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

[[Page 26363]]

Vol. 76

Friday,

No. 88

May 6, 2011

Part III

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 413, 424, and 455

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

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

[[Page 26364]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 413, 424, and 455

[CMS-1351-P]
RIN 0938-AQ29

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

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

ACTION: Proposed rule.

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

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

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

FOR FURTHER INFORMATION CONTACT:

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

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

Table of Contents

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

[[Page 26365]]

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

Abbreviations

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

ABN Advance Beneficiary Notice
AIDS Acquired Immune Deficiency Syndrome
ARD Assessment Reference Date
ASAP Assessment Submission and Processing
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999, Public Law 106-113
BIMS Brief Interview for Mental Status
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000, Public Law 106-554
CAH Critical Access Hospital
CBSA Core-Based Statistical Area
CCR Cost-to-Charge Ratio
CFR Code of Federal Regulations
CMI Case-Mix Index
CMS Centers for Medicare & Medicaid Services
COT Change of Therapy
EOT End of Therapy
EOT-R End of Therapy--Resumption
FQHC Federally Qualified Health Center
FR Federal Register
FY Fiscal Year
GAO Government Accountability Office
HAC Hospital-Acquired Condition
HCC Hierarchical Condition Category
HCPCS Healthcare Common Procedure Coding System
HR-III Hybrid Resource Utilization Groups, Version 3
IGI IHS (Information Handling Services) Global Insight, Inc.
MDS Minimum Data Set
MFP Multifactor Productivity
MIPPA Medicare Improvements for Patients and Providers Act of 2008, 
Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public 
Law 110-173
MPAF Medicare PPS Assessment Form
MSA Metropolitan Statistical Area
NTA Non-Therapy Ancillary
OMB Office of Management and Budget
OMRA Other Medicare-Required Assessment
ONTA Other Non-Therapy Ancillary
OSCAR Online Survey Certification and Reporting System
PAC-PRD Post Acute Care Payment Reform Demonstration
PECOS Medicare Provider Enrollment, Chain, and Ownership System
PPS Prospective Payment System
QIES Quality Improvement and Evaluation System
RAI Resident Assessment Instrument
RAVEN Resident Assessment Validation Entry
RFA Regulatory Flexibility Act, Public Law 96-354
RNP Routine NTA Bundled Payment
RHC Rural Health Clinic
RIA Regulatory Impact Analysis
RTM Reimbursable Therapy Minutes
RUG-III Resource Utilization Groups, Version 3
RUG-IV Resource Utilization Groups, Version 4
RUG-53 Refined 53-Group RUG-III Case-Mix Classification System
SCHIP State Children's Health Insurance Program
SNF Skilled Nursing Facility
STM Staff Time Measurement
STRIVE Staff Time and Resource Intensity Verification
TNP Tiered Non-routine NTA Payment
UMRA Unfunded Mandates Reform Act, Public Law 104-4

I. Background

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

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

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

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per diem payment rates for SNFs for FY 2012. Major elements of the SNF 
PPS include:
     Rates. As discussed in section I.G.1. of this proposed 
rule, we established per diem Federal rates for urban and rural areas 
using allowable costs from FY 1995 cost reports. These rates also 
included a ``Part B add-on'' (an estimate of the cost of those services 
that, before July 1, 1998, were paid under Part B but furnished to 
Medicare beneficiaries in a SNF during a Part A covered stay). We 
adjust the rates annually using a SNF market basket index, and we 
adjust them by the hospital inpatient wage index to account for 
geographic variation in wages. We also apply a case-mix adjustment to 
account for the relative resource utilization of different patient 
types. As further discussed in section I.G.1. of this proposed rule, 
for FY 2012 this adjustment will utilize the Resource Utilization 
Groups, version 4 (RUG-IV) case-mix classification, and will use 
information obtained from the required resident assessments using 
version 3.0 of the Minimum Data Set (MDS 3.0). (The resident assessment 
is approved under OMB 0938-0739.) Additionally, as noted 
elsewhere in this preamble, the payment rates at various times have 
also reflected specific legislative provisions for certain temporary 
adjustments.
     Transition. Under sections 1888(e)(1)(A) and (e)(11) of 
the Act, the SNF PPS included an initial, three-phase transition that 
blended a facility-specific rate (reflecting the individual facility's 
historical cost experience) with the Federal case-mix adjusted rate. 
The transition extended through the facility's first three cost 
reporting periods under the PPS, up to and including the one that began 
in FY 2001. Thus, the SNF PPS is no longer operating under the 
transition, as all facilities have been paid at the full Federal rate 
effective with cost reporting periods beginning in FY 2002. As we now 
base payments entirely on the adjusted Federal per diem rates, we no 
longer include adjustment factors related to facility-specific rates 
for the coming FY.
     Coverage. The establishment of the SNF PPS did not change 
Medicare's fundamental requirements for SNF coverage. However, because 
the case-mix classification is based, in part, on the beneficiary's 
need for skilled nursing care and therapy, we have attempted, where 
possible, to coordinate claims review procedures with the existing 
resident assessment process and case-mix classification system. As 
further discussed in section II.E. of this proposed rule, in FY 2012, 
this approach includes an administrative presumption that utilizes a 
beneficiary's initial classification in one of the upper 52 RUGs of the 
66-group RUG-IV case-mix classification system to assist in making 
certain SNF level of care determinations. In the July 30, 1999 final 
rule (64 FR 41670), we indicated that we would announce any changes to 
the guidelines for Medicare level of care determinations related to 
modifications in the case-mix classification structure (see section 
II.E. of this proposed rule for a more detailed discussion of the 
relationship between the case-mix classification system and SNF level 
of care determinations).
     Consolidated Billing. The SNF PPS includes a consolidated 
billing provision that requires a SNF to submit consolidated Medicare 
bills to its fiscal intermediary or Medicare Administrative Contractor 
for almost all of the services that its residents receive during the 
course of a covered Part A stay. In addition, this provision places 
with the SNF the Medicare billing responsibility for physical therapy, 
occupational therapy, and speech-language pathology services that the 
resident receives during a noncovered stay. The statute excludes a 
small list of services from the consolidated billing provision 
(primarily those of physicians and certain other types of 
practitioners), which remain separately billable under Part B when 
furnished to a SNF's Part A resident. A more detailed discussion of 
this provision appears in section VII. of this proposed rule.
     Application of the SNF PPS to SNF services furnished by 
swing-bed hospitals. Section 1883 of the Act permits certain small, 
rural hospitals to enter into a Medicare swing-bed agreement, under 
which the hospital can use its beds to provide either acute or SNF 
care, as needed. For critical access hospitals (CAHs), Part A pays on a 
reasonable cost basis for SNF services furnished under a swing-bed 
agreement. However, in accordance with section 1888(e)(7) of the Act, 
these services furnished by non-CAH rural hospitals are paid under the 
SNF PPS, effective with cost reporting periods beginning on or after 
July 1, 2002. A more detailed discussion of this provision appears in 
section VIII. of this proposed rule.

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

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

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

    There were several provisions in the BBRA (Pub. L. 106-113, enacted 
on November 29, 1999) that resulted in adjustments to the SNF PPS. We 
described these provisions in detail in the SNF PPS final rule for FY 
2001 (65 FR 46770, July 31, 2000). In particular, section 101(a) of the 
BBRA provided for a temporary 20 percent increase in the per diem 
adjusted payment rates for 15 specified groups in the original, 44-
group Resource Utilization Groups, version 3 (RUG-III) case-mix 
classification system. In accordance with section 101(c)(2) of the 
BBRA, this temporary payment adjustment expired on January 1, 2006, 
upon the implementation of a refined, 53-group version of the RUG-III 
system, RUG-53 (see section I.G.1. of this proposed rule). We included 
further information on BBRA provisions that affected the SNF PPS in 
Program Memoranda A-99-53 and A-99-61 (December 1999).
    Also, section 103 of the BBRA designated certain additional 
services for exclusion from the consolidated billing requirement, as 
discussed in section VII. of this proposed rule. Further, for swing-bed 
hospitals with more than 49 (but less than 100) beds, section 408 of 
the BBRA provided for the repeal of certain statutory restrictions on 
length of stay and aggregate payment for patient days, effective with 
the end of the SNF PPS transition period described in section 
1888(e)(2)(E) of the Act. In the final rule for FY 2002 (66 FR 39562, 
July 31, 2001), we made conforming changes to the regulations at Sec.  
413.114(d), effective for services furnished in cost reporting periods 
beginning on or after July 1, 2002, to reflect section 408 of the BBRA.

