary work to identify those categories predictive of PT and OT 
costs specifically. We conducted additional regression analyses to 
determine if any of these categories predicted similar levels of PT and 
OT as other categories, which may provide a basis for combining 
categories. As a result of this analysis, for the RCS-I model presented 
in the ANPRM, we found that the ten inpatient clinical categories could 
be collapsed into five clinical categories, which predict varying 
degrees of PT and OT costs. However, we received comments on the ANPRM 
regarding the number of possible case-mix group combinations under RCS-
I, so we sought to try and reduce this number of possible case-mix 
group combinations by further simplifying the model. As part of that 
effort, we observed similar PT and OT resource utilization patterns in 
the clinical categories of Non-Orthopedic Surgery and Acute Neurologic 
and, therefore, propose to collapse these categories for the purpose of 
PT and OT classification. Additionally, as reflected in the RCS-I model 
presented in the ANPRM, we propose that under PDPM, the remaining 
clinical categories would be collapsed as follows: Acute infections, 
cancer, pulmonary, cardiovascular and coagulations, and medical 
management would be collapsed into one clinical category entitled 
``Medical Management'' because their residents had similar PT and OT 
costs. Similarly, we propose that orthopedic surgery (except major 
joint replacement or spinal surgery) and non-surgical orthopedic/
musculoskeletal would be collapsed into a new ``Other Orthopedic'' 
category for equivalent reasons. Finally, the remaining category, Major 
Joint Replacement, showed a distinct PT and OT cost profile and, thus, 
we propose to retain it as an independent category. More information on 
this analysis can be found in section 3.4.2. of the SNF PMR technical 
report that accompanied the ANPRM and in section 3.4.2. of the SNF PDPM 
technical report, both available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html. These 
proposed collapsed categories, which would be used to categorize a 
resident initially under the proposed PT and OT case-mix components, 
are presented in Table 15.

     Table 15--Proposed Collapsed Clinical Categories for PT and OT
                             Classification
------------------------------------------------------------------------
                                           Collapsed PT and OT clinical
         PDPM clinical category                      category
------------------------------------------------------------------------
Major Joint Replacement or Spinal        Major Joint Replacement or
 Surgery.                                 Spinal Surgery.
Non-Orthopedic Surgery.................  Non-Orthopedic Surgery and
                                          Acute Neurologic.
Acute Neurologic
Non-Surgical Orthopedic/Musculoskeletal  Other Orthopedic.
Orthopedic Surgery (Except Major Joint
 Replacement or Spinal Surgery)
Medical Management.....................  Medical Management.
Acute Infections
Cancer
Pulmonary
Cardiovascular and Coagulations
------------------------------------------------------------------------

    As discussed previously in this section, regression analyses 
demonstrated that the resident's functional status is also predictive 
of PT and OT costs in addition to the resident's initial clinical 
categorization. In the RCS-I model discussed in the ANPRM, we presented 
a function score similar to the existing ADL score to measure 
functional abilities for the purposes of PT and OT payment. In response 
to the ANPRM, we received comments requesting that we consider 
replacing the functional items used to build the RCS-I function score 
with newer, IMPACT Act-compliant items from section GG. Therefore, we 
constructed, and are proposing as discussed below, a new function score 
for PT and OT payment based on section GG functional items.

[[Page 21045]]

    Under the RUG-IV case-mix system, a resident's ADL or function 
score is calculated based on a combination of self-performance and 
support items coded by SNFs in section G of the MDS 3.0 for four ADL 
areas: Transfers, eating, toileting, and bed mobility. These four areas 
are referred to as late-loss ADLs because they are typically the last 
functional abilities to be lost as a resident's function declines. Each 
ADL is assigned a score of up to four points, with a potential total 
score as high as 16 points. Under the proposed PDPM, we propose that 
section G items would be replaced with functional items from section GG 
of the MDS 3.0 (Functional Abilities and Goals) as the basis for 
calculating the function score for resident classification used under 
PDPM. Section GG offers standardized and more comprehensive measures of 
functional status and therapy needs. Additionally, the use of section 
GG items better aligns the payment model with other quality 
initiatives. SNFs have been collecting section GG data since October 
2016 as part of the requirements for the Improving Medicare Post-Acute 
Care Transformation Act of 2014 (IMPACT Act). Given the advantages of 
section GG and of using a more comprehensive measure of functional 
abilities, we received numerous comments in response to ANPRM 
requesting the incorporation of section GG items and of early ADLs 
items into the function score.
    Multiple stakeholders commented that late-loss items do not 
adequately reflect functional abilities on their own. These commenters 
stated that early-loss ADL items also capture essential clinical 
information on functional status. Therefore, in building a new function 
score based on section GG items, we also investigated the incorporation 
of early-loss items. To explore the incorporation of section GG items, 
we evaluated each item's relationship with PT and OT costs. We ran 
individual regressions using each of the 12 section GG item assessed at 
admission to separately predict PT and OT costs per day. The regression 
results showed that early-loss items are indeed strong predictors of PT 
and OT costs, with the exception of two wheeling items. Both wheeling 
items were excluded from the functional measure due to their weak 
predictive relationship with PT and OT costs. We observed high 
predictive ability among the remaining items. In total, we selected ten 
items for inclusion in the functional measure for the PT and OT 
components based on the results of the analysis. Thus, under the 
proposed functional measure for the PT and OT components, a resident's 
function would be measured using four late-loss ADL activities (bed 
mobility, transfer, eating, and toileting) and two early-loss ADL 
activities (oral hygiene and walking). Specifically, the proposed 
measure includes: Two bed mobility items, three transfer items, one 
eating item, one toileting item, one oral hygiene item, and two walking 
items that were all found to be highly predictive of PT and OT costs 
per day. A list of proposed section GG items that would be included in 
the functional measure for the PT and OT components is shown in Table 
18. Section 3.4.1. in the SNF PDPM technical report (available at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html) provides more detail on these analyses.
    Similar to the RUG-IV ADL score, each of these ADL areas would be 
assigned a score of up to 4 points. However, in contrast to the RUG-IV 
ADL score, points are assigned to each response level to track 
functional independence rather than functional dependence. In other 
words, higher points are assigned to higher levels of independence. 
This approach is consistent with functional measures in other care 
settings, such as the IRF PPS. Further, under the RUG-IV model, if the 
SNF codes that the ``activity did not occur'' or ``occurred only 
once,'' these items are assigned the same point value as 
``independent.'' However, we observed that residents who were unable to 
complete an activity had similar PT and OT costs as dependent 
residents. Therefore, when the activity cannot be completed, the 
equivalent section GG responses (``Resident refused,'' ``Not 
applicable,'' ``Not attempted due to medical condition or safety 
concerns'') are grouped with ``dependent'' for the purpose of point 
assignment. For the two walking items, we propose an additional 
response level to reflect residents who skip the walking assessment due 
to their inability to walk. We believe this is appropriate because this 
allows us to assess the functional abilities of residents who cannot 
walk and assign them a function score. Without this modification, we 
could not calculate a function score for residents who cannot walk 
because they would not be assessed on the two walking items included in 
the function score. Residents who are coded as unable to walk receive 
the same score as dependent residents to match with clinical 
expectations. In Tables 16 and 17, we provide the proposed scoring 
algorithm for the PT and OT functional measure.

Table 16--Proposed PT and OT Function Score Construction (Except Walking
                                 Items)
------------------------------------------------------------------------
                                       Response                Score
------------------------------------------------------------------------
05, 06                       Set-up assistance,                        4
                              Independent.
04                           Supervision or touching                   3
                              assistance.
03                           Partial/moderate assistance               2
02                           Substantial/maximal                       1
                              assistance.
01, 07, 09, 88               Dependent, Refused, N/A,                  0
                              Not Attempted.
------------------------------------------------------------------------


  Table 17--Proposed PT and OT Function Score Construction for Walking
                                  Items
------------------------------------------------------------------------
                                       Response                Score
------------------------------------------------------------------------
05, 06                       Set-up assistance,                        4
                              Independent.
04                           Supervision or touching                   3
                              assistance.
03                           Partial/moderate assistance               2
02                           Substantial/maximal                       1
                              assistance.
01, 07, 09, 88               Dependent, Refused, N/A,                  0
                              Not Attempted, Resident
                              Cannot Walk *.
------------------------------------------------------------------------
* Coded based on response to GG0170H1 (Does the resident walk?).


[[Page 21046]]

    Unlike section G, section GG measures functional areas with more 
than one item. This results in substantial overlap between the two bed 
mobility items, the three transfer items, and the two walking items. 
Because of this overlap, a simple sum of all scores for each item may 
inappropriately overweight functional areas measured by multiple items. 
Therefore, to adjust for this overlap, we propose to calculate an 
average score for these related items. That is, we would average the 
scores for the two bed mobility items, the three transfer items, and 
the two walking items. The average bed mobility, transfer, and walking 
scores would then be summed with the scores for eating, oral hygiene, 
and toileting hygiene, resulting in equal weighting of the six 
activities. This proposed scoring algorithm produces a function score 
that ranges from 0 to 24. In section 3.4.1. of the SNF PDPM technical 
report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html), we provide additional 
information on the analyses that led to the construction of this 
proposed function score.

  Table 18--Proposed Section GG Items Included in PT and OT Functional
                                 Measure
------------------------------------------------------------------------
                                    Section GG item           Score
------------------------------------------------------------------------
GG0130A1......................  Self-care: Eating.....  0-4
GG0130B1......................  Self-care: Oral         0-4
                                 Hygiene.
GG0130C1......................  Self-care: Toileting    0-4
                                 Hygiene.
GG0170B1......................  Mobility: Sit to lying  0-4 (average of
                                                         2 items).
GG0170C1......................  Mobility: Lying to
                                 sitting on side of
                                 bed
GG0170D1......................  Mobility: Sit to stand  0-4 (average of
                                                         3 items).
GG0170E1......................  Mobility: Chair/bed-to-
                                 chair transfer
GG0170F1......................  Mobility: Toilet
                                 transfer
GG0170J1......................  Mobility: Walk 50 feet  0-4 (average of
                                 with 2 turns.           2 items).
GG0170K1......................  Mobility: Walk 150
                                 feet
------------------------------------------------------------------------

    Under the RCS-I case-mix model presented in the ANPRM, we used 
cognitive status to classify residents under the PT and OT components 
in addition to the primary reason for SNF care and functional ability. 
As will be explained in greater detail below, after publication of the 
ANPRM, we removed cognitive status as a determinant of resident 
classification for the PT and OT components. Still, although cognitive 
status was not ultimately selected as a determinant of PT and OT 
classification, it was considered as a possible element in developing 
the proposed resident groups for these components via the 
Classification and Regression Trees (CART) algorithm described in 
greater detail below. Because we included cognitive status as an 
independent variable in the CART analysis used to develop case-mix 
groups for PT and OT, we believe it is appropriate to discuss 
construction of the proposed new cognitive measure here even though it 
was not ultimately selected as a determinant of payment for PT and OT. 
Thus, we will discuss construction of the instrument used to measure 
cognitive status under the proposed PDPM here, rather than introducing 
it when discussing SLP classification, in which we propose cognitive 
status as a determinant of resident classification. Under the current 
SNF PPS, cognitive status is used to classify a small portion of 
residents that fall into the Behavioral Symptoms and Cognitive 
Performance RUG-IV category. For all other residents, cognitive status 
is not used in determining the appropriate payment for a resident's 
care. However, industry representatives and clinicians at multiple TEPs 
suggested that a resident's cognitive status can have a significant 
impact on a resident's PT and OT costs. Based on this feedback, we 
explored a resident's cognitive status as a predictor of PT and OT 
costs.
    Under the RUG-IV model, cognitive status is assessed using the 
Brief Interview for Mental Status (BIMS) on the MDS 3.0. The BIMS is 
based on three items: ``repetition of three words,'' ``temporal 
orientation,'' and ``recall.'' These items are summed to produce the 
BIMS summary score. The BIMS score ranges from 0 to 15, with 0 assigned 
to residents with the worst cognitive performance and 15 assigned to 
residents with the highest performance. Residents with a BIMS score 
less than or equal to 9 classify for the Behavioral Symptoms and 
Cognitive Performance category. Residents with a summary score greater 
than 9 but not 99 (resident interview was not successful) are 
considered cognitively intact for the purpose of classification under 
RUG-IV.
    In approximately 15 percent of 5-day MDS assessments, the BIMS is 
not completed: In 12 percent of cases the interview is not attempted, 
and for 3 percent of cases the interview is attempted but cannot be 
completed. The MDS directs assessors to skip the BIMS if the resident 
is rarely or never understood (this is scored as ``skipped''). In these 
cases, the MDS requires assessors to complete the Staff Assessment for 
Mental Status (items C0700 through C1000). The Cognitive Performance 
Scale (CPS) is then used to assess cognitive function based on the 
Staff Assessment for Mental Status and other MDS items (``Comatose'' 
(B0100), ``Makes Self Understood'' (B0700), and the self-performance 
items of the four late-loss ADLs). The Staff Assessment for Mental 
Status consists of four items: ``Short-term Memory OK,'' ``Long-term 
Memory OK,'' ``Memory/Recall Ability,'' and ``Cognitive Skills for 
Daily Decision Making.'' Only ``Short-term Memory OK'' and ``Cognitive 
Skills for Daily Decision Making'' are currently used for payment. In 
MDS 2.0, the CPS was used as the sole measure of cognitive status. A 
resident was assigned a CPS score from 0 to 6 based on the Staff 
Assessment for Mental Status and other MDS items, with 0 indicating the 
resident was cognitively intact and 6 indicating the highest level of 
cognitive impairment. In addition to the items on the Staff Assessment 
for Mental Status, MDS items ``Comatose'' (B0100), ``Makes Self 
Understood'' (B0700), and the self-performance items of the four late-
loss ADLs factored into the CPS score. Any score of 3 or above was 
considered cognitively impaired. The CPS on the current version of the 
MDS (3.0) functions very similarly. Instead of assigning a score to 
each resident, a resident is determined to be cognitively impaired if 
he or she meets the criteria to receive a score of 3 or above on the 
CPS, based on the MDS items mentioned above. In other words, whereas 
the MDS 2.0 assigned a CPS score to each resident, the MDS 3.0 only 
determines whether a resident's score is greater than or equal to 3 and 
does not

[[Page 21047]]

assign a specific score to each resident for whom the CPS is used to 
assess cognitive status. Residents who are determined to be cognitively 
impaired based on the CPS are classified in the Behavioral Symptoms and 
Cognitive Performance category under RUG-IV, if they do not meet the 
criteria for a higher-paying category.
    Given that the 15 percent of residents who are not assessed on the 
BIMS must be assessed using a different scale that relies on a 
different set of MDS items, there is currently no single measure of 
cognitive status that allows comparison across all residents. To 
address this issue, Thomas et al., in a 2015 paper, proposed use of a 
new cognitive measure, the Cognitive Function Scale (CFS), which 
combines scores from the BIMS and CPS into one scale that can be used 
to compare cognitive function across all residents (Thomas KS, Dosa D, 
Wysocki A, Mor V; The Minimum Data Set 3.0 Cognitive Function Scale. 
Med Care. https://www.ncbi.nlm.nih.gov/pubmed/?term=25763665). 
Following a suggestion from the June 2016 TEP, we explored using the 
CFS as a measure of cognition and found that there is a relationship 
between the different levels of the cognitive scale and resident costs. 
Specifically, we observed that as cognitive function declines, PT and 
OT costs per day decrease, while SLP costs per day more than double. 
More information on this analysis can be found in section 3.4.1. of the 
SNF PMR technical report that accompanied the ANPRM available at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html. Based on these initial investigations, we used 
the CFS as a cognitive measure in the RCS-I payment model described in 
the ANPRM. As we noted above, the RUG-IV system incorporates both the 
BIMS and CPS score separately, but the CFS blends them together into 
one measure of cognitive status. Details on how the BIMS score and CPS 
score are determined using the MDS assessment are described above. The 
CFS uses these scores to place residents into one of four cognitive 
performance categories, as shown in Table 19. After publication of the 
ANPRM, we received stakeholder comments questioning this scoring 
methodology, specifically the classification of a CPS score of 0 as 
``mildly impaired.'' Based on a subsequent analysis showing that 
residents with a CPS score of 0 were similar to residents classified as 
``cognitively intact'' under the CFS methodology, as well as clinical 
feedback, we determined that it was appropriate to reclassify residents 
with a CPS score of 0 as cognitively intact, consistent with ANPRM 
feedback. This analysis is described in more detail in section 3.4.1. 
of the SNF PDPM technical report, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html. 
The scoring methodology for the proposed PDPM cognitive measure is 
shown in Table 20. We would note once again that while we discuss this 
scoring methodology in this section because cognitive status was 
considered in developing the PT and OT classification, the cognitive 
score is not being proposed as a factor of classification for the PT 
and OT components under PDPM, as further discussed below.

      Table 19--Cognitive Function Scale (CFS) Scoring Methodology
------------------------------------------------------------------------
             Cognitive level                BIMS score       CPS score
------------------------------------------------------------------------
Cognitively Intact......................           13-15              --
Mildly Impaired.........................            8-12             0-2
Moderately Impaired.....................             0-7             3-4
Severely Impaired.......................              --             5-6
------------------------------------------------------------------------


  Table 20--Proposed PDPM Cognitive Measure Classification Methodology
------------------------------------------------------------------------
             Cognitive level                BIMS score       CPS score
------------------------------------------------------------------------
Cognitively Intact......................           13-15               0
Mildly Impaired.........................            8-12             1-2
Moderately Impaired.....................             0-7             3-4
Severely Impaired.......................              --             5-6
------------------------------------------------------------------------

    Once each of these variables--clinical reasons for the SNF stay, 
the resident's functional status, and the presence of a cognitive 
impairment--was identified, we then used a statistical regression 
technique called Classification and Regression Trees (CART) to explore 
the most appropriate splits in PT and OT case-mix groups using these 
three variables. In other words, CART was used to investigate how many 
PT and OT case-mix groups should exist under the proposed PDPM and what 
types of residents or score ranges should be combined to form each of 
those PT and OT case-mix groups. CART is a non-parametric decision tree 
learning technique that produces either classification or regression 
trees, depending on whether the dependent variable is categorical or 
numeric, respectively. Using the CART technique to create payment 
groups is advantageous because it is resistant to both outliers and 
irrelevant parameters. The CART algorithm has been used to create 
payment groups in other Medicare settings. For example, it was used to 
determine Case Mix Groups (CMGs) splits within rehabilitation 
impairment groups (RICs) when the inpatient rehabilitation facility 
(IRF) PPS was developed. This methodology is more thoroughly explained 
in section 3.4.2. of the SNF PDPM technical report (available at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html).
    We used CART to develop splits within the four collapsed clinical 
categories shown in Table 15. Splits within each of these four 
collapsed clinical categories were based on the two independent 
variables included in the algorithm: Function score and cognitive 
status. The CART algorithm split residents into 18 groups for the PT 
component and 14 groups for the OT component. These splits are 
primarily based on differences in resident function. In the CART-
generated groups, cognitive status plays a role in categorizing less 
than half of the PT groups and only two of the 14 OT groups. In 
addition, to create the

[[Page 21048]]

proposed resident classification for the PT and OT components, we made 
certain administrative decisions that further refined the PT and OT 
case-mix classification groups beyond those produced through use of the 
CART algorithm. For example, while CART may have created slightly 
different breakpoints for the function score in different clinical 
categories, we believe that using a consistent split in scores across 
clinical categories improves the simplicity of the case-mix model 
without compromising its accuracy. Therefore, we used the splits 
created by the CART algorithm as the basis for the consistent splits 
selected for the case-mix groups, simplifying the CART output while 
retaining important features of the CART-generated splits. In our 
proposed classification for the PT and OT components, we retained 
function as the sole determinant of resident categorization within each 
of the four collapsed clinical categories. We created function score 
bins based on breakpoints that recurred in the CART splits, such as 5, 
9, and 23. As noted above, we dropped cognitive status as a determinant 
of classification because of the reduced role it played in categorizing 
residents within the CART-generated groups. Finally, we used the same 
function score bins to categorize residents within each of the four 
collapsed clinical categories for both the PT and OT components. As 
shown in section 3.4.2. of the SNF PDPM technical report (available at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html), using the proposed case-mix groups for the PT 
and OT components results in a reduction of 0.005 in the R-squared 
values for both PT and OT classification models. This shows that 
although the proposed case-mix groups improve simplicity by removing 
one predictor revealed to be less important in categorizing residents 
(cognitive status) and grouping residents similarly (using the same 
function score bins) across clinical categories, these decisions have 
only a minor negative impact on predictive accuracy. These analyses are 
described in further detail in section 3.4.2. of the SNF PDPM technical 
report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html).
    Based on the CART results and the administrative decisions 
described above, we propose 16 case-mix groups to classify residents 
for PT and OT payment. We would note that this represents a marked 
reduction in the number of case-mix groups for PT and OT classification 
under the RCS-I model discussed in the ANPRM. As discussed throughout 
the sections above, after publication of the ANPRM, we received 
feedback from stakeholders that the RCS-I payment model was overly 
complex. In particular, commenters expressed concern about the 
relatively large number of possible combinations of case-mix groups. 
Based on this feedback, we sought to reduce the number of resident 
groups in the PT and OT components. First, because we observed similar 
PT and OT resource utilization patterns in the clinical categories of 
Non-Orthopedic Surgery and Acute Neurologic, we decided to collapse 
these categories for the purpose of PT and OT classification. In 
addition, as discussed in this section, we replaced the section G-based 
functional measure from RCS-I with a new functional measure based on 
section GG items. The inclusion of the section GG-based functional 
measure in the CART algorithm resulted in case-mix groups in which 
cognitive function played a less important role in classification. 
Based on these results, we determined that we could remove cognitive 
function as a determinant of PT and OT classification without a notable 
loss in the predictive ability of the payment model, as discussed 
above. We also consulted with clinicians who advised CMS during 
development of PDPM, who confirmed the appropriateness of this 
decision. The decisions to collapse Non-Orthopedic Surgery and Acute 
Neurologic into one clinical category and remove cognitive status 
resulted in a large reduction in the number of PT and OT case-mix 
groups, from the 30 in RCS-I to the 16 in the proposed PDPM provided in 
Table 21. We provide the criteria for each of these groups along with 
its CMI for both the PT and OT components in Table 21. As shown in 
Table 21, two factors would be used to classify each resident for PT 
and OT payment: clinical category and function score. Each case-mix 
group corresponds to one clinical category and one function score 
range. We propose classifying each SNF resident into one of the 16 
groups shown in Table 21 based on these two factors.
    To help ensure that payment reflects the average relative resource 
use at the per diem level, CMIs would be set to reflect relative case-
mix related differences in costs across groups. This method helps 
ensure that the share of payment for each case-mix group would be equal 
to its share of total costs of the component. CMIs for the PT and OT 
components are calculated based on two factors. One factor is the 
average per diem costs of a case-mix group relative to the population 
average. The other factor is the average variable per diem adjustment 
factor of the group relative to the population average. In this 
calculation, average per diem costs equal total PT or OT costs in the 
group divided by number of utilization days in the group. Similarly, 
the average variable per diem adjustment factor equals the sum of 
variable per diem adjustment factors corresponding to a given component 
(PT or OT) for all utilization days in the group divided by the number 
of utilization days in the group. We calculate CMIs such that they 
equal the ratio of relative average per diem costs for a group to the 
relative average variable per diem adjustment factor for the group. In 
this calculation, relative average per diem costs and the relative 
average variable per diem adjustment factor are weighted by length of 
stay to account for the different length of stay distributions across 
case-mix groups (as further discussed in section 3.11.1. of the SNF 
PDPM technical report, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html). The 
relative average variable per diem adjustment factors for a given PT 
group and the corresponding OT group are the same because residents are 
classified into the same case-mix group under both components. However, 
relative average per diem costs are different across the two 
corresponding PT and OT groups, therefore the resulting CMIs calculated 
for each group are different, as shown in Table 21. After calculating 
CMIs as described above, we then apply adjustments to help ensure that 
the distribution of resources across payment components is aligned with 
the statutory base rates. The base rates implicitly allocate resources 
to case-mix components in proportion to the relative magnitude of the 
respective component base rates. For example, if the base rate for one 
component were twice as large as the base rate for another component, 
this would imply that the component with the larger base rate should 
receive double the resources of the other component. To ensure that the 
distribution of resources across payment components is aligned with the 
statutory base rates, we set CMIs such that the average product of the 
CMI and the variable per diem adjustment factor for a day of care 
equals 1.0 for each of the five case-mix-adjusted components in PDPM. 
If the average product of the CMI and the variable per diem adjustment 
factor for a day of care were

[[Page 21049]]

different across case-mix components, this would result in allocating 
resources in a manner inconsistent with the distribution of resources 
implied by the statutory base rates.
    After adjusting the CMIs to align the distribution of resources 
across payment components with the statutory base rates, a parity 
adjustment is then applied by multiplying the CMIs by the ratio of 
case-mix-related payments in RUG-IV over estimated case-mix-related 
payments in PDPM, as further discussed in section V.J. of this proposed 
rule. More information on the variable per diem adjustment factors is 
discussed in section V.D.4. of this proposed rule. The full methodology 
used to develop CMIs is presented in section 3.11. of the SNF PDPM 
technical report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html).

                           Table 21--Proposed PT and OT Case-Mix Classification Groups
----------------------------------------------------------------------------------------------------------------
                                                    Section GG    PT OT case-mix    PT case-mix     OT case-mix
                Clinical category                 function score       group           index           index
----------------------------------------------------------------------------------------------------------------
Major Joint Replacement or Spinal Surgery.......             0-5              TA            1.53            1.49
Major Joint Replacement or Spinal Surgery.......             6-9              TB            1.69            1.63
Major Joint Replacement or Spinal Surgery.......           10-23              TC            1.88            1.68
Major Joint Replacement or Spinal Surgery.......              24              TD            1.92            1.53
Other Orthopedic................................             0-5              TE            1.42            1.41
Other Orthopedic................................             6-9              TF            1.61            1.59
Other Orthopedic................................           10-23              TG            1.67            1.64
Other Orthopedic................................              24              TH            1.16            1.15
Medical Management..............................             0-5              TI            1.13            1.17
Medical Management..............................             6-9              TJ            1.42            1.44
Medical Management..............................           10-23              TK            1.52            1.54
Medical Management..............................              24              TL            1.09            1.11
Non-Orthopedic Surgery and Acute Neurologic.....             0-5              TM            1.27            1.30
Non-Orthopedic Surgery and Acute Neurologic.....             6-9              TN            1.48            1.49
Non-Orthopedic Surgery and Acute Neurologic.....           10-23              TO            1.55            1.55
Non-Orthopedic Surgery and Acute Neurologic.....              24              TP            1.08            1.09
----------------------------------------------------------------------------------------------------------------

    Under the proposed PDPM, all residents would be classified into one 
and only one of these 16 PT and OT case-mix groups for each of the two 
components. As opposed to the RUG-IV system that determines therapy 
payments based only on the amount of therapy provided, these groups 
classify residents based on the two resident characteristics shown to 
be most predictive of PT and OT utilization: Clinical category and 
function score. Thus, we believe that the PT and OT case-mix groups 
better reflect relative resource use of clinically relevant resident 
subpopulations and therefore provide for more appropriate payment under 
the SNF PPS. We invite comments on the approach we are proposing above 
to classify residents for PT and OT payment.
c. Proposed Speech-Language Pathology Case-Mix Classification
    As discussed above, many of the resident characteristics that we 
found to be predictive of increased PT and OT costs were predictive of 
lower SLP costs. As a result of this inverse relationship, using the 
same set of predictors to case-mix adjust all three therapy components 
would obscure important differences in variables predicting variation 
in costs across therapy disciplines and make any model that attempts to 
predict total therapy costs inherently less accurate. Therefore, we 
believe it is appropriate to have a separately adjusted case-mix SLP 
component that is specifically designed to predict relative differences 
in SLP costs. As discussed in the prior section, costs derived from the 
charges on claims and CCRs on facility cost reports were used as the 
measure of resource use to develop an alternative payment model. Costs 
are reflective of therapy utilization as they are correlated to therapy 
minutes recorded for each therapy discipline.
    Following the same methodology we used to identify predictors of PT 
and OT costs, our project team conducted cost regressions with a host 
of variables from the MDS assessment, prior inpatient claims, and SNF 
claims that were identified as likely to be predictive of relative 
increases in SLP costs. The variables were selected with the goal of 
being as inclusive of the measures recorded on the MDS assessment as 
possible and also included diagnostic information from the prior 
inpatient stay. The selection process also incorporated clinical input 
from TEP panelists, the contractor's clinical staff, and CMS clinical 
staff. These initial costs regressions were exploratory and meant to 
identify a broad set of resident characteristics that are predictive of 
SLP resource utilization. The results were used to inform which 
variables should be investigated further and ultimately included in the 
payment system. A table of all of the variables considered in this 
analysis appears in the appendix of the SNF PMR technical report that 
accompanied the ANPRM (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html).
    Based on these cost regressions, we identified a set of three 
categories of predictors relevant in predicting relative differences in 
SLP costs: Clinical reasons for the SNF stay, presence of a swallowing 
disorder or mechanically-altered diet, and the presence of an SLP-
related comorbidity or cognitive impairment. A model using these 
predictors to predict SLP costs per day accounted for 14.5 percent of 
the variation in SLP costs per day, while a very extensive model using 
1,016 resident characteristics only predicted 19.3 percent of the 
variation. This shows that these predictors alone explain a large share 
of the variation in SLP costs per day that can be explained with 
resident characteristics.
    As with the proposed PT and OT components, we began with the set of 
clinical categories identified in Table 14 meant to capture general 
differences in resident resource utilization and ran cost regressions 
to determine which categories may be predictive of generally higher 
relative SLP costs. Through this analysis, we found that one clinical 
category, the Acute Neurologic group, was particularly predictive of 
increased SLP costs. More detail on this investigation can be found in 
section 3.5.2. of the SNF PMR

[[Page 21050]]

technical report that accompanied the ANPRM, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html. Therefore, to determine the initial resident 
classification into an SLP group under the proposed PDPM, residents 
would first be categorized into one of two groups using the clinical 
reasons for the resident's SNF stay recorded on the first line of Item 
I8000 on the MDS assessment: Either the ``Acute Neurologic'' clinical 
category or a ``Non-Neurologic'' group that includes the remaining 
clinical categories in Table 14 (Major Joint Replacement or Spinal 
Surgery; Non-Surgical Orthopedic/Musculoskeletal; Orthopedic Surgery 
(Except Major Joint Replacement or Spinal Surgery); Acute Infections; 
Cancer; Pulmonary; Non-Orthopedic Surgery; Cardiovascular and 
Coagulations; and Medical Management).
    In addition to the clinical reason for the SNF stay, based on cost 
regressions and feedback from TEP panelists, we also identified the 
presence of a swallowing disorder or a mechanically-altered diet (which 
refers to food that has been altered to make it easier for the resident 
to chew and swallow to address a specific resident need) as a predictor 
of relative increases in SLP costs. First, residents who exhibited the 
signs and symptoms of a swallowing disorder, as identified using K0100Z 
on the MDS 3.0, demonstrated significantly higher SLP costs than those 
who did not exhibit such signs and symptoms. Therefore, we considered 
including the presence of a swallowing disorder as a component in 
predicting SLP costs. However, when this information was presented 
during the October 2016 TEP, stakeholders indicated that the signs and 
symptoms of a swallowing disorder may not be as readily observed when a 
resident is on a mechanically-altered diet and requested that we also 
consider evaluating the presence of a mechanically-altered diet, as 
determined by item K0510C2 on the MDS 3.0, as an additional predictor 
of increased SLP costs. Our project team conducted this analysis and 
found that there was an associated increase in SLP costs when a 
mechanically-altered diet was present. Moreover, this analysis revealed 
that while SLP costs may increase when either a swallowing disorder or 
mechanically-altered diet is present, resident SLP costs increased even 
more when both of these items were present. More detail on this 
investigation and these analyses can be found in section 3.5.3. of the 
SNF PDPM technical report, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html. As a 
result, we agree with the stakeholders that both swallowing disorder 
and mechanically-altered diet are important components of predicting 
relative increases in resident SLP costs, and thus, in addition to the 
clinical categorization, we propose classifying residents as having 
either a swallowing disorder, being on a mechanically altered diet, 
both, or neither for the purpose of classifying the resident under the 
SLP component. We note that we do plan to monitor specifically for any 
increases in the use of mechanically altered diet among the SNF 
population that may suggest that beneficiaries are being prescribed 
such a diet based on facility financial considerations, rather than for 
clinical need.
    As a final aspect of the proposed SLP component case-mix 
adjustment, we explored how SLP costs vary according to cognitive 
status and the presence of an SLP-related comorbidity. We observed that 
SLP costs were notably higher for residents who had a mild to severe 
cognitive impairment (as defined by the PDPM cognitive measure 
methodology described in Table 20) or who had an SLP-related 
comorbidity present. For each condition or service included as an SLP-
related comorbidity, the presence of the condition or service was 
associated with at least a 43 percent increase in average SLP costs per 
day. The presence of a mild to severe cognitive impairment was 
associated with at least a 100 percent increase in average SLP costs 
per day. Similar to the analysis conducted in relation to the PT and OT 
components, the project team ran cost regressions on a broad list of 
possible conditions. Based on that analysis, and in consultation with 
stakeholders during our TEPs and clinicians, we identified the 
conditions listed in Table 22 as SLP-related comorbidities which we 
believe best predict relative differences in SLP costs. We used 
diagnosis codes on the most recent inpatient claim and the first SNF 
claim as well as MDS items on the 5-day assessment for each SNF stay to 
identify these diagnoses and found that residents with these conditions 
had much higher SLP costs per day. Rather than accounting for each SLP-
related comorbidity separately, all conditions were combined into a 
single flag. If the resident has at least one SLP-related comorbidity, 
the combined flag is turned on. We combined all SLP-related 
comorbidities into a single flag because we found that the predictive 
ability of including a combined SLP comorbidity flag is comparable to 
the predictive ability of including each SLP-related comorbidity as an 
individual predictor. Additionally, using a combined SLP-related 
comorbidity flag greatly improves the simplicity of the payment model. 
More detail on these analyses can be found in section 3.5.1. of the SNF 
PMR technical report that accompanied the ANPRM (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html).

              Table 22--Proposed SLP-Related Comorbidities
------------------------------------------------------------------------
           Aphasia                          Laryngeal cancer
------------------------------------------------------------------------
CVA, TIA, or Stroke..........  Apraxia.
Hemiplegia or Hemiparesis....  Dysphagia.
Traumatic Brain Injury.......  ALS.
Tracheostomy Care (While a     Oral Cancers.
 Resident).
Ventilator or Respirator       Speech and Language Deficits.
 (While a Resident).
------------------------------------------------------------------------

    Once each of these variables--clinical reasons for the SNF stay, 
presence of a swallowing disorder or mechanically-altered diet, and the 
presence of an SLP-related comorbidity or cognitive impairment--found 
to be useful in predicting resident SLP costs was identified, we used 
the CART algorithm, as we discussed above in relation to the PT and OT 
components, to determine appropriate splits in SLP case-mix groups 
based on CART output breakpoints using these three variables. We then 
further refined the SLP case-mix classification groups beyond those 
produced by the CART algorithm. We used consistent criteria to group 
residents into 18 payment groups across

[[Page 21051]]

the two clinical categories determined to be relevant to SLP 
utilization (Acute Neurologic and Non-Neurologic). These groups 
simplified the SLP case-mix classification by reducing the number of 
groups while maintaining the CART predictive power in terms of R-
squared. This methodology and the results of our analysis are more 
thoroughly explained in sections 3.4.2. and 3.5.2. of the SNF PMR 
technical report that accompanied the ANPRM (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html).
    Under the original RCS-I SLP component, a resident could be 
classified into one of 18 possible case-mix groups. Comments received 
in response to the ANPRM expressed concern over the complexity of the 
payment model due to the high number of possible combinations of case-
mix groups. To reduce the number of possible SLP case-mix groups, we 
simplified the consistent splits model selected for RCS-I. To 
accomplish this, we combined clinical category (Acute Neurologic or 
Non-Neurologic), cognitive impairment, and the presence of an SLP-
related comorbidity into a single predictor due to the clinical 
relationship between acute neurologic conditions, cognition, and SLP 
comorbidities. These three predictors are highly interrelated as acute 
neurologic conditions may often result in cognitive impairment or SLP-
related comorbidities such as speech and language deficits. Using this 
combined variable along with presence of a swallowing disorder or 
mechanically-altered diet results in 12 groups. We compared the 
predictive ability of the simplified model with more complex 
classification options, including the original RCS-I SLP model. 
Regression results showed that the reduction in case-mix groups by 
collapsing independent variables had little to no effect on payment 
accuracy. Specifically, the proposed PDPM SLP model has an R-squared 
value almost identical to that of the original RCS-I SLP model, while 
reducing the number of resident groups from 18 to 12. Therefore, we 
determined that 12 case-mix groups would be necessary to classify 
residents adequately in terms of their SLP costs in a manner that 
captures sufficient variation in SLP costs without creating 
unnecessarily granular separations. More information on this analysis 
can be found in section 3.5.2. of the SNF PDPM technical report 
(available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html). We provide the criteria for each 
of these groups along with its CMI in Table 23.
    To help ensure that payment reflects the average relative resource 
use at the per diem level, CMIs would be set to reflect relative case-
mix related differences in costs across groups. This method helps 
ensure that the share of payment for each case-mix group would be equal 
to its share of total costs of the component. CMIs for the SLP 
component are calculated based on the average per diem costs of a case-
mix group relative to the population average. Relative average 
differences in costs are weighted by length of stay to account for the 
different length of stay distributions across case-mix groups (as 
further discussed in section 3.11.1. of the SNF PDPM technical report, 
available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html). In this calculation, average per 
diem costs equal total SLP costs in the group divided by number of 
utilization days in the group. Because the SLP component does not have 
a variable per diem schedule (as further discussed in section 3.9.1. of 
the SNF PDPM technical report, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html), 
variable per diem adjustment factors are not involved in SLP CMI 
calculation. A parity adjustment is then applied by multiplying the CMI 
by the ratio of case-mix-related payments in RUG-IV over estimated 
case-mix-related payments in PDPM, as further discussed in section V.J. 
of this proposed rule. This method helps ensure that the share of 
payment for each case-mix group is equal to its share of total costs of 
the component and that PDPM is budget neutral relative to RUG-IV. The 
full methodology used to develop CMIs is presented in section 3.11. of 
the SNF PDPM technical report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html).

