40288 Federal Register / Vol. 74, No. 153 / Tuesday, August 11, 2009 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 483 

[CMS–1410–F] 

RIN 0938–AP46 

Medicare Program; Prospective 

Payment System and Consolidated 

Billing for Skilled Nursing Facilities for 

FY 2010; Minimum Data Set, Version 

3.0 for Skilled Nursing Facilities and 

Medicaid Nursing Facilities 

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 (PPS) for 

skilled nursing facilities (SNFs), for 

fiscal year (FY) 2010. In addition, it 

recalibrates the case-mix indexes so that 

they more accurately reflect parity in 

expenditures related to the 

implementation of case-mix refinements 

in January 2006. It also discusses the 

results of our ongoing analysis of 

nursing home staff time measurement 

data collected in the Staff Time and 

Resource Intensity Verification project, 

as well as a new Resource Utilization 

Groups, version 4 case-mix 

classification model for FY 2011 that 

will use the updated Minimum Data Set 

3.0 resident assessment for case-mix 

classification. In addition, this final rule 

discusses the public comments that we 

have received on these and other issues, 

including a possible requirement for the 

quarterly reporting of nursing home 

staffing data, as well as on applying the 

quality monitoring mechanism in place 

for all other SNF PPS facilities to rural 

swing-bed hospitals. Finally, this final 

rule revises the regulations to 

incorporate certain technical 

corrections. 

DATES: Effective Date: This final rule 

becomes effective on October 1, 2009. 

FOR FURTHER INFORMATION CONTACT: 

Ellen Berry, (410) 786–4528 (for 

information related to clinical issues). 

Trish Brooks, (410) 786–4561 (for 

information related to Resident 

Assessment Protocols (RAPs) under the 

Minimum Data Set (MDS)). Jeanette 

Kranacs, (410) 786–9385 (for 

information related to the development 

of the payment rates and case-mix 

indexes). Abby Ryan, (410) 786–4343 

(for information related to the STRIVE 

project). Jean Scott, (410) 786–6327 (for 

information related to the request for 

comment on the possible quarterly 

reporting of nursing home staffing data). 

Bill Ullman, (410) 786–5667 (for 

information related to level of care 

determinations, consolidated billing, 

and general information). 

SUPPLEMENTARY INFORMATION: To assist 

readers in referencing sections 

contained in this document, we are 

providing the following Table of 

Contents. 

Table of Contents 

I. Background 

A. Current System for Payment of SNF 

Services Under Part A of the Medicare 

Program 

B. Requirements of the Balanced Budget 

Act of 1997 (BBA) for Updating the 

Prospective Payment System for Skilled 

Nursing Facilities 

C. The Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 1999 

(BBRA) 

D. The Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (BIPA) 

E. The Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) 

F. Skilled Nursing Facility Prospective 

Payment—General Overview 

1. Payment Provisions—Federal Rate 

2. FY 2010 Rate Updates Using the Skilled 

Nursing Facility Market Basket Index 

II. Summary of the Provisions of the FY 2010 

Proposed Rule 

III. Analysis of and Responses to Public 

Comments on the FY 2010 Proposed 

Rule 

A. General Comments on the FY 2010 

Proposed Rule 

B. 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 the Case-Mix Indexes 

3. Wage Index Adjustment to Federal Rates 

4. Updates to Federal Rates 

5. Relationship of RUG–III 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. Staff Time and Resource Intensity 

Verification (STRIVE) Project 

a. Data Collection 

b. Developing the Analytical Database 

i. Concurrent Therapy 

ii. Adjustments to STRIVE Therapy 

Minutes 

iii. ADL Adjustments 

iv. ‘‘Look-Back’’ Period 

v. Organizing the Nursing and Therapy 

Minutes 

vi. Data Dissemination 

2. The RUG–IV Classification System 

3. Development of the FY 2011 Case-Mix 

Indexes 

4. Relationship of RUG–IV Classification 

System to Existing Skilled Nursing 

Facility Level-of-Care Criteria 

5. Prospective Payment for SNF 

Nontherapy Ancillary Costs 

D. Minimum Data Set, Version 3.0 (MDS 

3.0) 

1. Description of the MDS 3.0 

2. MDS Elements, Common Definitions, 

and Resident Assessment Protocols 

(RAPs) Used Under the MDS 

3. Data Submission Requirements Under 

the MDS 3.0 

4. Proposed Change to Section T of the 

Resident Assessment Instrument (RAI) 

Under the MDS 3.0 

E. Other Issues 

1. Invitation of Comments on Possible 

Quarterly Reporting of Nursing Home 

Staffing Data 

2. Miscellaneous Technical Corrections 

and Clarifications 

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. Federal Rate Update Factor 

G. Consolidated Billing 

H. Application of the SNF PPS to SNF 

Services Furnished by Swing-Bed 

Hospitals; Quality Monitoring of SwingBed Hospitals 

IV. Provisions of the Final Rule 

V. Collection of Information Requirements 

VI. Regulatory Impact Analysis 

A. Overall Impact 

B. Anticipated Effects 

C. Alternatives Considered 

D. Accounting Statement 

E. Conclusion 

Regulation Text 

Addendum: FY 2010 CBSA–Based Wage 

Index Tables (Tables A & B) RUG–III to 

RUG–IV Comparison (Table C) 

Abbreviations 

In addition, because of the many 

terms to which we refer by abbreviation 

in this final rule, we are listing these 

abbreviations and their corresponding 

terms in alphabetical order below: 

ADLs Activities of Daily Living 

AIDS Acquired Immune Deficiency 

Syndrome 

AOTA American Occupational Therapy 

Association 

APTA American Physical Therapy 

Association 

ARD Assessment Reference Date 

ASHA American Speech-Language-Hearing 

Association 

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 

CAA Care Area Assessment 

CAH Critical Access Hospital 

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CAM Confusion Assessment Method 

CARE Continuity Assessment Record and 

Evaluation 

CAT Care Area Trigger 

CBSA Core-Based Statistical Area 

CFR Code of Federal Regulations 

CMI Case-Mix Index 

CMS Centers for Medicare & Medicaid 

Services 

CMSO Center for Medicaid and State 

Operations 

DRA Deficit Reduction Act of 2005, Public 

Law 109–171 

DSM–IV Diagnostic and Statistical Manual 

of Mental Disorders, 4th Revision 

FQHC Federally Qualified Health Center 

FR Federal Register 

FY Fiscal Year 

GAO Government Accountability Office 

HCPCS Healthcare Common Procedure 

Coding System 

HHA Home Health Agency 

HIPPS Health Insurance Prospective 

Payment System 

HIT Health Information Technology 

HIV Human Immunodeficiency Virus 

IFC Interim Final Rule with Comment 

Period 

IPPS Hospital Inpatient Prospective 

Payment System 

IRF Inpatient Rehabilitation Facility 

LTCH Long-Term Care Hospital 

MAC Medicare Administrative Contractor 

MMACS Medicare/Medicaid Automated 

Certification System 

MDS Minimum Data Set 

MIPPA Medicare Improvements for Patients 

and Providers Act of 2008, Public Law 

110–275 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003, Public Law 108–173 

MMSEA Medicare, Medicaid, and SCHIP 

Extension Act of 2007, Public Law 110–173 

MSA Metropolitan Statistical Area 

MS–DRG Medicare Severity DiagnosisRelated Group 

NCQA National Committee for Quality 

Assurance 

NF Nursing Facility 

NRST Non-Resident Specific Time 

NTA Non-Therapy Ancillary 

OIG Office of the Inspector General 

OMB Office of Management and Budget 

OMRA Other Medicare Required 

Assessment 

OSCAR Online Survey Certification and 

Reporting System 

PAC Post-Acute Care 

PHQ–9 9-Item Patient Health Questionnaire 

PPS Prospective Payment System 

QM Quality Measure 

RAI Resident Assessment Instrument 

RAND RAND Corporation 

RAP Resident Assessment Protocol 

RAVEN Resident Assessment Validation 

Entry 

RFA Regulatory Flexibility Act, Public Law 

96–354 

RHC Rural Health Clinic 

RIA Regulatory Impact Analysis 

RST Resident Specific Time 

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 

SNF Skilled Nursing Facility 

SOM State Operations Manual 

STM Staff Time Measurement 

STRIVE Staff Time and Resource Intensity 

Verification 

TEP Technical Expert Panel 

UMRA Unfunded Mandates Reform Act, 

Public Law 104–4 

I. Background 

On May 12, 2009, we published a 

proposed rule (74 FR 22208) in the 

Federal Register (hereafter referred to as 

the FY 2010 proposed rule), setting forth 

updates to the payment rates used under 

the prospective payment system (PPS) 

for skilled nursing facilities (SNFs), for 

fiscal year (FY) 2010. 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 the 

Medicare, Medicaid, and State 

Children’s Health Insurance Program 

(SCHIP) Balanced Budget Refinement 

Act of 1999 (BBRA) (Pub. L. 106–113, 

enacted on November 29, 1999), the 

Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (BIPA) (Pub. L. 106–554, 

enacted on December 21, 2000), and the 

Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) (Pub. L. 108–173, enacted 

on December 8, 2003). Our most recent 

annual update occurred in a final rule 

(73 FR 46416, August 8, 2008) that set 

forth updates to the SNF PPS payment 

rates for FY 2009. We subsequently 

published a correction notice (73 FR 

56998, October 1, 2008) with respect to 

those payment rate updates. 

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 

2010. Major elements of the SNF PPS 

include: 

• Rates. As discussed in section I.F.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. This adjustment utilizes a 

refined, 53-group version of the 

Resource Utilization Groups, version 3 

(RUG–III) case-mix classification 

system, based on information obtained 

from the required resident assessments 

using the Minimum Data Set (MDS) 2.0. 

Additionally, as noted in the final rule 

for FY 2006 (70 FR 45028, August 4, 

2005), the payment rates at various 

times have also reflected specific 

legislative provisions, including section 

101 of the BBRA, sections 311, 312, and 

314 of the BIPA, and section 511 of the 

MMA. 

• 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 FY. 

• Coverage. The establishment of the 

SNF PPS did not change Medicare’s 

fundamental requirements for SNF 

coverage. However, because the RUG–III 

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 casemix classification system. This 

approach includes an administrative 

presumption that utilizes a beneficiary’s 

initial classification in one of the upper 

35 RUGs of the refined 53-group 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 

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in the RUG–III classification structure 

(see section III.B.5 of this final rule for 

a discussion of the relationship between 

the current case-mix classification 

system and SNF level of care 

determinations, and section III.C.4 for a 

discussion of this process in the context 

of the upcoming conversion to version 

4 of the RUGs (RUG–IV)). 

• 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, 

occupational, and speech-language 

therapy 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 

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 with respect to these 

services during the upcoming FY. 

3. The factors to be applied in making 

the area wage adjustment with respect 

to these services. 

Along with other revisions discussed 

later in this preamble, this 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 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 

RUG–III groups. In accordance with 

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

temporary payment adjustment expired 

on January 1, 2006, upon the 

implementation of case-mix refinements 

(see section I.F.1. of this final rule). We 

included further information on BBRA 

provisions that affected the SNF PPS in 

Program Memorandums 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 

greater detail 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 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.hhs.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.hhs.gov/SNFPPS/Downloads/ 

RC_2006_PC-PPSSNF.pdf. 

• Section 312 of the BIPA provided 

for a temporary increase of 16.66 

percent in the nursing component of the 

case-mix adjusted Federal rate for 

services furnished on or after April 1, 

2001, and before October 1, 2002; 

accordingly, this add-on is no longer in 

effect. This section also directed the 

Government Accountability Office 

(GAO) to conduct an audit of SNF 

nursing staff ratios and submit a report 

to the Congress on whether the 

temporary increase in the nursing 

component should be continued. The 

report (GAO–03–176), which GAO 

issued in November 2002, is available 

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

new.items/d03176.pdf. 

• Section 313 of the BIPA repealed 

the consolidated billing requirement for 

services (other than physical, 

occupational, and speech-language 

therapy) furnished to SNF residents 

during noncovered stays, effective 

January 1, 2001. 

• 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 infeasible 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.hhs.gov/transmittals/ 

downloads/a0108.pdf. 

E. The Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) 

The MMA included a provision that 

results in a further adjustment to the 

SNF PPS. Specifically, section 511 of 

the MMA amended section 1888(e)(12) 

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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.hhs.gov/transmittals/ 

downloads/r160cp.pdf. As discussed in 

the SNF PPS final rule for FY 2006 (70 

FR 45028, August 4, 2005), we did not 

address the certification of the AIDS 

add-on in that final rule’s 

implementation of the case-mix 

refinements, 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 

results in a significant increase in 

payment. For example, using FY 2007 

data, we identified slightly more than 

2,700 SNF residents with a diagnosis 

code of 042 (Human Immunodeficiency 

Virus (HIV) Infection). For FY 2010, an 

urban facility with a resident with AIDS 

in RUG group ‘‘SSA’’ would have a 

case-mix adjusted payment of $252.95 

(see Table 4) before the application of 

the MMA adjustment. After an increase 

of 128 percent, this urban facility would 

receive a case-mix adjusted payment of 

approximately $576.73. A further 

discussion of the AIDS add-on in the 

context of research conducted during 

the recent STRIVE study appears in 

section III.C.5 of this final rule. 

In addition, section 410 of the MMA 

contained a provision that excluded 

from consolidated billing certain 

practitioner and other services 

furnished to SNF residents by rural 

health clinics (RHCs) and Federally 

Qualified Health Centers (FQHCs), as 

discussed in section III.G of this final 

rule. 

F. 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 PPS pays SNFs through 

prospective, case-mix adjusted per diem 

payment rates applicable to all covered 

SNF services. These payment rates 

cover all costs of furnishing covered 

SNF services (routine, ancillary, and 

capital-related costs) other than costs 

associated with approved educational 

activities. 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. As discussed 

previously in section I.A of this final 

rule, the data used in developing the 

Federal rates also incorporated a ‘‘Part 

B add-on,’’ an estimate of the amounts 

that would be payable under Part B in 

the base year for covered SNF services 

furnished to individuals during the 

course of a covered Part A SNF stay. 

In developing the rates for the initial 

period, we updated costs to the first 

effective year of the PPS (the 15-month 

period beginning July 1, 1998) using a 

SNF market basket index, and then 

standardized for the costs of facility 

differences in case-mix and for 

geographic variations in wages. In 

compiling the database used to compute 

the Federal payment rates, we excluded 

those providers that received new 

provider exemptions from the routine 

cost limits, as well as costs related to 

payments for exceptions to the routine 

cost limits. Using the formula that the 

BBA prescribed, we set the Federal rates 

at a level equal to the weighted mean of 

freestanding costs plus 50 percent of the 

difference between the freestanding 

mean and weighted mean of all SNF 

costs (hospital-based and freestanding) 

combined. We computed and applied 

separately the payment rates for 

facilities located in urban and rural 

areas. In addition, we adjusted the 

portion of the Federal rate attributable 

to wage-related costs by a wage index. 

The Federal rate also incorporates 

adjustments to account for facility casemix, using a classification system that 

accounts for the relative resource 

utilization of different patient types. 

The RUG–III classification system uses 

beneficiary assessment data from the 

Minimum Data Set (MDS) completed by 

SNFs to assign beneficiaries to one of 53 

RUG–III groups. The original RUG–III 

case-mix classification system included 

44 groups. However, 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 

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 53-group RUG–III case-mix 

classification system (RUG–53) 

appeared in the proposed and final rules 

for FY 2006 (70 FR 29070, May 19, 

2005, and 70 FR 45026, August 4, 2005). 

Further, in accordance with section 

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

Federal rates in this final rule reflect an 

update to the rates that we published in 

the final rule for FY 2009 (73 FR 46416, 

August 8, 2008) and the associated 

correction notice (73 FR 56998, October 

1, 2008), equal to the full change in the 

SNF market basket index. A more 

detailed discussion of the SNF market 

basket index and related issues appears 

in sections I.F.2 and III.F of this final 

rule. 

2. FY 2010 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 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 2010 

market basket increase is 2.2 percent, 

which is based on IHS Global Insight, 

Inc. second quarter 2009 forecast with 

historical data through the first quarter 

2009. 

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 

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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 2008 (the most 

recently available FY for which there is 

final data), the estimated increase in the 

market basket index was 3.3 percentage 

points, while the actual increase was 3.6 

percentage points, resulting in a 

difference of 0.3 percentage point. 

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 2010 do not include a 

forecast error adjustment. Table 1 shows 

the forecasted and actual market basket 

amounts for FY 2008. 

TABLE 1—DIFFERENCE BETWEEN THE FORECASTED AND ACTUAL MARKET BASKET INCREASES FOR FY 2008 

Index Forecasted 

FY 2008 increase * 

Actual 

FY 2008 increase ** FY 2008 difference *** 

SNF .......................................................................................................... 3.3 3.6 0.3 

* Published in Federal Register; based on second quarter 2007 IHS Global Insight Inc. forecast (2004-based index). 

** Based on the second quarter 2009 IHS Global Insight forecast (2004-based index). 

*** The FY 2008 forecast error correction for the PPS Operating portion will be applied to the FY 2010 PPS update recommendations. Any 

forecast error less than 0.5 percentage points will not be reflected in the update recommendation. 

II. Summary of the Provisions of the FY 

2010 Proposed Rule 

In the FY 2010 proposed rule (74 FR 

22208), we proposed to update the 

payment rates used under the SNF PPS 

for FY 2010. We also proposed to 

recalibrate the case-mix indexes so that 

they more accurately reflect parity in 

expenditures related to the 

implementation of case-mix refinements 

in January 2006. We also discussed the 

results of our ongoing analysis of 

nursing home staff time measurement 

(STM) data collected in the Staff Time 

and Resource Intensity Verification 

(STRIVE) project, and proposed a new 

RUG–IV case-mix classification model 

that would use the updated Minimum 

Data Set (MDS) 3.0 resident assessment 

for case-mix classification effective FY 

2011. In addition, we requested public 

comment on a possible requirement for 

the quarterly reporting of nursing home 

staffing data, and also on applying the 

quality monitoring mechanism in place 

for all other SNF PPS facilities to rural 

swing-bed hospitals. Finally, we 

proposed to revise the regulations to 

incorporate certain technical 

corrections. 

III. Analysis and Response to Public 

Comments on the FY 2010 Proposed 

Rule 

In response to the publication of the 

FY 2010 proposed rule, we received 

over 112 timely items of correspondence 

from the public. The comments 

originated primarily from various trade 

associations and major organizations, 

but also from individual providers, 

corporations, government agencies, and 

private citizens. 

Brief summaries of each proposed 

provision, a summary of the public 

comments that we received, and our 

responses to the comments appear 

below. 

A. General Comments on the FY 2010 

Proposed Rule 

In addition to the comments that 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. 

Comment: Some commenters noted 

that while the proposed rule’s SNF PPS 

rate updates would be effective for FY 

2010, its proposed conversion of the 

Resource Utilization Groups (RUGs) 

from version 3 (RUG–III) to version 4 

(RUG–IV) would not take effect until FY 

2011. The commenters argued that it is 

unprecedented to publish such a 

proposal so far in advance of its 

anticipated effective date, and that the 

60-day public comment period would 

not afford sufficient time to analyze and 

comment meaningfully on it. The 

commenters then suggested that we 

withdraw the current RUG conversion 

proposal and reissue it at a later date 

with a ‘‘more reasonable’’ comment 

period. 

Response: While it is true that the 

RUG conversion proposal would not 

become effective until FY 2011, our 

decision to include a discussion of it in 

the FY 2010 proposed rule and to 

propose to finalize it well in advance of 

its actual implementation date 

represents a response to specific 

requests from the nursing home 

industry for us to provide as much 

advance notification as possible of the 

nature of the proposed RUG–IV 

revisions, and to provide adequate time 

for system updates and training 

necessary to implement any proposed 

changes that are finalized. Thus, rather 

than arbitrarily deferring our discussion 

of this proposal until the FY 2011 

rulemaking cycle (which, in any event, 

would have provided for exactly the 

same 60-day duration for the public 

comment period), we decided to include 

the discussion in the current proposed 

rule, in order to ensure that providers, 

States, and other stakeholders and 

interested parties would have the 

maximum time available to familiarize 

themselves with the broad outlines of 

the new model and to prepare for its 

implementation. Moreover, even after 

the close of the FY 2010 proposed rule’s 

public comment period, we fully intend 

to continue our analysis of the proposed 

changes that are finalized in this rule, in 

order to consider the most current data 

as it becomes available. As an essential 

part of this ongoing analysis, we will, of 

course, also continue to welcome input 

from the various stakeholders and 

interested parties as we move closer to 

actual implementation. 

Comment: We received comments 

similar to those discussed previously in 

the August 3, 2007 SNF PPS final rule 

for FY 2008 (72 FR 43415 through 

43416) regarding the need to address 

certain perceived inadequacies in 

payment for non-therapy ancillary 

(NTA) services, including those services 

relating to the provision of ventilator 

care in SNFs. We also received 

comments recommending that we 

continue to monitor ongoing research, 

and that we consider alternative casemix methodologies such as the recent 

MedPAC proposal that appears on the 

MedPAC Web site (see http:// 

www.MedPAC.gov). 

Response: As we noted in the 

proposed rule for FY 2010, we are 

conducting the analyses preparatory to 

developing a separate classification 

method for NTAs. For these analyses, 

we are using data developed through 

STRIVE, as well as alternative models 

such as the conceptual design released 

first by the Urban Institute and then by 

MedPAC. However, as noted in our 

December 2006 Report to Congress 

(available online at http:// 

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www.cms.hhs.gov/SNFPPS/Downloads/ 

RC_2006_PC-PPSSNF.pdf), our analysis 

of NTA utilization has been hindered by 

a lack of data. Almost all other Medicare 

institutional providers submit more 

detailed billing than SNFs on the 

ancillary services furnished during a 

Medicare-covered stay. SNFs may 

currently submit summary data that 

shows total dollar amounts for each 

ancillary service category, such as 

radiology and pharmacy, but are not 

required to submit more detailed data 

on drugs and biologicals, the most 

costly NTA expense category. As we 

examine the NTA analyses discussed in 

detail in the FY 2010 proposed rule, we 

will re-evaluate whether our current 

data requirements are sufficient to move 

forward with additional program 

enhancements. We will also consider 

whether collecting more detailed claims 

information on a regular basis will allow 

us to establish more accurate payment 

rates for NTA services. 

We also believe it is important to 

monitor ongoing research activities, and 

work with all stakeholders, including 

MedPAC, to identify opportunities for 

future program enhancements. At the 

same time, we note that the SNF PPS 

reimbursement structure will be 

completely examined as part of the Post 

Acute Care Payment Reform 

Demonstration (PAC–PRD) project. 

Under this major CMS initiative, we 

intend to analyze the costs and 

outcomes across all post-acute care 

providers, and the data collected in this 

demonstration will enable us to evaluate 

the possibility of establishing an 

integrated payment model centered on 

beneficiary needs and service utilization 

(including the use of non-therapy 

ancillaries) across settings. In 

considering future changes to the SNF 

PPS, it will be important to evaluate 

how shorter term enhancements 

contribute to our integrated post acute 

care strategy. 

A discussion of the public comments 

that we received on the STRIVE project 

itself appears in section III.C.1 of this 

final rule. 

B. 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, 2010. 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 all items and 

services (other than those services 

excluded by statute) that, before July 1, 

1998, were paid under Part B (the 

supplementary medical insurance 

program) but furnished to Medicare 

beneficiaries in a SNF during a Part A 

covered stay. (These excluded service 

categories are discussed in greater detail 

in section V.B.2 of the May 12, 1998 

interim final rule (63 FR 26295 through 

26297)). 

b. Methodology Used for the Calculation 

of the Federal Rates 

The FY 2010 rates reflect an update 

using the full amount of the latest 

market basket index. The FY 2010 

market basket increase factor is 2.2 

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 in accordance with 

section 101(c)(2) of the BBRA, the 

previous temporary increases in the per 

diem adjusted payment rates for certain 

designated RUGs, as specified in section 

101(a) of the BBRA and section 314 of 

the BIPA, are no longer in effect due to 

the implementation of case-mix 

refinements as of January 1, 2006. 

However, the temporary increase of 128 

percent in the per diem adjusted 

payment rates for SNF residents with 

AIDS, enacted by section 511 of the 

MMA (and discussed previously in 

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

effect. 

We used the SNF market basket to 

adjust each per diem component of the 

Federal rates forward to reflect cost 

increases occurring between the 

midpoint of the Federal FY beginning 

October 1, 2008, and ending September 

30, 2009, and the midpoint of the 

Federal FY beginning October 1, 2009, 

and ending September 30, 2010, to 

which the payment rates apply. In 

accordance with section 

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

would update the payment rates for FY 

2010 by a factor equal to the full market 

basket index percentage increase. 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 2010. 

TABLE 2—FY 2010 UNADJUSTED FEDERAL RATE PER DIEM URBAN

Rate Component Nursing— 

case-mix 

Therapy— 

case-mix 

Therapy— 

non-case-mix Non-case-mix 

Per Diem Amount ............................................................................ $155.23 $116.93 $15.40 $79.22 

TABLE 3—FY 2010 UNADJUSTED FEDERAL RATE PER DIEM RURAL

Rate component Nursing— 

case-mix 

Therapy— 

case-mix 

Therapy— 

non-case-mix Non-case-mix 

Per Diem Amount ............................................................................ $148.31 $134.83 $16.45 $80.69 

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 

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RUG–III case-mix classification system, 

which tied the amount of payment to 

resident resource use in combination 

with resident characteristic information. 

The 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. 

Although the establishment of the 

SNF PPS did not change Medicare’s 

fundamental requirements for SNF 

coverage, there is a correlation between 

level of care and provider payment. One 

of the elements affecting the SNF PPS 

per diem rates is the RUG–III case-mix 

adjustment classification system based 

on beneficiary assessments using the 

MDS 2.0. RUG–III classification is 

based, in part, on the beneficiary’s need 

for skilled nursing care and therapy. As 

discussed previously in section I.F.1 of 

this final rule, the SNF PPS final rule for 

FY 2006 (70 FR 45026, August 4, 2005) 

refined the case-mix classification 

system effective January 1, 2006, by 

adding nine new Rehabilitation Plus 

Extensive Services RUGs at the top of 

the original, 44-group system, for a total 

of 53 groups. This nine-group addition 

was designed to better account for the 

higher costs of beneficiaries requiring 

both rehabilitation and certain high 

intensity medical services. When we 

developed the refined RUG–53 system, 

we constructed new case-mix indexes, 

using the STM study data that was 

collected during the 1990s and 

originally used in creating the SNF PPS 

case-mix classification system and casemix indexes. In addition, the RUG–III 

system was standardized with the intent 

of ensuring parity in payments under 

the 44-group and 53-group models. In 

section III.B.2.b of this final rule, we 

discuss further adjustments to those 

new case-mix indexes. 

The RUG–III case-mix classification 

system uses clinical data from the MDS 

2.0, and wage-adjusted STM data, to 

assign a case-mix group to each patient 

record that is then used to calculate a 

per diem payment under the SNF PPS. 

The existing RUG–III grouper logic was 

based on clinical data collected in 1990, 

1995, and 1997. As discussed in section 

III.C.1, we have recently completed a 

multi-year data collection and analysis 

under the STRIVE project to update the 

RUG–III case-mix classification system 

for FY 2011. As discussed later in this 

preamble, we are introducing a revised 

case-mix classification system, the 

RUG–IV, based on the data collected in 

2006–2007 during the STRIVE project. 

At the same time, we plan to introduce 

an updated new resident assessment 

instrument, the MDS 3.0, to collect the 

clinical data that will be used for casemix classification under RUG–IV. We 

believe that the coordinated 

introduction of the RUG–IV and MDS 

3.0 reflects current medical practice and 

resource use in SNFs across the country, 

and will enhance the accuracy of the 

SNF PPS. Further, we plan to defer 

implementation of the RUG–IV and 

MDS 3.0 until October 1, 2010, to allow 

all stakeholders adequate time for the 

systems updates and staff training 

needed to assure a smooth transition. 

We discuss the RUG–IV methodology, 

the MDS 3.0, and the stakeholder 

comments in greater detail in sections 

III.C and III.D, respectively. 

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.F.1 of this final 

rule, the FY 2010 payment rates set 

forth herein reflect the use of the refined 

RUG–53 system that we discussed in 

detail in the proposed and final rules for 

FY 2006. 

b. Development of the Case-Mix Indexes 

In the FY 2010 proposed rule (74 FR 

22208, 22214, May 12, 2009), we 

discussed the incremental refinements 

to the case-mix classification system 

that we introduced effective January 1, 

2006. We also discussed the 

accompanying adjustment that was 

intended to ensure that estimated total 

payments under the refined 53-group 

model would be equal to those 

payments that would have been made 

under the 44-group 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 simply 

achieving parity, this adjustment 

inadvertently triggered a significant 

increase in overall payment levels under 

the refined model, representing 

substantial overpayments to SNFs. 

Accordingly, the FY 2010 proposed rule 

included a proposal to recalibrate the 

parity adjustment in order to restore the 

intended parity to the 2006 case-mix 

refinements on a prospective basis. The 

comments that we received on this 

proposal, and our responses, appear 

below. 