D. The Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA)

    The BIPA (Pub. L. 106-554, enacted December 21, 2000) also included 
several provisions that resulted in adjustments to the SNF PPS. We 
described these provisions in detail in

[[Page 26367]]

the final rule for FY 2002 (66 FR 39562, July 31, 2001). In particular:
     Section 203 of the BIPA exempted CAH swing beds from the 
SNF PPS. We included further information on this provision in Program 
Memorandum A-01-09 (Change Request 1509), issued January 16, 
2001, which is available online at http://www.cms.gov/transmittals/downloads/a0109.pdf.
     Section 311 of the BIPA revised the statutory update 
formula for the SNF market basket, and also directed us to conduct a 
study of alternative case-mix classification systems for the SNF PPS. 
In 2006, we submitted a report to the Congress on this study, which is 
available online at http://www.cms.gov/SNFPPS/Downloads/RC_2006_PC-PPSSNF.pdf.
     Section 312 of the BIPA provided for a temporary increase 
of 16.66 percent in the nursing component of the case-mix adjusted 
Federal rate for services furnished on or after April 1, 2001, and 
before October 1, 2002; accordingly, this add-on is no longer in 
effect. This section also directed the Government Accountability Office 
(GAO) to conduct an audit of SNF nursing staff ratios and submit a 
report to the Congress on whether the temporary increase in the nursing 
component should be continued. The report (GAO-03-176), which GAO 
issued in November 2002, is available online at http://www.gao.gov/new.items/d03176.pdf.
     Section 313 of the BIPA repealed the consolidated billing 
requirement for services (other than physical therapy, occupational 
therapy, and speech-language pathology services) furnished to SNF 
residents during noncovered stays, effective January 1, 2001. (A more 
detailed discussion of this provision appears in section VII. of this 
proposed rule.)
     Section 314 of the BIPA corrected an anomaly involving 
three of the RUGs that section 101(a) of the BBRA had designated to 
receive the temporary payment adjustment discussed above in section 
I.C. of this proposed rule. (As noted previously, in accordance with 
section 101(c)(2) of the BBRA, this temporary payment adjustment 
expired upon the implementation of case-mix refinements on January 1, 
2006.)
     Section 315 of the BIPA authorized us to establish a 
geographic reclassification procedure that is specific to SNFs, but 
only after collecting the data necessary to establish a SNF wage index 
that is based on wage data from nursing homes. To date, this has proven 
to be unfeasible due to the volatility of existing SNF wage data and 
the significant amount of resources that would be required to improve 
the quality of that data.
    We included further information on several of the BIPA provisions 
in Program Memorandum A-01-08 (Change Request 1510), issued 
January 16, 2001, which is available online at http://www.cms.gov/transmittals/downloads/a0108.pdf.

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

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

F. The Affordable Care Act

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

[[Page 26368]]

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

G. Skilled Nursing Facility Prospective Payment--General Overview

    We implemented the Medicare SNF PPS effective with cost reporting 
periods beginning on or after July 1, 1998. This methodology uses 
prospective, case-mix adjusted per diem payment rates applicable to all 
covered SNF services. These payment rates cover all costs of furnishing 
covered skilled nursing services (routine, ancillary, and capital-
related costs) other than costs associated with approved educational 
activities and bad debts. Covered SNF services include post-hospital 
services for which benefits are provided under Part A, as well as those 
items and services (other than physician and certain other services 
specifically excluded under the BBA) which, before July 1, 1998, had 
been paid under Part B but furnished to Medicare beneficiaries in a SNF 
during a covered Part A stay. A comprehensive discussion of these 
provisions appears in the May 12, 1998 interim final rule (63 FR 
26252).
1. Payment Provisions--Federal Rate
    The PPS uses per diem Federal payment rates based on mean SNF costs 
in a base year (FY 1995) updated for inflation to the first effective 
period of the PPS. We developed the Federal payment rates using 
allowable costs from hospital-based and freestanding SNF cost reports 
for reporting periods beginning in FY 1995. The data used in developing 
the Federal rates also incorporated an estimate of the amounts that 
would be payable under Part B for covered SNF services furnished to 
individuals during the course of a covered Part A stay in a SNF.
    In developing the rates for the initial period, we updated costs to 
the first effective year of the PPS (the 15-month period beginning July 
1, 1998) using a SNF market basket index, and then standardized for the 
costs of facility differences in case mix and for geographic variations 
in wages. In compiling the database used to compute the Federal payment 
rates, we excluded those providers that received new provider 
exemptions from the routine cost limits, as well as costs related to 
payments for exceptions to the routine cost limits. Using the formula 
that the BBA prescribed, we set the Federal rates at a level equal to 
the weighted mean of freestanding costs plus 50 percent of the 
difference between the freestanding mean and weighted mean of all SNF 
costs (hospital-based and freestanding) combined. We computed and 
applied separately the payment rates for facilities located in urban 
and rural areas. In addition, we adjusted the portion of the Federal 
rate attributable to wage-related costs by a wage index.
    The Federal rate also incorporates adjustments to account for 
facility case-mix, using a classification system that accounts for the 
relative resource utilization of different patient types. The RUG-IV 
classification system uses beneficiary assessment data from the MDS 3.0 
completed by SNFs to assign beneficiaries to one of 66 RUG-IV groups. 
The original RUG-III case-mix classification system used beneficiary 
assessment data from the MDS, version 2.0 (MDS 2.0) completed by SNFs 
to assign beneficiaries to one of 44 RUG-III groups. Then, under 
incremental refinements that became effective on January 1, 2006, we 
added nine new groups--comprising a new Rehabilitation plus Extensive 
Services category--at the top of the RUG-III hierarchy. The May 12, 
1998 interim final rule (63 FR 26252) included a detailed description 
of the original 44-group RUG-III case-mix classification system. A 
comprehensive description of the refined RUG-53 system appeared in the 
proposed and final rules for FY 2006 (70 FR 29070, May 19, 2005, and 70 
FR 45026, August 4, 2005), and a detailed description of the current 
66-group RUG-IV system appeared in the proposed and final rules for FY 
2010 (74 FR 22208, May 12, 2009, and 74 FR 40288, August 11, 2009).
    Further, in accordance with sections 1888(e)(4)(E)(ii)(IV) and 
(e)(5) of the Act, the Federal rates in this proposed rule reflect an 
update to the rates that we published in the update notice for FY 2011 
(75 FR 42886, July 22, 2010) and the associated correction notice (75 
FR 55801, September 14, 2010), equal to the full change in the SNF 
market basket index, adjusted by the forecast error correction, if 
applicable, and the Multifactor Productivity (MFP) adjustment for FY 
2012. A more detailed discussion of the SNF market basket index and 
related issues appears in sections I.G.2. and VI. of this proposed 
rule.
2. FY 2012 Rate Updates Using the Skilled Nursing Facility Market 
Basket Index
    Section 1888(e)(5) of the Act requires us to establish a SNF market 
basket index that reflects changes over time in the prices of an 
appropriate mix of goods and services included in covered SNF services. 
We use the SNF market basket index, adjusted in the manner described 
below, to update the Federal rates on an annual basis. In the SNF PPS 
final rule for FY 2008 (72 FR 43425 through 43430, August 3, 2007), we 
revised and rebased the market basket, which included updating the base 
year from FY 1997 to FY 2004. The proposed FY 2012 market basket 
increase is 2.7 percent, which is based on IHS Global Insight, Inc. 
(IGI) first quarter 2011 forecast with historical data through fourth 
quarter 2010.
    In addition, as explained in the final rule for FY 2004 (66 FR 
46058, August 4, 2003) and in section VI.B. of this proposed rule, the 
annual update of the payment rates includes, as appropriate, an 
adjustment to account for market basket forecast error. As described in 
the final rule for FY 2008, the threshold