                              Table 23--Proposed SLP Case-Mix Classification Groups
----------------------------------------------------------------------------------------------------------------
Presence of acute neurologic condition, SLP-
     related comorbidity, or cognitive           Mechanically altered diet or      SLP case-mix    SLP case-mix
                 impairment                          swallowing disorder               group           index
----------------------------------------------------------------------------------------------------------------
None.......................................  Neither............................              SA            0.68
None.......................................  Either.............................              SB            1.82
None.......................................  Both...............................              SC            2.66
Any one....................................  Neither............................              SD            1.46
Any one....................................  Either.............................              SE            2.33
Any one....................................  Both...............................              SF            2.97
Any two....................................  Neither............................              SG            2.04
Any two....................................  Either.............................              SH            2.85
Any two....................................  Both...............................              SI            3.51
All three..................................  Neither............................              SJ            2.98
All three..................................  Either.............................              SK            3.69
All three..................................  Both...............................              SL            4.19
----------------------------------------------------------------------------------------------------------------

    As with the proposed PT and OT components, all residents would be 
classified into one and only one of these 12 SLP case-mix groups under 
the proposed PDPM. As opposed to the RUG-IV system that determines 
therapy payments based only on the amount of therapy provided, under 
the proposed PDPM, residents would be classified into SLP case-mix 
groups based on resident characteristics shown to be predictive of SLP 
utilization. Thus, we believe that the proposed SLP case-mix groups 
would provide a better measure of resource use and would provide for 
more appropriate payment under the SNF PPS. We invite comments on the 
approach we are proposing above to classify residents for SLP payment 
under the proposed PDPM.
d. Proposed Nursing Case-Mix Classification
    The RUG-IV classification system first divides residents into 
``rehabilitation residents'' and ``non-rehabilitation residents'' based 
on the

[[Page 21052]]

amount of therapy a resident receives. Differences in nursing needs can 
be obscured for rehabilitation residents, where the primary driver of 
payment classification is the intensity of therapy services that a 
resident receives. For example, for two residents classified into the 
RUB RUG-IV category, which would occur on the basis of therapy 
intensity and ADL score alone, the nursing component for each of these 
residents would be multiplied by a CMI of 1.56. This reflects that 
residents in that group were found, during our previous Staff time 
measurement (STM) work, to have nursing costs 56 percent higher than 
residents with a 1.00 index. We would note that while this CMI also 
includes adjustments made in FY 2010 and FY 2012 for budget-neutrality 
purposes, what is clear is that two residents, who may have 
significantly different nursing needs, are nevertheless deemed to have 
the very same nursing costs, and SNFs would receive the same nursing 
payment for each. Given the discussion above, which noted that 
approximately 60 percent of resident days are billed using one of three 
Ultra-High Rehabilitation RUGs (two of which have the same nursing 
index), the current case-mix model effectively classifies a significant 
portion of SNF therapy residents as having exactly the same degree of 
nursing needs and requiring exactly the same amount of nursing 
resources. As such, we believe that further refinement of the case-mix 
model would be appropriate to better differentiate among patients, 
particularly those who receive therapy services with different nursing 
needs.
    An additional concern in the RUG-IV system is the use of therapy 
minutes to determine not only therapy payments but also nursing 
payments. For example, residents classified into the RUB RUG fall in 
the same ADL score range as residents classified into the RVB RUG. The 
only difference between those residents is the number of therapy 
minutes that they received. However, the difference in payment that 
results from this difference in therapy minutes impacts not only the 
RUG-IV therapy component but also the nursing component: Nursing 
payments for RUB residents are 40 percent higher than nursing payments 
for RVB residents. As a result of this feature of the RUG-IV system, 
the amount of therapy minutes provided to a resident is one of the main 
sources of variation in nursing payments, while other resident 
characteristics that may better reflect nursing needs play a more 
limited role in determining payment.
    The more nuanced and resident-centered classifications in current 
RUG-IV non-rehabilitation categories are obscured under the current 
payment model, which utilizes only a single RUG-IV category for payment 
purposes and has over 90 percent of resident days billed using a 
rehabilitation RUG. The RUG-IV non-rehabilitation groups classify 
residents based on their ADL score, the use of extensive services, the 
presence of specific clinical conditions such as depression, pneumonia, 
or septicemia, and the use of restorative nursing services, among other 
characteristics. These characteristics are associated with nursing 
utilization, and the STRIVE study accounted for relative differences in 
nursing staff time across groups. Therefore, we propose to use the 
existing RUG-IV methodology for classifying residents into non-
rehabilitation RUGs to develop a proposed nursing classification that 
helps ensure nursing payment reflects expected nursing utilization 
rather than therapy utilization.
    For example, consider two residents. The first patient classifies 
into the RUB rehabilitation RUG (on the basis of the resident's therapy 
minutes) and into the CC1 non-rehabilitation RUG (on the basis of 
having pneumonia), while the second classifies into the RUB 
rehabilitation RUG (on the basis of the resident's therapy minutes) and 
the HC1 non-rehabilitation RUG (on the basis of the resident having 
quadriplegia and a high ADL score). Under the current RUG-IV based 
payment model, the billing for both residents would utilize only the 
RUB rehabilitation RUG, despite clear differences in their associated 
nursing needs and resident characteristics. We propose an approach 
where, for the purpose of determining payment under the nursing 
component, the first resident would be classified into CC1, while the 
second would be classified into HC1 under the PDPM. We believe that 
classifying the residents in this manner for payment purposes would 
capture variation in nursing costs in a more accurate and granular way 
than relying on the rehabilitation RUG's nursing CMI.
    While resident classification in the proposed PDPM nursing 
component is guided by RUG-IV methodology, we propose to make several 
modifications to the RUG-IV nursing RUGs and classification methodology 
under the proposed PDPM. First, the proposed PDPM would reduce the 
number of nursing RUGs by decreasing distinctions based on function. 
Under RUG-IV, residents with a serious medical condition/service such 
as septicemia or respiratory therapy are classified into one of eight 
nursing RUGs in the Special Care High category. The specific RUG into 
which a resident is placed depends on the resident's ADL score and 
whether the resident is depressed. RUG-IV groups ADL score into bins 
for simplicity (for example, 2-5 and 6-10). For example, under RUG-IV, 
a resident in the Special Care High category who has depression and an 
ADL score of 3 would fall into the 2-5 ADL score bin and therefore be 
classified into the HB2 RUG, which corresponds to Special Care High 
residents with depression and an ADL score between 2 and 5 (a mapping 
of clinical traits and ADL score to RUG-IV nursing groups is shown in 
the appendix of the SNF PDPM technical report, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html). To explore options to reduce the number of 
nursing RUGs, we compared average nursing utilization across all 43 
RUG-IV nursing RUGs. The dependent variable used in this investigation 
was the average wage-weighted staff time (WWST) for each nursing RUG 
from the STRIVE study. WWST is a measure of nursing resource 
utilization used in the STRIVE study. As discussed in more detail in 
section 3.2.1. of the PDPM technical report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html), we were unable to construct a measure of nursing 
utilization based on current data because facilities do not report 
resident-specific nursing costs. We observed that nursing resource use 
as measured by WWST does not vary markedly between nursing case-mix 
groups defined by contiguous ADL score bins (for example, 11-14 and 15-
16) but otherwise sharing the same clinical traits (for example, 
classified into Special Care High and depressed). This suggests that 
collapsing contiguous ADL score bins for RUGs that are otherwise 
defined by the same set of clinical traits is unlikely to notably 
affect payment accuracy. Section 3.6.1. of the SNF PDPM technical 
report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html) provides more detail on 
this analysis.
    In the Special Care High, Special Care Low, Clinically Complex, and 
Reduced Physical Function classification groups (RUGs beginning with H, 
L, C, or P), for nursing groups that were otherwise defined with the 
same clinical traits (for example, extensive services, medical 
conditions, depression, restorative nursing services received), we 
propose to combine the following pairs of second characters due to 
their

[[Page 21053]]

contiguous ADL score bins: (E, D) and (C, B). These characters 
correspond to ADL score bins (15 to 16, 11 to 14) and (6 to 10, 2 to 
5), respectively. We observed that nursing utilization did not vary 
notably across these contiguous ADL score bins, therefore we believe it 
is appropriate to collapse pairs of RUGs in these classification groups 
that correspond to contiguous ADL score bins but are otherwise defined 
by the same clinical traits. For example, HE2 and HD2, which are both 
in the Special Care High group and both indicate the presence of 
depression, would be collapsed into a single nursing case-mix group. 
Similarly, PC1 and PB1 (Reduced Physical Function and 0 to 1 
restorative nursing services) also would be combined into a single 
nursing case-mix group. Section 3.6.1. of the SNF PDPM technical report 
(available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html) provides more detail on this 
analysis. In the Behavioral and Cognitive Performance classification 
group (RUGs beginning with B), for RUGs that are otherwise defined by 
the same number of restorative nursing services (0 to1 or 2 or more), 
we propose to combine RUGs with the second character B and A, which 
correspond to contiguous ADL score bins 2 to 5 and 0 to 1, 
respectively. We observed that nursing utilization did not vary notably 
across these contiguous ADL score bins, therefore we believe it is 
appropriate to collapse pairs of RUGs in this classification group that 
correspond to contiguous ADL score bins but are otherwise defined by 
the same clinical traits. In other words, BB2 and BA2 would be combined 
into a single nursing group, and BB1 and BA1 would also be combined 
into a single nursing group. Section 3.6.1. of the SNF PDPM technical 
report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html) provides more detail on 
this analysis. The proposed PDPM would maintain CA1, CA2, PA1, and PA2 
as separate case-mix groups. We observed that these RUGs do not share 
similar levels of nursing resource use with RUGs in adjacent ADL score 
bins that are otherwise defined by the same clinical traits (for 
example, medical conditions, depression, restorative nursing services 
received). Rather, CA1, CA2, PA1, and PA2 are associated with 
distinctly lower nursing utilization compared to RUGs that otherwise 
have the same clinical traits (for example, medical conditions, 
depression, restorative nursing services received) but higher ADL score 
bins. Section 3.6.1. of the SNF PDPM technical report (available at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html) provides more detail on this analysis. ES3, ES2, 
and ES1 also would be maintained as separate case-mix groups under the 
nursing component of the proposed PDPM because, although they are 
defined by the same ADL score bin, they are defined by different 
clinical traits unlike the pairs of RUGs that were combined. 
Specifically, ES3, ES2, and ES1 are defined by different combinations 
of extensive services. We believe that collapsing case-mix groups based 
on ADL score for the RUGs specified above would reduce model complexity 
by decreasing the number of nursing case-mix groups from 43 to 25, 
which thereby decreases the total number of possible combinations of 
case-mix groups under the proposed PDPM. Table 26 shows the proposed 25 
case-mix groups for nursing payment. Section 3.6.1. of the SNF PDPM 
technical report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html) provides more 
detail on the analyses and data supporting these proposals.
    The second modification to the RUG-IV nursing classification 
methodology would update the nursing ADL score to incorporate section 
GG items. Currently, the RUG-IV ADL score is based on four late-loss 
items from section G of MDS 3.0: Eating, toileting, transfer, and bed 
mobility. Under the proposed PDPM, these section G items would be 
replaced with an eating item, a toileting item, three transfer items, 
and two bed mobility items from the admission performance assessment of 
section GG. In contrast to the RUG-IV ADL score, the proposed PDPM 
score assigns higher points to higher levels of independence. 
Therefore, an ADL score of 0 (independent) corresponds to a section GG-
based function score of 16, while an ADL score of 16 (dependent) 
corresponds to a section GG-based function score of 0. This scoring 
methodology is consistent with the proposed PDPM PT and OT function 
score as well as functional scores in other care settings, such as the 
IRF PPS. The proposed nursing scoring methodology also assigns 0 points 
when an activity cannot be completed (``Resident refused,'' ``Not 
applicable,'' ``Not attempted due to medical condition or safety 
concerns''). As described in section V.D.3.c. (PT and OT Case-Mix 
Classification) of this proposed rule, grouping these responses with 
``dependent'' aligns with clinical expectations of resource utilization 
for residents who cannot complete an ADL activity. The proposed scoring 
methodology is shown in Table 24. As discussed in section V.D.3.c., 
section GG measures functional areas with more than one item, which 
results in substantial overlap between the two bed mobility items and 
the three transfer items. To address overlap, we propose to calculate 
an average score for each of these related items. That is, we would 
average the scores for the two bed mobility items and for the three 
transfer items. This averaging approach is also used in the proposed PT 
and OT function scores and is illustrated in Table 25. The final score 
sums the average bed mobility and transfer scores with eating and 
toileting scores, resulting in a nursing function score that ranges 
from 0 to 16.

                             Table 24--Proposed Nursing Function Score Construction
----------------------------------------------------------------------------------------------------------------
                                                                            Response                 ADL Score
----------------------------------------------------------------------------------------------------------------
05, 06........................................................  Set-up assistance, Independent..               4
04............................................................  Supervision or touching                        3
                                                                 assistance.
03............................................................  Partial/moderate assistance.....               2
02............................................................  Substantial/maximal assistance..               1
01, 07, 09, 88................................................  Dependent, Refused, N/A, Not                   0
                                                                 Attempted.
----------------------------------------------------------------------------------------------------------------


   Table 25--Section GG Items Included in Proposed Nursing Functional
                                 Measure
------------------------------------------------------------------------
                                    Section GG Item         ADL Score
------------------------------------------------------------------------
GG0130A1......................  Self-care: Eating.....  0-4

[[Page 21054]]

 
GG0130C1......................  Self-care: Toileting    0-4
                                 Hygiene.
GG0170B1......................  Mobility: Sit to lying  0-4 (average of
                                                         2 items).
GG0170C1......................  Mobility: Lying to
                                 sitting on side of
                                 bed.
GG0170D1......................  Mobility: Sit to stand  0-4 (average of
                                                         3 items).
GG0170E1......................  Mobility: Chair/bed-to-
                                 chair transfer.
GG0170F1......................  Mobility: Toilet
                                 transfer.
------------------------------------------------------------------------

    In addition to proposing to replace the nursing ADL score with a 
function score based on section GG items and to collapse certain 
nursing RUGs, we also propose to update the existing nursing CMIs using 
the STRIVE staff time measurement data that were originally used to 
create these indexes. Under the current payment system, non-
rehabilitation nursing indexes were calculated to capture variation in 
nursing utilization by using only the staff time collected for the non-
rehabilitation population. We believe that, to provide a more accurate 
reflection of the relative nursing resource needs of the SNF 
population, the nursing indexes should reflect nursing utilization for 
all residents. To accomplish this, we replicated the methodology 
described in the FY 2010 SNF PPS rule (74 FR 22236 through 22238) but 
classified the full STRIVE study population under non-rehabilitation 
RUGs using the RUG-IV classification rules. The methodology for 
updating resource use estimates for each nursing RUG proceeded 
according to the following steps:
    (1) Calculate average wage-weighted staff time (WWST) for each 
STRIVE study resident using FY 2015 SNF wages.
    (2) Assign the full STRIVE population to the appropriate non-
rehabilitation RUG.
    (3) Apply sample weights to WWST estimates to allow for unbiased 
population estimates. The reason for this weighting is that the STRIVE 
study was not a random sample of residents. Certain key subpopulations, 
such as residents with HIV/AIDS, were over-sampled to ensure that there 
were enough residents to draw conclusions on the subpopulations' 
resource use. As a result, STRIVE researchers also developed sample 
weights, equal to the inverse of each resident's probability of 
selection, to permit calculation of unbiased population estimates. 
Applying the sample weights to a summary statistic results in an 
estimate that is representative of the actual population. The sample 
weight method is explained in Phase I of the STRIVE study. A link to 
the STRIVE study is available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/TimeStudy.html.
    (4) Smooth WWST estimates that do not match RUG hierarchy in the 
same manner as the STRIVE study. RUG-IV, from which the nursing RUGs 
are derived, is a hierarchical classification in which payment should 
track clinical acuity. It is intended that residents who are more 
clinically complex or who have other indicators of acuity, including a 
higher ADL score, depression, or restorative nursing services, would 
receive higher payment. When STRIVE researchers estimated WWST for each 
RUG, several inversions occurred because of imprecision in the means. 
These are defined as WWST estimates that are not in line with clinical 
expectations. The methodology used to smooth WWST estimates is 
explained in Phase II of the STRIVE study. A link to the STRIVE study 
is available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/TimeStudy.html.
    (5) Calculate nursing indexes, which reflect the average WWST for 
each of the 25 nursing case-mix groups divided by the average WWST for 
the study population used throughout our research. To impute WWST for 
each stay in the population, we assigned each resident the average WWST 
of the collapsed nursing RUG into which they are categorized. To derive 
the average WWST of each collapsed RUG, we first estimate the average 
WWST of the original 43 nursing RUGs based on steps 1 through 4 above, 
then calculate a weighted mean of the average WWST of the two RUGs that 
form the collapsed RUG. More details on this analysis can be found in 
section 3.6.3. of the SNF PDPM technical report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html).
    Through this refinement, we believe the nursing indexes under the 
proposed PDPM better reflect the varied nursing resource needs of the 
full SNF population. In Table 26, we provide the nursing indexes under 
the proposed PDPM.
    To help ensure that payment reflects the average relative resource 
use at the per diem level, nursing CMIs would be set to reflect case-
mix related relative differences in WWST across groups. Nursing CMIs 
would be calculated based on the average per diem nursing WWST of a 
case-mix group relative to the population average. In this calculation, 
average per diem WWST equals total WWST in the group divided by number 
of utilization days in the group. Because the nursing component does 
not have a variable per diem schedule (as further discussed in section 
3.9.1. of the SNF PDPM technical report, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html), variable per diem adjustment factors are not 
involved in nursing CMI calculation. We then apply a parity adjustment 
by multiplying the CMI by the ratio of case-mix-related payments in 
RUG-IV over estimated case-mix-related payments in PDPM, as discussed 
further in section V.J. of this proposed rule. The full methodology 
used to develop CMIs is presented in section 3.11. of the SNF PDPM 
technical report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html).

                                       Table 26--Proposed Nursing Indexes Under Proposed PDPM Classification Model
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                       PDPM
                                                                                                          Number of       GG-based   nursing    Nursing
 RUG-IV nursing RUG           Extensive services            Clinical conditions      Depression          restorative      function   case-mix   case-mix
                                                                                                      nursing services     score      group      index
--------------------------------------------------------------------------------------------------------------------------------------------------------
ES3................  Tracheostomy & Ventilator...........  ....................  ..................  ..................       0-14        ES3       4.04

[[Page 21055]]

 
ES2................  Tracheostomy or Ventilator..........  ....................  ..................  ..................       0-14        ES2       3.06
ES1................  Infection...........................  ....................  ..................  ..................       0-14        ES1       2.91
HE2/HD2............  ....................................  Serious medical       Yes...............  ..................        0-5       HDE2       2.39
                                                            conditions e.g.
                                                            comatose,
                                                            septicemia,
                                                            respiratory therapy.
HE1/HD1............  ....................................  Serious medical       No................  ..................        0-5       HDE1       1.99
                                                            conditions e.g.
                                                            comatose,
                                                            septicemia,
                                                            respiratory therapy.
HC2/HB2............  ....................................  Serious medical       Yes...............  ..................       6-14       HBC2       2.23
                                                            conditions e.g.
                                                            comatose,
                                                            septicemia,
                                                            respiratory therapy.
HC1/HB1............  ....................................  Serious medical       No................  ..................       6-14       HBC1       1.85
                                                            conditions e.g.
                                                            comatose,
                                                            septicemia,
                                                            respiratory therapy.
LE2/LD2............  ....................................  Serious medical       Yes...............  ..................        0-5       LDE2       2.07
                                                            conditions e.g.
                                                            radiation therapy
                                                            or dialysis.
LE1/LD1............  ....................................  Serious medical       No................  ..................        0-5       LDE1       1.72
                                                            conditions e.g.
                                                            radiation therapy
                                                            or dialysis.
LC2/LB2............  ....................................  Serious medical       Yes...............  ..................       6-14       LBC2       1.71
                                                            conditions e.g.
                                                            radiation therapy
                                                            or dialysis.
LC1/LB1............  ....................................  Serious medical       No................  ..................       6-14       LBC1       1.43
                                                            conditions e.g.
                                                            radiation therapy
                                                            or dialysis.
CE2/CD2............  ....................................  Conditions requiring  Yes...............  ..................        0-5       CDE2       1.86
                                                            complex medical
                                                            care e.g.
                                                            pneumonia, surgical
                                                            wounds, burns.
CE1/CD1............  ....................................  Conditions requiring  No................  ..................        0-5       CDE1       1.62
                                                            complex medical
                                                            care e.g.
                                                            pneumonia, surgical
                                                            wounds, burns.
CC2/CB2............  ....................................  Conditions requiring  Yes...............  ..................       6-14       CBC2       1.54
                                                            complex medical
                                                            care e.g.
                                                            pneumonia, surgical
                                                            wounds, burns.
CA2................  ....................................  Conditions requiring  Yes...............  ..................      15-16        CA2       1.08
                                                            complex medical
                                                            care e.g.
                                                            pneumonia, surgical
                                                            wounds, burns.
CC1/CB1............  ....................................  Conditions requiring  No................  ..................       6-14       CBC1       1.34
                                                            complex medical
                                                            care e.g.
                                                            pneumonia, surgical
                                                            wounds, burns.
CA1................  ....................................  Conditions requiring  No................  ..................      15-16        CA1       0.94
                                                            complex medical
                                                            care e.g.
                                                            pneumonia, surgical
                                                            wounds, burns.
BB2/BA2............  ....................................  Behavioral or         ..................  2 or more.........      11-16       BAB2       1.04
                                                            cognitive symptoms.
BB1/BA1............  ....................................  Behavioral or         ..................  0-1...............      11-16       BAB1       0.99
                                                            cognitive symptoms.
PE2/PD2............  ....................................  Assistance with       ..................  2 or more.........        0-5       PDE2       1.57
                                                            daily living and
                                                            general supervision.
PE1/PD1............  ....................................  Assistance with       ..................  0-1...............        0-5       PDE1       1.47
                                                            daily living and
                                                            general supervision.
PC2/PB2............  ....................................  Assistance with       ..................  2 or more.........       6-14       PBC2       1.21
                                                            daily living and
                                                            general supervision.
PA2................  ....................................  Assistance with       ..................  2 or more.........      15-16        PA2       0.70
                                                            daily living and
                                                            general supervision.
PC1/PB1............  ....................................  Assistance with       ..................  0-1...............       6-14       PBC1       1.13
                                                            daily living and
                                                            general supervision.
PA1................  ....................................  Assistance with       ..................  0-1...............      15-16        PA1       0.66
                                                            daily living and
                                                            general supervision.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As with the previously discussed components, all residents would be 
classified into one and only one of these 25 nursing case-mix groups 
under the proposed PDPM.
    We also used the STRIVE data to quantify the effects of an HIV/AIDS 
diagnosis on nursing resource use. We controlled for case mix by 
including the proposed PDPM resident groups (in this case, the nursing 
RUGs) as independent variables. The results show that even after 
controlling for nursing RUG, HIV/AIDS status is associated with a 
positive and significant increase in nursing utilization. Based on the 
results of regression analyses, we found that wage-weighted nursing 
staff time is 18 percent higher for residents with HIV/AIDS. (The 
estimate of average wage-weighted nursing staff time for the SNF 
population is adjusted to account for the deliberate over-sampling of 
certain sub-populations in the STRIVE study. Specifically, we apply 
sample weights from the STRIVE dataset equal to the inverse of each 
resident's probability of selection to permit calculation of an 
unbiased estimate.) Based on these findings, we concluded that the 
proposed PDPM nursing groups may not fully capture the additional 
nursing costs associated with HIV/AIDS residents. More information on 
this analysis can be found in section 3.8.2. of the SNF PDPM technical 
report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html). Thus, as part of the 
case-mix adjustment of the nursing component, we are proposing an 18 
percent increase in payment for the nursing component for residents 
with HIV/AIDS. This adjustment would be applied based on the presence 
of ICD-10-CM code B20 on the SNF claim. In cases where a resident is 
coded as having this diagnosis, the nursing component per diem rate for 
this resident would be multiplied by 1.18, to account for the 18 
percent increase in nursing costs for residents with this diagnosis. We 
discuss this proposal, as well as its relation to the existing AIDS 
add-on payment under RUG-IV, in section V.I. of this proposed rule.
    We invite comments on the approach we are proposing above to 
classify residents for nursing payment under the proposed PDPM.
e. Proposed Non-Therapy Ancillary Case-Mix Classification
    Under the current SNF PPS, payments for NTA costs incurred by SNFs 
are incorporated into the nursing component. This means that the CMIs 
used to adjust the nursing component of the SNF PPS are intended to 
reflect not only differences in nursing resource use but also NTA 
costs. However, there have been concerns that the current nursing CMIs 
do not accurately reflect the basis for or the magnitude of relative 
differences in resident NTA costs. In its March 2016 Report to 
Congress, MedPAC wrote: ``Almost since its inception, the SNF PPS has 
been criticized for encouraging the provision of unnecessary 
rehabilitation therapy services and not accurately targeting payments 
for nontherapy ancillary (NTA) services such as drugs (Government 
Accountability Office 2002, Government Accountability Office 1999, 
White et al. 2002)'' (available at http://medpac.gov/docs/default-
source/reports/chapter-7-skilled-nursing-

[[Page 21056]]

facility-services-march-2016-report-.pdf). While the proposed PT, OT, 
and SLP components were designed to address the issue related to 
provision of therapy services raised by MedPAC above, the proposed NTA 
component discussed in this section was designed to address the issue 
related to accurately targeting payments for NTA services--
specifically, that the current manner of using the RUG-IV case-mix 
system to determine NTA payment levels inadequately adjusts for 
relative differences in resident NTA costs.
    As noted in the quotation from MedPAC above, MedPAC is not the only 
group to offer this critique of the SNF PPS. Just as the aforementioned 
criticisms that MedPAC cited have existed almost since the inception of 
the SNF PPS itself, ideas for addressing this concern have a similarly 
long history. In response to comments on the 1998 interim final rule 
which served to establish the SNF PPS, we published a final rule on 
July 30, 1999 (64 FR 41644). In this final rule, we acknowledged the 
commenters' concerns about the new system's ability to account 
accurately for NTA costs, such as the following:

    There were a number of comments expressing concern with the 
adequacy of the PPS rates to cover the costs of ancillary services 
other than occupational, physical, and speech therapy (non-therapy 
ancillaries), including such things as drugs, laboratory services, 
respiratory therapy, and medical supplies. Prescription drugs or 
medication therapy were frequently noted areas of concern due to 
their potentially high cost for particular residents. Some 
commenters suggested that the RUG-III case-mix classification 
methodology does not adequately provide for payments that account 
for the variation in, or the real costs of, these services provided 
to their residents. (64 FR 41647)

    In response to those comments, we stated that ``we are funding 
substantial research to examine the potential for refinements to the 
case-mix methodology, including an examination of medication therapy, 
medically complex patients, and other nontherapy ancillary services'' 
(64 FR 41648). In this proposed rule, we are proposing a methodology 
that we believe would case-mix adjust SNF PPS payments more 
appropriately to reflect differences in NTA costs.
    Following the same methodology we used for the proposed PT, OT, and 
SLP components, the project team ran cost regression models to 
determine which resident characteristics may be predictive of relative 
increases in NTA costs. The three categories of cost-related resident 
characteristics identified through this analysis were resident 
comorbidities, the use of extensive services (services provided to 
residents that are particularly expensive and/or invasive), and 
resident age. However, we removed age from further consideration as 
part of the NTA component based on concerns shared by TEP panelists 
during the June 2016 TEP. Particularly, some panelists expressed 
concern that including age as a determinant of NTA payment could create 
access issues for older populations. Additionally, the CART algorithm 
used to explore potential resident groups for the NTA component only 
selected age as a determinant of classification for 2 of the 7 groups 
created. We also tested a classification option that used age as a 
determinant of classification for every NTA group. This only led to a 5 
percent increase in the R-squared value of the NTA classification. More 
information on these analyses can be found in section 3.7.1. of the SNF 
PMR technical report available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.
    With regard to capturing comorbidities and extensive services 
associated with high NTA utilization, we used multiple years of data 
(FY 2014 to FY 2017) to estimate the impact of comorbidities and 
extensive services on NTA costs. This is in response to comments on the 
ANPRM that the design of the NTA component should be more robust and 
remain applicable in light of potential changes in the SNF population 
and care practices over time. Conditions and services were defined in 
three ways. First, clinicians identified MDS items that correspond to 
conditions/extensive services likely related to NTA utilization. 
However, since many conditions/extensive services related to NTA 
utilization are not included on the MDS assessment, we then mapped ICD-
10 diagnosis codes from the prior inpatient claim, the first SNF claim, 
and section I8000 of the 5-day MDS assessment to condition categories 
from the Part C risk adjustment model (CCs) and the Part D risk 
adjustment model (RxCCs). The CCs and RxCCs define conditions by 
aggregating related diagnosis codes into a single condition flag. We 
use the condition flags defined by the CCs and RxCCs to predict Part A 
and B expenditures or Part D expenditures, respectively for Medicare 
beneficiaries. The predicted relationship between the conditions 
defined in the respective models and Medicare expenditures is then used 
to risk-adjust capitated payments to Part C and Part D sponsors. 
Similarly, our comorbidities investigation aimed to use a comprehensive 
list of conditions and services to predict resource utilization for 
beneficiaries in Part A-covered SNF stays. Ultimately, the predicted 
relationship between these conditions/services and utilization of NTA 
services would be used to case-mix adjust payments to SNF providers, in 
a process similar to risk adjustment of capitated payments. Given these 
similarities, we decided to use the diagnosis-defined conditions from 
the Part C and Part D risk adjustment models to define conditions and 
services that were not defined on the MDS. Because the CCs were 
developed to predict utilization of Part A and B services, while the 
RxCCs were developed to predict Part D drug costs, the largest 
component of NTA costs, we believe that using both sources allows us to 
define the conditions and services potentially associated with NTA 
utilization more comprehensively. Lastly, we used ICD-10 diagnosis 
codes to define additional conditions that clinicians who advised CMS 
during PDPM development identified as being potentially associated with 
increased NTA service utilization but are not fully reflected in either 
the MDS or the CCs/RxCCs. The resulting list was meant to encompass as 
many diverse and expensive conditions and extensive services as 
possible from the MDS assessment, the CCs, the RxCCs, and diagnoses. 
Using cost regressions, we found that certain comorbidity conditions 
and extensive services were highly predictive of relative differences 
in resident NTA costs. These conditions and services are identified in 
Table 27. More information on this analysis can be found in section 
3.7.1. of the SNF PDPM technical report available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html. We would note that certain conditions that were 
associated with higher NTA utilization were nevertheless excluded from 
the list because of clinical concerns. Esophageal reflux was excluded 
because it is a very common condition in the SNF population and 
clinicians noted that coding can be discretionary. Migraine headache 
was also excluded due to clinicians' concerns about coding reliability. 
Additionally, clinicians stated that in many cases migraine headache is 
not treated by medication, the largest component of NTA costs.
    Having identified the list of relevant conditions and services for 
adjusting NTA payments, we considered different options for how to 
capture the variation

[[Page 21057]]

in NTA costs explained by these identified conditions and services. One 
such method would be merely to count the number of comorbidities and 
services a resident receives and assign a score to that resident based 
on this count. We found that this option accounts for the additive 
effect of having multiple comorbidities and extensive services but did 
not adequately reflect the relative differences in the impact of 
certain higher-cost conditions and services. We also considered a tier 
system similar to the one used in the IRF PPS, where SNF residents 
would be placed into payment tiers based on the costliest comorbidity 
or extensive service. However, we found that this option did not 
account for the additive effect noted above. To address both of these 
issues, we propose basing a resident's NTA score, which would be used 
to classify the resident into an NTA case-mix classification group, on 
a weighted-count methodology. Specifically, as shown in Table 27, each 
of the comorbidities and services that factor into a resident's NTA 
classification is assigned a certain number of points based on its 
relative impact on a resident's NTA costs. Those conditions and 
services with a greater impact on NTA costs are assigned more points, 
while those with less of an impact are assigned fewer points. The 
relative impacts are estimated based the coefficients of an ordinary 
least squares (OLS) regression that used the selected conditions and 
extensive services to predict NTA costs per day. Points are assigned by 
grouping together conditions and extensive services with similar OLS 
regression estimates. More information on this methodology and analysis 
can be found in section 3.7.1. of the SNF PDPM technical report 
available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html. The effect of this methodology is 
that the NTA component would adequately reflect relative differences in 
the NTA costs for each condition or service as well as the additive 
effect of having multiple comorbidities.
    A resident's total comorbidity score, which would be the sum of the 
points associated with all of a resident's comorbidities and services, 
would be used to classify the resident into an NTA case-mix group. For 
conditions and services where the source is indicated as MDS item 
I8000, section 3.7.1. of the SNF PDPM technical report (available at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html) provides a crosswalk between the listed condition 
and the ICD-10-CM codes which may be coded to qualify that condition to 
serve as part of the resident's NTA classification. MDS item I8000 is 
an open-ended item in the MDS assessment where the assessment provider 
can fill in additional active diagnoses that are not explicitly on the 
MDS for the resident in the form of ICD-10 codes . In the case of 
Parenteral/IV Feeding, we observed that NTA costs per day increase as 
the amount of intake through parenteral or tube feeding increases. For 
this reason, we propose to separate this item into a high intensity 
item and a low intensity item, similar to how it is defined in the RUG-
IV system. In order for a resident to qualify for the high intensity 
category, the percent of calories taken in by the resident by 
parenteral or tube feeding, as reported in item K0710A2 on the MDS 3.0, 
must be greater than 50 percent. In order to qualify for the low 
intensity category, the percent of calories taken in by the resident by 
parenteral or tube feeding, as reported in item K0710A2 on the MDS 3.0, 
must be greater than 25 percent but less than or equal to 50 percent, 
and the resident must receive an average fluid intake by IV or tube 
feeding of at least 501cc per day, as reported in item K0710B2 of the 
MDS 3.0.
    We also want to note that the source of the HIV/AIDS diagnosis is 
listed as the SNF claim. This is because 16 states have state laws that 
prevent the reporting of HIV/AIDS diagnosis information to CMS through 
the current assessment system and/or prevent CMS from seeing such 
diagnosis information within that system, should that information be 
mistakenly reported. The states are Alabama, Alaska, California, 
Colorado, Connecticut, Idaho, Illinois, Massachusetts, Nevada, New 
Hampshire, New Jersey, New Mexico, South Carolina, Texas, Washington, 
and West Virginia. Given this restriction, it would not be possible to 
have SNFs utilize the MDS 3.0 as the vehicle to report HIV/AIDS 
diagnosis information for purposes of determining a resident's NTA 
classification. We note that the current SNF PPS uses a claims 
reporting mechanism as the basis for the temporary AIDS add-on payment 
which exists under RUG-IV. To address the issue discussed above with 
respect to reporting of HIV/AIDS diagnosis information under the 
proposed PDPM, we propose to utilize this existing claims reporting 
mechanism to determine a resident's HIV/AIDS status for the purpose of 
NTA classification. More specifically, HIV/AIDS diagnosis information 
reported on the MDS would be ignored by the GROUPER software used to 
classify a resident into an NTA case-mix group. Instead, providers 
would be instructed to locate the HIPPS code provided to the SNF on the 
validation report associated with that assessment and report it to CMS 
on the associated SNF claim. Following current protocol, the provider 
would then enter ICD-10-CM code B20 on the associated SNF claim as if 
it were being coded to receive payment through the current AIDS add-on 
payment. The PRICER software, which we use to determine the appropriate 
per diem payment for a provider based on their wage index and other 
factors, would make the adjustment to the resident's NTA case-mix group 
based on the presence of the B20 code on the claim as well as adjust 
the associated per diem payment based on the adjusted resident HIPPS 
code. Again, we note that this methodology follows the same logic that 
the SNF PPS currently uses to pay the temporary AIDS add-on adjustment 
but merely changes the target and type of adjustment from the SNF PPS 
per diem to the NTA component of the proposed PDPM. The difference is 
that while under the current system, the presence of the B20 code would 
lead to a 128 percent increase in the per diem rate, under the proposed 
PDPM, the presence of the B20 code would mean the addition of 8 points 
(as determined by the OLS regression described above) to the resident's 
NTA score, the categorization of the resident into the appropriate NTA 
group, and an adjustment to the nursing component, as described in 
section V.D.3.d. of this proposed rule. Section 1888(e)(12) of the 
Social Security Act enacted a temporary 128 percent increase in the PPS 
per diem payment for SNF residents with HIV/AIDS and stipulated that 
the temporary adjustment was to be applied only until the Secretary 
certifies that there is an appropriate case-mix adjustment to 
compensate for the increased costs associated with this population. 
Based on this language, we conducted an analysis similar to that used 
to determine the HIV/AIDS add-on for the nursing component to examine 
the adequacy of payment for ancillary services (all non-nursing 
services: PT, OT, SLP, and NTA) for residents with HIV/AIDS under the 
proposed PDPM. This analysis determined that after accounting for the 8 
points assigned for HIV/AIDS in the NTA component and controlling for 
case-mix classification across the three therapy components and NTA 
component, HIV/AIDS was

[[Page 21058]]

not associated with an increase in ancillary costs. Nursing costs were 
not included in this regression because we separately investigated the 
increased nursing utilization associated with HIV/AIDS, as described in 
section V.D.3.d. of this proposed rule. Based on the results of this 
investigation, we concluded that the four ancillary case-mix components 
(PT, OT, SLP, and NTA) adequately reimburse costs associated with 
residents with HIV/AIDS. Therefore, we do not believe an HIV/AIDS add-
on is warranted for the ancillary cost components. More information on 
this analysis can be found in section 3.8.2. of the PDPM technical 
report available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.
    Table 27 provides the proposed list of conditions and extensive 
services that would be used for NTA classification, the source of that 
information, and the associated number of points for that condition.

