48486 Federal Register / Vol. 76, No. 152 / Monday, August 8, 2011 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 413 

[CMS–1351–F] 

RIN 0938–AQ29 

Medicare Program; Prospective 

Payment System and Consolidated 

Billing for Skilled Nursing Facilities for 

FY 2012 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule updates the 

payment rates used under the 

prospective payment system for skilled 

nursing facilities (SNFs) for fiscal year 

2012. In addition, it recalibrates the 

case-mix indexes so that they more 

accurately reflect parity in expenditures 

between RUG–IV and the previous casemix classification system. It also 

includes a discussion of a Non-Therapy 

Ancillary component currently under 

development within CMS. In addition, 

this final rule discusses the impact of 

certain provisions of the Affordable Care 

Act, and reduces the SNF market basket 

percentage by the multi-factor 

productivity adjustment. This rule also 

implements certain changes relating to 

the payment of group therapy services 

and implements new resident 

assessment policies. Finally, this rule 

announces that the proposed provisions 

regarding the ownership disclosure 

requirements set forth in section 6101 of 

the Affordable Care Act will be finalized 

at a later date. 

DATES: Effective Date: This final rule is 

effective on October 1, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Penny Gershman, (410) 786–6643 (for 

information related to clinical issues). 

John Kane, (410) 786–0557 (for 

information related to the 

development of the payment rates and 

case-mix indexes). 

Kia Sidbury, (410) 786–7816 (for 

information related to the wage 

index). 

Bill Ullman, (410) 786–5667 (for 

information related to level of care 

determinations, consolidated billing, 

and general information). 

SUPPLEMENTARY INFORMATION: 

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. Summary of the Provisions of the FY 2012 

Proposed Rule 

III. Analysis of and Responses to Public 

Comments on the FY 2012 Proposed 

Rule 

A. General Comments on the FY 2012 

Proposed Rule 

B. FY 2012 Annual Update of Payment 

Rates under the Prospective Payment 

System for Skilled Nursing Facilities 

1. Federal Prospective Payment System 

a. Costs and Services Covered by the 

Federal Rates 

b. Methodology Used for the Calculation of 

the Federal Rates 

2. Case-Mix Adjustments 

a. Background 

b. Development of Case-Mix Indexes 

3. Wage Index Adjustment to Federal Rates 

4. Updates to Federal Rates 

5. Relationship of RUG–IV Case-Mix 

Classification System to Existing Skilled 

Nursing Facility Level-of-Care Criteria 

6. Example of Computation of Adjusted 

PPS Rates and SNF Payment 

C. Resource Utilization Groups, Version 4 

(RUG–IV) 

1. Prospective Payment for SNF NonTherapy Ancillary Costs 

D. Ongoing Initiatives Under the 

Affordable Care Act 

1. Value-Based Purchasing (Section 3006) 

2. Payment Adjustment for HospitalAcquired Conditions (Section 3008) 

3. Nursing Home Transparency and 

Improvement (Section 6104) 

E. Other Issues 

1. Required Disclosure of Ownership and 

Additional Disclosable Parties 

Information (Section 6101) 

2. Therapy Student Supervision 

3. Group Therapy and Therapy 

Documentation 

4. Proposed Changes to the MDS 3.0 

Assessment Schedule and Other 

Medicare-Required Assessments 

5. Discussion of Possible Future Initiatives 

F. The Skilled Nursing Facility Market 

Basket Index 

1. Use of the Skilled Nursing Facility 

Market Basket Percentage 

2. Market Basket Forecast Error Adjustment 

3. Multifactor Productivity Adjustment 

a. Incorporating the Multifactor 

Productivity Adjustment Into the Market 

Basket Update 

b. Federal Rate Update Factor 

G. Consolidated Billing 

H. Application of the SNF PPS to SNF 

Services Furnished by Swing-Bed 

Hospitals 

IV. Analysis of and Responses to Public 

Comments on the FY 2011 Update 

Notice With Comment 

V. Provisions of the Final Rule 

VI. Collection of Information Requirements 

VII. Economic Analyses 

A. Regulatory Impact Analysis 

1. Introduction 

2. Statement of Need 

3. Overall Impacts 

4. Detailed Economic Analysis 

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) 

Acronyms 

In addition, because of the many 

terms to which we refer by acronym in 

this final rule, we are listing these 

acronyms 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 

HIPAA Health Insurance Portability and 

Accountability Act of 1996 

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 


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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 CaseMix Classification System 

SCHIP State Children’s Health Insurance 

Program 

SCPA Significant Correction of a Prior 

Assessment 

SCSA Significant Change in Status 

Assessment 

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 

In the May 6, 2011 Federal Register, 

we published a proposed rule (76 FR 

26364) (hereafter referred to as the FY 

2012 proposed rule), setting forth 

potential updates to the payment rates 

used under the prospective payment 

system (PPS) for skilled nursing 

facilities (SNFs), for fiscal year (FY) 

2012. Annual updates to the PPS rates 

for (SNFs) are required by section 

1888(e) of the Social Security Act (the 

Act), as added by section 4432 of the 

Balanced Budget Act of 1997 (BBA, Pub. 

L. 105–33, enacted on August 5, 1997), 

and amended by 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) for those payment rate updates. 

We respond to public comments which 

relate to the FY 2011 update notice, 

along with those relating to the FY 2012 

proposed rule, in this 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 final rule, we are updating the 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 final rule, we established per 

diem Federal rates for urban and rural 

areas using allowable costs from FY 

1995 cost reports. These rates also 

included a ‘‘Part B add-on’’ (an estimate 

of the cost of those services that, before 

July 1, 1998, were paid under Part B but 

furnished to Medicare beneficiaries in a 

SNF during a Part A covered stay). We 

adjust the rates annually using a SNF 

market basket index, and we adjust 

them by the hospital inpatient wage 

index to account for geographic 

variation in wages. We also apply a 

case-mix adjustment to account for the 

relative resource utilization of different 

patient types. As further discussed in 

section I.G.1. of this final 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 information collection 

burden associated with the resident 

assessment is approved under OMB 

Control Number 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, threephase transition that blended a facilityspecific 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 fiscal year. 

• Coverage. The establishment of the 

SNF PPS did not change Medicare’s 

fundamental requirements for SNF 

coverage. However, because the casemix 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 III.B.5. of 

this final rule, this approach includes an 

administrative presumption that utilizes 

a beneficiary’s initial classification in 

one of the upper 52 RUGs of the 66- 

group RUG–IV case-mix classification 

system to assist in making certain SNF 

level of care determinations. In 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 

III.B.5. of this final 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 speechlanguage 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 III.G 

of this final rule. 

• Application of the SNF PPS to SNF 

services furnished by swing-bed 

hospitals. Section 1883 of the Act 

permits certain small, rural hospitals to 

enter into a Medicare swing-bed 

agreement, under which the hospital 

can use its beds to provide either acute 

or SNF care, as needed. For critical 


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access hospitals (CAHs), Part A pays on 

a reasonable cost basis for SNF services 

furnished under a swing-bed agreement. 

However, in accordance with section 

1888(e)(7) of the Act, these services 

furnished by non-CAH rural hospitals 

are paid under the SNF PPS, effective 

with cost reporting periods beginning 

on or after July 1, 2002. A more detailed 

discussion of this provision appears in 

section III.H. of this final rule. 

B. Requirements of the Balanced Budget 

Act of 1997 (BBA) for Updating the 

Prospective Payment System for Skilled 

Nursing Facilities 

Section 1888(e)(4)(H) of the Act 

requires that we provide for publication 

annually in the Federal Register: 

(1) The unadjusted Federal per diem 

rates to be applied to days of covered 

SNF services furnished during the 

upcoming FY. 

(2) The case-mix classification system 

to be applied for these services during 

the upcoming FY. 

(3) The factors to be applied in 

making the area wage adjustment for 

these services. 

Along with other revisions discussed 

later in this preamble, this final rule 

provides these required annual updates 

to the Federal rates. 

C. The Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 

1999 (BBRA) 

There were several provisions in the 

BBRA (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 final 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 III.G. of this final rule. Further, 

for swing-bed hospitals with more than 

49 (but less than 100) beds, section 408 

of the BBRA provided for the repeal of 

certain statutory restrictions on length 

of stay and aggregate payment for 

patient days, effective with the end of 

the SNF PPS transition period described 

in section 1888(e)(2)(E) of the Act. In the 

final rule for FY 2002 (66 FR 39562, July 

31, 2001), we made conforming changes 

to the regulations at § 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 

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_PCPPSSNF.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 speechlanguage 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 final 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 final rule. (As noted 

previously, in accordance with section 

101(c)(2) of the BBRA, this temporary 

payment adjustment expired upon the 

implementation of case-mix refinements 

on January 1, 2006.) 

• Section 315 of the BIPA authorized 

us to establish a geographic 

reclassification procedure that is 

specific to SNFs, but only after 

collecting the data necessary to establish 

a SNF wage index that is based on wage 

data from nursing homes. To date, this 

has proven to be 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 addon, implementation of this provision 


srobinson on DSK4SPTVN1PROD with RULES3
Federal Register / Vol. 76, No. 152 / Monday, August 8, 2011 / Rules and Regulations 48489 

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 $401.48 

(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 $915.37. 

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 III.G. of 

this final 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 final 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 casemix 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 

Notice with Comment Period (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 

Notice with Comment Period (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 Notice with 

Comment period, we also invited public 

comment specifically on our plans for 

implementing section 10325 of the 

Affordable Care Act in this manner. 

However, section 202 of the Medicare 

and Medicaid Extenders Act of 2010 

(Pub. L. 111–309, enacted December 15, 

2010) repealed section 10325 of the 

Affordable Care Act. Therefore, we leave 

in place 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 eliminates the need for a 

subsequent transition to the HR–III 

system, this 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, 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), in the FY 2011 Notice with 

Comment Period (75 FR 42892–42893), 

and in the FY 2012 proposed rule (76 

FR 26370 through 26377). 

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 

III.D. of this final rule, we discuss 

certain ongoing Affordable Care Act 

initiatives that relate to SNFs, and in 

section III.E.1, 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 


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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 casemix, 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 final rule reflect 

an update to the rates that we published 

in the notice with comment period 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 III.F. of this final 

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 FY 2012 

market basket increase is 2.7 percent, 

which is based on IHS Global Insight, 

Inc. (IGI) second quarter 2011 forecast 

with historical data through first quarter 

2011. 

In addition, as explained in the final 

rule for FY 2004 (66 FR 46058, August 

4, 2003) and in section III.F.2. of this 

final rule, the annual update of the 

payment rates includes, as appropriate, 

an adjustment to account for market 

basket forecast error. As described in the 

final rule for FY 2008, the threshold 

percentage that serves to trigger an 

adjustment to account for market basket 

forecast error is 0.5 percentage point 

effective for FY 2008 and subsequent 

years. This adjustment takes into 

account the forecast error from the most 

recently available FY for which there is 

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 

Index Forecasted FY 

2010 increase * 

Actual FY 2010 

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 second quarter 2011 IHS Global Insight forecast, with historical data through the first quarter 2011 (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 

III.F.3 of this final rule, the MFP 

adjustment for FY 2012 is 1.0 percent. 

II. Summary of the Provisions of the FY 

2012 Proposed Rule 

In the FY 2012 proposed rule (76 FR 

26364), we presented 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, we 

examined recent changes in provider 

behavior relating to the implementation 

of the Resource Utilization Groups, 

version 4 (RUG–IV) case-mix 

classification system and considered 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. We also included 

a discussion of a Non-Therapy Ancillary 

component and outlier research 

currently under development within 

CMS. In addition, the proposed rule 

discussed the impact of certain 

provisions of the Affordable Care Act. 

We proposed 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. We also 

proposed to require Medicare SNFs and 

Medicaid nursing facilities to disclose 

certain information to the Secretary of 


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the United States Department of Health 

and Human Services (the Secretary) and 

other entities regarding the ownership 

and organizational structure of their 

facilities. Finally, we proposed certain 

changes relating to the payment of 

group therapy services and proposed 

new resident assessment policies. 

III. Analysis of and Responses to Public 

Comments on the FY 2012 Proposed 

Rule 

In response to the publication of the 

FY 2012 proposed rule, we received 

over 170 timely public comments from 

individual providers, corporations, 

government agencies, private citizens, 

trade associations, and major 

organizations. The following are brief 

summaries of each proposed provision, 

a summary of the public comments that 

we received related to that proposal, 

and our responses to the comments. 

A. General Comments on the FY 2012 

Proposed Rule 

In addition to the comments we 

received on the proposed rule’s 

discussion of specific aspects of the SNF 

PPS (which we address later in this final 

rule), commenters also submitted the 

following, more general observations on 

the payment system. We received many 

comments expressing concern about the 

SNF PPS system as a whole and the 

MDS 3.0 and RUG–IV system. 

Comment: We received a number of 

comments raising concerns about the 

complexity of the MDS 3.0 that 

included several new assessment types, 

the need to clarify the RAI manual, and 

the time required to become trained on 

the new MDS 3.0 requirements. 

Response: We appreciate these 

concerns and we recognize that the 

transition to the MDS 3.0 was complex 

and labor-intensive. We provided 

extensive training and opportunities to 

assist with questions about the MDS 3.0 

and RUG–IV models both prior to and 

after its October 1, 2010 implementation 

on audio conferences, at national 

training conferences, in the form of the 

RAI Manual and subsequent 

clarification updates, and postings to 

the MDS 3.0 and SNF PPS Web sites. 

We have also provided support in 

response to oral and written inquiries, 

and issued clarification during Open 

Door Forums, RAI Manual updates, and 

through online and telephone technical 

assistance. We are committed to 

continuing training on both the MDS 3.0 

and RUG–IV systems. In fact, we are 

developing training programs to assist 

providers to adapt to any new policy 

changes introduced on and after October 

1, 2011. Additionally, as we receive 

provider input through these efforts, we 

will continue to update and clarify the 

RAI manual to ensure that it continues 

to provide accurate information and 

guidance on CMS policies. 

Comment: One commenter 

recommended that we address the need 

for stricter requirements for training and 

certification of food services directors 

and staff. The commenter states that 

stricter guidelines will improve patient 

health and safety. 

Response: We appreciate this 

comment, but note that the specific 

issues the commenter raised about the 

requirements for food services staff 

relate to the certification standards for 

long-term care facilities and, therefore, 

are beyond the scope of this final rule. 

We have, however, shared these 

comments with CMS survey and 

certification staff so that they can 

consider these suggestions as part of 

their ongoing review and refinement of 

our policies. 

B. FY 2012 Annual Update of Payment 

Rates Under the Prospective Payment 

System for Skilled Nursing Facilities 

1. Federal Prospective Payment System 

This final rule sets forth a schedule of 

Federal prospective payment rates 

applicable to Medicare Part A SNF 

services beginning October 1, 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. 

a. Costs and Services Covered by the 

Federal Rates 

In accordance with section 

1888(e)(2)(B) of the Act, the Federal 

rates apply to all costs (routine, 

ancillary, and capital-related) of covered 

SNF services other than costs associated 

with approved educational activities as 

defined in § 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 items and services 

(other than those services excluded by 

statute) that, before July 1, 1998, were 

paid under Part B (the supplementary 

medical insurance program) but 

furnished to Medicare beneficiaries in a 

SNF during a Part A covered stay. 

(These excluded service categories are 

discussed in greater detail in section 

V.B.2 of the May 12, 1998 interim final 

rule (63 FR 26295 through 26297)). 

b. Methodology Used for the Calculation 

of the Federal Rates 

The FY 2012 rates reflect an update 

using the full amount of 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 final rule, is reduced by a 1.0 

percent MFP adjustment, resulting in an 

MFP-adjusted market basket percentage 

of 1.7 percent. A complete description 

of the multi-step process used to 

calculate Federal rates initially 

appeared in the May 12, 1998 interim 

final rule (63 FR 26252), as further 

revised in subsequent rules. We note 

that the temporary increase of 128 

percent in the per diem adjusted 

payment rates for SNF residents with 

AIDS, enacted by section 511 of the 

MMA (and discussed previously in 

section I.E of this final rule), remains in 

effect. 

We used the SNF update factor 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 (FY 2011), and the midpoint of 

the Federal FY beginning October 1, 

2011, and ending September 30, 2012 

(FY 2012), to which the payment rates 

apply. In accordance with section 

1888(e)(4)(E)(ii)(IV) of the Act, we 

update the payment rates for FY 2012 by 

a factor equal to the full market basket 

index percentage increase. As further 

explained in sections I.G.2 and III.F.2 of 

this final 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 III.F.3 of 

this final 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. 


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TABLE 2—FY 2012 UNADJUSTED FEDERAL RATE PER DIEM URBAN

Rate component Nursing— 

case-mix 

Therapy— 

case-mix 

Therapy— 

non-case-mix Non-case-mix 

Per Diem Amount ............................................................................ $160.62 $120.99 $15.94 $81.97 

TABLE 3—FY 2012 UNADJUSTED FEDERAL RATE PER DIEM RURAL

Rate component Nursing— 

case-mix 

Therapy— 

case-mix 

Therapy— 

non-case-mix Non-case-mix 

Per Diem Amount ............................................................................ $153.46 $139.51 $17.02 $83.49 

2. Case-Mix Adjustments 

a. Background 

Section 1888(e)(4)(G)(i) of the Act 

requires the Secretary to make an 

adjustment to account for case-mix. The 

statute specifies that the adjustment is 

to reflect both a resident classification 

system that the Secretary establishes to 

account for the relative resource use of 

different patient types, as well as 

resident assessment and other data that 

the Secretary considers appropriate. In 

first implementing the SNF PPS (63 FR 

26252, May 12, 1998), we developed the 

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, payment levels under the PPS 

vary based on the patient’s anticipated 

care needs and resource utilization. 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 casemix group to each patient record that is 

then used to calculate a per diem 

payment under the SNF PPS. Because 

the MDS is used as the basis for 

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 casemix 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 final 

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. 

b. Development of Case-Mix Indexes 

In the FY 2012 proposed rule (76 FR 

26370 through 36377), we discussed the 

implementation of the RUG–IV 

classification system, effective October 

1, 2010. We also discussed the 

accompanying parity adjustment that 

was intended to ensure that estimated 

total payments under the RUG–IV 

model would be equal to those 

payments that would have been made 

under the 53-group RUG–III model that 

it replaced. We then explained that 

actual utilization patterns under the 

refined case-mix system differed 

significantly from the initial projections, 

and as a consequence, rather than 

achieving parity as intended, this 

adjustment to the new RUG–IV system 

triggered a significant increase in overall 

payment levels under the RUG–IV 

model, representing substantial 

overpayments to SNFs. 

Accordingly, the FY 2012 proposed 

rule included a discussion of two 

options for updating the rates for FY 

2012. The first option was to recalibrate 

the parity adjustment (using the 

methodology discussed in the FY 2012 

proposed rule) to ensure that the 

adjustment actually achieves its 

intended purpose, to make the 

transition from RUG–53 to RUG–IV in a 

budget neutral manner, as discussed 

further below. Under the second option, 

CMS reserved the option not to 

implement a recalibration of the parity 

adjustment in FY 2012 if, as additional 

FY 2011 claims data became available, 

they indicated that utilization patterns 

are more consistent with our projections 

and expenditures are more in parity 

with those under the RUG–53 model. 

Under this second option, we stated we 

would simply update the payment rates 

for FY 2012 by the FY 2012 market 

basket adjustment of 2.7 percent, 

reduced by the MFP adjustment of 1.0 

percent, for a net market basket increase 

factor of 1.7 percent. 

As discussed in the FY 2012 proposed 

rule, the recalibration of the FY 2011 

parity adjustment, which formed the 

basis of the first option discussed above, 

was initially determined through an 

analysis of utilization data from the first 

quarter of FY 2011. The methodology 

for determining the parity adjustment 

necessary given utilization patterns 

observed in the first quarter of FY 2011 

is described in the FY 2012 proposed 

rule (76 FR 26370 through 26377) and 

follows the same basic methodology 

described in the FY 2006 SNF PPS 


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proposed rule (70 FR 29077 through 

29079), the FY 2009 SNF PPS proposed 

rule (73 FR 25923) and the FY 2009 SNF 

PPS final rule (73 FR 46421–23). 

In the FY 2012 proposed rule, we 

stated that this adjustment was based on 

a set of data derived from first quarter 

FY 2011 claims and MDS assessments. 

We further stated that we would 

continue to monitor claims data and 

utilization patterns in FY 2011 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 update the parity adjustment 

accordingly. For this final rule, as 

further discussed below, we have been 

able to update the recalibration of the 

FY 2011 parity adjustment with a data 

set which includes claims and MDS 3.0 

assessments for the first 8 months of FY 

2011. 

Using the same methodology for 

determining the recalibration discussed 

in the FY 2012 proposed rule and 

approximately 2.2 million claims 

matched to the MDS 3.0 assessment, 

representing 8 months (or nearly 3 full 

quarters) of FY 2011 (from October 1, 

2011 through May 31, 2011), we 

determined that the utilization patterns 

identified in our analysis of the first 

quarter FY 2011 data continued 

throughout the entire 8-month period 

(these data are available at http:// 

www.cms.gov/SNFPPS/ 

02_Spotlight.asp). We then repeated our 

recalibration calculation using the full 

8-month data set, which is available at 

http://www.cms.gov/SNFPPS/ 

02_Spotlight.asp. We found that, while 

retaining the original 61 percent 

adjustment to the CMIs assigned to each 

of the RUG–IV non-therapy groups, the 

necessary adjustment to the nursing 

CMIs of the RUG–IV therapy groups 

would be 19.84 percent, a difference of 

only .03 percent from the 19.81 percent 

adjustment discussed in the proposed 

rule. We believe that this updated 

analysis confirms our preliminary 

analysis, and demonstrates effectively 

that the utilization patterns observed in 

the first quarter of FY 2011 were not 

temporary aberrations or the result of a 

learning curve with respect to the RUG– 

IV and MDS 3.0 transition, but instead 

represent a new pattern of provider 

behavior that differs significantly from 

expected utilization patterns that were 

the basis for the original parity 

adjustment, and which resulted in 

significant increases in overall payment 

levels under RUG–IV. 

In addition, the increased expenditure 

levels due to the implementation of the 

RUG–IV system have been validated by 

the Office of the Inspector General (OIG) 

in a separate review of SNF payments 

during the first 6 months of FY 2011. 

According to a preliminary analysis by 

OIG, the utilization trends related to the 

shifts in the modes of therapy and the 

classification of high percentages of SNF 

beneficiaries into the highest-paying 

RUG–IV groups were even more 

pronounced in the FY 2011 second 

quarter (January through April 2011) 

than in the first quarter (October 

through December 2010) that was used 

for the analyses included in the FY 2012 

proposed rule (This OIG report is 

available at http://oig.hhs.gov/oei/ 

reports/oei-02-09-00204.asp.) 

As we stated in the proposed rule (76 

FR 26371), 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 nursing 

CMIs, it is more appropriate to maintain 

the 61 percent adjustment to the nursing 

CMIS for the RUG–IV non-therapy 

groups, and reduce the 61 percent parity 

adjustment as it applied to the nursing 

CMIs for the RUG–IV therapy groups. 

In the proposed rule, we invited 

comments on the two options discussed 

above. A discussion of these comments, 

including our responses, appears below. 

Comment: We received a variety of 

comments regarding the two options 

presented in the proposed rule for 

updating the payment rates for FY 2012. 

Most commenters were opposed to the 

option to recalibrate the FY 2011 parity 

adjustment. Many of these commenters 

expressed their belief that the 

recalibration considered in the proposed 

rule will have a significantly negative 

impact on facilities and beneficiaries. 

These commenters believed that the 

recalibration discussed in the proposed 

rule should be either withdrawn or 

significantly reduced. 

Response: In light of the previous 

recalibration of the SNF PPS case-mix 

indexes in FY 2010, which addressed 

excess payments associated with the 

RUG–53 implementation in FY 2006 but 

only after those excess payments had 

persisted for several years, we believe it 

is imperative that we act in a wellconsidered but expedient manner once 

excess payments such as those in FY 

2011 are identified. Allowing these 

significant anomalies to persist and 

failing to take timely action to correct 

the situation creates instability under 

the RUG–IV system, in the SNF PPS, 

and the Medicare program generally, 

which ultimately affects Medicare 

beneficiary access and quality of care. 

As we explained in the FY 2012 

proposed rule (76 FR 26370–26373), in 

recalibrating the CMIs under the RUG– 

IV model, we expect to restore payments 

to their appropriate level by correcting 

an inadvertent increase in overall 

payments. Because the recalibration is 

removing an unintended excess 

payment rather than decreasing an 

otherwise appropriate payment amount, 

we do not believe that the recalibration 

should negatively affect facilities, 

beneficiaries, or quality of care, or create 

an undue hardship on providers. 

Further, in its March 2011 report to 

the Congress (available at http:// 

www.medpac.gov/documents/ 

Mar11_EntireReport.pdf), MedPAC 

reports that average Medicare margins 

have increased for freestanding SNFs 

since 2005. In 2009, the aggregate 

Medicare margin for freestanding SNFs, 

which represent more than 90 percent of 

all SNF facilities, was 18.1 percent, up 

from 16.6 percent in 2008 and 

representing the ninth consecutive year 

where the aggregate Medicare margin for 

freestanding SNFs was greater than 10 

percent. For these reasons, we believe 

that the parity adjustment should not be 

withdrawn or reduced. 

Comment: Several commenters 

asserted that the higher payments 

observed in FY 2011 were, at least 

partially, the result of real acuity 

changes which should be accounted for 

in the calculation of the parity 

adjustment. These commenters stated 

that, as an alternative approach, CMS 

should consider comparing data from 

FY 2010 and FY 2011 when calculating 

the recalibration factor, to account for 

changes in patient acuity. 

Response: We disagree with this 

comment on the basis that, as described 

in the FY 2012 proposed rule (76 FR 

26371), the same FY 2011 claims and 

MDS information were used to 

determine both RUG–III payments and 

RUG–IV payments. Using the same 

population for the same timeframe 

serves to control for acuity level 

changes, as well as other factors, such 

as patient volume, across the RUG–III 

and RUG–IV systems and provide an 

appropriate comparison for our 

financial analysis. 

We would also note, as discussed 

further below, that we did a comparison 

of data from all of FY 2010 and from the 

first eight months of FY 2011 that did 

not control for changes in patient acuity, 

and found that it did not result in a 

significant difference in the 

recalibration factor necessary to 

equalize RUG–IV payments and RUG–III 

payments. In testing this alternative 

methodology, we did control for volume 

by calculating the percentage of FY 2010 

days of service for each of the RUG–III 

groups, broken down by urban and rural 

days, and then multiplied each 


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percentage by the total number of urban 

or rural FY 2011 days of service, as 

appropriate, to determine the number of 

days of service for each RUG–III group, 

relative to the total volume for the first 

eight months of FY 2011. Therefore, 

even though the recalibration 

methodology discussed in the proposed 

rule (76 FR 26370–73) controls for 

changes in patient acuity, we note that 

the alternative approach above which 

was suggested by commenters would 

not change the recalibration factor. 

Comment: Some commenters asserted 

that CMS failed to provide sufficient 

information for a third party to 

reproduce CMS’s conclusions with 

regard to the parity adjustment. A few 

commenters stated that the lack of 

access to data, or the timeframe for 

when certain data were released, limited 

the ability of stakeholders to develop 

substantive comments on the 

recalibration considered in the proposed 

rule. Additionally, a few commenters 

referred to specific requests that were 

made by a few of the major nursing 

home trade associations for access to 

claims and MDS data for the fourth 

quarter of FY 2010 and the first quarter 

of FY 2011. They noted that we had 

declined to fulfill those data requests, 

due to certain data disclosure 

requirements in the privacy regulations 

that were promulgated under the Health 

Insurance Portability and 

Accountability Act of 1996 (Pub. L. 

104–191, enacted on August 21, 1996) 

(HIPAA). These commenters asserted 

that CMS should reconsider its data 

security policies in light of the use of 

more ‘‘real–time’’ data. 

Response: We do not agree with 

assertions that CMS provided 

inadequate data to evaluate and 

comment upon the proposals described 

in our proposed rule. The methodology 

used to establish the case-mix 

adjustments is the same as that 

described in detail in the FY 2006 SNF 

PPS proposed rule (70 FR 29077 

through 29079), the FY 2009 SNF PPS 

proposed rule (73 FR 25923), and the FY 

2009 SNF PPS final rule (73 FR 46421 

through 46422), as updated in the FY 

2012 proposed rule (76 FR 26370 

through 26377). In addition, the data 

used to calculate the adjustments are 

publicly available on the CMS Web site, 

as explained below. We tested the 

ability to reproduce the parity 

adjustment calculation using only 

information available on the CMS Web 

site as of May 3, 2011, and in the 

proposed rule and were able to do so. 

We used the first quarter FY 2011 days 

of service for the RUG–IV system and a 

distribution of what those days would 

have looked like under RUG–III 

(available in the Downloads section of 

our Web site at http://www.cms.gov/ 

SNFPPS/02_Spotlight.asp). We 

multiplied the RUG–IV and RUG–III 

days of service by the FY 2012 

unadjusted Federal per diem payment 

rate components, multiplied by the 

unadjusted case-mix indexes (the 

unadjusted RUG–IV case-mix indexes 

can be calculated by dividing the 

adjusted case-mix indexes, provided in 

the proposed rule in Tables 5A or 6A, 

by the adjustment factor of 1.1981) to 

establish expenditures under the RUG– 

III and RUG–IV systems. The parity 

adjustment was determined as the 

percentage increase necessary for the 

nursing CMIs of the RUG–IV therapy 

groups to generate estimated 

expenditure levels under the RUG–IV 

system that were equal to estimated 

expenditure levels under the RUG–III 

system. 

While this data alone would have 

been sufficient for a third party to 

reproduce our results, in an effort to 

respond to data requests from 

stakeholders and give the public as 

much information as possible to 

evaluate the two parity adjustment 

options considered in the proposed rule, 

we also made available on our Web site, 

as of June 16, 2011, a distribution of 

paid days by provider number and by 

month for the fourth quarter of FY 2010 

under RUG–III and the first quarter of 

FY 2011 under RUG–III and RUG–IV. 

This data could be used to allow 

stakeholders to analyze acuity trends 

and further evaluate the adequacy of the 

data used to determine the appropriate 

recalibration. Finally, we posted on our 

Web site a detailed memo which 

outlined how stakeholders could use 

MDS 3.0 data to determine the 

appropriate RUG–III group for a given 

RUG–IV patient, even though this 

information was also already available 

to facilities on their final validation 

reports. Thus, we provided stakeholders 

and their trade associations with 

extensive data described earlier, so that 

they had multiple avenues for analyzing 

the underlying data and verifying CMS’s 

results. We believe the additional 

information provided was beyond the 

information necessary to replicate our 

calculation. In this way, we provided 

even greater transparency of our 

methods and data analysis while 

fulfilling our data security 

responsibilities under HIPAA. 

Furthermore, with regard to the 

ability of stakeholders to provide 

substantive comments, we do not agree 

with the commenter’s statement that the 

necessary data were released too late to 

allow for analyses that would generate 

substantive comment on the proposed 

rule. As illustrated above, the data 

provided on the CMS Web site and in 

the proposed rule were more than 

sufficient for stakeholders to reproduce, 

evaluate, and critique the recalibration 

methodology and results. This is 

evident in the notable breadth and 

detail of the commenters’ critiques of 

our supporting data, methodology, and 

results, which we view as at least in part 

a reflection of the extensive amount of 

data that we have made available to the 

public throughout this process, and of 

the ability of commenters to provide 

both timely and substantive comments 

on the proposed rule. Even after the 

issuance of the FY 2012 proposed rule, 

we continued to respond to requests for 

technical assistance and posted 

additional technical materials on our 

Web site so that all stakeholders could 

have access to the responses to the 

technical questions that we received. 