[[Page 26369]]

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

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

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

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

A. Federal Prospective Payment System

    This proposed rule sets forth a schedule of Federal prospective 
payment rates applicable to Medicare Part A SNF services beginning 
October 1, 2011. The schedule incorporates per diem Federal rates that 
provide Part A payment for almost all costs of services furnished to a 
beneficiary in a SNF during a Medicare-covered stay.
1. Costs and Services Covered by the Federal Rates
    In accordance with section 1888(e)(2)(B) of the Act, the Federal 
rates apply to all costs (routine, ancillary, and capital-related) of 
covered SNF services other than costs associated with approved 
educational activities as defined in Sec.  413.85. Under section 
1888(e)(2)(A)(i) of the Act, covered SNF services include post-hospital 
SNF services for which benefits are provided under Part A (the hospital 
insurance program), as well as all items and services (other than those 
services excluded by statute) that, before July 1, 1998, were paid 
under Part B (the supplementary medical insurance program) but 
furnished to Medicare beneficiaries in a SNF during a Part A covered 
stay. (These excluded service categories are discussed in greater 
detail in section V.B.2 of the May 12, 1998 interim final rule (63 FR 
26295 through 26297)).
2. Methodology Used for the Calculation of the Federal Rates
    The FY 2012 rates reflect an update using the latest market basket 
index, reduced by the MFP adjustment. The FY 2012 market basket 
increase factor is 2.7 percent, which as discussed in section VI.C of 
this proposed rule, is reduced by a 1.2 percent MFP adjustment. A 
complete description of the multi-step process used to calculate 
Federal rates initially appeared in the May 12, 1998 interim final rule 
(63 FR 26252), as further revised in subsequent rules. As explained 
above in section I.C of this proposed rule, under section 101(c)(2) of 
the BBRA, the previous temporary increases in the per diem adjusted 
payment rates for certain designated RUGs (as specified in section 
101(a) of the BBRA and section 314 of the BIPA) are no longer in effect 
due to the implementation of case-mix refinements as of January 1, 
2006. However, the temporary increase of 128 percent in the per diem 
adjusted payment rates for SNF residents with AIDS, enacted by section 
511 of the MMA, remains in effect.
    We used the SNF market basket to adjust each per diem component of 
the Federal rates forward to reflect cost increases occurring between 
the midpoint of the Federal FY beginning October 1, 2010, and ending 
September 30, 2011, and the midpoint of the Federal FY beginning 
October 1, 2011, and ending September 30, 2012, to which the payment 
rates apply. In accordance with sections 1888(e)(4)(E)(ii)(IV) and 
(e)(5) of the Act, we update the payment rates for FY 2012 by a factor 
equal to the market basket index percentage increase, as discussed in 
sections I.G.2 and VI. of this proposed rule. As further explained in 
sections I.G.2 and VI. of this proposed rule, as applicable, we adjust 
the market basket index by the forecast error from the most recently 
available FY for which there is final data and apply this adjustment 
whenever the difference between the forecasted and actual change in the 
market basket exceeds a 0.5 percentage point threshold. In addition, as 
further explained in sections I.G.2 and VI. of this proposed rule, 
effective FY 2012 and each subsequent fiscal year, we are required to 
reduce the market basket percentage by the MFP adjustment. We further 
adjust the rates by a wage index budget neutrality factor, described 
later in this section. Tables 2 and 3 reflect the updated components of 
the unadjusted Federal rates for FY 2012, prior to adjustment for case-
mix.

[[Page 26370]]

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

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

B. Case-Mix Adjustments

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

[[Page 26371]]

believe that if this preliminary assessment is confirmed as further FY 
2011 RUG-IV claims data become available, a recalibration of the parity 
adjustment may become warranted in the FY 2012 final rule, in order to 
ensure that the adjustment continues to serve as intended to make the 
transition from RUG-53 to RUG-IV in a budget-neutral manner. As 
discussed in the FY 2010 SNF PPS final rule (74 FR 40296), we believe 
that ensuring parity (that is, ensuring that the RUG-IV classification 
system is implemented as intended on a budget-neutral basis) is 
integral to the process of providing ``for an appropriate adjustment to 
account for case mix'' that is based upon appropriate data in 
accordance with section 1888(e)(4)(G)(i) of the Act. Accordingly, in 
this proposed rule, we include the following analysis based on first 
quarter RUG-IV data in order to provide the public with information on 
the potential scope and impact of the recalibration we are considering 
for FY 2012.
    To determine a specific parity adjustment factor that, under the 
initial RUG-IV claims data currently available, would be needed to 
reestablish budget neutrality, we used approximately 920,000 first 
quarter 2011 claims (the most current data available at the time) to 
compare the distribution of payment days by RUG category under the 
original RUG-53 model with the distribution of payment days observed in 
the first quarter of 2011 under the RUG-IV model. Using a file which 
linked these 920,000 claims to the corresponding MDS assessments, we 
determined the appropriate RUG group for the patients covered by the 
aforementioned set of claims under RUG-53. This permitted a more 
precise comparison of the same patients under both systems, to control 
for potential variations in case-mix or patient volume. Given the RUG 
assignments for this set of SNF residents under both RUG-53 and RUG-IV, 
we were able to determine a distribution of RUG assignments.
    To determine the appropriate parity adjustment, consistent with the 
methodology described in the FY 2010 SNF PPS final rule (74 FR 40296) 
and detailed in the FY 2006 SNF PPS proposed rule (70 FR 29077 through 
29079), we determined the total number of first quarter FY 2011 RUG-IV 
payment days, as well as the number of first quarter FY 2011 payment 
days of each RUG-IV category based on the first quarter FY 2011 SNF PPS 
claims. By linking these FY 2011 claims with the corresponding MDS 3.0 
data, we were able to determine the appropriate RUG-53 category for 
each FY 2011 SNF resident represented in the sample of FY 2011 claims. 
We multiplied the percentage of SNF residents in each RUG-IV and RUG-53 
category by the total number of first quarter FY 2011 payment days of 
service in order to determine a distribution of RUG-IV and RUG-53 
payment days, given the first quarter FY 2011 claims and linked MDS 3.0 
data. We then multiplied the projected RUG-IV and RUG-53 days of 
service by the FY 2012 unadjusted Federal per diem payment rate 
components, multiplied by the unadjusted case mix indexes to establish 
expenditures under the RUG-53 and RUG-IV systems. The parity adjustment 
used to ensure that the transition between the two systems is budget-
neutral and does not create, in and of itself, an increase in the 
amount of SNF expenditures, was determined as the percent increase 
necessary for the nursing CMIs to generate estimated expenditure levels 
under the RUG-IV system that were equal to those estimated under the 
RUG-53 system. Based on the first quarter FY 2011 RUG-IV claims data, 
we determined that the adjustment, which had originally produced an 
increase of 61 percent to the nursing CMIs as discussed in the FY 2011 
SNF PPS update notice, would need to be decreased to 22.55 percent to 
achieve budget neutrality, if we were to apply the parity adjustment 
equally to all nursing CMIs as we have done in the past. However, given 
that the most notable differences between expected and actual 
utilization patterns occurred within the therapy RUG categories, we 
believe that rather than applying the new parity adjustment percentage 
to all the nursing CMIs, it would be more appropriate to achieve budget 
neutrality between the RUG-53 and RUG-IV systems by maintaining the 61 
percent parity adjustment to the nursing CMIs for the RUG-IV non-
therapy groups, and reducing the 61 percent parity adjustment as it 
applied to the nursing CMIs for the RUG-IV therapy groups. Using this 
recalibration methodology described above, we found that the adjustment 
to the nursing CMIs of the RUG-IV therapy groups necessary to achieve 
parity, while maintaining the 61 percent parity adjustment for RUG-IV 
non-therapy groups, would be an updated adjustment of 19.81 percent. An 
analysis of recent utilization patterns is provided in Table 4. In this 
proposed rule, we are including Tables 5A and 6A, which illustrate the 
payment rates that would be derived from nursing CMIs reflecting this 
recalibration methodology.