    Table 27--Proposed Conditions and Extensive Services Used for NTA
                             Classification
------------------------------------------------------------------------
    Condition/extensive service            Source             Points
------------------------------------------------------------------------
HIV/AIDS..........................  SNF Claim...........               8
Parenteral IV Feeding: Level High.  MDS Item K0510A2,                  7
                                     K0710A2.
Special Treatments/Programs:        MDS Item O0100H2....               5
 Intravenous Medication Post-admit
 Code.
Special Treatments/Programs:        MDS Item O0100F2....               4
 Ventilator or Respirator Post-
 admit Code.
Parenteral IV feeding: Level Low..  MDS Item K0510A2,                  3
                                     K0710A2, K0710B2.
Lung Transplant Status............  MDS Item I8000......               3
Special Treatments/Programs:        MDS Item O0100I2....               2
 Transfusion Post-admit Code.
Major Organ Transplant Status,      MDS Item I8000......               2
 Except Lung.
Active Diagnoses: Multiple          MDS Item I5200......               2
 Sclerosis Code.
Opportunistic Infections..........  MDS Item I8000......               2
Active Diagnoses: Asthma COPD       MDS Item I6200......               2
 Chronic Lung Disease Code.
Bone/Joint/Muscle Infections/       MDS Item I8000......               2
 Necrosis--Except Aseptic Necrosis
 of Bone.
Chronic Myeloid Leukemia..........  MDS Item I8000......               2
Wound Infection Code..............  MDS Item I2500......               2
Active Diagnoses: Diabetes          MDS Item I2900......               2
 Mellitus (DM) Code.
Endocarditis......................  MDS Item I8000......               1
Immune Disorders..................  MDS Item I8000......               1
End-Stage Liver Disease...........  MDS Item I8000......               1
Other Foot Skin Problems: Diabetic  MDS Item M1040B.....               1
 Foot Ulcer Code.
Narcolepsy and Cataplexy..........  MDS Item I8000......               1
Cystic Fibrosis...................  MDS Item I8000......               1
Special Treatments/Programs:        MDS Item O0100E2....               1
 Tracheostomy Care Post-admit Code.
Active Diagnoses: Multi-Drug        MDS Item I1700......               1
 Resistant Organism (MDRO) Code.
Special Treatments/Programs:        MDS Item O0100M2....               1
 Isolation Post-admit Code.
Specified Hereditary Metabolic/     MDS Item I8000......               1
 Immune Disorders.
Morbid Obesity....................  MDS Item I8000......               1
Special Treatments/Programs:        MDS Item O0100B2....               1
 Radiation Post-admit Code.
Highest Stage of Unhealed Pressure  MDS Item M0300X1....               1
 Ulcer--Stage 4.
Psoriatic Arthropathy and Systemic  MDS Item I8000......               1
 Sclerosis.
Chronic Pancreatitis..............  MDS Item I8000......               1
Proliferative Diabetic Retinopathy  MDS Item I8000......               1
 and Vitreous Hemorrhage.
Other Foot Skin Problems: Foot      MDS Item M1040A,                   1
 Infection Code, Other Open Lesion   M1040B, M1040C.
 on Foot Code, Except Diabetic
 Foot Ulcer Code.
Complications of Specified          MDS Item I8000......               1
 Implanted Device or Graft.
Bladder and Bowel Appliances:       MDS Item H0100D.....               1
 Intermittent Catheterization.
Inflammatory Bowel Disease........  MDS Item I8000......               1
Aseptic Necrosis of Bone..........  MDS Item I8000......               1
Special Treatments/Programs:        MDS Item O0100D2....               1
 Suctioning Post-admit Code.
Cardio-Respiratory Failure and      MDS Item I8000......               1
 Shock.
Myelodysplastic Syndromes and       MDS Item I8000......               1
 Myelofibrosis.
Systemic Lupus Erythematosus,       MDS Item I8000......               1
 Other Connective Tissue
 Disorders, and Inflammatory
 Spondylopathies.
Diabetic Retinopathy--Except        MDS Item I8000......               1
 Proliferative Diabetic
 Retinopathy and Vitreous
 Hemorrhage.
Nutritional Approaches While a      MDS Item K0510B2....               1
 Resident: Feeding Tube.
Severe Skin Burn or Condition.....  MDS Item I8000......               1
Intractable Epilepsy..............  MDS Item I8000......               1
Active Diagnoses: Malnutrition      MDS Item I5600......               1
 Code.
Disorders of Immunity--Except:      MDS Item I8000......               1
 RxCC97: Immune Disorders.
Cirrhosis of Liver................  MDS Item I8000......               1
Bladder and Bowel Appliances:       MDS Item H0100C.....               1
 Ostomy.
Respiratory Arrest................  MDS Item I8000......               1
Pulmonary Fibrosis and Other        MDS Item I8000......               1
 Chronic Lung Disorders.
------------------------------------------------------------------------

    Given the NTA scoring methodology described above and following the 
same methodology used for the PT, OT, and SLP components, we used the 
CART algorithm to determine the most appropriate splits in resident NTA 
case-mix groups. This methodology is more thoroughly explained in 
sections 3.4.2. and 3.7.2. of the SNF PDPM technical

[[Page 21059]]

report available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html. Based on the breakpoints 
generated by the CART algorithm, we determined that 6 case-mix groups 
would be necessary to classify residents adequately in terms of their 
NTA costs in a manner that captures sufficient variation in NTA costs 
without creating unnecessarily granular separations. We made certain 
administrative decisions that further refined the NTA case-mix 
classification groups beyond those produced through use of the CART 
algorithm but maintained the CART output predictive accuracy. The 
proposed NTA case-mix classification departs from the CART comorbidity 
score bins in grouping residents with a comorbidity score of 1 with 
residents with scores of 2 instead of with residents with scores of 0. 
This is to maintain the distinction between residents with no 
comorbidities and the rest of the population. In addition, we grouped 
residents with score of 5 together with residents with scores of 3 to 4 
based on their similarity in average NTA costs per day. More 
information on this analysis can be found in section 3.7.2. of the SNF 
PDPM technical report available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html. We 
provide the criteria for each of these groups along with its CMI in 
Table 28.
    To help ensure that payment reflects the average relative resource 
use at the per diem level, CMIs would be set to reflect relative case-
mix related differences in costs across groups. This method helps 
ensure that the share of payment for each case-mix group would be equal 
to its share of total costs of the component. CMIs for the NTA 
component are calculated based on two factors. One factor is the 
average per diem costs of a case-mix group relative to the population 
average. The other factor is the average variable per diem adjustment 
factor of the group relative to the population average. In this 
calculation, average per diem costs equal total NTA costs in the group 
divided by number of utilization days in the group. Similarly, the 
average variable per diem adjustment factor equals the sum of NTA 
variable per diem adjustment factors for all utilization days in the 
group divided by the number of utilization days in the group. We 
calculate CMIs such that they equal the ratio of relative average per 
diem costs for a group to the relative average variable per diem 
adjustment factor for the group. In this calculation, relative average 
per diem costs and the relative average variable per diem adjustment 
factor are weighted by length of stay to account for the different 
length of stay distributions across case-mix groups (as further 
discussed in section 3.11.1. of the SNF PDPM technical report, 
available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html). After calculating CMIs as 
described above, we then apply adjustments to ensure that the 
distribution of resources across payment components is aligned with the 
statutory base rates as discussed in section V.D.3.b. of this proposed 
rule. We also apply a parity adjustment by multiplying the CMIs by the 
ratio of case-mix-related payments in RUG-IV over estimated case-mix-
related payments in PDPM, as further discussed in section V.J. of this 
proposed rule. More information on the variable per diem adjustment 
factor is discussed in section V.D.4. of this proposed rule. The full 
methodology used to develop CMIs is presented in section 3.11. of the 
SNF PDPM technical report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html).

          Table 28--Proposed NTA Case-Mix Classification Groups
------------------------------------------------------------------------
                                                 NTA case-    NTA case-
                NTA score range                  mix group    mix index
------------------------------------------------------------------------
12+...........................................           NA         3.25
9-11..........................................           NB         2.53
6-8...........................................           NC         1.85
3-5...........................................           ND         1.34
1-2...........................................           NE         0.96
0.............................................           NF         0.72
------------------------------------------------------------------------

    As with the previously discussed components, all residents would be 
classified into one and only one of these 6 NTA case-mix groups under 
the proposed PDPM. The proposed PDPM would create a separate payment 
component for NTA services, as opposed to combining NTA and nursing 
into one component as in the RUG-IV system. This separation would allow 
payment for NTA services to be based on resident characteristics that 
predict NTA resource utilization rather than nursing staff time. Thus, 
we believe that the proposed NTA case-mix groups would provide a better 
measure of resource utilization and lead to more accurate payments 
under the SNF PPS.
    We invite comments on the approach proposed above to classify 
residents for NTA payment under the proposed PDPM.
f. Payment Classifications Under Proposed PDPM
    RUG-IV classifies each resident into a single RUG, with a single 
payment for all services. By contrast, the proposed PDPM would classify 
each resident into five components (PT, OT, SLP, NTA, and nursing) and 
provide a single payment based on the sum of these individual 
classifications. The payment for each component would be calculated by 
multiplying the CMI for the resident's group first by the component 
federal base payment rate, then by the specific day in the variable per 
diem adjustment schedule (as discussed in section V.D.4 of this 
proposed rule). Additionally, for residents with HIV/AIDS indicated on 
their claim, the nursing portion of payment would be multiplied by 1.18 
(as discussed in section V.D.3.d. of this proposed rule). These 
payments would then be added together along with the non-case-mix 
component payment rate to create a resident's total SNF PPS per diem 
rate under the proposed PDPM. This section describes how two 
hypothetical residents would be classified into payment groups under 
the current RUG-IV model and proposed PDPM. To begin, consider two 
residents, Resident A and Resident B, with the resident characteristics 
identified in Table 29.

             Table 29--Hypothetical Resident Characteristics
------------------------------------------------------------------------
    Resident characteristics          Resident A          Resident B
------------------------------------------------------------------------
Rehabilitation Received?........  Yes...............  Yes.
Therapy Minutes.................  730...............  730.
Extensive Services..............  No................  No.
ADL Score.......................  9.................  9.
Clinical Category...............  Acute Neurologic..  Major Joint
                                                       Replacement.
PT and OT Function Score........  10................  10.
Nursing Function Score..........  7.................  7.

[[Page 21060]]

 
Cognitive Impairment............  Moderate..........  Intact.
Swallowing Disorder?............  No................  No
Mechanically Altered Diet?......  Yes...............  No.
SLP Comorbidity?................  No................  No.
Comorbidity Score...............  7 (IV Medication    1 (Chronic
                                   and DM).            Pancreatitis).
Other Conditions................  Dialysis..........  Septicemia.
Depression?.....................  No................  Yes.
------------------------------------------------------------------------

    Currently under the SNF PPS, Resident A and Resident B would be 
classified into the same RUG-IV group. They both received 
rehabilitation, did not receive extensive services, received 730 
minutes of therapy, and have an ADL score of 9. This places the two 
residents into the ``RUB'' RUG-IV group and SNFs would be paid at the 
same rate, despite the many differences between these two residents in 
terms of their characteristics, expected care needs, and predicted 
costs of care.
    Under the proposed PDPM, however, these two residents would be 
classified very differently. With regard to the PT and OT components, 
Resident A would fall into group TO, as a result of his categorization 
in the Acute Neurologic group and a function score within the 10 to 23 
range. Resident B, however, would fall into group TC for the PT and OT 
components, as a result of his categorization in the Major Joint 
Replacement group and a function score within the 10 to 23 range. For 
the SLP component, Resident A would be classified into group SH, based 
on his categorization in the Acute Neurologic group, the presence of 
moderate cognitive impairment, and the presence of Mechanically-Altered 
Diet, while Resident B would be classified into group SA, based on his 
categorization in the Non-Neurologic group, the absence of cognitive 
impairment or any SLP-related comorbidity, and the lack of any 
swallowing disorder or mechanically-altered diet. For the Nursing 
component, following the existing nursing case-mix methodology, 
Resident A would fall into group LBC1, based on his use of dialysis 
services and a nursing function score of 7, while Resident B would fall 
into group HBC2, due to the diagnosis of septicemia, presence of 
depression, and a nursing function score of 7. Finally, with regard to 
NTA classification, Resident A would be classified in group NC, with an 
NTA score of 7, while Resident B would be classified in group NE, with 
an NTA score of 1. This demonstrates that, under the proposed PDPM, 
more aspects of a resident's unique characteristics and needs factor 
into determining the resident's payment classification, which makes for 
a more resident-centered case-mix model while also eliminating, or 
greatly reducing, the number of service-based factors which are used to 
determine the resident's payment classification. Because this system is 
based on specific resident characteristics predictive of resource 
utilization for each component, we expect that payments will be better 
aligned with resident need.
4. Proposed Variable Per Diem Adjustment Factors and Payment Schedule
    Section 1888(e)(4)(G)(i) of the Act provides that payments must be 
adjusted for case mix, based on a resident classification system which 
accounts for the relative resource utilization of different types of 
residents. Additionally, section 1888(e)(1)(B) of the Act specifies 
that payments to SNFs through the SNF PPS must be made on a per-diem 
basis. Currently under the SNF PPS, each RUG is paid at a constant per 
diem rate, regardless of how many days a resident is classified in that 
particular RUG. However, during the course of the SNF PMR project, 
analyses on cost over the stay for each of the case-mix adjusted 
components revealed different trends in resource utilization over the 
course of the SNF stay. These analyses utilized costs derived from 
claim charges as a measure of resource utilization. Costs were derived 
by multiplying charges from claims by the CCRs on facility-level costs 
reports. As described in section V.B.3.b. of this proposed rule, costs 
better reflect differences in the relative resource use of residents as 
opposed to charges, which partly reflect decisions made by providers 
about how much to charge payers for certain services. In examining 
costs over a stay, we found that for certain categories of SNF 
services, notably PT, OT and NTA services, costs declined over the 
course of a stay. Based on the claim submission schedule and variation 
in the point during the month when a stay began, we were able to 
estimate resource use for a specific day in a stay. Facilities are 
required to submit monthly claims. Each claim covers the period from 
the first day during the month a resident is in the facility to the end 
of the month. If a resident was admitted on the first day of the month, 
remains in the facility, and continues to have Part A SNF coverage 
until the end of the month, the claim for that month will include all 
days in the month. However, if a resident is admitted after the first 
day of the month, the first claim associated with the resident's stay 
will be shorter than a month. To estimate resource utilization for each 
day in the stay, we used the marginal estimated cost from claims of 
varying length based on random variation in the day of a month when a 
stay began. Using this methodology, we observed a decline in the 
marginal estimated cost of each additional day of SNF care over the 
course of the stay. To supplement this analysis, we also looked at 
changes in the number of therapy minutes reported in different 
assessments throughout the stay. Because therapy minutes are recorded 
on the MDS, the presence of multiple assessments throughout the stay 
provided information on changes in resource use. For example, it was 
clear whether the number of therapy minutes a resident received changed 
from the 5-day assessment to the 14-day assessment. The results from 
this analysis were consistent with the cost from claims analysis and 
showed that, on average, the number of therapy minutes is lower for 
assessments conducted later in the stay. This finding is consistent 
across different lengths of stay. More information on these analyses 
can be found in section 3.9. of the SNF PDPM technical report and 
section 3.9. of the SNF PMR technical report that accompanied the 
ANPRM, both available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.
    Analyses of the SLP component revealed that the per diem costs 
remain relatively constant over time, while the PT, OT, and NTA 
component cost analyses indicate that the per diem cost for these three 
components decline over

[[Page 21061]]

the course of the stay. In the case of the PT and OT components, costs 
start higher at the beginning of the stay and decline slowly over the 
course of the stay. The NTA component cost analyses indicate 
significantly increased NTA costs at the beginning of a stay that then 
drop to a much lower level that holds relatively constant over the 
remainder of the SNF stay. This is consistent with how most SNF drug 
costs are typically incurred at the outset of a SNF stay. These results 
indicate that resource utilization for PT, OT, and NTA services changes 
over the course of the stay. More information on these analyses can be 
found in section 3.9.1. of the SNF PMR technical report that 
accompanied the ANPRM available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html. We were 
unable to assess potential changes in the level of nursing costs over a 
resident's stay, in particular because nursing charges are not 
separately identifiable in SNF claims, and nursing minutes are not 
reported on the MDS assessments. However, stakeholders (industry 
representatives and clinicians) at multiple TEPs indicated that nursing 
costs tend to remain relatively constant over the course of a 
resident's stay.
    Constant per diem rates, by definition, do not track variations in 
resource use throughout a SNF stay. We believe this may lead to too few 
resources being allocated for SNF providers at the beginning of a stay. 
Given the trends in resource utilization over the course of a SNF stay 
discussed above, and that section 1888(e)(4)(G)(i) of the Act requires 
the case-mix classification system to account for relative resource 
use, we are proposing adjustments to the PT, OT, and NTA components in 
the proposed PDPM to account for changes in resource utilization over a 
stay. These adjustments are referred to as the variable per diem 
adjustments. We are not proposing such adjustments to the SLP and 
nursing components based on findings and stakeholder feedback, as 
discussed above, that resource use tends to remain relatively constant 
over the course of a SNF stay.
    As noted above and discussed more thoroughly in section 3.9. of the 
SNF PMR technical report that accompanied the ANPRM (available at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html), PT and OT costs decline at a slower rate than 
the decline in NTA costs. Therefore, in addition to proposing a 
variable per diem adjustment, we further are proposing separate 
adjustment schedules and indexes for the PT and OT components and the 
NTA component to more closely reflect the rate of decline in resource 
utilization for each component. Table 30 provides the adjustment 
factors and schedule we are proposing for the PT and OT components, 
while Table 31 provides the adjustment factors and schedule we are 
proposing for the NTA component.
    In Table 30, the adjustment factor for the PT and OT components is 
1.00 for days 1 to 20. This is because the analyses described above 
indicated that PT and OT costs remain relatively high for the first 20 
days and then decline. The estimated daily rates of decline for PT and 
OT costs relative to the initial 20 days are both 0.3 percent. A 
convenient and appropriate way to reflect this is to bin days in the PT 
and OT variable per diem adjustment schedules such that payment 
declines at less frequent intervals, while still reflecting a 0.3 
percent daily rate of decline in PT and OT costs. Therefore, we propose 
to set the adjustment factors such that payment would decline 2 percent 
every 7 days after day 20 (0.3 * 7 = 2.1). The 0.3 percent rate of 
decline is derived from a regression model that estimates the level of 
resource use for each day in the stay relative to the beginning of the 
stay. The regression methodology and results are presented in section 
3.9. of the SNF PDPM technical report, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.
    As described previously in this section, NTA resource utilization 
exhibits a somewhat different pattern. The analyses described above 
indicate that NTA costs are very high at the beginning of the stay, 
drop rapidly after the first three days, and remain relatively stable 
from the fourth day of the stay. Starting on day 4 of a stay, the per 
diem costs drop to roughly one-third of the per diem costs in the 
initial 3 days. This suggests that many NTA services are provided in 
the first few days of a SNF stay. Therefore, we propose setting the NTA 
adjustment factor to 3.00 for days 1 to 3 to reflect the extremely high 
initial costs, then setting it at 1.00 (two-thirds lower than the 
initial level) for subsequent days. The value of the adjustment factor 
was set at 3.00 for the first 3 days and 1.00 after (rather than, for 
example, 1.00 and 0.33, respectively) for simplicity. The results are 
presented in section 3.9. of the SNF PDPM technical report, available 
at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.
    Case-mix adjusted federal per diem payment for a given component 
and a given day would be equal to the base rate for the relevant 
component (either urban or rural), multiplied by the CMI for that 
resident, multiplied by the variable per diem adjustment factor for 
that specific day, as applicable. Additionally, as described in further 
detail in section V.D.3.d. of this proposed rule, an additional 18 
percent would be added to the nursing per-diem payment to account for 
the additional nursing costs associated with residents who have HIV/
AIDS. These payments would then be added together along with the non-
case-mix component payment rate to create a resident's total SNF PPS 
per diem rate under the proposed PDPM.
    We invite comments on the proposed variable per diem adjustment 
factors and payment schedules discussed in this section.

Table 30--Proposed Variable Per-Diem Adjustment Factors and Schedule--PT
                                 and OT
------------------------------------------------------------------------
       Medicare payment days                  Adjustment factor
------------------------------------------------------------------------
                     1-20                                 1.00
                    21-27                                 0.98
                    28-34                                 0.96
                    35-41                                 0.94
                    42-48                                 0.92
                    49-55                                 0.90
                    56-62                                 0.88
                    63-69                                 0.86
                    70-76                                 0.84
                    77-83                                 0.82
                    84-90                                 0.80
                    91-97                                 0.78
                   98-100                                 0.76
------------------------------------------------------------------------


 Table 31--Proposed Variable Per-Diem Adjustment Factors and Schedule--
                                   NTA
------------------------------------------------------------------------
       Medicare payment days                  Adjustment factor
------------------------------------------------------------------------
                      1-3                                  3.0
                    4-100                                  1.0
------------------------------------------------------------------------

E. Use of the Resident Assessment Instrument--Minimum Data Set, Version 
3

1. Proposed Revisions to Minimum Data Set (MDS) Completion Schedule
    Consistent with section 1888(e)(6)(B) of the Act, to classify 
residents under the SNF PPS, we use the MDS 3.0 Resident Assessment 
Instrument. Within the SNF PPS, there are two categories of 
assessments, scheduled and unscheduled. In terms of scheduled 
assessments, SNFs are currently

[[Page 21062]]

required to complete assessments on or around days 5, 14, 30, 60, and 
90 of a resident's Part A SNF stay, including certain grace days. 
Payments based on these assessments depend upon standard Medicare 
payment windows associated with each scheduled assessment. More 
specifically, each of the Medicare-required scheduled assessments has 
defined days within which the Assessment Reference Date (ARD) must be 
set. The ARD is the last day of the observation (or ``look-back'') 
period that the assessment covers for the resident. The facility is 
required to set the ARD on the MDS form itself or in the facility 
software within the appropriate timeframe of the assessment type being 
completed. The clinical data collected from the look-back period is 
used to determine the payment associated with each assessment. For 
example, the ARD for the 5-day PPS Assessment is any day between days 1 
to 8 (including Grace Days). The clinical data collected during the 
look-back period for that assessment is used to determine the SNF 
payment for days 1 to 14. Unscheduled assessments, such as the Start of 
Therapy (SOT) Other Medicare Required Assessment (OMRA), the End of 
Therapy OMRA (EOT OMRA), the Change of Therapy (COT) OMRA, and the 
Significant Change in Status Assessment (SCSA or Significant Change), 
may be required during the resident's Part A SNF stay when triggered by 
certain defined events.
    For example, if a resident is being discharged from therapy 
services, but remaining within the facility to continue the Part A 
stay, then the facility may be required to complete an EOT OMRA. Each 
of the unscheduled assessments affects payment in different and defined 
manners. A description of the SNF PPS scheduled and unscheduled 
assessments, including the criteria for using each assessment, the 
assessment schedule, payment days covered by each assessment, and other 
related policies, are set forth in the MDS 3.0 RAI manual on the CMS 
website (available at https://downloads.cms.gov/files/MDS-30-RAI-Manual-v115-October-2017.pdf).
    Table 32 outlines when each SNF PPS assessment is required to be 
completed and its effect on SNF PPS payment.

                                    Table 32--Current PPS Assessment Schedule
----------------------------------------------------------------------------------------------------------------
                                                                        Assessment
  Medicare MDS assessment schedule type    Assessment reference date  reference date      Applicable standard
                                                                        grace days       Medicare payment days
----------------------------------------------------------------------------------------------------------------
                                            Scheduled PPS assessments
----------------------------------------------------------------------------------------------------------------
5-day...................................  Days 1-5..................             6-8  1 through 14.
14-day..................................  Days 13-14................           15-18  15 through 30.
30-day..................................  Days 27-29................           30-33  31 through 60.
60-day..................................  Days 57-59................           60-63  61 through 90.
90-day..................................  Days 87-89................           90-93  91 through 100.
----------------------------------------------------------------------------------------------------------------
                                           Unscheduled PPS assessments
----------------------------------------------------------------------------------------------------------------


 
 
------------------------------------------------------------------------
Start of Therapy OMRA.......  5-7 days after the    Date of the first
                               start of therapy.     day of therapy
                                                     through the end of
                                                     the standard
                                                     payment period.
End of Therapy OMRA.........  1-3 days after all    First non-therapy
                               therapy has ended.    day through the end
                                                     of the standard
                                                     payment period.
Change of Therapy OMRA......  Day 7 (last day) of   The first day of the
                               the COT observation   COT observation
                               period.               period until end of
                                                     standard payment
                                                     period, or until
                                                     interrupted by the
                                                     next COT-OMRA
                                                     assessment or
                                                     scheduled or
                                                     unscheduled PPS
                                                     Assessment.
Significant Change in Status  No later than 14      ARD of Assessment
 Assessment.                   days after            through the end of
                               significant change    the standard
                               identified.           payment period.

    An issue which has been raised in the past with regard to the 
existing SNF PPS assessment schedule is that the sheer number of 
assessments, as well as the complex interplay of the assessment rules, 
significantly increases the administrative burden associated with the 
SNF PPS. Case-mix classification under the proposed SNF PDPM that we 
are proposing relies to a much lesser extent on characteristics that 
may change very frequently over the course of a resident's stay (for 
example, therapy minutes may change due to resident refusal or 
unexpected changes in resident status), but instead relies on more 
stable predictors of resource utilization by tying case-mix 
classification, to a much greater extent, to resident characteristics 
such as diagnosis information. In view of the greater reliance of the 
proposed SNF PDPM (as compared to the RUG-IV model) on resident 
characteristics that are relatively stable over a stay and our general 
focus on reducing administrative burden for providers across the 
Medicare program, we are making an effort to reduce the administrative 
burden on providers by concurrently proposing to revise the assessments 
that would be required under the proposed SNF PDPM. Specifically, we 
are proposing to use the 5-day SNF PPS scheduled assessment to classify 
a resident under the proposed SNF PDPM for the entirety of his or her 
Part A SNF stay effective beginning FY 2020 in conjunction with the 
implementation of the proposed PDPM, except as described below. If we 
were to finalize this proposal, we would propose revisions to the 
regulations at Sec.  413.343(b) during the FY 2020 rulemaking cycle so 
that such regulations would no longer reflect the RUG-IV SNF PPS 
assessment schedule as of the proposed conversion to the PDPM on 
October 1, 2019.
    We also understand that Medicare beneficiaries are each unique and 
can experience clinical changes which may require a SNF to reassess the 
resident to capture changes in the resident's condition. Therefore, to 
allow SNFs to capture these types of changes, effective October 1, 2019 
in conjunction with the proposed implementation of the PDPM, we propose 
to require providers to reclassify residents as appropriate from

[[Page 21063]]

the initial 5-day classification using a new assessment called an 
Interim Payment Assessment (IPA), which would be comprised of the 5-day 
SNF PPS MDS Item Set (Item Set NP). Providers would be required to 
complete an IPA in cases where the following two criteria are met:
    (1) There is a change in the resident's classification in at least 
one of the first tier classification criteria for any of the components 
under the proposed PDPM (which are those clinical or nursing payment 
criteria identified in the first column in Tables 21, 23, 26, and 27), 
such that the resident would be classified into a classification group 
for that component that differs from that provided by the 5-day 
scheduled PPS assessment, and the change in classification group 
results in a change in payment either in one particular payment 
component or in the overall payment for the resident; and
    (2) The change(s) are such that the resident would not be expected 
to return to his or her original clinical status within a 14-day 
period.
    In addition, we propose that the Assessment Reference Date (ARD) 
for the IPA would be no later than 14 days after a change in a 
resident's first tier classification criteria is identified. The IPA is 
meant to capture substantial changes to a resident's clinical condition 
and not every day, frequent changes. We believe 14 days gives the 
facility an adequate amount of time to determine whether the changes 
identified are in fact routine or substantial. To clarify, the change 
in classification group described above refers to not only a change in 
one of the first tier classification criteria in any of the proposed 
payment components, but also to one that would be sufficient to change 
payment in either one component or in the overall payment for the 
resident. For example, given the collapsed categories under the PT and 
OT components, this would mean that a change from the medical 
management group to the cancer group would not necessitate an IPA, as 
they are both collapsed under the medical management group for purposes 
of the PT and OT components. However, a change from the major joint 
replacement group to the medical management group would necessitate an 
IPA, as this would change the resident's clinical category group for 
purposes of categorization under the PT and OT components and would 
result in a change in payment.
    We believe that the proposed requirement to complete an IPA 
balances the need to ensure accurate payment and monitor for changes in 
the resident's condition with the importance of ensuring a more 
streamlined assessment approach under the proposed PDPM.
    In cases where the IPA is required and a facility fails to complete 
one, we propose that the facility would follow the guidelines for late 
and missed unscheduled MDS assessments which are explained in Chapters 
2.13 and 6.8 of the MDS RAI Manual (https://downloads.cms.gov/files/MDS-30-RAI-Manual-v115-October-2017.pdf). Specifically, if the SNF 
fails to set the ARD within the defined ARD window for an IPA, and the 
resident is still in a Part A stay, the SNF would be required to 
complete a late assessment. The ARD can be no earlier than the day the 
error was identified. If the ARD on the late assessment is set for a 
date that is prior to the end of the time period during which the 
assessment would have controlled the payment, had the ARD been set 
timely, the SNF would bill the default rate for the number of days that 
the assessment is out of compliance. This is equal to the number of 
days between the day following the last day of the available ARD window 
and the late ARD (including the late ARD). For example, a SNF Part A 
resident who is in the major joint replacement payment category for the 
PT and OT components develops a skin ulcer that is of such a quality 
that, in terms of developing a care and treatment plan for this 
resident, the skin ulcer takes precedence as the resident's primary 
diagnosis. As a result, the resident's primary diagnosis, as coded in 
item I8000, is for this skin ulcer, which would cause him to be 
classified into the medical management category for these components. 
The facility notes this clinical change on November 10, 2018. However, 
they do not complete the IPA until November 26, 2018 which is 16 days 
after the change in criteria was identified and two days after the ARD 
window. The facility would bill the default rate for the two days that 
it was out of compliance. If the SNF fails to set the ARD for an IPA 
within the defined ARD window for that assessment, and the resident has 
been discharged from Part A, the assessment is missed and cannot be 
completed. All days that would have been paid by the missed assessment 
(had it been completed timely) are considered provider-liable. Taking 
the example above, if the facility recognized the IPA needed to be 
completed after the resident has left the building, the facility would 
be liable for all days from November 10, 2018 until the date of the 
resident's Part A Discharge. We invite comments on these proposals.
    In addition to requiring the completion of the IPA as described 
above, we have also considered the implications of a SNF completing an 
IPA on the variable per diem adjustment schedule described in section 
V.D.4. this proposed rule. More specifically, we have considered 
whether an SNF completing an IPA should cause a reset in the variable 
per diem adjustment schedule for the associated resident. In examining 
costs over a stay, we found that for certain categories of SNF 
services, notably PT, OT and NTA services, costs declined over the 
course of a stay. Our analyses showed that, on average, the number of 
therapy minutes is lower for assessments conducted later in the stay. 
Additionally, we are concerned that by providing for the variable per 
diem adjustment schedule to be reset after an IPA is completed, 
providers may be incentivized to conduct multiple IPAs during the 
course of a resident's stay to reset the variable per diem adjustment 
schedule each time the adjustment is reduced. Therefore, in cases where 
an IPA is completed, we are proposing that this assessment would 
reclassify the resident for payment purposes as outlined in Table 33, 
but the resident's variable per diem adjustment schedule would continue 
rather than being reset on the basis of completing the IPA.
    Finally, we believe that, regardless of the payment system or case-
mix classification model used, residents should continue to receive 
therapy that is appropriate to their care needs, and this includes both 
the intensity and modes of therapy utilized. However, we recognize that 
because the initial 5-day PPS assessment would classify a resident for 
the entirety of his or her Part A SNF stay (except in cases where a IPA 
is completed) as outlined above, there is no mechanism by which SNFs 
are required to report the amount of therapy provided to a resident 
over the course of the stay or by which we may monitor that they are in 
compliance with the proposed 25 percent group and concurrent therapy 
limit as described in section V.F. of this proposed rule. Therefore, 
for these reasons, under the proposed PDPM, we propose to require that 
SNFs continue to complete the PPS Discharge Assessment, as appropriate 
(including the proposed therapy items discussed in section V.E.3. of 
this proposed rule), for each SNF Part A resident at the time of Part A 
or facility discharge (see section V.E. of this proposed rule for a 
discussion of our proposed revisions to this assessment to include 
therapy items). Under the current instructions in the MDS 3.0 RAI

[[Page 21064]]

manual, the Part A PPS Discharge assessment is completed when a 
resident's Medicare Part A stay ends, but the resident remains in the 
facility (MDS 3.0 RAI Manual Chapter 2.7). However, we are proposing to 
require this assessment to be completed at the time of facility 
discharge for Part A residents as well. Thus, we would continue to 
collect data on therapy provision as proposed in section V.F. of this 
proposed rule, to assure that residents are receiving therapy that is 
reasonable, necessary, and specifically tailored to meet their unique 
needs. We believe that the combination of the 5-day Scheduled PPS 
Assessment, the IPA Assessment, and PPS Discharge Assessment would 
provide flexibility for providers to capture and report accurately the 
resident's condition, as well as accurately reflect resource 
utilization associated with that resident, while minimizing the 
administrative burden on providers under the proposed SNF PDPM.
    In addition to the proposed changes above, we also examined the 
current use of grace days in the MDS assessment schedule. Grace days 
have been a longstanding part of the SNF PPS. They were created in 
order to allow clinical flexibility when setting ARD dates of scheduled 
PPS assessments. In the FY 2012 final rule (76 FR 48519), we discussed 
that in practice, there is no difference between regular ARD windows 
and grace days and we encouraged the use of grace days if their use 
would allow a facility more clinical flexibility or would more 
accurately capture therapy and other treatments:

    Thus, we do not intend to penalize any facility that chooses to 
use the grace days for assessment scheduling or to audit facilities 
based solely on their regular use of grace days. We may explore the 
option of incorporating the grace days into the regular ARD window 
in the future; nevertheless, we will retain them as part of the 
assessment schedule at the present time consistent with the current 
policy and the new assessment schedule proposed in the proposed 
rule.

    We propose, effective beginning October 1, 2019, in conjunction 
with the proposed implementation of the PDPM, to incorporate the grace 
days into the existing assessment window. This proposal would eliminate 
grace days from the SNF PPS assessment calendar and provide for only a 
standard assessment window. As discussed, there is no practical 
difference between the regular assessment window and grace days and 
there is no penalty for using grace days. As such, we believe it would 
be appropriate to eliminate the use of grace days in PPS assessments.
    Table 33 sets forth the proposed SNF PPS assessment schedule, 
incorporating our proposed revisions above, which would be effective 
October 1, 2019 concurrently with the proposed PDPM.

          Table 33--Proposed PPS Assessment Schedule Under PDPM
------------------------------------------------------------------------
                                                          Applicable
Medicare MDS assessment schedule      Assessment       standard Medicare
              type                  reference date       payment days
------------------------------------------------------------------------
5-day Scheduled PPS Assessment..  Days 1-8..........  All covered Part A
                                                       days until Part A
                                                       discharge (unless
                                                       an IPA is
                                                       completed).
Interim Payment Assessment (IPA)  No later than 14    ARD of the
                                   days after change   assessment
                                   in resident's       through Part A
                                   first tier          discharge (unless
                                   classification      another IPA
                                   criteria is         assessment is
                                   identified.         completed).
PPS Discharge Assessment........  PPS Discharge:      N/A.
                                   Equal to the End
                                   Date of the Most
                                   Recent Medicare
                                   Stay (A2400C) or
                                   End Date.
------------------------------------------------------------------------

    We would note that, as in previous years, we intend to continue to 
work with providers and software developers to assist them in 
understanding changes we are proposing to the MDS. Further, we would 
note that none of the proposals related to changes to the MDS 
assessment schedule should be understood to change any assessment 
requirements which derive from the Omnibus Budget Reconciliation Act of 
1987 (OBRA 87), which establishes assessment requirements for all 
nursing home residents, regardless of payer. We invite comments on our 
proposals to revise the SNF PPS assessment schedule and related 
policies as discussed above. We also solicit comment on the extent to 
which implementing these proposals would reduce provider burden.
2. Proposed Item Additions to the Swing Bed PPS Assessment
    Section 1883 of the Act permits certain small, rural hospitals to 
enter into a Medicare swing-bed agreement, under which the hospital can 
use its beds to provide either acute or SNF care, as needed. For 
critical access hospitals (CAHs), Part A pays on a reasonable cost 
basis for SNF services furnished under a swing-bed agreement. However, 
in accordance with section 1888(e)(7) of the Act, these services 
furnished by non-CAH rural hospitals are paid under the SNF PPS, 
effective with cost reporting periods beginning on or after July 1, 
2002. A more detailed discussion of this provision appears in section 
III.B.4. of this proposed rule.
    For purposes of the proposed PDPM, we propose to add three items to 
the Swing Bed PPS Assessment. Until now, these additional items have 
not been part of the Swing Bed PPS Assessment form because they have 
not been used for payment. However, the presence of each of these items 
would be used to classify swing bed residents under the proposed SNF 
PDPM as explained in section V.D. of this proposed rule. Thus, we 
believe it is necessary and appropriate to include these items in the 
Swing Bed PPS Assessment beginning October 1, 2019, in conjunction with 
the proposed implementation of the PDPM. The items we propose to add to 
the Swing Bed PPS assessment are provided in Table 34. We invite 
comments on this proposal.

       Table 34--Proposed Items To Add to Swing Bed PPS Assessment
------------------------------------------------------------------------
                                                           Related PDPM
       MDS  item No.                  Item name               payment
                                                             component
------------------------------------------------------------------------
K0100                       Swallowing Disorder.........             SLP
I4300                       Active Diagnoses: Aphasia...             SLP
O0100D2                     Special Treatments,                      NTA
                             Procedures and Programs:
                             Suctioning, While a
                             Resident.
------------------------------------------------------------------------


[[Page 21065]]

3. Proposed Items to be Added to the PPS Discharge Assessment
    As noted above, under the MDS 3.0, the Part A PPS Discharge 
assessment is completed when a resident's Medicare Part A stay ends, 
but the resident remains in the facility (MDS 3.0 RAI Manual Chapter 
2.7). The PPS Discharge Assessment uses the Item Set NPE and does not 
currently contain section O of the MDS 3.0. The therapy items in 
section O of the MDS allow CMS to collect data from providers on the 
volume, type (physical therapy, occupational therapy and speech-
language pathology), and mode (individual, concurrent, or group 
therapy) of the therapy provided to SNF residents. As noted in comments 
received on the ANPRM in relation to therapy provision, this data would 
be particularly important to monitor. Specifically, a significant 
number of commenters expressed concerns that the amount of therapy 
provided to SNF residents, were RCS-I to have been implemented, would 
drop considerably as compared to the amount currently delivered under 
RUG-IV. Commenters noted that this is because the incentive to provide 
a high volume of therapy services to SNF residents to achieve the 
highest resident therapy group classification, would no longer exist 
under RCS-I, leading providers to potentially significantly reduce the 
amount of therapy provided to SNF residents.
    Given that the RCS-I model and PDPM both present the potential for 
providers to significantly reduce the amount of therapy provided to SNF 
residents, as compared to RUG-IV, we believe that the same potential 
result may occur under the proposed PDPM as commenters identified with 
RCS-I. To better track therapy utilization under PDPM, and to better 
ensure that residents continue to receive an appropriate amount of 
therapy commensurate with their needs, given the reduction in the 
frequency of resident assessments required under the proposed PDPM, we 
propose to add therapy collection items to PPS Discharge assessment and 
to require providers to complete these items beginning October 1, 2019, 
in conjunction with the proposed implementation of the PDPM.
    Specifically, we propose to add the items listed in Table 35 to the 
PPS Discharge Assessment.