Comment: Most commenters opposed 

our proposal to recalibrate the case-mix 

weights put into place for the refined 

RUG–53 system. Some commenters 

expressed the belief that we have 

overstated the amount of the proposed 

parity adjustment, by incorrectly 

identifying increased payments related 

to treatment of higher case-mix patients 

with an overpayment related to the use 

of an incorrect budget neutrality 

adjustment factor applied in January 

2006. They believed that the 

recalibration proposal should be either 

withdrawn or significantly reduced to 

eliminate the effect of real acuity 

changes. One commenter conducted a 

detailed analysis of MDS clinical data 

that included changes in reported 

activities of daily living (ADLs), 

infections, falls, medication use, and 

other clinical conditions to support 

their conclusions that patient acuity has 

increased since the start of the SNF PPS 

and that our recalibration proposal 

incorrectly ignored the impact of these 

changes. Another commenter believed 

that the proposed recalibration could be 

more accurately calculated using either 

2005 data or a combination of 2005 and 

2006 data. 

Response: We agree that, on average, 

the case-mix indexes for current SNF 

patients are higher than they were in 

2001. In fact, our primary reason for 

implementing the STRIVE project was 

to identify changes in patient 

characteristics, and to adjust the RUG 

case-mix classification system to reflect 

the staff time and resource costs needed 

to reimburse fairly for the type of 

patients currently being treated in 

nursing homes. Moreover, in the 

STRIVE study, we collected 2006–2007 

patient and facility staff data in order to 

update the case-mix classification 

system. As indicated in detail in the 

proposed rule, STRIVE data also show 

significant changes in patient 

characteristics and facility practice 

patterns that need to be incorporated 

into the case-mix methodology to 

reimburse facilities more accurately. 

However, we do not agree that 

changes in patient acuity levels skewed 

the results of our recalibration analysis. 

When we introduced nine new 

Rehabilitation Plus Extensive Care 

groups to create the RUG–53 model in 

January 2006, we made a small, focused 

adjustment to the case-mix classification 

of patients receiving both Extensive 

Care and Rehabilitation services. Under 

RUG–44, patients receiving both 

services would be classified into the 

highest paying group for which they 

qualified—either Extensive Care or 

Rehabilitation. Under RUG–53, we 

created a separate category for this 

subgroup of patients. As explained in 

the FY 2006 proposed rule (70 FR 

29070, 29077, May 19, 2005), we took 

the nursing minutes used to create the 

original RUG–III system, and resorted 

the records to create three hierarchy 

categories (Rehabilitation, Extensive 

Care, and Rehabilitation Plus Extensive) 

from the two categories that were used 

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in the RUG–44 model. In making these 

changes, we did not change any other 

part of the case-mix classification 

model. Thus, patient clinical 

characteristics including ADL scores 

(used to assign a Rehabilitation RUG 

group) calculated under the RUG–53 

model would be exactly the same as the 

patient characteristics, including ADL 

scores, calculated under the RUG–44 

model. As we used the same 2006 data 

set to test for budget neutrality between 

the two models, ADLs and other 

components of the case-mix model 

reflected the same 2006 level of acuity. 

In addition, we believe this concern 

may erroneously equate the 

introduction of a new classification 

model with the regular SNF PPS annual 

update process. Normally, changes in 

case mix are accommodated as the 

classification model identifies changes 

in case mix and assigns the appropriate 

RUG group. Actual payments will 

typically vary from projections since 

case-mix changes, which occur for a 

variety of reasons, cannot be anticipated 

in an impact analysis. 

However, in January 2006, we did not 

just update the payment rates, but 

introduced a new classification model, 

the RUG–53 case-mix system. As 

discussed above, the purpose of this 

refined model was to redistribute 

payments across the 53 groups while 

maintaining the same total expenditure 

level that we would have incurred had 

we retained the original 44-group RUG 

model. 

In testing the two models, we used 

2001 data because it was the best data 

we had available, and found that using 

the raw weights calculated for the RUG– 

53 model, we could expect aggregate 

payments to decrease as a result of 

introducing the refinement. To prevent 

this expected reduction in overall 

Medicare expenditures, we applied an 

adjustment to the RUG–53 case-mix 

weights as described earlier in this 

section. Later analysis using actual 2006 

data showed that, rather than achieving 

budget neutrality between the two 

models, expenditures under the RUG– 

53 model were significantly higher than 

intended. For FY 2010, we estimate 

expenditures to be $1.05 billion higher 

than intended. 

As noted previously, we do not agree 

that updating our analysis using CY 

2006 data captured payments related to 

increased case mix rather than 

establishing budget neutrality between 

the two models. First, by using 2006 

data to estimate expenditures under 

both models, we incorporate the same 

case-mix changes into the estimated 

expenditure levels for RUG–44 as well 

as for RUG–53. Second, we believe it is 

appropriate to standardize the new 

model for the time period in which it is 

being introduced. The only reason we 

used 2001 data in the original 

calculation is that it was the best data 

available at the time. The CY 2006 data 

allowed us to calibrate the RUG–53 

model more precisely for its first year of 

operation. 

One commenter recommended using 

alternative time periods in calculating 

the budget neutrality adjustment. 

However, while it might be possible to 

use some or all of CY 2005 rather than 

CY 2006 data, using CY 2005 data still 

requires us to use a projection of the 

distributional shift to the nine new 

groups in the RUG–53 group model. We 

believe that using actual instead of 

projected data is the most appropriate 

approach. We also looked at a second 

recommended alternative, which 

involved averaging data periods directly 

before and after implementation of the 

RUG–53 model; 2005 for the RUG–44 

model and 2006 for the RUG–53 model. 

Again, we believe that using actual 

utilization data for CY 2006 is more 

accurate, as actual case mix during the 

calibration year is the basis for 

computing the case-mix adjustment. We 

have determined that using the 2006 

data instead of the suggested 

alternatives is the most appropriate data 

to adopt. 

Comment: A few commenters stated 

that CMS failed to make public all 

information needed to provide sufficient 

explanation of the basis for the 

recalibration. The commenters indicated 

that the negative $1.05 billion impact of 

the recalibration should be similar to 

that proposed in the 2009 proposed 

rule, and questioned the reasons for the 

change. Further, the commenters 

suggested that CMS has failed to 

provide the public with the aggregate 

baseline spending values that CMS used 

in making the initial FY 2006 ‘‘parity’’ 

adjustment and the one that is currently 

being used in the FY 2010 proposed 

rule. 

Response: In the FY 2009 rule, actual 

data were used to compare payments in 

2006 under RUG–44 and RUG–53. At 

that time it was decided that an 

adjustment was necessary to recalibrate 

the CMIs because the adjustments in 

place since FY 2006, which were 

supposed to be budget neutral, actually 

resulted in a 3.3 percent overpayment to 

SNFs. It was also determined that the 

adjustment necessary to attain the 

appropriate 3.3 percent reduction in 

payments was a 9.68 percent increase to 

the unadjusted RUG–53 case-mix 

indexes (73 FR 46422, August 8, 2008), 

to replace the 17.90 percent adjustment 

that was in place since 2006. To 

determine the dollar impact ($780 

million) for the FY 2009 rule, the 3.3 

percent was applied to the estimated 

Medicare reimbursement to SNFs in FY 

2008, which is net of beneficiary costsharing. For the FY 2010 rule, the same 

data and methodology were used as in 

the FY 2009 rule, which determined 

that an overpayment of 3.3 percent has 

been in place since 2006, requiring an 

adjustment to the nursing case-mix 

indexes of 9.68 percent (74 FR 22214, 

May 12, 2009) to replace the 17.90 

percent adjustment. However, we 

believe that the presentation of the 

dollar impact would be more accurately 

reflected by applying the overpayment 

percentage to total SNF payments, 

including beneficiary cost-sharing 

amounts. The reason for using these 

higher payments to determine the dollar 

impact is because this is how the impact 

will play out in actual practice. 

Specifically, the revised 9.68 percent 

adjustment to the nursing CMIs is used 

to calculate total payments to SNFs, 

which reflect a combination of 

reimbursement from Medicare along 

with beneficiary cost-sharing. However, 

as the daily coinsurance amount for 

days 21–100 in the SNF is set by law (in 

section 1813(a)(3) of the Act) at oneeighth of the current calendar year’s 

inpatient hospital deductible amount, 

the beneficiary cost-sharing is 

unaffected by the change in payments 

resulting from the recalibration. This 

point is best illustrated by way of an 

example: Total payments to SNFs in FY 

2009 are estimated at approximately 

$31.3 billion, consisting of $25.9 billion 

in Medicare reimbursement and $5.4 

billion in beneficiary cost-sharing. 

The impact of the recalibration lowers 

total payments to SNFs by 

approximately $1 billion (or 3.3 

percent), to about $30.3 billion. Of this 

$30.3 billion, beneficiary cost-sharing 

(as determined by the statutory formula) 

remains unchanged at $5.4 billion, 

while Medicare reimbursement is 

reduced to $24.8 billion. Thus, although 

the determination of the total dollar 

impact changed, the methodology used 

to determine the need to recalibrate the 

CMIs did not change from FY 2009 to 

FY 2010. The total payments to SNFs 

that are used to determine the dollar 

impacts are not explicitly published 

anywhere, but can be easily estimated 

by dividing the dollar impacts by the 

percentage impact. These results can be 

confirmed by contacting the CMS Office 

of the Actuary. 

Comment: Some commenters believed 

that CMS failed to provide sufficient 

information for a third party to 

reproduce CMS’s conclusions with 

regard to the recalibrated parity 

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adjustment, noting the following 

specific elements: The baseline used for 

FY 2010, the CY 2006 days of service for 

both the RUG–44 and RUG–53 systems, 

and the separate values for the 

recalibrated parity adjustment factor 

and the NTA cost adjustment factor for 

FY 2010. 

Response: We do not agree with the 

commenters’ assertion. The 

methodology used to establish the casemix adjustments is the same as that 

described in detail in the FY 2006 SNF 

PPS proposed rule (70 FR 29077 

through 29079, May 19, 2005), the FY 

2009 SNF PPS proposed rule (73 FR 

25923, May 7, 2008) and the FY 2009 

SNF PPS final rule (73 FR 46421–22, 

August 8, 2008). In addition, the data 

used to calculate the adjustments are 

publicly available on the CMS Web site, 

as explained below. We used the CY 

2006 days of service (available in the 

Downloads section of our Web site at 

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

02_Spotlight.asp) for both the RUG–44 

and RUG–53 systems. We multiplied the 

CY 2006 days of service by the FY 2008 

unadjusted Federal per diem payment 

rate components (72 FR 43416, August 

3, 2007) multiplied by the unadjusted 

case-mix indexes (available in the 

Downloads section of our Web site at 

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

09_RUGRefinement.asp) to establish 

expenditures under the RUG–44 and 

RUG–53 systems. The budget neutrality 

adjustment was determined as the 

percentage increase necessary for the 

nursing CMIs to generate estimated 

expenditure levels under the RUG–53 

system that were equal to estimated 

expenditure levels under the RUG–44 

system. We then calculated a second 

adjustment factor to increase the 

baseline by an amount that served to 

offset the variability in NTA utilization. 

The separate recalibrated parity 

adjustment factor and the NTA cost 

adjustment factor were considered in 

the calculation of the combined parity 

adjustment factor of 9.68 in the FY 2009 

SNF PPS proposed rule (73 FR 25923, 

May 7, 2008), the FY 2009 SNF PPS 

final rule (73 FR 46421–22, August 8, 

2008), and the FY 2010 SNF PPS 

proposed rule (74 FR 22214, May 12, 

2009). We presented the total 

adjustment to the nursing case-mix 

indexes of 9.68 percent because this 

reflects all changes to the payment 

system with respect to the recalibration. 

The percentage adjustment to the 

nursing CMIs to maintain parity 

between the 44-group and 53-group 

models is a 2.43 percent increase. The 

adjustment to account for the variability 

in the non-therapy ancillary utilization 

is a 7.08 percent increase. The separate 

adjustments represent interim steps in 

the calculations, and the final result of 

9.68 percent represents the complete 

change to aggregate payments. 

Although the SNF baseline is not 

explicitly published, the baseline used 

can be determined by dividing the 

dollar impacts by the percentage impact. 

Many commenters used this approach to 

conduct their own analyses. Some of the 

commenters contacted CMS to confirm 

the baseline in use, and this information 

was provided or verified. 

Comment: A few commenters believe 

that CMS failed to explain fully the 

evaluation done since the FY 2009 final 

rule to support the decision to proceed 

with the recalibration for FY 2010. 

Response: The analytic methodology 

and calculations were explained in 

detail in the FY 2009 proposed and final 

rules. In the final rule, we explained 

that we were deferring rather than 

withdrawing the recalibration proposal. 

After the publication of the FY 2009 

final rule, we worked with CMS staff 

and contractors, and reviewed the entire 

methodology with our actuaries. We 

reviewed the recalibration approach 

with the CMS actuaries, asked for an 

independent review by one of our 

contractors, and met with an industry 

representative to discuss the 

methodology. The calculations were 

determined to be mathematically 

correct. The approach was reconsidered 

along with alternative approaches that 

we presented in our FY 2009 final rule 

(73 FR 46423, 46439–40) and those 

offered by industry. Based on our results 

from these steps, we determined that 

our methodology was appropriate and 

reissued the proposal for FY 2010. In 

addition, we further considered the 

effects of the recalibration on 

beneficiaries, SNF clinical staff, and 

quality of care, and as explained in the 

FY 2010 proposed rule (74 FR 22214), 

we determined that it is appropriate to 

proceed with the recalibration in FY 

2010. As we explained in the FY 2010 

proposed rule (74 FR 22214), by 

recalibrating the CMIs under the 53- 

group model, we expect to restore SNF 

payments to their appropriate level by 

correcting an inadvertent increase in 

overall payments. Because the 

recalibration would simply remove an 

unintended overpayment rather than 

decrease an otherwise appropriate 

payment amount, we do not believe that 

the recalibration should negatively 

affect beneficiaries, clinical staff, or 

quality of care, or create an undue 

hardship on providers. The purpose of 

the FY 2006 refinements was to 

reallocate payments so that they more 

accurately reflect resources used, not to 

increase or decrease overall 

expenditures. Thus, we believe that it is 

appropriate to proceed with the 

recalibration in order to ensure that we 

correctly accomplish the purpose of the 

FY 2006 case-mix refinements and 

restore payments to their appropriate 

level. 

Comment: Several commenters stated 

that the need for the recalibration arose 

because CMS initial projections of 

utilization under the refined case-mix 

system proved to be inaccurate once 

actual utilization data became available. 

They then asserted that in view of this, 

the proposed recalibration represents a 

‘‘forecast error adjustment’’ that is not 

covered under the statutory authority to 

provide for an appropriate adjustment to 

account for case mix (section 

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

Response: It would be incorrect to 

characterize the proposed recalibration 

as a ‘‘forecast error adjustment,’’ as that 

term refers solely to an adjustment that 

compensates for an inaccurate forecast 

of the annual inflation factor in the SNF 

market basket, as described in section 

III.F.2 of this final rule (see 42 CFR 

413.337(d)(2)). By contrast, the 

proposed recalibration would serve to 

ensure that the 2006 case-mix 

refinements are implemented as 

intended. As such, it would be integral 

to the process of providing ‘‘* * * for 

an appropriate adjustment to account 

for case mix’’ that is based upon 

appropriate data in accordance with 

section 1888(e)(4)(G)(i) of the Act. 

Comment: A number of comments 

included references to the discussion of 

the 2006 case-mix refinements in the 

SNF PPS proposed rule for FY 2006 (70 

FR 29079, May 19, 2005), in which we 

explained that we were ‘‘* * * 

advancing these proposed changes 

under our authority in section 101(a) of 

the BBRA to establish case-mix 

refinements, and that the changes we 

are hereby proposing will represent the 

final adjustments made under this 

authority’’ (emphasis added). The 

commenters stated that this earlier 

description of the 2006 case-mix 

refinements as ‘‘final’’ effectively 

precludes CMS from proceeding with a 

recalibration, which they characterized 

as representing a further refinement. 

Similarly, several commenters also 

questioned our authority to recalibrate 

the case-mix system prior to the 

completion of the STRIVE STM project. 

In addition, several commenters 

questioned whether CMS has the 

authority to impose a budget neutrality 

requirement on the introduction of a 

new classification model. 

Response: We wish to clarify that the 

actual ‘‘refinement’’ that we proposed 

and implemented in the FY 2006 

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Federal Register / Vol. 74, No. 153 / Tuesday, August 11, 2009 / Rules and Regulations 40297 

1Castle NG, Engberg J, Lave J, Fisher A. Factors 

Associated with Increasing Nursing Home Closures, 

Health Services Research 44: (3) June 2009, pp. 

1088–1109. 

2Zinn J, Mor V, Feng Z, Intrator O. Determinants 

of performance failure in the nursing home 

industry, Social Science & Medicine 68: (5), March, 

2009, pp. 933–940. 

rulemaking cycle consisted of our 

introduction of the 9 new Rehabilitation 

plus Extensive Services groups at the 

top of the previous, 44-group RUG 

hierarchy, along with the adjustment 

recognizing the variability of NTA use, 

which together fulfilled the provisions 

of section 101(a) of the BBRA. The 

accompanying adjustment to the casemix indexes (CMIs) was merely a 

vehicle through which we implemented 

that refinement. Rather than 

representing a new or further 

‘‘refinement’’ in itself, the proposed 

recalibration merely serves to ensure 

that we correctly accomplish a revision 

to the CMIs that accompanied the FY 

2006 case-mix refinements. 

In the FY 2006 final rule (70 FR 

45033, August 4, 2005), we addressed 

the introduction of the refinements 

within the broader context of ensuring 

payment accuracy and beneficiary 

access to care. We pointed out that 

* * * this incremental change is part of this 

ongoing process that will also include update 

activities such as the upcoming STM study 

and investigation of potential alternatives to 

the RUG system itself. However, the 

commitment to long term analysis and 

refinement should not preclude the 

introduction of more immediate 

methodological and policy updates. 

Finally, the budget neutrality factor 

was applied to the unadjusted RUG–53 

case-mix weights that were introduced 

in January 2006. As stated above, our 

initial analyses indicated that payments 

would be lower under the RUG–53 

model. As the purpose of the refinement 

was to reallocate payments, and not to 

reduce expenditures, we believe that 

increasing the case-mix weights to 

equalize payments under the two 

models is an appropriate exercise of our 

broad authority to establish an 

appropriate case-mix system. We further 

note that the FY 2006 refinement to the 

case-mix classification system using 

adjusted CMIs was implemented 

through the rulemaking process, and we 

received no comments on the use of a 

budget neutrality adjustment at that 

time. 

Comment: Some commenters argued 

against implementing the proposed 

recalibration by asserting that it is 

important to maintain Medicare SNF 

payments at their current levels in order 

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 

national impact in a weak economy. A 

few commenters asserted that the 

recalibration would have the same 

impact as the original implementation 

of the SNF PPS, which they asserted 

had pushed providers into bankruptcy. 

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. We note that 

MedPAC has indicated that it is 

inappropriate for the Medicare 

program’s SNF payments to crosssubsidize Medicaid nursing facility rates 

in this manner. Specifically, on page 

152 of its March 2008 Report to the 

Congress on Medicare Payment Policy 

(which is available online at http:// 

medpac.gov/documents/ 

Mar08_EntireReport.pdf), MedPAC 

stated: 

There are several reasons why Medicare 

cross-subsidization is not advisable policy for 

the Medicare program. On average, Medicare 

payments accounted for 21 percent of 

revenues to freestanding SNFs in 2006. As a 

result, the policy would use a minority of 

Medicare payments to subsidize a majority of 

Medicaid payments. If Medicare were to pay 

still higher rates, 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. In other words, the 

subsidy would be poorly targeted. Given the 

variation among States in the level and 

method of nursing home payments, the 

impact of the subsidy would be highly 

variable; in States where Medicaid payments 

were adequate, it would have no positive 

impact. In addition, increasing Medicare’s 

payment rates could encourage States to 

reduce Medicaid payments further and, in 

turn, result in pressure to again raise 

Medicare rates. It could also encourage 

providers to select patients based on payer 

source or to rehospitalize dual-eligible 

patients so that they qualified for a Medicarecovered, and 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, we 

have proposed to correct, on a 

prospective basis, an overpayment 

situation that has been in effect since 

January 2006. To avoid possible 

negative consequences, we have 

decided not to go back and recoup the 

excess expenditures made to SNFs ever 

since January 2006. 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, 2010. 

We have also considered the concerns 

raised by industry representatives that 

restoring the intended payment levels 

will result in job losses and add 

significant burden to health care 

workers and State governments. CMS 

cost report and Online Survey 

Certification and Reporting System 

(OSCAR) data show that, for the 

majority of SNFs that operate as 

freestanding facilities or as parts of 

chains, there has been little change in 

staffing or in facility costs since 2006. 

Therefore, as data do not indicate that 

the overpayment was used to increase 

staffing during this time, 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 and State governments. Further, 

in its March 2009 Report to the Congress 

(available online at http:// 

www.medpac.gov/documents/ 

Mar09_EntireReport.pdf), MedPAC 

reports that average Medicare margins 

have increased for freestanding SNFs 

since 2005. In 2007, the aggregate 

Medicare margin for freestanding SNFs 

was 14.5 percent, up from 13.3 percent 

in 2006. 

A few commenters expressed concern 

that the recalibration would have the 

same impact as the original 

implementation of the SNF PPS in the 

late 1990s, which they asserted had 

pushed providers into bankruptcy. 

However, studies have indicated 

multiple factors for those nursing home 

closures. Castle et al studied the rate of 

nursing home closures for 7 years 

(1999–2005).1 Those reasons for 

bankruptcy included internal factors 

such as quality, organizational factors 

such as chain membership, and external 

factors such as competition. Nursing 

homes most likely to close included 

those with higher rates of deficiency 

citations, hospital-based facilities, chain 

members, small bed size, and facilities 

located in markets with high levels of 

competition. A recent study examined 

nursing homes terminated from the 

Medicare and Medicaid programs.2 The 

study found that the introduction of the 

prospective case-mix system was not the 

sole cause of the fiscal instabilities that 

led these providers to terminate their 

participation in Medicare. The authors 

state that some of the fiscal instability 

was self-inflicted, due to investment 

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40298 Federal Register / Vol. 74, No. 153 / Tuesday, August 11, 2009 / Rules and Regulations 

3Report to the Congress: Medicare Payment 

Policy, ‘‘Section 2D: Skilled nursing facility,’’ 

March 2002, pp. 85–90. 

4 General Accounting Office. Nursing homes: 

aggregate Medicare payments are adequate despite 

bankruptcies. No T–HEHS–00–192. Washington 

(DC), GAO. September 2000. 

decisions made in an uncertain market 

and misreading the changing 

reimbursement environment. 

A similar finding had been reported 

in the March 2002 MedPAC report.3

MedPAC noted that the ability to service 

debt was the same under PPS as under 

cost-based payments. Finally, a 2000 

GAO report stated that the bankruptcies 

resulted from heavy business 

investments in ancillary service lines 

and high capital-related costs such as 

depreciation, interest, and rent.4

Research fails to indicate that casemix reimbursement is a significant 

contributor to nursing home 

bankruptcy. Thus, we do not agree with 

the commenters who asserted that the 

recalibration of Medicare CMIs to 

restore budget neutrality on a 

prospective basis will force providers 

into bankruptcy, or create the type of 

fiscal pressure that would negatively 

affect facility staffing or the quality of 

care furnished to Medicare 

beneficiaries. 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 a weak economy justifies 

perpetuating an overpayment. 

Comment: Several commenters 

asserted 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 

IRFs. They asserted that the 

recalibration adjustment should not be 

made because SNFs used the money to 

expand their infrastructures to handle 

more seriously ill patients who were 

previously treated in IRFs, and that their 

actions actually saved Medicare dollars. 

Specifically, these commenters asserted 

that a shift of patients from IRFs to SNFs 

resulted in savings to the Medicare 

Trust Fund, and that SNFs need to 

maintain current SNF spending levels to 

treat this new type of patients. 

Underlying these comments is the 

assumption that SNFs are providing 

care for the same type of patients who 

would otherwise qualify for the higher 

IRF payments. 

Response: We note that a basic 

principle of the SNF PPS is to pay 

appropriately for the services provided. 

CMS data are consistent with the 

commenters’ assertions that many 

patients formerly being treated in IRFs 

are now being treated in SNFs or Home 

Health Agencies (HHAs). In fact, our 

data show that a portion of patients 

needing rehabilitation have always been 

treated at SNFs and HHAs. The CY 2006 

distribution used to recalibrate the casemix adjustments reflects an increase in 

rehabilitation patients, and probably 

includes patients who might have been 

admitted to the higher-paying IRFs prior 

to CMS enforcement of IRF facility 

compliance criteria and more intensive 

medical review of IRF claims. However, 

we do not agree that these patients 

represent a higher level of acuity than 

the type of patients historically treated 

in SNFs. In fact, the decrease in the 

number of patients admitted to IRFs 

reflects that subset of the rehabilitation 

population that was not appropriate for 

IRF care. As such, CMS may have 

overpaid IRFs for more routine 

orthopedic cases, such as single joint 

knee replacements. For those 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 

overpayments as a reason to increase 

payments under the SNF PPS. In 

discussing the proposed recalibration, it 

is important to bear in mind that 

recalibrating CMIs would not change the 

relative nature of higher payments for 

patients using more staff resources and 

services. 

Accordingly, for the reasons specified 

in the FY 2010 proposed rule (74 FR 

22214–22215), we are finalizing the 

recalibration of the parity adjustment to 

the RUG–53 case-mix indexes in order 

to restore the intended parity in overall 

payments between the RUG–44 model 

and the RUG–53 model, and the factor 

used to recognize variability in NTA 

utilization, using the methodology 

described in the FY 2009 proposed and 

final rules (73 FR 25923, 73 FR 46421– 

24). Thus, for FY 2010, the aggregate 

impact of this recalibration would be 

the difference between payments 

calculated using the original FY 2006 

total CMI increase of 17.9 percent and 

payments calculated using the 

recalibrated total CMI increase of 9.68 

percent. The total difference is a 

decrease in payments of $1.05 billion 

(on an incurred basis) in payments for 

FY 2010. We also note that the negative 

$1.05 billion would be partly offset by 

the FY 2010 market basket adjustment 

factor of 2.2 percent, or $690 million, 

with a net result of a negative 1.1 

percent update of $360 million for FY 

2010. Again, we want to emphasize that 

we are implementing the recalibration 

on a prospective basis, which is the 

strategy that we believe best mitigates 

the potential impact on providers. By 

using CY 2006 claims data (which 

represent actual RUG–53 utilization), 

rather than FY 2001 claims data, we 

believe the SNF PPS will better reflect 

resources used, resulting in more 

accurate payment. 

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 (wage and case-mix). 

TABLE 4—RUG–53—CASE-MIX ADJUSTED FEDERAL RATES AND ASSOCIATED INDEXES, URBAN

RUG–III 

category 

Nursing 

index 

Therapy 

index 

Nursing 

component 

Therapy 

component 

Non-case mix 

therapy comp. 

Non-case mix 

component Total rate 

RUX .............................. 1.77 2.25 274.76 263.09 ........................ 79.22 617.07 

RUL .............................. 1.31 2.25 203.35 263.09 ........................ 79.22 545.66 

RVX .............................. 1.44 1.41 223.53 164.87 ........................ 79.22 467.62 

RVL .............................. 1.24 1.41 192.49 164.87 ........................ 79.22 436.58 

RHX .............................. 1.33 0.94 206.46 109.91 ........................ 79.22 395.59 

RHL .............................. 1.27 0.94 197.14 109.91 ........................ 79.22 386.27 

RMX ............................. 1.80 0.77 279.41 90.04 ........................ 79.22 448.67 

RML .............................. 1.57 0.77 243.71 90.04 ........................ 79.22 412.97 

RLX .............................. 1.22 0.43 189.38 50.28 ........................ 79.22 318.88 

RUC ............................. 1.20 2.25 186.28 263.09 ........................ 79.22 528.59 

RUB .............................. 0.92 2.25 142.81 263.09 ........................ 79.22 485.12 

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TABLE 4—RUG–53—CASE-MIX ADJUSTED FEDERAL RATES AND ASSOCIATED INDEXES, URBAN—Continued 

RUG–III 

category 

Nursing 

index 

Therapy 

index 

Nursing 

component 

Therapy 

component 

Non-case mix 

therapy comp. 