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

[[Page 26372]]

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

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

[[Page 26373]]

in the first quarter RUG-IV data indicate that actual RUG-IV 
utilization patterns differ significantly from those we had projected 
using FY 2009 claims data in calculating the parity adjustment. The 
resulting unintended and significant increase in overall payment levels 
has prompted the need to reexamine the parity adjustment.
    Thus, under the Medicare program, the standard of practice in the 
SNF setting has always been individual therapy, which is generally 
necessary to ensure that the services being delivered provide the high 
degree of individualized treatment and complex skill level required for 
Medicare coverage. We recognize that some SNFs may have actually used a 
less intensive combination of therapy modalities in the past year for 
some patients in response to the way in which therapy minutes were 
counted. However, the SNF PPS payment rates themselves have always 
reflected a standard of practice in which individual therapy is the 
predominant treatment modality. Further, because the overall payment 
rates under the previous RUG-III model were constructed to be 
sufficient to accommodate this level of resource intensity, we believe 
that the adequacy of those payment rates in this context would carry 
over to the payment rates under the current RUG-IV model, even if 
modified by an updated parity adjustment.
    Given the apparent magnitude of the recalibration that would be 
needed to restore parity based on the initial RUG-IV claims data 
currently available (as discussed in the preceding analysis), we have 
provided in Tables 5A and 6A the case-mix adjusted RUG-IV payment rates 
which reflect the parity adjustment recalibration considered above 
based on our preliminary analysis using first quarter FY 2011 claims 
data. As further FY 2011 RUG-IV data become available, before we 
publish the final rule, we would review such additional data to confirm 
our preliminary assessment of the recalibration that would be necessary 
to achieve parity between the RUG-53 and RUG-IV models and would revise 
the parity adjustment in the final rule as necessary based on this 
additional data. We believe that the very magnitude of the potential 
recalibration, based on first quarter FY 2011 data, would make it 
inappropriate for us merely to consider payment rates for FY 2012 that 
solely reflect the standard update methodology without regard to the 
need for maintaining parity, as such an approach ultimately could 
result in continuing to make overall payments that significantly exceed 
their intended levels for an indefinite period.
b. Option for Application of Standard Update for FY 2012 Without 
Recalibration
    Although our preliminary analysis of the RUG-IV data currently 
available suggests that recalibration of the parity adjustment would be 
needed to restore parity between the RUG-53 and RUG-IV models, in the 
circumstances discussed below, we are also considering not 
recalibrating the CMIs for FY 2012 and applying the standard update to 
the FY 2011 payment rates. As we observed in the preceding discussion 
of the recalibration option, it would appear from the currently 
available FY 2011 claims data that overall payments under the parity 
adjustment are significantly exceeding their intended levels. However, 
it is also possible that the apparent magnitude of the overpayments may 
itself represent a temporary aberrance resulting from the limited FY 
2011 data that are available at this point in time. Moreover, we note 
that as with any significant programmatic change, the transition from 
the previous case-mix classification system to RUG-IV has been 
accompanied by a learning curve for providers, as they work to 
familiarize themselves with the requirements of the new system. As a 
consequence, it is possible that as additional FY 2011 claims data 
become available, they may indicate utilization patterns that are more 
consistent with our projections, and expenditures that are more in 
parity with those under the previous RUG-53 model. For this reason, we 
reserve the option to not implement in the final rule the type of 
recalibration discussed above, and instead to apply the standard update 
of the payment rates for FY 2012 if we find that the additional RUG-IV 
claims data collected prior to publication of the final rule are 
consistent with parity in expenditures between the current RUG-IV and 
previous RUG-53 models.
    Accordingly, in this proposed rule, we are considering two separate 
options regarding the FY 2012 payment rates: One that incorporates the 
kind of recalibration discussed above which, based on the initial RUG-
IV claims data currently available, may be necessary to restore overall 
payments under the parity adjustment to their intended levels (which 
recalibration may be adjusted based on further FY 2011 RUG-IV claims 
data that become available prior to publication of the final rule), and 
another that simply reflects the standard update to the FY 2011 payment 
rates without a recalibration of the FY 2011 parity adjustment. We 
solicit comments on these options as described above.
    We list the case-mix adjusted RUG-IV payment rates which would 
exist if we choose to move forward with the recalibration of the parity 
adjustment described throughout this section, provided separately for 
urban and rural SNFs in Tables 5A and 6A, with the corresponding case-
mix values which reflect the parity adjustment recalibration discussed 
above. Similarly, the case-mix adjusted RUG-IV rates, which would occur 
in the absence of such a recalibration of the parity adjustment, are 
listed in Tables 5B and 6B. These tables do not reflect the AIDS add-on 
enacted by section 511 of the MMA, which we apply only after making all 
other adjustments (wage and case-mix).

                   Table 5A--RUG-IV Case-Mix Adjusted Federal Rates and Associated Indexes (Including Parity Adjustment Recalibration)
                                                                         [Urban]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Nursing         Therapy      Non-case mix    Non-case mix
             RUG-IV category               Nursing index   Therapy index     component       component     therapy comp      component      Total rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUX.....................................            2.67            1.87         $427.73         $225.67  ..............          $81.76         $735.16
RUL.....................................            2.57            1.87          411.71          225.67  ..............           81.76          719.14
RVX.....................................            2.61            1.28          418.12          154.47  ..............           81.76          654.35
RVL.....................................            2.19            1.28          350.84          154.47  ..............           81.76          587.07
RHX.....................................            2.55            0.85          408.51          102.58  ..............           81.76          592.85
RHL.....................................            2.15            0.85          344.43          102.58  ..............           81.76          528.77
RMX.....................................            2.47            0.55          395.69           66.37  ..............           81.76          543.82
RML.....................................            2.19            0.55          350.84           66.37  ..............           81.76          498.97
RLX.....................................            2.26            0.28          362.05           33.79  ..............           81.76          477.60

[[Page 26374]]

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

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

[[Page 26375]]

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

[[Page 26376]]

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

[[Page 26377]]

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

[[Page 26378]]

C. Wage Index Adjustment to Federal Rates

    Section 1888(e)(4)(G)(ii) of the Act requires that we adjust the 
Federal rates to account for differences in area wage levels, using a 
wage index that we find appropriate. Since the inception of a PPS for 
SNFs, we have used hospital wage data in developing a wage index to be 
applied to SNFs. We are maintaining that practice for FY 2012, as we 
continue to believe that in the absence of SNF-specific wage data, 
using the hospital inpatient wage index is appropriate and reasonable 
for the SNF PPS. As explained in the update notice for FY 2005 (69 FR 
45786, July 30, 2004), the SNF PPS does not use the hospital area wage 
index's occupational mix adjustment, as this adjustment serves 
specifically to define the occupational categories more clearly in a 
hospital setting; moreover, the collection of the occupational wage 
data also excludes any wage data related to SNFs. Therefore, we believe 
that using the updated wage data exclusive of the occupational mix 
adjustment continues to be appropriate for SNF payments.
    Finally, we continue to use the same methodology discussed in the 
SNF PPS final rule for FY 2008 (72 FR 43423) to address those 
geographic areas in which there are no hospitals and, thus, no hospital 
wage index data on which to base the calculation of the FY 2012 SNF PPS 
wage index. For rural geographic areas that do not have hospitals and, 
therefore, lack hospital wage data on which to base an area wage 
adjustment, we use the average wage index from all contiguous Core-
Based Statistical Areas (CBSAs) as a reasonable proxy. This methodology 
was used to construct the wage index for rural Massachusetts for FY 
2011. However, there is now a rural hospital with wage data upon which 
to base an area wage index for rural Massachusetts. Therefore, it is 
not necessary to apply this methodology to rural Massachusetts for FY 
2012. For rural Puerto Rico, we do not apply this methodology due to 
the distinct economic circumstances that exist there, but instead 
continue using the most recent wage index previously available for that 
area. For urban areas without specific hospital wage index data, we use 
the average wage indexes of all of the urban areas within the State to 
serve as a reasonable proxy for the wage index of that urban CBSA. For 
FY 2012, there is an additional urban area without hospital wage index 
data. Therefore, for FY 2012, the two urban areas without wage index 
data available are CBSA 25980, Hinesville-Fort Stewart, GA, and CBSA 
49700, Yuba City, CA.
    To calculate the SNF PPS wage index adjustment, we apply the wage 
index adjustment to the labor-related portion of the Federal rate, 
which is 68.805 percent of the total rate. This percentage reflects the 
labor-related relative importance for FY 2012, using the revised and 
rebased FY 2004-based market basket. The labor-related relative 
importance for FY 2011 was 69.311, as shown in Table 11. We calculate 
the labor-related relative importance from the SNF market basket, and 
it approximates the labor-related portion of the total costs after 
taking into account historical and projected price changes between the 
base year and FY 2012. The price proxies that move the different cost 
categories in the market basket do not necessarily change at the same 
rate, and the relative importance captures these changes. Accordingly, 
the relative importance figure more closely reflects the cost share 
weights for FY 2012 than the base year weights from the SNF market 
basket.
    We calculate the labor-related relative importance for FY 2012 in 
four steps. First, we compute the FY 2012 price index level for the 
total market basket and each cost category of the market basket. 
Second, we calculate a ratio for each cost category by dividing the FY 
2012 price index level for that cost category by the total market 
basket price index level. Third, we determine the FY 2012 relative 
importance for each cost category by multiplying this ratio by the base 
year (FY 2004) weight. Finally, we add the FY 2012 relative importance 
for each of the labor-related cost categories (wages and salaries, 
employee benefits, non-medical professional fees, labor-intensive 
services, and a portion of capital-related expenses) to produce the FY 
2012 labor-related relative importance. Tables 7A and 8A show the case-
mix adjusted RUG-IV Federal rates by labor-related and non-labor-
related components that would exist if we choose to move forward with 
the parity adjustment recalibration described in section II.B.2. 
Similarly, Tables 7B and 8B show the case-mix adjusted RUG-IV Federal 
rates by labor-related and non-labor related components in the absence 
of such a parity adjustment recalibration.