     Table 35--Proposed Items To Add to SNF PPS Discharge Assessment
------------------------------------------------------------------------
        MDS item No.                           Item name
------------------------------------------------------------------------
O0400A5                       Special Treatments, Procedures and
                               Programs: Speech-Language Pathology and
                               Audiology Services: Therapy Start Date.
O0400A6                       Special Treatments, Procedures and
                               Programs: Speech-Language Pathology and
                               Audiology Services: Therapy End Date.
O0400A7                       Special Treatments, Procedures and
                               Programs: Speech-Language Pathology and
                               Audiology Services: Total Individual
                               Minutes.
O0400A8                       Special Treatments, Procedures and
                               Programs: Speech-Language Pathology and
                               Audiology Services: Total Concurrent
                               Minutes.
O0400A9                       Special Treatments, Procedures and
                               Programs: Speech-Language Pathology and
                               Audiology Services: Total Group Minutes.
O0400A10                      Special Treatments, Procedures and
                               Programs: Speech-Language Pathology and
                               Audiology Services: Total Days.
O0400B5                       Special Treatments, Procedures and
                               Programs: Occupational Therapy: Therapy
                               Start Date.
O0400B6                       Special Treatments, Procedures and
                               Programs: Occupational Therapy: Therapy
                               End Date.
O0400B7                       Special Treatments, Procedures and
                               Programs: Occupational Therapy: Total
                               Individual Minutes.
O0400B8                       Special Treatments, Procedures and
                               Programs: Occupational Therapy: Total
                               Concurrent Minutes.
O0400B9                       Special Treatments, Procedures and
                               Programs: Occupational Therapy: Total
                               Group Minutes.
O0400B10                      Special Treatments, Procedures and
                               Programs: Occupational Therapy: Total
                               Days.
O0400C5                       Special Treatments, Procedures and
                               Programs: Physical Therapy: Therapy Start
                               Date.
O0400C6                       Special Treatments, Procedures and
                               Programs: Physical Therapy: Therapy End
                               Date.
O0400C7                       Special Treatments, Procedures and
                               Programs: Physical Therapy: Total
                               Individual Minutes.
O0400C8                       Special Treatments, Procedures and
                               Programs: Physical Therapy: Total
                               Concurrent Minutes.
O0400C9                       Special Treatments, Procedures and
                               Programs: Physical Therapy: Total Group
                               Minutes.
O0400C10                      Special Treatments, Procedures and
                               Programs: Physical Therapy: Total Days.
------------------------------------------------------------------------

    For the proposed items which refer to the total number of minutes 
for each therapy discipline and each therapy mode, this would allow CMS 
to both conduct reviews of changes in the volume and intensity of 
therapy services provided to SNF residents under the proposed PDPM, 
compared to that provided under RUG-IV, as well as to assess compliance 
with the proposed group and concurrent therapy limit discussed in 
section V.F of this proposed rule. The proposed ``total days'' items 
for each discipline and mode of therapy would further support our 
monitoring efforts for therapy, as requested by commenters on the 
ANPRM, by allowing us to monitor not just the total minutes of therapy 
provided to SNF residents under the proposed PDPM, but also assess the 
daily intensity of therapy provided to SNF residents under the proposed 
PDPM, as compared to that provided under RUG-IV. Ultimately, these 
proposed items would allow facilities to easily report therapy minutes 
provided to SNF residents and allow us to monitor the volume and 
intensity of therapy services provided to SNF residents under the 
proposed PDPM, as suggested by commenters on the ANPRM. If we discover 
that the amount of therapy provided to SNF residents does change 
significantly under the proposed PDPM, if implemented, then we will 
assess the need for additional policies to ensure that SNF residents 
continue to receive sufficient and appropriate therapy services 
consistent with their unique needs and goals. We invite comments on our 
proposals above to add items to the SNF PPS Assessment.

F. Proposed Revisions to Therapy Provision Policies Under the SNF PPS

    Currently, almost 90 percent of residents in a Medicare Part A SNF 
stay receive therapy services. Under the current RUG-IV model, therapy 
services are case mix-adjusted primarily based on the therapy minutes 
reported on the MDS. When the original SNF PPS model was developed, 
most therapy services were furnished on an individual basis, and the 
minutes reported on the MDS served as a proxy for the staff resource 
time needed to provide the therapy care. Over the years, we have 
monitored provider behavior and have made policy changes as it became 
apparent that, absent safeguards like quality measurement to ensure 
that the amount of therapy provided did not exceed the resident's 
actual needs, there were certain inherent incentives for providers to 
furnish as much therapy as possible.

[[Page 21066]]

Thus, for example, in the SNF PPS FY 2010 final rule (74 FR 40315 
through 40319), we decided to allocate concurrent therapy minutes for 
purposes of establishing the RUG-IV group to which the patient belongs, 
and to limit concurrent therapy to two patients at a time who were 
performing different activities.
    Following the decision to allocate concurrent therapy, using STRIVE 
data as a baseline, we found two significant provider behavior changes 
with regard to therapy provision under the RUG-IV payment system. 
First, there was a significant decrease in the amount of concurrent 
therapy that was provided in SNFs. Simultaneously, we observed a 
significant increase in the provision of group therapy, which was not 
subject to allocation at that time. We concluded that the manner in 
which group therapy minutes were counted in determining a patient's 
RUG-IV group created a payment incentive to provide group therapy 
rather than individual therapy or concurrent therapy, even in cases 
where individual therapy (or concurrent therapy) was more appropriate 
for the resident. Thus, we made two policy changes regarding group 
therapy in the FY 2012 SNF PPS final rule (76 FR 48511 through 48517). 
We defined group therapy as exactly four residents who are performing 
the same or similar therapy activities. Additionally, we allocated 
group therapy among the four patients participating in group therapy--
meaning that the total amount of time that a therapist spent with a 
group would be divided by 4 (the number of patients that comprise a 
group) to establish the RUG-IV group to which the patient belongs.
    Since we began allocating group therapy and concurrent therapy, 
these modes of therapy (group and concurrent) represent less than one 
percent of total therapy provided to SNF residents. Table 36, which 
appeared in the FY 2014 SNF PPS Proposed Rule (78 FR 26464) and sets 
forth our findings with respect to the effect of policies finalized in 
the FY 2012 SNF PPS Final Rule, demonstrates the change in therapy 
provision between the STRIVE study and the implementation of the 
therapy policy changes in FY 2012. We would note that the distribution 
of therapy modes presented in Table 36 reflecting therapy provision in 
FY 2012 is also an accurate reflection of current therapy provision 
based on resident data collected in the QIES Database and continued 
monitoring of therapy utilization.

                                       Table 36--Mode of Therapy Provision
----------------------------------------------------------------------------------------------------------------
                                                                      Strive          FY 2011         FY 2012
----------------------------------------------------------------------------------------------------------------
Individual......................................................             74%           91.8%           99.5%
Concurrent......................................................              25             0.8             0.4
Group...........................................................              <1             7.4             0.1
----------------------------------------------------------------------------------------------------------------

    Based on our prior experience with the provision of concurrent and 
group therapy in SNFs, we again are concerned that if we were to 
implement the proposed SNF PDPM, providers may base decisions regarding 
the particular mode of therapy to use for a given resident on financial 
considerations rather than on the clinical needs of SNF residents. 
Because the proposed SNF PDPM would not use the minutes of therapy 
provided to a resident to classify the resident for payment purposes, 
we are concerned that SNFs may once again become incentivized to 
emphasize group and concurrent therapy, over the kind of individualized 
therapy which is tailored to address each beneficiary's specific care 
needs which we believe is generally the most appropriate mode of 
therapy for SNF residents. As we stated in the FY 2012 proposed rule 
(76 CFR 26387):

    While . . . group therapy can play an important role in SNF 
patient care, we note that group therapy is not appropriate for 
either all patients or for all conditions, and is primarily 
effective as a supplement to individual therapy, which we maintain 
should be considered the primary therapy mode and standard of care 
in therapy services provided to SNF residents. As evidenced by the 
application of a cap on the amount of group therapy services that 
may be provided to SNF residents, we do not believe that a SNF 
providing the preponderance of therapy in the form of group therapy 
would be demonstrating the intensity of therapy appropriate to this 
most frail and vulnerable nursing home population.

    Since the inception of the SNF PPS, we have limited the amount of 
group therapy provided to each SNF Part A resident to 25 percent of the 
therapy provided to them by discipline. As stated in the FY 2000 final 
rule (64 FR 41662):

    Although we recognize that receiving PT, OT, or ST as part of a 
group has clinical merit in select situations, we do not believe 
that services received within a group setting should account for 
more than 25 percent of the Medicare resident's therapy regimen 
during the SNF stay. For this reason, no more than 25 percent of the 
minutes reported in the MDS may be provided within a group setting. 
This limit is to be applied for each therapy discipline; that is, 
only 25 percent of the PT minutes reported in the MDS may be minutes 
received in a group setting and, similarly, only 25 percent of the 
OT, or the ST minutes reported may be minutes received in a group 
setting.

    Although we recognize that group and concurrent therapy may have 
clinical merit in specific situations, we also continue to believe that 
individual therapy is generally the best way of providing therapy to a 
resident because it is most tailored to that specific resident's care 
needs.
    As such, individual therapy should represent the majority of the 
therapy services received by SNF residents both from a clinical and 
payment perspective. As stated in the FY 2012 proposed rule (76 CFR 
26372):

    Moreover, even under the previous RUG-53 model, it is clear that 
the predominant mode of therapy that the payment rates were designed 
to address was individual therapy rather than concurrent or group 
therapy.

    To help ensure that SNF residents would receive the majority of 
therapy services on an individual basis, if we were to implement the 
proposed PDPM, we believe concurrent and group therapy combined should 
be limited to no more than 25 percent of a SNF resident's therapy 
minutes by discipline. In combination, this limit would ensure that at 
least 75 percent of a resident's therapy minutes are provided on an 
individual basis. Because the change in how therapy services would be 
used to classify residents under the proposed PDPM gives rise to the 
concern that providers may begin to utilize more group and concurrent 
therapy due to financial considerations, we are proposing to set a 
combined 25 percent limit on concurrent therapy and group therapy for 
each discipline of therapy provided. For example, if a resident 
received 800 minutes of physical therapy, no more than 200 minutes of 
this therapy could be provided on a concurrent or group basis. Finally, 
we note that under RUG-IV, we currently allocate minutes of therapy 
because we pay for therapy

[[Page 21067]]

based on therapy minutes and not resident characteristics. Given that 
therapy minutes would no longer be a factor in determining payment 
classifications for residents under the proposed PDPM, we would utilize 
the total, unallocated number of minutes by therapy mode reported on 
the MDS, to determine compliance with the proposed limit. Utilizing 
unallocated therapy minutes also serves to underscore the patient-
driven nature of the PDPM, as it focuses the proposed limit on 
concurrent and group therapy on the way in which the therapy is 
received by the beneficiary, rather than furnished by the therapist, 
and would better ensure that individual therapy represents at least a 
vast majority of the therapy services received by a resident.
    We considered other possible limits, and even no limit, on group 
and concurrent therapy. For example, we considered placing no limit on 
group or concurrent therapy, in order to afford providers the greatest 
degree of flexibility in designing a therapy program for each SNF 
resident. However, even in response to this option to have no limit on 
concurrent and group therapy, many commenters on the ANPRM expressed 
concerns regarding the lack of appropriate safeguards for ensuring that 
SNF residents continue to receive an appropriate level of therapy under 
the revised case-mix model. We agree with these commenters and believe 
that there should be some limit on the amount of group and concurrent 
therapy that is provided to residents in order to ensure that residents 
receive an appropriate amount of individual therapy that is tailored to 
their specific needs. Also, in the ANPRM, we discussed the possibility 
of proposing a 25 percent limit on each of concurrent and group 
therapy, allowing for up to 50 percent of therapy services provided in 
the SNF to be provided in a non-individual modality. This option sought 
to balance the flexibility afforded to therapists in designing an 
appropriate therapy plan that meets the needs and goals of the specific 
resident with the importance of ensuring that SNF residents receive an 
appropriate level of individual therapy. However, we are concerned that 
a separate 25 percent limit for group and concurrent therapy would not 
provide sufficient assurance that at least a majority of a resident's 
therapy would be provided on an individual basis. Therefore, we believe 
that the separate 25 percent limits on concurrent and group therapy 
discussed in the ANPRM, or any option which would impose a higher limit 
on group and concurrent therapy, would not provide the necessary 
protection for SNF residents. By contrast, we believe that a combined 
25 percent limit on group and concurrent therapy would provide 
sufficient assurance that at least a majority of each resident's 
therapy would be provided on an individual basis, consistent with our 
position that individual therapy is generally the best way of providing 
therapy to SNF residents because it is most tailored to their care 
needs. We would also note that, assuming that existing therapy delivery 
patterns (as set forth in Table 36) are accurate and they reflect the 
individually-tailored needs of SNF residents currently being treated 
under the SNF benefit, the number of group and concurrent minutes that 
have been reported by SNFs thus far are significantly lower than the 
limit described in this proposal. In other words, based on the data 
presented in Table 36, the proposed limit on group and concurrent 
therapy affords a significantly greater degree of flexibility on 
therapy modality than appears to be required to meet the needs of SNF 
residents, given that less than one percent of therapy currently being 
delivered is either group or concurrent therapy. Therefore, a combined 
limit of 25 percent for group and concurrent therapy should provide 
SNFs with more than enough flexibility with respect to therapy mode to 
meet the care needs of their residents.
    We believe that individual therapy is usually the best mode of 
therapy provision as it permits the greatest degree of interaction 
between the resident and therapist, and should therefore represent, at 
a minimum, the majority of therapy provided to an SNF resident. 
However, we recognize that, in very specific clinical situations, group 
or concurrent therapy may be the more appropriate mode of therapy 
provision, and therefore, we would want to allow providers the 
flexibility to be able to utilize these modes. We continue to stress 
that group and concurrent therapy should not be utilized to satisfy 
therapist or resident schedules, and that all group and concurrent 
therapy should be well documented in a specific way to demonstrate why 
they are the most appropriate mode for the resident and reasonable and 
necessary for his or her individual condition. We invite comments on 
the proposal discussed above. In addition, we solicit comments on other 
ways in which therapy limits may be applied to appropriately meet the 
care needs of SNF residents.
    Currently the RUG-IV grouper calculates the percentage of group 
therapy each resident receives in the SNF based on the algorithms 
described in section 6.6 of the MDS RAI Manual (found at https://downloads.cms.gov/files/MDS-30-RAI-Manual-v115-October-2017.pdf). When 
a resident is found to have exceeded the 25 percent group therapy 
limit, the minutes of therapy received in excess are not counted 
towards the calculation of the RUG-IV therapy classification. Because 
the proposed PDPM would not use the minutes of therapy provided to a 
resident to classify the resident for payment purposes, we would need 
to determine a way under the proposed PDPM to address situations in 
which facilities exceed the combined 25 percent group and concurrent 
therapy limit.
    Therefore, we are proposing that at a component level (PT, OT, 
SLP), when the amount of group and concurrent therapy exceeds 25 
percent within a given therapy discipline, that providers would receive 
a non-fatal warning edit on the validation report that the provider 
receives when submitting an assessment which would alert the provider 
to the fact that the therapy provided to that resident exceeded the 
threshold. To explain, a fatal error in the QIES ASAP system occurs 
when one or more items in the submitted record fail to pass the 
requirements identified in the MDS data submission specifications. A 
warning error occurs when an item or combination of items in the 
submitted record trigger a non-fatal edit in the QIES ASAP system. The 
non-fatal warning would serve as a reminder to the facility that they 
are out of compliance with the proposed limit for group and concurrent 
therapy. As part of our regular monitoring efforts on SNF Part A 
services, we would monitor group and concurrent therapy utilization 
under the proposed PDPM and consider making future proposals to address 
abuses of this proposed policy or flag providers for additional review 
should an individual provider be found to consistently exceed the 
proposed threshold after the implementation of the proposed PDPM. We 
would note that as the proportion of group and/or concurrent therapy 
(which are, by definition, non-individual modes of therapy provision) 
increases, the chances that the provider is still meeting the 
individualized needs of each resident would diminish. Given that 
meeting the individualized needs of the resident is a component of 
meeting the coverage requirements for SNF Part A services, as described 
in section 1814(a)(2)(B) of the Act and further described in Section 30 
of Chapter 8 of the Medicare Benefit Policy Manual

[[Page 21068]]

(accessible at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/bp102c08.pdf) where it states that services furnished 
to SNF residents may be considered reasonable and necessary insomuch as 
the services are consistent with ``the individual's particular medical 
needs'', excessive levels of group and/or concurrent therapy could 
constitute a reason to deny SNF coverage for such stays. We invite 
comments on this proposed compliance mechanism.

G. Proposed Interrupted Stay Policy

    Under section 1812(a)(2)(A) of the Act, Medicare Part A covers a 
maximum of 100 days of SNF services per spell of illness, or ``benefit 
period''. A benefit period starts on the day the beneficiary begins 
receiving inpatient hospital or SNF benefits under Medicare Part A. 
(See section 1861(a) of the Act; Sec.  409.60). SNF coverage also 
requires a prior qualifying, inpatient hospital stay of at least 3 
consecutive days' duration (counting the day of inpatient admission but 
not the day of discharge). (See section 1861(i) of the Act; Sec.  
409.30(a)(1)). Once the 100 available days of SNF benefits are used, 
the current benefit period must end before a beneficiary can renew SNF 
benefits under a new benefit period. For the current benefit period to 
end so a new benefit period can begin, a period of 60 consecutive days 
must elapse throughout which the beneficiary is neither an inpatient of 
a hospital nor receiving skilled care in a SNF. (See section 1861(a) of 
the Act; Sec.  409.60). Once a benefit period ends, the beneficiary 
must have another qualifying 3-day inpatient hospital stay and meet the 
other applicable requirements before Medicare Part A coverage of SNF 
care can resume. (See section 1861(i); Sec.  409.30) While the majority 
of SNF benefit periods, approximately 77 percent, involve a single SNF 
stay, it is possible for a beneficiary to be readmitted multiple times 
to a SNF within a single benefit period, and such cases represent the 
remaining 23 percent of SNF benefit periods. For instance, a resident 
can be readmitted to a SNF within 30 days after a SNF discharge without 
requiring a new qualifying 3-day inpatient hospital stay or beginning a 
new benefit period. SNF admissions that occur between 31 and 60 days 
after a SNF discharge require a new qualifying 3-day inpatient hospital 
stay, but fall within the same benefit period. (See sections 1861(a) 
and (i) of the Act; Sec. Sec.  409.30, 409.60)
    Other Medicare post-acute care (PAC) benefits have ``interrupted 
stay'' policies that provide for a payment adjustment when the 
beneficiary temporarily goes to another setting, such as an acute care 
hospital, and then returns within a specific timeframe. In the 
inpatient rehabilitation facility (IRF) and inpatient psychiatric 
facility (IPF) settings, for instance, an interrupted stay occurs when 
a patient returns to the same facility (or in the case of an IPF, the 
same or another IPF) within 3 days of discharge. The interrupted stay 
policy for long-term care hospitals (LTCHs) is more complex, consisting 
of several policies depending on the length of the interruption and, at 
times, the discharge destination: An interruption of 3 or fewer days is 
always treated as an interrupted stay, which is similar to the IRF PPS 
and IPF PPS policies; if there is an interruption of more than 3 days, 
the length of the gap required to trigger a new stay varies depending 
on the discharge setting. In these three settings, when a beneficiary 
is discharged and returns to the facility within the interrupted stay 
window, Medicare treats the two segments as a single stay.
    While other Medicare PAC benefit categories have interrupted stay 
policies, the SNF benefit under the RUG-IV case-mix model has had no 
need for such a policy because given a resident's case-mix group, 
payment does not change over the course of a stay. In other words, 
assuming no change in a patient's condition or treatment, the payment 
rate is the same on Day 1 of a covered SNF stay as it is at Day 7. 
Accordingly, a beneficiary's readmission to the SNF--even if only a few 
days may have elapsed since a previous discharge--could essentially be 
treated as a new and different stay without affecting the payment 
rates.
    However, as described in section V.D. of this proposed rule, the 
proposed PDPM would adjust the per diem rate across the length of a 
stay (the variable per diem adjustment) to better reflect how and when 
costs are incurred and resources used over the course of the stay, such 
that earlier days in a given stay receive higher payments, with 
payments trending lower as the stay continues. In other words, the 
adjusted payment rate on Day 1 and Day 7 of a SNF stay may not be the 
same. Although we believe this variable per diem adjustment schedule 
more accurately reflects the increased resource utilization in the 
early portion of a stay for single-stay benefit periods (which 
represent the majority of cases), we considered whether and how such an 
adjustment should be applied to payment rates for cases involving 
multiple stays per benefit period. In other words, we considered 
instances in which a resident has a Part A stay in a SNF, leaves the 
facility for some reason, and then is readmitted to the same SNF or a 
different SNF; and how this readmission should be viewed in terms of 
both resident classification and the variable per diem adjustment 
schedule under the proposed PDPM. Application of the variable per diem 
adjustment is of particular concern because providers may consider 
discharging a resident and then readmitting the resident shortly 
thereafter to reset the resident's variable per diem adjustment 
schedule and maximize the payment rates for that resident.
    Given the potential harm which may be caused to the resident if 
discharged inappropriately, and other concerns outlined previously in 
this section, we discussed in the ANPRM the possibility of adopting an 
interrupted stay policy under the SNF PPS in conjunction with the 
implementation of the RCS-I case-mix model. Several commenters 
expressed support for this interrupted stay policy in responding to the 
ANPRM, saying that the interrupted stay policy is in alignment with 
similar policies in other post-acute settings, and that a similar 
policy would likely be implemented under any cross-setting PAC payment 
system.
    Thus, we are proposing to implement an interrupted stay policy as 
part of the SNF PPS, effective beginning FY 2020 in conjunction with 
the proposed implementation of the SNF PDPM. Specifically, in cases 
where a resident is discharged from a SNF and returns to the same SNF 
by 12:00 a.m. at the end of the third day of the interruption window 
(as defined below), we propose treating the resident's stay as a 
continuation of the previous stay for purposes of both resident 
classification and the variable per diem adjustment schedule. In cases 
where the resident's absence from the SNF exceeds this 3-day 
interruption window (as defined below), or in any case where the 
resident is readmitted to a different SNF, we propose treating the 
readmission as a new stay, in which the resident would receive a new 5-
day assessment upon admission and the variable per diem adjustment 
schedule for that resident would reset to Day 1. Consistent with the 
existing interrupted stay policies for the IRF and IPF settings, we 
would define the interruption window as the 3-day period starting with 
the calendar day of discharge and additionally including the 2 
immediately following calendar days. For the purposes of the 
interrupted stay policy, the source of the readmission would not be 
relevant. That is, the beneficiary may be readmitted from the 
community, from an

[[Page 21069]]

intervening hospital stay, or from a different kind of facility, and 
the interrupted stay policy would operate in the same manner. The only 
relevant factors in determining if the interrupted stay policy would 
apply are the number of days between the resident's discharge from a 
SNF and subsequent readmission to a SNF, and whether the resident is 
readmitted to the same or a different SNF.
    Consider the following examples, which we believe aid in clarifying 
how this policy would be implemented:

    Example A: A beneficiary is discharged from a SNF on Day 3 of 
the stay. Four days after the date of discharge, the beneficiary is 
then readmitted (as explained above, this readmission would be in 
the same benefit period) to the same SNF. The SNF would conduct a 
new 5-day assessment at the start of the second admission and 
reclassify the beneficiary accordingly. In addition, for purposes of 
the variable per diem adjustment schedule, the payment schedule for 
the second admission would reset to Day 1 payment rates for the 
beneficiary's new case-mix classification.
    Example B: A beneficiary is discharged from a SNF stay on Day 7 
and is readmitted to the same SNF within the 3-day interruption 
window. For the purposes of classification and payment, this would 
be considered a continuation of the previous stay (an interrupted 
stay). The SNF would not conduct a new 5-day assessment to 
reclassify the patient and for purposes of the variable per diem 
adjustment schedule, the payment schedule would continue where it 
left off; in this case, the first day of the second stay would be 
paid at the Day 8 per diem rates under that schedule.
    Example C: A beneficiary is discharged from a SNF stay on Day 7 
and is readmitted to a different SNF within the 3-day interruption 
window. The SNF would conduct a new 5-day assessment at the start of 
the second admission and classify the beneficiary accordingly. In 
addition, for purposes of the variable per diem adjustment schedule, 
the payment schedule for the second admission would reset to Day 1 
payment rates for the beneficiary's new case-mix classification.

    We also considered alternative ways of structuring the interrupted 
stay policy. For example, we considered possible ranges for the 
interrupted stay window other than the three calendar day window 
proposed in this rule. For example, we considered windows of fewer than 
3 days (for example, 1 or 2 day windows for readmission) as well as 
windows of more than 3 days (for example, 4 or 5 day windows for 
readmission). However, we believe that 3 days represents a reasonable 
window after which it is more likely that a resident's condition and 
resource needs will have changed. We also believe that consistency with 
other payment systems, like that of IRF and IPF, is helpful in 
providing clarity and consistency to providers in understanding 
Medicare payment systems, as well as making progress toward 
standardization among PAC payment systems.
    In addition, to determine how best to operationalize an interrupted 
stay policy within the SNF setting, we considered three broad 
categories of benefit periods consisting of multiple stays. The first 
type of scenario, SNF-to-SNF transfers, is one in which a resident is 
transferred directly from one SNF to a different SNF. The second case 
we considered, and the most common of all three multiple-stay benefit 
period scenarios, is a benefit period that includes a readmission 
following a new hospitalization between the two stays--for instance, a 
resident who was discharged from a SNF back to the community, re-
hospitalized at a later date, and readmitted to a SNF (the same SNF or 
a different SNF) following the new hospital stay. The last case we 
considered was a readmission to the same SNF or a different SNF 
following a discharge to the community, with no intervening re-
hospitalization.
    To simplify the analysis, we primarily examined benefit periods 
with two stays. Benefit periods with exactly two stays account for a 
large majority (70 percent) of all benefit periods with multiple stays, 
and benefit periods with more than two stays represent a very small 
portion (less than 7 percent) of all benefit periods overall. We 
therefore assume the data for cases where there are exactly two stays 
in a benefit period are representative of all benefit periods with 
multiple stays. Of cases where there are exactly two stays in a benefit 
period, over three quarters (76.4 percent) consist of re-
hospitalization and readmission (to the same SNF or a different SNF). 
Discharge to the community and readmission without re-hospitalization 
cases represent approximately 14 percent of cases, while direct SNF-to-
SNF transfers represent approximately 10 percent.
    For each of these case types, in which a resident was readmitted to 
a SNF after discharge, we examined whether (1) the variable per diem 
adjustment schedule should be ``reset'' back to the Day 1 rates at the 
outset of the second stay versus ``continuing'' the variable per diem 
adjustment schedule at the point at which the previous stay ended, and 
(2) a new 5-day assessment and resident classification should be 
required at the start of the subsequent SNF stay.
    With regard to the first question above, specifically whether or 
not a readmission to a SNF within the proposed 3-day interruption 
window would reset the resident's variable per diem adjustment 
schedule, in each of the cases described above, we were concerned 
generally that an interrupted stay policy that ``restarts'' the 
variable per diem adjustment schedule to Day 1 after readmissions could 
incentivize unnecessary discharges with quick readmissions. This 
concern is particularly notable in the second and third cases described 
above, as the beneficiary may return to the same facility. To 
investigate this question, we conducted linear regression analyses to 
examine changes in costs in terms of both PT/OT and NTA costs per day 
from the first to second admission for the three scenarios described 
above (SNF-to-SNF direct transfers, readmissions following re-
hospitalization, and readmissions following community discharge). As 
discussed in section V.D.4. of this proposed rule, investigations 
revealed that utilization of PT, OT, and NTA services changes over the 
course of a stay. Based on both empirical analysis and feedback from 
multiple technical expert panels, we determined that SLP and nursing 
utilization remained fairly constant over a stay. Therefore, we are 
proposing variable per diem adjustment schedules for the PT, OT, and 
NTA components but not for the SLP or nursing components. Because the 
analysis of changes in costs across two stays in a single benefit 
period is relevant to determining how the variable per diem payment 
adjustments should apply to benefit periods with multiple stays, we 
restricted our analysis to the three payment components for which we 
are proposing variable per diem adjustments (PT, OT, and NTA). For this 
analysis, both the re-hospitalization and community discharge cases 
were separated into two sub-cases: When the resident returns to the 
same SNF, and when the resident is admitted to a different SNF. By 
definition, SNF-to-SNF transfer cases always have different providers 
for the first and second stays. The regression results showed that PT/
OT costs from the first to second admission were very similar for SNF-
to-SNF transfers and for readmissions to a different provider following 
re-hospitalization or discharge to community, suggesting that the 
second admission is comparable to a new stay. NTA costs from the first 
to second admission also were very similar for SNF-to-SNF transfers. 
For readmissions following re-hospitalization or discharge to 
community, NTA costs for readmissions to the same provider were notably 
less than NTA costs for readmissions to a different provider.

[[Page 21070]]

Overall, these results suggest that a readmission to a different SNF, 
regardless of whether it was a direct SNF-to-SNF transfer, or whether 
the beneficiary was re-hospitalized or discharged to the community 
before the second admission, are more comparable to a new stay than an 
interrupted stay. Thus, we are proposing to always reset the variable 
per diem adjustment schedule to Day 1 whenever residents are discharged 
and readmitted to a different SNF. We acknowledge that this could lead 
to patterns of inappropriate discharges and readmissions that could be 
inconsistent with the intent of this policy; for example, we would be 
concerned about patients in SNF A consistently being admitted to SNF B 
to the exclusion of other SNFs in the area. Should we discover such 
behavior, we will flag these facilities for additional scrutiny and 
review and consider potential policy changes in future rulemaking. 
However, based on the results of our regression analyses, and because 
of the concern that a SNF provider could discharge and promptly readmit 
a resident to reset the variable per diem adjustment schedule to Day 1, 
in cases where a resident returns to the same provider we are proposing 
to allow the payment schedule to reset only when the resident has been 
out of the facility for at least 3 days. As previously mentioned, we 
believe that 3 days represents a reasonable window after which it is 
more likely that a resident's condition and resource needs will have 
changed, and this 3-day requirement is also consistent with the 
interrupted stay policies of similar Medicare PAC benefits. Moreover, 
while we found that PT and OT costs for cases where the gap is longer 
than 3 days are similar to PT and OT costs for cases where the gap is 
shorter than 3 days, NTA costs are notably higher for cases where the 
gap is longer than 3 days. This provides further support for resetting 
the variable per diem schedule for cases where the gap is longer than 3 
days (as costs tend to be higher, similar to a new stay). More 
information on these analyses can be found in section 3.10.3. of the 
SNF PMR technical report available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.
    With regard to the question of whether or not SNFs would be 
required to complete a new 5-day assessment and reclassify the resident 
after returning to the SNF within the proposed 3-day interruption 
window, we investigated changes in resident characteristics from the 
first to the second stay within a benefit period. First, we looked at 
changes in clinical categories from the first to second stay for 
residents with an intervening re-hospitalization. This analysis could 
only be conducted for residents with a re-hospitalization because, as 
described in section 3.10.2. of the SNF PMR technical report, for 
research purposes, classification into clinical categories was based on 
the diagnosis from the prior inpatient stay. For those residents who 
had a re-hospitalization and were readmitted to a SNF (either the same 
or a different SNF), and therefore could be reclassified into a new 
clinical category (because of new diagnostic information as a result of 
the intervening re-hospitalization), we found that a majority had the 
same clinical category for both the first and second admission. Because 
we could not conduct this investigation for SNF-to-SNF transfers or 
community discharge cases (as they lack a new hospitalization), we 
separately investigated changes in function from the first to second 
stay for SNF-to-SNF transfers and for readmissions following community 
discharge. We found that in a large majority of cases, there was no 
change in function from the first to second stay, regardless of whether 
the second provider was the same or different as the first provider. 
Thus, we believe it would be appropriate to maintain the classification 
from the first stay for those residents returning to the same SNF no 
more than 3 calendar days after discharge from the same facility. 
However, because we are proposing to exclude from the interrupted stay 
policy readmissions to a different SNF (regardless of the number of 
days between admissions) and readmissions to the same SNF when the gap 
between admissions is longer than 3 days, and to treat these 
readmissions as new stays for purpose of the variable per diem 
adjustment schedule, we believe it would be appropriate and consistent 
to treat these cases as new stays for purposes of clinical 
classification and to require a new 5-day PPS assessment. More 
information on these analyses can be found in section 3.10.2. of the 
SNF PMR technical report available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html. 
Additionally, we note that under the approach discussed in section 
V.E.1. of this proposed rule, providers would be afforded the 
flexibility to use the IPA, which would allow for resident 
reclassification under certain circumstances.
    We invite comments on the proposals outlined above. We would also 
note that we believe that frequent SNF readmissions may be indicative 
of poor quality care being provided by the SNF. Given this belief, we 
plan to monitor the use of this policy closely to identify those 
facilities whose beneficiaries experience frequent readmission, 
particularly facilities where the readmissions occur just outside the 
three-day window used as part of the proposed interrupted stay policy. 
Should we discover such behavior, we will flag these facilities for 
additional scrutiny and review and consider potential policy changes in 
future rulemaking.

H. Proposed Relationship of the PDPM to Existing Skilled Nursing 
Facility Level of Care Criteria

    As discussed previously in section IV.A. of this proposed rule, the 
establishment of the SNF PPS did not change Medicare's fundamental 
requirements for SNF coverage. However, because the case-mix adjustment 
aspect of the SNF PPS has been based, in part, on the beneficiary's 
need for skilled nursing care and therapy, we have coordinated claims 
review procedures with the existing resident assessment process and 
case-mix classification system. This approach includes an 
administrative presumption that utilizes a beneficiary's initial 
classification in one of the upper 52 RUGs of the 66-group RUG-IV 
system to assist in making certain SNF level of care determinations.
    As further discussed below, we propose to adopt a similar approach 
under the PDPM effective October 1, 2019, by retaining an 
administrative presumption mechanism that would utilize the initial 
assignment of one of the case-mix classifiers that we designate for 
this purpose to assist in making certain SNF level of care 
determinations. This designation would reflect an administrative 
presumption under the PDPM that beneficiaries who are correctly 
assigned one of the designated case-mix classifiers on the initial 5-
day, Medicare-required assessment are automatically classified as 
meeting the SNF level of care definition up to and including the 
assessment reference date on the 5-day Medicare required assessment.
    As under the existing RUG-IV administrative presumption, a 
beneficiary who is not assigned one of the designated classifiers would 
not automatically be classified as either meeting or not meeting the 
level of care definition, but instead would receive an individual level 
of care determination

[[Page 21071]]

using the existing administrative criteria. The use of the 
administrative presumption reflects the strong likelihood that those 
beneficiaries who are assigned one of the designated classifiers during 
the immediate post-hospital period require a covered level of care, 
which would be less likely for other beneficiaries.
    In the ANPRM (82 FR 21007), we discussed some potential adaptations 
of the RUG-IV model's administrative presumption to accommodate 
specific features of the RCS-I model, including the possible 
designation of the following case-mix classifiers for purposes of the 
administrative presumption:
     Continued designation of the same nursing (non-
rehabilitation) groups that currently comprise the Extensive Services, 
Special Care High, Special Care Low, and Clinically Complex categories 
under RUG-IV, as those groups would crosswalk directly from RUG-IV to 
the RCS-I model we were considering;
     In addition, designation of the most intensive functional 
score (14 to 18) under the RCS-I model's combined PT/OT component, as 
well as the uppermost comorbidity score (11+) under its NTA component.
    In response, a number of comments expressed concern that the 
possible adaptations of the presumption could adversely affect access 
to care for some beneficiaries. Others asked whether using the PT/OT 
component's highest functional score bin (14 to 18) as a trigger for 
the presumption would be appropriate, inasmuch as the residents that 
typically require the most therapy are those with only moderate 
functional impairments. In addition, commenters questioned the 
discussion's inclusion of the RCS-I model's NTA component as a possible 
classifier under the presumption, as well as its omission of RCS-I's 
SLP component.
    Regarding the commenters' concerns about access to care, we note 
that we have indicated in the ANPRM and in previous rulemaking that the 
actual purpose of the level of care presumption has always been to 
afford a streamlined and simplified administrative procedure for 
readily identifying those beneficiaries with the greatest likelihood of 
meeting the level of care criteria; however, we have also emphasized 
that in focusing on such beneficiaries, this approach in no way serves 
to disadvantage other beneficiaries who may also meet the level of care 
criteria. As we noted in the ANPRM,

. . . an individual beneficiary's inability to qualify for the 
administrative presumption would not in itself serve to disqualify 
that resident from receiving SNF coverage . . . while such residents 
are not automatically presumed to require a skilled level of care, 
neither are they automatically classified as requiring nonskilled 
care. Rather, any resident who does not qualify for the presumption 
would instead receive an individual level of care determination 
using the existing administrative criteria (82 FR 21007).