Non-case mix 

component Total rate 

RUA .............................. 0.78 2.25 121.08 263.09 ........................ 79.22 463.39 

RVC .............................. 1.14 1.41 176.96 164.87 ........................ 79.22 421.05 

RVB .............................. 1.01 1.41 156.78 164.87 ........................ 79.22 400.87 

RVA .............................. 0.77 1.41 119.53 164.87 ........................ 79.22 363.62 

RHC ............................. 1.13 0.94 175.41 109.91 ........................ 79.22 364.54 

RHB .............................. 1.03 0.94 159.89 109.91 ........................ 79.22 349.02 

RHA .............................. 0.88 0.94 136.60 109.91 ........................ 79.22 325.73 

RMC ............................. 1.07 0.77 166.10 90.04 ........................ 79.22 335.36 

RMB ............................. 1.01 0.77 156.78 90.04 ........................ 79.22 326.04 

RMA ............................. 0.97 0.77 150.57 90.04 ........................ 79.22 319.83 

RLB .............................. 1.06 0.43 164.54 50.28 ........................ 79.22 294.04 

RLA .............................. 0.79 0.43 122.63 50.28 ........................ 79.22 252.13 

SE3 .............................. 1.72 ........................ 267.00 ........................ 15.40 79.22 361.62 

SE2 .............................. 1.38 ........................ 214.22 ........................ 15.40 79.22 308.84 

SE1 .............................. 1.17 ........................ 181.62 ........................ 15.40 79.22 276.24 

SSC .............................. 1.14 ........................ 176.96 ........................ 15.40 79.22 271.58 

SSB .............................. 1.05 ........................ 162.99 ........................ 15.40 79.22 257.61 

SSA .............................. 1.02 ........................ 158.33 ........................ 15.40 79.22 252.95 

CC2 .............................. 1.13 ........................ 175.41 ........................ 15.40 79.22 270.03 

CC1 .............................. 0.99 ........................ 153.68 ........................ 15.40 79.22 248.30 

CB2 .............................. 0.91 ........................ 141.26 ........................ 15.40 79.22 235.88 

CB1 .............................. 0.84 ........................ 130.39 ........................ 15.40 79.22 225.01 

CA2 .............................. 0.83 ........................ 128.84 ........................ 15.40 79.22 223.46 

CA1 .............................. 0.75 ........................ 116.42 ........................ 15.40 79.22 211.04 

IB2 ................................ 0.69 ........................ 107.11 ........................ 15.40 79.22 201.73 

IB1 ................................ 0.67 ........................ 104.00 ........................ 15.40 79.22 198.62 

IA2 ................................ 0.57 ........................ 88.48 ........................ 15.40 79.22 183.10 

IA1 ................................ 0.53 ........................ 82.27 ........................ 15.40 79.22 176.89 

BB2 .............................. 0.68 ........................ 105.56 ........................ 15.40 79.22 200.18 

BB1 .............................. 0.65 ........................ 100.90 ........................ 15.40 79.22 195.52 

BA2 .............................. 0.56 ........................ 86.93 ........................ 15.40 79.22 181.55 

BA1 .............................. 0.48 ........................ 74.51 ........................ 15.40 79.22 169.13 

PE2 .............................. 0.79 ........................ 122.63 ........................ 15.40 79.22 217.25 

PE1 .............................. 0.77 ........................ 119.53 ........................ 15.40 79.22 214.15 

PD2 .............................. 0.72 ........................ 111.77 ........................ 15.40 79.22 206.39 

PD1 .............................. 0.70 ........................ 108.66 ........................ 15.40 79.22 203.28 

PC2 .............................. 0.66 ........................ 102.45 ........................ 15.40 79.22 197.07 

PC1 .............................. 0.65 ........................ 100.90 ........................ 15.40 79.22 195.52 

PB2 .............................. 0.52 ........................ 80.72 ........................ 15.40 79.22 175.34 

PB1 .............................. 0.50 ........................ 77.62 ........................ 15.40 79.22 172.24 

PA2 .............................. 0.49 ........................ 76.06 ........................ 15.40 79.22 170.68 

PA1 .............................. 0.46 ........................ 71.41 ........................ 15.40 79.22 166.03 

TABLE 5—RUG–53—CASE-MIX ADJUSTED FEDERAL RATES AND ASSOCIATED INDEXES, RURAL

RUG–III category Nursing index Therapy index Nursing 

component 

Therapy 

component 

Non-case mix 

therapy comp. 

Non-case mix 

component Total rate 

RUX .............................. 1.77 2.25 262.51 303.37 ........................ 80.69 646.57 

RUL .............................. 1.31 2.25 194.29 303.37 ........................ 80.69 578.35 

RVX .............................. 1.44 1.41 213.57 190.11 ........................ 80.69 484.37 

RVL .............................. 1.24 1.41 183.90 190.11 ........................ 80.69 454.70 

RHX .............................. 1.33 0.94 197.25 126.74 ........................ 80.69 404.68 

RHL .............................. 1.27 0.94 188.35 126.74 ........................ 80.69 395.78 

RMX ............................. 1.80 0.77 266.96 103.82 ........................ 80.69 451.47 

RML .............................. 1.57 0.77 232.85 103.82 ........................ 80.69 417.36 

RLX .............................. 1.22 0.43 180.94 57.98 ........................ 80.69 319.61 

RUC ............................. 1.20 2.25 177.97 303.37 ........................ 80.69 562.03 

RUB .............................. 0.92 2.25 136.45 303.37 ........................ 80.69 520.51 

RUA .............................. 0.78 2.25 115.68 303.37 ........................ 80.69 499.74 

RVC .............................. 1.14 1.41 169.07 190.11 ........................ 80.69 439.87 

RVB .............................. 1.01 1.41 149.79 190.11 ........................ 80.69 420.59 

RVA .............................. 0.77 1.41 114.20 190.11 ........................ 80.69 385.00 

RHC ............................. 1.13 0.94 167.59 126.74 ........................ 80.69 375.02 

RHB .............................. 1.03 0.94 152.76 126.74 ........................ 80.69 360.19 

RHA .............................. 0.88 0.94 130.51 126.74 ........................ 80.69 337.94 

RMC ............................. 1.07 0.77 158.69 103.82 ........................ 80.69 343.20 

RMB ............................. 1.01 0.77 149.79 103.82 ........................ 80.69 334.30 

RMA ............................. 0.97 0.77 143.86 103.82 ........................ 80.69 328.37 

RLB .............................. 1.06 0.43 157.21 57.98 ........................ 80.69 295.88 

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TABLE 5—RUG–53—CASE-MIX ADJUSTED FEDERAL RATES AND ASSOCIATED INDEXES, RURAL—Continued 

RUG–III category Nursing index Therapy index Nursing 

component 

Therapy 

component 

Non-case mix 

therapy comp. 

Non-case mix 

component Total rate 

RLA .............................. 0.79 0.43 117.16 57.98 ........................ 80.69 255.83 

SE3 .............................. 1.72 ........................ 255.09 ........................ 16.45 80.69 352.23 

SE2 .............................. 1.38 ........................ 204.67 ........................ 16.45 80.69 301.81 

SE1 .............................. 1.17 ........................ 173.52 ........................ 16.45 80.69 270.66 

SSC .............................. 1.14 ........................ 169.07 ........................ 16.45 80.69 266.21 

SSB .............................. 1.05 ........................ 155.73 ........................ 16.45 80.69 252.87 

SSA .............................. 1.02 ........................ 151.28 ........................ 16.45 80.69 248.42 

CC2 .............................. 1.13 ........................ 167.59 ........................ 16.45 80.69 264.73 

CC1 .............................. 0.99 ........................ 146.83 ........................ 16.45 80.69 243.97 

CB2 .............................. 0.91 ........................ 134.96 ........................ 16.45 80.69 232.10 

CB1 .............................. 0.84 ........................ 124.58 ........................ 16.45 80.69 221.72 

CA2 .............................. 0.83 ........................ 123.10 ........................ 16.45 80.69 220.24 

CA1 .............................. 0.75 ........................ 111.23 ........................ 16.45 80.69 208.37 

IB2 ................................ 0.69 ........................ 102.33 ........................ 16.45 80.69 199.47 

IB1 ................................ 0.67 ........................ 99.37 ........................ 16.45 80.69 196.51 

IA2 ................................ 0.57 ........................ 84.54 ........................ 16.45 80.69 181.68 

IA1 ................................ 0.53 ........................ 78.60 ........................ 16.45 80.69 175.74 

BB2 .............................. 0.68 ........................ 100.85 ........................ 16.45 80.69 197.99 

BB1 .............................. 0.65 ........................ 96.40 ........................ 16.45 80.69 193.54 

BA2 .............................. 0.56 ........................ 83.05 ........................ 16.45 80.69 180.19 

BA1 .............................. 0.48 ........................ 71.19 ........................ 16.45 80.69 168.33 

PE2 .............................. 0.79 ........................ 117.16 ........................ 16.45 80.69 214.30 

PE1 .............................. 0.77 ........................ 114.20 ........................ 16.45 80.69 211.34 

PD2 .............................. 0.72 ........................ 106.78 ........................ 16.45 80.69 203.92 

PD1 .............................. 0.70 ........................ 103.82 ........................ 16.45 80.69 200.96 

PC2 .............................. 0.66 ........................ 97.88 ........................ 16.45 80.69 195.02 

PC1 .............................. 0.65 ........................ 96.40 ........................ 16.45 80.69 193.54 

PB2 .............................. 0.52 ........................ 77.12 ........................ 16.45 80.69 174.26 

PB1 .............................. 0.50 ........................ 74.16 ........................ 16.45 80.69 171.30 

PA2 .............................. 0.49 ........................ 72.67 ........................ 16.45 80.69 169.81 

PA1 .............................. 0.46 ........................ 68.22 ........................ 16.45 80.69 165.36 

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 2010 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 2010 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 2010 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 is 

used to construct the wage index for 

rural Massachusetts. However, 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. The only 

urban area without wage index data 

available is CBSA (25980) HinesvilleFort 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 requested 

that CMS develop a method of gathering 

wage data information that would 

directly reflect the wages earned in both 

rural and urban SNF settings. 

Response: As described above, 

hospital wage data are used in 

developing a wage index to be applied 

to SNFs. All hospitals, both rural and 

urban, are used to establish the hospital 

wage data used to construct the SNF 

PPS wage index. Therefore, we believe 

that the SNF PPS wage index adequately 

captures earned wages across both 

urban and rural settings. Further, as 

discussed in greater detail below, we 

have been unable to develop a SNFspecific wage index 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’’ (73 FR 46426, 

August 8, 2008). 

Comment: Several commenters asked 

CMS to consider adopting certain wage 

index policies in use under the acute 

IPPS, such as reclassification, because 

SNFs compete in a similar labor pool as 

acute care hospitals. In addition, a few 

commenters recommended that CMS 

develop a SNF-specific wage index. One 

commenter requested that we revisit the 

use of CBSA labor market areas and 

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develop an alternative that better 

captures Statewide labor market trends. 

Response: The regulations that govern 

the SNF PPS currently do not provide 

a mechanism for allowing providers to 

seek geographic reclassification. 

Moreover, as we have explained in the 

past (most recently, in the SNF PPS 

final rule for FY 2009 (73 FR 46416, 

46426, August 8, 2008), while section 

315 of the Benefits Improvement and 

Protection Act of 2000 (BIPA, Pub. L. 

106–554) does authorize us to establish 

such a reclassification methodology 

under the SNF PPS, it additionally 

stipulates that such reclassification 

cannot be implemented until we have 

collected the data necessary to establish 

a SNF-specific wage index. This, in 

turn, has proven to be infeasible 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’’ (73 FR 

46426, August 8, 2008). We continue to 

believe that these factors make it 

unlikely for such an approach to yield 

meaningful improvements in our ability 

to determine facility payments, or to 

justify the significant increase in 

administrative resources as well as 

burden on providers what this type of 

data collection would involve. 

In addition, we reviewed the 

Medicare Payment Advisory 

Commission’s (MedPAC) wage index 

recommendations as discussed in 

MedPAC’s June 2007 report entitled, 

‘‘Report to Congress: Promoting Greater 

Efficiency in Medicare.’’ Although some 

commenters recommend that we adopt 

the IPPS wage index policies such as 

reclassification and floor policies, we 

note that MedPAC’s June 2007 report to 

Congress recommends that Congress 

‘‘repeal the existing hospital wage index 

statute, including reclassification and 

exceptions, and give the Secretary 

authority to establish new wage index 

systems.’’ We believe that adopting the 

IPPS wage index policies (such as 

reclassification or floor) would not be 

prudent at this time, because MedPAC 

suggests that the reclassification and 

exception policies in the IPPS wage 

index alters the wage index values for 

one-third of IPPS hospitals. In addition, 

MedPAC found that the exceptions may 

lead to anomalies in the wage index. By 

adopting the IPPS reclassification and 

exceptions at this time, the SNF PPS 

wage index could become vulnerable to 

problems similar to those that MedPAC 

identified in their June 2007 Report to 

Congress. However, we will continue to 

review and consider MedPAC’s 

recommendations on a refined or 

alternative wage index methodology for 

the SNF PPS in future years. 

We also note that section 106(b)(2) of 

the Medicare Improvements and 

Extension Act (MIEA) of 2006 (which is 

Division B of the Tax Relief and Health 

Care Act (TRHCA) of 2006, Public Law 

109–432, collectively referred to as 

‘‘MIEA–TRHCA’’) required the Secretary 

of Health and Human Services, taking 

into account MedPAC’s 

recommendations on the Medicare wage 

index classification system, to include 

in the FY 2009 IPPS proposed rule 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. To assist CMS in meeting the 

requirements of section 106(b)(2) of 

MIEA–TRHCA, in February 2008, CMS 

awarded a Task Order under its 

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. Part One 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 are 

presented in the FY 2009 IPPS final rule 

(http://edocket.access.gpo.gov/2008/ 

pdf/E8-17914.pdf). We plan to continue 

monitoring wage index research efforts 

and the impact or influence they may 

have for the SNF PPS wage index. 

Moreover, in light of all of the 

pending research and review of wage 

index issues in general, we believe that 

it would be premature at this time to 

initiate revisiting the use of CBSA labor 

market areas and review of a SNFspecific wage index. 

Therefore, in this final rule, we will 

continue to use hospital wage data 

exclusive of the occupational mix 

adjustment to calculate the SNF PPS 

wage index adjustment, and we are 

finalizing the wage index and associated 

policies as proposed in the SNF PPS 

proposed rule for FY 2010 (74 FR 

22217–22219, May 12, 2009). 

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 69.840 

percent of the total rate. This percentage 

reflects the labor-related relative 

importance for FY 2010, using the 

revised and rebased FY 2004-based 

market basket. The labor-related relative 

importance for FY 2009 was 69.783, as 

shown in Table 16. 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 

2010. The price proxies that move the 

different cost categories in the market 

basket do not necessarily change at the 

same rate, and the relative importance 

captures these changes. Accordingly, 

the relative importance figure more 

closely reflects the cost share weights 

for FY 2010 than the base year weights 

from the SNF market basket. 

We calculate the labor-related relative 

importance for FY 2010 in four steps. 

First, we compute the FY 2010 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 

2010 price index level for that cost 

category by the total market basket price 

index level. Third, we determine the FY 

2010 relative importance for each cost 

category by multiplying this ratio by the 

base year (FY 2004) weight. Finally, we 

add the FY 2010 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 2010 labor-related relative 

importance. Tables 6 and 7 show the 

Federal rates by labor-related and nonlabor-related components. 

TABLE 6—RUG–53—CASE-MIX ADJUSTED FEDERAL RATES FOR URBAN SNFS BY LABOR AND NON-LABOR COMPONENT

RUG–III category Total rate Labor portion Non-labor 

portion 

RUX ............................................................................................................................................. 617.07 430.96 186.11 

RUL .............................................................................................................................................. 545.66 381.09 164.57 

RVX .............................................................................................................................................. 467.62 326.59 141.03 

RVL .............................................................................................................................................. 436.58 304.91 131.67 

RHX ............................................................................................................................................. 395.59 276.28 119.31 

RHL .............................................................................................................................................. 386.27 269.77 116.50 

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TABLE 6—RUG–53—CASE-MIX ADJUSTED FEDERAL RATES FOR URBAN SNFS BY LABOR AND NON-LABOR

COMPONENT—Continued 

RUG–III category Total rate Labor portion Non-labor 

portion 

RMX ............................................................................................................................................. 448.67 313.35 135.32 

RML ............................................................................................................................................. 412.97 288.42 124.55 

RLX .............................................................................................................................................. 318.88 222.71 96.17 

RUC ............................................................................................................................................. 528.59 369.17 159.42 

RUB ............................................................................................................................................. 485.12 338.81 146.31 

RUA ............................................................................................................................................. 463.39 323.63 139.76 

RVC ............................................................................................................................................. 421.05 294.06 126.99 

RVB .............................................................................................................................................. 400.87 279.97 120.90 

RVA .............................................................................................................................................. 363.62 253.95 109.67 

RHC ............................................................................................................................................. 364.54 254.59 109.95 

RHB ............................................................................................................................................. 349.02 243.76 105.26 

RHA ............................................................................................................................................. 325.73 227.49 98.24 

RMC ............................................................................................................................................. 335.36 234.22 101.14 

RMB ............................................................................................................................................. 326.04 227.71 98.33 

RMA ............................................................................................................................................. 319.83 223.37 96.46 

RLB .............................................................................................................................................. 294.04 205.36 88.68 

RLA .............................................................................................................................................. 252.13 176.09 76.04 

SE3 .............................................................................................................................................. 361.62 252.56 109.06 

SE2 .............................................................................................................................................. 308.84 215.69 93.15 

SE1 .............................................................................................................................................. 276.24 192.93 83.31 

SSC .............................................................................................................................................. 271.58 189.67 81.91 

SSB .............................................................................................................................................. 257.61 179.91 77.70 

SSA .............................................................................................................................................. 252.95 176.66 76.29 

CC2 .............................................................................................................................................. 270.03 188.59 81.44 

CC1 .............................................................................................................................................. 248.30 173.41 74.89 

CB2 .............................................................................................................................................. 235.88 164.74 71.14 

CB1 .............................................................................................................................................. 225.01 157.15 67.86 

CA2 .............................................................................................................................................. 223.46 156.06 67.40 

CA1 .............................................................................................................................................. 211.04 147.39 63.65 

IB2 ................................................................................................................................................ 201.73 140.89 60.84 

IB1 ................................................................................................................................................ 198.62 138.72 59.90 

IA2 ................................................................................................................................................ 183.10 127.88 55.22 

IA1 ................................................................................................................................................ 176.89 123.54 53.35 

BB2 .............................................................................................................................................. 200.18 139.81 60.37 

BB1 .............................................................................................................................................. 195.52 136.55 58.97 

BA2 .............................................................................................................................................. 181.55 126.79 54.76 

BA1 .............................................................................................................................................. 169.13 118.12 51.01 

PE2 .............................................................................................................................................. 217.25 151.73 65.52 

PE1 .............................................................................................................................................. 214.15 149.56 64.59 

PD2 .............................................................................................................................................. 206.39 144.14 62.25 

PD1 .............................................................................................................................................. 203.28 141.97 61.31 

PC2 .............................................................................................................................................. 197.07 137.63 59.44 

PC1 .............................................................................................................................................. 195.52 136.55 58.97 

PB2 .............................................................................................................................................. 175.34 122.46 52.88 

PB1 .............................................................................................................................................. 172.24 120.29 51.95 

PA2 .............................................................................................................................................. 170.68 119.20 51.48 

PA1 .............................................................................................................................................. 166.03 115.96 50.07 

TABLE 7—RUG–53—CASE-MIX ADJUSTED FEDERAL RATES FOR RURAL SNFS BY LABOR AND NON-LABOR COMPONENT

RUG–III category Total rate Labor portion Non-labor 

portion 

RUX ............................................................................................................................................. 646.57 451.56 195.01 

RUL .............................................................................................................................................. 578.35 403.92 174.43 

RVX .............................................................................................................................................. 484.37 338.28 146.09 

RVL .............................................................................................................................................. 454.70 317.56 137.14 

RHX ............................................................................................................................................. 404.68 282.63 122.05 

RHL .............................................................................................................................................. 395.78 276.41 119.37 

RMX ............................................................................................................................................. 451.47 315.31 136.16 

RML ............................................................................................................................................. 417.36 291.48 125.88 

RLX .............................................................................................................................................. 319.61 223.22 96.39 

RUC ............................................................................................................................................. 562.03 392.52 169.51 

RUB ............................................................................................................................................. 520.51 363.52 156.99 

RUA ............................................................................................................................................. 499.74 349.02 150.72 

RVC ............................................................................................................................................. 439.87 307.21 132.66 

RVB .............................................................................................................................................. 420.59 293.74 126.85 

RVA .............................................................................................................................................. 385.00 268.88 116.12 

RHC ............................................................................................................................................. 375.02 261.91 113.11 

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TABLE 7—RUG–53—CASE-MIX ADJUSTED FEDERAL RATES FOR RURAL SNFS BY LABOR AND NON-LABOR

COMPONENT—Continued 

RUG–III category Total rate Labor portion Non-labor 

portion 

RHB ............................................................................................................................................. 360.19 251.56 108.63 

RHA ............................................................................................................................................. 337.94 236.02 101.92 

RMC ............................................................................................................................................. 343.20 239.69 103.51 

RMB ............................................................................................................................................. 334.30 233.48 100.82 

RMA ............................................................................................................................................. 328.37 229.33 99.04 

RLB .............................................................................................................................................. 295.88 206.64 89.24 

RLA .............................................................................................................................................. 255.83 178.67 77.16 

SE3 .............................................................................................................................................. 352.23 246.00 106.23 

SE2 .............................................................................................................................................. 301.81 210.78 91.03 

SE1 .............................................................................................................................................. 270.66 189.03 81.63 

SSC .............................................................................................................................................. 266.21 185.92 80.29 

SSB .............................................................................................................................................. 252.87 176.60 76.27 

SSA .............................................................................................................................................. 248.42 173.50 74.92 

CC2 .............................................................................................................................................. 264.73 184.89 79.84 

CC1 .............................................................................................................................................. 243.97 170.39 73.58 

CB2 .............................................................................................................................................. 232.10 162.10 70.00 

CB1 .............................................................................................................................................. 221.72 154.85 66.87 

CA2 .............................................................................................................................................. 220.24 153.82 66.42 

CA1 .............................................................................................................................................. 208.37 145.53 62.84 

IB2 ................................................................................................................................................ 199.47 139.31 60.16 

IB1 ................................................................................................................................................ 196.51 137.24 59.27 

IA2 ................................................................................................................................................ 181.68 126.89 54.79 

IA1 ................................................................................................................................................ 175.74 122.74 53.00 

BB2 .............................................................................................................................................. 197.99 138.28 59.71 

BB1 .............................................................................................................................................. 193.54 135.17 58.37 

BA2 .............................................................................................................................................. 180.19 125.84 54.35 

BA1 .............................................................................................................................................. 168.33 117.56 50.77 

PE2 .............................................................................................................................................. 214.30 149.67 64.63 

PE1 .............................................................................................................................................. 211.34 147.60 63.74 

PD2 .............................................................................................................................................. 203.92 142.42 61.50 

PD1 .............................................................................................................................................. 200.96 140.35 60.61 

PC2 .............................................................................................................................................. 195.02 136.20 58.82 

PC1 .............................................................................................................................................. 193.54 135.17 58.37 

PB2 .............................................................................................................................................. 174.26 121.70 52.56 

PB1 .............................................................................................................................................. 171.30 119.64 51.66 

PA2 .............................................................................................................................................. 169.81 118.60 51.21 

PA1 .............................................................................................................................................. 165.36 115.49 49.87 

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

also requires that we apply this wage 

index in a manner that does not result 

in aggregate payments that are greater or 

less than would otherwise be made in 

the absence of the wage adjustment. For 

FY 2010 (Federal rates effective October 

1, 2009), 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 2009 to the weighted 

average wage adjustment factor for FY 

2010. For this calculation, we use the 

same 2007 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 1.0010. The wage 

index applicable to FY 2010 is set forth 

in Tables A and B, which appear in the 

Addendum of this final rule. 

Comment: One commenter estimated 

SNF reimbursements using both the FY 

2010 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– 

2009 timeframe are more than $2 billion 

too low. 

Response: 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 

accept the methodology applied by the 

commenter, and believe that the 1.0010 

budget neutrality factor will ensure 

equal payments after updating to the FY 

2010 SNF PPS wage index, prior to any 

other policy changes. 

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In the SNF PPS final rule for FY 2006 

(70 FR 45026, August 4, 2005), we 

adopted the changes discussed in the 

Office of Management and Budget 

(OMB) Bulletin No. 03–04 (June 6, 

2003), available online at http:// 

www.whitehouse.gov/omb/bulletins/ 

b03-04.html, which announced revised 

definitions for Metropolitan Statistical 

Areas (MSAs), and the creation of 

Micropolitan Statistical Areas and 

Combined Statistical Areas. In addition, 

OMB published subsequent bulletins 

regarding CBSA changes, including 

changes in CBSA numbers and titles. As 

indicated in the FY 2008 SNF PPS final 

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

and all subsequent SNF PPS rules and 

notices are considered to incorporate 

the CBSA changes published in the 

most recent OMB bulletin that applies 

to the hospital wage data used to 

determine the current SNF PPS wage 

index. The OMB bulletins 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 the Federal Rates 

In accordance with section 

1888(e)(4)(E) of the Act, as amended by 

section 311 of the BIPA, the payment 

rates in this final rule reflect an update 

equal to the full SNF market basket, 

estimated at 2.2 percentage points. We 

continue to disseminate the rates, wage 

index, and case-mix classification 

methodology through the Federal 

Register before the August 1 that 

precedes the start of each succeeding 

FY. 

5. Relationship of RUG–III 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. This 

designation reflects an administrative 

presumption under the refined RUG–53 

system that beneficiaries who are 

correctly assigned to one of the upper 35 

of the RUG–53 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 18 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 35 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 18 groups. 

In this final rule, we are continuing 

the designation of the upper 35 groups 

for purposes of this administrative 

presumption, consisting of all groups 

encompassed by the following RUG–53 

categories: 

• Rehabilitation plus Extensive 

Services; 

• Ultra High Rehabilitation; 

• Very High Rehabilitation; 

• High Rehabilitation; 

• Medium Rehabilitation; 

• Low Rehabilitation; 

• Extensive Services; 

• Special Care; and, 

• Clinically Complex. 

A discussion of the relationship of the 

proposed RUG–IV classification system 

to existing SNF level of care criteria 

appears in section III.C.4 of this final 

rule. 

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, 2009. 

SNF XYZ’s total PPS payment would 

equal $30,635. We derive the Labor and 

Non-labor columns from Table 6 of this 

final rule. 

TABLE 8—RUG–53—SNF XYZ: LOCATED IN CEDAR RAPIDS, IA (URBAN CBSA 16300); WAGE INDEX: 0.8984 

RUG group Labor Wage index Adj. labor Non-labor Adj. rate Percent adj. Medicare 

days Payment 

RVX .................................. $326.59 0.8984 $293.41 $141.03 $434.44 $434.44 14 $6,082.00 

RLX .................................. 222.71 0.8984 200.08 96.17 296.25 296.25 30 8,888.00 

RHA .................................. 227.49 0.8984 204.38 98.24 302.62 302.62 16 4,842.00 

CC2 .................................. 188.59 0.8984 169.43 81.44 250.87 *571.98 10 5,720.00 

IA2 .................................... 127.88 0.8984 114.89 55.22 170.11 170.11 30 5,103.00 

Total .......................... .................... .................... .................... .................... .................... .................... 100 30,635.00 

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

C. Resource Utilization Groups, Version 

4 (RUG–IV) 

1. Staff Time and Resource Intensity 

Verification (STRIVE) Project 

In the FY 2010 proposed rule (74 FR 

22208, 22220, May 12, 2009), we noted 

that the SNF PPS uses the Resource 

Utilization Group (RUG) to which a 

resident is assigned to make a case-mix 

adjustment to that resident’s payment 

amount, in order to reflect the relative 

resource intensity that would typically 

be associated with the resident’s clinical 

condition. In this context, we discussed 

our STRIVE project, which we 

conducted to help ensure that the SNF 

PPS payment rates reflect current 

practices and resource needs. The 

following sections discuss the 

comments that we received on this issue 

and related topics, along with our 

responses. 

a. Data Collection 

To help ensure that the SNF PPS 

payment rates reflect current practices 

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and resource needs, CMS sponsored a 

national nursing home time study, 

STRIVE, which began in the Fall of 

2005. Information collected in STRIVE 

includes the amount of time that staff 

members spend on residents and 

information on residents’ physical and 

clinical status derived from MDS 

assessment data. As noted in the FY 

2010 proposed rule (74 FR 22208, 

22221, May 12, 2009), identifying the 

level of staff resources needed to 

provide quality care to nursing home 

patients was a primary objective. For 

this reason, nursing homes with poor 

survey histories or pending enforcement 

actions were excluded from the sample. 

In addition, nursing homes with poor 

quality indicator (QI) or quality measure 

(QM) scores were also excluded, as were 

nursing homes with low occupancy 

rates, large proportions of private pay or 

pediatric patients, and nursing homes 

that were undergoing hardships (such as 

fires or floods) that would prevent 

participation in the study. The 

comments that we received on this 

issue, and our responses, appear below. 

Sampling Methodology 

A number of commenters addressed 

issues regarding the sampling 

methodology of the STRIVE project. 

These comments fell into several major 

categories: 

• Sample size and margin of error. 

• Random nature of the sample. 

• Representativeness of the sample 

and data collection process. 

Sample Size and Margin of Error 

Comment: Several commenters 

recognized CMS’s efforts in collecting 

significantly more data than that 

gathered in the 1990 sample used 

initially to develop RUG–III, and the 

1995/1997 sample used to revise RUG– 

III and establish the current CMIs that 

are the basis for current Medicare rates. 