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

[[Page 26379]]

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

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

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

[[Page 26380]]

    Section 1888(e)(4)(G)(ii) of the Act also requires that we apply 
this wage index in a manner that does not result in aggregate payments 
that are greater or less than would otherwise be made in the absence of 
the wage adjustment. For FY 2012 (Federal rates effective October 1, 
2011), we apply an adjustment to fulfill the budget neutrality 
requirement. We meet this requirement by multiplying each of the 
components of the unadjusted Federal rates by a budget neutrality 
factor equal to the ratio of the weighted average wage adjustment 
factor for FY 2011 to the weighted average wage adjustment factor for 
FY 2012. For this calculation, we use the same 2010 claims utilization 
data for both the numerator and denominator of this ratio. We define 
the wage adjustment factor used in this calculation as the labor share 
of the rate component multiplied by the wage index plus the non-labor 
share of the rate component. The budget neutrality factor for this year 
is 1.0001. The wage index applicable to FY 2012 is set forth in Tables 
A and B, which appear in the Addendum of this proposed rule.
    In the SNF PPS final rule for FY 2006 (70 FR 45026, August 4, 
2005), we adopted the changes discussed in the Office of Management and 
Budget (OMB) Bulletin No. 03-04 (June 6, 2003), available online at 
http://www.whitehouse.gov/omb/bulletins/b03-04.html, which announced 
revised definitions for Metropolitan Statistical Areas (MSAs), and the 
creation of Micropolitan Statistical Areas and Combined Statistical 
Areas. In addition, OMB published subsequent bulletins regarding CBSA 
changes, including changes in CBSA numbers and titles. As indicated in 
the FY 2008 SNF PPS final rule (72 FR 43423, August 3, 2007), this and 
all subsequent SNF PPS rules and notices are considered to incorporate 
the CBSA changes published in the most recent OMB bulletin that applies 
to the hospital wage data used to determine the current SNF PPS wage 
index. The OMB bulletins are available online at http://www.whitehouse.gov/omb/bulletins/index.html.
    In adopting the OMB CBSA geographic designations, we provided for a 
1-year transition with a blended wage index for all providers. For FY 
2006, the wage index for each provider consisted of a blend of 50 
percent of the FY 2006 MSA-based wage index and 50 percent of the FY 
2006 CBSA-based wage index (both using FY 2002 hospital data). We 
referred to the blended wage index as the FY 2006 SNF PPS transition 
wage index. As discussed in the SNF PPS final rule for FY 2006 (70 FR 
45041), subsequent to the expiration of this 1-year transition on 
September 30, 2006, we used the full CBSA-based wage index values, as 
now presented in Tables A and B in the Addendum of this proposed rule.

D. Updates to the Federal Rates

    In accordance with section 1888(e)(4)(E) of the Act as amended by 
section 311 of the BIPA, and section 1888(e)(5)(B) of the Act as 
amended by section 3401(b) of the Affordable Care Act, the payment 
rates in this proposed rule reflect an update equal to the full SNF 
market basket, estimated at 2.7 percentage points, reduced by the MFP 
adjustment. As discussed in sections I.G.2 and VI.C of this proposed 
rule, the annual update includes a 1.2 percentage point reduction to 
account for the MFP adjustment described in the latter section, for a 
net update of 1.5 percent for FY 2012. We continue to disseminate the 
rates, wage index, and case-mix classification methodology through the 
Federal Register before the August 1 that precedes the start of each 
succeeding FY.

E. Relationship of Case-Mix Classification System to Existing Skilled 
Nursing Facility Level-of-Care Criteria

    As discussed in Sec.  413.345, we include in each update of the 
Federal payment rates in the Federal Register the designation of those 
specific RUGs under the classification system that represent the 
required SNF level of care, as provided in Sec.  409.30. As set forth 
in the FY 2011 SNF PPS update notice (75 FR 42910, July 22, 2010), this 
designation reflects an administrative presumption under the 66-group 
RUG-IV system that beneficiaries who are correctly assigned to one of 
the upper 52 RUG-IV groups on the initial 5-day, Medicare-required 
assessment are automatically classified as meeting the SNF level of 
care definition up to and including the assessment reference date on 
the 5-day Medicare-required assessment.
    A beneficiary assigned to any of the lower 14 RUG-IV groups is not 
automatically classified as either meeting or not meeting the 
definition, but instead receives an individual level of care 
determination using the existing administrative criteria. This 
presumption recognizes the strong likelihood that beneficiaries 
assigned to one of the upper 52 RUG-IV groups during the immediate 
post-hospital period require a covered level of care, which would be 
less likely for those beneficiaries assigned to one of the lower 14 
RUG-IV groups.
    In this proposed rule, we once again propose to designate the upper 
52 RUG-IV groups for purposes of this administrative presumption, 
consisting of all groups encompassed by the following RUG-IV 
categories:
     Rehabilitation plus Extensive Services;
     Ultra High Rehabilitation;
     Very High Rehabilitation;
     High Rehabilitation;
     Medium Rehabilitation;
     Low Rehabilitation;
     Extensive Services;
     Special Care High;
     Special Care Low; and,
     Clinically Complex.
    However, we note that this administrative presumption policy does 
not supersede the SNF's responsibility to ensure that its decisions 
relating to level of care are appropriate and timely, including a 
review to confirm that the services prompting the beneficiary's 
assignment to one of the upper 52 RUG-IV groups (which, in turn, serves 
to trigger the administrative presumption) are themselves medically 
necessary. As we explained in the FY 2000 SNF PPS final rule (64 FR 
41667, July 30, 1999), the administrative presumption

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

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

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

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

[[Page 26381]]

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

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

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

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

A. Prospective Payment for SNF Non-therapy Ancillary Costs

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

[[Page 26382]]

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

[[Page 26383]]

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

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

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

[[Page 26384]]