    As we further explained in the FY 2016 SNF PPS final rule, 
structuring the presumption in this manner serves ``. . . specifically 
to ensure that the presumption does not disadvantage such residents, by 
providing them with an individualized level of care determination that 
fully considers all pertinent factors'' (80 FR 46406, August 4, 2015).
    As for concerns about the appropriateness of certain classifiers, 
including the possible use of the PT/OT component's highest functional 
score bin (14 to 18) for this purpose under RCS-I, we note that the 
case-mix classification model for PT and OT that we are now proposing 
in connection with the PDPM would essentially reconfigure the PT/OT 
component from the RCS-I model. As discussed in section V.D.3.b. of 
this proposed rule, the proposed PDPM would divide the RCS-I model's 
combined PT/OT component into two separate case-mix adjusted 
components, under which each resident would be assigned separate case-
mix groups for PT and OT payment. Those groups would classify residents 
based on clinical category and function score, the two resident 
characteristics shown to be most predictive of PT and OT utilization.
    Further, as we noted in section III.B.4. of the ANPRM (``Variable 
Per Diem Adjustment Factors and Payment Schedule'') and section V.D.4. 
of this proposed rule, our initial analyses revealed that in contrast 
to the SLP component--where per diem costs remain relatively constant 
over time--costs for the PT, OT, and NTA components typically are 
highest at the outset and then decline over the course of the stay. Our 
research to date continues to show a strong correlation between the 
dependent variables used for the proposed separate PT and OT components 
and a similarity in predictors, in that the associated costs for both 
therapy disciplines remain highest in the initial (and typically most 
intensive) portion of the SNF stay. This heightened resource intensity 
during the initial part of the SNF stay under the PT, OT, and NTA 
components, in turn, more closely reflects the distinctive utilization 
patterns that served as the original foundation for the level of care 
presumption itself--that is, the tendency as noted in the FY 2000 SNF 
PPS final rule for ``. . . SNF stays to be at their most intensive and 
unstable immediately following admission as justifying a presumption of 
coverage at the very outset of the SNF stay'' (64 FR 41667, July 30, 
1999). We believe this would make the most intensive classifiers within 
each of these three proposed components well-suited to serve as 
clinical proxies for identifying those beneficiaries with the most 
intensive care needs and greatest likelihood of requiring an SNF level 
of care.
    Accordingly, for purposes of the administrative presumption under 
the proposed PDPM, we propose to continue utilizing the same designated 
nursing (non-rehabilitation) categories under the PDPM as have been 
used to date under RUG-IV. We note that the most direct crosswalk 
between the existing RUG-IV model and the proposed PDPM would involve 
nursing services, for which, under the proposed PDPM, each resident 
would continue to be classified into one of the groups that fall within 
the existing non-rehabilitation RUG-IV categories. (As explained in 
section V.D.3.d. of this proposed rule, while the total number of 
nursing case-mix groups would be streamlined from the current 43 under 
RUG-IV down to 25 under PDPM through the consolidation of similar 
groups within individual categories, the overall number and structure 
of the nursing categories themselves would remain the same.) Under our 
proposal, effective in conjunction with the proposed implementation of 
the PDPM (that is, as of October 1, 2019), the administrative 
presumption would apply to those groups encompassed by the same nursing 
categories as are currently designated for this purpose under the 
existing RUG-IV model:
     Extensive Services;
     Special Care High;
     Special Care Low; and,
     Clinically Complex.
    In addition, along with the continued use of the RUG-IV nursing 
categories above, we also propose to apply the administrative 
presumption using those other classifiers under the proposed PDPM that 
we believe would relate the most directly to identifying a patient's 
need for skilled care at the outset of the SNF stay. As explained 
below, we would designate such classifiers for this purpose based on 
their ability to fulfill the administrative presumption's role as 
described in the FY 2000 SNF PPS final rule--that is, to identify those 
``. . . situations that involve a high

[[Page 21072]]

probability of the need for skilled care . . . when taken in 
combination with the characteristic tendency . . . for an SNF 
resident's condition to be at its most unstable and intensive state at 
the outset of the SNF stay'' (64 FR 41668 through 41669, July 30, 
1999).
    Specifically, we additionally propose to designate for this purpose 
proposed PT and OT case-mix groups TB, TC, TD, TF, and TG, the groups 
displayed in Table 21 that collectively account for the five highest 
case-mix indexes for PT as well as for OT and, thus, would consistently 
be associated with the most resource-intensive care across both of 
these therapy disciplines. We also propose to designate the uppermost 
comorbidity group (11+) under the NTA component, as we believe this 
particular classifier would serve to identify those cases that are the 
most likely to involve the kind of complex medication regimen (for 
example, a highly intensive drug requiring specialized expertise to 
administer, or an exceptionally large and diverse assortment of 
medications posing an increased risk of adverse drug interactions) that 
would require skilled oversight to manage safely and effectively.
    Under this proposed approach, those residents not classifying into 
a case-mix group in one of the designated nursing RUG categories under 
the proposed PDPM on the initial, 5-day Medicare-required assessment 
could nonetheless still qualify for the administrative presumption on 
that assessment by being placed in one of the designated case-mix 
groups for either the PT or OT components, or by receiving the 
uppermost comorbidity score (11+) under the NTA component. We believe 
that these particular clinical indicators would appropriately serve to 
fulfill the administrative presumption's role of identifying those 
cases with the highest probability of requiring an SNF level of care 
throughout the initial portion of the SNF stay. We note that in order 
to help improve the accuracy of these newly-designated groups in 
serving this function, we would continue to review the new designations 
going forward and may make further adjustments to the proposed 
designations over time as we gain actual operating experience under the 
new classification model. As discussed above, this administrative 
presumption mechanism would take effect October 1, 2019 in conjunction 
with the proposed PDPM. We invite comments on our proposed 
administrative presumption mechanism under the proposed PDPM.

I. Effect of Proposed PDPM on Temporary AIDS Add-on Payment

    As discussed in section III.C. of this proposed rule and also in 
section III.E. of the ANPRM, section 511(a) of the MMA amended section 
1888(e)(12) of the Act to provide for a temporary increase of 128 
percent in the PPS per diem payment for any SNF residents with Acquired 
Immune Deficiency Syndrome (AIDS), effective with services furnished on 
or after October 1, 2004. This special add-on for SNF residents with 
AIDS was intended to be of limited duration, as the MMA legislation 
specified that it was to remain in effect only 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 temporary add-on for SNF residents with AIDS is also discussed 
in Program Transmittal #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, August 
11, 2009), we did not address this certification 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 time being.
    In the House Ways and Means Committee Report that accompanied the 
MMA, the explanation of the MMA's temporary AIDS adjustment notes the 
following under Reason for Change: ``According to prior work by the 
Urban Institute, AIDS patients have much higher costs than other 
patients in the same resource utilization groups in skilled nursing 
facilities. The adjustment is based on that data analysis'' (H. Rep. 
No. 108-178, Part 2 at 221). The data analysis from that February 2001 
Urban Institute study (entitled ``Medicare Payments for Patients with 
HIV/AIDS in Skilled Nursing Facilities''), in turn, had been conducted 
under a Report to Congress mandated under a predecessor provision, 
section 105 of the BBRA. This earlier BBRA provision, which ultimately 
was superseded by the temporary AIDS add-on provision required by the 
MMA, had amended section 1888(e)(12) of the Act to provide for special 
consideration for facilities serving specialized patient populations 
(that is, those who are ``immuno-compromised secondary to an infectious 
disease, with specific diagnoses as specified by the Secretary'').
    As we noted in the ANPRM, at this point over a decade and a half 
has elapsed since the Urban Institute conducted its study on AIDS 
patients in SNFs, a period that has seen major advances in the state of 
medical practice in treating this condition. These advances have 
notably included the introduction of powerful new drugs and innovative 
prescription regimens that have dramatically improved the ability to 
manage the viral load (the amount of human immunodeficiency virus (HIV) 
in the blood). The decrease in viral load secondary to medications has 
contributed to a shift from intensive nursing services for AIDS-related 
illnesses to an increase in antiretroviral therapy. This phenomenon, in 
turn, is reflected in our recent analysis of differences in SNF 
resource utilization, which indicates that while the overall historical 
disparity in costs between AIDS and non-AIDS patients has not entirely 
disappeared, that disparity is now far greater with regard to drugs 
than it is for nursing. Specifically, NTA costs per day for residents 
with AIDS were 151 percent higher than those for other residents while 
the difference in wage-weighted nursing staff time between the two 
groups was only 19 percent, as discussed in section 3.8.3. of the SNF 
PRM technical report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html), which 
the ANPRM referenced for further information on the underlying data 
analysis (82 FR 21007 through 21008). In the ANPRM, we also described 
how the RCS-I model would account for those NTA costs, including drugs, 
which specifically relate to residents with AIDS (82 FR 20997 through 
20999). We additionally discussed the possibility of making a specific 
19 percent AIDS adjustment as part of the case-mix adjustment of the 
nursing component (82 FR 20995 through 20997). We further expressed our 
belief that,

. . . when taken collectively, these adjustments . . . would 
appropriately serve to justify issuing the certification prescribed 
under section 511(a) of the MMA . . . which would permit the MMA's 
existing, temporary AIDS add-on to be replaced by a permanent 
adjustment in the case mix . . . that appropriately compensates for 
the increased costs associated with these residents (82 FR 21008).

    In response, we received comments expressing concerns that a 
projected 40 percent drop in overall payments for SNF residents with 
AIDS under the RCS-I model could adversely affect access to care for 
this patient population. Regarding those concerns,

[[Page 21073]]

we note that the special add-on for SNF residents with AIDS itself was 
never meant to be permanent, and does not serve as a specific benchmark 
for use in establishing either the appropriate methodology or level of 
payment for this patient population. Rather, as discussed in the ANPRM, 
it was designed to be only a temporary measure, representing a general 
approximation that reflected the current state of research and clinical 
practice at the time (82 FR 21007 through 21008). As such, the special 
add-on would not account for the significant changes in the care and 
treatment of this condition that have occurred over the intervening 
years. Moreover, as a simple across-the-board multiplier, the MMA 
adjustment by its very nature is not accurately targeted at those 
particular rate components that actually account for the disparity in 
cost between AIDS patients and others.
    As discussed previously in section V.D.3.e. of this proposed rule, 
based on our updated investigations into the adequacy of payments under 
the proposed PDPM for residents with HIV/AIDS, we believe that the four 
proposed ancillary payment components (PT, OT, SLP, and NTA) adequately 
reimburse ancillary costs associated with HIV/AIDS residents (see 
section 3.8.2. of the SNF PDPM technical report, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html). Therefore, we believe it would be appropriate to 
issue the prescribed certification under section 511(a) of the MMA on 
the basis of the proposed PDPM's ancillary case-mix adjustment alone, 
as effectively providing the required appropriate adjustment in the 
case mix to compensate for the increased costs associated with such 
residents. However, to further ensure that the proposed PDPM would 
account as fully as possible for any remaining disparity with regard to 
nursing costs, as discussed in section V.D.3.d., we are additionally 
proposing to include a specific AIDS adjustment as part of the case-mix 
adjustment of the nursing component. As discussed in section V.D.3.d. 
of this proposed rule, we used the STRIVE data to quantify the effects 
of HIV/AIDS diagnosis on nursing resource use. Regression analyses 
found that wage-weighted nursing staff time is 18 percent higher for 
residents with HIV/AIDS, controlling for the non-rehabilitation RUG of 
the resident. We note that this figure is slightly lower than the 19 
percent increase in wage-weighted nursing staff time reported in the 
ANPRM and the SNF PRM technical report because the updated 
investigation uses a FY 2017 study population and is based on the PDPM 
case-mix groups, while the earlier analysis was based on a FY 2014 
study population and the RCS-I case-mix groups. More information on 
this analysis can be found in section 3.8.2. of the SNF PDPM technical 
report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html). Thus, we are proposing an 
18 percent increase in payment for the nursing component for residents 
with HIV/AIDS under the proposed PDPM to account for the increased 
nursing costs for such residents. Similar to the NTA adjustment for 
residents with HIV/AIDS discussed in section V.D.3.e. of this proposed 
rule, this adjustment would be identified by ICD-10-CM code B20 on the 
SNF claim and would be processed through the PRICER software used by 
CMS to set the appropriate payment rate for a resident's SNF stay. The 
18 percent adjustment would be applied to the unadjusted base rate for 
the nursing component, and then this amount would be further case-mix 
adjusted per the resident's PDPM classification.
    We believe that when taken collectively, these adjustments under 
the proposed PDPM would appropriately serve to justify issuing the 
certification prescribed under section 511(a) of the MMA effective with 
the proposed conversion to the PDPM on October 1, 2019, thus permitting 
the MMA's existing, temporary AIDS add-on to be replaced by a permanent 
adjustment in the case mix (as proposed under the PDPM) that 
appropriately compensates for the increased costs associated with these 
residents. We invite comments on this proposal.
    At the same time, we acknowledge that even with an accurately 
targeted model that compensates for the increased costs of SNF 
residents with AIDS, an abrupt conversion to an altogether different 
payment methodology might nevertheless be potentially disruptive for 
facilities, particularly those that serve a significant number of 
patients with AIDS and may have become accustomed to operating under 
the existing payment methodology for those patients. Accordingly, we 
specifically invite comments on possible ways to help mitigate any 
potential disruption stemming from the proposed replacement of the 
special add-on payment with the permanent case-mix adjustments for SNF 
residents with AIDS under the proposed PDPM.

J. Potential Impacts of Implementing the Proposed PDPM and Proposed 
Parity Adjustment

    This section outlines the projected impacts of implementing the 
proposed PDPM effective October 1, 2019 under the SNF PPS and the 
related policy proposals in sections V.A. through V.I of this proposed 
rule that would be effective in conjunction with the proposed PDPM.
    This impact analysis makes a series of assumptions, as described 
below. First, the impacts presented here assume consistent provider 
behavior in terms of how care is provided under RUG-IV and how care 
might be provided under the proposed PDPM, as we do not make any 
attempt to anticipate or predict provider reactions to the 
implementation of the proposed PDPM. That being said, we acknowledge 
the possibility that implementing the proposed PDPM could substantially 
affect resident care and coding behaviors. Most notably, based on the 
concerns raised during a number of TEPs, we acknowledge the possibility 
that, as therapy payments under the proposed PDPM would not have the 
same connection to service provision as they do under RUG-IV, it is 
possible that some providers may choose to reduce their provision of 
therapy services to increase margins under the proposed PDPM. However, 
we do not have any basis on which to assume the approximate nature or 
magnitude of these behavioral responses, nor have we received any 
sufficiently specific guidance on the likely nature or magnitude of 
behavioral responses from ANPRM commenters, TEP panelists, or other 
sources of feedback. As a result, lacking an appropriate basis to 
forecast behavioral responses, we do not adjust our analyses of 
resident and provider impacts discussed in this section for projected 
changes in provider behavior. However, we do intend to monitor behavior 
which may occur in response to the implementation of PDPM, if 
finalized, and may consider proposing policies to address such 
behaviors to the extent determined appropriate. Additionally, we 
acknowledge that a number of states utilize some form of the RUG-IV 
case-mix classification system as part of their Medicaid programs and 
that any change in Medicare policy can have an impact on state 
programs. Again, we do not have any basis on which to assume the 
approximate nature or magnitude of these responses, for the same 
reasons cited above. Additionally, we do not expect impacts on state 
Medicaid programs resulting from PDPM

[[Page 21074]]

implementation to have a notable impact on payments for Medicare-
covered SNF stays, which are the basis for the impact analyses 
discussed in this section. Therefore, we do not consider possible 
changes to state Medicaid programs when conducting these analyses. We 
invite comments on our assumptions that behavior would remain unchanged 
under the proposed PDPM and that changes in state Medicaid programs 
resulting from PDPM implementation would not have a notable impact on 
payments for Medicare-covered SNF stays. We also invite comment on the 
impact of these policy proposals on state Medicaid programs.
    As with prior system transitions, we propose to implement the 
proposed PDPM case-mix system, along with the other policy changes 
discussed in section V of this proposed rule, in a budget neutral 
manner through application of a parity adjustment to the case-mix 
weights under the proposed PDPM, as further discussed below. We are 
proposing to implement the PDPM in a budget neutral manner because, as 
with prior system transitions, in proposing changes to the case-mix 
methodology, we do not intend to change the aggregate amount of 
Medicare payments to SNFs. Rather, we aim to utilize a case-mix 
methodology to classify residents in such a manner as to best ensure 
that payments made for specific residents are an accurate reflection of 
resource utilization without introducing potential incentives which 
could encourage inappropriate care delivery, as we believe may exist 
under the current case-mix methodology. Therefore, the impact analysis 
presented here assumes implementation of these proposed changes in a 
budget neutral manner. We invite comments on the proposal, as further 
discussed below, to implement the PDPM in a budget neutral manner. In 
addition, we solicit comment on whether it would be appropriate to 
implement the proposed PDPM in a manner that is not budget neutral.
    As discussed above, the impact analysis presented here assumes 
implementation of these changes in a budget neutral manner without a 
behavioral change. The prior sections describe how case-mix weights are 
set to reflect relative resource use for each case-mix group. The 
proposed PDPM payment before application of a parity adjustment would 
be calculated using the unadjusted CMI for each component, the variable 
per diem payment adjustment schedule, the unadjusted urban and rural 
federal per diem rates shown in Tables 12 and 13, the labor-related 
share, and the geographic wage indexes. In applying a parity adjustment 
to the case-mix weights, we would maintain the relative value of each 
CMI but would multiply every CMI by a ratio to achieve parity in 
overall SNF PPS payments under the proposed PDPM and under the RUG-IV 
case-mix model. The parity adjustment multiplier is calculated through 
the following steps. First, we calculate RUG-IV total payment. Total 
RUG-IV payments are calculated by adding total allowed amounts across 
all FY 2017 SNF claims. The total allowed amount in the study 
population is the summation of Medicare and non-Medicare payments for 
Medicare-covered days. More specifically, it is the sum of Medicare 
claim payment amount, National Claim History (NCH) primary payer claim 
paid amount, NCH beneficiary inpatient deductible amount, NCH 
beneficiary Part A coinsurance liability amount, and NCH beneficiary 
blood deductible liability amount. Second, we calculate what total 
payment would have been under the proposed PDPM in FY 2017 before 
application of the parity adjustment. Total estimated payments under 
PDPM are calculated by summing the predicted payment for each case-mix 
component together for all FY 2017 SNF stays. This represents the total 
allowed amount if PDPM had been in place in FY 2017. Total estimated FY 
2017 payments under the proposed PDPM are calculated using resident 
information from FY 2017 SNF claims, the MDS assessment, and other 
Medicare claims, as well as the unadjusted CMI for each component, the 
variable per diem payment adjustment schedule, the unadjusted urban and 
rural federal per diem rates shown in Tables 12 and 13, the labor-
related share, and the geographic wage indexes. After calculating total 
actual RUG-IV payments and total estimated case-mix-related PDPM 
payments, we subtract non-case-mix component payments from total RUG-IV 
payments, as this component does not change across systems. This 
subtraction does not include the temporary add-on for residents with 
HIV/AIDS in the RUG-IV system, which PDPM replaces with additional 
payments for residents with HIV/AIDS through the NTA and nursing 
components (as discussed in sections V.I. of this proposed rule). By 
retaining the portion of non-case-mix component payments associated 
with the temporary HIV/AIDS add-on in total RUG-IV payments, all 
payments associated with the add-on under RUG-IV are re-allocated to 
the case-mix-adjusted components in PDPM. This is appropriate because, 
as discussed, under the proposed PDPM, additional payments for 
residents with HIV/AIDS are made exclusively through the case-mix-
adjusted components (that is, the nursing and NTA components). Lastly, 
in calculating budget neutrality, we must set total estimated case-mix-
related payment under PDPM such that it equals total allowable Medicare 
payments under RUG-IV. To do this, we divide the remaining total RUG-IV 
payments over the remaining total estimated PDPM payments prior to the 
parity adjustment. This division yields a ratio (parity adjustment) of 
1.46 by which the proposed PDPM CMIs are multiplied so that total 
estimated payments under the proposed PDPM would be equal to total 
actual payments under RUG-IV, assuming no changes in the population, 
provider behavior, and coding. If this parity adjustment had not been 
applied, total estimated payments under the proposed PDPM would be 46 
percent lower than total actual payments under RUG-IV, therefore the 
implementation of the proposed PDPM would not be budget neutral. We 
invite comments on our proposal discussed above to apply a parity 
adjustment to the CMIs under the proposed PDPM and to implement the 
proposed PDPM in a budget neutral manner. More details regarding this 
calculation and analysis are described in section 3.11.2. of the SNF 
PDPM technical report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html). The 
impact analysis presented in this section focuses on how payments under 
the proposed PDPM would be re-allocated across different resident 
groups and among different facility types, assuming implementation in a 
budget neutral manner.
    The projected resident-level impacts are presented in Table 37. The 
first column identifies different resident subpopulations and the 
second column shows what percent of SNF stays in FY 2017 are 
represented by the given subpopulation. The third column shows the 
projected change in total payments for residents in a given 
subpopulation, represented as a percentage change in actual FY 2017 
payments made for that subpopulation under RUG-IV versus estimated 
payments which would have been made to that subpopulation in FY 2017 
had the proposed PDPM been in place. Total RUG-IV payments are 
calculated by adding total allowed amounts across all FY 2017 SNF 
claims associated with a resident subpopulation. The total allowed

[[Page 21075]]

amount in the study population is the summation of Medicare and non-
Medicare payments for Medicare-covered days. More specifically, it is 
the summation of Medicare claim payment amount, NCH primary payer claim 
paid amount, NCH beneficiary inpatient deductible amount, NCH 
beneficiary Part A coinsurance liability amount, and NCH beneficiary 
blood deductible liability amount. Payments corresponding to the non-
case-mix component are subtracted from the RUG-IV total payments, not 
including the portion of non-case-mix payments corresponding to the 
temporary add-on for residents with HIV/AIDS. Total estimated payments 
under PDPM are calculated by summing the predicted payment for each 
case-mix component together for all FY 2017 SNF stays associated with a 
resident subpopulation. Positive changes in this column represent a 
projected positive shift in payments for that subpopulation under the 
proposed PDPM, while negative changes in this column represent 
projected negative shifts in payment for that subpopulation. More 
information on the construction of current payments under RUG-IV and 
payments under the proposed PDPM for purposes of this impact analysis 
can be found in section 3.12. of the SNF PDPM technical report 
(available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html). Based on the data presented in 
Table 37, we observe that the most significant shift in payments 
created by implementation of the proposed PDPM would be to redirect 
payments away from residents who are receiving very high amounts of 
therapy under the current SNF PPS, which strongly incentivizes the 
provision of therapy, to residents with more complex clinical needs. 
For example, we project that for residents whose most common therapy 
level is RU (ultra-high therapy)--the highest therapy level, there 
would be a reduction in associated payments of 8.4 percent, while 
payments for residents currently classified as non-rehabilitation would 
increase by 50.5 percent. Other resident types for which there may be 
higher relative payments under the proposed PDPM are: Residents who 
have high NTA costs, receive extensive services, are dually enrolled in 
Medicare and Medicaid, use IV medication, have ESRD, diabetes, or a 
wound infection, receive amputation/prosthesis care, and/or have longer 
prior inpatient stays.
    In response to comments received on the ANPRM, we investigated a 
few additional subpopulations that commenters believed were not 
adequately accounted for under the RCS-I model, including residents 
with addictions, bleeding disorders, behavioral issues, chronic 
neurological conditions, and bariatric care. Table 37 shows that the 
proposed PDPM is projected to increase the proportion of total payment 
associated with each of those subpopulations.

         Table 37--Proposed PDPM Impact Analysis, Resident-Level
------------------------------------------------------------------------
        Resident characteristics            % of stays    Percent change
------------------------------------------------------------------------
All Stays...............................           100.0             0.0
Sex:
    Female..............................            60.3            -0.8
    Male................................            39.7             1.2
Age:
    Below 65 years......................            10.3             7.2
    65-74 years.........................            24.1             3.1
    75-84 years.........................            32.5            -0.4
    85-89 years.........................            17.6            -3.1
    Over 90 years.......................            15.6            -4.3
Race/Ethnicity:
    White...............................            83.8            -0.2
    Black...............................            11.2             0.8
    Hispanic............................             1.7             0.9
    Asian...............................             1.3            -0.6
    Native American.....................             0.5             7.1
    Other or Unknown....................             1.5             0.8
Medicare/Medicaid Dual Status:
    Dually Enrolled.....................            34.7             3.3
    Not Dually Enrolled.................            65.3            -2.1
Original Reason for Medicare Enrollment:
    Aged................................            74.6            -1.7
    Disabled............................            24.5             4.8
    ESRD................................             0.9            10.5
Utilization Days:
    1-15 days...........................            35.4            13.7
    16-30 days..........................            33.8             0.0
    31+ days............................            30.9            -2.5
Utilization Days = 100:
    No..................................            98.4             0.1
    Yes.................................             1.6            -1.9
Length of Prior Inpatient Stay:
    0-2 days............................             2.2             1.3
    3 days..............................            22.5            -3.3
    4-30 days...........................            73.6             0.7
    31+ days............................             1.7             6.7
Most Common Therapy Level:
    RU..................................            58.4            -8.4
    RV..................................            22.4            11.4
    RH..................................             6.8            27.4
    RM..................................             3.3            41.1

[[Page 21076]]

 
    RL..................................             0.1            67.5
    Non-Rehab...........................             9.1            50.5
Number of Therapy Disciplines Used:
    0...................................             2.3            63.1
    1...................................             2.4            44.2
    2...................................            51.6             1.6
    3...................................            43.7            -3.1
Physical Therapy Utilization:
    No..................................             3.7            50.9
    Yes.................................            96.3            -0.7
Occupational Therapy Utilization:
    No..................................             4.5            47.7
    Yes.................................            95.5            -0.8
Speech Language Pathology Utilization:
    No..................................            55.0             2.8
    Yes.................................            45.0            -2.5
Therapy Utilization:
    PT+OT+SLP...........................            43.7            -3.1
    PT+OT Only..........................            50.8             1.3
    PT+SLP Only.........................             0.4            27.3
    OT+SLP Only.........................             0.4            30.1
    PT Only.............................             1.3            41.3
    OT Only.............................             0.6            47.9
    SLP Only............................             0.5            46.8
    Non-Therapy.........................             2.3            63.1
NTA Costs ($):
    0-10................................            13.7            -3.5
    10-50...............................            44.5            -3.2
    50-150..............................            32.2             4.2
    150+................................             9.6            18.7
NTA Comorbidity Score:
    0...................................            23.5           -10.4
    1-2.................................            30.5            -4.7
    3-5.................................            31.0             4.0
    6-8.................................             9.9            15.0
    9-11................................             3.6            24.4
    12+.................................             1.4            27.2
Extensive Services Level:
    Tracheostomy and Ventilator/                     0.3            22.2
     Respirator.........................
    Tracheostomy or Ventilator/                      0.6             7.3
     Respirator.........................
    Infection Isolation.................             1.1             9.1
    Neither.............................            98.0            -0.3
CFS Level:
    Cognitively Intact..................            58.5            -0.3
    Mildly Impaired.....................            20.7            -0.2
    Moderately Impaired.................            16.8            -0.7
    Severely Impaired...................             3.9             8.8
Clinical Category:
    Acute Infections....................             6.5             3.4
    Acute Neurologic....................             6.4            -3.7
    Cancer..............................             4.6            -3.2
    Cardiovascular and Coagulations.....             9.8             0.5
    Major Joint Replacement or Spinal                8.6            -2.1
     Surgery............................
    Medical Management..................            30.4             0.0
    Non-Orthopedic Surgery..............            10.8             5.7
    Non-Surgical Orthopedic/                         5.9            -6.1
     Musculoskeletal....................
    Orthopedic Surgery (Except Major                 8.9            -2.4
     Joint Replacement or Spinal
     Surgery)...........................
    Pulmonary...........................             8.1             5.4
Level of Complications in MS-DRG of
 Prior Inpatient Stay:
    No Complication.....................            35.8            -3.1
    CC/MCC..............................            64.2             1.7
Stroke:
    No..................................            90.9             0.0
    Yes.................................             9.1             0.3
HIV/AIDS:
    No..................................            99.7             0.3
    Yes.................................             0.3           -40.5
IV Medication:
    No..................................            91.7            -2.1
    Yes.................................             8.3            23.5
Diabetes:

[[Page 21077]]

 
    No..................................            64.0            -3.0
    Yes.................................            36.0             5.4
Wound Infection:
    No..................................            98.9            -0.3
    Yes.................................             1.1            22.2
Amputation/Prosthesis Care:
    No..................................           100.0             0.0
    Yes.................................             0.0             6.4
Presence of Dementia:
    No..................................            70.9             0.5
    Yes.................................            29.1            -1.2
MDS Alzheimer's:
    No..................................            95.2             0.0
    Yes.................................             4.8            -0.3
    Unknown.............................             0.0             5.0
Presence of Addictions:
    No..................................            94.6            -0.1
    Yes.................................             5.4             1.8
Presence of Bleeding Disorders:
    No..................................            90.9            -0.1
    Yes.................................             9.1             1.5
Presence of Behavioral Issues:
    No..................................            53.1            -0.9
    Yes.................................            46.9             1.0
Presence of Chronic Neurological
 Conditions:
    No..................................            74.4            -0.2
    Yes.................................            25.6             0.6
Presence of Bariatric Care:
    No..................................            91.3            -0.6
    Yes.................................             8.7             6.5
------------------------------------------------------------------------

    The projected provider-level impacts are presented in Table 38. The 
first column identifies different facility subpopulations and the 
second column shows what percentage of SNFs in FY 2017 are represented 
by the given subpopulation. The third column shows the projected change 
in total payments for facilities in a given subpopulation, represented 
as a percentage change in actual FY 2017 payments made for that 
subpopulation under RUG-IV versus estimated payments which would have 
been made to that subpopulation in FY 2017 had the proposed PDPM been 
in place. Total RUG-IV payments are calculated by adding total allowed 
amounts across all FY 2017 SNF claims associated with a facility 
subpopulation. The total allowed amount in the study population is the 
summation of Medicare and non-Medicare payments for Medicare-covered 
days. More specifically, it is the summation of Medicare claim payment 
amount, NCH primary payer claim paid amount, NCH beneficiary inpatient 
deductible amount, NCH beneficiary Part A coinsurance liability amount, 
and NCH beneficiary blood deductible liability amount. Payments 
corresponding to the non-case-mix component are subtracted from the 
RUG-IV total payments, not including the portion of non-case-mix 
payments corresponding to the temporary add-on for residents with HIV/
AIDS. Total estimated payments under PDPM are calculated by summing the 
predicted payment for each case-mix component together for all FY 2017 
SNF stays associated with a facility subpopulation. Positive changes in 
this column represent a projected positive shift in payments for that 
subpopulation under the proposed PDPM, while negative changes in this 
column represent projected negative shifts in payment for that 
subpopulation. More information on the construction of current payments 
under RUG-IV and payments under the proposed PDPM for purposes of this 
impact analysis can be found in section 3.12. of the SNF PDPM technical 
report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html). Based on the data 
presented in Table 38, we observe that the most significant shift in 
Medicare payments created by implementation of the proposed PDPM would 
be from facilities with a high proportion of rehabilitation residents 
(particularly facilities with high proportions of Ultra-High 
Rehabilitation residents) to facilities with high proportions of non-
rehabilitation residents. We project that payments to facilities that 
bill 0 to 10 percent of utilization days as RU (ultra-high 
rehabilitation) would increase an estimated 27.6 percent under the 
proposed PDPM while facilities that bill 90 to 100 percent of 
utilization days as RU would see an estimated decrease in payments of 
9.8 percent. Other facility types that may see higher relative payments 
under the proposed PDPM are small facilities, non-profit facilities, 
government-owned facilities, and hospital-based and swing-bed 
facilities.

         Table 38--Proposed PDPM Impact Analysis, Facility-Level
------------------------------------------------------------------------
        Provider characteristics          % of providers  Percent change
------------------------------------------------------------------------
All Stays...............................           100.0             0.0
Ownership:

[[Page 21078]]

 
    For profit..........................            72.0            -0.7
    Non-profit..........................            22.6             1.9
    Government..........................             5.4             4.2
Number of Certified SNF Beds:
    0-49................................            10.0             3.5
    50-99...............................            38.2             0.6
    100-149.............................            34.7            -0.2
    150-199.............................            11.1            -0.3
    200+................................             5.9            -1.8
Location:
    Urban...............................            72.7            -0.7
    Rural...............................            27.3             3.8
Facility Type:
    Freestanding........................            96.2            -0.3
    Hospital-Based/Swing Bed............             3.8            16.7
Location by Facility Type:
    Urban [verbar] Freestanding.........            70.6            -1.0
    Urban [verbar] Hospital-Based/Swing              2.2            15.3
     Bed................................
    Rural [verbar] Freestanding.........            25.6             3.2
    Rural [verbar] Hospital-Based/Swing              1.6            21.1
     Bed................................
Census Division:
    New England.........................             5.9             2.0
    Middle Atlantic.....................            10.8            -2.6
    East North Central..................            20.6             0.7
    West North Central..................            12.5             6.7
    South Atlantic......................            15.7            -0.4
    East South Central..................             6.6             1.0
    West South Central..................            13.1            -1.0
    Mountain............................             4.7             1.1
    Pacific.............................            10.1            -0.8
Location by Region:
    Urban [verbar] New England..........             5.1             1.8
    Urban [verbar] Middle Atlantic......             9.5            -2.9
    Urban [verbar] East North Central...            14.4            -0.1
    Urban [verbar] West North Central...             6.0             4.6
    Urban [verbar] South Atlantic.......            12.6            -1.1
    Urban [verbar] East South Central...             3.6             0.3
    Urban [verbar] West South Central...             8.7            -1.2
    Urban [verbar] Mountain.............             3.4             0.1
    Urban [verbar] Pacific..............             9.5            -0.9
    Rural [verbar] New England..........             0.8             4.0
    Rural [verbar] Middle Atlantic......             1.3             2.7
    Rural [verbar] East North Central...             6.2             3.6
    Rural [verbar] West North Central...             6.5            10.5
    Rural [verbar] South Atlantic.......             3.1             4.2
    Rural [verbar] East South Central...             3.0             2.1
    Rural [verbar] West South Central...             4.4            -0.1
    Rural [verbar] Mountain.............             1.3             6.2
    Rural [verbar] Pacific..............             0.6             2.2
% Stays with Maximum Utilization Days =
 100:
    0-10%...............................            94.4             0.1
    10-25%..............................             5.1            -2.8
    25-100%.............................             0.4            -3.6
% Medicare/Medicaid Dual Enrollment:
    0-10%...............................             8.6            -1.3
    10-25%..............................            17.5            -1.3
    25-50%..............................            36.0             0.3
    50-75%..............................            26.5             1.3
    75-90%..............................             8.2             0.4
    90-100%.............................             3.1             1.6
% Utilization Days Billed as RU:
    0-10%...............................             8.9            27.6
    10-25%..............................             8.0            15.5
    25-50%..............................            24.1             7.0
    50-75%..............................            39.2            -0.4
    75-90%..............................            17.2            -6.0
    90-100%.............................             2.6            -9.8
% Utilization Days Billed as Non-Rehab:
    0-10%...............................            79.8            -1.5
    10-25%..............................            16.6             8.6
    25-50%..............................             2.7            23.1

[[Page 21079]]

 
    50-75%..............................             0.4            35.8
    75-90%..............................             0.2            41.8
    90-100%.............................             0.4            33.6
------------------------------------------------------------------------

    In addition to the impacts discussed throughout this section, we 
also note that we expect a significant reduction in regulatory burden 
under the SNF PPS, due to the changes we are proposing in the MDS 
assessment schedule, as discussed above in section V.E.1. of this 
proposed rule. Based on the calculations outlined in section VII.B.1. 
of this proposed rule, we anticipate that the proposed assessment 
schedule changes discussed in this rule would reduce administrative 
costs for each provider by approximately $12,000 and reduce the time 
for administrative issues by approximately 183 hours for each provider. 
We anticipate that this proposed reduction in administrative burden 
would permit providers greater flexibility in interacting with their 
patients and focusing on their patient's individual care needs.
    With regard to the proposed changes to the SNF PPS discussed in 
section V of this proposed rule, we provide an accounting of our 
reasons for each of the proposed policies throughout the subsections in 
section V and invite comments on any of those proposed changes. In this 
section, we discuss alternatives considered which relate generally to 
implementation of the proposed changes discussed in section V, most 
notably the implementation of the proposed PDPM.
    We are proposing to implement the PDPM effective beginning in FY 
2020 (that is, October 1, 2019). This proposed effective date 
incorporates a one year period to allow time for provider education and 
training, internal system transitions, and to allow states to make any 
Medicaid program changes which may be necessary based on the proposed 
changes related to PDPM.
    When making major system changes, CMS often considers possible 
transition options for providers and other stakeholders between the 
former system and the new system. For example, when we updated OMB 
delineations used to establish a provider's wage index under the SNF 
PPS in FY 2015, we utilized a blended rate in the first year of 
implementation, whereby 50 percent of the provider's payment was 
derived from their former OMB delineation and 50 percent from their new 
OMB delineation (79 FR 45644-45646).
    However, due to the fundamental nature of the change from the 
current RUG-IV case-mix model to the proposed PDPM, which includes 
differences in resident assessment, payment algorithms, and other 
policies, we believe that proposing a blended rate for the whole system 
(that would require two full case-mix systems (RUG-IV and the proposed 
PDPM) to run concurrently) is not advisable as part of any transition 
strategy for implementing the proposed PDPM, due to the significant 
administrative and logistical issues that would be associated with such 
a transition strategy. Specifically, CMS and providers would be 
required to manage both the RUG-IV payment model and proposed PDPM 
simultaneously, creating significant burden and undue complexity for 
all involved parties. Furthermore, providers would be required to 
follow both sets of MDS assessment rules, each of which carries with it 
its own level of complexity. CMS would also be required to process 
assessments and claims under each system, which would entail a 
significant amount of resources and burden for CMS, MACs, and 
providers. Finally, a blended rate option would also mitigate some of 
the burden reduction associated with implementing PDPM, estimated to 
save SNFs close to $200 million per year as compared to estimated 
burden under RUG-IV, given that the current assessment schedule would 
need to continue until full implementation of PDPM was achieved. We 
believe these issues also would be implicated in any alternative 
transition strategy which would require both case-mix systems to exist 
concurrently, such as giving providers a choice in the first year of 
implementation of operating under either the RUG-IV or PDPM. Therefore, 
we did not pursue any alternatives which required concurrent operation 
of both the RUG-IV and PDPM.
    We then considered alternative effective dates for implementing the 
proposed PDPM, and other policy changes proposed in section V of this 
rule. We considered implementing the new case-mix model effective 
beginning in FY 2019, but we believe that this would not permit 
sufficient time for providers and other stakeholders, including CMS, to 
make the necessary preparations for this magnitude of a change in the 
SNF PPS. We also believe that such a quick transition would not be in 
keeping with how similar types of SNF PPS changes have been implemented 
in the past. We also considered implementing PDPM more than one year 
after being finalized, such as implementing the proposed PDPM effective 
beginning October 1, 2020 (FY 2021). However, we believe that setting 
the effective date of PDPM this far out is not necessary, based on our 
prior experience with similar SNF PPS changes. As is customary, we plan 
to continue to provide free software to providers which can be used to 
group residents under the proposed PDPM, as well as providing data 
specifications for this grouper software as soon as is practicable, 
should the proposed PDPM be finalized, thereby mitigating potential 
concerns around software vendors having sufficient time to develop 
products for PDPM. Moreover, given the issues identified throughout 
this proposed rule with the current RUG-IV model, notably the issues 
surrounding the burdensome and complex PPS assessment schedule under 
the SNF PPS currently and concerns around the incentives for therapy 
provision under the RUG-IV system, we believe it appropriate to 
implement the proposed PDPM as soon as is practicable. Therefore, we 
propose to implement the PDPM, as well as the other proposed changes 
discussed in section V of this proposed rule, effective beginning 
October 1, 2019.
    Finally, we considered alternatives related to the proposal 
discussed in section V.I., specifically the proposed certification that 
we have met the requirements set forth in section 511(a) of the MMA, 
which would permit us to use the PDPM's proposed permanent case-mix 
adjustments for SNF residents with AIDS to replace the temporary 
special add-on in the PPS per diem payment for such residents. As noted 
in section V.I. above, this special add-on for SNF residents with AIDS 
was intended to be of limited duration, as the MMA legislation 
specified that it was to remain in effect only until the Secretary 
certifies that there is an appropriate adjustment in the case mix

[[Page 21080]]

to compensate for the increased costs associated with such residents. 
We considered maintaining this adjustment under the proposed PDPM. 
However, given the adjustment incorporated into the NTA and nursing 
components under the proposed PDPM to account for the increased costs 
of treating residents with AIDS, this would result in a substantial 
increase in payment for such residents beyond even the current add-on 
payment. Moreover, as discussed in section V.I., we believe that the 
proposed PDPM provides a tailored case-mix adjustment that more 
accurately accounts for the additional costs and resource use of 
residents with AIDS, as compared to an undifferentiated add-on which 
simply applies an across-the-board multiplier to the full SNF PPS per 
diem. Finally, as stated in section 3.8.2. of the SNF PDPM technical 
report (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html), HIV/AIDS was associated 
with a negative and statistically significant decrease in PT, OT and 
SLP costs per day. This means inherently that, to the extent that the 
existing add-on is applied against the full SNF PPS per diem payment, 
the magnitude of the add-on payment increases with increases in therapy 
payment, which conflicts with the data described above regarding the 
relationship between therapy costs and the presence of an AIDS 
diagnosis. As a result, maintaining the current add-on would create an 
inconsistency between how SNF payments would be made and the data 
regarding AIDS diagnoses and resident therapy costs. Therefore, we are 
proposing to replace this add-on payment with appropriate case-mix 
adjustments for the increased costs of care for this population of 
residents through the proposed NTA and nursing components of the 
proposed PDPM.
    We invite comments on the projected impacts and on the proposals 
and alternatives discussed throughout this section.