However, a number of comments 

asserted that the precision was too low 

(that is, the margin of error too high) to 

make reliable estimates for use in setting 

payment rates. More specifically, these 

commenters stated that the overall 

margins of error for the sample that 

were presented at several TEP meetings 

appeared unrealistically low. These 

commenters recommended that CMS 

should abandon the time study 

methodology, which relies on a samplebased special study, and develop a 

methodology that uses population-based 

administrative data. 

Response: At several TEP meetings, 

estimates of the overall margin of error 

for Medicare and non-Medicare cases 

were presented. It is worth noting that 

these analyses were interim work 

products and were developed during the 

course of our analyses to give 

stakeholders the most current 

information available as early as 

possible to help them evaluate the 

RUG–IV model. To the comment that 

asserted these estimates were 

unrealistically low and that we must 

have failed to consider correctly the 

sample design when they were 

calculated, we note that these estimates 

actually did account for the sample 

design (both stratification and 

clustering), but were adjusted in two 

ways: (a) We developed procedures to 

remove variance associated with case 

mix, and (b) we presented a weighted 

variance estimate that was based upon 

all of the individual RUG groups and 

which weighted more prevalent groups 

more heavily than less prevalent groups 

(since these would be more often used 

in making payments). Basically, we 

attempted to compute the margin of 

error for the ‘‘typical’’ or ‘‘average’’ RUG 

group after removing the effect of case 

mix. 

Upon further review, as noted by a 

few commenters, we found minor flaws 

in the methodology, and have updated 

our analysis. As shown below, we 

believe that the simplest and most 

informative overall measure of the 

precision of the sample is the margin of 

error associated with the nursing and 

therapy overall means. Table 9 below 

presents relevant values from the 

STRIVE study and from the prior 1995/ 

97 time study. 

TABLE 9 

Parameter STRIVE 1995/97 

time study 

Percent 

improvement 

Nursing Time: 

Number of cases (weighted) ................................................................................................ 9,766 3,933 

Mean wage-weighted time ................................................................................................... 135.2 228.3 

Standard error of mean ........................................................................................................ 3.1 7.2 

Coefficient of variation of mean ........................................................................................... 2.3% 3.2% 26.7 

Margin of error (percent of mean) ........................................................................................ ±4.6% ±6.2% 26.8 

Therapy Time: 

Number of cases (weighted) ................................................................................................ 1,510 1,133 

Mean wage-weighted time ................................................................................................... 144.0 86.0 

Standard error of mean ........................................................................................................ 5.5 3.5 

Coefficient of variation of mean ........................................................................................... 3.8% 4.0% 4.6 

Margin of error (percent of mean) ........................................................................................ ±7.6% ±8.0% 4.7 

Note: Coefficient of variation of the mean = (std error of mean)/(mean) * 100. 

For each of these studies, the table 

above presents statistics for mean 

nursing time (based upon all residents 

in the sample) and for therapy time 

(based upon all residents who received 

any therapy time). For each of these 

datasets, the table presents the number 

of cases (raw, unweighted counts), the 

mean of the wage-weighted minutes, the 

standard error of the mean, the margin 

of error associated with the mean, and 

the margin of error expressed as a 

percentage of the mean. 

We note that for both nursing and 

therapy time, the methodology used to 

wage-weight time differed between the 

two studies. (A detailed discussion of 

the wage-weighting protocols is 

presented below.) Therefore, the means, 

standard errors, and margins of error 

cannot be directly compared between 

the two studies. We have, therefore, 

computed the margin of error as a 

percentage of the mean to allow such 

comparison. 

It can be seen that in the STRIVE 

sample, the margin of error for the 

nursing time is about ±4.6 percent of 

mean nursing time, compared with ±6.2 

percent in the earlier study. This 

represents a 26.8 percent improvement 

in precision over the earlier study. For 

therapy time, the STRIVE margin of 

error is ±7.6 percent, a 4.7 percent 

improvement over the earlier study. 

With regard to therapy time, the 

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improvement is modest because of the 

relatively large number of cases in the 

1995/97 time study that had therapy 

time. We believe this is because the 

sample that was used for the earlier 

study was largely aimed at identifying 

and enlisting nursing homes that had 

Medicare residents and provided 

therapy. 

Thus, the STRIVE sample is larger 

and has considerably more precision for 

nursing time than the earlier time study. 

The results of the earlier study have 

served as the basis for Medicare and 

Medicaid rate setting since 1998 and the 

new results should, if anything, lead to 

more accuracy than the data collected 

more than 10 years ago. We believe that 

the ability to distinguish more precisely 

and accurately between patient 

characteristics and varying degrees of 

acuity with the time study methodology 

outweighs the issues of ease of 

collection and analysis of populationbased administrative data. 

Comment: Some commenters said the 

sample sizes for some individual RUG 

groups were very low. Several 

commenters focused on sampling error 

due either to bias or to small sample 

sizes that they believed weakened the 

STRIVE study. One respondent 

questioned the small sample size, and 

claimed that an overall sample size of 

500,000 (compared with STRIVE’s 

sample of under 10,000) would be 

necessary to ensure reasonable precision 

in all RUG groups. While they also 

stated that the margins of error 

associated with overall mean nursing 

and therapy times provide a useful 

metric for comparing the STRIVE study 

with the 1995/97 time study, several 

comments expressed concerns about the 

precision of individual RUG group 

means as opposed to the means for the 

entire sample. They observed that the 

margin of error for such small RUG 

groups was so large as to make the mean 

staff time estimates unusable for those 

groups. 

Response: While a sample size of 

500,000 might be appropriate for a largescale academic research project or 

medical trial, the STRIVE project was 

specifically designed to update the RUG 

case-mix classification system to reflect 

current resource utilization in nursing 

homes across the country. As many 

commenters pointed out, patient 

characteristics have changed and patient 

acuity levels have increased since the 

introduction of the SNF PPS in 1998. 

For STRIVE, as for many other CMS 

analytic projects, there is a tradeoff 

between timeliness of results, cost, and 

small cell size. In fact, using the sample 

size guideline recommended by the 

commenter, it is unlikely that many if 

not most of the programmatic changes 

incorporated into the Medicare program 

since its inception in 1966 could have 

been successfully introduced. 

It is true that the sample sizes for 

some RUG groups are small and that the 

margins of errors for these RUG groups 

means are large. However, there are 

several reasons why we believe that the 

precision is sufficient for rate setting: 

• Some comments appeared to 

suggest that only Medicare cases were 

used to produce the group means and 

CMIs that were used for rate setting. 

Because Medicare residents comprised 

only about 14 percent of the total 

weighted STRIVE sample, this would 

have exacerbated problems with small 

sample sizes. In fact, however, we used 

the entire sample of valid cases (that is, 

all cases that passed our accuracy edits), 

not just Medicare cases, to produce 

these group means and CMIs. Thus, the 

RUG group sample sizes were 

considerably larger than some 

comments suggested. 

• Therapy CMIs are based upon mean 

therapy times for the therapy categories, 

not the means for individual therapy 

groups. That is, mean therapy times are 

calculated for the RU, RV, RH, RM, and 

RL categories and therapy CMIs are 

computed based upon these category 

means. The therapy CMI for a category 

is then used to calculate the therapy 

payment rate applied to all of that 

category’s subgroups. For example, the 

RU therapy CMI and corresponding rate 

are applied across the RUX, RUL, RUC, 

RUB, and RUA groups. Because the 

therapy CMIs and therapy rate 

components are computed at the 

category level, the sample sizes are 

considerably larger than some 

comments suggest. 

• We recognized that the nursing time 

sample sizes were quite small for some 

individual RUG groups, especially those 

with tertiary splits (based on nursing 

rehabilitation and depression) and for 

the ‘‘Rehabilitation plus Extensive’’ 

groups. To address this problem, we 

used regression-based estimation 

procedures to develop group means and 

CMIs for these groups. For example, the 

individual combined RehabilitationExtensive Services RUG–IV groups (for 

example, RUX) had very small sample 

sizes, with weighted sample sizes 

varying from less than 1 to 12 cases. 

Clearly, this was an insufficient number 

of cases in these individual groups to 

obtain reliable individual group means 

or reliable CMIs based on individual 

group means. Therefore, we developed 

a regression model to estimate the 

overall average increase in nursing time 

for providing extensive services to 

residents receiving rehabilitation, 

controlling for level of therapy and ADL 

dependence. The estimated average 

increase due to extensive services was 

based on comparison of all 

Rehabilitation-Extensive Services 

residents (49 sample weighted cases) 

versus all Rehabilitation-only residents 

(1,261 sample weighted cases). The 

nursing time estimate for each 

Rehabilitation-Extensive Services group 

was then calculated as the nursing time 

mean for Rehabilitation-only residents 

with the same level of rehabilitation and 

ADL dependence plus the estimated 

average increase due to extensive 

services. For example, the nursing time 

estimate for RUX was calculated as the 

mean for RUC plus the average 

extensive services increase. This 

estimate is based on much larger sample 

sizes and is, therefore, much more 

reliable than individual RehabilitationExtensive Services group means. Similar 

models and adjustments were made for 

the depression and restorative therapy 

splits. 

• The RUG–IV model, like previous 

RUG models, is structured and contains 

implicit assumptions about the ordering 

of group means. One assumption is that 

within a category, payment rates will 

increase as the ADL score (and ADL 

dependence) increases. A second 

assumption is that within a corridor of 

ADL scores, payment rates will decrease 

as one moves down the hierarchy. 

Exceptions to these constraints are 

called rate inversions and are to be 

avoided because of the perverse 

incentives they can create (for example, 

when a resident qualifies for more than 

one group and would produce a higher 

payment in a lower group with fewer 

services being provided). A considerable 

effort was made to examine the 

individual group means, CMIs, and rates 

for possible inversions, and to make 

adjustments where necessary to fix 

these inversions. Inversions were fixed 

employing the regression models 

described above and by smoothing 

techniques (for example, computing the 

weighted mean of two groups that had 

a small inversion and using that 

weighted mean as the basis for 

computing the rate for those two 

groups). Some of the observed 

inversions were in groups with small 

sample sizes and may have been the 

result of imprecise estimates of the 

group means. The smoothing and 

estimation procedures described above 

produced payment rates that, with a few 

exceptions, conformed with the RUG 

model’s hierarchical constraints. Most 

exceptions where rate inversions 

remained involved the following rare 

groups (with sample weighted number 

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of cases in parenthesis): RHL (8 cases), 

RML (10 cases), RLX (0 cases), RLB (21 

cases), and RLA (24 cases)). The only 

inversions involving larger groups were 

LD1 and CD1 versus PD2. Because the 

means, CMIs, and rates were 

constrained as discussed above, and 

were adjusted where necessary to 

conform with these constraints, the 

impact of any statistical imprecision 

due to small sample sizes was mitigated. 

• Finally, regarding those comments 

which stated that the lack of sampling 

precision associated with some RUG 

groups meant that the STRIVE results 

were too imprecise to be used with 

confidence for rate setting, we note that 

the logic of PPS models is that they 

successfully predict cost, and that 

payment rates that are based on those 

models will be accurately aligned with 

actual cost. The net result will be that 

providers will be paid in proportion to 

the cost of providing care to their 

residents. Nevertheless, PPS models do 

not perfectly predict cost, and there is 

error inherent in using such PPS 

models. This is true of the diagnosisrelated group (DRG) model used for 

acute hospitals, the case-mix group 

(CMG) model used for inpatient 

rehabilitation hospitals, and the home 

health resource group (HHRG) model 

used for home health care. It has been 

recognized since the late 1980s that 

these models are not perfect predictors 

of cost. In fact, in 2002, a Report to 

Congress (‘‘Prospective Payment System 

for Inpatient Services in Psychiatric 

Hospitals and Exempt Units,’’ available 

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

InpatientPsychFacilPPS/downloads/ 

rptcongress.pdf) discussed the historical 

limitations of PPS systems generally in 

terms of predicting resource use, and a 

June, 2008 MedPAC report (available 

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

documents/Jun08_EntireReport.pdf) 

noted that PPS models do not perfectly 

predict cost. Thus, all of the Medicare 

PPS models account for only a portion 

of the variance associated with cost. Our 

analysis shows that, with sampling 

weights applied and using the full 

sample, the RUG–IV model accounts for 

41.5 percent of the variance in nursing 

time. This statement does not mean that 

the RUG–IV model should not be used 

for rate setting. In fact, using the 

STRIVE sample, the RUG–IV variance 

explanation is higher than the 29.1 

percent variance calculated for RUG–III. 

As discussed above, there will always 

be a certain amount of error associated 

with payment rates. For the SNF PPS, 

much of this inaccuracy is ‘‘averaged 

out’’ when payment is made to a facility 

for a large number of days and for 

multiple residents. That small sample 

sizes and some degree of sampling error 

may contribute to this overall estimation 

error does not mean that rate setting 

cannot be performed with an acceptable 

level of accuracy. 

Random Nature of the STRIVE Sample 

Comment: Several commenters argued 

that the STRIVE sample is not random, 

making it unreliable for projecting 

patient acuity in the development of the 

new RUG–IV system. One commenter 

suggested that, while there is 

insufficient information to make a 

conclusive finding on this point, the 

potential exists that the STRIVE sample 

is fatally flawed due to the presence of 

bias. 

A few commenters noted that at the 

last stage of the design, facilities had to 

be sub-sampled if the facilities were too 

large to be observed in their entirety. 

Due to a lack of PDAs and data 

monitors, data collection was limited to 

a portion of the facility, be it one or 

more floors, or one or more units. The 

subsample was selected by the project 

staff in consultation with facility 

management. The commenters stated 

that the subsampling was not conducted 

using any randomization method, and 

may have introduced bias to the sample 

and data collection. 

Generally, several commenters argued 

that because the STRIVE sampling plan 

relied upon voluntary participation, 

sample selection was not random and 

may have introduced sampling biases. 

Response: Selection of the STRIVE 

sample involved a number of steps, and 

we have acknowledged in public 

documentation and at several TEP 

meetings that non-random selection was 

used, by necessity, at several steps in 

this process. Specifically, States 

volunteered for selection and were not 

selected randomly. Nursing homes 

volunteered to participate and were, 

therefore, not selected randomly. 

Finally, in larger facilities where the 

entire nursing home could not be 

studied, nursing units within the 

nursing home were selected based upon 

a pre-determined protocol, rather than 

using a random procedure. 

While we sought to utilize random 

processes where possible (for example, 

the list of facilities that were invited to 

participate in the study in each State 

was generated using a random 

procedure), the nature of this study 

precluded the use of strictly random 

selection. Because CMS did not have the 

authority to compel any State or nursing 

home to participate in the study, it was 

impossible to use a strictly random 

procedure for selecting States or nursing 

homes. Further, in larger nursing homes 

where all nursing units could not be 

included in the study, it was not 

possible to select nursing units 

randomly for inclusion in the study, 

because this could have introduced 

difficult logistical problems for data 

monitors if the selected nursing units 

were located on different floors of a 

building or different buildings on a 

campus. 

It was, therefore, apparent from the 

outset of the study that the sampling 

design would have to accommodate 

non-random selection procedures. 

Potential problems that could be 

introduced by the use of non-random 

selection were addressed in several 

ways. 

First, random procedures were used 

whenever possible, such as for 

generating lists of facilities that were 

invited to participate in the study. 

Second, where random processes were 

not feasible, we developed protocols 

that described exactly how selection 

was to occur. For example, we used a 

detailed decision tree to select nursing 

units in larger facilities. This protocol 

was uniform across nursing homes and 

applied by the project staff who 

managed the study. Use of these 

protocols eliminated important types of 

bias (for example, selecting a nursing 

unit because it was deemed more 

efficient or of better quality). Third, we 

directly assessed the study’s sampling 

error and quantified its precision 

statistically. Fourth, we developed 

sampling weights based on the sample 

design that adjust the sample for overor under-sampling and produced 

sample estimates that were not biased 

by the design itself. A number of 

analyses were performed comparing the 

STRIVE sample with national OSCAR 

and MDS databases to determine the 

degree to which the sample was 

representative (that is, the degree to 

which the sample resembled the 

population on important variables). The 

results of these analyses are described 

later in this final rule. 

Sample Representativeness 

Comment: Some commenters 

questioned the overall 

representativeness of the STRIVE 

sample, stating it was biased due to a 

number of factors. Commenters stated 

that CMS had not made sufficient 

information available to show that the 

sample can be relied upon to generalize 

nationally. Commenters also questioned 

whether the actual sample being smaller 

than the original project goal affected 

the sample representativeness, and 

questioned whether the sample 

methodology had taken these 

differences from the planned design into 

account. In addition, a commenter 

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asserted that CMS has not presented any 

evaluation or validation of the study in 

the publicly available documents. 

Another bias factor mentioned by 

commenters was geographic location. 

Specifically, the commenters indicated 

that the STRIVE sample size was too 

small to be nationally representative, 

that important States were omitted from 

the sample, and that the 15 States that 

were included in the sample were not 

representative of the nation. It was also 

noted that in four States, we drew 

facilities from only a portion of the State 

and that this could have introduced 

additional geographic bias. In order to 

demonstrate the potential biases 

introduced by these geographic 

selections, several comments included 

analyses showing statistically 

significant differences in claims, 

OSCAR, and MDS data between the 15 

States that were included in the sample 

and the remaining States in the nation. 

Commenters were concerned that no 

data were collected from the MidAtlantic or New England regions, 

California and Oregon, or in the area the 

commenter characterized as the ‘‘entire 

mid-section’’ of the country. One 

commenter noted that the initial 

STRIVE collection methodology was 

tested in one center in Maryland and 

that none of the preliminary data from 

that center were considered. 

Some commenters argued that there is 

greater relative resource use with 

significantly higher costs in those 

missing States than in the STRIVE 

States, as well as the nation overall. The 

commenters indicated that the operating 

characteristics of the facilities in the 

STRIVE States do not appear to be 

representative of the characteristics of 

the facilities in the other States. 

Another commenter questioned 

CMS’s reference to Canadian data, given 

the significant differences in the health 

systems between the two countries. The 

commenter asked CMS to explain how 

and why Canadian data were used, and 

how such data can be considered 

representative of New England States, 

the Mid-Atlantic States, the 

Southeastern States, and California. 

One commenter asserted that the 

participating States were not 

representative of SNFs nationwide, and 

that the STRIVE sample likely may be 

weighted in a manner that reflects care 

patterns in rural areas and facilities 

more than in urban facilities. The 

commenter argued that the STRIVE 

sample only included 2 of the 7 States 

with a high urban ratio (the District of 

Columbia, and 4 Florida facilities) 

where more than 90 percent of facilities 

are in an urban region. The commenter 

believed that selecting the majority of 

the participating States from the 

remaining 44 States (where the urbanto-rural ratio is about 70 percent to 30 

percent) biased the sample. 

One commenter submitted a 

regression analysis suggesting that the 

RUG costs, both overall and by RUG–53 

category, are different in STRIVE States 

when compared to non-STRIVE States, 

indicating that the STRIVE relative 

weight structure could be nonrepresentative. The commenter believed 

that the perceived lack of 

representativeness calls into question 

the validity and appropriateness of the 

updated weights and the recategorization of residents who were 

key to the STRIVE project and critical to 

the design of RUG–IV. In addition, 

several commenters asserted patients 

evaluated in the STRIVE sample may 

not be representative of the actual acuity 

of most SNF residents nationwide. 

Finally, a commenter claimed that 

CMS failed to make publicly available 

sufficient information to allow for an 

external evaluation of the impact. As a 

result, the commenter concluded that it 

is not known how much bias might have 

been added to the estimators of the 

mean staff time due to these 

nonsampling errors. The commenter 

recommended performing further 

analysis of the current sample before 

implementing the RUG–IV model, in 

order to determine whether and to what 

extent the sample might have been 

affected by these potential biases. 

Response: In response to these 

comments, we note first that it would 

have been best to base the sample on 

either a random selection of States or on 

all States in the nation. However, as 

noted above, this was not possible given 

the study’s resources and the voluntary 

nature of the study. We note also that 

the sample included both populous and 

small States, predominantly urban and 

predominantly rural States, and States 

that were spread geographically across 

the country. Thus, we disagree with 

commenters that believe the study’s 

sample size and geographic scope were 

insufficient or led to undue bias. 

Of course, in any sample that includes 

less than all of the States (or indeed, less 

than all facilities throughout the 

country), it is always possible to 

question whether the sample is 

sufficiently representative of the nation 

as a whole. While some commenters 

suggested that selecting facilities in only 

2 of the 7 States with the highest urbanto-rural ratios might have understated 

STRIVE acuity levels, it is equally 

possible that oversampling the States 

with atypical population distributions 

could have resulted in the opposite 

effect. However, whether the STRIVE 

sample is representative can be and was 

tested by comparing data from STRIVE 

with national data to determine the 

degree to which the sample statistics 

match with national statistics. Some 

commenters noted that the data and 

analyses that were previously presented 

were insufficient to judge the degree of 

sampling bias that was present. We 

have, therefore, performed 

supplemental analysis which will be 

presented later in this section. 

It is true, as some commenters noted, 

that our actual sample size of 205 

nursing homes was smaller than the 

goal of 238 nursing homes that was set 

at the beginning of the study. While it 

is always preferable to have a larger 

sample size, we were unable, given 

available time and resources, to achieve 

the initial goal. During the planning 

phase of the study, we projected the 

expected margins of error using various 

sample sizes, including the size that was 

actually achieved. All things being 

equal, precision is always better when 

the sample size is larger, but we 

determined that the incremental 

precision that would have been 

achieved with 238 facilities was small 

and that the sample size that was 

actually achieved was sufficient to meet 

the analytic goals of the study. 

Regarding the comment that 

questioned CMS’s reference to Canadian 

data, we note that in fact, the Canadian 

data were not merged with the STRIVE 

sample at all. Instead, we worked with 

Canadian officials who were developing 

their own STM study based on our 

efforts: CAN–STRIVE. We have shared 

data and discussed findings as a way of 

testing the accuracy of our own 

findings. For example, patients with 

similar characteristics and care needs 

required similar staff resources for 

treatment. In addition, the CAN– 

STRIVE project reports that applying 

our RUG–IV model to their data results 

in a variance explanation of weighted 

nursing time of 35.4 percent. This 

represents an independent and highly 

successful validation of the RUG–IV 

model. Far from being an inappropriate 

misuse of data, we believe that this 

inter-governmental collaboration 

actually serves to further the interests of 

both Canada and the United States. 

Similarly, data from 2 facilities, 

including 1 in Maryland, that were used 

to pilot test the data collection process, 

were used to determine facility training 

needs and to finalize data collection 

procedures. These pilot facilities were 

crucial in testing protocols and, as a 

result of honest and open staff feedback, 

in modifying some of our original data 

collection methods. Since the data 

collection process was still under 

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development, we did not include the 

staff time data in the STRIVE data. 

Finally, in response to the 

commenters’ concerns about our 

evaluation and validation of the study, 

a validation methodology was built into 

the STRIVE study. With the large 

sample size obtained, we reserved one 

third (3,253 observations) for validation: 

We did not use these reserved 

observations at all in the derivation of 

the RUG–IV classification. After the 

RUG–IV system was fully developed, we 

then tested it on the validation sample. 

Such a cross-validation procedure is 

standard statistical practice to ensure 

that a statistical model is not ‘‘overfitted,’’ meaning that some of the 

relationships that appear to be 

statistically significant are merely noise. 

Cross-validation allows us to verify that 

the model will perform well in practice, 

will replicate well, and will have 

reasonably accurate predictive ability. 

The results showed that the derived 

system described in the proposed rule 

was robust. For example, the variance 

explanation of nursing time (sample 

weighted) of the RUG–IV system fitted 

to the derivation sample was 41.8 

percent, while in the validation sample, 

the same statistic was 41.4 percent. 

Because the results have been crossvalidated within the original STRIVE 

sample, we do not consider a separate 

validation study to be necessary, nor 

was a separate study part of the original 

STRIVE design. Further, the results of 

the CAN–STRIVE project, reported 

above, serve as a second type of model 

validation. 

Comment: Some commenters asserted 

the sample was biased due to voluntary 

self-selection of nursing homes that 

agreed or refused to participate in the 

study. Commenters questioned the 

selection of facilities based on the 

number of facilities the data monitors 

were able to visit, indicating the sample 

size within the State was driven by 

resource constraints on how many 

facilities could be visited, which could 

introduce bias. 

Another voluntary sampling issue 

raised by the commenters was the 

selection of facilities until enough 

facilities agreed to participate. Bias 

could be introduced here when such 

factors as resources or staff availability 

could influence the decision of a facility 

to agree or not agree to participate. 

A few commenters questioned the 

high non-response rate. The 

commenters noted that of the 837 

sampled facilities, 100 were dropped by 

State agencies or CMS regional offices. 

Of the 737 eligible facilities, 523 were 

invited to participate, 214 (about 40 

percent) agreed to participate, and 205 

(about 39 percent) actually participated 

in the study. The STRIVE sample survey 

literature indicates that voluntary 

response samples are biased, as people 

with strong opinions or atypical 

institutions tend to respond. 

Response: As with geographic 

selection, we would have preferred a 

design where self-selection was not a 

factor. However, as noted above, CMS 

did not have the authority to require 

participation in the study if a facility 

was randomly selected for inclusion. As 

discussed in published documentation, 

only 40.9 percent of the facilities invited 

to participate in STRIVE agreed to be 

part of the study. This acceptance rate 

is not surprising considering 

participation required a fairly large 

commitment of time and resources on 

the part of the nursing home. Like those 

who commented on this issue, we were 

concerned that this self-selection might 

have introduced biases. In particular, 

we were concerned that only those 

facilities with better staffing levels 

might agree to participate because of the 

time involved in being part of the study. 

We tested this possibility using 

OSCAR staffing data. Staffing data were 

cleaned using standard CMS algorithms 

to remove erroneous data, and were 

matched to the STRIVE data. For each 

nursing home in the database, both 

STRIVE and non-STRIVE, we computed 

the number of staff minutes per resident 

day for RNs, LVNs, and aides separately. 

Table 10 shows the mean minutes per 

resident day by staff type for the 

following groups of STRIVE nursing 

homes in the first 3 rows: (1) STRIVE 

nursing homes that were eliminated 

from consideration by State and 

Regional staff, (2) STRIVE nursing 

homes that were invited but declined to 

participate, and (3) STRIVE nursing 

homes that participated in the study. 

We also show three national groups of 

nursing homes: (4) All nursing homes 

nationally that passed the QI/QM and 

survey deficiency quality data screens, 

(5) all nursing homes nationally that 

failed the quality data screens, and (6) 

all nursing homes nationally. Note that 

the number of facilities shown in Rows 

1, 2, and 3 of the table are slightly lower 

than those in previously published 

documentation, because not all STRIVE 

facilities could be matched to OSCAR 

data. 

TABLE 10 

Row Group 

Mean minutes per resident day 

Nursing 

homes RNs LVNs Aides Total 

STRIVE Nursing Homes 

1 ............... Eliminated by States and regions .................. 90 32.2 49.3 144.9 226.4 

2 ............... Declined to participate ................................... 287 37.4 46.8 * 136.5 * 220.7 

3 ............... Participated .................................................... 1 198 34.4 54.7 146.7 235.9 

National Nursing Homes 

4 ............... Passed quality data screens ......................... 13,419 38.2 47.4 141.3 226.9 

5 ............... Excluded by quality data screens .................. 1,149 38.1 51.8 138.6 228.6 

6 ............... All facilities ..................................................... 14,636 38.2 47.8 141.1 227.1 

Notes: 

1There were 205 nursing homes that participated in the STRIVE study, but only 198 could be matched to OSCAR data. 

*Asterisks indicate statistically significant differences between the values in Rows 1, 2, or 3 compared with corresponding values in Row 4. 

The proper basis for comparison 

between the STRIVE sample groups and 

the nation is Row 4: Facilities that 

passed the quality data screens. As part 

of the design, we excluded about 8 

percent of all nursing homes nationally 

from the sampling frame that had very 

poor QI, QM, or survey deficiency 

histories (Row 5). Since these nursing 

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homes were not in the sampling frame, 

we would not necessarily expect the 

staffing levels of STRIVE nursing homes 

to match their staffing levels. Therefore, 

statistical comparisons were made 

between corresponding values in Rows 

1, 2, and 3 and the values in Row 4. 

Asterisks indicate values that are 

significantly different (p < 0.05) from the 

values in Row 4. 

The three groups of STRIVE nursing 

homes matched the national statistics in 

Row 4 fairly well. Nursing homes that 

declined to participate (Row 2) had 

significantly lower aide and total time, 

but the staff times for nursing homes 

that completed the study were not 

significantly different from the nation. 

Therefore, we conclude that the factors 

related to self-selection did not create a 

sample that was biased (upwards) in 

staff time. 

We do not agree with the comment 

that resource constraints on the number 

of facilities that data monitors could 

visit may have introduced another 

source of bias. When a State agreed to 

participate in the study, an evaluation 

was made of the number of facilities 

that the data monitors would be able to 

visit. The sample size for the State was 

agreed upon before the sample was 

drawn. These resource constraints, 

therefore, could not have produced a 

sample bias. 