Certain data, such as specific MDS 

and claims data requested by certain 

trade associations, could not be made 

available upon the request of 

stakeholders. CMS’ data security policy, 

which derives from our responsibilities 

under HIPAA, does not allow CMS to 

release patient identifiable data when 

such data are not necessary to 

accomplish the purpose of the 

disclosure (here, analyzing our 

proposals). As noted above, these data 

were not necessary to provide 

substantive and timely comments on the 

proposals contained in the proposed 

rule, as evidenced by the ability of 

internal staff to replicate and verify the 

results of our calculation using data 

available on our Web site well before 

the end of the comment period. 

Accordingly, as the non-patient 

identifiable information was itself 

adequate for purposes of assessing our 

proposals, we were not able to release 

the requested patient identifiable 

information. 

That said, CMS does make certain 

information available from the claims 

and MDS files. CMS has an established 

timeline for the release of such 

information, which normally allows for 

up to a year after the data have been 

finalized in order to screen and cleanse 

the data properly of anything that would 

permit patient identification. Any 

attempt to speed up this process would 

result in the assumption of unacceptable 

risks that patient-identifiable 

information would be released by 

mistake, which would threaten the basic 

privacy protections that beneficiaries 

must be afforded. Finally, as discussed 

above, some commenters suggested that, 

given our increased use of more realtime data (that is, data from the current 

fiscal year as opposed to claims data 


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from a prior year) for our recalibration 

analyses, we should consider updates to 

our data security policies to ensure that 

stakeholders have adequate access to 

data and that the rulemaking process is 

as transparent as possible. We agree that 

the process should remain transparent, 

but we also note that the data security 

policies that cover the patient-level 

claims and MDS data used as the basis 

of the parity adjustment recalibration 

implemented in this final rule are 

required by the HIPAA privacy 

regulations and exist first and foremost 

to protect Medicare beneficiaries. While 

commenters requested certain claims 

and MDS data in order to evaluate our 

recalibration results, assumptions, and 

methodology, as discussed above, the 

data requested were not necessary to 

provide substantive and timely 

comments on the proposals contained in 

the proposed rule so we were unable to 

provide such data under the HIPAA 

privacy rule’s ‘‘minimum necessary’’ 

provisions. As we stated above, we 

believe the data we provided on the 

CMS Web site and in the proposed rule 

were more than sufficient for 

stakeholders to reproduce, evaluate, and 

critique the recalibration methodology 

and results. We will continue to make 

data available to stakeholders within the 

limits of the law. Finally, we have 

updated the data on our Web site to 

reflect the use of the eight months of 

data used to finalize this rule. 

Comment: Many commenters raised 

general concerns over the data used to 

determine the appropriate recalibration 

of the FY 2011 parity adjustment. Many 

of these commenters believed that one 

fiscal quarter of data was insufficient to 

justify a recalibration of the magnitude 

discussed in the proposed rule and that 

CMS should wait until it has a greater 

set of data from which to draw 

conclusions about utilization patterns in 

FY 2011. Several commenters were 

concerned that, given the increased 

burden associated with transitioning 

both to RUG–IV and MDS 3.0 

simultaneously, it is possible that the 

first quarter of FY 2011 may represent 

facilities working to transition properly 

rather than accurately representing 

evolving provider behavior. One 

commenter specifically stated that using 

one quarter of data would not 

adequately control for the possibility of 

‘‘seasonality’’ in SNF PPS claims 

submission, payments, and acuity 

levels, and provided a detailed analysis 

of previous fiscal quarters to 

demonstrate the possibility of a 

difference between the first fiscal 

quarter of a given year and the 

remainder of that year. One commenter 

also raised concerns related to the 

provider-level data that CMS made 

available to stakeholders upon their 

request, specifically that the data 

provided for a certain set of providers 

did not match the data that this 

commenter acquired independently for 

this provider. A few commenters 

highlighted potential calculation errors 

in the analysis and data presented in the 

proposed rule, with one commenter 

specifically highlighting an error in the 

calculation of the nursing CMI for a 

certain non-therapy RUG–IV group. 

Response: We acknowledge the 

commenters’ concerns about relying 

solely on one fiscal quarter of data to 

finalize a recalibration of the magnitude 

discussed here. However, as noted in 

the proposed rule, the first quarter of 

data served only as the basis for our 

preliminary analysis of FY 2011 

utilization. In the proposed rule, we 

committed to monitoring FY 2011 

utilization data continually to confirm 

the results of our preliminary analysis 

regarding the need to recalibrate the 

parity adjustment. The stated purpose of 

the discussion of this first quarter FY 

2011 data in the proposed rule was to 

‘‘provide the public with information on 

the potential scope and impact of the 

recalibration’’ we considered in the 

proposed rule (76 FR 26371). Given that 

we have updated the data file with 

claims and MDS assessments ranging 

over 8 months of FY 2011 and for the 

reasons outlined below, we believe that 

the utilization patterns observed as part 

of our preliminary analysis do, in fact, 

represent an accurate reflection of 

utilization for the whole of FY 2011. 

Additionally, as stated above, we have 

now updated the recalibration based on 

8 months of FY 2011 data, and 

utilization patterns are virtually 

identical to FY 2011 first quarter 

findings (Data available at http:// 

www.cms.gov/SNFPPS/ 

02_Spotlight.asp). Therefore, we believe 

that observed utilization patterns are 

more likely the result of evolving 

provider behavior rather than errors and 

adjustments made during the early 

transition period to RUG–IV and MDS 

3.0. Moreover, since facilities were 

given more than one year to prepare for 

the implementation of both RUG–IV and 

MDS 3.0, we believe that facilities were 

given ample time for education and 

preparation for the transition and that 

any confusion or mistakes due to 

transition issues would have been 

addressed prior to, or in the very early 

stages of, the RUG–IV and MDS 

transition. 

With regard to commenters’ claims 

related to ‘‘seasonality’’ of the first 

quarter FY 2011 data, our own analysis 

of FY 2010 claims data demonstrated 

that the first quarter of a given fiscal 

year does appear to provide a reasonable 

approximation of patient acuity levels 

and payments for the whole of that 

fiscal year. We reviewed the FY 2010 

claims by RUG classification and by 

month for each month of FY 2010. 

Ultimately, we found that the 

distribution of RUG groups remained 

stable over the year and no particular 

quarter, or even month, stood out as 

demonstrating a different RUG 

distribution from the rest of that year 

(these data are available at http:// 

www.cms.gov/SNFPPS/ 

02_Spotlight.asp). In fact, the only real 

difference in SNF payment levels occurs 

in the transition between one fiscal year 

and another, where this difference is 

attributable to the annual payment 

update and market basket adjustment 

rather than to any ‘‘seasonality’’ existing 

between the fourth quarter of a given 

fiscal year and the first quarter of the 

following fiscal year. 

Finally, with regard to the comment 

related to the provider-level data, we 

were unable to verify this commenter’s 

claim as we were not provided with any 

details as to the location or type of 

provider in question. After a review of 

the data used to support the 

recalibration, we found the underlying 

data to be accurate, and sufficient to 

perform the proper calculation of the 

recalibration. We did identify one RUG 

category (LB2) where we incorrectly 

stated the nursing CMI as 1.46 in the 

proposed rule, when it should be 1.45. 

This correction, while it would have a 

very small effect on the per diem 

payment for that RUG group, did not 

have any impact on our calculation of 

the parity adjustment. This error has 

since been corrected and tables 5 and 6 

in this final rule reflect the correct 

nursing CMI for LB2. 

Comment: Many commenters 

expressed concern over the possibility 

of a reduction to Medicare payment 

rates in light of other reductions in areas 

such as Medicaid. Some commenters 

stated that Medicare should maintain 

SNF payment levels to cross-subsidize 

what they characterized as inadequate 

payment rates for nursing facilities 

under the Medicaid program. Other 

commenters urged CMS to reconsider 

the recalibration in light of the potential 

impact on the weak national economy. 

A few commenters discussed the 

importance of the health care industry, 

specifically SNFs, as representing a 

significant sector of job growth during 

the recent economic recession. Finally, 

a few commenters asserted that the 

recalibration would drive providers into 

bankruptcy, as they assert happened 


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when the SNF PPS was initially 

implemented in the late 1990s. 

Response: We wish to clarify that it is 

not the appropriate role of the Medicare 

SNF benefit to cross-subsidize nursing 

home payments made under the 

Medicaid program. As noted by several 

commenters, the primary purpose of the 

Medicare SNF benefit is to provide 

accurate payment for Medicare Part A 

services provided in a SNF setting. 

Further, we note that MedPAC has also 

indicated that it is inappropriate for the 

Medicare program’s SNF payments to be 

used to account for Medicaid shortfalls. 

Specifically, on page 159 of its March 

2011 Report to Congress on Medicare 

Payment Policy (which is available 

online at http://www.medpac.gov/ 

documents/Mar11_EntireReport.pdf), 

MedPAC stated: 

* * * the Commission believes such crosssubsidization is not advisable for several 

reasons. First, on average, Medicare 

payments account for less than a quarter of 

revenues to freestanding skilled nursing 

facilities. A cross-subsidization policy would 

use a minority share of Medicare payments 

to underwrite a majority share of states’ 

Medicaid payments. Second, raising 

Medicare rates to supplement low Medicaid 

payments would result in poorly targeted 

subsidies. Facilities with high shares of 

Medicare payments—presumably the 

facilities that need revenues the least—would 

receive the most in subsidies from the higher 

Medicare payments, while facilities with low 

Medicare shares—presumably the facilities 

with the greatest need—would receive the 

smallest subsidies. Third, increased Medicare 

payment rates could encourage states to 

further reduce their Medicaid payments and, 

in turn, create pressure to raise Medicare 

rates. In addition, a Medicare subsidy would 

have an uneven impact on payments, given 

the variation across states in the level and 

method of paying for nursing home care. In 

States where Medicaid payments were 

adequate, the subsidy would add to excessive 

payments. Last, higher Medicare payments 

could further encourage providers to select 

patients based on payer source or to 

rehospitalize dual-eligible patients to qualify 

them for a Medicare-covered, higher payment 

stay. 

We agree with MedPAC, and 

therefore, do not agree with the 

commenters that cited cross-subsidizing 

Medicaid as a justification for 

maintaining Medicare SNF payments at 

any specific level. 

We are also aware of the concerns that 

reductions in payment levels can have 

a negative impact on SNFs and the 

quality of care furnished to nursing 

home patients across the country. 

However, in this particular case, the 

recalibration discussed in the proposed 

rule and finalized in this final rule 

corrects, on a prospective basis only, the 

unintended excess payment that we 

observed for FY 2011. In addition, even 

with the recalibration, FY 2012 rates 

will still be 3.4 percent higher than FY 

2010 rates, the period immediately 

preceding the introduction of RUG–IV 

and the unintended spike in payments. 

Also, FY 2010 expenditures increased 

by 4.8 percent over FY 2009, a period 

where both MedPAC and CMS have 

calculated margins for free-standing 

SNFs to average 18.1 percent. Moreover, 

we have not proposed any action to 

recoup retroactively the excess 

expenditures already made to SNFs 

during FY 2011. Instead, we are limiting 

the scope of the recalibration to 

restoring the intended SNF PPS 

payment levels on a prospective basis 

only effective October 1, 2011. 

We have also considered the concerns 

raised by commenters that restoring the 

intended payment levels will result in 

job losses and add significant burden to 

health care workers and States. CMS 

cost report and Online Survey 

Certification and Reporting System 

(OSCAR) data show that, for the 

majority of freestanding SNFs and SNFs 

that operate as part of chains, there has 

been little change in staffing with the 

implementation of RUG–IV. Therefore, 

as data do not indicate that facilities 

increased staffing with the 

implementation of RUG–IV and 

aggregate payments will return to a level 

commensurate with those made under 

RUG–III, we do not believe that 

restoring payments to their intended 

and appropriate levels should 

necessarily result in job losses or add 

significant burden to health care 

workers or States. 

As regards the comment that CMS 

should reconsider the recalibration in 

light of the potential impact on a weak 

economy, we do not believe that 

potential economic effects justify 

perpetuating observed and 

acknowledged excessive and inaccurate 

payments. Again, we note that MedPAC 

found in 2009 that the aggregate 

Medicare margin for freestanding SNFs, 

which represent more than 90 percent of 

all SNF facilities, was 18.1 percent, up 

from 16.6 percent in 2008 and 

representing the ninth consecutive year 

where the aggregate Medicare margin for 

freestanding SNFs was greater than 10 

percent. 

Finally, with regard to those 

comments which asserted that the 

recalibration would trigger bankruptcies 

similar to those that they attributed to 

the implementation of the SNF PPS in 

the late 1990s, studies have indicated 

multiple factors for nursing home 

closures during that time, such as chain 

membership, investment decisions in an 

uncertain market, and market 

competition. A more detailed analysis of 

the research in this area appears in the 

FY 2010 final rule (74 FR 40297 through 

40298). Ultimately, the existing body of 

research fails to indicate that case-mix 

reimbursement is a significant 

contributor to nursing home 

bankruptcy, particularly considering the 

small percentage of facility revenues 

which derive from Medicare payments. 

Thus, we do not agree with those 

commenters who asserted that the 

recalibration, in and of itself, could lead 

to the bankruptcy of SNF providers or 

that it could create the degree of fiscal 

pressure that could impact negatively 

on facility staffing or the quality of care 

in SNFs. 

Comment: Many commenters, while 

conceding that overpayments in FY 

2011 do exist, questioned the magnitude 

of the recalibration deemed appropriate 

by CMS. Several commenters expressed 

concern with the distribution of RUG– 

III payment days used by CMS to 

calculate the parity adjustment. These 

commenters stated that the RUG–III 

distribution of days posted by CMS 

appeared to show incorrectly a decline 

in patient acuity (particularly in the 

case of Rehabilitation plus Extensive 

Services RUG groups) and that this 

apparent decline in patient acuity may 

have been due to flaws in the crosswalk 

methodology. These commenters 

believed that this led to an 

underestimation of RUG–III payments, 

thereby causing an overestimation of the 

necessary parity adjustment. A few 

commenters identified the methodology 

used by CMS to crosswalk between 

MDS 3.0 data and RUG–III group 

classification as potentially introducing 

certain biases and errors into the parity 

adjustment calculation. One commenter 

specifically referred to a potential 

inaccuracy in the crosswalk 

methodology as it related to ADL 

conversions, the depression scale used 

under MDS 2.0 and MDS 3.0, and 

certain MDS items (such as IV 

medications) which required facilities to 

‘‘look-back’’ to services received during 

the patient’s qualifying hospital stay. 

Response: As stated above, several 

commenters suggested that the 

distribution of RUG–III payment days 

(which were derived from MDS 3.0 

assessments submitted in FY 2011 or 

through review of final validation 

reports available to stakeholders) which 

appeared to reflect an apparent drop in 

patient acuity between FY 2010 and FY 

2011, actually reflected a flaw in the 

crosswalk methodology used by CMS. In 

response to this comment and in 

response to the comments suggesting a 

potential inaccuracy in the RUG–III 

crosswalk, we conducted a detailed 


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analysis of this potential issue. We first 

confirmed that the physical 

programming for the crosswalk file was 

correct and found no errors in the 

programming. We then turned our 

attention to policy and assessment 

differences between the RUG–III and 

RUG–IV systems that could be affected 

by the simultaneous transition to MDS 

3.0. 

We identified a few areas where using 

the MDS 3.0 could possibly affect the 

determination of a patient’s case-mix 

classification under RUG–III or RUG–IV. 

The first area was a difference on the 

depression scale used under MDS 2.0 

and MDS 3.0 where we found, through 

an analysis of MDS data from July 2010 

through April 2011, that the number of 

depression cases triggered under MDS 

2.0 was greater than the number of 

depression cases triggered under MDS 

3.0 by approximately 6.6 percent. 

However, since depression plays a small 

role in the determination of a patient’s 

RUG classification (using either the 

MDS 2.0 FY 2010 data or the MDS 3.0 

FY 2011 data, approximately 2 percent 

of all Medicare beneficiaries classified 

into RUG–III groups where depression 

was a qualifying factor), this difference 

would not have a significant impact on 

the RUG–III distribution or parity 

adjustment recalibration. We also 

examined the ADL scale used under 

MDS 2.0 and MDS 3.0 for the same 

period described above and found that 

the mean ADL scale score between the 

two assessments was virtually identical; 

that is, patients classified into the same 

ADL categories under both models. 

Therefore, the ADL scale could not be 

a source of differences in classification 

due to using the crosswalk. 

Next, we examined the use of 

OMRAs, particularly the End of Therapy 

(EOT) OMRA and its accompanying 

policies. Specifically, under MDS 2.0, 

facilities could be paid at a therapy rate 

for 8 to 10 days after the discontinuation 

of all therapies before the EOT OMRA 

would be necessary. Under MDS 3.0, the 

ARD for the EOT OMRA must be set for 

1 to 3 days after the discontinuation of 

all therapies, and the relevant nontherapy RUG rate is paid from the date 

that therapy was discontinued. We agree 

that the program used to estimate RUG– 

III payments did not adjust for the 

change in the EOT policy. Instead, any 

change from a therapy RUG group to a 

non-therapy RUG group that would 

normally result from the completion of 

an EOT OMRA, specifically under MDS 

2.0, would only be picked up on the 

next scheduled MDS 2.0 assessment. As 

a result, the crosswalk in this case may 

have led to an overestimation of RUG– 

III payments, which would mean that 

we actually could have underestimated 

the parity adjustment necessary to bring 

RUG–IV payments in line with RUG–III 

payments. 

Finally, one commenter specifically 

referred to a potential issue with the 

RUG–III crosswalk related to capturing 

IV services provided to SNF residents 

during the resident’s qualifying hospital 

stay. The commenter stated that the 

crosswalk did not accurately account for 

these services, leading to an 

underestimation of RUG–III payments. 

Based on comments we received, we 

reviewed MDS assessment data related 

to the coding of IV medications received 

by the patient prior to admission to the 

SNF. After a review of MDS data from 

July 2010 through April 2011, we did 

find a significant drop in coding for IV 

services received prior to the resident’s 

admission to the SNF between FY 2010 

and FY 2011. However, given the lack 

of data, it would be very difficult to 

ascertain if this drop is the result of 

facilities admitting a lower volume of 

beneficiaries who had an IV while in the 

qualifying hospital stay or, as one 

commenter suggested, that it stemmed 

from the elimination of a payment 

incentive for collecting data from the 

prior hospital stay and failure to report 

this item accurately on the MDS 3.0. 

While this item would not affect the 

patient’s RUG–IV classification, it 

would be necessary to provide an 

accurate classification of that patient 

into a RUG–III category, which is an 

essential aspect of the recalibration 

calculation. We note that many 

commenters believed that patient acuity 

likely did not drop from FY 2010 to FY 

2011. Thus, it is possible that, as one 

commenter posited, some facilities 

failed to report accurately on the MDS 

3.0 if the patient had received an IV 

prior to admission to the SNF, due to 

the elimination of the payment 

incentive for reporting this item. 

However, we do not have the data to 

confirm the basis for the drop in coding 

IV services. 

We considered the potential impact of 

inaccurate reporting of IVs and other 

potential crosswalk issues, as described 

above. However, as stated above, it is 

impossible to ascertain the cause and 

extent of any observed reporting 

differences or to quantify the impact of 

the reporting change on aggregate 

expenditure levels. However, in order to 

approximate the impact of these coding 

changes, we compared the actual RUG– 

IV payments from first quarter FY 2011 

with a data set from the fourth quarter 

of FY 2010 that included payments that 

were actually calculated under the 

RUG–III system. We found that the 

necessary recalibration using this much 

less precise methodology was 

remarkably similar to the recalibration 

results discussed in section III.B.2 of 

this final rule. In fact, these results were 

within 1.5 percent of the recalibration 

calculation performed using the FY 

2011 data. It should be noted that by 

using different data sets for the 

comparisons, we could not control for 

acuity changes or any other factors, such 

as patient volume, but the difference in 

the final result was very minor. 

Therefore, we believe that any actual 

issues with the RUG–III crosswalk 

would have a negligible effect on the 

recalibration calculation. Moreover, 

because we cannot determine reliably 

whether the difference in observed 

versus historically predicted use of IVs 

during a patient’s qualifying hospital 

stay reflects actual provider behavior 

and patient acuity changes, or merely a 

failure on the part of facilities to 

complete certain items on the MDS, we 

believe that an adjustment for any such 

potential factors would be inappropriate 

given its limited impact. We expect that 

facilities will report all necessary items 

on the MDS to capture accurately the 

patient’s clinical and medical needs, 

rather than only coding those items 

relevant to the patient’s payment level. 

Finally, we note that, as we discussed 

previously, we believe using FY 2011 

data to determine the necessary 

recalibration factor controls for patient 

acuity, as the recalibration of the parity 

adjustment compares payments under 

the two case-mix systems using data 

from the same time period (FY 2011). 

Comment: Many commenters 

questioned the appropriateness of the 

recalibration based on the potential 

impact of other proposed changes 

discussed in the proposed rule, such as 

the allocation of group therapy and 

other changes to the MDS 3.0. These 

commenters stated that reducing 

payments through a recalibration of the 

CMIs without accounting for the 

potential impact of other changes to the 

MDS will constitute a ‘‘double hit’’ on 

facilities. Some commenters requested 

that the recalibration be withdrawn 

until the impact of these other changes 

proposed for FY 2012 is better known. 

Response: As illustrated by OACT 

baseline expenditure data from 2006 

through 2011 (which can be ascertained 

by dividing the aggregate dollar impact 

of a rule for a given year by the 

aggregate percent impact listed in the 

impact table for the same rule), the SNF 

baseline has increased by over 40 

percent between 2006 and 2011. 

Additionally, for 3 of the past 6 years, 

specifically in FY 2006, FY 2010, and 

FY 2011, we have attempted to restore 

budget neutrality in the transition to a 


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new case-mix classification system by 

applying a parity adjustment. In both 

case-mix transitions (from RUG–44 to 

RUG–53 and from RUG–53 to RUG–IV), 

we found that, rather than achieving 

budget neutrality, application of the 

parity adjustment to the new case-mix 

system resulted in excess payments to 

providers, because actual utilization 

patterns under the new case-mix system 

were different than we originally 

projected, thus necessitating a 

recalibration of the adjustment. After 

reviewing the effect of the FY 2011 

RUG–IV policies, we have found that 

despite the adoption of clinical policies 

and coding changes, utilization patterns 

(as evidenced by the distribution of 

RUG groups) have not changed 

significantly in response to these policy 

revisions in ways that could be expected 

based on past operational and reporting 

practices. For example, while we 

anticipated certain changes in the casemix distribution in response to the 

implementation of RUG–IV and the 

allocation of concurrent therapy along 

with several other policy and reporting 

changes, the percentage of residents 

classified into a rehab category between 

FY 2010 and FY 2011 remained stable 

at approximately 92 percent; moreover, 

the percentage of patients classified into 

the highest paying rehabilitation RUG 

category, Ultra High Rehabilitation, 

actually increased from 43 percent to 45 

percent over the same period. 

This analysis revealed that it can be 

difficult to predict provider behavior in 

response to any given policy changes. 

As a result, given the ability of facilities 

and stakeholders to adapt quickly to the 

changes in the SNF system in ways that 

maintain payments and consistent 

utilization patterns, from a practical and 

policy perspective, we do not believe it 

would be appropriate to attempt to 

consider the potential impact of other 

policy changes for FY 2012 as part of 

the FY 2011 recalibration calculation. 

Accordingly, given that it is unclear 

whether the FY 2012 changes to the 

MDS will have an effect on utilization 

patterns and the extent of any such 

effect, we do not agree that recalibrating 

the CMIs without accounting for such 

changes would necessarily result in a 

‘‘double hit.’’ 

Further, consistent with past practice 

during a major case-mix system 

transition (that is, the transition from 

RUG–44 to RUG–53 in FY 2006 and the 

transition from RUG–53 to RUG–IV in 

FY 2011), aggregate payments under the 

new system have been adjusted to 

ensure parity with payments under the 

previous system. In the case of the 

transition from RUG–44 to RUG–53, the 

data used to recalibrate the parity 

adjustment were based on data from CY 

2006 (the year the transition was first 

implemented), even though the 

recalibration was not made until FY 

2010. As such, major changes in the 

SNF PPS case-mix classification system 

have been historically accompanied by 

a parity adjustment recalibration which 

uses data from the year in which the 

transition took place. In this case, 

consistent with past practice, the most 

appropriate data for recalibrating the FY 

2011 parity adjustment are data from FY 

2011, the year in which RUG–IV was 

implemented. If we were to use data 

from other years (including projected 

data for a future year such as FY 2012), 

this could skew the results due to 

changes in patient acuity, volume, or 

provider behavior, or other changes in 

SNF PPS policy. 

Accordingly, because the policy 

refinements contained in this final rule 

(such as those related to the MDS 3.0) 

would apply starting in FY 2012, we 

believe that these changes should not be 

factored into the FY 2011 recalibration. 

As discussed above, we believe that it 

would be inappropriate to try to 

manipulate the FY 2011 recalibration to 

account for potential and unpredictable 

changes in payments resulting from 

policies to be implemented in FY 2012. 

As in prior years, policy refinements 

that do not constitute changes to the 

case-mix classification system as a 

whole are not necessarily made in a 

budget-neutral manner. Consistent with 

our past practice when implementing 

new policies, we will monitor 

utilization patterns and provider 

behaviors in response to the changes 

discussed in this final rule. 

Comment: Several commenters 

suggested that CMS consider the 

possibility of phasing-in a recalibration 

over the course of several years. A few 

commenters further suggested that such 

a phase-in should also take into account 

the effects of any finalized FY 2012 

policies. 

Response: As discussed in section 

XII.A.5 of the proposed rule, we 

considered how the recalibration might 

be implemented so as to mitigate the 

economic impact of the recalibration on 

facilities. Specifically, we considered 

mitigating the impact of the 

recalibration by phasing in the negative 

adjustments prospectively over multiple 

years until parity was achieved. 

However, as noted in the proposed rule 

(76 FR 26404), phasing-in the 

recalibration would continue to 

reimburse facilities at levels that 

significantly exceed intended SNF 

payments. Further, as discussed in 

response to a preceding comment and 

elsewhere in this preamble, MedPAC 

found in 2009 that the aggregate 

Medicare margin for freestanding SNFs, 

which represent more than 90 percent of 

all SNF facilities, was 18.1 percent, up 

from 16.6 percent in 2008. Given these 

high Medicare margins, we do not 

believe that a phase-in approach is 

justified. It is also important to note that 

this recalibration would serve to remove 

an unintended spike in payments rather 

than decreasing an otherwise 

appropriate payment amount. Thus, we 

do not believe that the recalibration 

should negatively affect facilities, 

beneficiaries, or quality of care, or create 

an undue hardship on providers. In fact, 

notwithstanding the recalibration, the 

FY 2012 payment rates will actually be 

higher than the rates established for FY 

2010, the period immediately preceding 

the unintended spike in payment levels. 

We continue to believe that in 

implementing RUG–IV, it is essential 

that we stabilize the baseline as quickly 

as possible without creating a 

significant adverse effect on the 

industry or to beneficiaries. 

Furthermore, in response to the 

comment suggesting that a phase-in 

should take into account the effects of 

other policies finalized in FY 2012, as 

discussed in response to the previous 

comment, we do not believe it would be 

appropriate to take into account in the 

recalibration calculation, potential and 

unpredictable changes in payments 

resulting from policies to be 

implemented in FY 2012. 

Comment: Several commenters stated 

that a shift in patients from Inpatient 

Rehabilitation Facilities (IRFs) to SNFs 

results in savings to the Medicare Trust 

Fund and that the current SNF spending 

levels are needed to treat higher-acuity 

patients that are now being treated in 

SNFs rather than in IRFs. Also, several 

commenters claimed that that providing 

increased levels of therapy has led to 

shorter lengths of stay for SNF residents, 

decreased the rate of hospital 

readmissions and increased discharges 

to the community, thereby creating 

significant savings for the Medicare 

program. 

Response: We note that, in the 

absence of supporting evidence, and 

given the significant excess payments 

identified in FY 2011 and the Medicare 

profit margins for facilities identified by 

various sources, such as MedPAC, it is 

difficult to see how evolving utilization 

patterns have created savings for the 

Medicare program. In fact, MedPAC’s 

analysis of recent quality measure data 

related to rehospitalizations, for 

example, which appears in their March 

2011 Report to Congress (available at 

http://www.medpac.gov/documents/ 

Mar11_EntireReport.pdf), suggests that 


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quality of care within SNFs has not been 

improving. On the topic of 

rehospitalizations, in its March 2011 

report, MedPAC states: 

‘‘The quality of care furnished to patients 

during a Medicare-covered SNF stay 

continued to show mixed results. * * * 

Since 2000, one outcome measure * * * (the 

risk-adjusted rate of rehospitalization for any 

of five care-sensitive conditions) exhibited 

almost no change.’’ 

Moreover, a basic principle of the 

SNF PPS is to pay appropriately for the 

services provided. CMS data are 

consistent with the commenters’ 

statements that some patients formerly 

treated within IRFs are now being 

treated in SNFs. In fact, our data show 

that a portion of patients needing 

rehabilitation have always been treated 

at SNFs and other non-IRF post-acute 

care settings. The FY 2011 utilization 

data used to recalibrate the case-mix 

adjustments reflect an increase in 

rehabilitation patients, and likely 

includes patients who alternatively 

might have been admitted to IRFs prior 

to CMS enforcement of the IRF coverage 

criteria and more intensive medical 

review of IRF claims. However, we do 

not agree with the commenters’ 

statement that these patients represent a 

higher level of acuity than the type of 

patients historically treated in SNFs. For 

some time, utilization data have 

demonstrated that nearly 90 percent of 

all SNF payment days are for 

rehabilitation services, with over 40 

percent of those days falling into the 

Ultra High Rehabilitation category. For 

the former IRF patients who are 

appropriate for SNF care, we must pay 

the appropriate rate for the SNF services 

provided and cannot use a reduction in 

IRF payments as a reason to increase 

payments to SNFs arbitrarily. It is 

important to note that, as discussed 

above, recalibrating the case-mix system 

does not change the basic SNF PPS 

structure which provides higher 

payments for patients using more staff 

resources and services. 

Finally, as one commenter 

highlighted, shifting IRF patients toward 

SNF care does not necessarily improve 

the quality of care provided to the 

beneficiaries. A March 2005 report in 

the Archives of Physical Medicine and 

Rehabilitation (available at http:// 

www.archives-pmr.org/article/ 

PIIS0003999304012493/abstract) found 

that 81.1 percent of IRF patients were 

discharged to home, compared to 45.5 

percent of SNF residents. Additionally, 

IRF patients appeared to have shorter 

lengths of stay, averaging approximately 

a 13-day stay, compared to the average 

36-day stay for a SNF resident. Finally, 

when patients discharged from each 

setting were reviewed 24 weeks after 

discharge, IRF patients had consistently 

better outcomes and displayed a faster 

rate of recovery. Given these findings, 

we do not agree with those commenters 

who would assume that shifting patients 

from the IRF setting to a SNF setting is 

necessarily more beneficial to the 

patient or the Medicare Trust Fund. We 

do, however, intend to conduct 

additional research to update these 

findings with more recent data. Any 

changes in utilization patterns, length of 

stay, and/or care outcomes will be 

addressed during future rule-making. 