    The TNP is designed to capture the average cost of the drugs and 
services, given the patient's clinical characteristics, excluding the 
drugs and services covered by the RNP or those already excluded from 
the SNF PPS altogether under the consolidated billing requirements. 
Such a cost schedule and tier structure is currently under development, 
using recent Medicare Part A claims data and data from the PAC-PRD.
    We have focused on developing an index model in which predictions 
are arrayed and then subdivided into fixed ranges of cost values to 
form distinct payment groups, or tiers, as we believe this type of 
approach is better equipped to handle the number of explanatory 
variables needed to predict NTA costs reasonably well. The tiers which 
constitute the TNP will be based on average NTA costs as measured from 
available administrative data. Generally, based on the resident's case 
mix and the variables selected for predicting NTA costs, if the 
resident's expected NTA costs exceed a particular threshold, then the 
facility would be paid a prospective amount, which would be added to 
the base RNP amount.
c. Non-Routine NTA Outlier Payment
    Though we currently lack explicit statutory authority to establish 
an SNF outlier policy, we are continuing to explore how such a policy 
could be implemented in the event that we receive statutory authority. 
Results of the STRIVE study suggest that it is the cost of individual 
high-cost pharmaceuticals and other NTAs, rather than a particular 
patient's use of a high volume of NTA services, which creates high NTA 
costs. Given the effect of specific high-cost items like prescription 
drugs or respiratory services, it is clear that any type of averaging 
system (such as the conceptual NTA model discussed here) will not in 
all cases account for the cost of such items. It will be insufficiently 
sensitive to high NTA costs deriving from variations among costs of 
individual medications and ONTAs.
    Accordingly, we are currently reviewing the available data to 
determine how an outlier approach could be designed to address patient-
specific expenditures that exceed the routine and non-routine NTA 
payments that we would make, while allowing for an outlier threshold. 
While we have not yet fully simulated a potential SNF outlier payment 
policy, we believe it is appropriate to conduct analysis at the stay 
level, because NTA utilization can fluctuate significantly during a 
given SNF stay. Using a stay-level analysis of potential NTA cost 
outliers would help us to predict NTA costs more accurately over the 
course of a given SNF stay. Any further developments in this area will 
be discussed in future rulemaking.
6. Temporary AIDS Add-On Payment Under Section 511 of the MMA
    As discussed in section I.E of this proposed rule, section 511 of 
the MMA amended section 1888(e)(12) of the Act to provide for a 
temporary increase of 128 percent in the PPS per diem payment for any 
SNF residents with Acquired Immune Deficiency Syndrome (AIDS), 
effective for services furnished on or after October 1, 2004. This 
special AIDS add-on was to remain in effect until ``* * * the Secretary 
certifies that there is an appropriate adjustment in the case mix * * * 
to compensate for the increased costs associated with [such] residents. 
* * *'' We know, as a result of the STRIVE study and a review of SNF 
cost data, that SNF residents with AIDS require much greater and more 
costly care than those without AIDS and that much of this additional 
cost is the result of NTAs, specifically high-cost medications.
    Accordingly, as we have not yet completed work on the NTA component 
or an SNF outlier policy, we cannot yet determine whether such policy 
changes would be sufficient to compensate facilities for the costs 
associated with the treatment of residents with AIDS, in accordance 
with section 511 of the MMA. We will continue to study the relationship 
between NTA costs and resource use as they pertain to this population 
in order to develop an ``appropriate adjustment'' to account for such 
costs, as envisioned in the MMA.

IV. Ongoing Initiatives Under the Affordable Care Act

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

A. Value-Based Purchasing (Section 3006)

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

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

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

[[Page 26385]]

C. Nursing Home Transparency and Improvement (Section 6104)

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

V. Other Issues

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

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

B. Therapy Student Supervision

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

[[Page 26386]]

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

C. Group Therapy and Therapy Documentation

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

[[Page 26387]]

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

[[Page 26388]]

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

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

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

[[Page 26389]]

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

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

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

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

[[Page 26390]]

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

[[Page 26391]]

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

[[Page 26392]]

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

[[Page 26393]]

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

E. Discussion of Possible Future Initiatives

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

VI. The Skilled Nursing Facility Market Basket Index

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

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

A. Use of the Skilled Nursing Facility Market Basket Percentage

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

[[Page 26394]]

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

B. Market Basket Forecast Error Adjustment

    As discussed in the June 10, 2003, supplemental proposed rule (68 
FR 34768) and finalized in the August 4, 2003, final rule (68 FR 46057 
through 46059), the regulations at Sec.  413.337(d)(2) provide for an 
adjustment to account for market basket forecast error. The initial 
adjustment applied to the update of the FY 2003 rate for FY 2004, and 
took into account the cumulative forecast error for the period from FY 
2000 through FY 2002, resulting in an increase of 3.26 percent. 
Subsequent adjustments in succeeding FYs take into account the forecast 
error from the most recently available FY for which there is final 
data, and apply whenever the difference between the forecasted and 
actual change in the market basket exceeds a specified threshold. We 
originally used a 0.25 percentage point threshold for this purpose; 
however, for the reasons specified in the FY 2008 SNF PPS final rule 
(72 FR 43425, August 3, 2007), we adopted a 0.5 percentage point 
threshold effective with FY 2008. As discussed previously in section 
I.G.2 of this proposed rule, as the difference between the estimated 
and actual amounts of increase in the market basket index for FY 2010 
(the most recently available FY for which there is final data) does not 
exceed the 0.5 percentage point threshold, the payment rates for FY 
2012 do not include a forecast error adjustment.

C. Multifactor Productivity Adjustment

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

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

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

[[Page 26395]]

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

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

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

[[Page 26396]]

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

D. Federal Rate Update Factor

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

VII. Consolidated Billing

    Section 4432(b) of the BBA established a consolidated billing 
requirement that places the Medicare billing responsibility for 
virtually all of the services that the SNF's residents receive with the 
SNF, except for a small number of services that the statute 
specifically identifies as being excluded from this provision. As noted 
previously in section I. of this proposed rule, subsequent legislation 
enacted a number of modifications in the consolidated billing 
provision.
    Specifically, section 103 of the BBRA amended this provision by 
further excluding a number of individual ``high-cost, low-probability'' 
services, identified by the Healthcare Common Procedure Coding System 
(HCPCS) codes, within several broader categories (chemotherapy and its 
administration, radioisotope services, and customized prosthetic 
devices) that otherwise remained subject to the provision. We discuss 
this BBRA amendment in greater detail in the proposed and final rules 
for FY 2001 (65 FR 19231 through 19232, April 10, 2000, and 65 FR 46790 
through 46795, July 31, 2000), as well as in Program Memorandum AB-00-
18 (Change Request 1070), issued March 2000, which is 
available online at http://www.cms.gov/transmittals/downloads/ab001860.pdf.
    Section 313 of the BIPA further amended this provision by repealing 
its Part B aspect; that is, its applicability to services furnished to 
a resident during a SNF stay that Medicare Part A does not cover. 
(However, physical therapy, occupational therapy, and speech-language 
pathology services remain subject to consolidated billing, regardless 
of whether the resident who receives these services is in a covered 
Part A stay.) We discuss this BIPA amendment in greater detail in the 
proposed and final rules for FY 2002 (66 FR 24020 through 24021, May 
10, 2001, and 66 FR 39587 through 39588, July 31, 2001).
    In addition, section 410 of the MMA amended this provision by 
excluding certain practitioner and other services furnished to SNF 
residents by RHCs and FQHCs. We discuss this MMA amendment in greater 
detail in the update notice for FY 2005 (69 FR 45818 through 45819, 
July 30, 2004), as well as in Medicare Learning Network (MLN) Matters 
article MM3575, which is available online at http://www.cms.gov/MLNMattersArticles/downloads/MM3575.pdf.
    Further, while not substantively revising the consolidated billing 
requirement itself, a related provision was enacted in the Medicare 
Improvements for Patients and Providers Act of 2008 (MIPPA, Pub. L. 
110-275). Specifically, section 149 of MIPPA amended section 
1834(m)(4)(C)(ii) of the Act to add subclause (VII), which adds SNFs 
(as defined in section 1819(a) of the Act) to the list of entities that 
can serve as a telehealth ``originating site'' (that is, the location 
at which an eligible individual can receive, through a 
telecommunications system, services of a physician or other 
practitioner who is located elsewhere at a ``distant site'').
    As explained in the Medicare Physician Fee Schedule (PFS) final 
rule for calendar year (CY) 2009 (73 FR 69726, 69879, November 19, 
2008), a telehealth originating site receives a facility fee which is 
always separately payable under Part B outside of any other payment 
methodology. Section 149(b) of MIPPA amended section 1888(e)(2)(A)(ii) 
of the Act to exclude telehealth services furnished under section 
1834(m)(4)(C)(ii)(VII) of the Act from the definition of ``covered 
skilled nursing facility services'' that are paid under the SNF PPS. 
Thus, a SNF ``* * * can receive separate payment for a telehealth 
originating site facility fee even in those instances where it also 
receives a bundled per diem payment under the SNF PPS for a resident's 
covered Part A stay'' (73 FR 69881). By contrast, under section 
1834(m)(2)(A) of the Act, a telehealth distant site service is payable 
under Part B to an eligible physician or practitioner only to the same 
extent that it would have been so payable if furnished without the use 
of a telecommunications system. Thus, as explained in the CY 2009 
Physician Fee Schedule final rule (73 FR 69726), eligible distant site 
physicians or practitioners can receive payment for a telehealth 
service that they furnish