Comment: A few commenters 

expressed concern that the STRIVE 

project did not specifically address 

short-stay patients. They were 

concerned that, when collecting data, 

we excluded short-stay patients from 

the study and only used data for 

patients with lengths of stay of 7 or 

more days. They indicated that shortstay patients, especially those with 

hospital readmission, tend to be 

unstable and have higher acuity and 

resource utilization. 

Response: The purpose of the STRIVE 

project was to update the existing RUG– 

III case-mix classification system that 

was introduced on July 1, 1998. While 

the RUG–III model does not include a 

separate classification structure for 

short-stay patients, short-stay patients 

were included in the original study. 

Similarly, when collecting the STRIVE 

data, we included a variety of patients 

from new admissions to longer-term or 

chronic patients. For each unit in the 

test sample, we included patients who 

were admitted prior to or on the study 

start date, and who remained in the 

facility for the two days on which we 

collected nursing staff time data. The 

nursing staff time for these patients was 

included in the STRIVE data. The 

confusion may have arisen because we 

limited the collection of therapy data to 

patients who were nursing home 

patients for the entire 7 days when 

therapy data were collected. 

During the past few years, we have 

been conducting analyses on episodes of 

care (that are separate from STRIVE) and 

are concerned that episodes of care 

increasingly show repeated transfers 

between acute and post acute care. We 

agree with the commenters that these 

short-stay admissions appear to be more 

costly, but we have not yet determined 

the reasons for these transfers. It is not 

clear whether the primary reasons for 

frequent readmission to an acute care 

setting reflect hospital discharge 

patterns, SNF care practices, or a 

combination of both. Until more 

research is available, we do not believe 

it would be appropriate to establish a 

separate payment structure for shortterm patients. In the future, we hope to 

include an analysis of short-stay 

patients as part of other post-acute 

health care reform initiatives. In this 

way, we can make appropriate 

adjustments as we develop the next 

generation of post acute care payment 

systems. 

Comment: A few other commenters 

who questioned the omission of shortstay patients suggested that the 

omission of this sizable and expensive 

population would likely skew both 

nursing time and the nursing index, 

while raising questions about the 

appropriateness of the reclassification of 

SNF residents within the RUG 

hierarchy. These commenters submitted 

data that they believed showed the 

following: 

• This short-stay SNF resident 

population has substantially higher 

acuity and substantially higher resource 

utilization. 

• Very short stay SNF residents 

account for over 21.0 percent of SNF 

stays. 

• The omission of this critical 

population may well have 

underestimated and skewed the 

reclassification of SNF residents and the 

nursing and therapy weights that 

underlie the proposed RUG–IV system. 

• Given that these very short stay, 

higher acuity residents generally would 

not be captured in the STRIVE data, the 

conclusion of the STRIVE project 

concerning resource utilization of SNF 

residents who received extensive 

services in the hospital may be wrong. 

Response: It is true that some patients 

with very short stays (discharge within 

two days of admission) were not 

included in the final STRIVE results. 

This occurred because residents were 

excluded unless complete nursing time 

was available for both days of the 

nursing time study in a facility. If a 

resident was admitted or discharged on 

a nursing time study day, then only 

incomplete nursing time data were 

available for that day, and inclusion of 

the resident would have resulted in an 

underestimation of nursing time. This 

led to exclusion of residents with a 

length of stay of 2 days or less (as well 

as any other residents seen in the first 

or last 2 days of their longer stay). 

However, we do not believe that 

excluding patients with stays of 2 days 

or less skewed the nursing time and 

nursing case-mix weights. The STRIVE 

methodology only excluded nursing 

facility stays with lengths of stay of 1 or 

2 days. Other short SNF stays (for 

example, length of stay of 3 days) were 

included in all analyses. 

We note that the results submitted by 

one commenter indicating that shortstay SNF residents have higher acuity 

were based on the MS–DRG CMIs for 

the cost of hospital care preceding the 

SNF stay rather than on the cost of the 

SNF stay itself, and that using the 

hospital cost as a proxy for the SNF cost 

might not be accurate. Further, the 

hospital CMIs do not show 

‘‘substantially higher resource 

utilization’’ for short stays excluded by 

STRIVE (1 to 2 days) versus short stays 

included by STRIVE (for example, 3 to 

7 days). The MS–DRG CMI decrease for 

3- to 7-day stays versus 1- to 2-day stays 

is 2.9 percent for short-stay SNF 

patients readmitted to the hospital, 4.1 

percent for short-stay SNF patients who 

die in the SNF after a short stay, and 3.0 

percent for short-stay SNF patients who 

are discharged to another setting. While 

the hospital acuity for the very short 1- 

to 2-day stays is somewhat higher than 

3- to 7-day stays, it certainly is not 

‘‘substantially higher.’’ 

Again, we were very concerned by the 

assertion that very short stays involving 

21 percent of all SNF stays were 

excluded, and after reviewing the data 

carefully, we found the claim to be at 

least partially inaccurate. The 21 

percent of stays refers to stays involving 

1 to 7 days. STRIVE only excluded 1- to 

2-day stays, and this comprises only 5.4 

percent of all SNF stays. Even this 5.4 

percent of stays greatly overestimates 

the actual impact of the excluded stays. 

The excluded very short stays of 1 to 2 

days represent only 0.2 percent of all 

SNF paid days of service for a year. We 

do not believe that excluding these stays 

has much impact at all on (a) patterns 

of resident classification, (b) the nursing 

and therapy weights underlying RUG– 

IV, or (c) the resulting payments to 

providers. However, we do believe that 

additional research is needed to 

determine the reasons for the high 

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volume of discharges within the first 7 

days of SNF admission. 

Finally, exclusion of very short 1- to 

2-day stays does not invalidate STRIVE 

project results concerning resource 

utilization of SNF residents who 

received extensive services in the 

hospital. Pre-admission hospital 

services were captured for residents 

who were admitted 1 to 6 days before 

the nursing staff time study, as long as 

they were not discharged during that 2- 

day study. The STRIVE results included 

over 500 residents who were assessed 

for extensive services received in the 

hospital within 7 days prior to SNF 

admission. Thus, the exclusion of very 

short 1- to 2-day stays did not preclude 

valid analysis of pre-admission 

extensive services. 

Comment: A few commenters stated 

that we should have stratified by the 

type of assessment for each resident 

(5-, 14-, 30-, 60-, 90-day, quarterly, 

annual, etc.), and indicated that not 

doing so could have introduced biases. 

One commenter referenced MedPAC’s 

analysis that resource use and case-mix 

can frequently vary by provider type, 

noting that in California, hospital-based 

SNFs tend to provide more medicallyintensive services to a more acutely ill 

and injured patient population than do 

freestanding SNFs. The commenter 

indicated that in the proposed rule, it is 

unclear that CMS measured STRIVE 

data differences between hospital-based 

and freestanding SNFs, and argued that 

if these differences remain unmeasured 

and unaccounted for, they will 

ultimately lead to less accurate payment 

under RUG–IV and perpetuate the 

persistent decline of hospital-based 

SNFs. 

Response: We note that it would not 

have been possible to perform such 

stratification given our study design. 

Once a nursing home and its nursing 

units were selected for inclusion in the 

study, all residents within those nursing 

units were included in the study 

regardless of any other characteristic, 

including the type of assessment that 

was due next. Because the sampleweighted STRIVE sample represents a 

cross-section of nursing home residents 

nationally, we believe that the sample 

should approximate the national 

distribution with regard to the type of 

assessment that is due next for each 

resident. 

Moreover, while we recognize that 

hospital-based, proprietary, and 

nonprofit SNFs have some different 

facility characteristics, CMS does not 

have the authority to create separate 

classification models by provider type. 

During the STRIVE project, we did 

collect data on all 3 provider types for 

future analysis. In this way, we can 

continue to monitor the accuracy of our 

payment system and adjust for changes 

in patient acuity and staff resource 

needs. 

Comment: Some commenters alleged 

that the sample under-represented 

Medicare residents, specifically those in 

a Medicare Part A stay. They asserted 

that the number of weighted Medicare 

cases in the STRIVE sample represented 

only 14.1 percent of the sample, while 

Medicare cases comprise 35 percent of 

national MDS data. 

Response: This statistic apparently 

was derived from an analysis of the 

national MDS database in which each 

assessment was classified as PPS or 

non-PPS and in which the percent of 

assessments that were PPS was 

considered to be identical to the percent 

of residents who are Medicare residents. 

However, we believe this 35 percent 

figure is misleading for two reasons. 

First, we have performed work where 

we have matched Medicare Part A 

claims with MDS data, and have 

observed that a fairly large proportion of 

assessments that have a PPS reason for 

assessment are not actually linked with 

a SNF stay. Thus, depending upon MDS 

PPS assessments to identify Medicare 

residents leads to an overestimate of the 

number of those residents. Second, if 

the comment was based upon an 

analysis of a longitudinal data set, for 

example, a year’s worth of MDS data, 

rather than a cross-section, the Medicare 

percentage will be further inflated. One 

reason for this is that Medicare residents 

have shorter lengths of stay and higher 

turnover than non-Medicare residents 

and, therefore, are over-represented 

when data are analyzed longitudinally. 

In addition, Medicare residents have 

more assessments per resident than nonMedicare residents, because PPS 

assessments must be completed more 

frequently than OBRA assessments. 

Therefore, the longitudinal approach 

will over-represent the number of 

Medicare residents present on any given 

day. 

In order to produce counts that can be 

validly compared with the STRIVE data, 

an MDS snapshot must be produced that 

represents the latest assessment for each 

resident who is active on a given day. 

As part of our sampling process, we 

built a snapshot file for March 1, 2006 

and matched Part A claims with this 

file. Based upon this analysis, we 

estimated that about 13.5 percent of 

nursing home residents are in SNF 

stays, which closely matches the 

national estimate from the STRIVE 

sample (14.1 percent). 

Comment: One commenter presented 

a series of tables that compared STRIVE 

statistics on a number of MDS variables 

with corresponding statistics from the 

MDS national database. These tables 

broke down both the STRIVE sample 

and the national statistics by Medicare 

versus non-Medicare, and purported to 

show not only that Medicare 

distributions were different from nonMedicare distributions, but that the 

STRIVE distributions were different 

from the national distributions, thereby 

demonstrating significant bias in the 

STRIVE sample. 

The commenter stated that unlike the 

change from RUG–44 to RUG–53, the 

estimate of distribution of days under 

the proposed RUG–IV is not directly 

calculated based on a linked MDS/ 

claims data file, but rather, inferred 

using the STRIVE data to estimate the 

distribution of paid days in each of the 

RUG–66 groups. The commenter 

questioned the accuracy of the payment 

impact analysis based on these 

estimated distributions. 

Response: For the reasons described 

previously, we believe that the 

commenter’s analyses are flawed in how 

they classified the national data as 

Medicare/non-Medicare. While we 

acknowledge that there are clinical 

differences between Medicare and nonMedicare residents, these analyses 

appeared to reflect the premise that all 

STRIVE analyses were based upon 

Medicare residents only and that the 

results are, therefore, misleading when 

applied to the nation, stating, ‘‘STRIVE 

uses the Medicare portion of the sample 

to refine the existing Resource 

Utilization Group (RUG) classification 

system.’’ However, this statement is 

incorrect. STRIVE RUG development 

used both Medicare and non-Medicare 

cases, relying upon a 2⁄3 development 

sample and a 1⁄3 validation sample that 

included both types of cases. 

Furthermore, the calculation of mean 

nursing and therapy times that served as 

the basis for CMI calculation was based 

upon all valid cases. The only time that 

we limited analysis to Medicare cases 

was in producing the transition matrix 

used in estimating RUG–IV Medicare 

days of service from actual RUG–III paid 

days of service. All other development 

and rate setting analyses used both 

Medicare and non-Medicare cases. 

It is true, as noted in the comments, 

that the fiscal estimates hinge upon the 

Medicare transition matrix. Ideally, 

fiscal estimates would be based upon an 

existing national assessment database. 

However, RUG–IV classifications cannot 

be performed on existing MDS 2.0 data, 

and MDS 3.0 will not be implemented 

for over a year, so the only way to make 

financial projections based on currently 

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available data is with the transition 

matrix. 

We do not agree, however, that this is 

a critically flawed methodology. While 

there may be instances in which 

estimates for individual RUG–IV groups 

are not precisely accurate, any 

estimation errors should be random, 

with estimates for some groups being 

too high and others being too low 

compared with actual values. When 

estimates are made across all groups, 

however, these random estimation 

errors will tend to offset each other, and 

the overall estimates will have much 

greater precision. 

Further, the fiscal impact estimates 

have other sources of error (for example, 

changes in provider behavior, changes 

in the cost of specific services, etc.) that 

cannot be remedied even if a national 

MDS 3.0 database were available. 

Estimation error due to the STRIVE 

transition matrix is likely to be a 

relatively small portion of the total 

error. Therefore, we believe that the 

overall fiscal estimates are as precise as 

possible, given the uncertainties 

associated with implementing a new 

payment model. 

Finally, we recognize the difficulty of 

implementing changes to a payment 

system that cannot be verified by a 

review of historical data. In this case, 

we estimated changes to the distribution 

of paid days across the RUG–IV model, 

because the RUG–IV grouper utilizes 

clinical data that will not be collected 

until we introduce the MDS 3.0. In 

adopting this methodology, we 

recognize that there is a tradeoff 

between timely updating of the case-mix 

system to ensure more accurate 

distribution of SNF PPS payments and 

the potential weakness of using 

estimated data. For this reason, we have 

committed to post-implementation 

monitoring of the accuracy of the system 

calibration. We will, if needed, 

recalibrate the CMIs in the RUG–IV 

model using actual data if our analyses 

indicate that an adjustment is needed. 

Comment: A number of commenters 

expressed concern about overall sample 

bias, specifically questioning how 

accurately the STRIVE sample 

represents residents nationally. One 

commenter stated the patient mix in the 

STRIVE sample is not representative of 

the national SNF Medicare cases, and 

thus, is not reliable in developing the 

RUG–IV system. The commenter 

asserted that based on the information 

available, it is readily apparent that the 

STRIVE sample is not representative 

and cannot be used as a basis for 

redefining the RUG system. The 

commenter argued that comparisons of 

behavioral and activity-level responses 

between STRIVE Medicare cases and 

Minimum Data Set 2.0 (‘‘MDS’’) 

Medicare cases reveal a significant 

disparity, and offered the following as 

examples: 

• The activities of daily living 

(‘‘ADL’’) Index component for SelfPerformance item G1aa (Bed Mobility 

Self-Performance) reveals a significant 

difference between the STRIVE 

Medicare cases and MDS Medicare 

cases for the Extensive Assistance 

category. 

• Similarly, the ADL Index 

component for Self-Performance item 

G1ba (Transfer Self-Performance) shows 

a significant difference between the 

STRIVE Medicare cases and MDS 

Medicare cases for the Extensive 

Assistance categories. 

• The ADL Index component for SelfPerformance item G1ha (Eating SelfPerformance) shows a significant 

difference between the STRIVE 

Medicare cases and MDS Medicare 

cases for the Extensive Assistance 

category. 

• Finally, the ADL Index component 

for Self-Performance item G1ia (Toilet 

Use Self-Performance) shows a 

significant difference between the 

STRIVE Medicare cases and MDS 

Medicare cases for the Extensive 

Assistance category. 

Thus, the commenter stated that the 

comparison of behavioral and activitylevel responses between STRIVE 

Medicare cases and MDS Medicare 

cases provides additional support for 

the commenter’s conclusion that there 

are serious issues with the 

representativeness of the STRIVE 

sample. 

Response: As discussed above, we 

acknowledge that there were factors in 

the sampling procedures which, though 

unavoidable, may have introduced 

sampling bias. To test this, we 

assembled a snapshot database of MDS 

data and compared the results with the 

STRIVE sample on selected variables. 

Table 11 compares STRIVE statistics 

for the entire sample with national MDS 

statistics. For these comparisons, a 

cross-section of MDS data was selected, 

which contained the latest assessment 

for every resident who was active in a 

nursing home on a given date. March 1, 

2006 was selected for this analysis, so 

that the data would be as 

contemporaneous as possible with the 

STRIVE data. Variables important to 

case-mix determination were selected 

for analysis. Chi-square tests were 

performed to determine whether the 

distribution of scores on each variable 

deviated significantly from the national 

distribution. The columns in Table 11 

show the MDS variable, the number and 

percent of cases for each value of the 

variable for the nation and for STRIVE, 

and an indicator of whether or not the 

chi-square test showed the STRIVE 

distribution to be significantly different 

from the national distribution. 

TABLE 11 

MDS variable Value 

MDS national snapshot STRIVE: sample weighted Signif diff 

(p < 0.05) Freq Pcnt Freq Pcnt 

G1AA (bed mobility self-performance) .............. 0. Independent .......... 393,296 28 .4% 2,724 27 .9% Yes. 

1. Supervision ............ 86,778 6 .3 612 6 .3 

2. Limited assist ........ 241,342 17 .4 1,638 16 .8 

3. Extens assist ......... 438,795 31 .7 2,871 29 .4 

4. Total depend ......... 224,203 16 .2 1,918 19 .6 

8. Did not occur ......... 634 0 .0 2 0 .0 

Total ................... 1,385,048 100 .0 9,766 100 .0 

G1BA (transferring self-performance) ............... 0. Independent .......... 271,891 19 .6 1,600 16 .4 Yes. 

1. Supervision ............ 96,985 7 .0 602 6 .2 

2. Limited assist ........ 258,049 18 .6 1,946 19 .9 

3. Extens assist ......... 432,545 31 .2 3,115 31 .9 

4. Total depend ......... 313,808 22 .7 2,410 24 .7 

8. Did not occur ......... 11,817 0 .9 93 0 .9 

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TABLE 11—Continued 

MDS variable Value 

MDS national snapshot STRIVE: sample weighted Signif diff 

(p < 0.05) Freq Pcnt Freq Pcnt 

Total ................... 1,385,095 100 .0 9,766 100 .0 

G1HA (eating self-performance) ........................ 0. Independent .......... 599,025 43 .2 3,556 36 .4 Yes. 

1. Supervision ............ 327,129 23 .6 2,448 25 .1 

2. Limited assist ........ 128,760 9 .3 1,046 10 .7 

3. Extens assist ......... 123,645 8 .9 1,019 10 .4 

4. Total depend ......... 206,050 14 .9 1,696 17 .4 

8. Did not occur ......... 478 0 .0 1 0 .0 

Total ................... 1,385,087 100 .0 9,766 100 .0 

G1IA (toileting self-performance) ....................... 0. Independent .......... 206,103 14 .9 1,048 10 .7 Yes. 

1. Supervision ............ 79,396 5 .7 450 4 .6 

2. Limited assist ........ 215,647 15 .6 1,548 15 .9 

3. Extens assist ......... 451,917 32 .6 3,338 34 .2 

4. Total depend ......... 427,881 30 .9 3,181 32 .6 

8. Did not occur ......... 4,154 0 .3 200 2 .1 

Total ................... 1,385,098 100 .0 9,766 100 .0 

Verbal/physical abuse ........................................ No .............................. 1,373,940 99 .2 9,737 99 .3 No. 

Yes ............................ 11,173 0 .8 66 0 .7 

Total ................... 1,385,113 100 .0 9,802 100 .0 

K5A (perenteral/IV) ............................................ No .............................. 1,343,588 98 .3 9,634 98 .3 No. 

Yes ............................ 22,972 1 .7 163 1 .7 

Total ................... 1,366,560 100 .0 9,798 100 .0 

K5B (feeding tube) ............................................. No .............................. 1,295,170 93 .7 9,036 92 .2 Yes. 

Yes ............................ 87,738 6 .3 762 7 .8 

Total ................... 1,382,908 100 .0 9,798 100 .0 

P1AC (IV medication) ........................................ No .............................. 1,255,886 91 .7 9,138 93 .3 Yes. 

Yes ............................ 113,052 8 .3 661 6 .7 

Total ................... 1,368,938 100 .0 9,799 100 .0 

P1AG (oxygen therapy) ..................................... No .............................. 1,198,577 87 .6 8,656 88 .3 Yes. 

Yes ............................ 170,392 12 .4 1,143 11 .7 

Total ................... 1,368,969 100 .0 9,799 100 .0 

P1AI (suctioning) ............................................... No .............................. 1,354,628 99 .0 9,595 97 .9 Yes. 

Yes ............................ 14,356 1 .0 203 2 .1 

Total ................... 1,368,984 100 .0 9,799 100 .0 

P1AJ (tracheostomy care) ................................. No .............................. 1,355,834 99 .0 9,618 98 .2 Yes. 

Yes ............................ 13,150 1 .0 181 1 .8 

Total ................... 1,368,984 100 .0 9,799 100 .0 

I1A (diabetes mellitus) ....................................... No .............................. 971,074 71 .0 6,824 69 .6 Yes. 

Yes ............................ 397,044 29 .0 2,975 30 .4 

Total ................... 1,368,118 100 .0 9,799 100 .0 

I1V (hemiplegia/hemiparesis) ............................ No .............................. 1,231,378 90 .0 8,807 89 .9 No. 

Yes ............................ 137,410 10 .0 993 10 .1 

Total ................... 1,368,788 100 .0 9,799 100 .0 

I1Z (quadriplegia) ............................................... No .............................. 1,358,262 99 .2 9,722 99 .2 No. 

Yes ............................ 10,531 0 .8 77 0 .8 

Total ................... 1,368,793 100 .0 9,799 100 .0 

M2A (stage 3 or 4 pressure ulcer) .................... No .............................. 1,346,209 97 .2 9,419 96 .4 Yes. 

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TABLE 11—Continued 

MDS variable Value 

MDS national snapshot STRIVE: sample weighted Signif diff 

(p < 0.05) Freq Pcnt Freq Pcnt 

Yes ............................ 38,827 2 .8 348 3 .6 

Total ................... 1,385,036 100 .0 9,767 100 .0 

While several of the variables that 

were analyzed showed no significant 

difference, there were significant 

differences between the sample and the 

nation on a number of other variables. 

On the ADLs, for example, there was a 

consistent trend for residents in the 

sample to show slightly more 

dependence than residents nationally. 

On each of the ADLs, the percent of 

STRIVE cases in the ‘‘total dependence’’ 

category exceeded the national 

percentage by between 1.7 and 3.4 

percentage points. Conversely, the 

percent of residents in the 

‘‘independent’’ category was lower for 

the STRIVE sample by between 0.5 and 

6.8 percentage points. The picture was 

mixed on the services items that 

displayed significant differences. 

Among these items, the STRIVE 

residents were slightly more likely to 

receive feeding tubes, suctioning, and 

tracheostomy care, but less likely to 

receive IV medications or oxygen 

therapy. Slightly more STRIVE residents 

had diabetes mellitus and Stage 3 or 4 

pressure ulcers than was seen 

nationally. 

The overall picture from these 

comparisons is that the STRIVE sample 

has somewhat higher acuity than the 

nation. This could have been due to the 

last stage in the sample selection 

process, where nursing units within 

larger nursing homes were selected for 

inclusion in the study. In selecting units 

for inclusion, the protocol used by data 

monitors tended to favor SNF units and 

other specialty units that likely had 

higher acuity. Because of a lack of data 

that would have allowed for correction 

of this bias, it is possible that a greater 

proportion of higher-acuity residents 

were included in the sample, and that 

the sample weights did not correct for 

this. 

However, the impact of this bias 

should be small. First, while those 

differences displayed above were 

statistically significant due to the large 

sample sizes involved, they were not 

substantial. Second, the RUG–III and 

RUG–IV classification models are 

designed specifically to classify 

residents into groups with similar acuity 

levels; for example, ADL scores are used 

explicitly to subdivide residents falling 

into each of the major hierarchical 

groups. While the impact of this bias 

might have been to place slightly more 

residents into heavier care nursing 

groups, this bias should have been 

corrected when using national days of 

service (from claims data) to standardize 

the RUG–IV distribution. 

We note that even if the STRIVE 

sample’s RUG distribution exactly 

matched the national cross-sectional 

distribution, this cross-sectional 

distribution must be standardized 

against the national days of service 

distribution, which accumulates paid 

days over an entire year. To the extent 

that the distribution of residents, even if 

perfectly representative of the nation, 

does not match the distribution of paid 

days, this standardization step is 

necessary. Thus, standardizing the RUG 

distribution to paid days should remove 

the relatively small amount of bias that 

was observed above. 

Data Collection Process 

Comment: Some commenters noted 

the process for collecting therapy data 

from the participating sites resulted in 

several problems, highlighting 

inconsistencies in training, datacollection methods, and oversight for 

the therapists submitting data that they 

asserted affected the accuracy of the 

study. Commenters were concerned that 

the assessment instrument and 

accompanying ‘‘instruction manual’’ 

used in STRIVE was changed during the 

study. The implication was that any 

changes that were made could have 

weakened or invalidated the study. 

Response: The STRIVE data collection 

effort spanned approximately 18 

months. During that period, we updated 

our training materials based on feedback 

from participating facility staff. 

Updating and fine tuning the training 

materials and project protocols is a 

standard method used to ensure the 

collection of the most accurate data 

possible. We do not believe these 

changes weakened the effectiveness of 

the study. In fact, we would be more 

concerned about the reliability of any 

study where the project staff made no 

effort to enhance their training efforts 

over such a long collection period. 

As stated in our discussion of the 

collection and adjustment of therapy 

minutes, our analysis indicated that 

therapy minutes were underreported. 

When the therapists reported staff time 

data, we found it to be reasonably 

accurate. The problem was that 

therapists did not consistently report 

the services that they provided to 

patients. The omissions in the data 

collection process do not appear to be 

related to changes in the training 

process. We provided training and 

technical assistance to all therapists 

who participated in the study. STRIVE 

staff were available either onsite or by 

phone during the entire study, and the 

facility staff received copies of the 

training materials. While direct 

oversight of therapists’ data collection 

for the entire 7-day time study period 

was not feasible, ample training and 

resource materials were available to 

guide them. However, some therapists 

simply did not submit data for the entire 

7-day time study period. Again, we do 

not believe the underreporting can be 

associated with changes in the training 

manuals or in the data collection 

procedures. 

Comment: One commenter noticed 

that the proposed rule does not list 

physical therapist assistants as a SNF 

staff participant in the STRIVE project. 

The commenter asked us for 

clarification in the final rule confirming 

the inclusion of physical therapist 

assistants in the STRIVE project. 

Response: In the proposed rule, we 

inadvertently neglected to list physical 

therapy assistants and occupational 

therapy assistants as participating in the 

STRIVE study. We noted this error on 

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

SNFPPS/02_Spotlight.asp. Physical 

therapy assistants and occupational 

therapy assistants did, in fact, 

participate in the STRIVE study, which 

included their resource times. 

MDS 3.0 Data 

Comment: A few commenters 

questioned our ability to assess the 

impact of the proposed RUG–IV model, 

as national claims data are not available 

for either the RUG–IV grouper or the 

MDS 3.0. Similarly, they were 

concerned that stakeholders could not 

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fully assess the impact of the proposed 

changes. These commenters 

recommended delaying the 

implementation of RUG–IV for 2 years, 

allowing for the collection of actual 

MDS 3.0 data to undertake a detailed 

impact analysis, and appropriately 

adjust the SNF PPS so that the transition 

from RUG–III to RUG–IV is budget 

neutral. 

Response: We recognize the difficulty 

of precisely calibrating a new case-mix 

model using estimated data. However, 

by waiting for actual data to become 

available, we risk perpetuating systems 

that become progressively less able to 

target payments accurately to acuity 

levels. 

In this instance, we worked closely 

with our MDS development team to 

integrate payment needs into the 

structure of the MDS 3.0 assessment. We 

also made available a RUG–IV grouper 

and our estimates on the distribution of 

patient days to allow stakeholders to 

assess the impact of the new case-mix 

model. 

Finally, we have made provision for 

correcting discrepancies in the estimates 

used to introduce the RUG–IV model. In 

this final rule, we have committed to 

monitoring the accuracy of our 

projections and, when actual data 

becomes available, to recalibrate the 

system to ensure that the conversion to 

RUG–IV was budget neutral. This 

recalibration would be data driven, and 

could result in either payment increases 

or decreases. Therefore, we do not agree 

that the introduction of the RUG–IV 

case-mix system should be delayed 

beyond October 1, 2010. 

b. Developing the Analytical Database 

In the FY 2010 proposed rule (74 FR 

22208, 22221, May 12, 2009), we noted 

that information acquired through the 

STRIVE research pointed to the need for 

modifications to the RUG–IV model in 

a number of specific areas, which we 

discuss in the following sections. 

i. Concurrent Therapy 

Concurrent therapy is the practice of 

one professional therapist treating 

multiple patients at the same time while 

the patients are performing different 

activities. In the SNF Part A setting, 

concurrent therapy is distinct from 

group therapy, where one therapist 

provides the same services to everyone 

in the group. In a concurrent model, the 

therapist works with multiple patients 

at the same time, each of whom can be 

receiving different therapy treatments. 

For concurrent therapy, there are 

currently no MDS coding restrictions 

regarding either the number of patients 

that may be treated concurrently, or the 

amount or percentage of concurrent 

therapy time that can be included on the 

MDS, whereas with group therapy there 

are limitations, as discussed in the July 

30, 1999 SNF PPS final rule (64 FR 

41662). 