VI. Other Issues

A. Other Proposed Revisions to the Regulation Text

    Along with our proposals to revise the regulations as discussed 
elsewhere in this proposed rule, we are also proposing to make two 
other revisions in the regulation text. The first involves Sec.  
411.15(p)(3)(iv), which specifies that whenever a beneficiary is 
formally discharged (or otherwise departs) from the SNF, this event 
serves to end that beneficiary's status as a ``resident'' of the SNF 
for purposes of consolidated billing (the SNF ``bundling'' 
requirement), unless he or she is readmitted (or returns) to that or 
another SNF ``by midnight of the day of departure.'' In initially 
establishing this so-called ``midnight rule,'' the FY 2001 SNF PPS 
final rule (65 FR 46770, July 31, 2000) noted in this particular 
context that:

    As we explained in the proposed rule, a patient ``day'' begins 
at 12:01 a.m. and ends the following midnight, so that the phrase 
``midnight of the day of departure'' refers to the midnight that 
immediately follows the actual moment of departure, rather than to 
the midnight that immediately precedes it (65 FR 46792).

    However, the Medicare program's standard practice for counting 
inpatient days is actually one in which an inpatient day would begin at 
midnight (see, for example, Sec.  20.1 in the Medicare Benefit Policy 
Manual, Chapter 3, which specifies that in counting inpatient days, ``. 
. . a day begins at midnight and ends 24 hours later'' (emphasis 
added)). Accordingly, in order to ensure consistency with that 
approach, we now propose to revise Sec.  411.15(p)(3)(iv) to specify 
that for consolidated billing purposes, a beneficiary's ``resident'' 
status ends whenever he or she is formally discharged (or otherwise 
departs) from the SNF, unless he or she is readmitted (or returns) to 
that or another SNF ``before the following midnight.'' We note that 
this revision would not alter the underlying principle that a 
beneficiary's SNF ``resident'' status in this context ends upon 
departure from the SNF unless he or she returns to that or another SNF 
later on that same day; rather, it would simply serve to conform the 
actual wording of the applicable regulations text with the Medicare 
manual's standard definition of the starting point of a patient 
``day.''
    We are also proposing a technical correction to Sec.  
424.20(a)(1)(i), which describes the required content of the SNF level 
of care certification, in order to conform it more closely to that of 
the corresponding statutory requirements at section 1814(a)(2)(B) of 
the Act. This statutory provision defines the SNF level of care in 
terms of skilled services furnished on a daily basis which, as a 
practical matter, can only be provided on an inpatient basis in a SNF. 
In addition, it provides that the SNF-level care must be for either:
     An ongoing condition that was one of the conditions that 
the beneficiary had during the qualifying hospital stay; or
     A new condition that arose while the beneficiary was in 
the SNF for treatment of that ongoing condition.
    In setting forth the SNF level of care definition itself, the 
implementing regulations at Sec.  409.31 reflect both of the above two 
points (at paragraphs (b)(2)(i) and (b)(2)(ii), respectively); however, 
the regulations describing the content of the initial level of care 
certification at Sec.  424.20(a)(1)(i) have inadvertently omitted the 
second point. Accordingly, we now propose to revise Sec.  
424.20(a)(1)(i) to rectify this omission, so that it more accurately 
tracks the language in the corresponding statutory authority at section 
1814(a)(2)(B) of the Act.
    We invite comments on our proposed revisions to Sec.  
411.15(p)(3)(iv) and Sec.  424.20(a)(1)(i).

B. Skilled Nursing Facility (SNF) Quality Reporting Program (QRP)

1. Background
    The Skilled Nursing Facility Quality Reporting Program (SNF QRP) is 
authorized by section 1888(e)(6) of the Act and it applies to 
freestanding SNFs, SNFs affiliated with acute care facilities, and all 
non-CAH swing-bed rural hospitals. Under the SNF QRP, the Secretary 
reduces by 2 percentage points the annual market basket percentage 
update described in section 1888(e)(5)(B)(i) of the Act applicable to a 
SNF for a fiscal year, after application of section 1888(e)(5)(B)(ii) 
of the Act (the MFP adjustment) and section 1888(e)(5)(B)(iii) of the 
Act (the 1 percent market basket increase for FY 2018), in the case of 
a SNF that does not submit data in accordance with sections 
1888(e)(6)(B)(i) of the Act for that fiscal year. For more information 
on the requirements we have adopted for the SNF QRP, we refer readers 
to the FY 2016 SNF PPS final rule (80 FR 46427 through 46429), FY 2017 
SNF PPS final rule (81 FR 52009 through 52010) and FY 2018 SNF PPS 
final rule (82 FR 36566).
    Although we have historically used the preamble to the SNF PPS 
proposed and final rules each year to remind stakeholders of all 
previously finalized program requirements, we have concluded that 
repeating the same discussion each year is not necessary for every 
requirement, especially if we have codified it in our regulations. 
Accordingly, the following discussion is limited as much as possible to 
a discussion of our proposals for future years of the SNF QRP, and it 
represents the approach we intend to use in our rulemakings for this 
program going forward.

[[Page 21081]]

2. General Considerations Used for the Selection of Measures for the 
SNF QRP
a. Background
    For a detailed discussion of the considerations we historically 
used for the selection of SNF QRP quality, resource use, and other 
measures, we refer readers to the FY 2016 SNF PPS final rule (80 FR 
46429 through 46431).
b. Accounting for Social Risk Factors in the SNF QRP
    In the FY 2018 SNF PPS final rule (82 FR 36567 through 36568), we 
discussed the importance of improving beneficiary outcomes including 
reducing health disparities. We also discussed our commitment to 
ensuring that medically complex residents, as well as those with social 
risk factors, receive excellent care. We discussed how studies show 
that social risk factors, such as being near or below the poverty level 
as determined by HHS, belonging to a racial or ethnic minority group, 
or living with a disability, can be associated with poor health 
outcomes and how some of this disparity is related to the quality of 
health care.\4\ Among our core objectives, we aim to improve health 
outcomes, attain health equity for all beneficiaries, and ensure that 
complex residents as well as those with social risk factors receive 
excellent care. Within this context, reports by the Office of the 
Assistant Secretary for Planning and Evaluation (ASPE) and the National 
Academy of Medicine have examined the influence of social risk factors 
in our value-based purchasing programs.\5\ As we noted in the FY 2018 
SNF PPS final rule (82 FR 36567 through 36568), ASPE's report to 
Congress, which was required by the IMPACT Act, found that, in the 
context of value-based purchasing programs, dual eligibility was the 
most powerful predictor of poor health care outcomes among those social 
risk factors that they examined and tested. ASPE is continuing to 
examine this issue in its second report required by the IMPACT Act, 
which is due to Congress in the fall of 2019. In addition, as we noted 
in the FY 2018 SNF PPS final rule (82 FR 36357), the National Quality 
Forum (NQF) undertook a 2-year trial period in which certain new 
measures and measures undergoing maintenance review have been assessed 
to determine if risk adjustment for social risk factors is appropriate 
for these measures.\6\ The trial period ended in April 2017 and a final 
report is available at http://www.qualityforum.org/SES_Trial_Period.aspx. The trial concluded that ``measures with a 
conceptual basis for adjustment generally did not demonstrate an 
empirical relationship'' between social risk factors and the outcomes 
measured. This discrepancy may be explained in part by the methods used 
for adjustment and the limited availability of robust data on social 
risk factors. NQF has extended the socioeconomic status (SES) trial,\7\ 
allowing further examination of social risk factors in outcome 
measures.
---------------------------------------------------------------------------

    \4\ See, for example United States Department of Health and 
Human Services. ``Healthy People 2020: Disparities. 2014.'' 
Available at http://www.healthypeople.gov/2020/about/foundation-health-measures/Disparities; or National Academies of Sciences, 
Engineering, and Medicine. Accounting for Social Risk Factors in 
Medicare Payment: Identifying Social Risk Factors. Washington, DC: 
National Academies of Sciences, Engineering, and Medicine 2016.
    \5\ Department of Health and Human Services Office of the 
Assistant Secretary for Planning and Evaluation (ASPE), ``Report to 
Congress: Social Risk Factors and Performance Under Medicare's 
Value-Based Purchasing Programs.'' December 2016. Available at 
https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \6\ Available at http://www.qualityforum.org/SES_Trial_Period.aspx.
    \7\ Available at http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=86357.
---------------------------------------------------------------------------

    In the FY 2018/CY 2018 proposed rules for our quality reporting and 
value-based purchasing programs, we solicited feedback on which social 
risk factors provide the most valuable information to stakeholders and 
the methodology for illuminating differences in outcomes rates among 
patient groups within a provider that would also allow for a comparison 
of those differences, or disparities, across providers. Feedback we 
received across our quality reporting programs included encouraging us 
to explore whether factors that could be used to stratify or risk 
adjust the measures (beyond dual eligibility); to consider the full 
range of differences in resident backgrounds that might affect 
outcomes; to explore risk adjustment approaches; and to offer careful 
consideration of what type of information display would be most useful 
to the public.
    We also sought public comment on confidential reporting and future 
public reporting of some of our measures stratified by resident dual 
eligibility. In general, commenters noted that stratified measures 
could serve as tools for SNFs to identify gaps in outcomes for 
different groups of residents, improve the quality of health care for 
all residents, and empower consumers to make informed decisions about 
health care. Commenters encouraged us to stratify measures by other 
social risk factors such as age, income, and educational attainment. 
With regard to value-based purchasing programs, commenters also 
cautioned CMS to balance fair and equitable payment while avoiding 
payment penalties that mask health disparities or discouraging the 
provision of care to more medically complex patients. Commenters also 
noted that value-based payment program measure selection, domain 
weighting, performance scoring, and payment methodology must account 
for social risk.
    As a next step, we are considering options to improve health 
disparities among patient-groups within and across hospitals by 
increasing the transparency of disparities as shown by quality 
measures. We also are considering how this work applies to other CMS 
quality programs in the future. We refer readers to the FY 2018 IPPS/
LTCH PPS final rule (82 FR 38403 through 38409) for more details, where 
we discuss the potential stratification of certain Hospital Inpatient 
Quality Reporting (IQR) Program outcome measures. Furthermore, we 
continue to consider options to address equity and disparities in our 
value-based purchasing programs.
    We plan to continue working with ASPE, the public, and other key 
stakeholders on this important issue to identify policy solutions that 
achieve the goals of attaining health equity for all beneficiaries and 
minimizing unintended consequences.
3. Proposed New Measure Removal Factor for Previously Adopted SNF QRP 
Measures
    As a part of our Meaningful Measures Initiative discussed in 
section I.D. of this proposed rule, we strive to put patients first, 
ensuring that they, along with their clinicians, are empowered to make 
decisions about their own healthcare using data-driven information that 
is increasingly aligned with a parsimonious set of meaningful quality 
measures. We began reviewing the SNF QRP's measures in accordance with 
the Meaningful Measures Initiative, and we are working to identify how 
to move the SNF QRP forward in the least burdensome manner possible 
while continuing to incentivize improvement in the quality of care 
provided to patients.
    Specifically, we believe the goals of the SNF QRP and the measures 
used in the program cover most of the Meaningful Measures Initiative 
priorities, including making care safer, strengthening person and 
family engagement, promoting coordination of care, promoting effective 
prevention and treatment, and making care affordable.

[[Page 21082]]

    We also evaluated the appropriateness and completeness of the SNF 
QRP's current measure removal factors. We have previously finalized 
that we would use notice and comment rulemaking to remove measures from 
the SNF QRP based on the following factors (80 FR 46431 through 
46432):\8\
---------------------------------------------------------------------------

    \8\ We refer readers to the FY 2016 SNF PPS final rule (80 FR 
46431 through 46432) for more information on the factors we consider 
for removing measures.
---------------------------------------------------------------------------

     Factor 1. Measure performance among SNFs is so high and 
unvarying that meaningful distinctions in improvements in performance 
can no longer be made.
     Factor 2. Performance or improvement on a measure does not 
result in better resident outcomes.
     Factor 3. A measure does not align with current clinical 
guidelines or practice.
     Factor 4. A more broadly applicable measure (across 
settings, populations, or conditions) for the particular topic is 
available.
     Factor 5. A measure that is more proximal in time to 
desired resident outcomes for the particular topic is available.
     Factor 6. A measure that is more strongly associated with 
desired resident outcomes for the particular topic is available.
     Factor 7. Collection or public reporting of a measure 
leads to negative unintended consequences other than resident harm.
    We continue to believe that these measure removal factors are 
appropriate for use in the SNF QRP. However, even if one or more of the 
measure removal factors applies, we may nonetheless choose to retain 
the measure for certain specified reasons. Examples of such instances 
could include when a particular measure addresses a gap in quality that 
is so significant that removing the measure could in turn result in 
poor quality, or in the event that a given measure is statutorily 
required. We note further that, consistent with other quality reporting 
programs, we apply these factors on a case-by-case basis.
    We are proposing to adopt an additional factor to consider when 
evaluating potential measures for removal from the SNF QRP measure set:
     Factor 8. The costs associated with a measure outweigh the 
benefit of its continued use in the program.
    As we discussed in section I.D. of this proposed rule, with respect 
to our new Meaningful Measures Initiative, we are engaging in efforts 
to ensure that the SNF QRP measure set continues to promote improved 
health outcomes for beneficiaries while minimizing the overall costs 
associated with the program. We believe these costs are multifaceted 
and include not only the burden associated with reporting, but also the 
costs associated with implementing and maintaining the program. We have 
identified several different types of costs, including, but not limited 
to: (1) The provider and clinician information collection burden and 
burden associated with the submission/reporting of quality measures to 
CMS; (2) the provider and clinician cost associated with complying with 
other programmatic requirements; (3) the provider and clinician cost 
associated with participating in multiple quality programs, and 
tracking multiple similar or duplicative measures within or across 
those programs; (4) the cost to CMS associated with the program 
oversight of the measure including measure maintenance and public 
display; and (5) the provider and clinician cost associated with 
compliance with other federal and/or state regulations (if applicable).
    For example, it may be needlessly costly and/or of limited benefit 
to retain or maintain a measure which our analyses show no longer 
meaningfully supports program objectives (for example, informing 
beneficiary choice). It may also be costly for health care providers to 
track the confidential feedback, preview reports, and publicly reported 
information on a measure where we use the measure in more than one 
program. CMS may also have to expend unnecessary resources to maintain 
the specifications for the measure, as well as the tools we need to 
collect, validate, analyze, and publicly report the measure data. 
Furthermore, beneficiaries may find it confusing to see public 
reporting on the same measure in different programs.
    When these costs outweigh the evidence supporting the continued use 
of a measure in the SNF QRP, we believe it may be appropriate to remove 
the measure from the program. Although we recognize that one of the 
main goals of the SNF QRP is to improve beneficiary outcomes by 
incentivizing health care providers to focus on specific care issues 
and making data public related to those issues, we also recognize that 
those goals can have limited utility where, for example, the publicly 
reported data is of limited use because it cannot be easily interpreted 
by beneficiaries and used to influence their choice of providers. In 
these cases, removing the measure from the SNF QRP may better 
accommodate the costs of program administration and compliance without 
sacrificing improved health outcomes and beneficiary choice.
    We are proposing that we would remove measures based on this factor 
on a case-by-case basis. We might, for example, decide to retain a 
measure that is burdensome for health care providers to report if we 
conclude that the benefit to beneficiaries justifies the reporting 
burden. Our goal is to move the program forward in the least burdensome 
manner possible, while maintaining a parsimonious set of meaningful 
quality measures and continuing to incentivize improvement in the 
quality of care provided to patients.
    We are inviting public comment on our proposal to adopt an 
additional measure removal Factor 8, the costs associated with a 
measure outweigh the benefit of its continued use in the program.
    We also are proposing to add a new Sec.  413.360(b)(3) to our 
regulations that would codify the removal factors we have previously 
finalized for the SNF QRP as well as the new measure removal factor 
that we are proposing to adopt in this proposed rule.
    We are inviting public comment on these proposals.
4. Quality Measures Currently Adopted for the FY 2020 SNF QRP
    The SNF QRP currently has 12 measures for the FY 2020 program year, 
which are outlined in Table 39.

[[Page 21083]]



  Table 39--Quality Measures Currently Adopted for the FY 2020 SNF QRP
------------------------------------------------------------------------
            Short name                  Measure name and data source
------------------------------------------------------------------------
             Resident Assessment Instrument Minimum Data Set
------------------------------------------------------------------------
Pressure Ulcer....................  Percent of Residents or Patients
                                     With Pressure Ulcers That Are New
                                     or Worsened (Short Stay) (NQF
                                     #0678). *
Pressure Ulcer/Injury.............  Changes in Skin Integrity Post-Acute
                                     Care: Pressure Ulcer/Injury.
Application of Falls..............  Application of Percent of Residents
                                     Experiencing One or More Falls with
                                     Major Injury (Long Stay) (NQF
                                     #0674).
Application of Functional           Application of Percent of Long-Term
 Assessment/Care Plan.               Care Hospital (LTCH) Patients with
                                     an Admission and Discharge
                                     Functional Assessment and a Care
                                     Plan That Addresses Function (NQF
                                     #2631).
Change in Mobility Score..........  Application of IRF Functional
                                     Outcome Measure: Change in Mobility
                                     Score for Medical Rehabilitation
                                     Patients (NQF #2634).
Discharge Mobility Score..........  Application of IRF Functional
                                     Outcome Measure: Discharge Mobility
                                     Score for Medical Rehabilitation
                                     Patients (NQF #2636).
Change in Self-Care Score.........  Application of the IRF Functional
                                     Outcome Measure: Change in Self-
                                     Care Score for Medical
                                     Rehabilitation Patients (NQF
                                     #2633).
Discharge Self-Care Score.........  Application of IRF Functional
                                     Outcome Measure: Discharge Self-
                                     Care Score for Medical
                                     Rehabilitation Patients (NQF
                                     #2635).
DRR...............................  Drug Regimen Review Conducted With
                                     Follow-Up for Identified Issues-
                                     Post Acute Care (PAC) Skilled
                                     Nursing Facility (SNF) Quality
                                     Reporting Program (QRP).
------------------------------------------------------------------------
                              Claims-Based
------------------------------------------------------------------------
MSPB SNF..........................  Medicare Spending Per Beneficiary
                                     (MSPB)--Post Acute Care (PAC)
                                     Skilled Nursing Facility (SNF)
                                     Quality Reporting Program (QRP).
DTC...............................  Discharge to Community-Post Acute
                                     Care (PAC) Skilled Nursing Facility
                                     (SNF) Quality Reporting Program
                                     (QRP).
PPR...............................  Potentially Preventable 30-Day Post-
                                     Discharge Readmission Measure for
                                     Skilled Nursing Facility (SNF)
                                     Quality Reporting Program (QRP).
------------------------------------------------------------------------
* The measure will be replaced with the Changes in Skin Integrity Post-
  Acute Care: Pressure Ulcer/Injury measure, effective October 1, 2018.

5. IMPACT Act Implementation Update
    In the FY 2018 SNF PPS final rule (82 FR 36596 through 36597), we 
stated that we intended to specify two measures that would satisfy the 
domain of accurately communicating the existence and provision of the 
transfer of health information and care preferences under section 
1899B(c)(1)(E) of the Act no later than October 1, 2018, and intended 
to propose to adopt them for the FY 2021 SNF QRP, with data collection 
beginning on or about October 1, 2019.
    As a result of the input provided during a public comment period 
initiated by our contractor between November 10, 2016 and December 11, 
2016, input provided by a technical expert panel (TEP) convened by our 
contractor, and pilot measure testing conducted in 2017, we are 
engaging in continued development work on these two measures, including 
supplementary measure testing and providing the public with an 
opportunity for comment in 2018. Further we expect to reconvene a TEP 
for these measures in mid-2018. We now intend to specify the measures 
under section 1899B(c)(1)(E) of the Act no later than October 1, 2019, 
and intend to propose to adopt the measures for the FY 2022 SNF QRP, 
with data collection beginning with residents admitted as well as 
discharged on or after October 1, 2020. For more information on the 
pilot testing, we refer readers to https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014/IMPACT-Act-Downloads-and-Videos.html.
6. Form, Manner, and Timing of Data Submission Under the SNF QRP
    Under our current policy, SNFs report data on SNF QRP assessment-
based measures and standardized resident assessment data by reporting 
the designated data elements for each applicable resident on the 
Minimum Data Set (MDS) resident assessment instrument and then 
submitting completed instruments to CMS using the using the Quality 
Improvement Evaluation System Assessment Submission and Processing 
(QIES ASAP) system. We refer readers to the FY 2018 SNF PPS final rule 
(82 FR 36601 through 36603) for the data collection and submission time 
frames for assessment-based measures and standardized resident 
assessment data that we finalized for the SNF QRP.
7. Proposed Changes to the SNF QRP Reconsideration Requirements
    Section 413.360(d)(1) of our regulations states, in part, that SNFs 
that do not meet the SNF QRP requirements for a program year will 
receive a letter of non-compliance through the QIES ASAP system, as 
well as through the United States Postal Service.
    We are proposing to revise Sec.  413.360(d)(1) to expand the 
methods by which we would notify a SNF of non-compliance with the SNF 
QRP requirements for a program year. Revised Sec.  413.360(d)(1) would 
state that we would notify SNFs of non-compliance with the SNF QRP 
requirements via a letter sent through at least one of the following 
notification methods: the QIES ASAP system; the United States Postal 
Service; or via an email from the Medicare Administrative Contractor 
(MAC). We believe that this change will address feedback from providers 
requesting additional methods for notification.
    In addition, Sec.  413.360(d)(4) currently states that we will make 
a decision on the request for reconsideration and provide notice of the 
decision to the SNF through the QIES ASAP system and via letter sent 
through the United States Postal Service.
    We are proposing to revise Sec.  413.360(d)(4) to state that we 
will notify SNFs, in writing, of our final decision regarding any 
reconsideration request via a letter sent through at least one of the 
following notification methods: the QIES ASAP system, the United States 
Postal Service, or via an email from the Medicare Administrative 
Contractor (MAC).

[[Page 21084]]

    We are inviting public comments on these proposals.
8. Proposed Policies Regarding Public Display for the SNF QRP
    Section 1899B(g) of the Act requires the Secretary to establish 
procedures for the public reporting of SNFs' performance on measures 
under sections 1899B(c)(1) and 1899B(d)(1) of the Act. Measure data 
will be displayed on the Nursing Home Compare website, an interactive 
web tool that assists individuals by providing information on SNF 
quality of care to those who need to select a SNF.
    In the FY 2018 SNF PPS final rule (82 FR 36606 through 36607), we 
finalized that we would publicly display the Medicare Spending Per 
Beneficiary-PAC SNF QRP and Discharge to Community-PAC SNF QRP measures 
in calendar year 2018 based on discharges from October 1, 2016 through 
September 30, 2017. In this proposed rule, we are proposing to increase 
the number of years of data used to calculate the Medicare Spending Per 
Beneficiary-PAC SNF QRP and Discharge to Community-PAC SNF QRP measures 
for purposes of display from 1 year to 2 years. Under this proposal, 
data on these measures would be publicly reported in CY 2019, or as 
soon thereafter as operationally feasible, based on discharges from 
October 1, 2016 through September 30, 2018.
    Increasing the measure calculation and public display periods from 
1 to 2 years of data increases the number of SNFs with enough data 
adequate for public reporting for the Medicare Spending Per 
Beneficiary-PAC SNF QRP measure from 86 percent (based on 2016 Medicare 
FFS claims data) to 95 percent (based on 2015 through 2016 Medicare FFS 
claims data), and for the Discharge to Community-PAC SNF QRP measure 
from 83 percent (based on 2016 Medicare FFS claims data) to 94 percent 
(based on 2015 through 2016 Medicare FFS claims data). Increasing 
measure public display periods to 2 years also aligns with the public 
display periods of these measures in the IRF and LTCH QRPs.
    We also propose to begin publicly displaying data in CY 2020, or as 
soon thereafter as is operationally feasible, on the following four 
assessment-based measures: (1) Change in Self-Care Score (NQF #2633); 
(2) Change in Mobility Score (NQF #2634); (3) Discharge Self-Care Score 
(NQF #2635); and (4) Discharge Mobility Score (NQF #2636). SNFs are 
required to submit data on these four assessment-based measures with 
respect to admissions as well as discharges occurring on or after 
October 1, 2018. We are proposing to display data for these assessment-
based measures based on 4 rolling quarters of data, initially using 4 
quarters of discharges from January 1, 2019 through December 31, 2019. 
To ensure the statistical reliability of the measure rates for these 
four assessment-based measures, we are also proposing that if a SNF has 
fewer than 20 eligible cases during any 4 consecutive rolling quarters 
of data that we are displaying for any of these measures, then we would 
note in our public display of that measure that with respect to that 
SNF, the number of cases/resident stays is too small to publicly 
report.
    We are inviting public comment on these proposals.

C. Skilled Nursing Facility Value-Based Purchasing Program (SNF VBP)

1. Background
    Section 215(b) of the Protecting Access to Medicare Act of 2014 
(PAMA) (Pub. L. 113-93) authorized the SNF VBP Program (the 
``Program'') by adding section 1888(h) to the Act. As a prerequisite to 
implementing the SNF VBP Program, in the FY 2016 SNF PPS final rule (80 
FR 46409 through 46426), we adopted an all-cause, all-condition 
hospital readmission measure, as required by section 1888(g)(1) of the 
Act. In the FY 2017 SNF PPS final rule (81 FR 51986 through 52009), we 
adopted an all-condition, risk-adjusted potentially preventable 
hospital readmission measure for SNFs, as required by section 
1888(g)(2) of the Act. In the FY 2018 SNF PPS final rule (82 FR 36608 
through 36623), we adopted additional policies for the Program, 
including an exchange function methodology for disbursing value-based 
incentive payments.
    Section 1888(h)(1)(B) of the Act requires that the SNF VBP Program 
apply to payments for services furnished on or after October 1, 2018. 
The SNF VBP Program applies to freestanding SNFs, SNFs affiliated with 
acute care facilities, and all non-CAH swing-bed rural hospitals. We 
believe the implementation of the SNF VBP Program is an important step 
towards transforming how care is paid for, moving increasingly towards 
rewarding better value, outcomes, and innovations instead of merely 
rewarding volume.
    For additional background information on the SNF VBP Program, 
including an overview of the SNF VBP Report to Congress and a summary 
of the Program's statutory requirements, we refer readers to the FY 
2016 SNF PPS final rule (80 FR 46409 through 46410). We also refer 
readers to the FY 2017 SNF PPS final rule (81 FR 51986 through 52009) 
for discussion of the policies that we adopted related to the 
potentially preventable hospital readmission measure, scoring, and 
other topics. Finally, we refer readers to the FY 2018 SNF PPS final 
rule (82 FR 36608 through 36623) for discussions of the policies that 
we adopted related to value-based incentive payments, the exchange 
function, and other topics.
    In this proposed rule, we are proposing additional requirements for 
the FY 2021 SNF VBP Program, as well as other program policies.
2. Measures
    For background on the measures we have adopted for the SNF VBP 
Program, we refer readers to the FY 2016 SNF PPS final rule (80 FR 
46419), where we finalized the Skilled Nursing Facility 30-Day All-
Cause Readmission Measure (SNFRM) (NQF #2510) that we are currently 
using for the SNF VBP Program. We also refer readers to the FY 2017 SNF 
PPS final rule (81 FR 51987 through 51995), where we finalized the 
Skilled Nursing Facility 30-Day Potentially Preventable Readmission 
Measure (SNFPPR) that we will use for the SNF VBP Program instead of 
the SNFRM as soon as practicable, as required by statute.
    We are not proposing any changes to the Program's measures at this 
time.
a. Accounting for Social Risk Factors in the SNF VBP Program
    In the FY 2018 SNF PPS final rule (82 FR 36611 through 36613), we 
discussed the importance of improving beneficiary outcomes including 
reducing health disparities. We also discussed our commitment to 
ensuring that medically complex patients, as well as those with social 
risk factors, receive excellent care. We discussed how studies show 
that social risk factors, such as being near or below the poverty level 
as determined by HHS, belonging to a racial or ethnic minority group, 
or living with a disability, can be associated with poor health 
outcomes and how some of this disparity is related to the quality of 
health care.\9\ Among our core objectives, we aim to improve health 
outcomes, attain health equity for all beneficiaries, and ensure that 
complex patients, as well as those with social risk factors,

[[Page 21085]]

receive excellent care. Within this context, reports by the Office of 
the Assistant Secretary for Planning and Evaluation (ASPE) and the 
National Academy of Medicine have examined the influence of social risk 
factors in our value-based purchasing programs.\10\ As we noted in the 
FY 2018 SNF PPS final rule (82 FR 36611), ASPE's report to Congress 
found that, in the context of value-based purchasing programs, dual 
eligibility was the most powerful predictor of poor health care 
outcomes among those social risk factors that they examined and tested. 
In addition, as noted in the FY 2018 SNF PPS final rule, the National 
Quality Forum (NQF) undertook a 2-year trial period in which certain 
new measures and measures undergoing maintenance review have been 
assessed to determine if risk adjustment for social risk factors is 
appropriate for these measures.\11\ The trial period ended in April 
2017 and a final report is available at http://www.qualityforum.org/SES_Trial_Period.aspx. The trial concluded that ``measures with a 
conceptual basis for adjustment generally did not demonstrate an 
empirical relationship'' between social risk factors and the outcomes 
measured. This discrepancy may be explained in part by the methods used 
for adjustment and the limited availability of robust data on social 
risk factors. NQF has extended the socioeconomic status (SES) 
trial,\12\ allowing further examination of social risk factors in 
outcome measures.
---------------------------------------------------------------------------

    \9\ See, for example United States Department of Health and 
Human Services. ``Healthy People 2020: Disparities. 2014.'' 
Available at http://www.healthypeople.gov/2020/about/foundation-health-measures/Disparities; or National Academies of Sciences, 
Engineering, and Medicine. Accounting for Social Risk Factors in 
Medicare Payment: Identifying Social Risk Factors. Washington, DC: 
National Academies of Sciences, Engineering, and Medicine 2016.
    \10\ Department of Health and Human Services Office of the 
Assistant Secretary for Planning and Evaluation (ASPE), ``Report to 
Congress: Social Risk Factors and Performance Under Medicare's 
Value-Based Purchasing Programs.'' December 2016. Available at 
https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \11\ Available at http://www.qualityforum.org/SES_Trial_Period.aspx.
    \12\ Available at http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=86357.
---------------------------------------------------------------------------

    In the FY 2018/CY 2018 proposed rules for our quality reporting and 
value-based purchasing programs, we solicited feedback on which social 
risk factors provide the most valuable information to stakeholders and 
the methodology for illuminating differences in outcomes rates among 
patient groups within a provider that would also allow for a comparison 
of those differences, or disparities, across providers. Feedback we 
received across our quality reporting programs included encouraging CMS 
to explore whether factors that could be used to stratify or risk 
adjust the measures (beyond dual eligibility); to consider the full 
range of differences in patient backgrounds that might affect outcomes; 
to explore risk adjustment approaches; and to offer careful 
consideration of what type of information display would be most useful 
to the public.
    We also sought public comment on confidential reporting and future 
public reporting of some of our measures stratified by patient dual 
eligibility. In general, commenters noted that stratified measures 
could serve as tools for hospitals to identify gaps in outcomes for 
different groups of patients, improve the quality of health care for 
all patients, and empower consumers to make informed decisions about 
health care. Commenters encouraged us to stratify measures by other 
social risk factors such as age, income, and educational attainment. 
With regard to value-based purchasing programs, commenters also 
cautioned CMS to balance fair and equitable payment while avoiding 
payment penalties that mask health disparities or discouraging the 
provision of care to more medically complex patients. Commenters also 
noted that value-based payment program measure selection, domain 
weighting, performance scoring, and payment methodology must account 
for social risk.
    As a next step, we are considering options to improve health 
disparities among patient groups within and across hospitals by 
increasing the transparency of disparities as shown by quality 
measures. We also are considering how this work applies to other CMS 
quality programs in the future. We refer readers to the FY 2018 IPPS/
LTCH PPS final rule (82 FR 38403 through 38409) for more details, where 
we discuss the potential stratification of certain Hospital Inpatient 
Quality Reporting Program outcome measures. Furthermore, we continue to 
consider options to address equity and disparities in our value-based 
purchasing programs.
    We plan to continue working with ASPE, the public, and other key 
stakeholders on this important issue to identify policy solutions that 
achieve the goals of attaining health equity for all beneficiaries and 
minimizing unintended consequences
3. Proposed Performance Standards
a. Proposed FY 2021 Performance Standards
    We refer readers to the FY 2017 SNF PPS final rule (81 FR 51995 
through 51998) for a summary of the statutory provisions governing 
performance standards under the SNF VBP Program and our finalized 
performance standards policy, as well as the numerical values for the 
achievement threshold and benchmark for the FY 2019 program year. We 
also responded to public comments on these policies in that final rule.
    We published the final numerical values for the FY 2020 performance 
standards in the FY 2018 SNF PPS final rule (82 FR 36613), and for 
reference, we are displaying those values again here.

      Table 40--Final FY 2020 SNF VBP Program Performance Standards
------------------------------------------------------------------------
                                            Achievement
    Measure ID       Measure description     threshold       Benchmark
------------------------------------------------------------------------
SNFRM.............  SNF 30-Day All-Cause         0.80218         0.83721
                     Readmission Measure
                     (NQF #2510).
------------------------------------------------------------------------

    We will continue to adopt the achievement threshold and benchmark 
as previously finalized in our rules. However, due to timing 
constraints associated with the compilation of the FY 2017 MedPAR file 
to include 3 months of data following the last discharge date, we are 
unable to provide estimated numerical values for the FY 2021 Program 
year's performance standards at this time. As discussed further below, 
we are proposing to adopt FY 2017 as the baseline period for the FY 
2021 program year. While we do not expect either the achievement 
threshold or benchmark to change significantly from what was finalized 
for the FY 2020 Program year, we intend to publish the final numerical 
values for the performance standards based on the FY 2017 baseline 
period in the FY 2019 SNF PPS final rule.
    We welcome public comment on this approach.