    * * * only if the service is separately payable under the PFS 
when furnished in a

[[Page 26397]]

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

    This means that in those situations where a SNF serves as the 
telehealth originating site, the distant site professional services 
would be separately payable under Part B only to the extent that they 
are not already included in the SNF PPS bundled per diem payment and 
subject to consolidated billing. Thus, for a type of practitioner whose 
services are not otherwise excluded from consolidated billing when 
furnished during a face-to-face encounter, the use of a telehealth 
distant site would not serve to unbundle those services. In fact, 
consolidated billing does exclude the professional services of 
physicians, along with those of most of the other types of telehealth 
practitioners that the law specifies at section 1842(b)(18)(C) of the 
Act; that is, physician assistants, nurse practitioners, clinical nurse 
specialists, certified registered nurse anesthetists, certified nurse 
midwives, and clinical psychologists (see section 1888(e)(2)(A)(ii) of 
the Act and 42 CFR 411.15(p)(2)). However, the services of clinical 
social workers, registered dietitians and nutrition professionals 
remain subject to consolidated billing when furnished to a SNF's Part A 
resident and, thus, cannot qualify for separate Part B payment as 
telehealth distant site services in this situation. Additional 
information on this provision appears in MLN Matters article 
MM6215, which is available online at http://www.cms.gov/MLNMattersArticles/downloads/MM6215.pdf.
    To date, the Congress has enacted no further legislation affecting 
the consolidated billing provision. However, as noted above and 
explained in the proposed rule for FY 2001 (65 FR 19232, April 10, 
2000), the amendments enacted in section 103 of the BBRA not only 
identified for exclusion from this provision a number of particular 
service codes within four specified categories (that is, chemotherapy 
items, chemotherapy administration services, radioisotope services, and 
customized prosthetic devices), but also gave the Secretary ``* * * the 
authority to designate additional, individual services for exclusion 
within each of the specified service categories.'' In the proposed rule 
for FY 2001, we also noted that the BBRA Conference report (H.R. Rep. 
No. 106-479 at 854 (1999) (Conf. Rep.)) characterizes the individual 
services that this legislation targets for exclusion as ``* * * high-
cost, low probability events that could have devastating financial 
impacts because their costs far exceed the payment [SNFs] receive under 
the prospective payment system * * *.'' According to the conferees, 
section 103(a) ``is an attempt to exclude from the PPS certain services 
and costly items that are provided infrequently in SNFs * * *.'' By 
contrast, we noted that the Congress declined to designate for 
exclusion any of the remaining services within those four categories 
(thus leaving all of those services subject to SNF consolidated 
billing), because they are relatively inexpensive and are furnished 
routinely in SNFs.
    As we further explained in the final rule for FY 2001 (65 FR 46790, 
July 31, 2000), and as our longstanding policy, any additional service 
codes that we might designate for exclusion under our discretionary 
authority must meet the same statutory criteria used in identifying the 
original codes excluded from consolidated billing under section 103(a) 
of the BBRA: They must fall within one of the four service categories 
specified in the BBRA, and they also must meet the same standards of 
high cost and low probability in the SNF setting, as discussed in the 
BBRA Conference report. Accordingly, we characterized this statutory 
authority to identify additional service codes for exclusion ``* * * as 
essentially affording the flexibility to revise the list of excluded 
codes in response to changes of major significance that may occur over 
time (for example, the development of new medical technologies or other 
advances in the state of medical practice)'' (65 FR 46791). In this 
proposed rule, we specifically invite public comments identifying codes 
in any of these four service categories (chemotherapy items, 
chemotherapy administration services, radioisotope services, and 
customized prosthetic devices) representing recent medical advances 
that might meet our criteria for exclusion from SNF consolidated 
billing. We may consider excluding a particular service if it meets our 
criteria for exclusion as specified above. Commenters should identify 
in their comments the specific HCPCS code that is associated with the 
service in question, as well as their rationale for requesting that the 
identified HCPCS code(s) be excluded.
    We note that the original BBRA legislation (as well as the 
implementing regulations) identified a set of excluded services by 
means of specifying HCPCS codes that were in effect as of a particular 
date (in that case, as of July 1, 1999). Identifying the excluded 
services in this manner made it possible for us to utilize program 
issuances as the vehicle for accomplishing routine updates of the 
excluded codes, in order to reflect any minor revisions that might 
subsequently occur in the coding system itself (for example, the 
assignment of a different code number to the same service). 
Accordingly, in the event that we identify through the current 
rulemaking cycle any new services that would actually represent a 
substantive change in the scope of the exclusions from SNF consolidated 
billing, we would identify these additional excluded services by means 
of the HCPCS codes that are in effect as of a specific date (in this 
case, as of October 1, 2011). By making any new exclusions in this 
manner, we could similarly accomplish routine future updates of these 
additional codes through the issuance of program instructions.

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

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

[[Page 26398]]

IX. Provisions of the Proposed Rule

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

[[Page 26399]]

X. Collection of Information Requirements

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

[[Page 26400]]

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

XI. Response to Comments

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

XII. Economic Analyses

A. Regulatory Impact Analysis

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

[[Page 26401]]

only describes the impact of this single year. In accordance with the 
requirements of the Act, we will publish a notice for each subsequent 
FY that will provide for an update to the payment rates and include an 
associated impact analysis.
    The two options being considered regarding the recalibration of the 
case-mix indexes are presented in section II.B.2. A detailed economic 
impact analysis of these two options appears below.
4. Detailed Economic Analysis
    This proposed rule sets forth updates of the SNF PPS rates 
contained in the update notice for FY 2011 (75 FR 42886, July 22, 2010) 
and the associated correction notice (75 FR 55801, September 14, 2010). 
Based on the above, if we implement the recalibration option for FY 
2012, we estimate that the aggregate impact would be a net decrease of 
$3.94 billion in payments to SNFs, resulting from a $530 million 
increase from the update to the payment rates and a $4.47 billion 
reduction from the recalibration of the case-mix adjustment. If we do 
not recalibrate the CMIs for FY 2012, as discussed in section II.B.2, 
we estimate that the aggregate impact would be a net increase of $530 
million in payments to SNFs, resulting primarily from the update to the 
payment rates. The impact analysis of this proposed rule represents the 
projected effects of the changes in the SNF PPS from FY 2011 to FY 2012 
for each of these two possible options. We assess the effects by 
estimating payments under each of the two options while holding all 
other payment-related variables constant. Although the best data 
available are utilized, there is no attempt to predict behavioral 
responses to these changes, or to make adjustments for future changes 
in such variables as days or case-mix.
    Certain events may occur to limit the scope or accuracy of our 
impact analysis, as this analysis is future-oriented and, thus, very 
susceptible to forecasting errors due to certain events that may occur 
within the assessed impact time period. Some examples of possible 
events may include newly legislated general Medicare program funding 
changes by the Congress, or changes specifically related to SNFs. In 
addition, changes to the Medicare program may continue to be made as a 
result of previously enacted legislation, or new statutory provisions. 
Although these changes may not be specific to the SNF PPS, the nature 
of the Medicare program is that the changes may interact and, thus, the 
complexity of the interaction of these changes could make it difficult 
to predict accurately the full scope of the impact upon SNFs.
    In accordance with section 1888(e)(4)(E) and (e)(5) of the Act, we 
update the payment rates for FY 2011 by a factor equal to the market 
basket index percentage increase adjusted by the FY 2010 forecast error 
adjustment (if applicable) and the MFP adjustment to determine the 
payment rates for FY 2012. As discussed previously, for FY 2012 and 
each subsequent FY, as required by section 1888(e)(5)(B) of the Act as 
amended by section 3401(b) of the Affordable Care Act, the market 
basket percentage is reduced by the MFP adjustment. The special AIDS 
add-on established by section 511 of the MMA remains in effect until 
``* * * such date as the Secretary certifies that there is an 
appropriate adjustment in the case mix * * *.'' We have not provided a 
separate impact analysis for the MMA provision. Our latest estimates 
indicate that there are less than 3,500 beneficiaries who qualify for 
the AIDS add-on payment. The impact to Medicare is included in the 
``total'' column of Tables 13A and 13B. In updating the rates for FY 
2012, we made a number of standard annual revisions and clarifications 
mentioned elsewhere in this proposed rule (for example, the update to 
the wage and market basket indexes used for adjusting the Federal 
rates).
    We estimate that if we were to implement the recalibration option 
for FY 2012, the aggregate impact would be a net decrease of $3.94 
billion in payments to SNFs, resulting from a $530 million increase 
from the update to the payment rates and a $4.47 billion reduction from 
the recalibration of the case-mix adjustment. If we do not implement 
the recalibration option for FY 2012, we estimate that the aggregate 
impact would be a net increase of $530 million in payments to SNFs, 
resulting from the update to the payment rates. The FY 2012 impacts 
that would result from implementing the recalibration option in FY 2012 
are presented in Table 13A. The FY 2012 impacts that would result from 
not implementing the recalibration of the case-mix indexes in FY 2012 
are presented in Table 13B.