Comment: We received a number of 

comments related to our decision to 

apply the parity adjustment to only the 

nursing CMIs for therapy RUG–IV 

groups. Some commenters focused on 

reasons the parity adjustment should be 

applied to both the nursing and therapy 

indexes, while other suggested that the 

adjustment should be applied to the 

nursing CMIs for all RUG groups, as it 

has been applied in the past. 

Response: We considered a variety of 

alternative applications of the parity 

adjustment, such as applying the 

adjustment to both the nursing and 

therapy CMIs, to all the nursing CMIs, 

or to the therapy CMIs only. However, 

we still believe it is most appropriate to 

apply the adjustment to the nursing 

CMIs within the therapy groups only. 

Even for RUG–IV therapy groups, the 

nursing component is a much larger 

portion of the associated per diem 

payment. When we tested adjusting 

only the therapy CMIs, we found that 

the reduction necessary to achieve 

parity was so significant as to reduce 

some of the recalibrated therapy CMIs to 

nearly a zero index, while reducing the 

relative differences between therapy 

groups significantly. To maintain the 

appropriate relative difference between 

each therapy group CMI, we found it 

best to apply the adjustment to the 

nursing CMIs for those therapy groups. 

Additionally, as the original parity 

adjustment discussed in the FY 2011 

notice with comment period (75 FR 

42886) was applied to the nursing CMIs, 

we considered it most appropriate to 

apply a recalibration of that adjustment 

to the nursing CMIs, albeit of select 

RUG–IV groups, rather than to apply the 

recalibration to the therapy CMIs or 

some combination of the nursing and 

therapy CMIs. 

As discussed in the FY 2012 proposed 

rule (76 FR 26371), given that the most 

notable differences between expected 

and actual utilization patterns occurred 

within the therapy RUG categories, we 

believe it most appropriate to recalibrate 

the parity adjustment only as it applied 

to the RUG–IV therapy groups. As 

discussed in the proposed rule (76 FR 

26372), we did evaluate the impact of 

applying a recalibration to all of the 

nursing CMIs, but found that rates for 

the complex medical groups were 

disproportionately affected negatively, 

in comparison to the therapy groups 

that represent 90 percent of SNF 

payment days. Since the vast majority of 

SNF residents are classified into a RUG– 

IV therapy group, and because the 

greatest differences between expected 

and actual utilization patterns could be 

found among the RUG–IV therapy 

groups, we believe that the most 

appropriate method for applying the 

recalibration is to apply it only to the 

RUG–IV therapy groups. 

Comment: A few commenters 

discussed alternative parity adjustment 

methodologies, and recommended that 

instead of applying a fixed percentage 

increase to the nursing CMI (as is done 

in the case of the parity adjustment 

discussed in this final rule), we should 

apply a fixed percentage increase, or 

decrease presumably, to the final 

payment rates for each RUG group 

under the new classification system. 

CMS would then recalculate the 

appropriate nursing CMI necessary to 

reach the new total RUG payment. 

According to these commenters, this 

methodology would ensure that the 

relative difference in payments for each 

RUG group would remain the same. 

Response: We agree that such a 

methodology would maintain the 

relative difference in the payments for 

each RUG category. However, the basic 

principle of the SNF PPS is to pay 

accurately for services based on the 

relative differences in resource and staff 

costs. The data underlying the RUG–IV 

CMIs, primarily the STRIVE study, are 

used to determine the relative difference 

between RUG groups with regard to 

their resource use. By applying the 

parity adjustment to the nursing CMIs, 

we are able to maintain the relative 

difference in resource use among the 

RUG–IV groups, rather than focusing on 

differences in payment. Ultimately, the 

prospective nature of the program 

demands that we focus more on 

predicting costs through relative 

utilization of resources, which are 

represented in the CMIs, rather than 

focusing solely on maintaining relative 

differences in the total payments for 

each RUG group. 

Comment: A few commenters 

recommended that in lieu of or in 

addition to pursuing a recalibration, 

CMS should consider greater fraud and 

abuse monitoring, with one commenter 

suggesting that CMS consider medical 

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and MDS data. One commenter pointed 

to the lack of program monitoring 

activities as an indication that there are 

no problems with the current parity 

adjustment. 

Response: We appreciate these 

commenters’ suggestions regarding the 

need for greater fraud and abuse 

monitoring and the need for audits of 

SNF records. We have increased our 

fraud and abuse monitoring efforts for 

SNFs and for the Medicare program in 

general. In fact, the Office of the 

Inspector General (OIG) has started a 

review of the increased frequency with 

which patients are assigned to the 

highest therapy groups. As discussed 

previously, OIG’s initial research results 

also corroborate changes in SNF 

patterns of care that may have resulted 

in an inappropriate number of 

beneficiaries being classified into the 

highest-paying therapy groups. We will 

continue to work with OIG and with 

CMS contractors to provide greater 

monitoring of SNF utilization and 

reporting trends. (This research is 

available at http://oig.hhs.gov/oei/ 

reports/oei-02-09-00204.asp.) 

Nevertheless, while we believe this 

monitoring activity is necessary, we also 

believe that it is necessary to implement 

the recalibration of the parity 

adjustment in FY 2012 to prevent 

continued reimbursement in amounts 

that significantly exceed our intended 

policy. 

Accordingly, for the reasons specified 

in the FY 2012 proposed rule (76 FR 

26370 through 26377) and the reasons 

discussed in this final rule, we are 

implementing the option discussed in 

the proposed rule to recalibrate the 

parity adjustment to the RUG–IV casemix indexes to restore the intended 

parity in overall payments between the 

RUG–53 model and the RUG–IV model, 

using the methodology discussed in the 

proposed rule. As discussed previously, 

the parity adjustment finalized in this 

final rule is based on 8 months of FY 

2011 claims and MDS 3.0 data. Thus, for 

FY 2012, the aggregate impact of this 

recalibration would be the difference 

between payments calculated using the 

original FY 2011 total nursing CMI 

increase for all RUG–IV groups of 61 

percent, and payments calculated using 

the recalibrated total nursing CMI 

increase for all therapy RUG–IV groups 

of 19.84 percent, while maintaining the 

original 61 percent total nursing CMI 

increase for all non-therapy RUG–IV 

groups. The total difference is a 

decrease in payments of $4.47 billion 

(on an incurred basis) for FY 2012. We 

also note that the $4.47 billion 

reduction would be partly offset by the 

FY 2012 MFP-adjusted market basket 

update of 1.7 percent, or $600 million, 

with a net result of a 11.1 percent 

reduction, or $3.87 billion, in overall 

payments for FY 2012. As discussed 

previously, we are implementing the 

recalibration on a prospective basis 

beginning October 1, 2011, to restore 

payments to their intended levels and to 

end the current outflow of excess 

dollars. While the original FY 2011 

system calibration had to be based on 

estimated data, this recalibration uses 

actual FY 2011 RUG–IV claims data, 

which we believe provide the best 

picture of the actual resources used 

under RUG–IV and result in more 

accurate payment. Consistent with past 

policy, we will continue to monitor 

utilization for the rest of FY 2011, but 

we do not anticipate that the remaining 

four months of FY 2011 will present a 

significantly different picture of SNF 

utilization patterns than using the first 

8 months of data. 

We list the case-mix adjusted 

payment rates separately for urban and 

rural SNFs in Tables 4 and 5, with the 

corresponding case-mix values. These 

tables do not reflect the AIDS add-on 

enacted by section 511 of the MMA, 

which we apply only after making all 

other adjustments, such as wage and 

case-mix. 

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BILLING CODE 4120–01–C 

3. Wage Index Adjustment to Federal 

Rates 

Section 1888(e)(4)(G)(ii) of the Act 

requires that we adjust the Federal rates 

to account for differences in area wage 

levels, using a wage index that we find 

appropriate. Since the inception of a 

PPS for SNFs, we have used hospital 

wage data in developing a wage index 

to be applied to SNFs. 

In the FY 2012 proposed rule, we 

proposed to continue that practice as we 

continue to believe that in the absence 

of SNF-specific wage data, using the 

hospital inpatient wage index is 

appropriate and reasonable for the SNF 

PPS. As explained in the update notice 

for FY 2005 (69 FR 45786, July 30, 

2004), the SNF PPS does not use the 

hospital area wage index’s occupational 

mix adjustment, as this adjustment 

serves specifically to define the 

occupational categories more clearly in 

a hospital setting; moreover, the 

collection of the occupational wage data 

also excludes any wage data related to 

SNFs. Therefore, we believe that using 

the updated wage data exclusive of the 

occupational mix adjustment continues 

to be appropriate for SNF payments. 

In the FY 2012 proposed rule, we also 

proposed to continue using the same 

methodology discussed in the SNF PPS 

final rule for FY 2008 (72 FR 43423) to 

address those geographic areas in which 

there are no hospitals and, thus, no 

hospital wage index data on which to 

base the calculation of the FY 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 proposed to use the average wage 

index from all contiguous CBSAs as a 

reasonable proxy. This methodology 

was used to construct the wage index 

for rural Massachusetts for FY 2011. 

However, as indicated in the FY 2012 

proposed rule (76 FR 26378), 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. 

Furthermore, we indicated that we 

would not apply this methodology to 

rural Puerto Rico due to the distinct 

economic circumstances that exist there, 

but instead would continue using the 

most recent wage index previously 

available for that area. For urban areas 

without specific hospital wage index 

data, we proposed to use the average 

wage indexes of all of the urban areas 

within the State to serve as a reasonable 

proxy for the wage index of that urban 

CBSA. At the time of the proposed rule, 

both CBSA 49700, Yuba City, CA, and 

CBSA 25980, Hinesville-Fort Stewart, 

GA, did not have wage index data. 

However, for this final rule, Yuba City, 

CA now has wage index data. Therefore, 

the only urban area without wage index 

data available is CBSA 25980, 

Hinesville-Fort Stewart, GA. 

The comments that we received on 

the wage index adjustment to the 

Federal rates, and our responses to those 

comments, appear below. 

Comment: A commenter 

recommended that CMS improve its 

area wage index methodology, and 

recommended that any design, 

development, or implementation of a 

revised hospital wage index must 

consider other post-acute care settings. 

The commenter noted research by the 

Medicare Payment Advisory 

Commission (MedPAC) and Acumen, 

LLC (Acumen) to support its concern 

regarding areas such as reclassification, 

SNF-specific wage index, the use of U.S. 

Bureau of Labor Statistics (BLS), and 

commuting patterns of health care 

workers employed by SNFs. 

Response: As several commenters 

noted, we have research currently under 

way to examine alternatives to the wage 

index methodology, including the issues 

the commenters mentioned about 

ensuring that the wage index minimizes 

fluctuations, matches the costs of labor 

in the market, and provides for a single 

wage index policy. Section 3137 of the 

Affordable Care Act provides that the 

Secretary of Health and Human Services 

shall submit a report to Congress by 

December 31, 2011, that includes a plan 

to reform the hospital wage index 

system. Section 3137 of the Affordable 

Care Act further instructs the Secretary 

to take into account MedPAC’s 

recommendations on the Medicare wage 

index classification system, and to 

include one or more proposals to revise 

the wage index adjustment applied 

under section 1886(d)(3)(E) of the Act 

for purposes of the IPPS. The 

proposal(s) are to consider each of the 

following: 

• The use of Bureau of Labor 

Statistics data or other data or 

methodologies to calculate relative 

wages for each geographic area. 

• Minimizing variations in wage 

index adjustments between and within 

MSAs and statewide rural areas. 

• Methods to minimize the volatility 

of wage index adjustments while 

maintaining the principle of budget 

neutrality. 

• The effect that the implementation 

of the proposal would have on health 

care providers in each region of the 

country. 

• Issues relating to occupational mix, 

such as staffing practices and any 

evidence on quality of care and patient 

safety, including any recommendations 

for alternative calculations to the 

occupational mix. 

• Provide for a transition. 

To assist us in meeting the 

requirements of section 106(b)(2) of the 

Tax Relief and Health Care Act of 2006 

(Pub. L. 109–432, enacted on December 

20, 2006) (TRHCA), in February 2008, 

we awarded a Task Order under our 

Expedited Research and Demonstration 

Contract to Acumen, LLC. Acumen, LLC 

conducted a study of both the current 

methodology used to construct the 

Medicare wage index and the 

recommendations reported to Congress 

by MedPAC. Parts 1 and 2 of Acumen’s 

final report, which analyzes the 

strengths and weaknesses of the data 

sources used to construct the CMS and 

MedPAC indexes, is available online at 

http://www.acumenllc.com/reports/cms. 

MedPAC’s recommendations were 

presented in the FY 2009 IPPS final rule 

(available online at http:// 

edocket.access.gpo.gov/2008/pdf/E8- 

17914.pdf). We plan to monitor these 

efforts closely, and to determine what 

impact or influence they may have on 

the SNF PPS wage index. At this time, 

we will continue to use the wage index 

policies and methodologies described in 

this final rule to adjust the SNF PPS 

Federal rates for differences in area 

wage levels. However, we will continue 

to monitor MedPAC and Acumen’s 

progress on any revisions to the IPPS 

wage index to identify any policy 

changes that may be appropriate for 

SNFs and potential changes may be 

presented in a future proposed rule. We 

discuss the Federal rates by laborrelated and non-labor related 

components for FY 2012 below. 

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 68.693 

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 9. 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, 


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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, laborintensive services, and a portion of 

capital-related expenses) to produce the 

FY 2012 labor-related relative 

importance. Tables 6 and 7 show the 

case-mix adjusted RUG–IV Federal rates 

by labor-related and non-labor-related 

components. 

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BILLING CODE 4120–01–C 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 


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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 1.0007. The wage 

index applicable to FY 2012 is set forth 

in Tables A and B, which appear in the 

Addendum of this final rule, and is also 

available on the CMS Web site at http:// 

www.cms.gov/SNFPPS/04_

WageIndex.asp. 

Comment: One commenter estimated 

SNF reimbursements using both the FY 

2012 SNF wage index in the proposed 

rule and in the absence of a wage index 

using simulation. The commenter found 

that SNF reimbursement was about $400 

million lower with the wage index 

adjustment than without it. The 

commenter believes that CMS is 

incorrectly adjusting for the wage index 

and that payments during the 2002 to 

2011 timeframe are nearly $3 billion too 

low. 

Response: As previously stated in the 

final rule for FY 2010 (74 FR 40303), the 

intent of the wage index budget 

neutrality factor is to make sure that 

aggregate payments using the updated 

wage index are not greater or less than 

aggregate payments would be using the 

previous year‘s wage index. Because the 

wage index is based on the pre-floor, 

pre-reclassified, no occupational mix 

hospital wage index, the weighted 

average wage index would be equal to 

1.0000 for hospitals. However, there are 

often multiple SNFs within a wage area 

with varying utilization levels. The 

weighted average wage index across all 

SNF providers may not be equal to 

1.0000 for any given fiscal year, so 

payments could go up or down as a 

result of their application. Estimation of 

payments relies on the combination of 

the geographic wage index value for 

providers along with their distribution 

of service days. The change in the wage 

index values along with the utilization 

within each urban or rural area 

determines the change in aggregate 

payments related to the previous year, 

and therefore, the budget neutrality 

factor. The application of the budget 

neutrality factor ensures that aggregate 

payments will not increase or decrease 

due to the year-to-year change in the 

wage index. Therefore, we do not agree 

with the methodology used by the 

commenter, and believe that the 1.0007 

budget neutrality factor will ensure 

equal payments after updating to the FY 

2012 SNF PPS wage index, prior to any 

other policy changes. 

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, which announced revised 

definitions for Metropolitan Statistical 

Areas (MSAs), and the creation of 

Micropolitan Statistical Areas and 

Combined Statistical Areas. In addition, 

OMB published subsequent bulletins 

regarding CBSA changes, including 

changes in CBSA numbers and titles. As 

indicated in the FY 2008 SNF PPS final 

rule (72 FR 43423, August 3, 2007), this 

and all subsequent SNF PPS rules and 

notices are considered to incorporate 

the CBSA changes published in the 

most recent OMB bulletin that applies 

to the hospital wage data used to 

determine the current SNF PPS wage 

index. The OMB bulletins may be 

accessed online at http:// 

www.whitehouse.gov/omb/bulletins/

index.html. 

In adopting the OMB Core-Based 

Statistical Area (CBSA) geographic 

designations, we provided for a 1-year 

transition with a blended wage index for 

all providers. For FY 2006, the wage 

index for each provider consisted of a 

blend of 50 percent of the FY 2006 

MSA-based wage index and 50 percent 

of the FY 2006 CBSA-based wage index 

(both using FY 2002 hospital data). We 

referred to the blended wage index as 

the FY 2006 SNF PPS transition wage 

index. As discussed in the SNF PPS 

final rule for FY 2006 (70 FR 45041), 

subsequent to the expiration of this 

1-year transition on September 30, 2006, 

we used the full CBSA-based wage 

index values, as now presented in 

Tables A and B in the Addendum of this 

final rule. 

4. Updates to 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 final rule 

reflect an update equal to the full 

market basket, estimated at 2.7 

percentage points, reduced by the MFP 

adjustment. As discussed in sections 

I.G.2 and VI.C of the FY 2012 proposed 

rule (76 FR 26368 through 26369 and 

26394 through 26396), the annual 

update includes a reduction to account 

for the MFP adjustment described in the 

latter section. As discussed in section 

III.F.3 of this final rule, the final MFP 

adjustment is 1.0 percent, for a net 

update of 1.7 percent for FY 2012. 

5. Relationship of RUG–IV Case-Mix 

Classification System to Existing Skilled 

Nursing Facility Level-of-Care Criteria 

As discussed in § 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 § 409.30. As set forth in 

the FY 2011 SNF PPS notice with 

comment period (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 final rule, we are continuing 

the designation of 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 


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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, 

after which the administrative 

presumption no longer applies. 

Comment: One commenter stated that 

certain instructions contained in version 

3.0 of the Long-Term Care Facility 

Resident Assessment Instrument (RAI) 

User’s Manual (available online at 

https://www.cms.gov/NursingHome

QualityInits/45_NHQIMDS30

TrainingMaterials.asp) are inconsistent 

with the SNF level of care presumption. 

Specifically, the commenter cited 

instructions in Chapter 3 (‘‘Overview to 

the Item-by-Item Guide to the MDS 

3.0’’), Section O (‘‘Special Treatments, 

Procedures, and Programs (V1.05)’’), 

which provide that tracheostomy care 

may be coded on the assessment when 

performed by residents themselves. 

Similarly, these instructions provide for 

coding oxygen therapy when a resident 

places or removes his or her own 

oxygen mask/cannula, as well as when 

a resident performs his or her own 

dialysis. The commenter stated that 

allowing these items to be coded under 

such circumstances compromises not 

only the definition of ‘‘skilled services’’ 

but the entire RUG–IV case-mix 

classification system. 

Response: We believe that the 

commenter errs in assuming that all of 

the ‘‘special procedures’’ described in 

this section of the manual necessarily 

equate directly to skilled services. For 

example, even though dialysis is a 

critically important, life-sustaining 

procedure, its various component tasks 

simply do not generally require the 

involvement of skilled personnel—as 

evidenced by the many instances in 

which beneficiaries can be successfully 

trained to self-dialyze (or where a friend 

or family member with no prior 

caregiving experience or training can 

readily be taught to perform the dialysis 

for them). Moreover, while it is true that 

dialysis is one of the discrete indicators 

for assignment to a RUG within the 

Special Care Low category—a category 

to which the level of care presumption 

applies for a short period of time at the 

start of a SNF stay—it is the totality of 

items and services included within a 

given RUG, not any one specific coded 

service, that actually serves to justify the 

presumption. As explained in the FY 

2000 SNF PPS final rule (64 FR 41667, 

July 30, 1999), it is this entire cluster of 

services, when combined with the 

‘‘tendency * * * for the initial portion 

of an SNF stay to be the most intensive 

and unstable’’ that provides the basis for 

making the level of care presumption, as 

triggered by a resident’s assignment to 

one of the designated upper RUGs on 

the initial 5-day, Medicare-required 

assessment. 

6. Example of Computation of Adjusted 

PPS Rates and SNF Payment 

Using the hypothetical SNF XYZ 

described in Table 8, the following 

shows the adjustments made to the 

Federal per diem rate to compute the 

provider’s actual per diem PPS 

payment. SNF XYZ’s 12-month cost 

reporting period begins October 1, 2011. 

As illustrated in Table 8, SNF XYZ’s 

total PPS payment would equal 

$40,053.06. We derive the Labor and 

Non-labor columns from Table 6 of this 

final rule. 

TABLE 8—RUG–IV SNF XYZ: LOCATED IN CEDAR RAPIDS, IA (URBAN CBSA 16300) 

[Wage index: 0.8831] 

RUG–IV group Labor Wage index Adjusted 

labor Non-labor Adjusted rate 

Percent 

adjustment 

Medicare 

days Payment 

RVX .................................. $450.67 $0.8831 $397.99 $205.39 $603.38 $603.38 14 $8,447.32 

ES2 .................................. 361.85 0.8831 319.55 164.92 484.47 484.47 30 14,534.10 

RHA .................................. 227.35 0.8831 200.77 103.62 304.39 304.39 16 4,870.24 

CC2 * ................................ 209.59 0.8831 185.09 95.52 280.61 639.79 10 6,397.90 

BA2 .................................. 144.49 0.8831 127.60 65.85 193.45 193.45 30 5,803.50 

100 40,053.06 

* Reflects a 128 percent adjustment from section 511 of the MMA. 

C. Resource Utilization Groups, Version 

4 (RUG–IV) 

1. Prospective Payment for SNF NonTherapy Ancillary Costs 

The FY 2012 proposed rule discussed 

the issue of payment for NTA costs 

under the SNF PPS (76 FR 26381 

through 26384). This discussion 

described the previous research that has 

been conducted in this area, as well as 

current policy and analysis. 

Specifically, this discussion referenced 

the ongoing development of a two-part 

NTA component payment, as well as the 

conceptual analysis for the types of 

conditions and MDS-driven variables 

which may be used to predict and pay 

for patient NTA costs accurately. 

Finally, this discussion included 

reference to the impact of an NTA 

component payment as it relates to the 

temporary AIDS add-on payment 

established by section 511 of the MMA 

(as discussed in section I.E of this final 

rule). The comments that we received 

on this topic both this year and in 

response to the FY 2011 notice with 

comment period, and our responses, 

appear below. 

Comment: All of the comments we 

received in response to this discussion 

supported CMS’s broad objective to 

develop a new method for paying for 

NTAs received in the SNF, as well as 

the basic structure described in the 

proposed rule for a potential NTA rate 

component. The commenters also 

expressed their interest in working with 

CMS to develop an appropriate NTA 

rate component that is properly tailored 

to capture facility NTA costs accurately. 

Similarly, in response to the FY 2011 

notice with comment period, several 

commenters also expressed their 


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support for development of a separate 

NTA component in line with CMS’s 

current research. 

Response: We appreciate the broad 

support that we received for the 

objective and overall model for 

designing a separate NTA rate 

component. The comments we received 

provided a number of interesting and 

creative ideas which will be considered 

during the research and development 

process. We look forward to working 

with providers and stakeholders in the 

future as we continue to develop this 

refinement to the SNF PPS. 

Comment: A few commenters stated 

that the NTA rate component research 

should be updated to reflect data 

gathered on the MDS 3.0. One 

commenter asked that CMS consider the 

potential interplay between an NTA 

component and those drugs and services 

which may be subject to, or excluded 

from, consolidated billing. Several 

commenters also said that, given CMS’s 

discussion related to reallocating some 

portion of the nursing component to 

fund the NTA component, CMS should 

ensure that the nursing component still 

reflects resource cost and utilization 

after the carve-out is done. Finally, one 

commenter, in response to the FY 2011 

notice with comment period, requested 

that CMS pay special attention to NTA 

costs associated with providing 

ventilator services within the SNF. 

Response: We agree with the 

commenters that our research must be 

aligned with continuous improvements 

made to the SNF PPS, particularly the 

MDS 3.0. We expect that, as more MDS 

3.0 data become available, our NTA 

researchers will be able to incorporate 

these data into our analysis. Similarly, 

we are cognizant of the potential 

relationship between the NTA research 

and services and drugs which fall under 

consolidated billing. As we continue 

our analysis, we expect that such 

relationships will be considered in 

determining the appropriateness of the 

NTA component. 

With regard to ensuring the adequacy 

of the nursing component after carving 

out a separate NTA component, we 

intend to ensure that the introduction of 

a new rate component for NTAs does 

not undermine the adequacy of 

payments for nursing services, and we 

will continue to monitor the adequacy 

of payments after any new rate 

component is implemented. It should be 

noted that any new carved-out NTA 

component would, in effect, remove 

from the nursing component only the 

costs of the NTA services themselves, 

which we would then adjust separately 

from nursing costs based on information 

that may better predict NTA costs. 

Finally, as discussed in the FY 2010 

final rule (74 FR 40341), ventilator 

patients are addressed to some extent 

within the RUG–IV system (through 

payments under the Extensive Services 

group), and we are continuing to 

monitor the adequacy of payments for 

this subset of SNF residents. Currently, 

payments for these services are still 

integrated into the nursing costs paid for 

the relevant case-mix group, but in our 

NTA research, we are considering a 

variety of special NTA subsets, 

including ventilator use, which might 

deserve special attention as part of the 

highest-tiered payment within the nonroutine NTA tier system. 

Comment: One commenter believed 

that the Post Acute Care Payment 

Reform Demonstration (PAC–PRD) and 

data collected as part of the research on 

the CARE tool would not serve as an 

appropriate source of data for the NTA 

research we are conducting. This 

commenter stated that it would be 

premature for CMS to make use of such 

data before it has been subject to both 

agency and Congressional review. 

Response: We appreciate the 

commenter’s concern regarding the use 

of these data and will certainly consider 

it as the research moves forward. We 

would note that data sources, such as 

the PAC–PRD, are being considered for 

their potential utility as part of 

developing an NTA component which 

would more accurately reimburse 

facilities for incurred NTA costs, though 

no final decision has been made as to 

what are the most appropriate sources. 

In the end, we will ensure that all data 

sources have been thoroughly reviewed 

for their accuracy and applicability 

within the SNF setting. 

Comment: Several commenters 

discussed the possibility of including a 

cost pass-through for high-cost drugs 

and services as part of the outlier 

development. 

Response: While we appreciate 

comments on the development of an 

SNF outlier policy, we would note that 

we do not have statutory authority to 

implement an outlier payment for 

certain NTA services. 

D. Ongoing Initiatives Under the 

Affordable Care Act 

1. Value-Based Purchasing (Section 

3006) 

In the FY 2012 proposed rule (76 FR 

26384), we noted that section 3006(a) of 

the Affordable Care Act directs the 

Secretary to develop a plan to 

implement a value-based purchasing 

(VBP) program for SNFs, and submit a 

Report to Congress by October 1, 2011. 

As stated in the proposed rule, VBP is 

designed 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 also stated 

that, in accordance with section 3006(a) 

of the Affordable Care Act, we would 

consult with stakeholders in developing 

the implementation plan, and consider 

the outcomes of any recent 

demonstration projects related to VBP 

which we believe might be relevant to 

the SNF setting. The comments we 

received on this topic, along with our 

responses, appear below. 

Comment: We received some 

comments in response to our 

description of the requirements of 

section 3006(a) of the Affordable Care 

Act to develop a plan to implement a 

VBP program for SNFs, and to submit to 

Congress a report by October 1, 2011. 

Commenters supported our efforts to 

consider a VBP program for SNFs, and 

made suggestions for the content and 

timing of the Report to Congress. 

Response: Between December 2010 

and January 2011, we held discussions 

with key stakeholders representing 

consumers, providers, and research 

organizations about the development of 

a plan to implement a VBP program for 

SNFs and the Report to Congress. We 

also held an Open Door Forum on 

March 10, 2011, in which more than 700 

stakeholders participated in the call. A 

number of organizations submitted 

follow-up written comments, which we 

will share with the VBP project team. 

We are in the process of developing 

the SNF VBP plan to address areas 

required by the statute. As required by 

the statute, in developing the plan, we 

will consider, among other things, 

measures of quality and efficiency in 

SNFs, reporting, collection, and 

validation of quality data, the structure 

of VBP adjustments, including the 

determination of thresholds or 

improvements in quality that would 

substantiate a payment adjustment, the 

size of such payments, and the sources 

of funding for bonus payments. We plan 

to submit the Report to Congress by the 

statutory deadline of October 1, 2011. 

2. Payment Adjustment for HospitalAcquired Conditions (Section 3008) 

One of the ongoing Affordable Care 

Act initiatives that we discussed in the 

FY 2012 SNF PPS proposed rule (76 FR 

26384) is the payment adjustment added 

by section 3008(a) of the Affordable 

Care Act, which is intended to provide 

an incentive to reduce the occurrence of 

certain preventable hospital-acquired 

conditions. While this hospital 

provision is itself beyond the scope of 

the SNF PPS, in the proposed rule, we 


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additionally mentioned a study required 

under section 3008(b) of the Affordable 

Care Act, which directs the Secretary to 

evaluate possibly expanding the HAC 

policy from acute care hospitals to a 

variety of other settings, including 

SNFs, and to submit a report to 

Congress containing the results of the 

study by January 1, 2012. 

Comment: We received a number of 

comments regarding the study 

referenced in the proposed rule that is 

required by section 3008(b) of the 

Affordable Care Act, which directs the 

Secretary to undertake a study and send 

a Report to Congress considering the 

feasibility of extending the Hospital 

Acquired Conditions-Present on 

Admission (HAC–POA) program to the 

other types of facilities. The 

commenters urged CMS to evaluate 

carefully the types of facility-acquired 

conditions that would be relevant to 

SNFs, and to avoid simply applying all 

of the hospital-acquired conditions to 

the postacute setting. 

Response: We appreciate the 

comments we received on the issues 

that we should consider in the study 

and Report to Congress required by 

section 3008(b) of the Affordable Care 

Act. We are considering a broad range 

of issues related to extending the HAC– 

POA program to the other types of 

facilities specified in the Affordable 

Care Act. The required study and Report 

to Congress are currently in progress, 

and we intend to issue the report by the 

statutory deadline. 

3. Nursing Home Transparency and 

Improvement (Section 6104) 

In the FY 2011 proposed rule (76 FR 

26385), we discussed section 6104 of 

the Affordable Care Act, which 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 enactment, and also 

requires the Secretary to perform certain 

related activities. We received no 

comments on this provision. 

E. Other Issues 

1. Required Disclosure of Ownership 

and Additional Disclosable Parties 

Information (Section 6101) 

In the SNF PPS proposed rule for FY 

2012 (76 FR 26364), we proposed 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 accordance with 

section 6101 of the Affordable Care Act. 

In certain regulations that apply to 

Medicare SNFs and Medicaid nursing 

facilities, we proposed to add a 

definition for ‘‘additional disclosable 

party’’ and ‘‘organizational structure’’ 

and to revise the definition for 

‘‘managing employee.’’ These proposed 

definitions were consistent with the 

requirements set forth in section 6101 of 

Affordable Care Act. Given the arguably 

broad nature of the term ‘‘additional 

disclosable parties,’’ we solicited 

comments on how best to narrow the 

scope of the definition for this term. We 

also proposed to revise § 424.516 to 

implement certain new disclosure 

requirements that pertain to Medicare 

SNFs and to amend § 455.104 to 

implement certain new disclosure 

requirements that pertain to Medicaid 

nursing facilities. Furthermore, we 

requested comments on a potential 

alternative approach in which we would 

collect certain information from 

Medicare SNFs only upon revalidation 

consistent with the requirements set 

forth in § 424.515. In accordance with 

§ 424.515, Medicare SNFs generally 

would be subject to revalidation 

requirements every 5 years. Section 

424.515(d), however, provides for offcycle revalidations. We received a 

number of comments on this potential 

alternative approach. 