In the FY 2010 proposed rule (74 FR 

22208, 22222, May 12, 2009), we noted 

a significant shift in the provision of 

therapy from individual one-on-one 

treatment to a concurrent basis. We 

stated that given that Medicare and 

Medicaid patients are among the frailest 

and most vulnerable populations in 

nursing homes, we believed that the 

most appropriate mode of providing 

therapy would usually be individual, 

and not concurrent therapy. We 

indicated that concurrent therapy 

should never be the sole mode of 

delivering therapy to a SNF patient; 

rather, it should be used as an adjunct 

to individual therapy when clinically 

appropriate. Further, we expressed 

concern that the current method for 

reporting concurrent therapy on the 

MDS creates an inappropriate payment 

incentive to perform concurrent therapy 

in place of individual therapy, because 

the current method permits concurrent 

therapy time provided to a patient to be 

counted in the same manner as 

individual therapy time. Accordingly, 

we proposed that, effective with the 

introduction of RUG–IV, concurrent 

therapy time provided in a Part A SNF 

setting would no longer be counted as 

individual therapy time for each of the 

patients involved; rather, for each 

discipline, we would require allocating 

concurrent therapy minutes among the 

individual patients receiving it before 

reporting total therapy minutes on the 

MDS 3.0. The comments that we 

received on this issue, and our 

responses, appear below. 

Comment: Several commenters stated 

that the data reported in the proposed 

rule showing concurrent therapy as 

representing a majority of the delivery 

of all therapy services are inconsistent 

with industry data. Some stated they 

were not able to replicate the STRIVE 

findings that two-thirds of therapy 

provided is concurrent. A few reported 

that when they ‘‘polled’’ their 

rehabilitation staff, the estimates they 

received were that approximately 33 

percent of therapy is delivered 

concurrently. 

Response: In order to determine 

whether the STRIVE results may have 

overstated the amount of concurrent 

therapy, we re-examined the raw data 

and methodology we used to distinguish 

between individual and concurrent 

therapy. We determined that the amount 

of concurrent therapy that we reported 

in the March 2009 TEP and later cited 

in the proposed rule was overstated, and 

that the amount of concurrent therapy 

based on the ‘‘time-slice’’ method 

discussed later in this section of the 

final rule is actually 28.26 percent. 

Nevertheless, we continue to believe 

that concurrent therapy should be 

allocated when assigning a RUG–IV 

classification. The SNF PPS is based on 

resource utilization and costs. When a 

therapist treats two patients 

concurrently for an hour, it does not 

cost the SNF twice the amount (or 2 

hours of the therapist’s salary) to 

provide those services. The therapist 

would appropriately receive one hour’s 

salary for the hour of therapy provided, 

regardless of whether the therapist 

treated one patient individually or two 

patients concurrently for that hour. 

Therefore, as proposed, we will utilize 

allocated concurrent therapy minutes to 

establish the RUG–IV group to which 

patients are assigned. In addition, we 

will require the therapist to track and 

report the three different delivery modes 

of therapy (individual, concurrent, and 

group) on the MDS 3.0, as explained 

later in this section. 

Comment: Most commenters agreed 

with CMS that concurrent therapy is a 

legitimate mode of delivering therapy 

services, based on individual care needs 

as determined by the therapist’s 

professional judgment. Many 

commenters stated that when used 

appropriately, concurrent therapy 

produces positive patient outcomes and 

does not result in poor quality of care, 

while others reported there are no 

studies to support that concurrent 

therapy is inferior to individual. Several 

commenters stated that the patients are 

fully engaged throughout the entire 

concurrent therapy session with the 

therapist directly supervising both 

patients, and some reported that rest 

periods are a necessary part of treatment 

and concurrent therapy allows the 

therapist to be more efficient. However, 

there were others who reported that the 

therapist is not always directly 

supervising with the patient in line-ofsight, and in fact, some commenters 

reported that therapists would leave the 

treatment area to conduct other tasks or 

treatments and that patients are not 

always engaged. 

Response: We did not propose to 

eliminate concurrent therapy. We agree 

that the there are times when patients 

may interact with one another during a 

concurrent session, and that these 

interactions may be beneficial. 

However, as noted by some 

commenters, this may not always be the 

case. We are concerned that some 

commenters reported that therapists do 

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sight (and may actually leave the 

treatment area). In fact, some 

commenters reported that the patient is 

not always engaged during the entire 

concurrent time, and that there are 

potentially instances when treatment 

decisions are influenced by facility or 

provider productivity requirements. We 

agree that the delivery of therapy 

services should be based on the 

therapist’s professional and clinical 

judgment solely according to the 

individual needs of each patient. 

Considering the potential for 

inappropriate care, and that in some 

cases, patients may not be fully 

interacting with each other or the 

therapist throughout the concurrent 

therapy session, we believe that 

allocating concurrent therapy minutes is 

appropriate. 

Comment: Several commenters stated 

that CMS does not have the authority to 

dictate the practice of therapy and, 

therefore, cannot instruct therapists to 

allocate concurrent therapy. 

Response: We agree that CMS does 

not have the authority to dictate clinical 

practice. However, we do have the 

authority and the responsibility to 

determine 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. 

We again acknowledge that concurrent 

therapy may be an appropriate mode to 

provide therapy services under certain 

circumstances, but we also note that the 

SNF PPS is based on resource 

utilization and costs. When a therapist 

treats two patients concurrently for an 

hour, it does not cost the SNF twice the 

amount (or 2 hours of the therapist’s 

salary) to provide those services. The 

therapist would appropriately receive 

one hour’s salary for the hour of therapy 

provided, regardless of whether the 

therapist treated one patient 

individually or two patients 

concurrently for that hour. Therefore, as 

proposed, we will use allocated 

concurrent therapy minutes to establish 

the RUG–IV group to which the patient 

is assigned. In addition, we will require 

the therapist to report concurrent 

therapy minutes on the MDS 3.0, as 

discussed later in this section. 

Comment: We received a large 

number of comments on the potential 

effects of the proposed allocation of 

concurrent therapy. Many of the 

commenters agreed that therapy time 

should be allocated, and offered a 

variety of justifications, such as: Abuse 

of therapy being reported; therapists 

being coerced to maximize minutes 

(and, therefore, reimbursement); lack of 

existing research to support the efficacy 

of concurrent therapy; and, the need to 

use Medicare funds appropriately and 

as intended. In fact, one commenter 

requested that allocation of concurrent 

therapy begin in FY 2010, prior to 

implementation of RUG–IV. Another 

commenter believed that an increased 

use of individual therapy would have a 

positive impact on their SNFs by raising 

the SNF case mix and, therefore, 

attracting patients with more advanced 

therapy needs to their facilities. Many 

commenters believed that concurrent 

therapy, when provided appropriately, 

is a valid method for providing therapy 

that has many benefits (for example, 

psychosocial and educational), and that 

patients motivate and learn from each 

other. Additionally, many commenters 

agreed that concurrent therapy should 

be an adjunct to individual therapy. 

Many other commenters opposed any 

allocation whatsoever for concurrent 

therapy. Some of those commenters 

argued that allocation would, in effect, 

reduce the therapy provided to patients. 

Others expressed concern that some 

patients would not receive therapy at all 

in parts of the country (particularly 

rural areas) where therapists are scarce. 

Some believed that by allocating 

therapy, CMS would actually incur a 

greater cost to the Medicare program, as 

there would be a greater rate of rehospitalizations. Others stated that 

allocating concurrent therapy would 

increase labor costs to SNFs and, thus, 

would ‘‘force’’ contract therapy 

providers to increase their charges to 

SNFs. 

Response: As stated in the proposed 

rule, we believe that concurrent therapy 

can represent a legitimate mode of 

delivering therapy services when used 

properly based on individual care needs 

as determined by the therapist’s 

professional judgment; should be an 

adjunct to individual therapy, not the 

primary mode of delivering care; and 

should represent an exception rather 

than the standard of care. As noted 

previously, we did not propose to 

eliminate concurrent therapy altogether. 

Rather, we proposed to allocate the 

minutes of the therapist’s time when 

providing concurrent therapy among the 

patients to accurately reflect the 

therapist’s time treating patients. 

We do not agree that allocating 

concurrent therapy minutes means that 

patients will not receive needed 

therapy. Assuming that concurrent 

therapy is being used appropriately, the 

allocation requirements do not change 

the actual provision of services. The 

only change is in the way the therapist 

records the time he or she spends with 

each patient. In fact, we believe 

therapists will continue to provide 

therapy services in a combination of 

individual, concurrent, and group as 

appropriate based on the therapist’s 

professional judgment of the 

individual’s needs and in accordance 

with Medicare coverage requirements. 

Similarly, the requirement to track 

concurrent therapy does not, in and of 

itself, increase labor costs to SNFs. We 

are aware, however, that by allocating 

concurrent therapy minutes to assign 

the RUG–IV category, the total number 

of therapist staff minutes may not be 

sufficient to keep a patient in the same 

therapy group for payment purposes. 

For example, under RUG–III, a patient 

receiving a combination of 325 

individual and (unallocated) concurrent 

therapy minutes would be assigned to a 

RUG–III High Rehabilitation group. 

Under RUG–IV, the patient might be 

classified into a lower-paying therapy 

group if the adjusted therapist time falls 

below the 325-minute threshold needed 

to qualify for High Rehabilitation. We 

regard it as likely that providers will ask 

therapists to modify their treatment 

plans to make sure that patients qualify 

for the higher therapy groups. However, 

this type of behavioral adjustment, even 

if it increases labor cost, may not be 

reflective of actual patient need. We also 

see no imperative in this reporting 

change that would ‘‘force’’ contract 

therapy providers to increase their 

charges to SNFs. However, the specific 

details of contractual arrangements 

between SNFs and therapy contractors 

are essentially private business 

arrangements that are outside the scope 

of this rule. Finally, we are extremely 

concerned that some commenters 

believe that allocating therapy minutes 

will result in poor patient outcomes, 

such as underutilization and 

rehospitalizations. While we believe 

these negative outcomes are unlikely, 

we intend to alert our Survey and 

Quality Monitoring staff to the 

possibility so that we can monitor 

facility practices to ensure quality care 

for all SNF residents. 

Comment: A few commenters 

requested CMS to provide specific 

guidelines on when concurrent therapy 

may occur, such as limiting the number 

of patients that can be seen 

concurrently. Of those commenters that 

favored setting a numerical limit, a 

majority recommended allowing the 

therapist to treat no more than two 

patients concurrently. A few suggested 

a maximum of three or four patients for 

concurrent therapy, while others stated 

that treating three or four patients at the 

same time should instead constitute 

group therapy. Some suggested that we 

apply a cap similar to the one that 

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already exists for group therapy (in 

which we limit the number of 

individuals and the amount to be coded 

on the MDS). One commenter stated 

that if the requirements set forth in the 

Medicare Benefit Policy Manual (Pub. L. 

100–2), chapter 8, section 30.4.1.1 are 

met, then the therapy services are 

skilled and the mode of therapy 

delivered does not matter (individual, 

concurrent, or group). On the other 

hand, some requested that CMS work 

with the professional and industry 

associations and stakeholders to 

develop criteria and guidelines. One 

commenter stated that concurrent 

therapy is neither individual nor group 

therapy and, therefore, should not be 

allowed. 

Response: As we explained in the 

proposed rule (74 FR 22222), concurrent 

therapy can represent a legitimate mode 

of delivering therapy services when 

used properly based on individual care 

needs as determined by the therapist’s 

professional judgment; should be an 

adjunct to individual therapy, not the 

primary mode of delivering care; and 

should represent an exception rather 

than the standard of care. 

We agreed with those commenters 

who supported placing some limits on 

concurrent therapy. Commenters who 

supported concurrent therapy almost 

unanimously stated that when 

concurrent therapy is properly 

delivered, patients are fully engaged 

during the entire treatment time and 

that the therapist is able to direct the 

entire treatment session for each 

participant. We believe that in order for 

the therapist to be able to direct the 

entire treatment session and ensure that 

the patients are fully engaged, the 

number of participants should be 

limited to two. We agree with the 

commenters who pointed out that, once 

a clinician has to divide his/her time 

between three or more patients, the 

therapist’s ability to direct the entire 

treatment session for each individual 

and ensure that the patients are fully 

engaged can become problematic. In 

addition, in order for a therapist to 

direct the entire treatment session of 

both participants and ensure that they 

are fully engaged, the therapist must 

have line-of-sight of both patients. Both 

the American Physical Therapy 

Association (APTA) and the American 

Occupational Therapy Association 

(AOTA) recommended limiting 

concurrent therapy to two patients. In 

fact, the AOTA reports in their comment 

on the FY 2010 SNF PPS proposed rule, 

and on their Web site at http:// 

www.aota.org/Practitioners/Reimb/Pay/ 

Medicare/FactSheets/37784.aspx, that 

they have been advising their members 

to limit the provision of concurrent 

therapy in this manner for some time: 

‘‘For a number of years, AOTA has been 

informally advising members that the 

number of patients should be limited to 

2 as a best practice standard.’’ We 

believe the clinical knowledge and 

expertise of the therapy associations is 

a proper benchmark for determining the 

allowable number of patients during a 

concurrent session, and we agree that a 

therapist (or assistant) should treat no 

more than two patients concurrently. At 

this time, we do not agree that CMS 

should impose a specific cap, similar to 

the one for group therapy, on the 

amount of concurrent therapy to be 

coded on the MDS. However, we are 

revising the MDS, as noted later in this 

section, to capture therapy data by mode 

of therapy. We will then be able to 

analyze the data on therapy, including 

the delivery mode, and will be able to 

better understand the rates of provision 

and develop other requirements as 

deemed appropriate, including but not 

limited to a cap on concurrent therapy. 

Therefore, under RUG–IV, in order to 

code minutes on the MDS, the following 

criteria must be met: 

• Individual therapy; or 

• Concurrent therapy consisting of no 

more than 2 patients (regardless of payer 

source), both of whom must be in lineof-sight of the treating therapist (or 

assistant); or 

• Group therapy consisting of 2 to 4 

patients (regardless of payer source), 

who are performing similar activities, 

and are supervised by a therapist (or 

assistant) who is not supervising any 

other individuals. 

In instances that involve a therapist 

treating 3 or more patients that do not 

meet the definition of group therapy, 

that is, similar activities are not being 

performed by the participants, then for 

purposes of MDS reporting, the 

definition of concurrent therapy is not 

met and, thus, those therapy minutes 

may not be coded. 

We agree that requirements set forth 

in the Medicare Benefit Policy Manual 

(Pub. L. 100–2), chapter 8, section 

30.4.1.1 should be met for medical 

review purposes. However, as stated 

previously, from a payment perspective, 

the SNF PPS is based on resource 

utilization and costs. When a therapist 

treats two patients concurrently for an 

hour, it does not cost the SNF twice the 

amount (or 2 hours of the therapist’s 

salary) to provide those services. The 

therapist would appropriately receive 

one hour’s salary for the hour of therapy 

provided, regardless of whether the 

therapist treated one patient 

individually or two patients 

concurrently for that hour. Therefore, 

Medicare should pay for the one hour of 

the therapist’s time. 

Furthermore, the criteria set forth in 

section 30 for skilled nursing facility 

level of care must be met in order for a 

beneficiary to meet the requirements for 

a SNF Part A stay. These requirements 

are: 

• The patient requires skilled nursing 

services or skilled rehabilitation 

services, that is, services that must be 

performed by or under the supervision 

of professional or technical personnel 

(see §§ 30.2–30.4); are ordered by a 

physician and the services are rendered 

for a condition for which the patient 

received inpatient hospital services or 

for a condition that arose while 

receiving care in a SNF for a condition 

for which he received inpatient hospital 

services; 

• The patient requires these skilled 

services on a daily basis (see § 30.6); 

• As a practical matter, considering 

economy and efficiency, the daily 

skilled services can be provided only on 

an inpatient basis in a SNF (see § 30.7.); 

and 

• The services must be reasonable 

and necessary for the treatment of a 

patient’s illness or injury, that is, be 

consistent with the nature and severity 

of the individual’s illness or injury, the 

individual’s particular medical needs, 

and accepted standards of medical 

practice. The services must also be 

reasonable in terms of duration and 

quantity. 

We also believe that, when 

appropriate, therapy services should be 

treated uniformly across the PAC 

settings and under Parts A and B. We 

intend to work with the professional 

organizations and within the various 

CMS components to analyze and 

explore the various issues that affect 

therapy services in the various provider 

types and payment systems. 

We realize that establishing 

guidelines, requirements, and criteria 

for therapy services is a complex matter 

regardless of setting. For instance, we 

must be cognizant of multiple issues 

that may affect the delivery of therapy 

services to patients, such as: 

• Patient rights (patient preference for 

a particular treatment method (for 

example, individually and not with 

others, either concurrently or in a group 

setting), and whether this preference is 

honored); 

• Infection precautions (whether 

therapists follow standard infection 

control practices when treating more 

than one patient at time); 

• Facility layout (logistical feasibility 

of treating multiple patients and 

maintaining proper and adequate 

supervision). 

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Comment: A few commenters stated 

that when the RUG–III model was 

developed, all modes of therapy were 

being provided, and the minutes and 

staff time were weighted to reflect 

concurrent therapy. Some commenters 

reported that concurrent therapy 

became the norm after the inception of 

the SNF PPS, and that individual 

therapy was previously the primary 

mode of therapy being delivered. 

Response: We do not disagree that the 

different modes of therapy were being 

provided prior to SNF PPS. For the 

purpose of this final rule, we are 

considering how the current 

distribution of therapy time affects the 

accuracy of the payments that will be 

made under the RUG–IV model. For 

RUG–IV, we are using the therapist’s 

time (individual minutes, concurrent 

therapy minutes allocated, and the 

group therapy minutes unallocated with 

25 percent cap) to establish the 

minimum therapy minutes for each of 

the rehabilitation categories. We do not 

believe that Medicare payments should 

exceed the cost of the services rendered. 

As stated previously, when a therapist 

provides concurrent therapy services for 

an hour, no matter how many patients 

he or she treats, the therapist is only 

providing and being paid for an hour of 

time. Payments made to the SNF under 

the SNF PPS should reflect that same 

principle. As we did not propose to 

change the method in which group 

therapy minutes are used in RUG–IV 

classification and the amount of group 

therapy being provided is low, 

therapists will still be allowed to count 

the entire group session for each patient 

(as long as they maintain the patient 

limitation and supervision 

requirements) in accordance with the 25 

percent cap. However, we will monitor 

therapy provided in the group setting, 

analyze data associated with group 

therapy, and, if needed, address any 

issues at a later time. 

Comment: Some commenters 

suggested updating the MDS 3.0 in 

order to record the three modes of 

therapy: individual, concurrent, and 

group. Some believed that this would 

allow a method to track and analyze the 

amount of concurrent therapy being 

provided. One commenter suggested 

developing a ‘‘take back’’ if concurrent 

therapy exceeded 50 percent of the 

therapy time. One commenter urged 

CMS to consider a documentation 

method that would not be burdensome. 

Another commenter stated that tracking 

concurrent therapy would be tedious. 

Another commenter stated that 

providers would be vulnerable to postpayment audits and denials if CMS did 

not develop documentation 

instructions. Lastly, one commenter 

stated that reporting the therapist time 

and not the resident time would alter 

the ‘‘patient-centric’’ intent of the MDS. 

Response: Under Medicare Part B 

therapy services, CMS has issued 

documentation requirements. When 

these requirements were developed, 

CMS worked closely with the Medicare 

contractors, professional therapy 

associations, and multiple components 

within CMS. We intend to address 

therapy documentation issues for SNF 

PPS in a similar fashion to determine 

the most appropriate documentation 

requirements. We will update the MDS 

3.0 so that the assessor codes the actual 

total patient minutes associated with the 

three modes of delivering therapy 

services (individual, concurrent, and 

group) and, thereby, reports them 

separately (thus keeping the MDS 

patient-centric). We believe that 

requiring providers to report total 

therapy time by mode of therapy on the 

MDS 3.0 will not pose a significant 

burden for providers, as providers will 

not be required to allocate concurrent 

therapy minutes before recording them 

on the MDS, but instead will only be 

required to identify those minutes as 

concurrent. This method of reporting 

will allow us to track and analyze the 

amount of each type of therapy being 

provided and determine appropriate 

reimbursement. Under RUG–IV, the 

recording of therapy minutes on the 

MDS will be as follows: 

• Individual—Report entire amount 

of individual therapy. 

• Concurrent—Report the entire 

unallocated minutes of concurrent 

therapy. 

• Group—Report the entire 

unallocated minutes of group therapy 

(as long as the patient limitation is not 

exceeded and the supervision 

requirement is maintained). 

This method for recording therapy 

minutes will reflect the resident’s entire 

time receiving therapy. However, as 

stated earlier, we will assign the RUG– 

IV category based on allocated 

concurrent therapy minutes and 

maintain the 25 percent cap on group 

therapy. The RUG–IV data 

specifications will account for these 

requirements. 

We do not agree with the suggestion 

to implement a ‘‘take back’’ policy at 

this time. However, as the MDS 3.0 will 

require the therapist to code the minutes 

for each mode of therapy being 

delivered, we will be able to analyze the 

data and, if need be, address any issues 

in the future. Thus, we will update our 

policy based on data, not on a predefined limit. In addition, we will need 

to conduct further analysis to determine 

an appropriate amount of allowed 

concurrent therapy, as well as the 

appropriate fiscal penalty if we were to 

implement a ‘‘take back’’ policy. 

Comment: Several commenters argued 

that allocating concurrent minutes to 

the RUG–IV model and then also 

applying CMIs represents a ‘‘double 

hit.’’ Others characterized concurrent 

therapy allocation as a method of cost 

control. 

Response: As stated in the proposed 

rule (74 FR 22222–23), and as discussed 

above, allocating concurrent therapy 

time reflects resource use more 

accurately for this type of therapy. 

Patients are classified into RUGs based 

on average resource use, and allocating 

therapy minutes allows for better 

measurement of resource use, more 

accurate RUG classification, and 

application of more appropriate CMIs. 

For example, when a therapist treats 2 

patients concurrently for an hour, a full 

hour of therapy time is counted for each 

of the 2 patients under existing 

procedures. However, the therapist is 

not actually providing 2 hours of his/her 

time to treat the patients; rather, the 

therapist is providing a total 1 hour of 

therapy time. Thus, rather than 

representing a ‘‘double hit’’ or a method 

of cost control, allocating concurrent 

therapy minutes to the RUG–IV model 

results in more accurate payment under 

the SNF PPS, and allows for a more 

appropriate reflection of resources used. 

Further, as stated in the proposed rule, 

we maintained budget neutrality with 

the implementation of RUG–IV, which 

also serves to refute the characterization 

of allocating concurrent therapy as a 

cost control method. 

Comment: One commenter agreed that 

the role of therapy aides is to provide 

support services to the therapists and, 

thus, disagreed with our concern that 

placing limits on concurrent therapy 

could result in an inappropriate 

substitution of therapy aides for 

therapists and assistants and that the 

RAI manual should be updated. In 

addition, a commenter requested that 

we maintain the policy that therapy 

provided by therapy students should 

continue to be counted on the MDS. 

Response: We would also like to 

reiterate that therapy aides are expected 

to provide support services to the 

therapists and cannot be used to provide 

skilled therapy services. As we stated in 

the proposed rule, based on the STRIVE 

data, it appears therapy aides are being 

used appropriately. However, as we 

stated, we intend to monitor the use of 

therapy aides, and if necessary, propose 

changes to MDS reporting requirements 

in the future. Further, we agree that, as 

set forth previously in the correction 

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notice for the FY 2000 SNF PPS final 

rule (64 FR 60122, November 4, 1999), 

providers should record minutes of 

skilled therapy provided by a therapy 

student on the MDS when the student 

is in the therapist’s line-of-sight. 

Therefore, as we proposed in the FY 

2010 proposed rule, effective with 

RUG–IV, we will use allocated 

concurrent therapy minutes to establish 

the RUG–IV group to which the patient 

is assigned. In addition, as discussed 

above, a therapist (or assistant) will be 

permitted to treat no more than two 

patients concurrently. In addition, we 

will require the therapist to report the 

three different delivery modes of 

therapy (individual, concurrent, and 

group) on the MDS 3.0 in the manner 

discussed above. 

ii. Adjustments to STRIVE Therapy 

Minutes 

Under the SNF PPS, while nursing 

services are fully reimbursed using a 

prospective case-mix adjusted 

algorithm, payment for therapy services 

is more closely linked to the amount of 

therapy actually received at a particular 

time. In the FY 2010 proposed rule (74 

FR 22208, 22223, May 12, 2009), we 

noted that the STRIVE analysis included 

an examination of therapy services 

reimbursed under RUG–III, and we 

included a detailed explanation of the 

STRIVE therapy data collection 

methodology. The comments that we 

received on this subject, and our 

responses, appear below. 

Comment: Several commenters 

questioned the collection and the 

analysis of therapy time, including the 

utilization of the unsupervised 

recording of therapy times during the 

collection of data on weekends. 

Response: During the STRIVE study, 

we made every effort to train staff and 

provide data monitors to assist staff 

when questions or problems arose. 

However, very few onsite facility 

studies, including STRIVE, can provide 

monitoring on a 24-hour, 7-days-a-week 

basis. In general, the staff at the 

participating facilities worked hard to 

collect the staff time accurately, 

especially for the days where data were 

collected on an automated basis. It is 

apparent from our analysis that the 

therapy data were partially 

compromised by incomplete recording 

of therapy times during the days where 

the data were collected manually on 

paper forms. We believe we have 

provided sufficient information in both 

the proposed rule (74 FR 22223–25) and 

the TEP slides (available online at 

http://www.cms.hhs.gov/SNFPPS/10_

TimeStudy.asp), and especially at the 

TEP meeting on March 11, 2009, on how 

we have identified this potential 

problem, and have adjusted the therapy 

time used in our analysis to address it. 

Information provided at the TEP 

meeting demonstrated that these 

adjustments had little impact on the 

RUG–IV case-mix indexes, and 

corresponded with the results in 

STRIVE facilities that had more 

complete therapy data collection. At the 

same time, the adjustments appeared to 

adjust therapy time successfully in more 

problematic facilities (where therapy 

time was much lower and appeared to 

be incomplete on days where staff used 

the paper tool versus days using PDAs), 

so that residents were distributed among 

therapy groups more consistently with 

the national pattern from Medicare 

claims than they would have been if 

unadjusted data were used. 

We do recognize from the comments 

that one of the statistics provided in the 

proposed rule and in Slide #33 of the 

March 11 TEP presentation was 

incorrect: the percentage of all time 

collected that was concurrent therapy. 

Our contractor located a mistake made 

in the computation for this statistic 

alone that substantially inflated this 

percentage. As noted previously, the 

correct percentage of concurrent time is 

28.26 percent. This error only affected 

the calculations performed to produce 

this one slide; the numbers used in all 

other analyses, the allocation of 

concurrent time, the derivation of RUG– 

IV, and the released public database 

were correct. 

After this error was found, all 

calculations concerning concurrent 

therapy were reviewed. Our initial 

method of allocating concurrent time 

was to combine all resident time records 

for a staff member where there was any 

continuous overlap among the residents. 

These records were then used to 

calculate the time in therapy for each 

resident involved and the unduplicated 

staff time involved. The staff time was 

then allocated to each resident in 

proportion to resident time in therapy, 

yielding the allocated concurrent time 

for each resident. This method led to 

minor inaccuracies when a resident left 

an ongoing concurrent therapy group or 

a new resident entered an ongoing 

concurrent therapy group. 

Based on the comments that we 

received, we reviewed our allocation 

method described above, and developed 

a more sensitive method based on a 

‘‘time slice’’ approach. A staff member’s 

time was divided into 1-minute ‘‘time 

slices.’’ When there was only one 

resident in a 1-minute time slice, the 

entire minute was assigned to that 

resident as individual therapy time. If 

there were multiple residents, the 

minute was divided equally among the 

residents as concurrent therapy time. 

All current time for a specific resident 

under the treatment of a specific staff 

member was then accumulated, 

separately as individual and concurrent 

time. This more accurate allocation 

caused only minor changes for 

individual residents, and had very little 

impact on aggregate results. The results 

referenced in this final rule incorporate 

these changes. 

The two methods are contrasted in the 

following example. Assume that the 

therapist has a session of 30 minutes 

involving three residents. The first 

resident (‘‘A’’) arrives at the beginning 

of the session and stays for the entire 30 

minutes. The second resident (‘‘B’’) 

arrives 10 minutes after the session 

begins and stays until the end (that is, 

20 minutes). The third resident (‘‘C’’) 

arrives 20 minutes after the session 

begins and also stays until the session’s 

end (that is, 10 minutes). The original 

research used a proportional method, in 

which each resident’s time was 

considered as a percentage of the total 

person-minutes. This can be seen in 

Table 12. ‘‘Resident A’’ received 30 

minutes of therapy, Resident B 20 

minutes, and Resident C 10 minutes, for 

a total of 60 person-minutes. The 

proportional method would thus 

compute Resident A as having 30/60 

(that is, 50 percent) of the 30-minute 

session time, or 15 minutes. The other 

two residents’ times would be 

calculated similarly. 