[[Page 21086]]

b. Proposal To Correct Performance Standard Numerical Values in Cases 
of Errors
    As we described above, section 1888(h)(3)(C) of the Act requires 
that we establish and announce the performance standards for a fiscal 
year not later than 60 days prior to the performance period for the 
fiscal year involved. However, we currently do not have a policy that 
would address the situation where, subsequent to publishing the 
numerical values for the finalized performance standards for a program 
year, we discover an error that affects those numerical values. 
Examples of the types of errors that we could subsequently discover are 
inaccurate variables on Medicare claims, programming errors, excluding 
data should have been included in the performance standards 
calculations, and other technical errors that resulted in inaccurate 
achievement threshold and benchmark calculations. While we do not have 
reason to believe that the SNF VBP Program has previously published 
inaccurate numerical values for performance standards, we are concerned 
about the possibility that we would discover an error in the future and 
have no ability to correct the numerical values.
    We are aware that SNFs rely on the performance standards that we 
publicly display in order to target quality improvement efforts, and we 
do not believe that it would be fair to SNFs to repeatedly update our 
finalized performance standards if we were to identify multiple errors. 
In order to balance the need of SNFs to know what performance standards 
they will be held accountable to for a SNF VBP program year with our 
obligation to provide SNFs with the most accurate performance standards 
that we can based on the data available at the time, we are proposing 
that if we discover an error in the calculations subsequent to having 
published the numerical values for the performance standards for a 
program year, we would update the numerical values to correct the 
error. We are also proposing that we would only update the numerical 
values one time, even if we subsequently identified a second error, 
because we believe that a one-time correction would allow us to 
incorporate new information into the calcuations without subjecting 
SNFs to multiple updates. Any update we would make to the numerical 
values based on a calculation error would be announced via the CMS 
website, listservs, and other available channels to ensure that SNFs 
are made fully aware of the update.
    We welcome public comments on this proposal.
4. Proposed FY 2021 Performance Period and Baseline Period and for 
Subsequent Years
a. Background
    We refer readers to the FY 2016 SNF PPS final rule (80 FR 46422) 
for a discussion of our considerations for determining performance 
periods under the SNF VBP Program. Based on those considerations, as 
well as public comment, we adopted CY 2017 as the performance period 
for the FY 2019 SNF VBP Program, with a corresponding baseline period 
of CY 2015.
    Additionally, in the FY 2018 SNF PPS final rule (82 FR 36613 
through 36614), we adopted FY 2018 as the performance period for the FY 
2020 SNF VBP Program, with a corresponding baseline period of FY 2016. 
We refer readers to that rule for a discussion of the need to shift the 
Program's measurement periods from the calendar year to the fiscal 
year.
b. FY 2021 Proposals
    As we discussed with respect to the FY 2019 and FY 2020 SNF VBP 
Program years, we continue to believe that a 12-month duration for the 
performance and baseline period is most appropriate for the SNF VBP 
Program. Therefore, we propose to adopt FY 2019 (October 1, 2018 
through September 30, 2019) as the performance period for the FY 2021 
SNF VBP Program year. We also propose to adopt FY 2017 (October 1, 2016 
through September 30, 2017) hospital discharges as the baseline period 
for the FY 2021 SNF VBP Program year.
    We welcome public comment on these proposals.
c. Proposed Performance Periods and Baseline Periods for Subsequent 
Program Years
    As we have described in previous rules (see, for example, the FY 
2016 SNF PPS final rule, 80 FR 46422), we strive to link performance 
furnished by SNFs as closely as possible to the program year to ensure 
clear connections between quality measurement and value-based payment. 
We also strive to measure performance using a sufficiently reliable 
population of patients that broadly represent the total care provided 
by SNFs.
    Therefore, we propose that beginning with the FY 2022 program year 
and for subsequent program years, we would adopt for each program year, 
a performance period that is the 1 year period following the 
performance period for the previous program year. We also propose that 
beginning with the FY 2022 program year and for subsequent program 
years, we would adopt for each program year a baseline period that is 
the 1 year period following the baseline period for the previous year. 
Under this policy, the performance period for the FY 2022 program year 
would be FY 2020 (the 1 year period following the proposed FY 2021 
performance period of FY 2019), and the baseline period for the FY 2022 
program year would be FY 2018 (the 1 year period following the proposed 
FY 2021 baseline period of FY 2017). We believe adopting this policy 
will provide SNFs with certainty about the performance and basline 
periods during which their performance will be assessed for future 
program years.
    We welcome public comments on this proposal.
5. SNF VBP Performance Scoring
a. Background
    We refer readers to the FY 2017 SNF PPS final rule (81 FR 52000 
through 52005) for a detailed discussion of the scoring methodology 
that we have finalized for the Program, along with responses to public 
comments on our policies and examples of scoring calculations. We also 
refer readers to the FY 2018 SNF PPS final rule (82 FR 36614 through 
36616) for discussion of the rounding policy we adopted, our request 
for comments on SNFs with zero readmissions, and our request for 
comments on a potential extraordinary circumstances exception policy.
b. Proposed Scoring Policy for SNFs Without Sufficient Baseline Period 
Data
    In some cases, a SNF will not have sufficient baseline period data 
available for scoring for a Program year, whether due to the SNF not 
being open during the baseline period, only being open for a small 
portion of the baseline period, or other reasons (such as receiving an 
extraordinary circumstance exception, if that proposal described below 
is finalized). The availability of baseline data for each SNF is an 
integral component of our scoring methodology, and we are concerned 
that the absence of sufficient baseline data for a SNF will preclude us 
from being able to score that SNF on improvement for a program year. As 
discussed further below, with respect to the proposed scoring 
adjustment for a SNF without sufficient data in the performance period 
to create a reliable SNF performance score, we are concerned that 
measuring SNFs with fewer than 25 eligible stays (or index SNF stays 
that would be included in the calculation of the SNF readmission 
measure) during the baseline period

[[Page 21087]]

may result in unreliable improvement scores, and as a result, 
unreliable SNF performance scores. We considered policy options to 
address this issue.
    We continue to believe it is important to compare SNF performance 
during the same periods to control for factors that may not be 
attributable to the SNF, such as increased patient case-mix acuity 
during colder weather periods when influenza, pneumonia, and other 
seasonal conditions and illnesses are historically more prevalent in 
the beneficiary population. Using a 12-month performance and baseline 
period for all SNFs ensures that, to the greatest extent possible, 
differences in performance can be attributed to the SNF's care quality 
rather than to exogenous factors.
    Additionally, because we have proposed that for FY 2021 and future 
Program years, the start of the performance period for a Program year 
would begin exactly 12 months after the end of the baseline period for 
that Program year and there would not be sufficient time to compute 
risk-standardized readmission rates from another 12-month baseline 
period before the performance period if a SNF had insufficient data 
during the baseline period. For the FY 2021 Program, for example, the 
proposed baseline period would conclude at the end of FY 2017 
(September 30, 2017) and the proposed performance period would begin on 
the first day of FY 2019 (October 1, 2018). We also do not believe it 
would be equitable to score SNFs without sufficient baseline period 
data using data from a different period. Doing so would, in our view, 
impede our ability to compare SNFs' performance on the Program's 
quality measure fairly, as additional factors that may affect SNFs' 
care could arise when comparing performance during different time 
periods. Therefore, we have concluded that it is not operationally 
feasible or equitable to use different baseline periods for purposes of 
awarding improvement scores to SNFs for a Program year.
    We believe that SNFs without sufficient data from a single baseline 
period, which we would define for this purpose as SNFs with fewer than 
25 eligible stays during the baseline period for a fiscal year based on 
an analysis of Pearson correlation coefficients at various denominator 
counts, should not be measured on improvement for that Program year. 
Accordingly, we are proposing to score these SNFs based only on their 
achievement during the performance period for any Program year for 
which they do not have sufficient baseline period data. The analysis of 
Pearson correlation coefficients at various denominator counts used in 
developing this proposal is available on our website at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-Programs/Other-VBPs/SNFRM-Reliability-Testing-Memo.docx.
    We are proposing to codify this proposal by adding Sec.  
413.338(d)(1)(iv) to our regulations. We welcome public comment on this 
proposal.
c. Proposed SNF VBP Scoring Adjustment for Low-Volume SNFs
    In previous rules, we have discussed and sought comment on policies 
related to SNFs with zero readmissions during the performance period. 
For example, in the FY 2018 SNF PPS rule (82 FR 36615 through 36616), 
we sought comment on policies we should consider for SNFs with zero 
readmissions during the performance period because under the risk 
adjustment and the statistical approach used to calculate the SNFRM, 
outlier values are shifted towards the mean, especially for smaller 
SNFs. As a result, SNFs with observed readmission rates of zero may 
receive risk-standardized readmission rates that are greater than zero. 
We continue to be concerned about the effects of the SNFRM's risk 
adjustment and statistical approach on the scores that we award to SNFs 
under the Program. We are specifically concerned that as a result of 
this approach, the SNFRM is not sufficiently reliable to generate 
accurate performance scores for SNFs with a low number of eligible 
stays during the performance period. We would like to ensure that the 
Program's scoring methodology results in fair and reliable SNF 
performance scores because those scores are linked to a SNF's ranking 
and payment.
    Therefore, we considered whether we should make changes to our 
methodology for assessing the total performance of SNFs for a Program 
year that better accounts for SNFs with zero or low numbers of eligible 
stays during the performance period. Because the number of eligible SNF 
stays makes up the denominator of the SNFRM, we have concluded that the 
reliability of a SNF's measure rate and resulting performance score is 
adversely impacted if the SNF has less than 25 eligible stays during 
the performance period, as the Pearson correlation coefficient is lower 
at denominator counts of 5, 10, 15, and 20 eligible stays in comparison 
to 25 eligible stays. The analysis of Pearson correlation coefficients 
at various denominator counts used in developing this proposal is 
available on our website at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-Programs/Other-VBPs/SNFRM-Reliability-Testing-Memo.docx.
    We believe that the most appropriate way to ensure that low-volume 
SNFs (which we define for purposes of the SNF VBP Program as SNFs with 
fewer than 25 eligible stays during the performance period) receive 
sufficiently reliable SNF performance scores is to adopt an adjustment 
to the scoring methodology we use for the SNF VBP Program. We are 
proposing that if a SNF has less than 25 eligible stays during a 
performance period for a Program year, we would assign a performance 
score to the SNF for that Program year. That assigned performance score 
would, when used to calculate the value-based incentive payment amount 
for the SNF, result in a value-based incentive payment amount that is 
equal to the adjusted Federal per diem rate that the SNF would have 
received for the fiscal year in the absence of the Program. The actual 
performance score that we would assign to an individual low-volume SNF 
for a Program year would be identified based on the distribution of all 
SNFs' performance scores for that Program year after calculating the 
exchange function. We would then assign that score to an individual 
low-volume SNF, and we would notify the low-volume SNF that it would be 
receiving an assigned performance score for the Program year in the SNF 
Performance Score Report that we provide not later than 60 days prior 
to the fiscal year involved.
    We believe this scoring adjustment policy would appropriately 
ensure that our SNF performance score methodology is fair and reliable 
for SNFs with fewer than 25 eligible stays during the performance 
period for a Program year.
    In section X.A.6. of this proposed rule, we estimate that $527.4 
million will be withheld from SNFs' payments for the FY 2019 Program 
year based on the most recently available data. Additionally, the 60 
percent payback percentage will result in an estimated $316.4 million 
being paid to SNFs in the form of value-based incentive payments with 
respect to FY 2019 services. Of the $316.4 amount, we estimate that 
$8.6 million will be paid to low-volume SNFs. However, if our proposal 
to adopt a scoring adjustment for low-volume SNFs is finalized, we 
estimate that we would redistribute an additional $6.7 million in 
value-based incentive payments to low-volume SNFs with respect to FY 
2019 services, for a total

[[Page 21088]]

of $15.3 million of the estimated $527.4 million available for value-
based incentive payments for that Program year. The additional $6.7 
million in value-based incentive payments that would result from 
finalizing this proposal would increase the 60 percent payback 
percentage for FY 2019 by approximately 1.28 percent, which would 
result in a payback percentage 61.28 percent of withheld funds. The 
payback percentage would similarly increase for all other Program 
years, however the actual amount of the increase for a particular 
Program year would vary based on the number of low-volume SNFs that we 
identify for that Program year and the distribution of all SNFs' 
performance scores for that Program year.
    As an alternative, we also considered assigning a performance score 
to SNFs with fewer than 25 eligible stays during the performance period 
that would result in a value-based incentive payment percentage of 1.2 
percent, or 60 percent of the 2 percent withhold. This amount would 
match low-volume SNFs' incentive payment percentages with the finalized 
SNF VBP Program payback percentage of 60 percent, and would represent a 
smaller adjustment to low-volume SNFs' incentive payment percentages 
than the proposed policy described above. We estimate that this 
alternative would redistribute an additional $1 million with respect to 
FY 2019 services to low-volume SNFs. We also estimate that this 
alternative would increase the 60 percent payback percentage for FY 
2019 by approximately 0.18 percent of the approximately $527.4 million 
of the total withheld from SNFs' payments, which would result in a 
payback percentage of 60.18 percent of the estimated $527.4 million in 
withheld funds for that Program year. However, as with the proposal 
above, the specific amount by which the payback percentage would 
increase for each Program year would vary based on the number of low-
volume SNFs that we identify for each Program year and the distribution 
of all SNFs' performance scores for that Program year.
    We welcome public comments on this proposal and on the alternative 
that we considered. We are also proposing to codify the definition of 
low-volume SNF at Sec.  413.338(a)(16) of our regulations, and the 
definition of eligible stay at Sec.  413.338(a)(17) of our regulations. 
We are proposing to codify the low-volume scoring adjustment proposal 
at Sec.  413.338(d)(3) of our regulations. We are also proposing a 
conforming edit to the payback percentage policy at Sec.  
413.338(c)(2)(i).
d. Proposed Extraordinary Circumstances Exception Policy for the SNF 
VBP Program
    In the FY 2018 SNF PPS final rule (82 FR 36616), we summarized 
public comments that we received on the topic of a possible 
extraordinary circumstances exception policy for the SNF VBP Program. 
As we stated in that rule, in other value-based purchasing and quality 
reporting programs, we have adopted Extraordinary Circumstances 
Exceptions (ECE) policies intended to allow facilities to receive 
relief from program requirements due to natural disasters or other 
circumstances beyond the facility's control that may affect the 
facility's ability to provide high-quality health care.
    In other programs, we have defined a ``disaster'' as any natural or 
man-made catastrophe which causes damages of sufficient severity and 
magnitude to partially or completely destroy or delay access to medical 
records and associated documentation or otherwise affect the facility's 
ability to continue normal operations. Natural disasters could include 
events such as hurricanes, tornadoes, earthquakes, volcanic eruptions, 
fires, mudslides, snowstorms, and tsunamis. Man-made disasters could 
include such events as terrorist attacks, bombings, flood caused by 
man-made actions, civil disorders, and explosions. A disaster may be 
widespread and impact multiple structures or be isolated and affect a 
single site only. As a result of either a natural or man-made disaster, 
we are concerned that SNFs' care quality and subsequent impact on 
measure performance in the SNF VBP Program may suffer, and as a result, 
SNFs might be penalized under the Program's quality measurement and 
scoring methodology. However, we do not wish to penalize SNFs in these 
circumstances. For example, we recognize that SNFs might receive 
patients involuntarily discharged from hospitals facing mandatory 
evacuation due to probable flooding, and these patients might be 
readmitted to inpatient acute care hospitals and result in poorer 
readmission measure performance in the SNF VBP Program. We are 
therefore proposing to adopt an ECE policy for the SNF VBP Program to 
provide relief to SNFs affected by natural disasters or other 
circumstances beyond the facility's control that affect the care 
provided to the facility's patients. We propose that if a SNF can 
demonstrate that an extraordinary circumstance affected the care that 
it provided to its patients and subsequent measure performance, we 
would exclude from the calculation of the measure rate for the 
applicable baseline and performance periods the calendar months during 
which the SNF was affected by the extraordinary circumstance. Under 
this proposal, a SNF requesting an ECE would indicate the dates and 
duration of the extraordinary circumstance in its request, along with 
any available evidence of the extraordinary circumstance, and if 
approved, we would exclude the corresponding calendar months from that 
SNF's measure rate for the applicable measurement period and by 
extension, its SNF performance score.
    We further propose that SNFs must submit this ECE request to CMS by 
filling out the ECE request form that we will place on the QualityNet 
website to the [email protected] mailbox within 90 days 
following the extraordinary circumstance.
    To accompany an ECE request, SNFs must provide any available 
evidence showing the effects of the extraordinary circumstance on the 
care they provided to their patients, including, but not limited to, 
photographs, newspaper and other media articles, and any other 
materials that would aid CMS in making its decision. We will review 
exception requests, and at our discretion based on our evaluation of 
the impact of the extraordinary circumstances on the SNF's care, 
provide a response to the SNF as quickly as feasible.
    We intend for this policy to offer relief to SNFs whose care 
provided to patients suffered as a result of the disaster or other 
extraordinary circumstance, and we believe that excluding calendar 
months affected by extraordinary circumstances from SNFs' measure 
performance under the Program appropriately ensures that such 
circumstances do not unduly affect SNFs' performance rates or 
performance scores. We developed this process to align with the ECE 
process adopted by the SNF Quality Reporting Program to the greatest 
extent possible and to minimize burden on SNFs. This proposal is not 
intended to preclude us from granting exceptions to SNFs that have not 
requested them when we determine that an extraordinary circumstance, 
such as an act of nature, affects an entire region or locale. If we 
make the determination to grant an exception to all SNFs in a region or 
locale, we propose to communicate this decision through routine 
communication channels to SNFs and vendors, including but not limited 
to, issuing memos, emails, and notices on our SNF VBP website at 
https://www.cms.gov/Medicare/Quality-

[[Page 21089]]

Initiatives-Patient-Assessment-Instruments/Value-Based-Programs/Other-
VBPs/SNF-VBP.html.
    We note that if we finalize this policy, we would score any SNFs 
receiving ECEs on achievement and improvement for any remaining months 
during the performance period, provided the SNF had at least 25 
eligible stays during both of those periods as we have proposed above. 
If a SNF should receive an approved ECE for 6 months of the performance 
period, for example, we would score the SNF on its achievement during 
the remaining 6 months on the Program's measure as long as the SNF met 
the proposed 25 eligible stay threshold during the performance period. 
We would also score the SNF on improvement as long as it met the 
proposed 25 eligible stay threshold during the applicable baseline 
period.
    We welcome public comments on this proposal. We are also proposing 
to codify this proposal at Sec.  413.338(d)(4) of our regulations.
6. SNF Value-Based Incentive Payments
    We refer readers to the FY 2018 SNF PPS final rule (82 FR 36616 
through 36621) for discussion of the exchange function methodology that 
we have adopted for the Program, as well as the specific form of the 
exchange function (logistic, or S-shaped curve) that we finalized, and 
the payback percentage of 60 percent. We adopted these policies for FY 
2019 and subsequent fiscal years.
    As required by section 1888(h)(7) of the Act, we will inform each 
SNF of the adjustments to its Medicare payments as a result of the SNF 
VBP Program that we will make not later than 60 days prior to the 
fiscal year involved. We will fulfill that requirement via SNF 
Performance Score Reports that we will circulate to SNFs using the 
QIES-CASPER system, which is also how we distribute the quarterly 
confidential feedback reports that we are required to provide to SNFs 
under section 1888(g)(5) of the Act. The SNF Performance Score Reports 
will contain the SNF's performance score, ranking, and value-based 
incentive payment adjustment factor that will be applied to claims 
submitted for the applicable fiscal year. Additionally, as we finalized 
in the FY 2018 SNF PPS final rule (82 FR 36622 through 36623), the 
provision of the SNF Performance Score Report will trigger the Phase 
Two Review and Corrections Process, and SNFs will have 30 days from the 
date we post the report on the QIES-CASPER system to submit corrections 
to their SNF performance score and ranking to the 
[email protected] mailbox.
    Finally, as we discussed in the FY 2018 SNF PPS final rule (82 FR 
36618), beginning with FY 2019 (October 1, 2018) payments, we intend to 
make the 2 percent reduction and the SNF-specific value-based incentive 
payment adjustment to SNF claims simultaneously. Beginning with FY 
2019, we will identify the adjusted federal per diem rate for each SNF 
for claims under the SNF PPS. We will then reduce that amount by 2 
percent by multiplying the per diem amount by 0.98, in accordance with 
the requirements in section 1888(h)(6) of the Act. We will then 
multiply the result of that calculation by each SNF's specific value-
based incentive payment adjustment factor, which will be based on each 
SNF's performance score for the program year and will be calculated by 
the exchange function, to generate the value-based incentive payment 
amount that applies to the SNF for the fiscal year. Finally, we will 
add the value-based incentive payment amount to the reduced rate, 
resulting in a new adjusted federal per diem rate that applies to the 
SNF for the fiscal year.
    At the time of the publication of this proposed rule, we will not 
have completed SNF performance score calculations for the FY 2019 
program year. However, we intend to provide the range of value-based 
incentive payment adjustment factors applicable to the FY 2019 program 
year in the FY 2019 SNF PPS final rule.
    We are proposing to codify the SNF VBP Program's payment 
adjustments at Sec.  413.337(f) of our regulations.

VII. Request for Information on Promoting Interoperability and 
Electronic Healthcare Information Exchange Through Possible Revisions 
to the CMS Patient Health and Safety Requirements for Hospitals and 
Other Medicare- and Medicaid-Participating Providers and Suppliers

    Currently, Medicare- and Medicaid-participating providers and 
suppliers are at varying stages of adoption of health information 
technology (health IT). Many hospitals have adopted electronic health 
records (EHRs), and CMS has provided incentive payments to eligible 
hospitals, critical access hospitals (CAHs), and eligible professionals 
who have demonstrated meaningful use of certified EHR technology 
(CEHRT) under the Medicare EHR Incentive Program. As of 2015, 96 
percent of Medicare- and Medicaid-participating non-Federal acute care 
hospitals had adopted certified EHRs with the capability to 
electronically export a summary of clinical care.\13\ While both 
adoption of EHRs and electronic exchange of information have grown 
substantially among hospitals, significant obstacles to exchanging 
electronic health information across the continuum of care persist. 
Routine electronic transfer of information post-discharge has not been 
achieved by providers and suppliers in many localities and regions 
throughout the nation.
---------------------------------------------------------------------------

    \13\ These statistics can be accessed at: https://dashboard.healthit.gov/quickstats/pages/FIG-Hospital-EHR-Adoption.php.
---------------------------------------------------------------------------

    CMS is firmly committed to the use of certified health IT and 
interoperable EHR systems for electronic healthcare information 
exchange to effectively help hospitals and other Medicare- and 
Medicaid-participating providers and suppliers improve internal care 
delivery practices, support the exchange of important information 
across care team members during transitions of care, and enable 
reporting of electronically specified clinical quality measures 
(eCQMs). The Office of the National Coordinator for Health Information 
Technology (ONC) acts as the principal federal entity charged with 
coordination of nationwide efforts to implement and use health 
information technology and the electronic exchange of health 
information on behalf of the Department of Health and Human Services.
    In 2015, ONC finalized the 2015 Edition health IT certification 
criteria (2015 Edition), the most recent criteria for health IT to be 
certified to under the ONC Health IT Certification Program. The 2015 
Edition facilitates greater interoperability for several clinical 
health information purposes and enables health information exchange 
through new and enhanced certification criteria, standards, and 
implementation specifications. CMS requires eligible hospitals and CAHs 
in the Medicare and Medicaid EHR Incentive Programs and eligible 
clinicians in the Quality Payment Program (QPP) to use EHR technology 
certified to the 2015 Edition beginning in CY 2019.
    In addition, several important initiatives will be implemented over 
the next several years to provide hospitals and other participating 
providers and suppliers with access to robust infrastructure that will 
enable routine electronic exchange of health information. Section 4003 
of the 21st Century Cures Act (Pub. L. 114-255), enacted in 2016, and 
amending section 3000 of the Public Health Service Act (42 U.S.C. 
300jj), requires HHS to take steps to advance the electronic exchange 
of health information and

[[Page 21090]]

interoperability for participating providers and suppliers in various 
settings across the care continuum. Specifically, Congress directed 
that ONC ``. . . for the purpose of ensuring full network-to-network 
exchange of health information, convene public-private and public-
public partnerships to build consensus and develop or support a trusted 
exchange framework, including a common agreement among health 
information networks nationally.'' In January 2018, ONC released a 
draft version of its proposal for the Trusted Exchange Framework and 
Common Agreement,\14\ which outlines principles and minimum terms and 
conditions for trusted exchange to enable interoperability across 
disparate health information networks (HINs). The Trusted Exchange 
Framework (TEF) is focused on achieving the following four important 
outcomes in the long-term:
---------------------------------------------------------------------------

    \14\ The draft version of the trusted Exchange Framework may be 
accessed at https://beta.healthit.gov/topic/interoperability/trusted-exchange-framework-and-common-agreement.
---------------------------------------------------------------------------

     Professional care providers, who deliver care across the 
continuum, can access health information about their patients, 
regardless of where the patient received care.
     Patients can find all of their health information from 
across the care continuum, even if they do not remember the name of the 
professional care provider they saw.
     Professional care providers and health systems, as well as 
public and private health care organizations and public and private 
payer organizations accountable for managing benefits and the health of 
populations, can receive necessary and appropriate information on 
groups of individuals without having to access one record at a time, 
allowing them to analyze population health trends, outcomes, and costs; 
identify at-risk populations; and track progress on quality improvement 
initiatives.
     The health IT community has open and accessible 
application programming interfaces (APIs) to encourage entrepreneurial, 
user-focused innovation that will make health information more 
accessible and improve EHR usability.
    ONC will revise the draft TEF based on public comment and 
ultimately release a final version of the TEF that will subsequently be 
available for adoption by HINs and their participants seeking to 
participate in nationwide health information exchange. The goal for 
stakeholders that participate in, or serve as, a HIN is to ensure that 
participants will have the ability to seamlessly share and receive a 
core set of data from other network participants in accordance with a 
set of permitted purposes and applicable privacy and security 
requirements. Broad adoption of this framework and its associated 
exchange standards is intended to both achieve the outcomes described 
above while creating an environment more conducive to innovation.
    In light of the widespread adoption of EHRs along with the 
increasing availability of health information exchange infrastructure 
predominantly among hospitals, we are interested in hearing from 
stakeholders on how we could use the CMS health and safety standards 
that are required for providers and suppliers participating in the 
Medicare and Medicaid programs (that is, the Conditions of 
Participation (CoPs), Conditions for Coverage (CfCs), and Requirements 
for Participation (RfPs) for Long Term Care Facilities) to further 
advance electronic exchange of information that supports safe, 
effective transitions of care between hospitals and community 
providers. Specifically, CMS might consider revisions to the current 
CMS CoPs for hospitals such as: requiring that hospitals transferring 
medically necessary information to another facility upon a patient 
transfer or discharge do so electronically; requiring that hospitals 
electronically send required discharge information to a community 
provider via electronic means if possible and if a community provider 
can be identified; and requiring that hospitals make certain 
information available to patients or a specified third-party 
application (for example, required discharge instructions) via 
electronic means if requested.
    On November 3, 2015, we published a proposed rule (80 FR 68126) to 
implement the provisions of the IMPACT Act and to revise the discharge 
planning CoP requirements that hospitals (including Short-Term Acute-
Care Hospitals, Long-Term Care Hospitals (LTCHs), Inpatient 
Rehabilitation Hospitals (IRFs), Inpatient Psychiatric Hospitals 
(IPFs), Children's Hospitals, and Cancer Hospitals), critical access 
hospitals (CAHs), and home health agencies (HHAs) must meet in order to 
participate in the Medicare and Medicaid programs. This proposed rule 
has not been finalized yet. However, several of the proposed 
requirements directly address the issue of communication between 
providers and between providers and patients, as well as the issue of 
interoperability:
     Hospitals and CAHs would be required to transfer certain 
necessary medical information and a copy of the discharge instructions 
and discharge summary to the patient's practitioner, if the 
practitioner is known and has been clearly identified;
     Hospitals and CAHs would be required to send certain 
necessary medical information to the receiving facility/post-acute care 
providers, at the time of discharge; and
     Hospitals, CAHs and HHAs, would need to comply with the 
IMPACT Act requirements that would require hospitals, CAHs, and certain 
post-acute care providers to use data on quality measures and data on 
resource use measures to assist patients during the discharge planning 
process, while taking into account the patient's goals of care and 
treatment preferences.
    We published another proposed rule (81 FR 39448), on June 16, 2016, 
that updated a number of CoP requirements that hospitals and CAH must 
meet in order to participate in the Medicare and Medicaid programs. 
This proposed rule has not been finalized yet. One of the proposed 
hospital CoP revisions in that rule directly addresses the issues of 
communication between providers and patients, patient access to their 
medical records, and interoperability. We proposed that patients have 
the right to access their medical records, upon an oral or written 
request, in the form and format requested by such patients, if it is 
readily producible in such form and format (including in an electronic 
form or format when such medical records are maintained 
electronically); or, if not, in a readable hard copy form or such other 
form and format as agreed to by the facility and the individual, 
including current medical records, within a reasonable time frame. The 
hospital must not frustrate the legitimate efforts of individuals to 
gain access to their own medical records and must actively seek to meet 
these requests as quickly as its record keeping system permits.
    We also published a final rule (81 FR 68688), on October 4, 2016, 
that revised the requirements that LTC facilities must meet to 
participate in the Medicare and Medicaid programs, where we made a 
number of revisions based on the importance of effective communication 
between providers during transitions of care, such as transfers and 
discharges of residents to other facilities or providers, or to home. 
Among these revisions was a requirement that the transferring LTC 
facility must provide all necessary information to the resident's 
receiving provider, whether it is an acute care hospital, a LTC 
hospital, a psychiatric facility, another LTC facility, a hospice, home 
health agency, or another

[[Page 21091]]

community-based provider or practitioner. We specified that necessary 
information must include the following:
     Contact information of the practitioner responsible for 
the care of the resident;
     Resident representative information including contact 
information;
     Advance directive information;
     Special instructions or precautions for ongoing care;
     The resident's comprehensive care plan goals; and
     All other necessary information, including a copy of the 
resident's discharge or transfer summary and any other documentation to 
ensure a safe and effective transition of care.
    We note that the discharge summary mentioned above must include 
reconciliation of the resident's medications, as well as a 
recapitulation of the resident's stay, a final summary of the 
resident's status, and the post-discharge plan of care. And in the 
preamble to the rule, we encouraged LTC facilities to electronically 
exchange this information if possible and to identify opportunities to 
streamline the collection and exchange of resident information by using 
information that the facility is already capturing electronically.
    Additionally, we specifically invite stakeholder feedback on the 
following questions regarding possible new or revised CoPs/CfCs/RfPs 
for interoperability and electronic exchange of health information:
     If CMS were to propose a new CoP/CfC/RfP standard to 
require electronic exchange of medically necessary information, would 
this help to reduce information blocking as defined in section 4004 of 
the 21st Century Cures Act?
     Should CMS propose new CoPs/CfCs/RfPs for hospitals and 
other participating providers and suppliers to ensure a patient's or 
resident's (or his or her caregiver's or representative's) right and 
ability to electronically access his or her health information without 
undue burden? Would existing portals or other electronic means 
currently in use by many hospitals satisfy such a requirement regarding 
patient/resident access as well as interoperability?
     Are new or revised CMS CoPs/CfCs/RfPs for interoperability 
and electronic exchange of health information necessary to ensure 
patients/residents and their treating providers routinely receive 
relevant electronic health information from hospitals on a timely basis 
or will this be achieved in the next few years through existing 
Medicare and Medicaid policies, HIPAA, and implementation of relevant 
policies in the 21st Century Cures Act?
     What would be a reasonable implementation timeframe for 
compliance with new or revised CMS CoPs/CfCs/RfPs for interoperability 
and electronic exchange of health information if CMS were to propose 
and finalize such requirements? Should these requirements have delayed 
implementation dates for specific participating providers and 
suppliers, or types of participating providers and suppliers (for 
example, participating providers and suppliers that are not eligible 
for the Medicare and Medicaid EHR Incentive Programs)?
     Do stakeholders believe that new or revised CMS CoPs/CfCs/
RfPs for interoperability and electronic exchange of health information 
would help improve routine electronic transfer of health information as 
well as overall patient/resident care and safety?
     Under new or revised CoPs/CfCs/RfPs, should non-electronic 
forms of sharing medically necessary information (for example, printed 
copies of patient/resident discharge/transfer summaries shared directly 
with the patient/resident or with the receiving provider or supplier, 
either directly transferred with the patient/resident or by mail or fax 
to the receiving provider or supplier) be permitted to continue if the 
receiving provider, supplier, or patient/resident cannot receive the 
information electronically?
     Are there any other operational or legal considerations 
(for example, HIPAA), obstacles, or barriers that hospitals and other 
providers and suppliers would face in implementing changes to meet new 
or revised interoperability and health information exchange 
requirements under new or revised CMS CoPs/CfCs/RfPs if they are 
proposed and finalized in the future?
     What types of exceptions, if any, to meeting new or 
revised interoperability and health information exchange requirements, 
should be allowed under new or revised CMS CoPs/CfCs/RfPs if they are 
proposed and finalized in the future? Should exceptions under the QPP 
including CEHRT hardship or small practices be extended to new 
requirements? Would extending such exceptions impact the effectiveness 
of these requirements?
    We would also like to directly address the issue of communication 
between hospitals (as well as the other providers and suppliers across 
the continuum of patient care) and their patients and caregivers. 
MyHealthEData is a government-wide initiative aimed at breaking down 
barriers that contribute to preventing patients from being able to 
access and control their medical records. Privacy and security of 
patient data will be at the center of all CMS efforts in this area. CMS 
must protect the confidentiality of patient data, and CMS is completely 
aligned with the Department of Veterans Affairs (VA), the National 
Institutes of Health (NIH), ONC, and the rest of the federal 
government, on this objective.
    While some Medicare beneficiaries have had, for quite some time, 
the ability to download their Medicare claims information, in pdf or 
Excel formats, through the CMS Blue Button platform, the information 
was provided without any context or other information that would help 
beneficiaries understand what the data was really telling them. For 
beneficiaries, their claims information is useless if it is either too 
hard to obtain or, as was the case with the information provided 
through previous versions of Blue Button, hard to understand. In an 
effort to fully contribute to the federal government's MyHealthEData 
initiative, CMS developed and launched the new Blue Button 2.0, which 
represents a major step toward giving patients meaningful control of 
their health information in an easy-to-access and understandable way. 
Blue Button 2.0 is a developer-friendly, standards-based API that 
enables Medicare beneficiaries to connect their claims data to secure 
applications, services, and research programs they trust. The 
possibilities for better care through Blue Button 2.0 data are 
exciting, and might include enabling the creation of health dashboards 
for Medicare beneficiaries to view their health information in a single 
portal, or allowing beneficiaries to share complete medication lists 
with their doctors to prevent dangerous drug interactions.
    To fully understand all of these health IT interoperability issues, 
initiatives, and innovations through the lens of its regulatory 
authority, CMS invites members of the public to submit their ideas on 
how best to accomplish the goal of fully interoperable health IT and 
EHR systems for Medicare- and Medicaid-participating providers and 
suppliers, as well as how best to further contribute to and advance the 
MyHealthEData initiative for patients. We are particularly interested 
in identifying fundamental barriers to interoperability and health 
information exchange, including those specific barriers that prevent 
patients from being able to access and control their medical records. 
We also welcome the public's ideas and innovative thoughts on 
addressing these barriers and ultimately removing or reducing them in 
an effective way, specifically through

[[Page 21092]]

revisions to the current CMS CoPs, CfCs, and RfPs for hospitals and 
other participating providers and suppliers. We have received 
stakeholder input through recent CMS Listening Sessions on the need to 
address health IT adoption and interoperability among providers that 
were not eligible for the Medicare and Medicaid EHR Incentives program, 
including long-term and post-acute care providers, behavioral health 
providers, clinical laboratories and social service providers, and we 
would also welcome specific input on how to encourage adoption of 
certified health IT and interoperability among these types of providers 
and suppliers as well.
    We note that this is a Request for Information only. Respondents 
are encouraged to provide complete but concise and organized responses, 
including any relevant data and specific examples. However, respondents 
are not required to address every issue or respond to every question 
discussed in this Request for Information to have their responses 
considered. In accordance with the implementing regulations of the 
Paperwork Reduction Act at 5 CFR 1320.3(h)(4), all responses will be 
considered provided they contain information CMS can use to identify 
and contact the commenter, if needed.
    This Request for Information is issued solely for information and 
planning purposes; it does not constitute a Request for Proposal (RFP), 
applications, proposal abstracts, or quotations. This Request for 
Information does not commit the U.S. Government to contract for any 
supplies or services or make a grant award. Further, CMS is not seeking 
proposals through this Request for Information and will not accept 
unsolicited proposals. Responders are advised that the U.S. Government 
will not pay for any information or administrative costs incurred in 
response to this Request for Information; all costs associated with 
responding to this Request for Information will be solely at the 
interested party's expense.
    We note that not responding to this Request for Information does 
not preclude participation in any future procurement, if conducted. It 
is the responsibility of the potential responders to monitor this 
Request for Information announcement for additional information 
pertaining to this request. In addition, we note that CMS will not 
respond to questions about the policy issues raised in this Request for 
Information. CMS will not respond to comment submissions in response to 
this Request for Information in the FY 2019 IPPS/LTCH PPS final rule. 
Rather, CMS will actively consider all input as we develop future 
regulatory proposals or future subregulatory policy guidance. CMS may 
or may not choose to contact individual responders. Such communications 
would be for the sole purpose of clarifying statements in the 
responders' written responses. Contractor support personnel may be used 
to review responses to this Request for Information. Responses to this 
notice are not offers and cannot be accepted by the Government to form 
a binding contract or issue a grant. Information obtained as a result 
of this Request for Information may be used by the Government for 
program planning on a nonattribution basis. Respondents should not 
include any information that might be considered proprietary or 
confidential.
    This Request for Information should not be construed as a 
commitment or authorization to incur cost for which reimbursement would 
be required or sought. All submissions become U.S. Government property 
and will not be returned. CMS may publically post the public comments 
received, or a summary of those public comments.

VIII. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et 
seq.), we are required to publish a 60-day notice in the Federal 
Register and solicit public comment before a collection of information 
requirement is submitted to the Office of Management and Budget (OMB) 
for review and approval.
    To fairly evaluate whether an information collection should be 
approved by OMB, PRA section 3506(c)(2)(A) requires that we solicit 
comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our burden estimates.
     The quality, utility, and clarity of the information to be 
collected.
     Our effort to minimize the information collection burden 
on the affected public, including the use of automated collection 
techniques.
    We are soliciting public comment on each of the section 
3506(c)(2)(A)-required issues for the following information collection 
requirements (ICRs).

A. Wages

    To derive average costs, we used data from the U.S. Bureau of Labor 
Statistics' May 2016 National Occupational Employment and Wage 
Estimates for all salary estimates (http://www.bls.gov/oes/current/oes_nat.htm). In this regard, Table 41 presents the mean hourly wage, 
the cost of fringe benefits and overhead (calculated at 100 percent of 
salary), and the adjusted hourly wage. The wage rates provided in Table 
41 are used to calculate the wages to derive burden estimates in this 
section.

                          Table 41--National Occupational Employment and Wage Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                      Fringe
                                                    Occupation     Mean  hourly    benefits and      Adjusted
                Occupation title                       code         wage ($/hr)    overhead ($/   hourly wage ($/
                                                                                        hr)             hr)
----------------------------------------------------------------------------------------------------------------
Registered Nurse................................         29-1141           34.70           34.70           69.40
Health Information Technician...................         29-2071           19.93           19.93           39.86
----------------------------------------------------------------------------------------------------------------

    As indicated, we are adjusting our employee hourly wage estimates 
by a factor of 100 percent. This is necessarily a rough adjustment, 
both because fringe benefits and overhead costs vary significantly from 
employer to employer, and because methods of estimating these costs 
vary widely from study to study. Nonetheless, there is no practical 
alternative and we believe that doubling the hourly wage to estimate 
total cost is a reasonably accurate estimation method.