To respond properly to all of the 

comments received related to the 

disclosure of information requirements, 

we will publish a separate final rule 

specifically addressing these provisions 

at a later date. In accordance with the 

statutory requirements of section 6101 

of the Affordable Care Act, we intend to 

publish that final rule early in CY 2012. 

Accordingly, we are not implementing 

these provisions in this SNF PPS final 

rule. 

2. Therapy Student Supervision 

In the FY 2012 proposed rule (76 FR 

26385 through 26386), we proposed to 

revise a policy that had appeared 

previously in the preamble to the FY 

2000 final rule, which had specified that 

a therapy student in the SNF setting 

must ‘‘* * * be under the ‘line-of-sight’ 

level of supervision of the professional 

therapist’’ (64 FR 41661, July 30, 1999). 

We proposed that line-of-sight 

supervision should no longer be 

required in the SNF setting. We 

proposed that, instead, each SNF would 

determine for itself the appropriate 

manner of supervision of therapy 

students consistent with applicable 

State and local laws and practice 

standards. We advanced this proposal in 

the interest of promoting greater 

conformity with the other inpatient 

settings under Part A (for example, 

acute care hospitals and IRFs), which 

already permit each provider to 

determine for itself the most appropriate 

manner of supervision in this context, 

consistent with applicable State and 

local laws and practice standards. The 

comments we received on this topic, 

along with our responses, may be found 

below. 

Comment: The great majority of 

commenters were supportive of this 

revision, with some criticizing the 

existing policy as creating difficulty in 

securing therapy students in the SNF 

setting. One commenter expressed the 

belief that supervising therapists will 

now be able to offer an increased quality 

of care in the SNF setting, and that 

students will experience an elevated 

quality of learning that will prepare 

future clinicians to work in the SNF 

setting. Many commenters were 

concerned with how the time spent by 

therapy students with SNF patients 

could be billed, if at all. Several of the 

therapy trade associations offered 

detailed guidelines on therapy student 

supervision, with some of those also 

indicating that once a supervising 

therapist deems the student capable of 

treating a patient without line-of-sight 

supervision, the student’s time should 

then be separately counted as skilled 

therapy minutes, over and above the 

therapist’s own time. By contrast, 

another commenter stressed the 

importance of making clear that only the 

line-of-sight supervision requirement 

itself is being changed, to avoid 

triggering an inordinate increase in 

therapy student minutes that would 

create another distortion in the payment 

system. Several commenters suggested 

that CMS publish specific criteria that 

facilities should use to determine 

whether a student is capable to treat 

patients without line-of-sight 

supervision. Others suggested that 

beyond the specific criteria, CMS 

should specifically state that the 

supervising therapist, rather than the 

facility, should be the only entity to 

determine whether a student is capable 

of treating patients without line-of-sight 

supervision. However, two commenters 

were completely opposed to rescinding 

the line-of-sight requirement: One stated 

that eliminating this requirement would 

be inconsistent with existing Part B 

therapy instructions appearing in § 230 

of the Medicare Benefit Policy Manual 

(MBPM), Chapter 15, while the other 

expressed concern that it could result in 

SNFs inappropriately misclassifying 

therapy time to increase reimbursement. 

Response: Regarding the Part B 

instructions that one of the commenters 

cited in the MBPM, we note that these 

particular instructions do not actually 

mandate line-of-sight supervision for 

therapy students, but merely specify 


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that the services ‘‘* * * performed by a 

student are not reimbursed even if 

provided under ‘line of sight’ 

supervision of the therapist’’ (emphasis 

added). Further, with regard to the 

concerns over potential distortions in 

reimbursement, we wish to clarify that 

the change we have proposed would 

solely address the specific manner of 

supervision for a therapy student in this 

setting, but would in no way alter that 

individual’s basic status as a student 

operating under the therapist’s 

supervision. Thus, this policy change 

would not change the manner in which 

therapy minutes currently are recorded 

on the MDS or cause the student’s time 

to become separately reimbursable. 

In response to those commenters 

concerned with how to bill therapy 

student time spent with SNF patients, 

consistent with our existing policy as 

set forth in the RAI Manual, Chapter 3, 

Section O (pages O–20 through O–22), 

as the therapy student is under the 

direction of the supervising therapist 

(even if no longer required to be under 

line-of-sight supervision), the time the 

student spends with a patient will 

continue to be billed as if it were the 

supervising therapist alone providing 

the therapy. In other words, the therapy 

student, for the purpose of billing, is 

treated as simply an extension of the 

supervising therapist rather than being 

counted as an additional practitioner. It 

should be noted that all policies and 

definitions related to the type of therapy 

provided (individual, concurrent, and 

group) apply to the supervising 

therapist and therapy student as set 

forth in the RAI manual, Chapter 3, 

Section O (pages O–20 through O–22) 

even if the student is no longer required 

to be under line-of-sight supervision. 

Finally, we agree that students who 

treat SNF residents without line-of-sight 

supervision should be qualified based 

on specific guidelines. As we stated in 

the proposed rule, ‘‘* * * each SNF 

would determine for itself the 

appropriate manner of supervision of 

therapy students, consistent with 

applicable State and local laws and 

practice standards’’ (76 FR 26835). We 

expect that professional associations, 

State and local licensing boards, and 

facilities should have very specific 

guidelines related to student clinicians’ 

level of education and experience. 

Additionally, we expect that every 

student clinician should meet these 

standards and guidelines and that once 

met, the supervising therapist should 

have ultimate authority to determine 

whether a student clinician is 

adequately prepared to treat patients 

without line-of-sight supervision. In this 

context, we appreciate the detailed 

supervision guidelines that several of 

the trade associations have developed, 

which we recognize as playing a 

significant role in helping to define the 

applicable standards of practice on 

which providers rely in this context. 

However, we believe that the question 

of counting the student’s time is 

actually a separate issue apart from 

providing guidance on appropriate 

supervisory practices themselves. As 

noted previously, a therapy student’s 

time was not separately reimbursable 

prior to the elimination of the 

requirement for line-of-sight 

supervision, nor does it become so now 

as a result of this change. 

Therefore, for the reasons outlined in 

this final rule and in the FY 2012 

proposed rule (76 FR 26385 through 

26386), we are finalizing our proposed 

revision to the line-of-sight supervision 

requirements as they pertain to students 

in a SNF setting. Accordingly, in this 

final rule, we are hereby discontinuing 

the policy announced in the FY 2000 

final rule’s preamble requiring line-ofsight supervision of therapy students in 

SNFs, as set forth in the FY 2012 

proposed rule. Instead, effective October 

1, 2011, as with other inpatient settings, 

each SNF will determine for itself the 

appropriate manner of supervision of 

therapy students consistent with State 

and local laws and practice standards. 

We will be monitoring student 

participation in SNFs and expect that 

facilities will ensure that students, 

though no longer required to be under 

line-of-sight supervision, will still be 

properly supervised for both the 

student’s and patient’s benefit. 

3. Group Therapy and Therapy 

Documentation 

Under our current policy, group 

therapy is the practice of one 

professional therapist treating multiple 

patients (up to a maximum of four) at 

the same time while the patients are 

performing either the same or similar 

activities, consistent with the policies 

first set forth in the FY 2000 SNF PPS 

final rule (64 FR 41662). In the FY 2012 

proposed rule (76 FR 26386 through 

26388), we proposed to make certain 

changes relating to the definition of 

group therapy and payment of group 

therapy services. 

We noted that, using our STRIVE data 

as a baseline, we identified two 

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, 

the minutes for which are divided 

between the two concurrent therapy 

participants when determining the 

patient’s appropriate RUG classification. 

At the same time, we found a significant 

increase in the amount of group therapy 

services, which are currently not subject 

to the allocation requirement. Given this 

increase in group therapy services, we 

expressed concern that the current 

method for reporting group therapy on 

the MDS creates an inappropriate 

payment incentive to perform the group 

therapy in place of individual therapy, 

because the current method of reporting 

group therapy time does not require 

allocation among patients, as noted by 

several commenters. 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 

otherwise may have been appropriate. 

In the proposed rule, we proposed to 

change our policies relating to group 

therapy as further discussed below. 

First, we proposed to establish a 

standard that defines group therapy as 

therapy provided simultaneously to four 

patients who are performing the same or 

similar therapy activities (76 FR 26386 

through 26387). As we stated in the 

proposed rule (76 FR 26386), because in 

group therapy patients are performing 

similar activities, 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 

individual 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 we stated in the FY 

2012 proposed rule (76 FR 26386), 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 therapy. In such 

small groups, these limitations become 

even more accentuated whenever one or 

two patients are absent from the therapy 


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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 

and in the FY 2012 proposed rule (76 

FR 26386 through 26387), 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. Accordingly, we 

proposed to define group therapy as 

therapy provided simultaneously to four 

patients who are performing similar 

therapy activities (76 FR 26387). 

In addition, we proposed to allocate 

group therapy among the four group 

therapy participants. As we stated in the 

FY 2012 proposed rule (76 FR 26387), 

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 would best 

capture the resource utilization and 

cost. 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). As we stated in 

the FY 2012 proposed rule (76 FR 

26387), as is currently the procedure, 

the SNF would report the total 

unallocated group therapy minutes on 

the MDS 3.0 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. We stated in the FY 

2012 proposed rule that 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. 

Additionally, we made a number of 

clarifications with regard to clinical 

documentation requirements related to a 

patient’s plan of care (76 FR 26387 

through 26388). In the proposed rule, 

we discussed these requirements and 

clarified a number of regulatory 

provisions related to documentation 

within the SNF setting (see 76 FR 26387 

through 26388 for a full discussion). 

Specifically, we noted (76 FR 26387) 

that SNFs are currently required to 

follow a prescribed plan of care for the 

therapy provided to a SNF resident 

(§ 409.23) and that the plan must meet 

the requirements of the regulations in 

§ 409.17(b) through (d). We further 

clarified that supporting medical record 

documentation is needed so that SNFs 

can verify that the plan of care is being 

followed, and can identify when 

significant changes in a patient’s 

medical condition occur. In addition, 

we stated that such supporting medical 

record documentation has always been 

required so that contractors can verify 

medical necessity when they review 

SNF claims (76 FR 26387). One example 

of appropriate documentation would be 

to use time stamps to indicate the exact 

start and ending time of a therapy 

session. These time stamps could be 

tracked on a beneficiary’s record to 

determine what discipline and mode of 

therapy they received. If necessary, 

these time stamps could be compared 

with a therapist’s log in order to 

streamline the medical review process. 

We also clarified that providers should 

ensure that skilled therapy services are 

appropriate to the goals of a patient’s 

individualized plan of care, and that 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 

progress toward the prescribed goals (76 

FR 26388). We discussed the 

relationship between this 

documentation and the use of group 

therapy, clarifying that group therapy is 

not appropriate for every patient or for 

all conditions. Accordingly, SNFs 

should include justification for using 

group therapy as part of the patient’s 

plan of care, to permit verification of the 

medical necessity and the 

appropriateness of the prescribed 

therapy plan (76 FR 26388). Finally, we 

discussed the need to update the 

patient’s plan of care when changes 

occur that would affect the prescribed 

therapy plan or patient’s condition, and 

clarified that any such changes in the 

therapy plan must be justified by 

changes in the beneficiary’s underlying 

health condition, and that the provider 

is expected to describe in the plan of 

care the reasons for deviating from the 

original plan (76 FR 26388). We 

received a number of comments on 

these proposals and clarifications 

which, along with our responses, appear 

below. 

Comment: Several commenters 

expressed support for the proposed 

change to allocate the group therapy 

minutes. Many others had general 

concerns about the allocation of group 

therapy. One commenter believed that 

during a group therapy session, every 

patient benefits for the full time of the 

session, rather than only one quarter of 

the session as the allocation of group 

time would suggest. Additionally, 

several commenters have expressed that 

there are psychosocial and functional 

benefits of group therapy and are 

concerned that residents will be 

negatively affected by the allocation of 

group therapy. We have received 

multiple comments claiming that the 

allocation of group therapy minutes will 

disincentivize therapists from 

performing group therapy in cases 

where group therapy may be the 

preferred mode of treatment, since their 

payments will decrease if they continue 

to provide the same volume of group 

therapy. Several commenters stated that 

planning and implementing group 

therapy tasks is a very time-consuming 

and challenging process, and that to 

allocate the group therapy minutes 

would mean that payment would not 

accurately reflect the time spent 

preparing for these therapy sessions and 

the additional costs of providing group 

therapy. One commenter stated it is 

more expensive to provide group 

therapy than individual or concurrent 

therapy. 

Response: As we noted in the 

proposed rule (76 FR 26387), the 

allocation of group therapy time is 

based on accurately paying for the 

therapist’s time, not the resident’s time. 

During a one-hour group therapy 

session with four patients, while all four 

patients may receive a full hour of 

benefit from the therapy session, this 

still only constitutes one hour of the 

therapist’s time. Given that the SNF PPS 

is based on resource utilization and 

cost, the payment for these services 

should reflect the amount of the 

therapist’s time that was utilized as part 

of the therapy session. 

As stated in our proposal, we agree 

with the commenters that there are 

unique benefits to group therapy. We do 

not believe that the allocation of group 

therapy minutes should be considered a 

deterrent to having group therapy 


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sessions or should negatively affect 

beneficiaries. Instead, allocation of 

group therapy brings Medicare 

payments in line with resource 

utilization and cost for these services 

and is intended to ensure that the 

therapist’s time is being appropriately 

counted and reimbursed. We would 

expect therapists to continue to provide 

the mode of therapy that is most 

clinically appropriate for each patient. 

Regarding the statement that the 

preparation for group therapy is a highcost, time-consuming, and challenging 

process requiring careful evaluation of 

each patient, we agree that special care 

should be taken to plan for the most 

appropriate group therapy program for 

the designated patients. However, we 

expect that therapists will utilize highquality standards of practice that require 

careful planning and documentation for 

all modes of therapy. 

Moreover, these costs were included 

in the establishment of the per diem 

base rate, and are already being 

reimbursed as part of the SNF PPS. 

Additionally, while some commenters 

did maintain that group therapy costs 

more to provide than individual or 

concurrent therapy, other commenters 

believed the opposite, with one 

commenter stating the following 

regarding the allocation policy, ‘‘The 

policy would undercut efficiency, while 

pushing patients into higher cost modes 

of care.’’ We note that in allocating 

group therapy minutes, we are not 

dictating the mode of therapy that a SNF 

should provide to its patients. Instead, 

as discussed above, this policy brings 

Medicare payments more in line with 

resource utilization and cost for these 

services. Determinations regarding the 

appropriate mode of therapy should be 

made by the therapist based on the 

clinical needs of each patient. 

Comment: Several commenters raised 

concerns regarding the strict allocation 

of group therapy minutes by four. The 

most common question we received 

from commenters was for clarification of 

why four was chosen to be the divisor, 

regardless of the number of participants 

in the group. Some commenters stated 

that using a hard divisor of four for 

group therapy minutes, rather than 

proposing to have facilities report the 

number of participants in the group and 

divide accordingly, contradicts CMS’s 

reasoning that the allocation of group 

therapy is based on resource cost and 

utilization. These commenters also 

inquired as to how the facility should 

report the therapy time if four residents 

were scheduled for a group therapy 

session and one of the participants fell 

ill and was unable to participate. 

Several commenters asserted that we 

created a financial incentive to provide 

group therapy when we allocated 

concurrent therapy and did not address 

group therapy. 

One commenter stated that as a rural 

provider, it is very rare ever to have a 

4-person group. Another commenter 

discussed the ability of therapists to 

transition patients from a concurrent 

therapy environment to a group 

environment, and indicated that 

dividing by four makes it more difficult 

for providers to transition patients 

properly between concurrent and group 

therapy. Several commenters 

encouraged CMS to consult with 

clinical experts and professional 

therapy associations to determine the 

most appropriate number of group 

therapy participants based on clinical 

standards. 

Response: Contrary to commenters’ 

assertions, we did not propose to divide 

group therapy minutes by four 

regardless of the number of participants 

in the group. We proposed to divide by 

four in allocating group therapy minutes 

because we had proposed a definition of 

group therapy which requires four 

participants. In the FY 2012 proposed 

rule, we proposed to define group 

therapy as therapy provided 

simultaneously to four patients who are 

performing the same or similar 

activities. (76 FR 26387) Thus, based on 

our proposed definition of group 

therapy (which we are finalizing in this 

rule), we expect group therapy to be a 

structured, planned program with four 

participants for whom group therapy 

has been determined appropriate. As we 

stated in the proposed rule, we 

proposed ‘‘allocating group therapy 

minutes among the four group therapy 

participants’’ (76 FR 26387, emphasis 

added). Thus, given this definition of 

group therapy, dividing group therapy 

minutes by four captures resource 

utilization and cost associated with 

providing this mode of therapy, as 

under our proposed policy, groups 

would be required to have four 

participants. We note that, in situations 

where the definition of group therapy is 

not met, those minutes may not be 

coded on the MDS as group therapy. 

We recognize that in some situations, 

one or more of the scheduled group 

therapy participants may not be able to 

attend a group session due to illness or 

otherwise, or may be unable to finish 

participating in the entire group session. 

Based on our definition of group 

therapy as finalized in this rule, we 

expect group therapy to be a structured, 

planned program with four participants. 

However, if one or more of the four 

participants are unexpectedly absent 

from a session or cannot finish 

participating in the entire session, rather 

than discontinuing payment or 

requiring the session to be rescheduled, 

we will continue to deem the therapy 

session as meeting the definition of 

group therapy as long as the therapy 

program originally had been planned for 

four patients. In this situation, we will 

continue to assume that there are four 

patients and, therefore, will divide the 

therapy minutes by four in allocating 

group therapy minutes among the group 

therapy participants. As discussed 

above, we believe the most appropriate 

size for group therapy in a SNF setting 

is four participants and, thus, we 

believe dividing by four reflects the 

resource utilization and cost associated 

with group therapy as we have defined 

it in this rule and as we expect it to be 

structured based on this definition. 

Commenters have suggested that we 

recognize an alternative to allocating 

group therapy by four and, instead, 

divide the therapy minutes by the 

number of patients in the group. 

However, one commenter stated, ‘‘Such 

an approach does not recognize the 

additional burdens and costs associated 

with the provision of group services, 

however, nor the difficulty providers 

and therapists would have in tracking 

the number of people in a group at all 

times and accurately counting minutes 

when patients are dropping in and 

dropping out throughout the session.’’ 

As we stated above and in the FY 2012 

proposed rule (76 FR 26387), we believe 

that most appropriate group therapy size 

in a SNF setting is four participants and, 

thus, we have defined group therapy 

accordingly. Given this definition, we 

believe that it is appropriate to allocate 

group therapy minutes among the 

participants by dividing by four. We 

note that the apparent lack of structure 

and discontinuity of the group 

interventions, as noted by the 

commenter, suggests that facilities may 

need to reassess their methods of 

providing group therapy services. In 

addition, we agree with many 

commenters that the implementation of 

RUG–IV created a payment incentive to 

provide group therapy and that the 

increase in group therapy may have 

been due to payment rather than clinical 

considerations. We note that by 

allocating group therapy among the four 

group therapy participants, we are also 

equalizing the reimbursement incentive 

across the modes of therapy. We believe 

this will once again encourage 

clinicians to choose the mode of therapy 

based on clinical rather than financial 

reasons. Several commenters agreed 

with this concept and one stated that 

‘‘Payments for different modalities of 


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therapy (concurrent, group, and 

individual) should reflect the different 

costs to provide the services. Otherwise 

providers will have financial incentives 

to furnish one modality over another, 

regardless of whether the modality is 

the most clinically appropriate for the 

patient.’’ It is also important to keep in 

mind that every payment system has 

multiple incentives, both positive and 

negative. The management in each 

facility is faced with making cost/ 

benefit choices on an almost daily basis. 

However, these choices must keep 

patient needs at the forefront of the 

decision-making process, and the 

existence of a payment incentive does 

not in itself justify the provision of a 

lower or less appropriate level of care 

merely in order to reduce facility costs. 

We continue to believe that the 

provision of group therapy should be 

initiated only after determining that 

group therapy services are appropriate 

for each patient who receives them and 

that the group therapy provided is 

appropriate to the individual plans of 

care. As we noted in the proposed rule 

(76 FR 26388), 

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 * * * 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 the beneficiary, 

SNFs should include 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. 

Therefore, we believe that to every 

extent possible, group therapy sessions 

should not fluctuate in size and 

membership. As we stated above, we 

believe the most appropriate group 

therapy size in a SNF setting is four 

participants, and thus we are defining 

group therapy accordingly. Thus, as we 

are defining group therapy as consisting 

of four participants, we believe that 

allocating the minutes among the four 

participants best captures resource 

utilization and cost. 

As discussed above, one commenter 

discussed the ability of therapists to 

transition patients from a concurrent 

therapy environment to a group 

environment, and indicated that 

dividing by four makes it more difficult 

for providers to transition patients 

properly between concurrent and group 

therapy. Historically, prior to the 

implementation of the RUG–IV system, 

SNFs reported a low utilization of group 

therapy. The limited use of group 

therapy programs may well be related to 

the logistical difficulties mentioned by 

this commenter, such as transitioning 

the patients properly between 

concurrent and group therapy. However, 

we do not see how allocating group 

therapy minutes would make it more 

difficult to transition patients from one 

therapy mode to another, as such 

transitions should be based on clinical 

determinations. The purpose of our 

allocation policy is to provide payment 

that better reflects resource utilization 

and cost, and we do not believe this 

policy should affect clinical 

determinations regarding the 

appropriate mode of therapy provided 

to a patient. We recognize the unique 

challenges that rural facilities face, but 

as we discussed above and in the FY 

2012 proposed rule, we believe that the 

most appropriate group therapy size for 

a SNF setting is four. We believe that 

group therapy should be used to 

supplement individual therapy when 

suitable. In facilities where fewer than 

four patients are consistently being 

treated with the same or similar 

therapeutic interventions, group therapy 

programs may not always be 

appropriate. We expect all facilities to 

make the best clinical decisions when 

providing group therapy. 

For the reasons discussed above and 

in the FY 2012 proposed rule (76 FR 

26386 through 26388), as proposed, 

effective October 1, 2011, group therapy 

will be defined as therapy provided 

simultaneously to four patients who are 

performing the same or similar 

activities, and group therapy time will 

be divided by four in determining the 

reimbursable therapy minutes for each 

group therapy participant and, 

therefore, the appropriate RUG–IV 

group. 

As discussed above and in the FY 

2012 proposed rule, we believe it is 

appropriate to define group therapy as 

consisting of four participants. 

However, we will continue to monitor 

group therapy utilization and will 

continue to consult with clinical 

experts, professional therapy 

associations, and other stakeholders on 

this issue. 

Comment: Many commenters 

questioned our choice of four as the 

most appropriate number of participants 

in a therapy group. Several commenters 

disagreed that the optimal number for 

patients in a group is four and stated 

that there is no research data to support 

this notion. Additionally, commenters 

stated that there are many instances 

when 2 or 3-person groups are more 

effective than 4-person groups and that 

in some specific instances, a 4-person 

group might pose serious patient risks. 

Many commenters stated that the choice 

of four as the optimal number for group 

therapy undermines the clinical 

judgment of therapists, and that CMS 

does not have the authority to dictate 

the practice of therapy and, therefore, 

cannot instruct therapists to allocate 

group therapy. 

Response: For the reasons discussed 

above and in the FY 2012 proposed rule 

(76 FR 26386 through 26387), we 

believe the most appropriate size for 

group therapy in a SNF setting is four 

participants, which we believe is the 

size that permits the therapy 

participants to derive the maximum 

benefit from the group therapy setting. 

Although we conducted a literature 

search and were unable to find research 

data to support any prescribed number 

of participants in a therapy group, for 

the reasons stated above and in the FY 

2012 proposed rule, we continue to 

believe it is appropriate to establish a 

standard that defines group therapy as 

therapy provided simultaneously to four 

participants performing the same or 

similar therapy activities. 

In defining group therapy as therapy 

provided to four patients 

simultaneously who are performing the 

same or similar activities, we are not 

attempting to dictate clinical practice. 

Each therapist should use his or her best 

clinical judgment in determining the 

mode and manner in which to provide 

therapy services to patients. We 

understand that at times the therapist 

may decide in his or her clinical 

judgment to treat 2 or 3 patients 

simultaneously, and we are not 

prohibiting therapists from making this 

clinical decision. However, for purposes 

of Medicare payment policy, for the 

reasons discussed above and in the FY 

2012 proposed rule, we are defining 

group therapy as therapy provided 

simultaneously to four patients who are 

performing the same or similar therapy 

activities. Further, we are allocating 

group therapy minutes by dividing the 

total minutes by four, the number of 

participants in a group therapy session 

as defined above. Our goal in allocating 

group therapy is to pay appropriately 

based on resource utilization and cost, 

not to dictate the practice of therapy. 

Regarding the concept that groups of 

4 may pose serious patient risks, we 

conducted a literature review and did 

not find any evidence that a group of 4 

would pose any more of a patient risk 

than treating any other specific number 

of patients at a time. As discussed 

above, we expect therapists to use their 

best clinical judgment when choosing 


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which mode of therapy to use. If they 

believe that a particular mode of therapy 

would pose an increased degree of risk 

to a patient, we would expect them not 

to use that mode of therapy. 

Comment: Several commenters stated 

that with the implementation of RUG– 

IV and its related policies, such as the 

allocation of concurrent therapy, we 

created a financial incentive for 

facilities to shift patients receiving 

concurrent therapy into group therapy, 

as long as the patient’s therapy needs 

were still being met. These commenters 

stated that CMS should have expected 

some shift in the modes of therapy 

services provided. Additionally, these 

commenters believed that the data we 

used were inconclusive, since no data 

were collected on the modality of 

therapy delivered under MDS 2.0 and 

RUG–III. Others have stated that CMS’ 

decision to use data from the STRIVE 

study is unsound because the STRIVE 

study was flawed. One commenter 

suggested that CMS should not allocate 

group therapy minutes until we have a 

full year’s worth of data under the RUG– 

IV and MDS 3.0 system. 

Response: We agree that the decision 

to allocate concurrent therapy 

inadvertently created an inappropriate 

financial incentive for facilities to 

emphasize more group therapy and that 

these incentives have resulted in excess 

Medicare expenditures. Accordingly, to 

fulfill our responsibilities to ensure 

appropriate payment based on resource 

utilization and cost, we proposed the 

allocation of group therapy minutes, 

which equalizes the reimbursement 

incentives across modes of therapy. 

The statement that no data were 

collected to address the modality of 

therapy delivered under MDS 2.0 and 

RUG–III is incorrect. STRIVE collected 

data from the MDS 2.0 and RUG–III to 

examine the different modes of therapy 

delivery. Regarding the statement that 

the STRIVE study was flawed, we 

addressed this general concern in the 

FY 2010 final rule (74 FR 40304). 

One commenter suggested that we 

defer allocating group therapy minutes 

until we have received more data. 

However, we believe we do not need a 

full year’s worth of data before making 

changes to allocate group therapy. 

Regardless of whether the initial trends 

for utilization of group therapy 

continue, we believe that the group 

therapy allocation policy finalized in 

this final rule will increase the accuracy 

of our payments by more closely basing 

payments on actual resource utilization 

and cost and, thus, we believe that it is 

appropriate to finalize our policy 

regarding allocation of group therapy 

minutes effective October 1, 2011, as 

proposed. 

Comment: Many commenters 

recognized the need to make changes to 

group therapy but suggested alternatives 

to the allocation of group therapy. 

Several commenters recommended that 

to reduce the incentive to overutilize 

group therapy, we should examine the 

current 25 percent cap on group therapy 

and make the necessary adjustments. 

One commenter suggested that we limit 

patients to one group therapy session 

per week. 

Response: We appreciate the 

suggested alternatives to our proposal. 

We should note that the 25 percent cap 

for group therapy was designed to 

ensure that group therapy is utilized as 

an adjunct to individual (and 

concurrent) therapy. Conversely, the 

allocation of therapy minutes will be 

used to pay accurately for the therapy 

provided in a group therapy session 

based on resource utilization and cost. 

We also appreciate the suggestion to 

limit patients to one group therapy 

session per week and may explore this 

alternative or similar alternatives in the 

future in assessing the amounts of group 

therapy that may be beneficial to SNF 

patients. 

Comment: Several commenters stated 

that the allocation of group therapy will 

cause operational inefficiencies in SNFs 

and will cause SNFs to need to hire 

more therapists in a field that currently 

has a significant shortage of 

professionals. 

Response: We do not believe that the 

allocation of group therapy would cause 

operational inefficiencies or cause SNFs 

to hire more therapists. We note that the 

personnel decisions of SNFs are 

essentially private business 

arrangements that are outside the scope 

of this rule. Moreover, the allocation of 

group therapy does not require a change 

in MDS reporting procedures. As we 

stated in the FY 2012 proposed rule (76 

FR 26387), as is currently the procedure, 

the SNF would report the total 

unallocated group therapy minutes on 

the MDS 3.0 for each patient. Then this 

total time would be automatically 

divided among the four group therapy 

participants to determine the 

appropriate number of RTM, and thus 

the RUG–IV classification and payment 

level for each patient. Thus, the 

allocation of group therapy will not 

require extra work on the part of SNF 

staff. Accordingly, we do not believe 

that allocation of group therapy minutes 

will cause operational inefficiencies in 

SNFs. 

Comment: In the proposed rule, we 

solicited comments on types of patients 

for whom group therapy might be 

appropriate. We received several 

comments in response to this 

solicitation, which included different 

diagnoses (for example, aphasia) and 

treatment types (for example, a 

functional communication group). One 

commenter stated that while there are 

specific conditions that might prompt 

the consideration for group therapy, it is 

important for group therapy to be part 

of an integrated plan of care established 

under medical direction. Commenters 

noted that not all patients would benefit 

from group therapy, nor would all 

conditions be appropriate to incorporate 

into a group therapy program. 

Response: We appreciate the 

comments which suggested various 

diagnoses and treatment types that 

might benefit from group therapy. As we 

stated in the proposed rule (76 FR 

26387), group therapy is not appropriate 

for either all patients or all conditions 

and is primarily effective as a 

supplement to individual therapy. We 

agree with the comment noting that 

while there are specific conditions that 

might prompt the consideration of 

group therapy, it is important for group 

therapy to be part of an integrated plan 

of care established under medical 

direction. Additionally, we believe that 

diagnoses and treatment techniques 

(such as communication or feeding 

groups) should not be the sole basis for 

choosing to initiate group therapy. 

Therapists should determine for each 

resident, regardless of diagnosis or 

condition, whether the resident is a 

good candidate for group therapy based 

on functional level and treatment 

potential, and whether this particular 

form of treatment is in the patient’s best 

interest and within the goals of the 

overall plan of care. We will take the 

commenters’ suggestions under 

consideration in assessing the 

appropriate use of group therapy in 

SNFs and may address this further in 

future rulemaking. 

Comment: One commenter requested 

clarification of a sentence in the 

proposed rule, which stated that ‘‘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’’ (76 FR 26387). The commenter 

believed that the number of group 

therapy minutes stated in the 

parentheses of the above sentence, given 

the scenario referred to in that sentence, 

should be 120. 