TABLE 12 

Resident 

Proportional method Time slice method 

Resident time 

in therapy 

Proportion of 

resident time Allocated time Slice 1 Slice 2 Slice 3 Total 

A ................................... 30 50.00% 15.00 10.00 5.00 3.33 18.33 

B ................................... 20 33.33 10.00 0.00 5.00 3.33 8.33 

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TABLE 12—Continued 

Resident 

Proportional method Time slice method 

Resident time 

in therapy 

Proportion of 

resident time Allocated time Slice 1 Slice 2 Slice 3 Total 

C ................................... 10 16.67 5.00 0.00 0.00 3.33 3.33 

Total ............................. 60 100.00 30.00 ........................ ........................ ........................ 30.00

Session length ............. 30 ........................ ........................ 10.00 10.00 10.00 ........................

We now determined that a more 

accurate approach would be to divide 

the session into ‘‘slices,’’ beginning 

when a resident joins or leaves the 

session. The minutes in each time slice 

are divided equally among all the 

residents receiving therapy during that 

time slice. In the example above, the 

first slice would consist of the first 10 

minutes of the session, the second slice 

is minutes 11–20 of the session, and the 

third slice is minutes 21 to 30. As only 

one person is receiving therapy in the 

first slice, Resident A is credited with 

all 10 minutes of that slice (which is 

now reported as ‘‘individual’’ therapy 

time). In the second slice, there are two 

residents, so both Resident A and B 

each receive half of the 10 minutes in 

that slice, or 5 minutes each. Finally, in 

the third slice, there are three residents 

receiving therapy, so each receives a 

third of 10 minutes, or 3.33 minutes 

each. Summing across all three slices, 

Resident A is credited with 10 + 5 + 

3.33 minutes, or 18.33 minutes of time. 

This example demonstrates that the 

improved methodology does make 

minor differences in time allocation, 

although the total allocated therapy time 

is not affected. Moreover, the two 

methods will provide identical results 

when all individuals receive therapy for 

the full session. Thus, the 

recomputation of therapy sessions using 

the time slice methodology, while more 

accurate, made only minor changes for 

individual residents. 

Comment: Several commenters 

questioned the adjustment performed on 

therapy minutes, raising two issues: The 

first relates to ‘‘forcing the data to 

approximate existing distributions of 

therapy times across RUG–53 

categories,’’ by which nothing new is 

learned. The second regards the paper 

survey data as part of the calculation of 

therapy weights and the commenters’ 

opinion that it should be considered 

invalid and should not be used. While 

acknowledging the need to adjust the 

therapy minutes data, the commenter 

added that the proposed retroactive 

therapy data adjustments bring into 

question the accuracy and usefulness of 

the STRIVE data, especially in light of 

the small sample size. The commenter 

believed that these issues also affect the 

reorganization of residents within the 

RUG hierarchy, and invalidate the 

therapy and nursing weights and the 

subsequent budget neutrality 

adjustment. In addition, the commenter 

observed that retroactively adjusting the 

therapy minutes collected directly from 

therapists treating SNF patients appears 

contrary to the purpose and design of 

the time study, which was real-time, 

bedside measurement of the resources 

provided to SNF patients. 

Response: While we are confident that 

the analyses conducted during the study 

are sufficient to adjust the therapy data 

for use in the RUG–IV model, we 

understand the commenters’ concerns. 

As we have described in detail, the 

process used to adjust the therapy 

minutes (imputation of data elements 

that are missing or incorrect) is a 

standard statistical practice, with many 

methods available; thus, we do not 

believe it is contrary to the purpose and 

design of the time study. In STRIVE, 

changes in therapy minutes had little 

effect on the therapy CMIs of therapy 

groups as, once in a group, any 

statistical average will be relatively 

stable. However, revising the therapy 

times did have a substantial effect on 

the classification of individual 

residents. This was significant, as only 

those not meeting the RUG–IV therapy 

criteria would be eligible for the nontherapy categories from Extensive 

Services down through Reduced 

Physical Function, and the research to 

determine which characteristics 

differentiated the nursing time of these 

individuals would be properly focused. 

Alternately stated, while adjusting the 

therapy time did not substantially affect 

the CMI of the rehabilitation groups, it 

did change the classification of 

individual residents and was critical to 

proper analysis. Contrary to the 

assertions of these commenters, we 

believe that failure to adjust the therapy 

minutes would have had a negative 

impact on the classification of residents 

requiring complex medical care. 

Without the adjustment, we believe the 

therapy minutes would have been 

underreported, resulting in inaccurate 

classification of residents, with some 

residents inappropriately classified in 

lower-level RUGs. Thus, we are 

confident that our efforts to adjust for 

underreporting of therapy minutes 

actually increased the accuracy of the 

RUG–IV case-mix classification model. 

Our approach to adjusting therapy 

addressed our concern that, in some 

facilities, therapists under-reported 

resident therapy time on weekends and 

other ‘‘non-PDA’’ days, including days 

where there was no supervision, either 

by STRIVE data monitors or by staff at 

the participating facility, of the data 

collection. However, at least a quarter of 

the facilities did report patterns of 

therapy time that appeared reasonable. 

We took care to include these times, 

even if paper based, when they seemed 

appropriate. 

We found that the data obtained from 

facilities where the data collection had 

been most complete, closely matched 

the therapy time extrapolated to the 

entire week from the 3-day period 

where data had been collected 

electronically. A final comparison was 

made to verify the therapy minutes 

reported on the MDS that was 

completed during the time study. Again, 

the reported minutes were consistent 

with the extrapolation procedure we 

used. In addition, the RUG distribution, 

after the adjustment of therapy time, 

more closely matches the expected 

therapy RUG national distribution. This 

comparison was aimed solely at 

validating the accuracy of our 

adjustment procedures by comparing 

our study’s RUG–III distribution with 

the known national distribution. It did 

not constrain in any way our ability to 

test alternative approaches to RUG 

classification. Thus, we are confident 

that the procedures we used to adjust 

for data collection were appropriate, 

and that the therapy analyses conducted 

during STRIVE accurately reflect 

therapy utilization overall. Accordingly, 

we do not believe that it is necessary to 

discard the paper surveys as the 

commenter suggested. However, we are 

also cognizant of the importance of 

therapy services in the RUG model, and 

plan to continue our analyses as part of 

our implementation and post-utilization 

monitoring of the RUG–IV system. 

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Comment: One commenter observed 

that no adjustments were made for 

variation in State practice laws with 

respect to supervision of physical 

therapy assistants, occupational therapy 

assistants and aides, and that due to an 

acute shortage of therapists in many 

rural communities, there is a tendency 

to use more therapy assistants under 

therapist supervision to the extent that 

State law allows such practices. 

Response: While the commenter is 

correct that we did not examine State 

practice acts, we did collect data on the 

use of therapy assistants in nursing 

homes. To the best of our knowledge, all 

States recognize and license or certify 

therapy assistants. We found that the 

use of therapy assistants has increased 

significantly since the 1995/1997 time 

studies. We consider the use of therapy 

assistants to be appropriate to deliver 

therapy services when under the 

supervision of a therapist and within 

the scope of practice allowed by State 

law. We presume that the increasing use 

of therapy assistants is partially related 

to a current labor shortage for therapists, 

and partially related to payment 

incentives rewarding efficient delivery 

of care. The applicable State regulations 

governing aides are more heterogeneous. 

However, in the STRIVE study, we 

found that aides are being appropriately 

utilized to furnish support services to 

the licensed/certified therapists, a role 

that would be allowed in most if not all 

States. 

Comment: One commenter expressed 

concern about extrapolating 3 days of 

therapy to 7. The commenter stated that 

it is inappropriate because weekend 

days and weekdays are not similar, and 

that Mondays and Fridays differ from 

mid-week (Tuesdays through 

Thursdays) due to admissions and 

meetings. 

Response: We agree that it would 

have been inappropriate to directly 

extrapolate 3 days of therapy to 7, 

because 2 of those days (Saturday and 

Sunday) generally have very low 

amounts of therapy. However, we did 

not take the approach described by the 

commenter. Our adjustment procedure 

made use only of those weekend days 

that were actually reported; we never 

imputed a weekend therapy session. 

The only adjustment that we made to 

weekend sessions was to assume that 

the duration of those sessions matched 

the average duration of weekday 

sessions reported for the resident. 

Generally, most participating SNFs 

provide therapy 5 days a week, and only 

a small subset provide therapy on 

weekends. Therefore, we agree with the 

commenter that weekend days and 

weekdays differ in the amount of 

therapy provided. However, the STRIVE 

study took this into account and gave 

credit only for weekend therapy when it 

was reported on the paper data 

collection tool. We did not extrapolate 

weekday therapy time to the weekend 

days, and agree with the commenter that 

such a practice would be inappropriate. 

Although we noticed a significant 

reduction in therapy time when data 

were collected with the paper tool, we 

believe this is due to the data collection 

method and does not indicate a 

consistent pattern of significantly less 

therapy being delivered on Mondays or 

Fridays due to admissions and 

meetings. In several facilities, PDA data 

collection was used on Wednesday 

through Friday rather than Tuesday 

through Thursday. When the PDA was 

used on Friday, 21 percent of all therapy 

time was recorded for Friday. This is 

close to the 23 percent of time reported 

for Thursday. When paper data 

collection was used on Friday, only 12 

percent of all therapy time was 

recorded, indicating a loss of data with 

the paper collection. If admissions and 

meetings were the cause of a significant 

decrease in therapy time, we would 

expect to see this pattern for all Fridays. 

Therefore, we believe that our 

adjustment methodology is a more 

accurate reflection of the services 

actually provided during the study. 

iii. ADL Adjustments 

RUG–IV, like RUG–III, uses a scale 

measuring Activities of Daily Living 

(ADLs) to identify residents with similar 

levels of physical function. This scale is 

used to sub-divide (‘‘split’’) each of the 

major hierarchical categories except 

Extensive Services. It is also used as 

part of the qualification criteria for 

many of the RUG–IV hierarchical 

categories (Extensive Services, Special 

High, Special Low, and Cognitive 

Performance and Behavioral 

Symptoms), and is used as part of the 

specific criteria for classifying patients 

to RUGs within certain categories. In the 

FY 2010 proposed rule (74 FR 22208, 

22225–26, May 12, 2009), we proposed 

revisions to the RUG–IV ADL Index that 

reflect both clinical and statistical 

considerations, with the aim of scoring 

similarly those residents with similar 

function. The comments that we 

received on this issue, and our 

responses, appear below. 

Comment: Many commenters agreed 

with the ADL adjustments, stating that 

the scale is more sensitive to functional 

status and allows for a finer analysis of 

changes in functional status over time. 

In addition, they agreed with 

standardizing the ADL index across the 

various levels of the RUG hierarchy. 

Some commenters stated that the ADL 

scale does not capture provider burden 

as only 4 ADL areas are used in the 

calculation, and suggested that other 

ADL activities such as dressing and 

bathing should be included. A few 

commenters were concerned that by 

starting the ADL score at ‘0,’ some 

providers may perceive a ‘0’ as requiring 

no staff time, and that this may cause 

providers to discharge patients early, 

refuse to admit certain patients, or not 

provide the needed supervision or 

assistance. One commenter stated ‘‘The 

staff time required to provide ‘limited’ 

assistance with bed mobility, 

transferring, toileting, and/or eating 

does not vary significantly enough from 

the staff time required to provide 

‘extensive’ assistance for the same ADL 

activities.’’ One commenter stated that 

changing the coding of ‘‘Activity Did 

Not Occur During the Entire 7 Day 

Period’’ from a code of (8) to a code of 

(0) for both self-performance and staff 

support was logical because the activity 

did not occur and, therefore, no 

resources were used to support the 

activity. However, one commenter 

expressed concern regarding the ADL 

score of ‘‘0’’ when the component ADL 

activity did not occur during the entire 

7-day period, and suggested that it 

should be modified to take into 

consideration end-of-life situations. For 

patients in these situations, the 

commenter stated the ADL score may be 

low, but the level of resources to care for 

the resident may be significant, which 

would not be reflected in their ADL 

score. 

Response: We agree that the new ADL 

scale is more sensitive and that 

standardization of the ADL index across 

all RUG hierarchies will improve our 

ability to measure functional status 

accurately. We did include other ADL 

areas during our analysis of STRIVE 

data including, but not limited to, 

bathing, dressing, and ambulation, as 

we did with the original analyses that 

established the RUG–III case-mix 

methodology. In both studies, we found 

that eating, bed mobility, transfers, and 

toileting were the strongest predictors of 

resource use, and included these four 

ADLs in the case-mix system. However, 

the resource time associated with all 

ADLs is captured in the nursing minutes 

assigned to each time study resident, 

and is reflected in payments under the 

SNF PPS. In addition, we do not believe 

that a change in the MDS coding 

requirements will result in premature 

discharge of patients or that a score of 

‘‘0’’ will be incorrectly interpreted as 

indicating no need for care. First, we 

will provide instructions on the 

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meaning of the ADL codes in the MDS 

manual. Second and more importantly, 

a decision that a patient is able to be 

discharged should be based on clinical 

judgment, and should follow 

standardized facility operating protocols 

rather than be determined by an ADL 

index score recorded on an MDS. 

Thus, we do not agree with the 

commenter’s conclusion that the change 

in coding ADLs will have a negative 

impact on the care provided to patients 

in nursing homes. However, we will 

incorporate training on the new ADL 

index in our upcoming ‘‘train-thetrainer’’ sessions to mitigate concerns on 

the new scale and interpretation of its 

purpose. 

We do not agree with the commenter 

who stated that there is no significant 

difference in staff resource time when 

providing limited assistance compared 

to extensive assistance. STRIVE data 

demonstrate a difference in staff 

resources among the various levels of 

assistance that are provided to nursing 

home residents. We do, however, agree 

that if resources are not provided for an 

ADL, then the ADL index should not 

reflect that care was rendered. It is 

important to note that the ADL index is 

based on the 4 late-loss ADL areas and, 

therefore, while one ADL activity (for 

example, transferring) may not have 

occurred during the entire 7-day lookback period, the other ADLs are usually 

occurring and would be included in the 

ADL index. We agree with the 

commenter that the ADL index may not 

fully reflect care needs for patients 

nearing the end of life. However, we 

note that the ADL index is only one 

factor used to determine resource use. 

The intensity of nursing staff time and 

resources for these individuals is 

reflected more completely in the 

STRIVE minutes and categorical 

classification. 

Comment: Comments about the 

proposed ADL eating component 

changes were mixed, expressing both 

support and concern. A few commenters 

were pleased that we proposed to use 

both the Self-Performance and Support 

Provided items for eating, indicating 

that adding the ‘‘support provided’’ 

factor to the ADL eating component 

score is logical and in correlation with 

the other late-loss ADLs. One 

commenter was pleased to have 

Parenteral/IV and feeding tube items 

removed from the eating ADL, as they 

have been concerned that this may have 

been an incentive for providers to use 

feeding tubes rather than providing 

assistance to those residents who are 

able to eat through oral means. One 

commenter was concerned that the 

removal of feeding tubes from the ADL 

score for eating would not take into 

account the resources required to care 

for residents who must rely on tube 

feedings for nutrition, and that they 

would not be adequately reimbursed. 

One commenter cited the statement, 

‘‘In the STRIVE analysis, we found that 

patients receiving One Person Physical 

Assist or more needed comparable staff 

resources to patients who were being 

fed by artificial means * * * the RUG– 

IV ADL component score does not use 

Parenteral/IV or feeding tube items.’’ 

The commenter believed that the 

statement about comparable staff 

resources is inaccurate, as parenteral/IV 

or feeding tube assistance can only be 

done by a licensed nurse, while one 

person physical assist is most often that 

of a certified nurse assistant; thus, these 

are not comparable staff resources. 

Response: The data from the STRIVE 

project indicate that using both the SelfPerformance and Support Provided 

items for the eating ADL for all residents 

achieves a better categorization of 

residents who require assistance. In 

RUG–III, a person who receives 

nutrition via a feeding tube or 

parenteral/IV is assigned a ‘‘3’’ (the most 

dependent score for eating) regardless of 

the coding in section G, Physical 

Functioning and Structural Problems, 

specifically item G1Ah (eating, selfperformance). In RUG–IV, instead of 

this person being automatically assigned 

the most dependent score for eating, the 

score will be based on both the SelfPerformance and Support Provided 

codes. For the MDS 2.0 and the MDS 

3.0, the assessor is to code how the 

resident eats and drinks, including 

nutritional intake via artificial means; 

for example, tube feeding, total 

parenteral nutrition. The assessor is 

expected to enter codes for eating when 

a person receives nutrition orally or 

through a feeding tube or other means. 

Therefore, the resources to care for a 

patient with tube feeding are captured 

on the MDS and in the ADL index and, 

thus, in reimbursement. We would like 

to clarify that when we discuss staff 

resources, we are using wage-weighted 

minutes. For example, when the 

licensed nurse provides nutrition to a 

resident via a feeding tube, the cost is 

more per hour but the time it takes is 

less relative to a situation in which an 

aide feeds a resident who requires total 

assistance. When an aide feeds a 

resident who requires total assistance, 

the cost per hour is less but the time 

required is greater. Therefore, the wageweighted resource time is comparable. 

This was validated by the STRIVE study 

data. 

In this final rule, we are finalizing the 

revisions to the RUG–IV ADL index as 

proposed in the FY 2010 proposed rule 

(74 FR 22225–27). 

iv. ‘‘Look-Back’’ Period 

In the RUG–III case-mix classification 

system, we identified five services that 

the data showed to require the highest 

levels of staff time use: Ventilator/ 

respirator, tracheostomy, suctioning, IV 

medications, and transfusions. The 

instructions for coding these items in 

the MDS 2.0 specified that the item 

should be coded if it was furnished 

within the prior 14 days, even if the 

services were provided to the resident 

prior to admission to the SNF. In this 

way, the MDS 2.0 would collect data 

that should be considered during the 

patient care planning process. When the 

RUG–III system was developed, we 

retained the MDS 2.0 coding procedure 

regarding these 5 items, based on a 

clinical analysis suggesting that they 

would serve as a proxy for medical 

complexity and higher resource use 

after admission to the SNF. However, in 

the SNF PPS final rule for FY 2000 (64 

FR 41668–69, July 30, 1999), we 

reserved the right to reconsider this 

policy in the future ‘‘* * * if it should 

become evident in actual practice that 

this is not the case.’’ In the FY 2010 

proposed rule (74 FR 22208, 22227, May 

12, 2009), we noted that we analyzed 

the STRIVE data to test the effectiveness 

of including services furnished during 

the prior hospital stay in the 

classification system. We found that, for 

these five services, utilization during 

the prior hospital stay does not, in fact, 

provide an effective proxy for medical 

complexity for SNF residents, and 

instead results in payments that are 

inappropriately high in many cases. 

Accordingly, we proposed to modify the 

look-back period under RUG–IV for 

items in section P1a, Special Treatments 

and Procedures, of the MDS 2.0, to 

include only those services that are 

provided after admission (or 

readmission) to the SNF. The comments 

that we received on this issue, and our 

responses, appear below. 

Comment: Many commenters agreed 

that the look-back to the prior hospital 

stay should be changed so that only 

services furnished during the SNF stay 

are reflected in the SNF case-mix 

classification. In particular, in States 

that have rate equalization (that is, the 

private-pay resident must pay the rate 

established by the case-mix system), 

private-pay residents would now pay 

only for services received while a SNF 

resident. Several commenters believed 

that the SNF staff need to be aware of 

services provided to the resident during 

the acute stay, in order to develop an 

appropriate plan of care and ensure that 

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adequate services are provided during 

the SNF stay. However, some believed 

that this information does not need to be 

collected on the MDS, and 

recommended removing the first 

column for the Special Treatments, 

Procedures, and Programs (Section O) 

draft MDS 3.0 or making that column 

optional. Others disagreed with CMS 

changing the look-back into the hospital 

stay. Many argued that such a change 

would fail to account for the severity of 

the patient’s condition upon arrival at 

the SNF. Others believed that 

eliminating the look-back would 

negatively affect quality of care 

provided to SNF residents and could 

result in increased readmissions back to 

the acute setting. Finally, one 

commenter stated ‘‘limiting the lookback in section P1a to exclude hospital 

services would unfairly punish SNFs 

that provide valuable services to highacuity rehabilitation patients whose care 

is more costly to provide.’’ 

Response: As we stated in the 

proposed rule, we specifically collected 

staff time data on special treatments that 

are often provided in a hospital but are 

not often provided in a SNF after 

hospital discharge. Analysis of the 

STRIVE data shows that: (1) The ‘‘lookback’’ period does, in fact, capture 

services that are provided solely prior to 

admission to the SNF; and (2) there is 

a much lower utilization of staff 

resources for individuals who received 

certain treatments solely prior to the 

SNF stay compared to those who 

received those services while a resident 

of the SNF. In fact, the resources 

provided to patients who received 

treatments provided only prior to 

admission are similar to patients who 

never received those treatments in 

either setting. Again, the look-back does 

not provide an effective proxy for 

medical complexity and, thus, has 

resulted in payments that are 

inappropriately high for many cases. 

However, we do believe that for care 

planning purposes, the SNF staff should 

be aware of the services that were 

provided during the acute stay and, 

thus, we did not propose to eliminate 

the look-back from the assessment tool 

for these Special Treatments and 

Procedures. Instead, we proposed to 

expand the MDS 3.0 for these items to 

two columns. The first column allows 

providers to code those services that 

were provided prior to admission for 

care planning purposes. 

We are concerned that commenters 

believe that eliminating the look-back to 

the hospital stay from the payment 

system will result in poor quality of care 

provided to SNF residents. The SNF is 

expected to provide the care required to 

achieve and/or maintain the resident’s 

highest practicable level of well-being. 

However, as this concern was raised by 

several commenters, we will monitor 

the re-admission rates to hospitals and 

other proxies that may indicate poor 

care outcomes, such as QMs. In 

addition, we will work with the other 

CMS components to ensure that 

facilities are adhering to survey and 

certification requirements, including 

providing appropriate care to residents. 

Further, we do not believe that 

limiting the look-back period for P1a 

services would unfairly punish SNFs 

that provide services to high-acuity 

patients. As stated above, the STRIVE 

data do not support the premise that 

services provided only during the 

hospital stay to SNF residents result in 

higher costs to the SNF. Limiting the 

look-back period helps to ensure that 

adequate and appropriate payments are 

made for services received during the 

SNF stay, while eliminating 

inappropriately high reimbursement for 

services that are provided solely prior to 

admission. Thus, if a patient receives 

high-acuity services during the SNF 

stay, those services should be 

adequately reimbursed. Therefore, we 

will eliminate the look-back period into 

the hospital stay for those specific 

services in section P1a on MDS 2.0, but 

we will maintain the ability for the 

provider to code those services provided 

prior to admission to the SNF on the 

MDS 3.0 by expanding the MDS 3.0 for 

these items to 2 columns. We believe 

that coding for these pre-admission 

services on the MDS 3.0 will allow 

providers to effectively capture these 

services for care planning purposes. 

Comment: One commenter pointed 

out that the study for MDS 3.0 

conducted by the RAND Corporation 

(RAND), a non-partisan economic and 

social policy research group, showed 

‘‘look-back periods were highlighted as 

a significant issue across the assessment 

(MDS 2.0) tool.’’ The commenter further 

stated that CMS did not consider the 

findings on the STRIVE project with 

those of the RAND MDS 3.0 validation 

study. A few commenters were 

concerned that the changes to the lookback period made after the conclusion 

of the RAND analysis resulted in added 

burden in completing the MDS. They 

suggested that, prior to introducing the 

MDS 3.0, a new study should be done 

to validate the estimated time needed to 

complete the MDS 3.0. 

Response: We do not agree with the 

assertion that we did not consider the 

RAND data when developing RUG–IV 

and establishing look-back periods for 

the various items used in payment. We 

concur with the RAND study that 

having multiple look-back periods on 

the assessment tool (for example, 7 days 

for some items, 30 days for others; some 

requiring look-back prior to admission 

to the SNF, while others only since 

admission to the SNF; and other lookback differences among the different 

items of the MDS) may lead to more 

opportunities for errors in coding, 

increase record review time and, thus, 

increase assessment burden. In making 

the final decisions on the look-back 

periods that would be applied to each 

MDS 3.0 item, we worked to balance 

three concerns: Data collection burden 

to the provider, consistency of look-back 

periods across items, and the sufficiency 

of the data points (that is, days of care) 

to assign an accurate case-mix 

classification for payment. Several of 

the look-back periods recommended by 

RAND were adjusted later by CMS to 

maximize their utility for payment and 

quality monitoring. In fact, RAND also 

reconsidered the 5-day therapy lookback period used in their study. They 

concluded that the 5-day look-back was 

too short to capture the therapy staff 

utilization and, thus, SNFs would be 

substantially underpaid if we adopted a 

shorter look-back. Therefore, both 

RAND and CMS favored changes to the 

look-back periods to enhance the 

accuracy of the MDS 3.0 responses. 

Finally, we do not believe a validation 

study is needed to estimate the time 

needed to complete the MDS 3.0, as 

none of the changes to the MDS 3.0 

look-back periods extend the amount of 

data to be collected beyond the current 

MDS 2.0 collection period, and do not 

represent an additional burden to 

providers. 

Comment: One commenter stated that 

the STRIVE analysis on look-back to 

services rendered solely in the hospital 

is flawed as only 5 treatments were used 

as the basis for this decision, and that 

some of these modalities are not widely 

available in the SNF setting. Another 

commenter stated that if our analysis on 

the items in section P1a of the MDS 2.0 

assessment is accurate (specifically, that 

the staff resources involved when 

services were furnished solely during 

the hospital stay are significantly lower 

than when those services are furnished 

during the SNF stay), then MDS coding 

for Parenteral/IV feedings (K5a) should 

also specify that these services should 

only be coded when provided during 

the SNF stay, and not during the 

hospital stay. 

Response: We do not agree that the 

change to the look-back period is based 

on a flawed analysis. The change to the 

look-back period affects only a small 

subset of the items reported on the 

MDS. Of these, we collected data on 6 

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of the 9 Special Treatment and 

Procedures that are currently used in 

the RUG–III classification system on the 

STRIVE Addendum (we inadvertently 

did not list oxygen therapy in the 

proposed rule as one of the special 

treatments and procedures on which we 

collected pre- and post-admission data; 

therefore, in response to this comment, 

we are now clarifying that we also 

collected data on oxygen therapy on the 

STRIVE Addendum). We considered a 

7-day look-back period for services 

rendered prior to admission and after 

admission to the SNF on the STRIVE 

Addendum. We believe that we looked 

at a sufficient number of P1a services 

used in the RUG–III model to conclude 

appropriately that utilization of P1a 

services during the prior hospital stay is 

not an effective proxy for medical 

complexity during the SNF stay. The 

frequency of the services coded on the 

MDS based on the MDS Active Resident 

Information Report (found at http:// 

www.cms.hhs.gov/ 

MDSPubQIandResRep.asp) for the 

treatments we targeted on the STRIVE 

Addendum are as follows (first quarter 

2006, STRIVE data collection began 

June 2006): 

P1ac IV medications 9.5 percent 

P1ag Oxygen 13.3 percent 

P1ai Suctioning 1.2 percent 

P1aj Tracheostomy care 1.1 percent 

P1ak Transfusions 1.0 percent 

P1al Ventilator or respirator .5 percent 

For the 3 P1a services used in the 

RUG–III model for which we did not 

collect extra data on the STRIVE 

Addendum, the frequencies for coding 

for the same time frame are: 

P1aa Chemotherapy .5 percent 

P1ab Dialysis 1.5 percent 

P1ah Radiation .1 percent 

Of these, all 3 services are furnished 

to a small volume of SNF patients. 

Moreover, the actual service may 

sometimes be performed outside the 

SNF, and at least some of the individual 

services within each of these 3 

categories are excluded from SNF 

consolidated billing and paid separately 

under Part B, outside of the bundled 

SNF PPS rate. Therefore, we believe it 

was appropriate to focus on the 6 P1a 

services listed above. 

As noted above, we focused on certain 

services that, while they are frequently 

provided in a hospital, are furnished 

less frequently after the admission to the 

SNF. One of the main purposes of 

including P1a services on the STRIVE 

Addendum was to gather data to 

determine if utilization of these 

treatments in the hospital serves as a 

proxy for medical complexity for a SNF 

patient, as well as a predictor of SNF 

staff resource utilization. In fact, we 

collected data on all of the items used 

as qualifiers for the RUG–III Extensive 

Services category, as well as oxygen 

therapy, a Clinically Complex treatment 

coded frequently on the MDS 2.0. As 

discussed above, our analysis of 6 of the 

9 look-back items listed above clearly 

indicated that utilization during a prior 

hospital stay is not an effective proxy 

for medical complexity for a SNF 

patient. Based on this, we believe that 

it is appropriate to eliminate the lookback period to the prior hospital stay for 

all P1a Special Treatments and 

Procedures to ensure that accurate and 

appropriate payments are made based 

on resources used during the SNF stay. 

Finally, one commenter asked us to 

limit the look-back period for 

Parenteral/IV feedings (K5a) so that 

these services are coded on the MDS 

only when provided during the SNF 

stay, and not during the hospital stay. 