a. Impacts of Implementing the Recalibration Option for FY 2012

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

[[Page 26402]]

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

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

    The first column of Table 13B shows the breakdown of all SNFs by 
urban or rural status, hospital-based or freestanding status, and 
census region.
    The ``total'' row of Table 13B describes the estimated effects of 
the various changes on all facilities. The next six rows show the 
effects on facilities split by hospital-based, freestanding, urban, and 
rural categories. The urban and rural designations are based on the 
location of the facility under the CBSA designation. The next 19 rows 
show the effects on urban versus rural status by census region. The 
last 3 rows show the effects on ownership by government, profit and 
non-profit status.
    The second column in Table 13B shows the number of facilities in 
the impact database.
    The third column in Table 13B shows the effect of the annual update 
to the wage index. This represents the effect of using the most recent 
wage data available. The total impact of this change is zero percent; 
however, there are distributional effects of the change.
    The fourth column of Table 13B shows the effect of all of the 
changes on the FY 2012 payments. The update of 1.5 percent, consisting 
of the market basket increase of 2.7 percentage points, reduced by the 
1.2 percentage point MFP adjustment is constant for all providers and, 
though not shown individually, is included in the total column. It is 
projected that aggregate payments will increase by 1.5 percent, 
assuming that facilities do not change their care delivery and billing 
practices in response.
    As shown in Table 13B, the combined effects of all of the changes 
vary by specific types of providers and by location.

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

[[Page 26403]]

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

    The proposed implementation of the disclosure of ownership 
requirements set forth in section 6101 of the Affordable Care Act (as 
discussed previously in section V.A. of this proposed rule) will affect 
all Medicaid nursing facilities and Medicare SNFs providing care to a 
Medicare and/or Medicaid beneficiary. Currently, these facilities are 
required to disclose information and maintain up-to-date information in 
PECOS and/or OSCAR. Thus, these new requirements are an extension of 
requirements to which the facility should already be accustomed to 
maintain compliance. Also, the proposed new disclosure requirements do 
not appear to impose any labor- or system-intensive burden on the 
facilities.
    We solicit comment on the economic impact analysis of the two 
options presented in section II.B.2 (that is, recalibration and no 
recalibration for FY 2012).
5. Alternatives Considered
    As described above, if we implement the recalibration option for FY 
2012, the aggregate impact would be a net decrease of $3.94 billion in 
payments to SNFs, resulting from a $530 million increase from the 
update to the payment rates and a $4.47 billion reduction from the 
recalibration of the case-mix adjustment. If we move forward with the 
option of applying the standard update without a recalibration for FY 
2012, we estimate that the aggregate impact would be a net increase of 
$530 million in payments to SNFs, resulting from the update to the 
payment rates. In view of the potential economic impact, we considered 
the alternatives described below.
    Section 1888(e) of the Act establishes the SNF PPS for the payment 
of Medicare SNF services for cost reporting periods beginning on or 
after July 1, 1998. This section of the statute prescribes a detailed 
formula for calculating payment rates under the SNF PPS, and does not 
provide for the use of any alternative methodology. It specifies that 
the base year cost data to be used for computing the SNF PPS payment 
rates must be from FY 1995 (October 1, 1994, through September 30, 
1995). In accordance with the statute, we also incorporated a number of 
elements into the SNF PPS (for example, case-mix classification 
methodology, the MDS assessment schedule, a market basket index, a wage 
index, and the urban and rural distinction used in the development or 
adjustment of the Federal rates). Further, section 1888(e)(4)(H) of the 
Act specifically requires us to disseminate the payment rates for each 
new FY through the Federal Register, and to do so before the August 1 
that precedes the start of the new FY. Accordingly, we are not pursuing 
alternatives with respect to the payment methodology as discussed 
above.
    Using our authority to establish an appropriate adjustment for case 
mix under section 1888(e)(4)(G)(i) of the Act, this proposed rule 
considers a recalibration of the adjustment to the nursing case-mix 
indexes based on actual FY 2011 data. In the FY 2010 SNF PPS final rule 
(74 FR 40339), we committed to monitoring the accuracy and 
effectiveness of the parity adjustment to maintain budget neutrality. 
We believe that using actual FY 2011 claims data to perform the 
recalibration analysis may result in case-mix weights that better 
reflect the resources used, produce more accurate payment, and 
represent an appropriate case-mix adjustment. Using FY 2011 data would 
be consistent with our intent to make the change from the RUG-53 model 
to the RUG-IV model in a budget neutral manner, as described in the SNF 
PPS final rule for FY 2010 (74 FR 40339).
    In reviewing our initial projections, we found that the disparity 
which formed the basis for our considering a recalibration of the 
nursing case-mix indexes was at least partially the result of a shift 
in the mode of therapy provided to beneficiaries in a Part A stay under 
RUG-IV. The amount of concurrent therapy decreased significantly from 
historical levels, with a portion of the SNFs reporting 0

[[Page 26404]]

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

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

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

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

B. Regulatory Flexibility Act Analysis

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

[[Page 26405]]

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

C. Unfunded Mandates Reform Act Analysis

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2011, that 
threshold is approximately $136 million. This proposed rule would not 
impose spending costs on State, local, or Tribal governments in the 
aggregate, or by the private sector, of $136 million.

D. Federalism Analysis

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

List of Subjects

42 CFR Part 413

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

42 CFR Part 424

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

42 CFR Part 455

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

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

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

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

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

Subpart J--Prospective Payment for Skilled Nursing Facilities

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

[[Page 26406]]

    The revisions and addition read as follows:

Sec.  413.337  Methodology for calculating the prospective payment 
rates.

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

PART 424--CONDITIONS FOR MEDICARE PAYMENT

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

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

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

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

Sec.  424.502  Definitions.

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

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

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

[[Page 26407]]

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

PART 455--PROGRAM INTEGRITY: MEDICAID

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

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

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

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

Sec.  455.101  Definitions.

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

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

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

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

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

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

Addendum--FY 2012 CBSA Wage Index Tables

    In this addendum, we provide the wage index tables referred to in 
the preamble to this proposed rule. Tables A and B display the CBSA-
based wage index values for urban and rural providers.
BILLING CODE 4120-01-P

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[FR Doc. 2011-10555 Filed 4-28-11; 4:15 pm]
BILLING CODE 4120-01-C
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