Response: After reviewing the 

sentence quoted above from the 

proposed rule (76 FR 26387), we agree 

with this commenter and wish to clarify 

that there is an error in this sentence. In 

the above-quoted sentence from the FY 


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2012 proposed rule, the minutes 

referred to in the parentheses should 

read 120 minutes rather than 60 

minutes, given the immediately 

preceding scenario to which it refers. 

Thus, this sentence should have stated, 

‘‘As is currently the procedure, the 

SNFs would report the total unallocated 

group therapy minutes on the MDS 3.0 

(120 minutes in the scenario above) for 

each patient.’’. 

Comment: One commenter suggested 

that an inconsistency of CMS’s 

definition of group therapy between the 

FY 2010 final rule (74 FR 40315) and 

the MDS RAI Manual (Chapter 3, 

Section O) may have led to the increase 

in group therapy utilization. The 

commenter specifically references the 

words ‘‘same’’ versus ‘‘similar’’ as 

regards to type of group therapy 

services/activities. This commenter 

recommended that CMS make the 

definitions of group therapy consistent 

between the regulations and the RAI 

Manual. 

Response: In the FY 2010 final rule 

(76 FR 40315), we stated that group 

therapy is therapy where a ‘‘therapist 

provides the same services to everyone 

in the group.’’ We note that later in the 

preamble of the FY 2010 final rule (74 

FR 40317), we define group therapy as 

‘‘consisting of 2 to 4 patients (regardless 

of payer source) who are performing 

similar activities * * *’’ In the RAI 

Manual (Chapter 3, Section O)], group 

therapy is also defined as ‘‘the treatment 

of 2 to 4 residents, regardless of payer 

source, who are performing similar 

activities, * * *.’’ We do not believe 

that this inconsistency in the definition 

may have led to the increase in group 

therapy utilization as we are not aware 

of evidence to support this claim. 

Additionally, we provided extensive 

training to providers both prior to and 

after the implementation of MDS 3.0. At 

the time of training, we did not receive 

questions on this issue, suggesting that 

there was not a significant amount of 

confusion on this point. To clarify, from 

this point forward, the definition of 

group therapy will be consistent in 

regulation and in the RAI manual. For 

the purposes of coding group therapy 

for Medicare Part A SNF payment, the 

existing definition of group therapy has 

been: 2–4 patients (regardless of payer 

source) who are simultaneously 

performing the same or similar activities 

and are supervised by a therapist (or 

assistant) who is not supervising any 

other individuals. However, as 

discussed in this final rule, beginning 

October 1, 2011, this definition will be: 

4 patients (regardless of payer source) 

who are simultaneously performing the 

same or similar activities and are 

supervised by a therapist (or assistant) 

who is not supervising any other 

individuals. For purposes of coding 

concurrent therapy for Medicare Part A 

SNF payment, the definition of 

concurrent therapy will remain: therapy 

consisting of 2 patients who are not 

performing the same or similar activity 

(regardless of payer source), both of 

whom must be in line-of-sight of the 

treating therapist (or assistant). 

Comment: Several commenters 

supported the clarification of our 

expectations for documenting group 

therapy services. Some commenters 

stated that rehabilitation professionals 

need to support the work they do 

through documentation, and that the 

documentation should reflect the need 

for skilled care as well as demonstrate 

how the therapy provision will support 

patients’ needs and goals. Further, 

professional therapy associations 

commented on the documentation 

clarifications, stating that the 

requirement for adequate 

documentation to justify the use of each 

mode of therapy is necessary and that 

there should be no additional burden to 

provide this documentation, as it should 

be a standard part of any 

documentation. Others expressed 

concern that we proposed new and 

stricter guidelines for documenting 

group therapy. Some commenters stated 

that requiring a therapist to document 

why a specific mode of therapy was 

chosen for a patient would create an 

undue burden on the therapist. One 

commenter stated that requiring an 

additional, separate plan of care for 

group therapy would not improve the 

quality or efficacy of this mode of 

therapy delivery, and that it would be 

a disincentive for clinicians to perform 

group therapy due to the increased 

paperwork. 

Response: We would like to clarify 

that we did not propose new 

documentation requirements for group 

therapy provision. In fact, these 

documentation requirements have been 

in place all along, and the intent of the 

discussion in the proposed rule was to 

clarify our expectations. Contrary to the 

commenter’s statement, we are not 

requiring an additional, separate plan of 

care for group therapy. The regulations 

at § 409.17(c) and § 409.23(c) require 

that, in order for Medicare to pay for 

therapy in a SNF, a therapy plan of care 

must be in place and that it must 

include certain information. In the FY 

2012 proposed rule (76 FR 26387 

through 26388), and as discussed 

previously, we simply clarified what we 

expect to be included in the plan of care 

and supporting medical record 

documentation in cases where group 

therapy is provided. 

Therefore, as this discussion in the 

proposed rule simply clarified existing 

expectations, we do not agree that these 

documentation guidelines will increase 

or create undue burden on therapists, or 

that these guidelines create a 

disincentive for clinicians to perform 

group therapy due to increased 

paperwork. As the commenters above 

suggested, there should be no additional 

burden to provide this documentation, 

as it should be a standard part of any 

documentation. We agree with those 

commenters who stated that 

rehabilitation professionals need to 

support the work they do through 

documentation, and that the 

documentation should reflect the need 

for skilled care and the mode of therapy 

provided, as well as demonstrate how 

the therapy provision will support 

patients’ needs and goals. 

Comment: One commenter stated that 

the clarification of CMS coverage and 

documentation expectations included in 

the proposed rule inappropriately 

broadens the documentation 

requirements of group therapy by 

applying standards beyond those found 

in the current law and regulations for 

SNF care. Specifically, the commenter 

indicated that the clarification 

incorrectly applies hospital regulations 

and inaccurately characterizes 

guidelines set forth in program manuals 

as binding for SNFs. This commenter 

recommended that CMS clarify therapy 

documentation requirements using only 

SNF law and regulations. 

Response: We do not agree with the 

claim that the requirement to establish 

structured and well-documented group 

therapy programs applies to hospitals 

but not to SNFs. We would note that 

while it is the regulations themselves 

from which legal authority derives, the 

program manuals and other interpretive 

guidelines can serve to clarify or 

interpret the regulations set forth in the 

Code of Federal Regulations (CFR). The 

clarifications set forth in the FY 2012 

proposed rule (76 FR 26387 through 

26388) are based on regulations at 

§ 409.17 and § 409.23, and interpretive 

guidance in the RAI Manual, all of 

which are applicable to SNFs. While the 

cited regulations in the proposed rule, 

specifically § 409.17(b) through (d), fall 

within Part 409, Subpart B (Inpatient 

Hospital Services and Inpatient Critical 

Access Hospital Services), these 

particular regulations also apply to 

SNFs with regard to their patients’ plans 

of care and for guidance on specific 

documentation requirements. 

Specifically, § 409.23, which is located 

in Part 409, Subpart C (Posthospital SNF 


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Care), states that Medicare pays for SNF 

therapy services if they are furnished, 

among other things, in accordance with 

a plan of care that meets the 

requirements of § 409.17(b) through (d), 

thereby making § 409.17(b) through (d) 

applicable to SNFs. When we initially 

revised the SNF therapy regulations at 

§ 409.23(c) to incorporate these plan of 

care requirements in the Medicare 

Physician Fee Schedule final rule for 

Calendar Year (CY) 2008 (72 FR 66331, 

November 27, 2007), we noted our belief 

that ‘‘* * * therapy services should be 

provided according to the same 

standards and policies in all settings, to 

the extent possible and consistent with 

statute.’’ Moreover, in the Medicare 

Physician Fee Schedule final rule for CY 

2011 (75 FR 73583, November 29, 2010), 

we revised the hospital regulations at 

§ 409.17(d) on therapy treatment 

plans—to which the corresponding SNF 

therapy regulations cross-refer— 

specifically to clarify that those 

particular hospital regulations also 

apply to SNFs. Thus, our clarifications 

do not exceed the current law and 

regulations applicable to SNFs. 

Further, we do not agree with the 

commenter’s implicit assumption that 

program guidelines are not relevant to 

this process. We note that such 

guidelines are based on the provisions 

of the regulations, and are made 

available to each provider to advise it of 

those provisions as well as of CMS’s or 

the surveyor’s expectations. While these 

guidelines are disseminated to 

providers, all providers are nevertheless 

expected to comply fully with the 

regulations on which the guidelines are 

based. 

For the reasons discussed in section 

V.C of the FY 2012 proposed rule (76 FR 

26386 through 26388), and for the 

reasons discussed in this final rule 

above, we are finalizing our proposed 

policies related to group therapy 

effective October 1, 2011. First, we are 

defining group therapy as therapy 

provided simultaneously to four 

patients (regardless of payer source) 

who are performing the same or similar 

activities and are supervised by a 

therapist (or assistant) who is not 

supervising any other individuals (76 

FR 26386 through 26387). In addition, 

we are finalizing our proposed policies 

related to the reporting and allocation of 

group therapy minutes as discussed 

above and in the FY 2012 proposed rule 

(76 FR 26387). As is currently the 

procedure, the SNF will report the total 

unallocated group therapy minutes on 

the MDS 3.0. In terms of RUG–IV 

classification, this total time will 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. In addition, 

as discussed above, if one or more of the 

four group therapy participants are 

unexpectedly absent from a session or 

cannot finish participating in the entire 

group session, rather than discontinuing 

payment or requiring the session to be 

rescheduled, we will continue to deem 

the therapy session as meeting the 

definition of group therapy as long as 

the therapy program originally had been 

planned for four patients. In this 

situation, we will continue to assume 

that there are four patients, and 

therefore will divide the therapy 

minutes by four in allocating group 

therapy minutes among the group 

therapy participants. 

4. Proposed Changes to the MDS 3.0 

Assessment Schedule and Other 

Medicare-Required Assessments 

In the FY 2012 proposed rule (76 FR 

26388 through 26393), we proposed to 

make certain modifications to the MDS 

assessment schedule and to the types of 

assessments to be completed. To receive 

proper payment for services provided 

during Part A Medicare SNF stays, SNFs 

must complete patient assessments in 

accordance with the assessment 

schedule established by CMS at 

§ 413.343(b) and in the RAI Manual, 

version 3.0, Chapter 2. As we explained 

in the FY 2012 proposed rule (76 FR 

26388 through 26389), we proposed to 

modify the current Medicare-required 

assessment schedule to incorporate new 

assessment windows and grace days to 

capture more appropriately the changes 

in patients’ status and in services and 

treatments provided over the course of 

a stay, and to reduce the possibility that 

information from the same days of the 

patient’s stay may be used on different 

scheduled MDS assessments. The 

current MDS assessment schedule and 

the proposed MDS assessment schedule 

may be found in Tables 10A and 10B in 

the proposed rule (76 FR 26389). 

Additionally, regarding the 

completion of unscheduled PPS 

assessments, in the proposed rule (76 

FR 26389 through 26390), we clarified 

the End of Therapy (EOT) OMRA policy 

(which first appeared in the FY 2010 

final rule (74 FR 40347 through 40348)) 

by stating that the ARD for an EOT– 

OMRA must be set for 1 to 3 days after 

the discontinuation of all therapies, 

regardless of the reason for the 

discontinuation. Further, in determining 

the ARD for the EOT OMRA, we 

clarified that, as finalized in the FY 

2010 final rule (74 FR 40348), currently 

days are counted differently for facilities 

that regularly provide therapy services 5 

days per week as compared to facilities 

that regularly provide therapy services 7 

days a week. Following the publication 

of the FY 2010 final rule, some SNFs 

expressed concern over the use of the 

phrase ‘‘discontinuation of therapy 

services,’’ as well as the distinction 

between 5- and 7-day-a-week facilities 

in determining the ARD for the EOT 

OMRA. In the FY 2012 proposed rule 

(76 FR 26389), we clarified that the term 

‘‘discontinuation of therapy services’’ 

referred to both temporary, unplanned 

and planned discontinuations of 

therapy services. Accordingly, in the FY 

2012 proposed rule (76 FR 26389 

through 26390), we clarified that 

providers must complete an EOT OMRA 

for a patient classified in a RUG–IV 

therapy group if the patient goes 3 

consecutive days without therapy, 

regardless of the reason for the 

discontinuation. Moreover, to mitigate 

confusion related to the distinction 

between 5-day and 7-day-a-week 

facilities, we proposed to eliminate the 

distinction altogether. We proposed 

that, effective October 1, 2011, an EOT 

OMRA would be required for a patient 

classified in a RUG–IV therapy group if 

that patient is not furnished any therapy 

services for 3 consecutive calendar days, 

regardless of whether the facility is a 5- 

day or 7-day facility. As we stated in the 

FY 2012 proposed rule (76 FR 26390), 

we believe that this policy appropriately 

reflects that the frail and vulnerable 

populations within SNFs require 

consistent therapy without significant 

breaks in services, and is consistent 

with § 409.34(b) (which states that a 

break of one or two days would not 

necessarily result in a provider having 

to complete an EOT OMRA). 

In addition, in the proposed rule (76 

FR 26390 through 26391), we addressed 

suggestions that the completion of an 

EOT OMRA and a subsequent Start-ofTherapy (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. Therefore, 

for the reasons discussed in the 

proposed rule (76 FR 26390 through 

26391), we proposed 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-ofTherapy-Resumption (EOT–R) OMRA 

rather than an SOT OMRA, in cases 

where the resumption of therapy date is 

no more than 5 consecutive calendar 

days after the last day of therapy 

provided, and the therapy services have 


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resumed at the same RUG–IV 

classification level that had been in 

effect prior to the EOT OMRA. In the FY 

2012 proposed rule, we stated that 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. 

In addition, as discussed in the 

proposed rule (76 FR 26391), 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 believe 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 in the FY 2012 proposed rule 

(76 FR 26392), we believe that such 

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 § 483.20(b)(2)(ii). 

Accordingly, we proposed (76 FR 

26392) 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 

reimbursable therapy minutes, or 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 that 

resident’s most recent assessment used 

for Medicare payment. The COT OMRA 

would be a new type of required PPS 

assessment. The ARD of the COT OMRA 

would be set for Day 7 of a COT 

observation period, which is a 

successive 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), and 

ending every 7 calendar days thereafter. 

We proposed 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 level of 

therapy. 

We received a number of comments 

on these proposals and clarifications 

which, along with our responses, appear 

below. 

Comment: Many commenters 

supported the changes to the MDS 

assessment schedule and agreed that the 

current assessment schedule does allow 

providers to use information from the 

same days of the patient’s stay on 

different scheduled MDS assessments 

intended to capture changes in the 

patient’s condition over time. 

Others suggested that CMS conduct a 

detailed analysis to determine the 

efficacy of the proposed changes prior to 

implementation. These commenters 

opposed changes to the assessment 

schedule based on their belief that the 

changes would not reduce the frequency 

with which information from the same 

days of the patient’s stay is used on 

different scheduled MDS assessments. 

Other commenters raised concerns that 

the proposed changes to the assessment 

schedule would limit flexibility in 

scheduling assessments and would be 

burdensome because the shorter 

window for providers to set the ARD for 

a scheduled PPS assessment would 

reduce the SNF staff’s ability to stagger 

MDS due dates among residents. 

One commenter stated that the 

proposed changes to the MDS schedule 

and assessments will take the clinical 

judgment away from licensed therapists. 

This commenter stated that the use of 

clinical judgment is crucial in ensuring 

that the patients receive needed services 

for which they qualify and that produce 

a positive clinical outcome. One 

commenter expressed concern that the 

proposed changes to the MDS 

assessments and schedules would 

impose an additional burden on 

software vendors, billing offices, and 

medical records personnel. 

Furthermore, the commenter stated that 

the proposed changes would affect MDS 

scheduling tools, calendars, billing 

effective dates, budget, and billing 

reports. 

Response: We are pleased with the 

comments received in support of the 

proposed changes. Prior to proposing 

changes to the assessment schedule, we 

did conduct a detailed analysis on the 

likely effect of the updated policies. For 

this reason, we do not agree that the 

proposed changes to the MDS 

assessment schedule should be 

withdrawn until another study is 

completed. However, as with all new 

and revised policies, we will monitor 

the effects of the changes, and make any 

necessary modifications through future 

rulemaking. We recognize that, while 

the proposed changes eliminated most 

of the overlap in setting the observation 

periods for Medicare-required 

scheduled assessments, it is impossible 

to eliminate totally the potential for 

information from the same days of the 

patient’s stay to be used on different 

scheduled MDS assessments, since 

changes in a beneficiary’s condition can 

also require completion of several 

different types of unscheduled 

assessments (such as OMRAs, discharge 

assessments, significant change 

assessments, etc.) within short periods 

of time. However, as discussed in the 

proposed rule (76 FR 26388 through 

26389), we believe by making the 

proposed changes to the assessment 

schedule (that is, by narrowing the 

assessment and grace day windows), we 

reduce the amount of information from 

the same days of the patient’s stay that 

may be used on different scheduled 

MDS assessments while still allowing 

providers some flexibility in setting the 

ARD. 

In terms of regular scheduled PPS 

assessments, the 5-day and 14-day 

scheduled Medicare assessments are 

used to determine payment for the first 

30 days of a SNF stay. Under the current 

policy, it is possible that the clinical 

characteristics of a resident on days 5 

through 8 of the resident’s stay could be 

used on both the 5-day and 14-day 

assessments. In such a case, this 

effectively reduces the number of days 

that clinical information is collected 

and used to observe changes in the 

patient’s condition over time. In cases 

where this overlap is used, payment is 

established for the first 30 days of the 

patient’s stay based on only 10 days of 

service, with 4 days overlapping 

between observation windows, rather 

than the intended 14 days of service 

with little to no overlap between 

observation periods. We are confident 

that the proposed changes allow 

sufficient time to perform all required 

assessments, allow for flexibility in 

scheduling the assessments, and 

provide a more accurate method for 

determining payment across the entire 

30-day period. As discussed above, we 

believe that these changes are necessary 

to reduce the possibility that 

information from the same days of the 

patient’s stay may be used on different 

scheduled MDS assessments and to 

allow us to capture more appropriately 

the changes to patients’ status and in 


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services and treatments provided over 

the course of a SNF stay and, as such, 

these changes will allow us to reimburse 

more accurately for SNF services. 

Additionally, we do not agree that our 

proposed changes to the MDS schedule 

and assessments would take away 

clinical judgment from therapists. 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). It is true that 

our proposed changes to the MDS 

assessments and schedules will affect 

the reporting and reimbursement of SNF 

services, including therapy services; 

however, we have not mandated the 

manner of providing these services. We 

agree that the licensed therapists are to 

use their clinical judgment to treat the 

patients in the most appropriate 

manner, and to maintain professional 

standards while providing all necessary 

services. 

With regard to commenters’ concern 

related to the burden arising from 

changes in the MDS assessment 

schedule and assessments, we would 

note that we gave draft specifications to 

vendors as soon as possible after we 

published the proposed rule. We 

acknowledge that the proposed changes 

to the MDS schedule and assessments 

may affect items listed by the 

commenter (scheduling tools, calendars, 

billing effective dates, budget, and 

billing reports), but believe that, for the 

reasons outlined here and in the 

proposed rule, such changes are 

nevertheless necessary to provide 

appropriate payment for services 

provided to residents, to enhance the 

reliability of the MDS, and to ensure the 

stability of the SNF PPS. 

Comment: One commenter stated that 

in practice, by reducing the length of the 

assessment windows, we have 

minimized the usefulness of grace days 

to providers, and suggested that we 

officially eliminate the concept of grace 

days. Other commenters requested that 

we remove the grace days from the 

assessment schedule completely, and 

combine them with the ARD days. On 

the other hand, several commenters 

recommended expanding the 

assessment window to allow providers 

more flexibility in using grace days 

when determining the observation 

period. These commenters were 

concerned that, as CMS has stated that 

grace days should be used sparingly, 

any claim which makes use of an 

assessment where grace days are used 

might be considered as potentially 

inappropriate and subject to medical 

audit. 

Response: Grace days are a 

longstanding part of the SNF PPS in 

order to allow clinical flexibility when 

setting the ARD dates of scheduled PPS 

assessments. We agree that in practice, 

there is no difference between regular 

ARD windows and grace days and we 

encourage the use of grace days if their 

use will allow a facility more clinical 

flexibility or will more accurately 

capture therapy and other treatments. 

Thus, we do not intend to penalize any 

facility that chooses to use the grace 

days for assessment scheduling or to 

audit facilities based solely on their 

regular use of grace days. We may 

explore the option of incorporating the 

grace days into the regular ARD window 

in the future; nevertheless, we will 

retain them as part of the assessment 

schedule at the present time consistent 

with the current policy and the new 

assessment schedule proposed in the 

proposed rule. 

Comment: Many commenters 

supported the proposed change to 

consider all facilities 7-day facilities for 

purposes of setting the ARD for the EOT 

OMRA and the clarification that 

facilities are required to complete an 

EOT OMRA to classify residents into 

non-therapy RUG categories when 

therapy has been missed for 3 

consecutive days. Others believed that 

an EOT OMRA should only be required 

if three scheduled days of therapy are 

missed, rather than unscheduled days, 

since it may be possible for a patient to 

receive the required amount of weekly 

therapy while still not being provided 

with any therapy for 3 consecutive days. 

Many commenters stated that it would 

not be unusual for patients to have 3- 

day lapses in therapy, especially if a 

weekend were involved. The 

commenters explained that it is 

common for patients in the SNF 

population to have brief episodes of 

illness or refusals, doctor appointments, 

or religious holidays that may cause a 

missed therapy day on a Friday or 

Monday, and that requiring an EOT 

OMRA following 3 consecutive calendar 

days of missed therapy is not logical, as 

it will entail a provider burden of 

additional paperwork. 

Response: We are pleased that some 

commenters supported the proposal to 

eliminate the distinction between 5–day 

and 7-day facilities and to apply a 

uniform policy in setting the ARD for 

the EOT OMRA. However, we do not 

agree with comments that an EOT 

OMRA should only be required if 3 

scheduled days of therapy are missed, 

rather than any three consecutive day 

periods. As stated in § 409.31(b)(1), to 

meet the skilled level of care 

requirement for coverage of posthospital SNF care, ‘‘the beneficiary must 

require skilled nursing or skilled 

rehabilitation services, or both, on a 

daily basis.’’ Additionally, the criteria 

for ‘‘daily basis’’ under § 409.34(a)(2) 

state, ’’ As an exception, if skilled 

rehabilitation services are not available 

7 days a week those services must be 

needed and provided at least 5 days a 

week.’’ Therefore, according to these 

regulations, while a facility may 

determine that it does not have adequate 

resources to provide therapy 7 days a 

week, the facility is still required to 

ensure that therapy is provided for at 

least five days a week. In addition, the 

policy requiring an EOT OMRA to be 

completed when therapy has been 

discontinued for 3 consecutive calendar 

days is consistent with our discussion of 

§ 409.34(b) in the FY 2010 final rule (74 

FR 40348), in which we stated that a 

break of 1 or 2 days would not 

necessarily result in a provider having 

to complete an EOT OMRA. As we 

stated in the FY 2012 proposed rule (76 

FR 26390), we believe that the policy of 

requiring all SNFs to set the ARD for the 

EOT OMRA by the third consecutive 

calendar day after the last day of 

therapy was provided appropriately 

reflects that the frail and vulnerable 

populations within SNFs require 

consistent therapy without significant 

breaks in service. Accordingly, we 

believe that regardless of whether the 

missed therapy day was scheduled, and 

no matter what the reason was for the 

missed therapy, if the resident missed 3 

consecutive calendar days of therapy, 

we believe an EOT OMRA should be 

completed. 

Commenters cited several specific 

examples of situations that would cause 

a resident to miss therapy. We realize 

that there may be a variety of reasons 

that therapy would be missed, whether 

the reason for the missed therapy was 

planned or unplanned. At the same 

time, it is the facility’s responsibility to 

ensure that patients receive ongoing, 

rather than sporadic, care to promote 

each patient reaching his or her full 

potential. Thus, we emphasize that the 

EOT OMRA should be completed if 

therapy was missed for 3 consecutive 

calendar days for any reason, planned or 

unplanned. Additionally, the idea that a 

resident can receive the required 

amount of weekly therapy while still 

not being provided therapy for 3 

consecutive days, as suggested by the 

commenter, assumes that there is a 

prescribed ‘‘Medicare therapy week’’. It 

should be noted, however, that there is 

no prescribed ‘‘Medicare therapy week’’ 


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that spans across any specific days. 

Therapy utilization is measured across a 

rolling 7-day period as reported on the 

MDS assessments. Thus, for the reasons 

discussed above, the EOT OMRA should 

always be completed when a resident 

misses 3 consecutive calendar days of 

therapy. 

Comment: One commenter 

recommended that CMS recalibrate the 

therapy thresholds, specifically in the 

Ultra High and Very High Rehabilitation 

RUG categories to distribute minutes 

more accurately and to establish more 

realistic sub-categories. 

Response: We appreciate the 

commenter’s recommendation. We 

intend to monitor these policies as well 

as provider behavior and we may 

consider such approaches in the future. 

Comment: Several commenters 

requested additional guidance and 

clarification on the requirements for 

providing a SNF Advance Beneficiary 

Notice of Noncoverage (SNF ABN) or an 

expedited determination notice, also 

known as the Notice of Medicare NonCoverage (NOMNC) when a beneficiary 

misses 3 consecutive days of skilled 

therapy and will enter into a 

noncovered stay because they will no 

longer be receiving skilled services. One 

commenter thought that CMS required a 

SNF ABN to be issued 48 hours prior to 

the delivery of noncovered care. The 

commenter was concerned that this 48- 

hour SNF ABN delivery ‘‘requirement’’ 

could not be met when a beneficiary 

receives no therapy on a weekend and 

refuses therapy on Monday. 

Response: The SNF ABN is issued 

prior to delivering services for which 

Medicare might not pay because they 

are not medically reasonable and 

necessary and/or constitute custodial 

care, and the beneficiary is expected to 

receive these services and possibly 

incur financial liability. The policy for 

issuance of the SNF ABN has not 

changed in light of the policies being 

finalized in this rule. Please see the 

current manual instructions for the SNF 

ABN in the Medicare Claims Processing 

Manual, IOM 100–04, Chapter 30, 

Section 70, which can be accessed via 

this link: http://www.cms.gov/Manuals/ 

IOM/list.asp. 

There is no ‘‘48-hour notice’’ 

requirement associated with the SNF 

ABN. However, the SNF ABN should be 

given in a timely manner to provide the 

beneficiary or the representative 

sufficient time to make an informed 

decision about whether to receive care 

that may not be covered by Medicare, 

and/or make other arrangements for 

care. SNF providers should issue the 

SNF ABN as soon as it is clear that the 

beneficiary may enter into a noncovered stay. 

We appreciate the commenters’ 

concerns regarding understanding the 

requirements for the issuance of the 

SNF ABN in light of this rule; however, 

as noted previously, our policies related 

to issuance of the SNF ABN remain 

unchanged. Specifically, the timing of 

SNF ABN delivery remains unchanged, 

and as per current policy and as 

discussed above, it should be given 

prior to delivery of care for which 

Medicare might not pay, allowing the 

beneficiary or the representative a 

reasonable amount of time to make an 

informed decision about whether to 

receive the care and/or make other 

arrangements for care. Finally, we note 

that where the beneficiary misses 3 

consecutive days of skilled therapy and 

will enter into a noncovered stay, either 

because therapy is not offered on those 

days or the beneficiary refuses or 

declines therapy, or any combination of 

the preceding, it is unlikely that a 

provider will need to issue the NOMNC. 

The NOMNC is a notice issued prior to 

the termination of Medicare-covered 

services, when the provider determines 

that such services are no longer covered 

based on Medicare coverage policies 

(see 42 CFR §§ 405.1200 and 405.1202). 

The NOMNC informs the beneficiary of 

the right to appeal the discontinuation 

of covered services. Our policies 

regarding issuance of an NOMNC have 

not changed in light of this rule. 

Consistent with current policy, if SNF 

covered services end solely because a 

beneficiary fails to meet the consecutive 

days of therapy requirement for the 

reasons set forth above, the NOMNC 

would not be issued. The NOMNC is a 

provider notice of termination of 

services and is not issued when a 

beneficiary initiates the end of care. The 

NOMNC is also not issued when care 

ends for provider business reasons, such 

as when a SNF does not offer therapy 

on certain days. We intend to publish 

guidance on NOMNC delivery in the 

Medicare Claims Processing Manual in 

the near future. We will also include 

further clarification on NOMNC 

delivery in other vehicles, such as CMS 

Open Door Forums, as deemed 

necessary. 

Comment: Several commenters have 

stated that the requirement of the EOT 

OMRA after discontinuation of therapy 

for 3 consecutive days inhibits facilities 

from gradually reducing therapy 

services as residents approach the end 

of their SNF stay. The commenters 

explained that it is common to reduce 

the frequency and intensity of treatment 

prior to facility discharge to assure the 

resident will maintain their current 

level of function without the need for 

daily therapy. 

Response: We do not agree that the 

requirements to complete an EOT 

OMRA following discontinuation of 

therapy for three consecutive calendar 

days discourages facilities from 

gradually reducing therapy services 

prior to discharge. The EOT OMRA 

would only need to be completed if 3 

consecutive calendar days of all three 

therapy disciplines were missed. We 

believe that it is likely to be inconsistent 

with good clinical judgment for 

practitioners to purposely not provide 

any rehabilitation services in a 3-day 

period prior to an imminent discharge, 

especially given the frail and vulnerable 

nature of SNF populations. 

Comment: Several commenters 

remarked that the requirement to 

complete an EOT OMRA after 3 

consecutive days of missed therapy will 

negatively affect residents who are 

classified into Low Rehabilitation RUG 

groups. They stated that facilities might 

be required to complete an EOT OMRA 

on a weekly basis if these residents do 

not receive therapy on a Monday or 

Friday. 

Response: Residents who fall into the 

Rehabilitation Low RUG groups 

continue to benefit from skilled therapy. 

Even though their conditions indicate 

that they only need to receive therapy 

for a minimum of 45 minutes per week 

over at least 3 days to be classified into 

these RUG groups, we believe that a 

significant break in therapy services 

may still be detrimental to their therapy 

goals and recovery. For example, if a 

facility treats one of these residents on 

a Monday, Tuesday, and Wednesday 

and they do not have another treatment 

session until the following Monday or 

Tuesday, this resident will go for 4 or 

5 consecutive calendar days without 

therapy services. We believe that this 

significant break in therapy may cause 

this resident to regress from functional 

gains made during therapy thus far. For 

this reason, we require that an EOT 

OMRA also be completed for residents 

who are in the Rehabilitation Low RUG 

groups, when therapy services have 

been discontinued for 3 consecutive 

calendar days. 

Comment: We have received 

numerous comments stating that 

providing 7-day-a-week therapy for 

rural facilities is very difficult. The 

commenters stated that it is quite 

possible that the EOT OMRA would be 

triggered frequently by 3 missed days of 

therapy over the weekend plus the 

adjoining days. The commenters 

suggested that the policy that requires 

an EOT OMRA in the event of 3 missed 


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days of therapy should be revised to at 

least 4 missed days. 

Response: We recognize the concern 

of the rural facilities. However, our 

primary concern is that the SNF 

residents receive daily skilled 

rehabilitation as required under 

§§ 409.31 and 409.34. We expect that 

rural facilities and SNFs that cannot 

meet the ‘‘daily basis’’ requirement 

under § 409.34 will revisit their hiring 

and staffing practices as well as 

recruitment and retention options to 

assure they have the appropriate 

amount of staff to ensure that daily 

skilled care can be provided. 