B. Proposed Information Collection Requirements (ICRs)

1. ICRs Regarding the SNF PPS Assessment Schedule Under the Proposed 
PDPM
    The following sets out the proposed requirements and burden 
associated

[[Page 21093]]

with the MDS assessment schedule that would be effective October 1, 
2019 under the SNF PPS in conjunction with implementation of the 
proposed PDPM. The proposed requirements and burden will be submitted 
to OMB for approval under control number 0938-1140 (CMS-10387).
    Section V.C of this preamble proposes, effective October 1, 2019, 
to revise the current SNF PPS assessment schedule to require only two 
scheduled assessments (as opposed to the current requirement for five 
scheduled assessments) for each SNF stay: A 5-day scheduled PPS 
assessment and a discharge assessment.
    The current 5-day scheduled PPS assessment would be used as the 
admission assessment under this rule's proposed PDPM and set the 
resident's case-mix classification for the resident's SNF stay. The PPS 
discharge assessment (which is already required for all SNF Part A 
residents) would serve as the discharge assessment and be used for 
monitoring purposes. This rule also proposes to require SNFs to 
reclassify residents under the proposed PDPM using the Interim Payment 
Assessment (IPA) if certain criteria are met, as discussed in section 
V.D.1. of this preamble. Thus, the 5-day SNF PPS scheduled assessment 
would be the only PPS assessment required to classify a resident under 
the proposed PDPM for payment purposes, except when an IPA would be 
required as provided in section V.E.1. This would eliminate the 
requirement for the following assessments under the SNF PPS: 14-Day 
scheduled PPS assessment, 30-day scheduled PPS assessment, 60-day 
scheduled PPS assessment, 90-day scheduled PPS assessment, Start of 
Therapy Other Medicare Required Assessment (OMRA), End of Therapy OMRA, 
and Change of Therapy OMRA.
    In estimating the amount of time to complete a PPS assessment, we 
utilize the OMRA assessment, or the NO/SO item set (consistent with the 
currently approved PRA Supporting Statement at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201703-0938-018- click on View Supporting 
Statement and Other Documents and then click OMB 0938-1140 Supporting 
Statement Revision_nonsub_V4-4-5-2017 (rev 04-07-2017 by OSORA 
PRA).docx) as a proxy for all assessments. In section V.D.3. of this 
preamble, we propose to add 18 items to the PPS discharge assessment in 
order to calculate and monitor the total amount of therapy provided 
during a SNF stay. The proposed items are listed in Table 35 under 
section V.D.3 of this proposed rule. Given that the PPS OMRA assessment 
has 272 items (as compared to 125 items currently on the PPS discharge 
assessment) we believe that the items that we propose to add to the PPS 
discharge assessment--while increasing burden for each of the 
respective assessments--is accounted for by using the longer PPS OMRA 
assessment as a proxy for the time required to complete all 
assessments.
    When calculating the burden for each assessment, we estimate that 
it will take 40 minutes (0.6667 hours) for an RN to collect the 
information necessary for preparing the assessment, 10 minutes (0.1667 
hours) for staff to code the responses, and 1 minute (0.0167 hours) for 
a health information technician to transmit the results. In total, we 
estimate that it would take 51 minutes (0.85 hours) to complete a 
single PPS assessment.
    The ongoing burden associated with the proposed revisions to the 
SNF PPS assessment schedule is the time and effort it would take each 
of the 15,455 Medicare Part A SNFs to complete the 5-day PPS and 
discharge assessments. Based on FY 2017 data, we estimate that 
2,406,401 5-day PPS assessments would be completed and submitted by 
Part A SNFs each year under the proposed PDPM. We are using the same 
number of assessments (2,406,401) as a proxy for the number of PPS 
discharge assessments that would be completed and submitted each year, 
since all residents who require a 5-day PPS assessment will also 
require a discharge assessment under the SNF PDPM.
    We are using the Significant Change in Status Assessment (SCSA) as 
a proxy to estimate the number of IPAs as the criteria for completing 
an SCSA is similar to that for the proposed IPA. Based on FY 2017 data, 
92,240 IPAs would be completed per year. We estimate that the total 
number of 5-day scheduled PPS assessments, IPAs, and PPS discharge 
assessments that would be completed across all facilities is 4,905,042 
(2,406,401 + 92,240 + 2,406,401, respectively). For all assessments 
under the proposed SNF PDPM, we estimate a burden of 4,169,286 hours 
(4,905,042 assessments x 0.85 hr/assessment) at a cost of $274,878,554 
(4,905,042 assessments x $56.04/assessment) (see calculation of the 
cost estimate for each assessment below).
    Based on the same FY 2017 data, there were 5,833,476 non-discharge 
related assessments (scheduled and unscheduled PPS assessments) 
completed under the RUG- IV payment system. To this number we add the 
same proxy as above for the number of discharge assessments 
(2,406,401), since every resident under RUG-IV who required a 5-day 
scheduled PPS assessment would also require a discharge assessment. 
This brings the total number of estimated assessments under RUG-IV to 
8,239,877. Using the same wage and time estimates (per assessment), we 
estimate a burden of 7,003,895 hours (8,239,877 assessments x 0.85 hr/
assessment) at a cost of $461,762,707 (8,239,877 assessments x $56.04/
assessment).
    When comparing the currently approved RUG-IV burden with the 
proposed PDPM burden, we estimate a savings of 2,834,609 administrative 
hours (7,003,895 RUG-IV hours--4,169,286 proposed PDPM hours) or 
approximately 183 hours per provider per year (2,834,609 hours/15,455 
providers). As depicted in Table 42, we also estimate a cost savings of 
$186,884,153 ($461,762,707 RUG-IV costs--$274,878,554 proposed PDPM 
costs) or $12,092 per provider per year ($186,884,153/15,455 
providers). This represents a significant decrease in administrative 
burden for providers under the proposed PDPM.

                                                                 Table 42--PDPM Savings
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Responses                                     Total annual
          Burden reconciliation                     Respondents            (assessments)    Burden per response (hours)   burden (hours)     Cost  ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUG-IV..................................  15,455........................       8,239,877  0.85..........................       7,003,895     461,762,707
Proposed PDPM...........................  15,455........................       4,905,042  0.85..........................       4,169,286     274,878,554
SAVINGS.................................  No change.....................     (3,334,835)  No change.....................     (2,834,609)   (186,884,153)
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 21094]]

    When calculating the burden for each assessment, we estimate that 
it will take 40 minutes (0.6667 hours) at $69.40/hr for an RN to 
collect the information necessary for preparing the assessment, 10 
minutes (0.1667 hours) at $54.63/hr (the average hourly wage for RN 
($69.40/hr) and health information technician ($39.86/hr) for staff to 
code the responses, and 1 minute (0.0167 hours) at $39.86/hr for a 
health information technician to transmit the results. In total, we 
estimate that it would take 51 minutes (0.85 hours) to complete a 
single PPS assessment. Based on the adjusted hourly wages for the noted 
staff, we estimate that it would cost $56.04 to prepare, code, and 
transmit each PPS assessment [($69.40/hr x 0.6667 hr) + ($54.63/hr x 
0.1667 hr) + ($39.86/hr x 0.0167 hr)].
    Finally, in section V.C.1.a of this preamble, we propose to add 3 
items, as listed in Table 34 of this preamble, to the MDS 3.0 for 
Nursing Homes and Swing Bed Providers. Based on the small number of 
items being added and the small percentage of assessments that Swing 
Bed providers make up, we do not believe this action will cause any 
measurable adjustments to our currently approved burden estimates. 
Consequently, we are not revising any of those estimates.
2. ICRs Regarding the SNF VBP Program
    In section VI.C.5.d. of this rule, we propose to adopt an 
Extraordinary Circumstances Exception (ECE) process for the SNF VBP. 
Because the same CMS Extraordinary Circumstances Exceptions (ECE) 
Request Form would be used across ten quality programs: Hospital IQR 
Program, Hospital Outpatient Reporting Program, Inpatient Psychiatric 
Facility Quality Reporting Program, PPS-Exempt Cancer Hospital Quality 
Reporting Program, Ambulatory Surgical Center Quality Reporting 
Program, Hospital VBP Program, Hospital-Acquired Condition Reduction 
Program, Hospital Readmissions Reduction Program, End Stage Renal 
Disease Quality Incentive Program, and Skilled Nursing Facility Value-
Based Purchasing Program--the form and its associated requirements/
burden will be submitted to OMB for approval under one information 
collection request (CMS-10210, OMB control number: 0938-1022) and in 
association with our IPPS proposed rule (CMS-1694-P; RIN 0938-AT27). To 
avoid double counting we are not setting out the form's SNF-related 
burden in this rulemaking.
    Separately, we are not proposing any new or revised SNF VBP 
measures in this proposed rule. Nor are we proposing any new or revised 
collection burden. Consequently, this proposed rule does not set out 
any new VBP-related collections of information that would be subject to 
OMB approval under the authority of the PRA.
3. ICRs for the SNF Quality Reporting Program (QRP)
    This rule does not propose to add, remove, or revise any measures 
under the SNF QRP. Consequently, we are not revising the burden related 
to the Program's measures.

C. Submission of PRA-Related Comments

    We have submitted a copy of this proposed rule to OMB for its 
review of the rule's information collection and recordkeeping 
requirements. The requirements are not effective until they have been 
approved by OMB.
    We invite public comments on these information collection 
requirements. If you wish to comment, please identify the rule (CMS-
1696-P) and, where applicable, the preamble section, and the ICR 
section. See this rule's DATES and ADDRESSES sections for the comment 
due date and for additional instructions.

IX. 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.

X. Economic Analyses

A. Regulatory Impact Analysis

1. Statement of Need
    This proposed rule would update the FY 2018 SNF prospective payment 
rates 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 FY, 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 on these issues. We note 
that we did not include the impacts of the proposed PDPM and related 
policies in the sections that follow, as we have included this 
discussion in section V.J. of this proposed rule.
2. 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), the Congressional Review Act (5 U.S.C. 804(2)), and Executive 
Order 13771 on Reducing Regulation and Controlling Regulatory Costs 
(January 30, 2017).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule has been designated an economically significant 
rule, under section 3(f)(1) of Executive Order 12866. Accordingly, we 
have prepared a regulatory impact analysis (RIA) as further discussed 
below. Also, the rule has been reviewed by OMB.
    Executive Order 13771, titled Reducing Regulation and Controlling 
Regulatory Costs, was issued on January 30, 2017. OMB's implementation 
guidance, issued on April 5, 2017, explains that ``Federal spending 
regulatory actions that cause only income transfers between taxpayers 
and program beneficiaries (for example, regulations associated with . . 
. Medicare spending) are considered `transfer rules' and are not 
covered by E.O. 13771. . . . However . . . such regulatory actions may 
impose requirements apart from transfers . . . In those cases, the 
actions would need to be offset to the extent they impose more than de 
minimis costs. Examples of ancillary requirements that may require 
offsets include new reporting or recordkeeping requirements.'' As 
discussed in section VII of this proposed rule, we estimate that this 
proposed rule would lead to paperwork cost savings of approximately 
$187 million per year on

[[Page 21095]]

an ongoing basis. This proposed rule is expected to be an E.O. 13771 
deregulatory action, if finalized.
3. Overall Impacts
    This proposed rule sets forth proposed updates of the SNF PPS rates 
contained in the SNF PPS final rule for FY 2018 (82 FR 36530). Based on 
the above, we estimate that the aggregate impact would be an increase 
of approximately $850 million in payments to SNFs in FY 2019, resulting 
from the SNF market basket update to the payment rates, as required by 
section 53111 of the BBA 2018. Absent the application of section 53111 
of the BBA 2018, the aggregate impact from the 1.9 percentage point 
market basket increase factor would have been approximately $670 
million. We note that these impact numbers do not incorporate the SNF 
VBP reductions mentioned in section IX.A.6. of this proposed rule.
    We would note that 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 events that may occur 
within the assessed impact time period.
    In accordance with sections 1888(e)(4)(E) and 1888(e)(5) of the 
Act, we update the FY 2018 payment rates by a factor equal to the 
market basket index percentage change adjusted by the MFP adjustment to 
determine the payment rates for FY 2019. As discussed previously, 
section 53111 of the BBA 2018 stipulates a market basket increase 
factor of 2.4 percent. The impact to Medicare is included in the total 
column of Table 43. In updating the SNF PPS rates for FY 2019, 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 2019. Accordingly, the analysis of the impact of the 
annual update that follows only describes the impact of this single 
year. Furthermore, in accordance with the requirements of the Act, we 
will publish a rule or notice for each subsequent FY that will provide 
for an update to the payment rates and include an associated impact 
analysis.
4. Detailed Economic Analysis
    The FY 2019 SNF PPS payment impacts appear in Table 43. Using the 
most recently available data, in this case FY 2017, we apply the 
current FY 2018 wage index and labor-related share value to the number 
of payment days to simulate FY 2018 payments. Then, using the same FY 
2017 data, we apply the proposed FY 2019 wage index and labor-related 
share value to simulate FY 2019 payments. We tabulate the resulting 
payments according to the classifications in Table 43 (for example, 
facility type, geographic region, facility ownership), and compare the 
simulated FY 2018 payments to the simulated FY 2019 payments to 
determine the overall impact. The breakdown of the various categories 
of data Table 43 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 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.
     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. The total impact of this change is 0 percent; 
however, there are distributional effects of the change.
     The fourth column shows the effect of all of the changes 
on the FY 2019 payments. The update of 2.4 percent 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 2.4 
percent, assuming facilities do not change their care delivery and 
billing practices in response.
    As illustrated in Table 43, 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 urban 
Pacific region would experience a 3.4 percent increase in FY 2019 total 
payments.

                              Table 43--Projected Impact to the SNF PPS for FY 2019
----------------------------------------------------------------------------------------------------------------
                                                                     Number of
                                                                   facilities FY    Update wage    Total change
                                                                       2019          data (%)           (%)
----------------------------------------------------------------------------------------------------------------
Group:
    Total.......................................................          15,455             0.0             2.4
    Urban.......................................................          11,031             0.0             2.4
    Rural.......................................................           4,424             0.1             2.5
    Hospital-based urban........................................             498             0.0             2.4
    Freestanding urban..........................................          10,533             0.0             2.4
    Hospital-based rural........................................             551             0.0             2.4
    Freestanding rural..........................................           3,873             0.1             2.5
Urban by region:
    New England.................................................             789            -0.7             1.7
    Middle Atlantic.............................................           1,479             0.0             2.4
    South Atlantic..............................................           1,869            -0.2             2.2
    East North Central..........................................           2,126            -0.4             2.0
    East South Central..........................................             555            -0.3             2.1
    West North Central..........................................             920            -0.4             2.0
    West South Central..........................................           1,344             0.2             2.6
    Mountain....................................................             525            -0.6             1.8
    Pacific.....................................................           1,419             1.0             3.4
    Outlying....................................................               5            -0.7             1.7
Rural by region:
    New England.................................................             135            -0.7             1.7
    Middle Atlantic.............................................             215             0.2             2.6

[[Page 21096]]

 
    South Atlantic..............................................             494             0.0             2.4
    East North Central..........................................             930             0.2             2.6
    East South Central..........................................             523            -0.5             1.9
    West North Central..........................................           1,072             0.4             2.8
    West South Central..........................................             733             0.8             3.2
    Mountain....................................................             227             0.5             2.9
    Pacific.....................................................              95            -0.8             1.5
Ownership:
    Government..................................................           1,011            -0.1             2.3
    Profit......................................................          10,872             0.0             2.4
    Non-Profit..................................................           3,572            -0.1             2.3
----------------------------------------------------------------------------------------------------------------
Note: The Total column includes the 2.4 percent market basket increase required by section 53111 of the BBA
  2018. Additionally, we found no SNFs in rural outlying areas.

5. Estimated Impacts for the SNF QRP
    With no proposals to add or remove measures in the SNF QRP, there 
are no impacts associated with the SNF QRP Program.
6. Estimated Impacts for the SNF VBP Program
    Estimated impacts of the FY 2019 SNF VBP Program are based on 
historical data that appear in Table 44. We modeled SNFs' performance 
in the Program using SNFRM data from CY 2014 as the baseline period and 
FY 2016 as the performance period. Additionally, we modeled a logistic 
exchange function with a payback percentage of 60 percent, as we 
finalized in the FY 2018 SNF PPS final rule (82 FR 36619 through 
36621). As required by section 1888(h)(6)(A) of the Act, we will reduce 
adjusted federal per diem rates determined under section 1888(e)(4)(G) 
of the Act, otherwise applicable to a skilled nursing facility for 
services furnished by such facility during FY 2019 by the applicable 
percent, which is defined in section 1888(h)(6)(B) of the Act, as 2 
percent. We estimate the total reductions to payments required by 
section 1888(h)(6) of the Act, to be $527.4 million for FY 2019. Based 
on the 60 percent payback percentage, we estimate that we will disburse 
approximately $316.4 million in value-based incentive payments to SNFs 
in FY 2019, which means that the SNF VBP Program is estimated to result 
in approximately $211 million in savings to the Medicare program in FY 
2019.
    We also modeled the estimated impacts of the proposed scoring 
adjustment for low-volume SNFs based on historical data in Table 45. We 
estimate that the scoring adjustment policy proposal would redistribute 
an additional $6.7 million to the group of low volume SNFs.
    We estimate that this proposal would result in increasing low-
volume SNFs' value-based incentive payment percentages by approximately 
0.99 percent, on average, from the value-based incentive payment 
percentage that they would receive in the absence of the low-volume 
adjustment. An increase in value-based incentive payment percentages by 
0.99 percent is needed to bring low-volume SNFs back to the 2.0 percent 
that was withheld from their payments. We also estimate that if this 
proposal is finalized, we would pay an additional $6.7 million in 
incentive payments to low-volume SNFs, which would increase the 60 
percent payback percentage for FY 2019 by approximately 1.28 percent, 
making the new payback percentage for FY 2019 equal to 61.28 percent of 
the estimated $527.4 million in withheld funds for that fiscal year.

                               Table 44--Estimated FY 2019 SNF VBP Program Impacts Without a Low-Volume Scoring Adjustment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          Mean incentive
                                                                             Number of                       Mean SNF       multiplier     % of proposed
                 Category                             Criterion             facilities      RSRR (mean)     performance    (60% payback)      payback
                                                                                                               score            (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Group.....................................  Total.......................          15,460         0.18874          40.982           1.163          * 99.9
                                            Urban.......................          10,995         0.18826          40.538           1.154            83.8
                                            Rural.......................           4,465         0.18612          40.433           1.139            16.0
Urban by Region...........................  Total.......................          10,995
                                            01 = Boston.................             793         0.18941        37.53033           1.063             4.8
                                            02 = New York...............             905         0.18929        40.50641           1.148            11.5
                                            03 = Philadelphia...........           1,120         0.18586        44.99993           1.310            10.0
                                            04 = Atlanta................           1,878         0.19245        37.29765           1.050            13.1
                                            05 = Chicago................           2,325         0.18683        42.32786           1.213            16.1
                                            06 = Dallas.................           1,363         0.19166        34.59615           0.939             6.3
                                            07 = Kansas City............             658         0.18916        39.14296           1.099             2.7
                                            08 = Denver.................             319         0.17823        53.44707           1.618             2.9
                                            09 = San Francisco..........           1,296         0.18666        39.95157           1.132            12.4
                                            10 = Seattle................             338         0.17752        55.34239           1.664             4.1
Rural by Region...........................  Total.......................           4,465
                                            01 = Boston.................             135         0.18176        50.72243           1.510             0.9
                                            02 = New York...............              87         0.18414        49.10573           1.494             0.5
                                            03 = Philadelphia...........             274         0.18686        42.10613           1.216             1.3

[[Page 21097]]

 
                                            04 = Atlanta................             882         0.19040        36.35979           1.013             3.3
                                            05 = Chicago................           1,100         0.18350        45.84850           1.313             4.7
                                            06 = Dallas.................             783         0.19100        34.12362           0.917             1.9
                                            07 = Kansas City............             789         0.18557        41.35057           1.136             1.4
                                            08 = Denver.................             268         0.18049        46.96957           1.341             0.8
                                            09 = San Francisco..........              62         0.16434        54.12133           1.670             0.6
                                            10 = Seattle................              85         0.17587        56.60310           1.683             0.7
Ownership Type............................  Total.......................          15,462
                                            Government..................           1,017         0.18332          43.477           1.245             6.2
                                            Profit......................          10,867         0.18905          39.176           1.102            71.2
                                            Non-Profit..................           3,578         0.18458          45.067           1.307            22.6
Number of Beds............................  Total.......................          15,462
                                            1st Quartile................           3,898         0.18463          40.881           1.128            22.7
                                            2nd Quartile................           3,834         0.18715          40.891           1.167            23.5
                                            3rd Quartile................           3,945         0.18947          40.203           1.144            25.2
                                            4th Quartile................           3,785         0.18932          41.339           1.197            28.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This category does not add to 100 because a small number of SNFs did not have urban/rural designations in our data.


                       Table 45--Estimated SNF VBP Program Impacts Including Effects of the Proposed Low-Volume Scoring Adjustment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          Mean incentive
                                                                             Number of                       Mean SNF       multiplier     % of proposed
                 Category                             Criterion             facilities      RSRR (mean)     performance    (60% Payback)      payback
                                                                                                               score            (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Group.....................................  Total.......................          12,845         0.18912          41.371           1.192          * 99.9
                                            Urban.......................           9,604         0.18957          40.956           1.177            84.4
                                            Rural.......................           3,241         0.18779          41.011           1.181            15.4
Urban by Region...........................  Total.......................           9,604
                                            01 = Boston.................             713         0.19089        37.26777           1.059             4.9
                                            02 = New York...............             836         0.19029        40.90383           1.165            11.8
                                            03 = Philadelphia...........           1,040         0.18601        45.31896           1.325            10.1
                                            04 = Atlanta................           1,767         0.19332        37.28735           1.052            13.3
                                            05 = Chicago................           1,961         0.18784        43.06368           1.246            16.0
                                            06 = Dallas.................           1,134         0.19416        34.53275           0.949             6.1
                                            07 = Kansas City............             510         0.19057        39.26278           1.132             2.6
                                            08 = Denver.................             241         0.17832        57.62596           1.790             2.9
                                            09 = San Francisco..........           1,098         0.18908        40.80722           1.176            12.5
                                            10 = Seattle................             304         0.17808        56.67839           1.713             4.2
Rural by Region...........................  Total.......................           3,241
                                            01 = Boston.................             115         0.18133        51.89294           1.568             0.9
                                            02 = New York...............              77         0.18366        50.48193           1.569             0.5
                                            03 = Philadelphia...........             240         0.18789        42.12621           1.218             1.3
                                            04 = Atlanta................             764         0.19283        36.51452           1.032             3.3
                                            05 = Chicago................             818         0.18397        47.85089           1.399             4.5
                                            06 = Dallas.................             557         0.19355        34.00868           0.952             1.7
                                            07 = Kansas City............             421         0.18634        42.64769           1.236             1.2
                                            08 = Denver.................             132         0.18000        52.38900           1.544             0.7
                                            09 = San Francisco..........              48         0.17780        61.50419           1.931             0.6
                                            10 = Seattle................              69         0.17628        60.70084           1.836             0.7
Ownership Type............................  Total.......................          12,847
                                            Government..................             688         0.18529          46.450           1.380             5.2
                                            Profit......................           9,250         0.19039          39.526           1.127            72.0
                                            Non-Profit..................           2,909         0.18597          46.038           1.353            22.9
Number of Beds............................  Total.......................          12,847
                                            1st Quartile................           3,222         0.18760          42.466           1.226            24.6
                                            2nd Quartile................           3,221         0.18878          40.971           1.175            24.4
                                            3rd Quartile................           3,197         0.19048          40.242           1.153            23.3
                                            4th Quartile................           3,207         0.18963          41.800           1.212            27.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This category does not add to 100% because a small number of SNFs did not have urban/rural designations in our data.


[[Page 21098]]

7. Alternatives Considered
    As described in this section, we estimate that the aggregate impact 
for FY 2019 under the SNF PPS would be an increase of approximately 
$850 million in payments to SNFs, resulting from the SNF market basket 
update to the payment rates, as required by section 53111 of the BBA 
2018. Absent application of section 53111 of the BBA 2018, the market 
basket increase factor of 1.9 percent would have resulted in an 
aggregate increase in payments to SNFs of approximately $670 million.
    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 base 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 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 for this process.
    As discussed in Section VI.C.5.c., we also considered an 
alternative SNF VBP low-volume scoring policy. This alternative scoring 
assignment would result in a value-based incentive payment percentage 
of 1.2 percent, or 60 percent of the 2 percent withhold. This amount 
would match low-volume SNFs' incentive payment percentages with the 
finalized SNF VBP Program payback percentage of 60 percent, and would 
represent a smaller adjustment to low-volume SNFs' incentive payment 
percentages than the proposed policy described above. We estimate that 
this alternative would redistribute an additional $1 million with 
respect to FY 2019 services to low-volume SNFs. We also estimate that 
this alternative would increase the 60 percent payback percentage for 
FY 2019 by approximately 0.18 percent of the approximately $527.4 
million of the total withheld from SNFs' payments, which would result 
in a payback percentage of 60.18 percent of the estimated $527.4 
million in withheld funds for that Program year. We estimate that this 
alternative would pay back SNFs about $5.7 million less than the 
proposed low-volume scoring methodology adjustment in total estimated 
payments on an annual basis. However, as with the proposal above, the 
specific amount by which the payback percentage would increase for each 
Program year would vary based on the number of low-volume SNFs that we 
identify for each Program year and the distribution of all SNFs' 
performance scores for that Program year.
8. 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 Tables 46 and 47, we have prepared 
an accounting statement showing the classification of the expenditures 
associated with the provisions of this proposed rule for FY 2019. Table 
46 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 15,455 SNFs in our database. Tables 44, 45, 
and 47 provide our best estimate of the possible changes in Medicare 
payments under the SNF VBP as a result of the policies in this proposed 
rule.

 Table 46--Accounting Statement: Classification of Estimated Expenditures, From the 2018 SNF PPS Fiscal Year to
                                          the 2019 SNF PPS Fiscal Year
----------------------------------------------------------------------------------------------------------------
              Category                                                 Transfers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers......  $850 million.*
From Whom To Whom?                    Federal Government to SNF Medicare Providers.
----------------------------------------------------------------------------------------------------------------
* The net increase of $850 million in transfer payments is a result of the market basket increase of $850
  million.


    Table 47--Accounting Statement: Classification of Estimated Expenditures for the FY 2019 SNF VBP Program
----------------------------------------------------------------------------------------------------------------
              Category                                                 Transfers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers......  $316.4 million.*
From Whom To Whom?                    Federal Government to SNF Medicare Providers.
----------------------------------------------------------------------------------------------------------------
* This estimate does not include the two percent reduction to SNFs' Medicare payments (estimated to be $527.4
  million) required by statute.

9. Conclusion
    This proposed rule sets forth updates of the SNF PPS rates 
contained in the SNF PPS final rule for FY 2018 (82 FR 36530). Based on 
the above, we estimate the overall estimated payments for SNFs in FY 
2019 are projected to increase by approximately $850 million, or 2.4 
percent, compared with those in FY 2018. We estimate that in FY 2019 
under RUG-IV, SNFs in urban and rural areas would experience, on 
average, a 2.4 percent increase and 2.5 percent increase, respectively, 
in estimated payments compared with FY 2018. Providers in the urban 
Pacific region would experience the largest estimated increase in 
payments of approximately 3.4 percent. Providers in the rural Pacific 
region would experience the smallest estimated increase in payments of 
1.5 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 reason of their non-profit 
status or by having revenues of $27.5 million or less in any 1 year. We 
utilized the revenues of individual SNF providers (from recent Medicare 
Cost Reports) to classify a

[[Page 21099]]

small business, and not the revenue of a larger firm with which they 
may be affiliated. As a result, for the purposes of the RFA, we 
estimate that almost all SNFs are small entities as that term is used 
in the RFA, according to the Small Business Administration's latest 
size standards (NAICS 623110), with total revenues of $27.5 million or 
less in any 1 year. (For details, see the Small Business 
Administration's website at http://www.sba.gov/category/navigation-structure/contracting/contracting-officials/eligibility-size-standards). In addition, approximately 20 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 2018 (82 FR 36530). Based on 
the above, we estimate that the aggregate impact for FY 2019 would be 
an increase of $850 million in payments to SNFs, resulting from the SNF 
market basket update to the payment rates. While it is projected in 
Table 43 that 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 2019 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. In their March 2017 Report to Congress 
(available at http://medpac.gov/docs/default-source/reports/mar17_medpac_ch8.pdf), MedPAC states that Medicare covers approximately 
11 percent of total patient days in freestanding facilities and 21 
percent of facility revenue (March 2017 MedPAC Report to Congress, 
202). 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 43. As 
indicated in Table 43, the effect on facilities is projected to be an 
aggregate positive impact of 2.4 percent for FY 2019. As the overall 
impact on the industry as a whole, and thus on small entities 
specifically, is less than the 3 to 5 percent threshold discussed 
previously, the Secretary has determined that this proposed rule would 
not have a significant impact on a substantial number of small entities 
for FY 2019.
    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 an MSA 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 2018 (82 FR 36530)), 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 43, the effect 
on facilities for FY 2019 is projected to be an aggregate positive 
impact of 2.4 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 for 
FY 2019.

C. Unfunded Mandates Reform Act Analysis

    Section 202 of the Unfunded Mandates Reform Act of 1995 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 2018, that 
threshold is approximately $150 million. This proposed rule will impose 
no mandates on state, local, or tribal governments or on the private 
sector.

D. Federalism Analysis

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it issues a proposed rule (and subsequent final 
rule) that imposes 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.

E. Congressional Review Act

    This proposed regulation is subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.) and has been transmitted to the Congress 
and the Comptroller General for review.

F. Regulatory Review Costs

    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this proposed rule, we 
should estimate the cost associated with regulatory review. Due to the 
uncertainty involved with accurately quantifying the number of entities 
that will review the rule, we assume that the total number of unique 
commenters on last year's proposed rule will be the number of reviewers 
of this proposed rule. We acknowledge that this assumption may 
understate or overstate the costs of reviewing this rule. It is 
possible that not all commenters reviewed last year's rule in detail, 
and it is also possible that some reviewers chose not to comment on the 
proposed rule. For these reasons we thought that the number of past 
commenters would be a fair estimate of the number of reviewers of this 
rule. We welcome any comments on the approach in estimating the number 
of entities which will review this proposed rule.
    We also recognize that different types of entities are in many 
cases affected by mutually exclusive sections of this proposed rule, 
and therefore for the purposes of our estimate we assume that each 
reviewer reads approximately 50 percent of the rule. We seek comments 
on this assumption.
    Using the wage information from the BLS for medical and health 
service managers (Code 11-9111), we estimate that the cost of reviewing 
this rule is $105.16 per hour, including overhead and fringe benefits 
https://www.bls.gov/oes/current/oes_nat.htm . Assuming an average 
reading speed, we estimate that it would take approximately 4 hours for 
the staff to review half of this proposed rule. For each SNF that 
reviews the rule, the estimated cost is $420.64 (4 hours x $105.16). 
Therefore, we estimate that the total cost of reviewing this regulation 
is $103,740 ($420.64 x 247 reviewers).
    In accordance with the provisions of Executive Order 12866, this 
proposed rule was reviewed by the Office of Management and Budget.

[[Page 21100]]

List of Subjects

42 CFR Part 411

    Diseases, Medicare, Reporting and recordkeeping requirements.

42 CFR Part 413

    Health facilities, Diseases, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 424

    Emergency medical services, Health facilities, Health professions, 
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 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE 
PAYMENT

0
1. The authority citation for part 411 continues to read as follows:

    Authority:  Secs. 1102, 1860D-1 through 1860D-42, 1871, and 1877 
of the Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w-
152, 1395hh, and 1395nn).


Sec.  411.15   [Amended]

0
2. Section 411.15 is amended in paragraph (p)(3)(iv) by removing the 
phrase ``by midnight of the day of departure'' and adding in its place 
the phrase ``before the following midnight''.

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

0
3. The authority citation for part 413 continues to read as follows:

    Authority:  Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), 
and (n), 1861(v), 1871, 1881, 1883 and 1886 of the Social Security 
Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and 
(n), 1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of 
Public Law 106-113, 113 Stat. 1501A-332; sec. 3201 of Public Law 
112-96, 126 Stat. 156; sec. 632 of Public Law 112-240, 126 Stat. 
2354; sec. 217 of Public Law 113-93, 129 Stat. 1040; and sec. 204 of 
Public Law 113-295, 128 Stat. 4010; and sec. 808 of Public Law 114-
27, 129 Stat. 362.
0
4. Section 413.337 is amended by revising paragraph (d)(1)(v) and 
adding paragraphs (d)(1)(vi) and (vii) and (f) to read as follows:


Sec.  413.337   Methodology for calculating the prospective payment 
rates.

* * * * *
    (d) * * *
    (1) * * *
    (v) For each subsequent fiscal year, the unadjusted Federal payment 
rate is equal to the rate computed for the previous fiscal year 
increased by a factor equal to the SNF market basket index percentage 
change for the fiscal year involved, except as provided in paragraphs 
(d)(1)(vi) and (vii) of this section.
    (vi) For fiscal year 2018, the unadjusted Federal payment rate is 
equal to the rate computed for the previous fiscal year increased by a 
SNF market basket index percentage change of 1 percent (after 
application of paragraphs (d)(2) and (3) of this section).
    (vii) For fiscal year 2019, the unadjusted Federal payment rate is 
equal to the rate computed for the previous fiscal year increased by a 
SNF market basket index percentage change of 2.4 percent (after 
application of paragraphs (d)(2) and (3) of this section).
* * * * *
    (f) Adjustments to payment rates under the SNF Value-Based 
Purchasing Program. Beginning with payment for services furnished on 
October 1, 2018, the adjusted Federal per diem rate (as defined in 
Sec.  413.338(a)(2)) otherwise applicable to a SNF for the fiscal year 
is reduced by the applicable percent (as defined in Sec.  
413.338(a)(3)). The resulting amount is then adjusted by the value-
based incentive payment amount (as defined in Sec.  413.338(a)(14)) 
based on the SNF's performance score for that fiscal year under the SNF 
Value-Based Purchasing Program, as calculated under Sec.  413.338.
0
5. Section 413.338 is amended by--
0
a. Adding paragraphs (a)(16) and (17);
0
b. Revising paragraph (c)(2)(i); and
0
c. Adding paragraphs (d)(1)(iv) and (d)(3) and (4).
    The additions and revision read as follows:


Sec.  413.338   Skilled Nursing Facility Value-Based Purchasing

    (a) * * *
    (16) Low-volume SNF means a SNF with fewer than 25 eligible stays 
included in the SNF readmission measure denominator during the 
performance period for a fiscal year.
    (17) Eligible stay means, for purposes of the SNF readmission 
measure, an index SNF admission that would be included in the 
denominator of that measure.
* * * * *
    (c) * * *
    (2) * * *
    (i) Total amount available for a fiscal year. The total amount 
available for value-based incentive payments for a fiscal year is at 
least 60 percent of the total amount of the reduction to the adjusted 
SNF PPS payments for that fiscal year, as estimated by CMS, and will be 
increased as appropriate for each fiscal year to account for the 
assignment of a performance score to low-volume SNFs under paragraph 
(d)(3) of this section.
    (d) * * *
    (1) * * *
    (iv) CMS will not award points for improvement to a SNF that has 
fewer than 25 eligible stays during the baseline period.
* * * * *
    (3) If CMS determines that a SNF is a low-volume SNF with respect 
to a fiscal year, CMS will assign a performance score to the SNF for 
the fiscal year that, when used to calculate the value-based incentive 
payment amount (as defined in paragraph (a)(14) of this section), 
results in a value-based incentive payment amount that is equal to the 
adjusted Federal per diem rate (as defined in paragraph (a)(2) of this 
section) that would apply to the SNF for the fiscal year without 
application of Sec.  413.337(f).
    (4) Exception requests. (i) A SNF may request and CMS may grant 
exceptions to the SNF Value-Based Purchasing Program's requirements 
under this section for one or more calendar months when there are 
certain extraordinary circumstances beyond the control of the SNF.
    (ii) A SNF may request an exception within 90 days of the date that 
the extraordinary circumstances occurred by sending an email to 
[email protected] that includes a completed Extraordinary 
Circumstances Request form (available on the SNF VBP section of 
QualityNet at https://www.qualitynet.org/) and any available evidence 
of the impact of the extraordinary circumstances on the care that the 
SNF furnished to patients, including, but not limited to, photographs, 
newspaper, and other media articles.
    (iii) Except as provided in paragraph (d)(4)(iv) of this section, 
CMS will not consider an exception request unless the SNF requesting 
such exception has complied fully with the requirements in this 
paragraph (d).
    (iv) CMS may grant exceptions to SNFs without a request if it 
determines that an extraordinary circumstance affects an entire region 
or locale.
    (v) CMS will calculate a SNF performance score for a fiscal year 
for a SNF for which it has granted an exception request that does not 
include its performance on the SNF readmission

[[Page 21101]]

measure during the calendar months affected by the extraordinary 
circumstance.
* * * * *
0
6. Section 413.360 is amended by adding paragraph (b)(3) and revising 
paragraphs (d)(1) and (4) to read as follows:


Sec.  413.360   Requirements under the Skilled Nursing Facility (SNF) 
Quality Reporting Program (QRP).

* * * * *
    (b) * * *
    (3) CMS may remove a quality measure from the SNF QRP based on one 
or more of the following factors:
    (i) Measure performance among SNFs is so high and unvarying that 
meaningful distinctions in improvements in performance can no longer be 
made.
    (ii) Performance or improvement on a measure does not result in 
better resident outcomes.
    (iii) A measure does not align with current clinical guidelines or 
practice.
    (iv) A more broadly applicable measure (across settings, 
populations, or conditions) for the particular topic is available.
    (v) A measure that is more proximal in time to desired resident 
outcomes for the particular topic is available.
    (vi) A measure that is more strongly associated with desired 
resident outcomes for the particular topic is available.
    (vii) Collection or public reporting of a measure leads to negative 
unintended consequences other than resident harm.
    (viii) The costs associated with a measure outweigh the benefit of 
its continued use in the program.
* * * * *
    (d) * * *
    (1) SNFs that do not meet the requirements in paragraph (b) of this 
section for a program year will receive a written notification of non-
compliance through at least one of the following methods: Quality 
Improvement Evaluation System (QIES) Assessment Submission and 
Processing (ASAP) system, the United States Postal Service, or via an 
email from the Medicare Administrative Contractor (MAC). A SNF may 
request reconsideration no later than 30 calendar days after the date 
identified on the letter of non-compliance.
* * * * *
    (4) CMS will notify SNFs, in writing, of its final decision 
regarding any reconsideration request through at least one of the 
following notification methods: QIES ASAP system, the United States 
Postal Service, or via email from the Medicare Administrative 
Contractor (MAC).
* * * * *

PART 424--CONDITIONS FOR MEDICARE PAYMENT

0
6. The authority citation for part 424 continues to read as follows:

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


Sec.  424.20   [Amended]

0
7. Section 424.20 is amended in paragraph (a)(1)(i) by removing the 
language ``a condition for which the individual received inpatient care 
in a participating hospital or a qualified hospital, as defined in 
Sec.  409.3 of this chapter; or'' and adding in its place the language 
``a condition for which the individual received inpatient care in a 
participating hospital or a qualified hospital, as defined in Sec.  
409.3 of this chapter, or for a new condition that arose while the 
individual was receiving care in the SNF or swing-bed hospital for a 
condition for which he or she received inpatient care in a 
participating or qualified hospital; or''.

    Dated: April 17, 2018.
Seema Verma
Administrator, Centers for Medicare & Medicaid Services.
    Dated: April 19, 2018.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2018-09015 Filed 4-27-18; 4:15 pm]
 BILLING CODE 4120-01-P