Additionally, if facilities are having 

difficulty meeting the daily skilled 

needs of the residents in their care, they 

should also revisit their admissions 

policies and determine if they are 

accepting patients for whom they have 

the resources to provide the necessary 

daily skilled therapy services. 

We do not agree with the suggestion 

to allow SNFs to discontinue therapy for 

4 consecutive days prior to completing 

the EOT OMRA. As stated above, 

§ 409.34 requires skilled nursing and/or 

rehabilitation services on a daily basis. 

We have made limited allowances for 

facilities that are unable to provide 

therapy services 7 days a week based on 

logistical constraints; however, we still 

expect SNFs to provide an adequate 

amount of skilled rehabilitation services 

to meet the patient’s clinical needs. 

Allowing 4 missed days of therapy prior 

to completion of the EOT OMRA would 

undermine this concept. As we stated 

previously, the EOT OMRA policy we 

proposed and are finalizing in this final 

rule reflects that the frail and vulnerable 

populations in SNFs require consistent 

therapy without significant breaks in 

service. 

Comment: One commenter asked if it 

is possible for computer software to 

calculate the appropriate RUG when 

therapy ends without another MDS 

being completed. 

Response: The information needed to 

calculate a non-therapy RUG–IV group 

when therapy is discontinued is only 

reported on the MDS. The only option 

for automating the recalculation of the 

RUG–IV group would be to use a 

previously-submitted MDS. Since that 

assessment would reflect the 

beneficiary’s condition in a prior period 

rather than the patient’s condition when 

therapy ended, there would be no way 

to determine the most appropriate nontherapy RUG category for the patient 

from that assessment. 

Comment: Many commenters stated 

that the proposed COT OMRA could 

accommodate for the missed 3-day 

treatment scenarios that necessitate EOT 

OMRA completion. 

Response: We do not agree that the 

COT OMRA could address both changes 

in therapy provision and missed therapy 

days. The intent of the EOT OMRA is 

to pay SNFs the per diem medical RUG 

rate for the consecutive days that the 

resident did not receive therapy 

services. The COT OMRA addresses 

changes in minutes of therapy provided, 

not missed days. 

Comment: Several commenters asked 

us to define the term ‘‘treatment day’’ 

for purposes of the EOT OMRA. These 

commenters asked us if a resident 

received less than 15 minutes of therapy 

a day, whether this time could still 

count toward the definition of a 

‘‘treatment day’’ rather than as a missed 

therapy day. 

Response: For purposes of 

determining when an EOT OMRA must 

be completed, a treatment day is defined 

exactly the same way as in the RAI 

Manual in Chapter 3, Section O, page 

O–16: 15 minutes of therapy a day. If a 

resident receives less than 15 minutes of 

therapy in a day, it is not coded on the 

MDS and it cannot be considered a day 

of therapy. 

Comment: Several commenters 

expressed confusion about the process 

of re-starting therapy after an EOT 

OMRA was completed. Some were 

unsure about when to complete an SOT 

OMRA or an EOT–R OMRA. Others 

asked whether a new therapy evaluation 

is necessary in all cases of resumption. 

Additionally, although many 

commenters supported the proposal to 

implement the optional EOT–R OMRA, 

and approved of this option to lessen 

the burden of SNFs when the need to 

complete the EOT OMRA arose, many 

others expressed confusion and/or 

requested clarification as to whether the 

EOT–R OMRA is a new assessment type 

or a modification of an old assessment. 

Response: As explained in the 

proposed rule (76 FR 26389 through 

26390), the ARD for the EOT OMRA 

must be set 1 to 3 consecutive calendar 

days following the last day of therapy. 

Under current policy, if the patient was 

discharged from therapy with no 

expectation for it to continue or restart, 

then the EOT OMRA would classify the 

resident into a non-therapy RUG group 

which would be the basis of payment 

until the next PPS assessment. However, 

even if the resident was not discharged 

from therapy services and missed 3 or 

more consecutive days of therapy, an 

EOT OMRA still would have to be 

completed to classify the resident into a 

non-therapy RUG group for those days 

of missed therapy. 

As explained in the FY 2012 proposed 

rule (76 FR 26390 through 26391), we 

recognize that the completion of an EOT 

OMRA and subsequent SOT OMRA may 

not be necessary for all patients. This 

may be the case where therapy was 

discontinued (for example, due to nonclinical reasons such as scheduling 

conflicts), and resumes shortly 

thereafter at the same RUG classification 

level. Therefore, we proposed the option 

to complete an EOT with Resumption or 

an EOT–R OMRA, rather than an SOT 

OMRA, in cases where the therapy 

resumption date is no more than 5 

consecutive calendar days following the 

last day of therapy provided and the 

therapy services have resumed at the 

same RUG–IV classification level that 

had been in effect prior to the 

discontinuation of therapy services. As 

we stated in the FY 2012 proposed rule 

(76 FR 26390), 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. We appreciate the support for 

the proposal of the EOT–R OMRA. 

We would like to clarify that the 

EOT–R OMRA is not a new assessment 

type. As explained in the FY 2012 

proposed rule (76 FR 26390), it is an 

EOT OMRA with two additional items 

(O0450A and O0450B) to indicate 

whether therapy is expected to resume 

and the date of resumption of therapy. 

As stated above, an EOT–R OMRA may 

be used when therapy has been missed 

for at least 3 consecutive calendar days 

and is expected to resume (and actually 

does resume) within 5 calendar days 

following the last day of therapy. For 

example: Mr. A. received therapy every 

day Monday through Friday. He missed 

therapy on Saturday and Sunday 

because the SNF he was in did not 

provide therapy during the weekend. 

On Monday, Mr. A.’s family came to 

visit and he refused therapy. At this 

point, Mr. A. missed three days of 

therapy and an EOT OMRA would be 

required. He also missed therapy on 

Tuesday, due to a scheduled doctor’s 

appointment. The interdisciplinary 

team made the determination that Mr. 

A.’s missed therapy did not result in a 

change in clinical condition that would 

make him tolerate less therapy and 

change his RUG–IV classification. 

Therefore, the facility completed an 

EOT OMRA on Monday indicating that 


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therapy had not occurred for at least 

three days. Then, on Wednesday, the 

EOT is modified into an EOT–R by 

reporting the actual date of resumption, 

which was Wednesday. In this case, a 

new therapy evaluation was not 

required and Mr. A resumed therapy on 

Wednesday at the same RUG–IV 

classification level. 

If the reason for missed therapy was 

clinical in nature (meaning there was a 

possibility that the resident’s clinical 

therapy status was affected by the 

missed therapy), it may not be 

appropriate for the facility to complete 

an EOT–R OMRA. In cases where the 

patient resumes therapy more than 5 

consecutive calendar days after 

discontinuation of therapy services or 

where the patient resumes therapy at a 

different RUG classification level (even 

if it is no more than 5 consecutive 

calendar days after the date the last 

therapy service was furnished), an EOT– 

R OMRA cannot be used. In this case, 

the facility could either complete an 

optional SOT–OMRA and new therapy 

evaluation if therapy resumes, or wait 

until the completion of the next 

scheduled PPS assessment to classify 

the resident into a RUG–IV group. If the 

facility chooses not to complete an SOT 

OMRA and if the next scheduled PPS 

assessment is used to classify the 

patient into a therapy RUG group, a new 

therapy evaluation would also be 

required. Thus, in situations where an 

EOT OMRA was completed and therapy 

subsequently resumes, a new therapy 

evaluation is required when either an 

SOT OMRA or a scheduled PPS 

assessment is used to classify the 

resident into a RUG–IV therapy group. 

For example: Mr. B. received therapy 

every day Wednesday through Monday. 

On Tuesday, he felt ill and missed 

therapy that day and Wednesday. He 

then went to dialysis on Thursday and 

missed therapy that day as well. He 

missed a total of 3 days of therapy. Due 

to his illness and dialysis, he could not 

immediately resume therapy at the same 

level he was receiving prior to the three 

missed days. However, on Friday he felt 

well enough to start therapy again. The 

facility completed an EOT OMRA on 

Thursday to classify Mr. B. into a nonrehabilitation RUG group and to get 

paid the non-rehabilitation RUG rate for 

Tuesday, Wednesday, and Thursday. As 

Mr. B. could not resume therapy at the 

same RUG–IV classification level, a new 

therapy evaluation was completed by 

each discipline (physical therapy, 

occupational therapy, and/or speech 

therapy) treating Mr. B. and then an 

SOT OMRA was completed, and he was 

placed back into a rehabilitation RUG 

group. The facility was paid at the 

rehabilitation RUG rate from the day 

therapy restarted until the next PPS 

assessment was completed. 

Comment: One commenter 

highlighted a potential error in an 

example we provided on page 26392 of 

the proposed rule, where we stated that 

‘‘* * * 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) * * *’’ (76 FR 

26392). According to this commenter, 

the phrase ‘‘30-day assessment’’ should 

be replaced by ‘‘EOT OMRA’’ because 

the non-therapy RUG on the EOT 

OMRA is used to establish the payment 

for services during the period where no 

therapy services are provided. 

Response: After careful review of the 

example in the proposed rule cited by 

the commenter, we agree with the 

commenter that we misstated the 

relevant assessment that would 

determine payment for Days 36 through 

39 in the example provided. The text 

quoted above on page 26392 of the 

proposed rule should read ‘‘* * * paid 

for Days 36 through 39 at the 

corresponding non-therapy rate, based 

on the patient’s clinical condition 

reported on the EOT OMRA (because 

therapy services were discontinued on 

Day 36 and an EOT OMRA was 

completed) * * *’’, as this accurately 

reflects how the payment for this 

resident would be calculated. We have 

reviewed the remainder of the example 

and found no additional errors. 

Comment: Several commenters 

questioned whether therapy service 

changes outside of the MDS observation 

window are a significant issue. One 

commenter requested evidence that 

there is a widespread instance of 

misreporting therapy services. One 

commenter suggested that if this were 

such a major threat to the Medicare 

program, they would assume CMS 

would have involved the Recovery 

Audit Contractors (RACs), the Medicare 

Administrative Contractors (MACs), and 

CMS surveyors in the medical review 

process to address this issue. 

Response: As we stated in the FY 

2012 proposed rule (76 FR 26391), 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 SNF resident outside the 

observation window for the most recent 

assessment. While in some of these 

cases, a patient’s clinical status may 

have changed outside of the observation 

window requiring an adjustment to the 

intensity of therapy during that time, we 

have also been presented with a 

multitude of anecdotal evidence 

claiming the misreporting of therapy 

services. In addition, the Office of the 

Inspector General (OIG) of the 

Department of Health and Human 

Services conducted an independent 

study into questionable billing practices 

in SNFs. Report No: OEI–02–09–00204 

(available online at http://oig.hhs.gov/ 

oei/reports/oei-02-09-00204.asp) 

demonstrates that the OIG concurs with 

our statements in the FY 2012 proposed 

rule and supports the changes we have 

proposed to curb these practices. As 

cited in the OIG Report (page 11), 

‘‘Lastly, the data highlight the need for 

further changes to make RUGs and 

Medicare payments more consistent 

with beneficiaries’ care and resource 

needs. These changes could include 

requiring SNFs to recalculate a 

beneficiary’s RUG whenever his or her 

level of therapy changes substantially, 

as well as reducing the overlap that 

occurs in assessment periods.’’ We agree 

with the commenter that we should 

utilize all of our available tools to 

identify and correct abusive practices. 

These issues have been referred to the 

appropriate entities for more intensive 

monitoring. 

Comment: We received several 

comments supporting the addition of 

the COT OMRA. These commenters 

agreed that the COT OMRA would 

improve the accuracy of reimbursement 

for therapy services and quality of care 

to SNF patients. The commenters also 

believed that the implementation of the 

COT OMRA would help ensure that 

Medicare payments more accurately 

reflect the differences in resources 

utilized for patient care. However, many 

commenters stated that the COT OMRA 

would create an undue burden for 

facilities. Several commenters stated 

that the COT OMRA would increase 

supply costs associated with completing 

the actual form and that the additional 

paperwork required would affect the 

‘‘green’’ efforts of many facilities. Some 

commenters stated that the additional 

assessments would reduce actual 

patient care due to the amount of time 

spent regulating and monitoring these 

assessments during the SNF stay. Some 

commenters expressed concern that the 

COT OMRA would require facilities to 

add new evaluation processes to 

monitor RTM. One commenter stated 

that the COT OMRA would increase 

confusion about the MDS process. One 

comment expressed concern that when 

the COT OMRA causes a resident to 

classify into a lower RUG category, this 

would cause facility workloads to 


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increase without an increase in 

personnel reimbursement. 

Response: We would like to stress that 

SNFs would be required to complete a 

COT OMRA only if the intensity of 

therapy changes to such an extent that 

the patient’s RUG classification, based 

on their last PPS assessment, is no 

longer an accurate representation of the 

patient’s current clinical condition. 

Regarding the need for a new evaluation 

process to monitor and count RTM, we 

believe that facilities currently have 

processes in place that monitor the total 

amount of therapy minutes provided 

over any given period of time. 

Therefore, we do not agree that the 

process of evaluating RTM will add a 

significant time burden to facilities or 

reduce actual patient care. We would 

like to stress that if facilities tailor 

treatment time to the needs of each 

individual patient and continue to 

provide that therapy outside of the 

assessment window, facilities will be 

less likely to be required to complete as 

many COT OMRAs. 

We cannot assess the accuracy of the 

statement that the COT OMRA will 

increase supply costs for form 

completion and affect the green efforts 

of facilities, as it depends on the facility 

management and environmental efforts 

of each specific facility. Nevertheless, 

we believe the COT OMRA is an 

appropriate measure to enhance the 

accuracy of payments and patient care. 

As we stated in the proposed rule (76 

FR 26392), we believe the COT OMRA 

will allow us to track changes in the 

patient’s condition and in the provision 

of therapy services more accurately, 

allowing reimbursement to reflect 

resource use more accurately, thereby 

improving the accuracy of 

reimbursement. Also, we believe that 

the ability to track changes in the 

patient’s condition and in the provision 

of service more accurately will enhance 

a SNF’s ability to provide quality care 

to residents. 

We do not believe that the COT 

OMRA will increase confusion about 

the MDS process. As we have done in 

the past, we will update the RAI Manual 

to incorporate the changes and 

instructions for assessments and we will 

provide training opportunities prior to 

the October 1, 2011 implementation. 

Finally, we do not agree with the 

commenter who stated that when a COT 

OMRA causes a resident to classify into 

a lower RUG category, this will cause 

facility workload to increase without an 

increase in personnel reimbursement. 

We note that RUG–IV classification is 

based on resource utilization and cost. 

If a patient is classified into a lower 

therapy RUG category based on a change 

to the therapy delivered during the COT 

observation period, then the SNF would 

appropriately be paid the lower rate 

associated with that RUG category. The 

SNF PPS rates are designed to cover the 

costs of providing care, including 

related administrative costs. 

Comment: Several commenters have 

asked whether the COT OMRA should 

be completed in cases of an increase in 

RTM to classify a resident into a higher 

RUG category in addition to cases where 

the resident would be classified into a 

lower RUG category based on the 

provision of RTM in the COT look-back 

period. One commenter asked if a COT 

OMRA would be required if there were 

a scheduled decrease in therapy 

provision (such as one that was caused 

by the discontinuation of one therapy 

discipline) or if the COT OMRA would 

be required for any reason that would 

cause a decrease in therapy. 

Additionally, commenters have 

questioned whether a resident’s ADL 

score should be taken into account 

when determining whether a COT 

OMRA is required. One commenter 

asked whether COT OMRA 

requirements, including the COT 

observation period requirement, would 

apply if a resident was receiving therapy 

but was classified into a nursing RUG 

because of index maximization. 

Response: As we stated in the FY 

2012 proposed rule (76 FR 26392), a 

COT OMRA would be completed for a 

patient in a therapy RUG, if a patient’s 

RTM has changed during the COT 

observation period to such a degree that 

the patient’s current RUG classification, 

based on their last PPS assessment, is no 

longer an accurate representation of the 

patient’s clinical condition (and the 

patient should be placed in a different 

RUG category). This applies whether the 

change in RTM is a scheduled change or 

an unscheduled or unplanned change, 

and whether the different RUG category 

is higher or lower than the RUG 

category in which the resident is 

currently placed. In addition, in 

response to the comment regarding 

whether other therapy changes such as 

the discontinuation of a particular 

therapy discipline would be sufficient 

to require a COT OMRA, upon further 

consideration, we believe that a COT 

OMRA should be required in any case 

where there is a change in the provision 

of therapy such that the patient’s 

current RUG classification based on 

their last PPS assessment, is no longer 

an accurate representation of the 

patient’s clinical condition and the 

patient should be placed in a different 

RUG–IV category. As we stated in the 

proposed rule (76 FR 26392) and in this 

final rule above, the purpose of the COT 

OMRA is to track changes in a patient’s 

condition and in the provision of 

therapy services more accurately to 

ensure that the patient is placed in the 

appropriate RUG category, thereby 

improving the accuracy of 

reimbursement. Based on comments 

received in response to the proposed 

rule, we will require that the COT 

OMRA be completed where the 

provision of therapy services has 

changed in any manner as observed 

during the COT observation period such 

that the patient should be placed in a 

different RUG category (not just in cases 

where the RTM has changed). Therefore, 

if a therapy discipline is discontinued 

and this results in a patient no longer 

meeting the required number of therapy 

disciplines for the patient’s current RUG 

category then a COT OMRA would be 

required. In addition, if a patient fails to 

receive the requisite number of days of 

therapy required for classification into 

the RUG category, then a COT OMRA 

would be required to change the 

patients’ RUG category as appropriate. 

As discussed previously, the purpose of 

the COT OMRA is to ensure that the 

patient is placed in the appropriate 

therapy RUG category based on therapy 

services needed and received and to 

ensure more accurate payment. For 

example, a facility is evaluating whether 

a COT OMRA is required for a resident 

who was placed in a Very-High 

Rehabilitation RUG group after the last 

PPS assessment. Upon informal 

evaluation at the end of the COT 

observation period, the facility 

determines that the resident has had 

720 minutes of therapy during the COT 

look-back period and meets all of the 

other criteria for classification in an 

Ultra-High Rehabilitation RUG group. A 

COT OMRA would be completed to 

place that resident into an Ultra High 

Rehabilitation RUG group. In response 

to the commenter’s question regarding 

whether a resident’s ADL score should 

be taken into account when determining 

whether a COT OMRA is required, ADL 

scores are not considered when 

deciding whether a COT OMRA needs 

to be completed as they are a refined 

grouping within the RUG category. 

However, when the COT OMRA is 

completed, the ADL score will be used 

in determining the appropriate RUG 

group in the grouper. 

Additionally, one commenter asked 

whether a SNF would be required to 

comply with the COT OMRA 

requirements, including the COT 

observation period requirement, in cases 

where a resident is receiving therapy 

but is classified into a nursing RUG 

because of index maximization. Upon 


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consideration of this comment, we 

believe that the COT OMRA 

requirements, including the COT 

observation period requirement, should 

also apply in cases where a resident is 

receiving therapy but is classified into a 

nursing RUG because of index 

maximization. While this type of index 

maximization will affect only a small 

subset of beneficiaries receiving 

therapy, because such patients are 

receiving therapy services sufficient for 

classification into a therapy RUG and 

would be classified into a therapy RUG 

if index maximization had not been 

applied, we believe that it is appropriate 

to apply the COT OMRA policy as 

finalized in this rule to these patients as 

well, so that any changes in the 

intensity of therapy services delivered 

to the patient may be captured. For 

example, the evaluation performed at 

the end of the COT observation period 

for such a patient may indicate an 

increase in RTM delivered, which may 

necessitate placing the patient into a 

rehabilitation RUG category. Therefore, 

the COT OMRA policy, as finalized in 

this rule, will also apply to patients who 

are receiving a level of therapy 

sufficient for classification into a 

therapy RUG category, but are classified 

into a nursing RUG because of index 

maximization. 

Comment: Many comments requested 

clarification about the COT OMRA. 

Specifically, several commenters asked 

whether the COT OMRA could replace 

or be combined with other scheduled 

PPS assessments. Also, one commenter 

asked us to clarify whether, if the ARD 

for the COT OMRA were not set for Day 

7, a missed or late assessment penalty 

would be applied. 

Response: As specified in Chapter 6, 

Section 30.3 of the Medicare Claims 

Processing Manual (CMS Pub. 100–04, 

which is available online at http:// 

www.cms.gov/manuals/downloads/ 

clm104c06.pdf), special billing 

requirements apply when there are 

multiple assessments within one 

Medicare-required assessment window. 

Consistent with our current policy, if an 

unscheduled PPS assessment (OMRA, 

Significant Change in Status Assessment 

(SCSA), or Significant Correction of a 

Prior Assessment (SCPA)) is required 

while in the assessment window of a 

scheduled PPS assessment that has not 

yet been completed, then facilities must 

combine the scheduled and 

unscheduled assessments by setting the 

ARD of the scheduled assessment for 

the same day that the unscheduled 

assessment is required. In such cases, 

facilities should provide the proper 

response to A0310 items to indicate 

which assessments are being combined, 

as completion of the combined 

assessment will be taken to fulfill the 

requirements for both the scheduled and 

unscheduled assessments. The purpose 

of this policy is to minimize the number 

of assessments required for SNF PPS 

payment purposes and to ensure that 

the assessments used for payment 

provide the most accurate picture of the 

patient’s clinical condition and service 

needs. In practice, in cases where the 

COT OMRA is combined with a 

regularly scheduled assessment, the 

facility would complete the scheduled 

assessment, rather than the COT OMRA, 

since the COT OMRA only includes a 

subset of the required MDS data. This 

single full MDS assessment is then used 

to determine payment for both the COT 

OMRA observation period and the 

regular payment window for the 

scheduled assessment. Thus, for 

example, in cases where Day 7 of the 

COT observation period falls within the 

ARD window of the 30-day PPS 

assessment, a provider would set the 

ARD for the 30-day assessment on day 

7 of the COT OMRA observation period, 

and code the reasons for assessment as 

both the 30-day and the COT OMRA 

assessment (MDS items A0310(B) and 

A0310(C)). Consistent with the COT 

OMRA policy we proposed in the FY 

2012 proposed rule (76 FR 26392), the 

HIPPS code derived from the combined 

COT OMRA and scheduled PPS 

assessment would be effective starting 

the first day of the COT observation 

period (for example, for the first COT 

observation period after the previous 

assessment used for Medicare payment, 

the first day of the COT observation 

period is the day after the ARD of the 

previous assessment used for Medicare 

payment) and would remain in effect 

until the end of the payment window 

for the 30-day assessment (that is, day 

60) or until a new unscheduled 

assessment (an OMRA, SCSA, or SCPA) 

is completed. 

The ARD for the COT OMRA is Day 

7 following the last scheduled or 

unscheduled PPS assessment or Day 7 

following the end of the last COT 

observation period (in cases where 

therapy had not changed sufficiently to 

require a COT OMRA assessment to be 

performed for the previous COT 

observation period). If a COT OMRA is 

required but is completed late, the 

facility is still required to submit the 

late COT OMRA to CMS. The facility 

will be paid at the default rate for any 

days not in compliance with the ARD 

requirement. The ARD of the late COT 

OMRA restarts the 7-day review period 

for the next COT OMRA. Since SNFs are 

only permitted to bill after the 

appropriate assessment has been 

accepted into the CMS data base, failure 

to submit a required assessment while 

continuing to bill for services that 

would be covered by the assessment, 

would subject the claim to denial. 

Comment: Many commenters offered 

suggestions and alternatives to the COT 

OMRA. Several commenters offered the 

general suggestion that CMS should 

seek alternate, less burdensome options 

to address the issue of therapy service 

level changes outside of the MDS 

observation windows. More specifically, 

commenters recommended that if we 

move forward with this proposal, we 

should allow flexibility in the choice of 

the ARD of the COT OMRA. One 

commenter suggested that we do this by 

allowing for grace days either at the 

beginning or end of the 7-day window 

for the COT observation period. 

Similarly, one commenter suggested 

that we incorporate the concept of 

‘‘grace minutes’’ to offer facilities the 

flexibility to allow for an unexpected 

decrease in therapy minutes outside of 

the assessment window. Additionally, 

we received suggestions that the COT 

OMRA should be required only after the 

first 30 days of a patient’s SNF stay. 

Response: We appreciate the 

suggestions and alternatives offered. 

However, we believe that allowing 

flexibility in the choice of ARD by 

adding grace days and by allowing grace 

minutes, as suggested by the 

commenter, would defeat the purpose 

and intent of the COT OMRA, which is 

to determine whether the therapy 

provided during a successive 7-day 

window of therapy following the ARD 

of a scheduled or unscheduled PPS 

assessment (the COT observation 

period) corresponds to the resident’s 

RUG–IV classification as reflected on 

the most recent PPS assessment. Adding 

grace days would allow facilities to 

provide a count of therapy minutes that 

may not be an accurate reflection of the 

actual therapy minutes provided during 

the successive 7-day period discussed 

above, contrary to the intent of the COT 

OMRA. Furthermore, we believe that 

allowing grace minutes would allow the 

facility to provide less therapy than 

anticipated with the expectation that 

CMS will reimburse the facility at a 

higher rate than appropriate. 

Additionally, the concept of ‘‘grace 

minutes’’ would indicate that providers 

are targeting a minimum threshold of 

minutes to qualify for a specific RUG 

category. We stress that there are not 

‘‘minimum minutes’’ that should be met 

when determining how much therapy a 

resident will receive. We expect that 

facilities are determining the therapy 

minutes provided based on the needs of 


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each individual resident. Furthermore, 

we do not agree that we should require 

the COT OMRA only after the first 30 

days of the SNF stay; instead, accurate 

payment should occur throughout the 

SNF stay. The majority of Medicare A 

Part stays are an average of 30 days in 

length, and thus, a COT OMRA that was 

only completed after day 30 would not 

adequately monitor for changes in 

therapy services during the Medicare 

Part A stay, which is the purpose of the 

COT OMRA. 

Comment: Several commenters stated 

that the implementation of the COT 

OMRA implies that SNF payment is no 

longer prospective in nature. One 

commenter suggested that the 

retrospective nature of the COT OMRA 

undermines the principles of risk 

sharing inherent in a prospective 

payment system. One commenter 

suggested that rather than changing the 

nature of the PPS, we should modify the 

case-mix indexes (CMIs) and payment 

rates associated with the Rehabilitation 

RUG categories. 

Response: As noted previously, we 

believe that the SNF PPS payments 

should reflect, as accurately as possible, 

resource utilization and cost. 

Classification of patients into therapy 

RUGs and payment for therapy services 

have always been based on the therapy 

services provided and reported on the 

MDS, and we do not view the COT 

OMRA as changing this. In 

implementing the COT OMRA, we are 

attempting to ensure that the therapy 

reported on the MDS and the therapy 

regimen chosen for the patient are a 

better reflection of the therapy needs of 

the patient, thereby ensuring more 

accurate payment. We appreciate the 

suggestion regarding modifying the 

CMIs and payment rates associated with 

the Rehabilitation RUG categories, and 

may consider this in the future to the 

extent appropriate. As stated in the 

proposed rule, CMS is 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. A discussion of these possible 

future initiatives is included in section 

III.E.5 below. 

Comment: Several commenters raised 

concerns regarding the inability of the 

COT OMRA to account for the natural 

progression in a patient’s therapy 

regimen. One commenter stated that as 

patients approach the end of their 

skilled therapy program, it is common 

practice to taper therapy down to 

prepare for discharge. Another 

commenter alleged that the requirement 

for the ARD of the COT OMRA to be set 

on Day 7 is arbitrary and that during any 

given payment period, clinical changes 

occur daily, especially at the beginning 

and end of the SNF stay. Other 

commenters were concerned that 

adhering to a strict 7-day evaluation 

schedule could prompt a patient’s RUG 

category to change for as little as one 

lost minute of therapy. 

Response: We believe that the COT 

OMRA, while based on changes in a 

therapy regimen, is primarily intended 

to capture the patient’s appropriate RUG 

classification and, therefore, the 

payment level. Therapists should 

exercise their professional discretion 

with regard to the appropriate amount 

and modality of the therapy provided to 

a resident during a given SNF stay. We 

acknowledge the natural progression of 

a patient’s therapy needs throughout a 

stay, and do not believe that the COT 

OMRA precludes therapists from having 

the freedom to tailor their provision of 

therapy services to the individual 

patient. 

We do not agree that setting the ARD 

of the COT OMRA on Day 7 following 

the last PPS assessment or Day 7 of any 

succeeding COT observation period is 

arbitrary. The resident is placed in a 

Rehabilitation or Rehabilitation Plus 

Extensive Services RUG category 

partially based the amount of therapy 

that was received during a 7-day lookback period. One of the basic principles 

underlying the SNF PPS is that an 

assessment completed in one time 

period can be used in accurately 

calculating reimbursement for a future 

period. While we realize that there will 

be changes based on individual needs, 

it is expected that, on average, residents 

will receive approximately the same 

amount of therapy within the next 7-day 

period after a PPS assessment. The COT 

OMRA is an instrument that will better 

align payment with the amount of 

therapy that a resident actually needs 

and receives. Our analysis of therapy 

utilization across Medicare Part A stays 

indicates that patients tend to remain in 

the same therapy groups for the first 30 

days of care; that is, as reported on the 

5-day and 14-day assessments. Since the 

average length of stay is approximately 

30 days, facilities that maintain a stable 

therapy schedule should not see a large 

volume of COT OMRAs. While it is 

more common to see changes in therapy 

and RUG–IV groups during longer stays, 

the volume of patients receiving 

Medicare Part A SNF care for stays 

exceeding 30 days is much lower. 

In response to the comment that a 

strict 7-day evaluation schedule could 

prompt a patient’s RUG category to 

change for as little as one lost minute of 

therapy, this is theoretically possible if 

the plan of care is designed to provide 

only the minimum number of minutes 

that qualify the patient for a specific 

therapy category. As noted above, the 

purpose of the COT OMRA is to 

determine whether the therapy provided 

during the 7 days of therapy following 

the ARD of a scheduled or unscheduled 

PPS assessment (and any succeeding 

COT observation period) correspond to 

the resident’s RUG–IV classification, as 

reflected on the most recent PPS 

assessment. Slight variations during the 

7-day period are expected, and it is up 

to the therapist to ensure that the 

patient receives the amount of therapy 

appropriate to his/her condition. 

Accordingly, for the reasons 

discussed in this final rule and in the 

FY 2012 proposed rule (76 FR 26388 

through 26393), we are finalizing our 

proposed policies related to the MDS 

Assessment Schedule, the EOT–OMRA, 

the EOT–R OMRA, and the COT OMRA. 

Specifically, effective October 1, 2011, 

as discussed in the proposed rule and in 

the final rule above, we are revising the 

Medicare-required assessment schedule 

in the manner set forth in Table 10B of 

the proposed rule (76 FR 26389); 

removing the distinction between 5-day 

and 7-day facilities for purposes of 

setting the ARD for the EOT OMRA, and 

requiring all facilities to set the ARD for 

the EOT ORMA by the third consecutive 

calendar day after a patient’s therapy 

services have been discontinued (76 FR 

26390); and permitting providers the 

option to complete an EOT–R OMRA 

rather than the optional SOT OMRA, in 

cases where the therapy resumption 

date is no more than 5 consecutive 

calendar days following the last day of 

therapy provided, and therapy services 

have resumed at the same RUG–IV 

classification level that had been in 

effect prior to the EOT OMRA (76 FR 

26390 through 26391). In addition, 

effective October 1, 2011, we are 

requiring facilities to complete a COT 

OMRA for patients classified into a 

RUG–IV therapy category, whenever the 

intensity of therapy (that is, the total 

RTM delivered or other therapy category 

qualifiers, such as the number of days 

the patient received therapy during the 

week or the number of therapy 

disciplines) changes to such a degree 

that it would no longer reflect the RUG– 

IV classification and payment assigned 

for a given SNF resident based on the 

most recent assessment used for 

Medicare payment (as proposed, the 

need for a COT OMRA will be based on 

therapy services delivered during the 

COT observation period) (76 FR 26391 

through 26393). In addition, as 

proposed, the new RUG–IV group 

resulting from the COT OMRA would be 


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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. 

Finally, as discussed above, the COT 

OMRA policy, as finalized in this rule, 

will also apply to patients who are 

receiving a level of therapy sufficient for 

classification into a therapy RUG, but 

are classified into a nursing RUG 

because of index maximization. 

5. Discussion of Possible Future 

Initiatives 

In the FY 2012 proposed rule (76 FR 

26393), we discussed some 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. Specifically, we 

discussed three possible future 

initiatives. First, we discussed the 

possibility of evolving the manner in 

which we pay for therapy services 

toward a model that has previously been 

advocated by MedPAC, which would 

base payments for therapy services on 

the patient’s characteristics. Similarly, 

we discussed the possibility of making 

partial prospective payments for therapy 

services, based on patient 

characteristics, and then reconciling 

payments after the services have been 

verified. Lastly, we discussed the 

possibility of annual recalibrations of 

the CMIs to account for fluctuations in 

provider practices, and MedPAC’s 

analysis regarding the possibility of 

rebasing the system. As we stated in the 

FY 2012 proposed rule, we were not 

proposing any new Medicare policy in 

this discussion, as we recognized that 

depending on how such modifications 

are ultimately formulated, their 

implementation may require new 

statutory authority. 

The comments we received related to 

this discussion, along with our 

responses, appear below. 

Comment: We received a few general 

comments related to this discussion, the 

majority of which stated their support 

for working with CMS in the future on 

any future initiatives. We did not 

receive any comments about any 

specific initiatives discussed. 

Response: We appreciate the support 

we received from commenters for 

considering these future initiatives and 

will continue to work with stakeholders 

on developing policies and programs 

that we consider necessary and 

appropriate to improve the SNF PPS. 

F. The Skilled Nursing Facility Market 

Basket Index 

Section 1888(e)(5)(A) of the Act 

requires us to establish a SNF market 

basket index (input price index), that 

reflects changes over time in the prices 

of an appropriate mix of goods and 

services included in the SNF PPS. In the 

FY 2012 proposed rule, we stated that 

the proposed rule incorporates the latest 

available projections of the SNF market 

basket. In this final rule, we are 

updating projections based on the latest 

available projections of the SNF market 

basket index at the time of publication. 

Accordingly, we have developed a SNF 

market basket index that encompasses 

the most commonly used cost categories 

for SNF routine services, ancillary 

services, and capital-related expenses. 

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 9 summarizes the updated laborrelated share for FY 2012. 

TABLE 9—LABOR-RELATED RELATIVE IMPORTANCE, FY 2011 AND FY 2012 

Relative importance, labor-related, 

FY 2011 

10:2 forecast * 

Relative importance, labor-related, 

FY 2012 

11:2 forecast ** 

Wages and salaries ................................................................................................................................. 50.654 50.129 

Employee benefits ................................................................................................................................... 11.511 11.502 

Nonmedical professional fees ................................................................................................................. 1.32 1.31 

Labor-intensive services .......................................................................................................................... 3.427 3.394 

Capital-related (.391) ............................................................................................................................... 2.399 2.358 

Total .................................................................................................................................................. 69.311 68.693 

* Published in Federal Register; based on second quarter 2010 IHS Global Insight Inc. forecast. 

** Based on the second quarter 2011 IHS Global Insight forecast, with historical data through the first quarter 2011. 

1. Use of the Skilled Nursing Facility 

Market Basket Percentage 

Section 1888(e)(5)(B) of the Act 

defines the SNF market basket 

percentage as the percentage change in 

the SNF market basket index from the 

average of the previous FY to the 

average of the current FY. For the 

Federal rates established in this final 

rule, we use the percentage increase in 

the SNF market basket index to compute 

the update factor for FY 2012. This is 

based on the IGI (formerly DRI–WEFA) 

second quarter 2011 forecast (with 

historical data through the first quarter 

2011) of the FY 2012 percentage 

increase in the FY 2004-based SNF 

market basket index for routine, 

ancillary, and capital-related expenses, 

which is used to compute the update 

factor in this final rule. As discussed in 

section III.F.3 of this final 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 final rule, we no longer 

compute update factors to adjust a 

facility-specific portion of the SNF PPS 

rates, because the initial three-phase 

transition period from facility-specific 

to full Federal rates that started with 

cost reporting periods beginning in July 

1998 has expired. 

2. Market Basket Forecast Error 

Adjustment 

As discussed in the 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 

§ 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 


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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 final 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. 

Comment: Several commenters 

suggested that CMS apply a cumulative 

forecast error adjustment to account for 

all of the variations in the market basket 

forecasts since FY 2004. These 

commenters stated that while the 

industry has accepted the adjustment 

process, the lack of any cumulative 

adjustment in recent years violates the 

precedent set by CMS in 2003 when the 

last cumulative adjustment was made 

and that the cumulative adjustment in 

2003 demonstrated recognition by CMS 

of the cumulatively erosive effect of 

multi-year forecasting errors. The 

commenters recommended that CMS 

adopt a policy which recognizes the 

cumulative effect of multi-year market 

basket forecast errors and that 

adjustment be made to account for the 

cumulative errors, estimated at 0.7 

percent, thus far. 

Response: For FY 2004, we applied a 

one-time, cumulative forecast error 

correction of 3.26 percent (68 FR 46036, 

46058). Since that time, the forecast 

errors have been relatively small and 

clustered near zero. As we stated in the 

FY 2004 final rule, we believe the 

forecast error correction should be 

applied only when the degree of forecast 

error in any given year is such that the 

SNF base payment rate does not 

adequately reflect the historical price 

changes faced by SNFs. Accordingly, we 

continue to believe that the forecast 

error adjustment mechanism should 

appropriately be reserved for the type of 

major, unexpected change that initially 

gave rise to this policy, rather than the 

minor variances that are a routine and 

inherent aspect of this type of statistical 

measurement. Further, we note that all 

of the Medicare prospective systems use 

an annual market basket adjustment 

factor to update rates to reflect inflation 

in the prices of goods and services used 

by providers. 

3. 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 

care 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://www.bls.gov/mfp to obtain the 

BLS historical published MFP data. The 

projection of MFP is currently produced 

by IGI, an economic forecasting firm. To 

generate a forecast of MFP, IGI 

replicated the MFP measure calculated 

by the BLS, using a series of proxy 

variables derived from IGI’s U.S. 

macroeconomic models. 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 10, 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 10—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 dollars ..................................... Non-housing non-government non-farm real GDP, Billions of chained 

2005 dollars—annual rate. 

Private non-farm business sector labor input; 2005 = 100.00 ................. Hours of all persons in private 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 final rule, the BLS 

has published a historical time series of 

private nonfarm business MFP for 1987 

through 2010, with 2010 being a 

preliminary value. Using this historical 

MFP series and the IGI forecasted series, 

IGI developed a forecast of MFP for 

2011 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 2011 to 

2021) are used to ‘‘grow’’ the levels of 

the ‘‘real value-added output,’’ ‘‘private 

non-farm business sector labor input,’’ 


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and ‘‘aggregate capital input’’ series 

published by the BLS. Projections of the 

‘‘hours of all persons’’ measure are 

calculated using the difference between 

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, 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. 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 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. 

a. Incorporating the Multifactor 

Productivity Adjustment Into the 

Market Basket Update 

According to section 1888(e)(5)(A) of 

the Act, the Secretary ‘‘shall establish a 

skilled nursing facility market basket 

index that reflects changes over time in 

the prices of an appropriate mix of 

goods and services included in covered 

skilled nursing facility services.’’ As 

described in section I.G.2 of this final 

rule, we 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. 

We received the following comment 

on the incorporation of the MFP 

adjustment into the SNF market basket 

which, along with our response, appears 

below. 

Comment: One commenter proposed 

to remove the statutory language 

requiring a multi-factor productivity 

adjustment to the SNF market basket 

increase and recommended an 

alternative approach to measuring 

productivity. The commenter 

recommended that CMS achieve 

productivity gains by implementing a 

mechanism that recognizes that the 

average length of stay in SNFs can be 

reduced, potentially resulting in 

aggregate savings. 

Response: The commenter’s proposal 

would require a change to the existing 

statute governing the SNF PPS and, 

therefore, the request is outside the 

scope of rulemaking. As stated 

previously, section 3401(b) of the 

Affordable Care Act requires that, in FY 

2012 (and in subsequent FYs), the 

market basket percentage under the SNF 

payment system as described in section 

1888(e)(5)(B)(i) of the Act is to be 

reduced annually by the productivity 

adjustment described in section 

1886(b)(3)(B)(xi)(II) of the Act. 

Accordingly, we are finalizing the 

methodology for calculating the MFP 

adjustment, and the incorporation of the 

MFP adjustment into the SNF market 

basket as discussed in this section of the 

final rule, and in section VI.C of the FY 

2012 proposed rule (76 FR 26394 

through 26396). 

To calculate the MFP-adjusted update 

for the SNF PPS, we subtract the MFP 

percentage adjustment from the FY 2012 

market basket percentage calculated 

using the FY 2004-based SNF market 

basket. In the FY 2012 proposed rule (76 

FR 26395), we proposed that the end of 

the 10-year moving average of changes 

in the MFP would 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 is calculated as the 10- 

year moving average of changes in MFP 

for the period ending September 30, 

2012. We 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 round the number up; if the 

number we are rounding is followed by 

0, 1, 2, 3, or 4, we 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 2nd quarter 

2011 forecast of the FY 2004-based SNF 


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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 is then reduced by the 

MFP adjustment (the 10-year moving 

average of changes in MFP for the 

period ending September 30, 2012) of 

1.0 percent, which is calculated as 

described above and based on IGI’s 2nd 

quarter 2011 forecast. The resulting 

MFP-adjusted market basket increase 

factor is equal to 1.7 percent, or 2.7 

percent less 1.0 percentage points. 

Furthermore, we proposed that 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 will apply the forecast error 

adjustment (when applicable) to the 

market basket percentage prior to 

applying the MFP adjustment, to 

determine the update to the unadjusted 

Federal per diem rates for a fiscal year. 

As discussed in the FY 2012 proposed 

rule (76 FR 26396), we proposed to 

revise § 413.337 to reflect the policies 

discussed above and to conform the 

regulations to the corresponding 

statutory requirements at section 

1888(e)(4)(E) of the Act. As we did not 

receive any comments on our proposed 

changes to § 413.337, we are finalizing 

these changes as proposed in the FY 

2012 proposed rule, subject to the 

technical correction noted below. 

Accordingly, as we proposed in the FY 

2012 proposed rule, we are revising 

§ 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), as we 

proposed, we are further revising 

§ 413.337(d)(3) to state that the 

reduction of the market basket index 

percentage change by the MFP 

adjustment may result in the market 

basket index 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. We note that we 

have made a technical correction to the 

language we proposed for 

§ 413.337(d)(3). In the last sentence, we 

are replacing the term ‘‘market basket 

percentage change’’ with ‘‘market basket 

index percentage change’’ to be 

consistent with the terminology used in 

the first sentence of § 413.337(d)(3) and 

in § 413.337(d)(1). 

In addition, as we proposed, we are 

revising existing paragraphs (d)(1) and 

(d)(2) of § 413.337, as discussed below. 

First, we are revising § 413.337(d)(1) so 

that the text more accurately tracks the 

corresponding statutory requirements at 

section 1888(e)(4)(E) of the Act. As we 

stated in the FY 2012 proposed rule (76 

FR 26396), currently, § 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 

final 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 

inadvertently failed to update the 

regulation text to conform with the 

BIPA requirements. Therefore, we are 

now revising § 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, as we 

proposed, we are revising 

§ 413.337(d)(2) to specify the existing 

thresholds we employ in determining 

whether a forecast error adjustment is 

applicable. 

b. Federal Rate Update Factor 

Section 1888(e)(4)(E)(ii)(IV) of the Act 

requires that the update factor used to 

establish the FY 2012 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 is 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 

1.0 percent as described in section 

III.F.3. The resulting MFP-adjusted 

market basket increase factor is equal to 

1.7 percent, or 2.7 percent less 1.0 

percentage point. We used this MFPadjusted market basket update factor to 

compute the SNF PPS rate shown in 

Tables 2 and 3. 

G. Consolidated Billing 

Section 4432(b) of the BBA 

established a consolidated billing 

requirement that places the Medicare 

billing responsibility for virtually all of 

the services that the SNF’s residents 

receive with the SNF, except for a small 

number of services that the statute 

specifically identifies as being excluded 

from this provision. As noted previously 

in section I. of this final rule, 

subsequent legislation enacted a number 

of modifications in the consolidated 

billing provision. 

Specifically, section 103 of the BBRA 

amended this provision by further 

excluding a number of individual ‘‘highcost, 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.hhs.gov/transmittals/ 

downloads/ab001860.pdf. 

Section 313 of the BIPA further 

amended this provision by repealing its 

Part B aspect; that is, its applicability to 

services furnished to a resident during 

a SNF stay that Medicare Part A does 

not cover. (However, physical, 

occupational, and speech-language 

therapy remain subject to consolidated 

billing, regardless of whether the 

resident who receives these services is 

in a covered Part A stay.) We discuss 

this BIPA amendment in greater detail 

in the proposed and final rules for FY 

2002 (66 FR 24020 through 24021, May 


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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 

45818–45819, July 30, 2004), as well as 

in Medicare Learning Network (MLN) 

Matters article MM3575, issued 

December 10, 2004, 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, enacted July 15, 2008). 

Specifically, section 149 of MIPPA 

amended section 1834(m)(4)(C)(ii) of the 

Act to create a new subclause (VII), 

which adds SNFs (as defined in section 

1819(a) of the Act) to the list of entities 

that can serve as a telehealth 

‘‘originating site’’ (that is, the location at 

which an eligible individual can 

receive, through the use of a 

telecommunications system, services 

furnished by a physician or other 

practitioner who is located elsewhere at 

a ‘‘distant site’’). 

As explained in the Medicare 

Physician Fee Schedule (PFS) final rule 

for CY 2009 (73 FR 69726, 69879, 

November 19, 2008), a telehealth 

originating site receives a facility fee 

which is always separately payable 

under Part B outside of any other 

payment methodology. Section 149(b) of 

MIPPA amended section 

1888(e)(2)(A)(ii) of the Act to exclude 

telehealth services furnished under 

section 1834(m)(4)(C)(ii)(VII) of the Act 

from the definition of ‘‘covered skilled 

nursing facility services’’ that are paid 

under the SNF PPS. Thus, a SNF ‘‘* * * 

can receive separate payment for a 

telehealth originating site facility fee 

even in those instances where it also 

receives a bundled per diem payment 

under the SNF PPS for a resident’s 

covered Part A stay’’ (73 FR 69881). By 

contrast, under section 1834(m)(2)(A) of 

the Act, a telehealth distant site service 

is payable under Part B to an eligible 

physician or practitioner only to the 

same extent that it would have been so 

payable if furnished without the use of 

a telecommunications system. Thus, as 

explained in the CY 2009 PFS final rule, 

eligible distant site physicians or 

practitioners can receive payment for a 

telehealth service that they furnish 

* * * only if the service is separately 

payable under the PFS when furnished in a 

face-to-face encounter at that location. For 

example, we pay distant site physicians or 

practitioners for furnishing services via 

telehealth only if such services are not 

included in a bundled payment to the facility 

that serves as the originating site (73 FR 

69880). 

This means that in those situations 

where a SNF serves as the telehealth 

originating site, the distant site 

professional services would be 

separately payable under Part B only to 

the extent that they are not already 

included in the SNF PPS bundled per 

diem payment and subject to 

consolidated billing. Thus, for a type of 

practitioner whose services are not 

otherwise excluded from consolidated 

billing when furnished during a face-toface 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 

§ 411.15(p)(2)). However, the services of 

clinical social workers, registered 

dietitians and nutrition professionals 

remain subject to consolidated billing 

when furnished to a SNF’s Part A 

resident and, thus, cannot qualify for 

separate Part B payment as telehealth 

distant site services in this situation. 

Additional information on this 

provision appears in Program 

Transmittal #1635 (Change Request 

#6215), issued November 14, 2008, 

which is available online at http:// 

www.cms.hhs.gov/transmittals/ 

downloads/R1635CP.pdf. 

To date, the Congress has enacted no 

further legislation affecting the 

consolidated billing provision. 

However, as noted above and explained 

in the proposed rule for FY 2001 (65 FR 

19232, April 10, 2000), the amendments 

enacted in section 103 of the BBRA not 

only identified for exclusion from this 

provision a number of particular service 

codes within four specified categories 

(that is, chemotherapy items, 

chemotherapy administration services, 

radioisotope services, and customized 

prosthetic devices), but also gave the 

Secretary ‘‘* * * the authority to 

designate additional, individual services 

for exclusion within each of the 

specified service categories.’’ In the 

proposed rule for FY 2001, we also 

noted that the BBRA Conference Report 

(H.R. Rep. No. 106–479 at 854 (1999) 

(Conf. Rep.)) characterizes the 

individual services that this legislation 

targets for exclusion as ‘‘* * * highcost, low probability events that could 

have devastating financial impacts 

because their costs far exceed the 

payment [SNFs] receive under the 

prospective payment system * * *’’. 

According to the conferees, section 

103(a) ‘‘is an attempt to exclude from 

the PPS certain services and costly 

items that are provided infrequently in 

SNFs. For example * * * specific 

chemotherapy drugs * * * not typically 

administered in a SNF, or * * * 

requiring special staff expertise to 

administer * * *.’’ By contrast, the 

remaining services within those four 

categories are not excluded (thus 

leaving all of those services subject to 

SNF consolidated billing), because they 

are relatively inexpensive and are 

furnished routinely in SNFs. 

As we further explained in the final 

rule for FY 2001 (65 FR 46790, July 31, 

2000), and as our longstanding policy, 

any additional service codes that we 

might designate for exclusion under our 

discretionary authority must meet the 

same statutory criteria used in 

identifying the original codes excluded 

from consolidated billing under section 

103(a) of the BBRA: They must fall 

within one of the four service categories 

specified in the BBRA, and they also 

must meet the same standards of high 

cost and low probability in the SNF 

setting, as discussed in the BBRA 

Conference report. Accordingly, we 

characterized this statutory authority to 

identify additional service codes for 

exclusion ‘‘* * * as essentially 

affording the flexibility to revise the list 

of excluded codes in response to 

changes of major significance that may 

occur over time (for example, the 

development of new medical 

technologies or other advances in the 

state of medical practice)’’ (65 FR 

46791). In the FY 2012 proposed rule, 

we specifically invited public comments 

identifying codes in any of these four 

service categories (chemotherapy items, 

chemotherapy administration services, 

radioisotope services, and customized 

prosthetic devices) representing recent 

medical advances that might meet our 

criteria for exclusion from SNF 

consolidated billing (76 FR 26397). The 

comments that we received on this 

subject, and our responses, appear 

below. 

Comment: A review of the particular 

codes that commenters submitted in 

response to the proposed rule’s 

solicitation for comment revealed that a 

significant number were identical to 


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codes that had already been submitted 

for consideration during the public 

comment period on the FY 2010 SNF 

PPS proposed rule or in earlier years, 

and which we had already decided 

previously not to exclude. These 

included items such as hyperbaric 

oxygen treatments, total parenteral 

nutrition, wound care devices, blood 

products, and ‘‘chemotherapy’’ drugs 

that are actually used in treating 

diseases other than cancer. Other codes 

that commenters submitted did fall 

within the particular service categories 

that the BBRA authorizes for exclusion; 

however, these were codes that were 

already in existence as of the BBRA’s 

enactment, but did not fall within the 

specific statutory code ranges that the 

BBRA designated for exclusion. 

Examples would include customized 

prosthetic device codes L5010 (‘‘partial 

foot, molded socket, ankle height, with 

toe filler’’), L5020 (‘‘partial foot, molded 

socket, tibial tubercle height, with toe 

filler’’), and L5987 (‘‘all lower extremity 

prosthesis, shank foot system with 

vertical loading pylon’’). 

Response: As discussed in the 

applicable prior final rules, we decline 

to add to the exclusion list those 

services submitted by commenters that 

have already been considered and not 

excluded in previous years based on 

their being outside the particular service 

categories that the statute authorizes for 

exclusion. These services include 

hyperbaric oxygen treatments as 

discussed previously in the SNF PPS 

final rules for FY 2001 (65 FR 46790– 

91, July 31, 2000), FY 2002 (66 FR 

39588, July 31, 2001), FY 2004 (68 FR 

46060–62, August 4, 2003), FY 2006 (70 

FR 45048–50, August 4, 2005), FY 2008 

(72 FR 43430–32, August 3, 2007), FY 

2009 (73 FR 46435–37, August 8, 2008), 

and FY 2010 (74 FR 40353–56, August 

11, 2009); total parenteral nutrition as 

discussed previously in the SNF PPS 

final rules for FY 2002, FY 2004, and FY 

2006; and wound care devices as 

discussed previously in the SNF PPS 

final rules for FY 2004 and FY 2006. For 

the same reason—that is, being outside 

the particular service categories that the 

statute authorizes for exclusion—we 

decline to adopt the suggestion to 

exclude certain blood products, 

hemophilia clotting factor and 

intravenous infusion of 

immunoglobulin (IVIG). With respect to 

the reiteration of previous requests to 

exclude as chemotherapy drugs certain 

medications that are actually used to 

treat diseases other than cancer, we note 

that as indicated previously in the FY 

2010 SNF PPS final rule (74 FR 40354, 

August 11, 2009), such medications do 

not fall within the scope of 

‘‘chemotherapy’’ drugs for purposes of 

this exclusion. In addition, regarding 

those particular codes (such as the three 

L codes specified above) that were 

already in existence as of the BBRA’s 

enactment, we explained previously in 

the FY 2010 SNF PPS final rule (74 FR 

40354, August 11, 2009) that our 

position has always been that the 

BBRA’s discretionary authority to 

exclude codes within certain designated 

service categories applies solely to 

codes that were created subsequent to 

the BBRA’s enactment, and not to those 

codes that were already in existence as 

of July 1, 1999 (the date that the 

legislation itself uses as the reference 

point for identifying the codes that it 

designates for exclusion). As we 

explained in the FY 2010 final rule (74 

FR 40354), this position reflects the 

assumption that if a particular code was 

already in existence as of that date but 

not designated for exclusion, this meant 

that it was intended to remain within 

the SNF PPS bundle, subject to the 

BBRA Conference Report’s provision for 

a GAO review of the code set that was 

conducted the following year (H.R. Rep. 

No. 106–479 at 854 (1999) (Conf. Rep.)). 

Accordingly, we decline to add these 

codes to the exclusion list. 

Comment: One commenter requested 

us to consider a particular 

chemotherapy drug, TREANDA®

(HCPCS code J9033), that the 

commenter recommended as meeting 

the BBRA’s ‘‘high-cost, low probability’’ 

criteria for exclusion. 

Response: We note that in one 

respect, this drug would appear to be 

similar to the three L codes discussed in 

the preceding comment, in that it falls 

within one of the particular service 

categories (that is, chemotherapy items) 

that the BBRA authorizes for exclusion, 

but the excluded code ranges specified 

in the BBRA skip over the particular 

code number to which it was assigned. 

However, in contrast to those L codes, 

code J9033 was not in use at the time 

of the BBRA’s enactment; in fact, this 

drug did not actually come into 

existence until almost a decade later. 

Accordingly, as there is no basis for 

assuming at the outset that this 

particular code’s omission from the 

excluded ranges indicated an intent for 

it to remain bundled, it then becomes 

appropriate for us to consider the 

possibility of excluding the drug from 

consolidated billing. We have 

determined that this drug does, in fact, 

qualify for exclusion in that its cost is 

comparable to other excluded 

chemotherapy drugs and it is rarely 

administered to SNF inpatients. Thus, it 

meets the ‘‘high-cost, low probability’’ 

standard in the SNF setting, as 

discussed in the BBRA Conference 

Report. Accordingly, this new exclusion 

will appear in a forthcoming 

consolidated billing update, with an 

effective date of October 1, 2011. 

Comment: Some commenters 

suggested that we consider the 

exclusion of PROVENGE® (SipuleucelT, HCPCS code Q2043), which is used 

in treating certain cases of metastatic 

prostate cancer. PROVENGE® is made 

by selectively removing leukocytes 

(white blood cells) from the patient’s 

blood and sending them to a factory, 

which adds a protein commonly found 

in prostate cancer and an immune 

stimulating agent to the leukocytes. All 

three are mixed with lactated ringers 

and then sent back to the physician to 

administer to the patient. The 

commenters cited this drug as meeting 

the applicable standards for exclusion of 

high cost and low probability. 

Response: We note that in accordance 

with the National Coverage 

Determination that was released on June 

30, 2011 (available online at http:// 

www.cms.gov/medicare-coveragedatabase/details/nca-decisionmemo.aspx?NCAId=247&fromdb=true), 

PROVENGE® is not classified as a drug 

for purposes of this particular coverage, 

but rather, as a service that is furnished 

as an incident to the physician’s 

professional services. As such, it 

remains subject to SNF consolidated 

billing, consistent with the longstanding 

policy that we first enunciated in the 

May 12, 1998 interim final rule (63 FR 

26297): 

* * * while the SNF Consolidated Billing 

provision does not apply to the professional 

services that a physician or other exempt 

practitioner performs personally, it does 

apply to those services that are furnished to 

an SNF resident by someone other than the 

practitioner, as an incident to the 

practitioner’s professional service. This 

position is consistent with the approach that 

has long been taken under the hospital 

bundling requirement, as well as with section 

1888(e)(2)(A)(ii) of the Act, which 

specifically identifies ‘‘physicians’ services’’ 

themselves as the service category that is 

excluded from SNF Consolidated Billing. 

Physicians’ services, in turn, are covered by 

Part B under section 1861(s)(1) of the Act and 

are defined in section 1861(q) as being 

performed by a physician, while ‘‘incident 

to’’ services are covered under a separate 

statutory authority (section 1861(s)(2)(A) of 

the Act) and are, by definition, not performed 

by a physician * * * We believe that to do 

otherwise with regard to these ‘‘incident to’’ 

services would effectively create a loophole 

through which a potentially broad and 

diverse array of services could be unbundled, 

merely by virtue of being furnished under the 

general auspices of such practitioners. This, 

in turn, would ultimately defeat the very 


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purpose of the SNF Consolidated Billing 

provision—that is, to make the SNF itself 

responsible for billing Medicare for 

essentially all of its residents’ services, other 

than those identified in a small number of 

narrow and specifically delimited exclusions. 

Further, as noted above, both the 

Consolidated Billing and SNF PPS provisions 

employ the same statutory list of excluded 

services. Thus, the approach we are adopting 

with regard to the limited range of services 

that qualify for exclusion is essential not only 

to safeguard the integrity of the Consolidated 

Billing requirement, but also that of the SNF 

PPS itself. 

Comment: Some commenters 

reiterated previous suggestions on 

expanding the existing chemotherapy 

exclusion to encompass related drugs 

that are commonly administered in 

conjunction with chemotherapy to 

ameliorate the side effects of the 

chemotherapy drugs, such as antiemetics (anti-nausea drugs). 

Response: As we have noted 

previously in this final rule and in 

response to comments on this issue in 

the past (most recently, in the August 

11, 2009 SNF PPS final rule for FY 2010 

(74 FR 40354)), the BBRA authorizes us 

to identify additional service codes for 

exclusion only within those particular 

service categories—chemotherapy items; 

chemotherapy administration services; 

radioisotope services; and, customized 

prosthetic devices—that it has 

designated for this purpose, and does 

not give us the authority to exclude 

other services which, though they may 

be related, fall outside of the specified 

service categories themselves. Thus, 

while anti-emetics, for example, are 

commonly administered in conjunction 

with chemotherapy, they are not 

inherently chemotherapeutic in nature 

(that is, they are not themselves 

oncolytic drugs that actively destroy 

cancer cells) and, consequently, do not 

fall within the excluded chemotherapy 

category designated in the BBRA. 

Comment: One commenter repeated 

calls from previous years to expand the 

existing exclusion for certain highintensity outpatient hospital services to 

encompass services furnished in other, 

nonhospital settings, stating that such 

nonhospital services may be cheaper 

and more accessible in certain localities 

(such as rural settings) than those 

furnished by hospitals. In urging us to 

expand the administrative exclusion in 

this manner, the commenter also 

advanced the view that the test of 

service intensity under this exclusion 

was intended to be applied 

independently, regardless of whether 

the service in question is actually being 

furnished in the hospital setting. 

Response: We have included in a 

number of previous rules an explanation 

of the setting-specific nature of the 

exclusion for certain high-intensity 

outpatient hospital services—most 

recently, in the FY 2010 SNF PPS final 

rule (74 FR 40355, August 11, 2009): 

We believe the comments that reflect 

previous suggestions for expanding this 

administrative exclusion to encompass 

services furnished in non-hospital settings 

indicate a continued misunderstanding of the 

underlying purpose of this provision. As we 

have consistently noted in response to 

comments on this issue in previous years 

* * * and as also explained in Medicare 

Learning Network (MLN) Matters article 

SE0432 (available online at 

www.cms.hhs.gov/MLNMattersArticles/ 

downloads/SE0432.pdf), the rationale for 

establishing this exclusion was to address 

those types of services that are so far beyond 

the normal scope of SNF care that they 

require the intensity of the hospital setting in 

order to be furnished safely and effectively. 

Moreover, we note that when the Congress 

enacted the consolidated billing exclusion for 

certain RHC and FQHC services in section 

410 of the MMA, the accompanying 

legislative history’s description of present 

law acknowledged that the existing 

exclusions for exceptionally intensive 

outpatient services are specifically limited to 

‘‘* * * certain outpatient services from a 

Medicare-participating hospital or critical 

access hospital * * *’’ (emphasis added). 

(See the House Ways and Means Committee 

Report (H. Rep. No. 108–178, Part 2 at 209), 

and the Conference Report (H. Conf. Rep. No. 

108–391 at 641).) Therefore, these services 

are excluded from SNF consolidated billing 

only when furnished in the outpatient 

hospital or CAH setting, and not when 

furnished in other, freestanding (non-hospital 

or non-CAH) settings. 

Further, the authority for us to establish 

a categorical exclusion for these services 

that would apply irrespective of the 

setting in which they are furnished does 

not exist in current law. 

Finally, we do not agree with the 

commenter’s analysis regarding the 

applicable standard for determining 

service intensity under this exclusion. 

Contrary to that commenter’s statement, 

when we originally established the 

administrative exclusion for certain 

designated categories of high-intensity 

outpatient services, we did not envision 

creating a separate standard of service 

intensity that would exist 

independently from the service’s 

performance in the hospital setting. In 

fact, the applicable discussion in the 

May 12, 1998 interim final rule (63 FR 

26298) clearly indicates that this 

exclusion was created within the 

specific context of the concurrent 

development of a new PPS specifically 

for outpatient hospital services, 

reflecting the need ‘‘* * * to delineate 

the respective areas of responsibility for 

the SNF under the Consolidated Billing 

provision, and for the hospital under the 

outpatient bundling provision, with 

regard to these services’’ (emphasis 

added). This point was further 

reinforced in the subsequent SNF PPS 

final rule for FY 2000 (64 FR 41676, July 

30, 1999), where we noted that 

* * * a key concern underlying the 

development of the consolidated billing 

exclusion of certain outpatient hospital 

services specifically involves the need to 

distinguish those services that comprise the 

SNF bundle from those that will become part 

of the outpatient hospital bundle that is 

currently being developed in connection 

with the outpatient hospital PPS. 

Accordingly, we are not extending the 

outpatient hospital exclusion from 

consolidated billing to encompass any other, 

freestanding settings. 

Comment: One commenter noted that 

the administrative exclusion from 

consolidated billing for certain 

designated, highly intensive outpatient 

hospital services (such as emergency 

services) also serves to encompass an 

associated, medically necessary 

ambulance roundtrip from the SNF. The 

commenter requested clarification on 

whether this exclusion would still apply 

to an ambulance trip returning to the 

SNF following the receipt of emergency 

services, even though the emergency 

condition itself would have already 

been stabilized by that point. 

Response: The return ambulance trip 

would still be excluded from 

consolidated billing in this scenario. As 

explained on page 3 of Medicare 

Learning Network (MLN) Matters 

Special Edition article #SE0433 

(available online at http://www.cms.gov/ 

MLNMattersArticles/downloads/ 

SE0433.pdf), 

Since a beneficiary’s departure from the 

SNF to receive one of these excluded types 

of outpatient hospital services is considered 

to end the beneficiary’s status as an SNF 

resident for CB [consolidated billing] 

purposes with respect to those services, any 

associated ambulance trips are, themselves, 

excluded from CB as well. Therefore, an 

ambulance trip from the SNF to the hospital 

for the receipt of such services should be 

billed separately under Part B by the outside 

supplier. Moreover, once the beneficiary’s 

SNF resident status has ended in this 

situation, it does not resume until the point 

at which the beneficiary actually arrives back 

at the SNF; accordingly, the return 

ambulance trip from the hospital to the SNF 

would also be excluded from CB (emphasis 

added). 

Comment: One commenter requested 

that all chemotherapy drugs and 

customized prosthetic devices be 

excluded from consolidated billing, as 

well as transportation relating to the 

receipt of excluded radiation therapy 

services. 

Response: As indicated previously in 

this final rule, in creating a statutory 


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carve-out for several designated types of 

services, the BBRA did not categorically 

exclude all such services from SNF 

consolidated billing. Instead, the 

legislation specifically identified 

individual excluded services within 

designated categories, by Healthcare 

Common Procedure Coding System 

(HCPCS) code. The BBRA’s Conference 

Report explained that this legislation 

specifically targeted those ‘‘high-cost, 

low probability’’ items and services that 

‘‘* * * are not typically administered in 

a SNF, or are exceptionally expensive, 

or are given as infusions, thus requiring 

special staff expertise to administer’’ 

(H.R. Conf. Rep. No. 106–479 at 854). By 

contrast, other types of services within 

those categories that ‘‘* * * are 

relatively inexpensive and are 

administered routinely in SNFs’’ remain 

subject to SNF consolidated billing 

under this legislation. 

Regarding the comment concerning 

transports related to radiation therapy, 

we note that radiation therapy is one of 

the administratively excluded categories 

of high-intensity outpatient hospital 

services. As indicated in the preceding 

comment, this exclusion already 

encompasses not only the service itself, 

but also any associated, medically 

necessary ambulance transportation 

between the SNF and the hospital. 

H. 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 final rule for the 

SNF PPS also apply to all non-CAH 

swing-bed rural hospitals. A complete 

discussion of assessment schedules, the 

MDS and the transmission software 

(RAVEN–SB for Swing Beds) appears in 

the final rule for FY 2002 (66 FR 39562, 

July 31, 2001) 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. We received no 

comments on this aspect of the 

proposed rule. 

IV. Analysis of and Responses to Public 

Comments on the FY 2011 Update 

Notice With Comment 

In addition to responding to 

comments received on the FY 2012 

proposed rule, we are also taking the 

opportunity to respond in this section to 

those comments not addressed 

elsewhere in this final rule that were 

received on the FY 2011 notice with 

comment period, as discussed in the FY 

2012 proposed rule (76 FR 26368). 

Comment: We received a number of 

comments related to the delayed 

implementation of RUG–IV, the 

implementation of HR–III, and the 

transition from RUG–IV to HR–III. Many 

commenters asked for details on how 

the transition would be done and how 

claims would be reprocessed upon 

successful implementation of HR–III. 

One commenter requested further detail 

on educational materials that would be 

made available to providers to ease the 

system transition once the HR–III 

grouper has been developed. Some 

commenters asked that CMS be as 

transparent as possible in its 

management of the transition to HR–III. 

Response: As discussed in section I.F 

of this final rule, section 202 of the 

‘‘Medicare and Medicaid Extenders Act 

of 2010’’ (Pub. L. 111–309), enacted 

December 15, 2010, repealed section 

10325 of the Affordable Care Act, 

effectively leaving in place the RUG–IV 

system as implemented on October 1, 

2010. Therefore, HR–III is no longer 

necessary and there will be no 

reprocessing of claims related to HR–III. 

Moreover, as we also noted previously 

in the FY 2012 SNF PPS proposed rule 

(76 FR 26368), the repeal of this 

provision ‘‘* * * effectively renders 

moot any further discussion of public 

comments that we had invited on our 

planned implementation’’ of the 

transition to the HR–III system. 

V. Provisions of the Final Rule 

In this final rule, in addition to 

accomplishing the required annual 

update of the SNF PPS payment rates, 

we are also finalizing the following 

revisions to the regulation text: 

As discussed previously in section 

III.F.3.a of this final rule, we are 

implementing section 3401(b) of the 

Affordable Care Act by revising 

§ 413.337. We are adding a new 

paragraph (d)(3) to that section to 

require that, for FY 2012 and each 

subsequent FY, 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. In addition, consistent with 

section 1888(e)(5)(B)(ii) of the Act (as 

added by section 3401(b) of the 

Affordable Care Act), revised 

§ 413.337(d)(3) also states that the 

reduction of the market basket index 

percentage change by the MFP 

adjustment may result in the market 

basket index 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 

III.F.3, we are also revising existing 

paragraphs (d)(1) and (d)(2) of § 413.337 

so that the text more accurately tracks 

the corresponding statutory 

requirements at section 1888(e)(4)(E) of 

the Act (§ 413.337(d)(1)), and to specify 

the existing thresholds that we apply in 

determining whether a forecast error 

adjustment is appropriate 

(§ 413.337(d)(2)). 

VI. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995 (PRA), we are required to 

provide 30-day notice in the Federal 

Register and solicit public comment 

before a collection of information 

requirement is submitted to the OMB for 

review and approval. In order to fairly 

evaluate whether an information 

collection should be approved by OMB, 

section 3506(c)(2)(A) of the PRA 

requires that we solicit comment 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 final 

rule with regard to resident assessment 

information used to determine facility 


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payments are currently approved under 

OMB control number (OCN): 0938– 

0739, which relates to the Medicare PPS 

Assessment Form (MPAF) information 

collection, and OCN: 0938–0872, which 

relates to the Minimum Data Set for 

Swing-Bed Hospitals. We note that this 

final rule will not affect the burden 

associated with either of those 

collections. 

Section III.E.4 of this final rule 

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 

III.E.4 of this final rule, we are making 

certain modifications in the existing 

requirements for completing OMRAs. 

We introduced a new COT OMRA, to be 

completed whenever the intensity of 

therapy 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. 

SNFs are 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 therapy changes 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 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) of 

data operator time for transmission. 

This results in an average estimated cost 

per COT OMRA of $33.84. 

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 the first eight months of FY 

2011 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 will 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 will also 

be used when providers find that the 

therapy provided a given resident 

warrants the resident being classified 

into a higher therapy RUG category. As 

stated above, providers currently are not 

required to report therapy changes that 

occur outside the observation window 

of a given PPS assessment; therefore, we 

do not have the relevant data to predict 

with certainty the number of COT 

OMRAs that may be required per year 

due to an increase in therapy. We have 

used the historical data available at this 

time to quantify situations where an 

increase in therapy occurs. The Start-ofTherapy (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 eight months of FY 2011 

projected for the entire year, we 

estimate that the total COT OMRAs 

required due to an increase in therapy 

would be 71,330, or 5 times per facility 

per year. Therefore, the estimated total 

number of COT OMRAs per facility per 

year is 62. The total annual hour burden 

for completing COT OMRAs is 

estimated to be 737,003 hours for 

reporting, 147,401 hours for coding, and 

29,480 hours for transmission, for a total 

burden of 913,884 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 

$29.93 million, or $2,097.87 per facility. 


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Further, we note that the completion 

of an EOT–R OMRA, as discussed in 

section III.E.4, would be entirely 

voluntary on the part of the facility and, 

thus, would not represent the 

imposition of a mandatory burden. 

VII. Economic Analyses 

A. Regulatory Impact Analysis 

1. Introduction 

We have examined the impacts of this 

final 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 final rule updates 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 

factors to be applied in making the area 

wage adjustment. As these statutory 

provisions prescribe a detailed 

methodology for calculating and 

disseminating payment rates under the 

SNF PPS, we do not have the discretion 

to adopt an alternative approach. 

3. Overall Impacts 

We estimate the aggregate impact of 

the FY 2012 final rule would be a net 

decrease of $3.87 billion in payments to 

SNFs, resulting from a $600 million 

increase from the update to the payment 

rates and a $4.47 billion reduction from 

the recalibration of the case-mix 

adjustment. Accordingly, we have 

prepared a RIA that, to the best of our 

ability, presents the costs and benefits of 

the rulemaking. 

The update set forth in this final rule 

applies to payments in FY 2012. 

Accordingly, the analysis that follows 

only describes the impact of this single 

year. In accordance with the 

requirements of the Act, we will publish 

a notice for each subsequent FY that 

will provide for an update to the 

payment rates and include an associated 

impact analysis. 

4. Detailed Economic Analysis 

This final 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, we estimate that the FY 2012 

aggregate impact would be a net 

decrease of $3.87 billion in payments to 

SNFs, resulting from a $600 million 

increase from the update to the payment 

rates and a $4.47 billion reduction from 

the recalibration of the case-mix 

adjustment. The impact analysis of this 

final rule represents the projected 

effects of the changes in the SNF PPS 

from FY 2011 to FY 2012. We assess the 

effects by estimating payments 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 futureoriented 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 FY 2011 payment rates 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 addon established by section 511 of the 

MMA remains in effect until ‘‘* * * 

such date as the Secretary certifies that 

there is an appropriate adjustment in 

the case mix. * * *’’ We have not 

provided a separate impact analysis for 

the MMA provision. Our latest estimates 

indicate that there are fewer than 3,500 

beneficiaries who qualify for the AIDS 

add-on payment. The impact to 

Medicare is included in the ‘‘total’’ 

column of Table 11. In updating the 

rates for FY 2012, we made a number of 

standard annual revisions and 

clarifications mentioned elsewhere in 

this final rule (for example, the update 

to the wage and market basket indexes 

used for adjusting the Federal rates). 

We estimate that the aggregate impact 

for the FY 2012 updates discussed in 

this final rule would be a net decrease 

of $3.87 billion in payments to SNFs, 

resulting from a $600 million increase 

from the update to the payment rates 

and a $4.47 billion reduction from the 

recalibration of the case-mix 

adjustment. The FY 2012 impacts are 

presented in Table 11. 

The breakdown of the various 

categories of data in Table 11 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 hospitalbased, 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 11 shows 

the number of facilities in the impact 

database. 


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The third column in Table 11 shows 

the effects of recalibrating the nursing 

CMIs of the RUG–IV therapy groups. As 

explained previously in section III.B.2 

of this final rule, we are implementing 

the 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 the initial eight months of FY 

2011 claims and MDS data. The total 

impact of this change is a decrease of 

12.6 percent. We note that some 

individual providers may experience 

larger or smaller decreases in payment 

than others due to case-mix utilization. 

The fourth column of Table 11 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 11 shows 

the effect of all of the changes on the FY 

2012 payments. The update of 1.7 

percent, consisting of the market basket 

increase of 2.7 percentage points, 

reduced by the 1.0 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 11.1 percent, 

assuming that facilities do not change 

their care delivery and billing practices 

in response. 

As shown in Table 11, the combined 

effects of all of the changes vary by 

specific types of providers and by 

location. 

TABLE 11—RUG–IV PROJECTED IMPACT TO THE SNF PPS FOR FY 2012 

Number of 

facilities 

Revised CMIs 

percent 

Update wage 

data 

Total FY 2012 

change 

(percent) 

Group: 

Total .......................................................................................... 14,706 ¥12.6 0.0 ¥11.1 

Urban ........................................................................................ 10,321 ¥12.8 0.0 ¥11.3 

Rural ......................................................................................... 4,385 ¥11.9 0.1 ¥10.3 

Hospital based urban ............................................................... 454 ¥12.4 0.1 ¥10.8 

Freestanding urban .................................................................. 9,867 ¥12.8 0.0 ¥11.3 

Hospital based rural ................................................................. 341 ¥11.3 0.0 ¥9.8 

Freestanding rural .................................................................... 4,044 ¥11.9 0.1 ¥10.3 

Urban by region: 

New England ............................................................................ 807 ¥12.6 0.0 ¥11.1 

Middle Atlantic .......................................................................... 1,436 ¥12.9 0.1 ¥11.3 

South Atlantic ........................................................................... 1,714 ¥12.8 ¥0.1 ¥11.4 

East North Central .................................................................... 2,001 ¥12.9 ¥0.5 ¥11.8 

East South Central ................................................................... 493 ¥12.7 ¥0.4 ¥11.6 

West North Central ................................................................... 848 ¥12.8 0.2 ¥11.1 

West South Central .................................................................. 1,167 ¥12.6 0.5 ¥10.7 

Mountain ................................................................................... 472 ¥12.9 0.1 ¥11.3 

Pacific ....................................................................................... 1,378 ¥12.8 0.3 ¥11.1 

Outlying ..................................................................................... 5 ¥8.9 1.2 ¥6.3 

Rural by region: 

New England ............................................................................ 142 ¥11.7 1.0 ¥9.3 

Middle Atlantic .......................................................................... 236 ¥12.3 ¥0.1 ¥10.9 

South Atlantic ........................................................................... 558 ¥11.8 ¥0.2 ¥10.4 

East North Central .................................................................... 891 ¥12.1 ¥0.2 ¥10.7 

East South Central ................................................................... 464 ¥11.7 ¥0.5 ¥10.7 

West North Central ................................................................... 1,043 ¥12.0 0.4 ¥10.1 

West South Central .................................................................. 713 ¥11.7 0.8 ¥9.5 

Mountain ................................................................................... 219 ¥11.8 0.3 ¥10.0 

Pacific ....................................................................................... 119 ¥11.8 1.0 ¥9.4 

Ownership: 

Government .............................................................................. 769 ¥12.4 ¥0.1 ¥11.0 

Profit ......................................................................................... 10,172 ¥12.6 0.0 ¥11.1 

Non-profit .................................................................................. 3,765 ¥12.7 0.0 ¥11.2 

Note: The Total column includes the 2.7 percent market basket increase, reduced by the 1.0 percentage point MFP adjustment. Additionally, 

we found no SNFs in rural outlying areas. 

5. Alternatives Considered 

As described above, the aggregate 

impact for FY 2012 of the updates 

discussed in this final rule would be a 

net decrease of $3.87 billion in 

payments to SNFs, resulting from a $600 

million increase from the update to the 

payment rates and a $4.47 billion 

reduction from the recalibration of the 

case-mix adjustment. In view of the 

potential economic impact, we 

considered the alternatives described 

below. 

Section 1888(e) of the Act establishes 

the SNF PPS for the payment of 

Medicare SNF services for cost reporting 

periods beginning on or after July 1, 

1998. This section of the statute 

prescribes a detailed formula for 

calculating payment rates under the 

SNF PPS, and does not provide for the 

use of any alternative methodology. It 

specifies that the base year cost data to 

be used for computing the SNF PPS 

payment rates must be from FY 1995 

(October 1, 1994, through September 30, 

1995). In accordance with the statute, 

we also incorporated a number of 

elements into the SNF PPS (for example, 

case-mix classification methodology, 

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 fiscal year. Accordingly, we are not 


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pursuing alternatives for 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 final rule finalizes 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 results in casemix weights that better reflect the 

resources used, produces more accurate 

payment, and represents an appropriate 

case-mix adjustment. Using FY 2011 

data is consistent with our intent to 

make the change from the RUG–53 

model to the RUG–IV model in a budget 

neutral manner. 

In reviewing our initial projections, 

we found that the disparity between 

projected RUG–IV utilization for FY 

2011 and actual RUG–IV utilization in 

FY 2011, 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 significant portion of the SNFs 

reporting 0 minutes of concurrent 

therapy for all MDS 3.0 assessments 

submitted for FY 2011. Many of these 

facilities reported large increases in the 

amount of group therapy provided 

during the same time period. 

For the proposed rule, we used 3 

months of data (first quarter FY 2011) to 

calculate the initial parity adjustment 

and stated that we would observe 

utilization trends for a greater period of 

FY 2011 to confirm our preliminary 

assessment. We have now used 8 

months of FY 2011 data as the basis for 

the recalibration discussed in section 

III.B.2 above and the data have 

confirmed our preliminary assessment. 

Therefore, as discussed in section III.B.2 

of this final rule, we are implementing 

a recalibration of the nursing CMIs of 

the RUG–IV therapy groups based on 

eight months of FY 2011 MDS and 

claims data. 

Both during development of the 

proposed rule (76 FR 26372, 26404) and 

in response to comments we received on 

the proposed rule, as discussed in 

section III.B.2 above, we considered 

various alternatives for implementing a 

recalibrated case-mix adjustment. Most 

notably, as discussed in section III.B.2 

of this final rule, we considered 

applying the recalibration to all of the 

nursing CMIs, rather than just the 

nursing CMIs for the RUG–IV therapy 

groups as we have finalized in this final 

rule. 

However, as noted in the proposed 

rule (76 FR 26372, 26404), we found 

that an across-the-board recalibration of 

the nursing CMIs that included the 

complex medical groups (approximately 

8 percent of the total SNF Part A 

population), would affect patients in 

these complex medical groups 

disproportionately and negatively. 

Moreover, we are concerned that 

reducing payment rates for both the 

therapy and the complex medical 

patients could inadvertently create an 

access problem for beneficiaries with 

complex medical care needs. The 

increasing volume of therapy patients 

during the past several years, in 

combination with the increasing SNF 

Medicare profit margins, suggests that 

the care needs for therapy patients may 

be more predictable and less costly than 

those for beneficiaries with severe 

medical conditions. In reviewing FY 

2011 MDS assessment data, we found 

that approximately 30 percent of the 

SNF Part A patients did not have a 

medical need that would qualify them 

for coverage under the SNF PPS. 

Reducing the rates paid for beneficiaries 

with complex medical conditions at the 

same time therapy rates are being 

adjusted may create access problems for 

patients with complex medical and 

rehabilitation needs. Thus, while we 

considered an across-the-board 

recalibration of the nursing CMIs, we 

decided it would be more prudent to 

keep the payment levels for the lowvolume complex medical services at 

their present levels for 2012. We plan to 

reassess the adequacy of the complex 

medical payment rates as part of the 

development of the NTA component 

discussed in section III.C.1 of this final 

rule. We believe that applying the 

recalibration to only the nursing CMIs of 

the RUG–IV therapy groups will restore 

the system to the intended budget 

neutrality and ensure adequate access to 

quality SNF care for the important 

subset of Medicare beneficiaries needing 

complex medical care. 

As described in section III.B.2 of this 

final rule and in sections XII.A.5 and 

II.B.2 of the proposed rule, we also 

considered how the recalibration might 

be implemented so as to mitigate the 

economic impact of the recalibration on 

facilities. Specifically, we considered 

mitigating the impact of the 

recalibration by phasing in the negative 

adjustments prospectively over multiple 

years until parity was achieved. 

However, as discussed elsewhere in this 

preamble, we believe that in 

implementing RUG–IV, it is essential 

that we stabilize the baseline as quickly 

as possible without creating a 

significant adverse effect on the 

industry or to beneficiaries. For the 

reasons discussed in section II.B.2 of 

this final rule, we do not believe that 

implementation of the full recalibration 

in FY 2012 should negatively impact 

facilities, beneficiaries or quality of care. 

Moreover, implementing the 

recalibration over a multi-year period 

would continue the significant 

overpayments observed in FY 2011 and 

could further destabilize the SNF PPS. 

We received a number of comments 

on the impact analysis contained in the 

proposed rule which, along with our 

responses, appear below. 

Comment: Several commenters 

believed that CMS did not consider 

adequately possible alternative 

methodologies for applying or 

implementing the recalibration of the 

case-mix indexes. Specifically, 

commenters believed that CMS should 

consider a phase-in approach for the 

recalibration, if it were to be finalized. 

Response: We believe that the 

discussion of alternatives in this section 

above, in section III.B.2 above, as well 

as in the FY 2012 proposed rule (76 FR 

26372, 26403 through 26404) provides 

sufficient consideration of alternatives 

as well as appropriate justification for 

our finalized changes. Regarding a 

phase-in approach, we noted in section 

III.B.2 above our belief that the 18.1 

percent SNF profit margins for Medicare 

even before the FY 2011 overpayments 

occurred would justify a full 

recalibration in FY 2012. It is also 

important to note that this recalibration 

would serve to remove an unintended 

spike in payments rather than 

decreasing an otherwise appropriate 

payment amount; thus, we do not 

believe that the recalibration should 

negatively affect facilities, beneficiaries, 

or quality of care, or create an undue 

hardship on providers. In fact, 

notwithstanding the recalibration, the 

FY 2012 payment rates will actually be 

3.4 percent higher than the rates 

established for FY 2010, the last period 

prior to the unintended spike in 

payment levels. We continue to believe 

that in implementing RUG–IV, it is 

essential that we stabilize the baseline 

as quickly as possible without creating 

a significant adverse effect on the 

industry or to beneficiaries. Utilizing a 

phase-in approach would only add to, 

rather than reduce, the cumulative 

excess payments. 

Comment: Several commenters 

expressed concern that the impact 

analysis presented in the proposed rule 

did not account adequately for the total 


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economic impact of the policy changes 

discussed in the FY 2012 proposed rule. 

One commenter stated specifically that 

the implementation of the proposed 

changes could lead the U.S. economy 

back into a deep recession. 

Response: As indicated in Table 11 

above, the changes due to the 

recalibration of the CMIs (which is 

arguably the only proposed change 

which would have a definitive negative 

impact on current facility payments) are 

expected to result in a decrease in 

Medicare payments to SNFs of 12.6 

percent. We note that the recalibration 

is only intended to restore budget 

neutrality between the RUG–53 and 

RUG–IV case-mix systems, which 

effectively will align overall payments 

under RUG–IV in FY 2012 with those 

under RUG–III, not accounting for 

subsequent increases associated with 

the annual market basket increase. 

Based on a comparative analysis of 

the actual payment amounts reflected 

on claims paid in FY 2010 and in FY 

2011, payments to facilities increased in 

FY 2011 by an average of approximately 

$66 per day per resident for all 

providers. Furthermore, as noted in 

section III.B.2 of this final rule, the 

aggregate Medicare margin for 

freestanding SNFs in FY 2009, prior to 

the implementation of the parity 

adjustment in FY 2011 and the resulting 

overpayments, was 18.1 percent, up 

from 16.6 percent in 2008. Therefore, 

given these high Medicare margins 

coupled with the fact that Medicare 

payments represent a small percentage 

of aggregate facility revenues 

(considering all payers), we do not 

believe it can be concluded that a return 

to the intended payment levels after the 

FY 2011 short-term spike in payments 

will result in a direct and significant 

negative macroeconomic effect on the 

U.S. economy. For these reasons, we 

believe that the regulatory impact 

analysis both in this final rule and in 

the proposed rule adequately assesses 

the economic impact of the changes to 

the RUG–IV system. 

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/a4.pdf), in Table 12, we have prepared an 

accounting statement showing the 

classification of the expenditures 

associated with the provisions of this 

final rule. Tables 12 provides our best 

estimate of the possible changes in 

Medicare payments under the SNF PPS 

as a result of the policies in this final 

rule, based on the data for 14,706 SNFs 

in our database. All expenditures are 

classified as transfers to Medicare 

providers (that is, SNFs). 

TABLE 12—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM THE 2011 SNF PPS FISCAL

YEAR TO THE 2012 SNF PPS FISCAL YEAR

Category Transfers 

Annualized Monetized Transfers .............................................................. ¥$3.87 billion.* 

From Whom To Whom? ........................................................................... Federal Government to SNF Medicare Providers. 

* The net decrease of $3.87 billion in transfer payments is a result of the decrease of $4.47 billion due to the recalibration of the case mix adjustment, together with the increase of $600 million due to the MFP-adjusted market basket update. 

7. Conclusion 

The overall estimated payments for 

SNFs in FY 2012 are projected to 

decrease by $3.87 billion, or 11.1 

percent, compared with those in FY 

2011. We estimate that under RUG–IV, 

SNFs in urban and rural areas would 

experience, on average, an 11.3 and 10.3 

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 11.8 percent. In order 

to have achieved parity between the 

RUG–53 and RUG–IV case-mix systems 

in FY 2011, aggregated payments would 

have had to have been 11.1 percent 

lower. It should also be noted that the 

FY 2012 payment rates, which remove 

the unanticipated excess payments 

resulting from the FY 2011 parity 

adjustment, are still 3.4 percent higher 

than the FY 2010 rates, the last fiscal 

year before the introduction of RUG–IV. 

B. Regulatory Flexibility Act Analysis 

The Regulatory Flexibility Act (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=2465b064ba

6965cc1fbd2eae60854b11&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 

be higher than the estimate above. 

This final 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 discussed in section II.B.2 

above would result in a net decrease of 

$3.87 billion in payments to SNFs for 

FY 2012. This reflects a $600 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 11, 

the estimated effect of the recalibration 

on facilities for FY 2012 would be an 

aggregate negative impact of 11.1 

percent. While it is projected in Table 

11 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. 

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 


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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 11. Therefore, the 

Secretary has determined that this final 

rule may have a significant impact on a 

substantial number of small entities. 

We offer an analysis of the 

alternatives considered in section 

VII.A.4 of this final rule. The analysis 

above, together with the remainder of 

this preamble, constitutes the final 

regulatory flexibility analysis. 

In addition, section 1102(b) of the 

Social Security Act requires us to 

prepare a regulatory impact analysis 

(RIA) if a rule may have a significant 

impact on the operations of a substantial 

number of small rural hospitals. This 

analysis must conform to the provisions 

of section 603 of the RFA. For purposes 

of section 1102(b) of the Act, we define 

a small rural hospital as a hospital that 

is located outside of a Metropolitan 

Statistical Area and has fewer than 100 

beds. This final rule will affect small 

rural hospitals that (a) furnish SNF 

services under a swing-bed agreement or 

(b) have a hospital-based SNF. We 

anticipate that the impact on small rural 

hospitals would be similar to the impact 

on SNF providers overall. Therefore, the 

Secretary has determined that this final 

rule may have a significant impact on 

the operations of a substantial number 

of small rural hospitals. 

Comment: One commenter believed 

that the RFA analysis and RIA discussed 

in the proposed rule did not sufficiently 

account for the impact of the proposed 

changes, specifically the recalibration of 

the case-mix indexes, on small entities. 

Also, the commenter pointed out that 

the portion of SNFs which may be 

characterized properly as small entities 

may, in fact, be higher than our 

estimates. The commenter asserted that 

in evaluating the effect of the proposed 

changes on small entities ‘‘as a whole,’’ 

the analysis must necessarily consider 

their effect on the entity’s overall 

margins. This commenter also asserted 

that CMS failed to provide sufficient 

discussion of possible alternatives. The 

commenter further suggested that the 

RIA cannot also serve to meet the 

requirements of the RFA. 

Response: We do not agree with the 

commenter’s assertion that the RFA or 

RIA discussions in the proposed rule 

were insufficient. First, we would note 

that, as discussed above, approximately 

91 percent of all SNFs may be classified 

as small entities. As the commenter 

pointed out, the portion of SNFs which 

may be characterized properly as small 

entities may, in fact, be higher than our 

estimates. Therefore, any discussion of 

impacts throughout the proposed rule, 

as well as in this final rule, may be 

directly characterized as an analysis of 

the impact of the FY 2012 changes to 

the SNF PPS on small entities. 

Moreover, the focus on small entities in 

this instance (a category that would 

include the small rural hospitals that are 

the subject of a RIA) also means that the 

analyses required under the RIA and the 

RFA are, in fact, directly interlinked in 

this situation, as essentially the same 

factors are being examined in both 

contexts. Also, guidance issued by the 

Department of Health and Human 

Services on the proper assessment of the 

impact on small entities in rulemakings, 

utilizes a total cost or revenue impact of 

3 to 5 percent as a significance 

threshold under the RFA analysis and 

not overall margins. As a result, the 

addition of other (non-Medicare) 

revenue streams effectively dilutes the 

impact of any Medicare changes, as we 

noted previously in this discussion as 

well as in the proposed rule: ‘‘* * * for 

most facilities, when all payers are 

included in the revenue stream, the 

overall impact effect [of the Medicare 

changes] to total revenues should be 

substantially less * * *’’ (76 FR 26405). 

Furthermore, we would note that we 

provided additional data on our Web 

site on therapy utilization trends for the 

different types of SNF providers (profit, 

non-profit, and government), which are 

available online at http://www.cms.gov/ 

SNFPPS/02_Spotlight.asp. This 

additional data, as well as our impact 

analysis in the proposed rule, illustrated 

that all SNFs, including small entities 

and non-profits, have experienced a 

significant increase in payments in FY 

2011. We do not believe that the 

recalibration constitutes a rate cut but 

instead represents a return to the 

appropriate level of SNF payments, 

which have been found to be more than 

adequate for SNFs and small entities 

within the SNF industry. This 

information, as well as the discussion of 

alternatives in section XII.A.5 of the 

proposed rule, is sufficient to fulfill our 

obligations under the RFA. 

Finally, given our discussion of 

alternatives in section VIII.D of this final 

rule and elsewhere in this preamble, 

and our analysis of the potential 

impacts on the SNF industry as a whole, 

we believe that the requirements under 

the RFA for providing this final RFA 

analysis have been properly addressed. 

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 final 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 final rule would have no 

substantial direct effect on State and 

local governments, preempt State law, 

or otherwise have Federalism 

implications. 

List of Subjects in 42 CFR Part 413 

Health facilities, Kidney diseases, 

Medicare, Reporting and recordkeeping 

requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 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). 

The revisions and addition read as 

follows: 


srobinson on DSK4SPTVN1PROD with RULES3
48540 Federal Register / Vol. 76, No. 152 / Monday, August 8, 2011 / Rules and Regulations 

§ 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 1.0 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 

1.0 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 index percentage change by the 

MFP adjustment may result in the 

market basket index 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. 

* * * * * 

Authority: (Catalog of Federal Domestic 

Assistance Program No. 93.773, Medicare— 

Hospital Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: July 21, 2011. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: July 27, 2011. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

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 final 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. 2011–19544 Filed 7–29–11; 4:15 pm] 

BILLING CODE 4120–01–C 


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