We did include 2 items on the 

STRIVE Addendum for parenteral 

feedings. The first item asked the 

assessor to report the number of days 

that the parenteral feeding was 

administered in the facility over the last 

7 days, while the second asked for the 

date on which the parenteral feeding 

was last administered. However, we 

were not able to use this information to 

determine with absolute certainty when 

the patient received the service in the 

SNF. When the data indicated a higher 

probability that the feeding was 

provided during the SNF stay as 

opposed to solely during the hospital 

stay, the resources were similar to when 

the data indicated that the feeding was 

provided exclusively in the hospital. In 

other words, for this particular 

treatment, the staff resources to care for 

a patient who received parenteral 

feeding only during the hospital stay 

and the staff resources to care for a 

patient who received the parenteral 

feeding in the SNF appeared to be 

comparable and, thus, 

indistinguishable. Therefore, based on 

the limited nature of the information we 

have available at this time, we do not 

believe that it would be appropriate to 

limit the look-back period for 

Parenteral/IV feedings (K5a) so that 

these services are coded on the MDS 

only when provided during the SNF 

stay (and not during the hospital stay). 

Thus, we will maintain our current 

MDS instructions for coding Parenteral/ 

IV feedings (K5a), such that patients 

may be coded as receiving parenteral/IV 

feedings, regardless of whether they 

receive them before or after admission 

to the SNF. 

Comment: One commenter stated that 

SNFs are admitting more complex 

patients and, thus, by eliminating the 

look-back into the hospital stay, CMS is 

‘‘reinforcing a compartmental approach 

towards assessing a patient’s care 

needs.’’ 

Response: We do not agree. As stated 

earlier, we will continue to have 

providers code services that are 

provided during the acute hospital stay 

on the MDS 3.0 for care planning 

purposes. Therefore, we continue to 

encourage the sharing of information 

between settings, and believe that the 

SNF will still be able to properly assess 

and develop an appropriate care plan 

based on services provided prior to SNF 

admission. 

Comment: One commenter 

characterized the elimination of the 

look-back period into the hospital stay 

as a ‘‘rate cutting measure.’’ 

Response: Neither the MDS 3.0 nor 

the RUG–IV were designed as or 

function as ‘‘rate-cutting measures.’’ As 

discussed above, limiting the look-back 

period for P1a Special Treatments and 

Procedures ensures that adequate and 

appropriate payments are made for 

patients that actually receive these 

services during a SNF stay, while 

eliminating inappropriately high 

reimbursement for services that are 

provided solely prior to admission. 

Furthermore, by introducing the RUG– 

IV classification system in a budget 

neutral manner, we ensure that parity is 

maintained between aggregate payments 

to SNFs under RUG–III and RUG–IV. 

For FY 2011, the system is being 

designed so that overall payments under 

RUG–IV will be at the same level as 

what overall payments would have been 

under RUG–III if we had not changed to 

the new model. Although aggregate 

payments do not change, the 

distribution of payments does change, 

which is why the payment rates for the 

complex medical groups (that is, 

Extensive Care, Special Care, and 

Clinically Complex) will increase 

significantly. 

As proposed in the FY 2010 proposed 

rule (74 FR 22227–28), we are 

modifying the look-back period under 

RUG–IV for the Special Treatment and 

Procedures currently listed in section 

P1a of the MDS 2.0, to include only 

those services that are provided after 

admission (or readmission) to the SNF. 

In addition, we will expand the MDS 

3.0 for these items to 2 columns. The 

first column will allow providers to 

code services that were provided prior 

to SNF admission for care planning 

purposes. 

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v. Organizing the Nursing and Therapy 

Minutes 

In the FY 2010 proposed rule (74 FR 

22208, 22228, May 12, 2009), we 

discussed the proposed organization of 

nursing and therapy minutes under the 

RUG–IV model. The comments that we 

received on this subject have been 

addressed in detail in section III.C.1.b.ii 

of this final rule. 

vi. Data Dissemination 

Comment: One commenter stated lack 

of access to data limited the ability to 

determine whether or not the sample 

can be relied upon to generalize 

nationally. Another commenter said that 

the STRIVE data disseminated to date 

provided little information about the 

study’s findings on resource utilization 

by provider type, size, and case mix. 

Response: We do not agree with the 

comments indicating that we have 

provided insufficient data to evaluate 

this effort. Rather, from its very 

inception, we have taken every 

opportunity to seek input on and share 

available information about the progress 

of our research, not only through the 

rulemaking process, but also in Open 

Door Forums, at numerous Technical 

Expert Panels and other meetings, and 

on our Web site. In fact, we regard the 

exceptionally detailed and varied nature 

of the commenters’ critiques of our 

supporting data as at least in part a 

direct reflection of the unusually large 

amount of data that we have made 

available to the public throughout this 

process. We note that even after the 

issuance of the FY 2010 SNF PPS 

proposed rule, we continued to respond 

to requests for technical assistance. We 

took questions on a daily basis, and 

posted additional technical materials on 

our Web sites so that all stakeholders 

could have access to the technical 

questions that we received. In addition, 

we note that in section III.C.1 of this 

final rule, we have addressed comments 

regarding the representativeness of the 

STRIVE sample. 

We also wish to note that one of the 

large provider groups submitted a 

detailed report by an independent 

contractor, stating that the lack of 

available data precluded ruling out the 

possibility that the study was seriously 

flawed. While we appreciate the 

concerns raised in this report, we have 

no way of knowing what data were 

provided to the researcher in order to 

conduct the analysis, as we did not 

receive any requests for technical 

information or clarification. Thus, in 

section III.C.1 of this final rule, we have 

provided detailed responses to the 

independent researcher’s report, but 

cannot accept the researcher’s more 

global conclusions on methodological 

flaws and the validity of the study. 

Finally, a few commenters expressed 

their concern that CMS has not 

provided them with the raw data used 

in the study, and cited the 

unavailability of raw data as the reason 

they could not adequately evaluate the 

RUG–IV model. CMS does not typically 

release analytic data files that contain 

data on participating facilities, 

participating employees, or on 

individual patients whose data are 

HIPAA-protected. We did, however, 

eliminate the personally identifiable 

data, and made a detailed analytic file 

available to all stakeholders. We believe 

that this file, in conjunction with the 

RUG–IV grouper, data on the 

anticipated redistribution of patient 

days under the RUG–IV, and the CMIs 

calculated for use in the RUG–IV model, 

provided more than sufficient data to 

evaluate the impact of the conversion to 

RUG–IV. Thus, we do not agree with the 

commenters who claimed that we failed 

to provide adequate data for the 

evaluation of the RUG–IV model. 

Comment: One commenter requested 

CMS to provide the public with 

additional information about how 

occupational therapists were asked to 

record their time and interventions with 

residents using HCPCS codes through 

personal data assistants (PDAs) and a 

paper-based tool. The commenter 

expressed concern that therapists 

unfamiliar with HCPCS codes would be 

confused reconciling Medicare Part B 

HCPCS coding policies (CCI edits, 8 

minute rule, etc.) with the ‘‘click on/ 

click off’’ mentality of the STRIVE data 

collection PDA tool. The commenter 

was concerned that the inexperience of 

occupational therapists with these 

HCPCS codes could have skewed the 

study results. 

Response: As part of the STRIVE 

study preparation, we worked with the 

therapists at the participating facilities, 

and trained them on study procedures. 

The therapists were not required to use 

HCPCS codes to report the modalities 

provided to each patient. Instead, the 

description of the services was included 

in the PDA by name, and the HCPCS 

code was listed next to it to assist those 

therapists who were more familiar with 

the codes than with the modality 

descriptions. We did not receive any 

complaints from the participating 

therapists that they were either 

unfamiliar with or did not know how to 

use HCPCS codes within the context of 

the STRIVE data collection. 

Comment: A few commenters 

indicated that using an ‘‘unvalidated 

RUG–IV grouper’’ with a new MDS 3.0 

assessment instrument is inconsistent 

with CMS’s policies in developing the 

PPS for other Medicare providers, and 

does not meet OMB standards that 

regulatory analysis should be 

transparent and the results must be 

reproducible. In addition, a commenter 

noted that, in the interest of full 

disclosure and transparency, CMS has 

an obligation to disclose project 

limitations and uncertainties, and 

should consider additional research 

prior to rulemaking to evaluate such 

limitations. 

Response: We do not agree with the 

commenters’ assertions that we are 

proposing an ‘‘unvalidated RUG–IV 

grouper.’’ The methodology used to 

develop the RUG–IV grouper applies the 

same analytical procedures to the 

STRIVE data as were used to create the 

original RUG–III grouper. The validation 

process used to update the case-mix 

classification system to RUG–IV is 

described in detail in section III.C.1 of 

this final rule. In addition, we 

conducted detailed comparisons of the 

MDS 2.0 and MDS 3.0 to develop 

crosswalks, and tested these crosswalks 

to ensure that the RUG–IV grouper 

classified residents to the same groups 

using either the MDS 2.0 or MDS 3.0. 

These crosswalks have been posted on 

the CMS Web site at http://www.cms.

hhs.gov/nursinghomequalityinits/25_

nhqimds30.asp. 

In addition, as evidenced by the 

detailed discussion in section III.C.1 of 

this final rule, we are confident that we 

have met OMB’s requirements for 

regulatory analysis and full disclosure. 

Moreover, we evaluated the STRIVE 

findings at every stage of our research 

over the past 31⁄2 years, and conducted 

additional analyses to test our findings 

and strengthen the validity of the RUG– 

IV model. As the evaluation of project 

findings was built into the project plan, 

we do not accept the assertion that 

additional research is needed before 

introducing the RUG–IV case-mix model 

for FY 2011. 

2. The RUG–IV Classification System 

In the FY 2010 proposed rule (74 FR 

22208, 22229, May 12, 2009), we 

discussed the various features of the 

proposed RUG–IV model, and compared 

the proposed model to the existing 

RUG–III model that is currently in use. 

The comments that we received on this 

subject, and our responses, appear 

below. 

General Comments 

Comment: We received a variety of 

comments regarding the Medicare RUG– 

IV model, with some commenters 

expressing support and others 

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40326 Federal Register / Vol. 74, No. 153 / Tuesday, August 11, 2009 / Rules and Regulations 

expressing concern over the proposed 

changes. One commenter characterized 

it as an improvement over the current 

Medicare RUG–III model that better 

represents the clinical needs and 

resource utilization of nursing home 

residents. Another commenter noted 

that, while a Medicaid model of RUG– 

IV has yet to be published, if the 

changes parallel the Medicare model, 

the result will be a more appropriate 

case-mix reimbursement system that 

fairly classifies residents. Commenters 

from a major industry organization 

commended CMS on its efforts to 

expand RUG–IV classifications 

accounting for the relative resource 

utilization of different case-mix groups. 

They believe the modification of the 

eight levels of hierarchy and the 

increase in the number of case-mix 

groups from 53 to 66 is a step in the 

right direction for allowing SNFs and 

therapists to define and document the 

patient’s needs and resources more 

accurately, thus improving the quality 

of care. They encourage CMS’s 

continued efforts in this area. 

Other commenters questioned the 

accuracy of the RUG–IV model in 

capturing changes in acuity, such as the 

higher nursing complexity for patients 

in rehabilitation groups. While several 

commenters appreciated the added 

levels for extremely complex patients 

with ventilators and/or isolation, they 

were concerned that the RUG–IV model 

did not adequately recognize patients 

that had high-cost IV medication and 

pharmaceutical needs. 

Response: The RUG–IV model was 

derived from the STRIVE data, and we 

believe that it reflects current practice 

and resource use in SNFs. However, we 

recognize that, no matter how accurately 

we identify typical practices and 

resource needs, there are atypical cases. 

In the FY 2010 SNF PPS proposed rule, 

we discussed our efforts to develop a 

separate method to reimburse for nontherapy ancillaries (NTAs), such as the 

IV medications and pharmaceuticals 

discussed by these commenters. We are 

committed to developing an NTA 

classification system as quickly as 

possible to recognize these higher costs. 

Extensive Category 

Comment: Several commenters 

supported the proposed changes in the 

Extensive Services Category in the 

RUG–IV model. A few commenters 

expressed concern over the removal of 

suctioning, noting if that if it is 

removed, Medicare will provide little 

reimbursement or incentive for SNFs to 

admit respiratory patients. One 

commenter noted that the frequent 

suctioning required by far utilizes 

increased nursing and respiratory 

therapist resources, even more so than 

trachesotomy care. The commenter 

stated that the proposal to move 

suctioning from the Extensive Care 

Category to a lower RUG category would 

significantly decrease their 

reimbursement. 

Response: In the vast majority of 

cases, the STRIVE data showed that 

suctioning was highly correlated with 

the tracheostomy or ventilator services. 

Even in the absence of these two 

Extensive Care services, suctioning was 

associated with other respiratory 

conditions that are included in RUG–IV 

Special Care categories. We did find a 

small number of cases where suctioning 

was recorded on the MDS in the absence 

of any other respiratory condition or 

service. The data show that the staff 

resource time captured for this subset of 

suctioning patients was significantly 

lower than for patients reporting both 

suctioning and respiratory conditions. 

Eliminating suctioning as a RUG–IV 

qualifier only affects this smaller group 

where the service appears unrelated to 

respiratory conditions. Thus, we do not 

believe that the removal of suctioning as 

an independent qualifier will reduce the 

incentive for SNFs to admit respiratory 

patients or decrease reimbursement. 

Special Care High and Special Care Low 

Categories 

Comment: Several commenters 

supported the RUG–IV expansion and 

splitting of the RUG–III Special Care 

Categories into the Special Care High 

and Special Care Low Categories. These 

commenters also stated that while the 

addition of several new case-mix groups 

adds complexity to the model, the 

splitting of Special Care into a High and 

Low category adds finer distinctions of 

resource utilization and, thus, payment 

rates. 

Response: CMS acknowledges the 

support of the commenters and concurs 

with the point of finer distinctions of 

resource utilization and payment rates 

by implementing a split of RUG–III 

Special Care Category into Special Care 

High and Special Care Low Categories 

in RUG–IV. 

Fever with Dehydration 

Comment: One commenter questioned 

the inclusion of dehydration as a 

qualifier with accompanying fever in 

the Special Care High Category versus 

the removal of dehydration alone as a 

qualifier in the Clinically Complex 

Category. To the commenter, the 

proposed rule appeared to indicate that 

dehydration as a qualifier has been 

removed from ‘‘any’’ category, implying 

that dehydration, even in combination 

with fever, would not contribute as a 

qualifying element to any RUG 

classification. The commenter 

questioned whether it was CMS’s 

intention to leave dehydration as a 

qualifier in the Special Care High 

Category, in combination with fever; if 

so, then CMS should clarify the 

statement about dehydration in the 

proposed rule. 

Response: As discussed in the FY 

2010 proposed rule (74 FR 22231–34), 

dehydration was dropped as a qualifier 

in any category based on a finding by 

the American Medical Association 

(AMA) that there is no standard 

definition of dehydration among 

providers (see Faes, MC, ‘‘Dehydration 

in Geriatrics,’’ Geriatric Aging, 2007: 

10(9): 590–596, available online at 

http://www.medscape.com/viewarticle/ 

567678). We further stated that based on 

our MDS review, we believe that this 

qualifier is subject to a wide range of 

interpretation and, therefore, is 

unreliable as a standard for RUG 

classification. The inclusion of 

dehydration in conjunction with fever 

was inadvertent. In dropping 

dehydration as a qualifier in any 

category, for the reasons set forth above, 

dehydration should have been dropped 

as a qualifier accompanying fever. Thus, 

in response to the comment, we are 

clarifying that in RUG–IV, we are 

dropping dehydration as a qualifier 

accompanying fever in the Special Care 

High category. However, we are 

clarifying that fever in combination with 

pneumonia, vomiting, or weight loss are 

still qualifiers in the Special Care High 

category under RUG–IV. 

Comment: One commenter indicated 

that the amount of nursing resources is 

directly correlated with the number of 

wounds a patient has, and that patients 

with multiple wounds would be better 

reflected in the Special Care High RUG 

category. For example, Patient A 

requires skilled treatment for two stage 

2 wounds. The nurse is able to complete 

the wound care independently. Patient 

B requires skilled treatment for two 

stage 2, one stage 3, and two stage 4 

wounds on various locations of the 

body; the nurse is able to complete the 

wound care independently, but it may 

take a significant amount of time to care 

for the wounds. The commenter 

believed that the more wounds a patient 

has, the more resources they will 

require. 

Another commenter believed that 

Stage 2 pressure ulcers should be in 

Special Care Low, and that Stage 3 and 

4 should be in Special Care High, 

because they require more nursing time 

and treatments than Stage 2 ulcers. One 

commenter was concerned that venous 

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and arterial ulcers may be misclassified, 

and that definitions should be available 

for the different types of ulcers. 

Response: Based on these comments, 

we conducted numerous reviews of the 

STRIVE data regarding staff resources 

used to treat ulcers, and have 

determined that the research supports 

that we classify venous and arterial 

ulcers for payment purposes with 

pressure ulcers; however, it does not 

support separating wound care into 2 

separate categories. We will maintain 

the policy outlined in the proposed rule 

and keep pressure ulcers in the Special 

Care Low category based on resource 

use associated with these conditions. As 

proposed, the patient will qualify for 

this category if 1 of the following is 

present along with 2 or more skin 

treatments: 

• 2 or more Stage 2 pressure ulcers; 

or 

• 1 or more Stage 3 or Stage 4 

pressure ulcers. 

In addition, based on our review of the 

STRIVE data, the patient will also 

qualify in the Special Care Low category 

if 1 of the following is present along 

with 2 or more skin treatments: 

• 2 or more venous/arterial ulcers; or 

• 1 Stage 2 pressure ulcer and 1 

venous/arterial ulcer. 

We will define the different types of 

ulcers in the RAI manual as the 

commenter suggested. 

Comment: A few commenters 

questioned the elimination of several 

Special Care qualifiers. These included 

fever with tube feeding, and aphasia 

with tube feeding. While the 

commenters understood that CMS has 

proposed these changes as a result of the 

data derived from the STRIVE time 

study, they regarded the conclusion as 

counterintuitive to what is known to be 

in practice: For example, in the case of 

both fever and aphasia, it is clear that 

these conditions seriously complicate 

the course of treatment and result in 

significant added resources of both staff 

time and medical supplies. While the 

commenters commended the statistical 

analysis and modeling that went into 

these decisions, they asked that CMS 

reserve final judgment on these issues 

for review prior to finalization of RUG– 

IV. 

Response: We believe that the STRIVE 

data accurately reflect wage-weighted 

staff time resources for aphasia with 

tube feeding. As discussed in the 

proposed rule (74 FR 22231), we are 

dropping aphasia based on the average 

staff resource time associated with that 

condition. As discussed in the FY 2010 

proposed rule, we dropped the aphasia 

requirement because, based on the 

results of the STRIVE analysis, aphasia 

no longer correlated with tube feeding. 

Thus, we are retaining tube feeding as 

a Special Care Low qualifier, but are 

dropping aphasia. The mechanism of 

placement in a specific RUG group is 

such that a patient qualifying for the 

particular group had no other qualifiers 

for placement in a higher group. Had 

that been the case, then the patient 

would have been included in the higher 

group reflecting more resource 

utilization. Patients with aphasia 

frequently qualify for a higher 

Rehabilitation Category, because 

aphasia is often accompanied by 

another condition that warrants such a 

RUG classification. All of these medical 

factors blend into the overall resource 

utilization statistical mosaic for the 

RUG–IV system. 

Based on the comments received, we 

reviewed the data on the staff resources 

required to treat patients with feeding 

tubes. We found that fever was a 

complicating factor and that the 

resources needed to treat a patient with 

both fever and a feeding tube were 

significantly higher than for a feeding 

tube alone. Thus, we will keep fever 

with tube feeding as a qualifier in the 

Special Care High category. Again, tube 

feeding alone remains as a Special Care 

Low item. 

Clinically Complex Category 

Comment: A few commenters 

responded positively to the expansion 

in the number of groups from 6 to 10 in 

the RUG–IV Clinically Complex 

Category. They noted that the expansion 

is due to increasing the number of ADL 

score breaks, particularly for moderate 

and more independent functioning 

residents. 

Response: CMS acknowledges the 

support of the commenters and believes 

the expansion will capture a more 

accurate reflection of resource 

utilization in the SNF. 

Pneumonia and Oxygen Therapy 

Comment: One commenter stated that 

there appeared to be better 

reimbursement for pneumonia and 

oxygen therapy and was pleased that it 

would help with the care of these 

patients. Another commenter expressed 

concerns regarding oxygen therapy, 

stating this item can be gamed very 

easily. They recommended that CMS 

define what oxygen therapy is and 

specify a minimum amount of time/days 

for classification in the Clinically 

Complex Category. They pointed out 

that currently, SNFs can code this item 

if there is oxygen available on a PRN 

(‘‘as needed’’) basis, and that the 

resident needs to use it only once to 

qualify for the category. 

Response: CMS has considered the 

suggestion of the commenters and 

reviewed the STRIVE data. In doing so, 

we have determined that, based on 

average resource use, oxygen therapy 

with respiratory failure, rather than 

oxygen therapy alone, should qualify for 

the Special Care Low Category, as the 

average resource time for oxygen 

therapy with respiratory failure is more 

consistent with the average resource use 

associated with the Special Care Low 

category. Oxygen therapy alone, based 

on average resource time, will qualify 

for the Clinically Complex Category. 

Regarding the suggestion for defined 

oxygen therapy regimens for 

classification in the Clinically Complex 

category, we note that the patient must 

require skilled services, and under the 

regulations at 42 CFR 409.33(b)(8), 

services that qualify as skilled nursing 

services include the initial phases of a 

regimen involving the administration of 

medical gases. Because the initial 

phases of an oxygen therapy regimen 

qualify as SNF services, we are not 

going to require a minimum number of 

days or amount of time for 

classification, and will maintain the 

MDS 2.0 coding instructions for oxygen 

therapy for use in the RUG–IV model. 

Physician Orders 

Comment: One commenter supported 

dropping physician orders as a qualifier 

due to lack of specificity and the 

variable nature of this qualifier, making 

it an unreliable predictor of resource 

use. Another commenter expressed 

confusion about the physician order 

qualifier, and whether it was CMS’s 

intention to remove all physician orders 

as qualifiers in any category. A few 

commenters disagreed with the 

statement about physician orders being 

an unreliable predictor of resource use. 

One commenter with a background in 

nursing noted that it does not make 

sense to say that it does not take 

significant time to review new orders, 

carry them out, order medications from 

the pharmacy, order labs, etc., and that 

this is one of the major reasons subacute units are busier than long-term 

care units. Another commenter stated 

that physician order changes are a good 

way to capture instability, and that the 

care of unstable residents can be more 

costly due to their increased use of lab 

tests, new medications, and nursing 

time. 

Response: While the RUG–III model 

has used physician order changes as a 

proxy for instability, analysis of the 

STRIVE data did not support its 

continued use because of its lack of 

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specificity and variable nature. In an 

effort to achieve greater clarity and 

prevent misinterpretation, as we 

proposed, we are eliminating the 

physician orders qualifier from the 

Clinically Complex Category in RUG– 

IV. However, we are clarifying that we 

are retaining physician order changes in 

association with diabetes (that is, 

requiring daily insulin injections and 

physician insulin order changes on 2 or 

more days) in the Special Care High 

category because the STRIVE data show 

that physician orders in combination 

with diabetes with injections is a 

reliable predictor of resource use. The 

MDS 3.0 is being modified to collect 

physician order changes specifically 

related to the patient’s diabetic 

condition. 

Internal Bleeding 

Comment: One commenter noted that 

as a result of the STRIVE study, internal 

bleeding was dropped as a qualifier. 

While the commenter understood that 

CMS has proposed these changes as a 

result of the data derived from the 

study, the commenter regarded the 

conclusion as counterintuitive to what 

is known to be in practice: This 

condition seriously complicates the 

course of treatment and the result is 

significant added resources of both staff 

time and medical supplies. Another 

commenter pointed out that transfusion 

services are costly to SNFs, and favored 

their inclusion as an indicator for RUG 

payment calculation, not simply for care 

planning purposes. 

Response: CMS recognizes that 

internal bleeding can be a serious 

medical condition requiring an unusual 

amount of staff resources and supplies 

to control. However, the resource 

minutes derived from the STRIVE study 

were significantly lower than other 

conditions classified into the Clinically 

Complex category. These results suggest 

a high degree of variation in the 

conditions coded as internal bleeding 

that makes the item unreliable for use in 

a case-mix classification model. We 

wish to note that transfusions have been 

retained as a Clinically Complex 

qualifier in the RUG–IV model. 

Dehydration 

Comment: There were several 

comments about the removal of the 

dehydration qualifier for the Clinically 

Complex Category. Comments from a 

major industry organization agreed with 

CMS regarding the lack of a standard 

definition of dehydration, and that the 

signs and symptoms of dehydration may 

be vague and even absent in older 

adults. Commenters believed that 

continuing to use dehydration as a 

qualifier could result in inaccuracy in 

RUG classification. The commenters did 

not minimize the potentially serious 

nature of dehydration and the need for 

prompt medical attention in some cases, 

but rather, supported dropping it as a 

qualifier in order to improve coding 

accuracy. 

Another commenter cited the 

American Medical Directors 

Association’s (AMDA’s) newly revised 

clinical practice guideline, 

‘‘Dehydration and Fluid Maintenance in 

the Long-Term Care Setting’’ (see http:// 

www.cpgnews.org/DF/index.cfm). 

Specifically, the commenter cited the 

AMDA as concluding that the confusion 

over the definition of the nonspecific, 

generic term dehydration results in 

confusion about the clinical diagnosis of 

dehydration in the long-term care (LTC) 

setting. According to the commenter, 

AMDA has concluded that dehydration 

is an unreliable quality of care indicator. 

A number of commenters stated that 

while dehydration may be difficult to 

quantify (as stated in the proposed rule), 

the requirement to assess, plan, 

intervene, evaluate, and revise care 

plans for the patient at high risk of 

dehydration remains a significant 

clinical issue. The commenters further 

stated that instances whereby facilities 

fail to complete such assessment and 

documentation is not a valid reason to 

eliminate appropriate reimbursement 

for facilities that do provide the 

necessary standard of care. 

Response: CMS agrees with the 

commenters stating that continuing use 

of dehydration as a qualifier could 

result in inaccuracy in RUG 

classification. As demonstrated by the 

wage-weighted staff time resource 

utilization, dehydration is an unreliable 

indicator of resource use. Therefore, 

dehydration has been removed as a 

qualifier from the Clinically Complex 

category of RUG–IV, and has also been 

removed as a qualifier accompanying 

fever in the Special Care High category. 

However, we would like to emphasize 

that we agree with the commenters 

regarding the severity of dehydration 

and the requirement for prompt medical 

attention. We expect that dehydration is 

seen in association with other services 

and conditions that are used as RUG–IV 

qualifiers. Thus, we do not expect that 

this change will discourage appropriate 

care or eliminate reimbursement for 

Medicare patients with skilled care 

needs. 

IV Medications 

Comment: Some commenters did not 

support the movement of the IV 

medications qualifier from the Extensive 

Services Category to the Clinically 

Complex category. The commenters 

indicated that IV medications drive high 

cost to the SNF, and this downward 

movement of IV medication will not 

cover the cost of purchasing most IV 

medications. The commenters 

recommended further study of the type 

of residents seen in the SNF setting, and 

reviewing the cost of providing that care 

in relationship to IV medications. If the 

shift to the Clinical Complex category 

would occur, the commenters 

recommended excluding the High cost 

IV medications from SNF consolidated 

billing. 

Some commenters believed the 

inclusion of IV medications as an 

Extensive Services qualifier, as it is in 

the RUG–III classification system, 

appropriately captures the cost of 

providing the critical treatment these 

therapies offer to ill and injured 

patients. 

Response: Although certain 

medications may have high costs, the 

STRIVE study data show that the 

average resource times related to IV 

medications are more reflective of 

conditions in the Clinically Complex 

category than the Extensive Services 

category. CMS recognizes the impact of 

high-cost medications on SNFs and is 

presently developing a protocol to 

assess the impact of non-therapy 

ancillaries, as discussed in the FY 2010 

proposed rule (74 FR 22238–41). 

However, as discussed further in section 

III.G of this final rule, we currently do 

not have the statutory authority to 

exclude items such as IV medications 

from consolidated billing. 

Look-Back Period for IV Medications 

Comment: Some commenters 

expressed concern that the proposed 

RUG–IV model will eliminate all 

services provided in the acute setting, 

such as IV medications, as a qualifier for 

higher RUG categories. The commenters 

stated this eliminates the ‘‘presumption 

of coverage’’ that we clarified in the 

SNF PPS final rule of July 30, 1999 (64 

FR 41666–41670), which allows a 

beneficiary who was in the acute setting 

for pneumonia, septicemia, and 

infectious diseases to be considered 

‘‘skilled’’ through the first assessment 

reference date. The commenters stated 

that the removal of the IV fluid ‘‘14-day 

hospital look-back’’ qualifier for the 

SNF Extensive Services Category in 

RUG–IV fails to recognize the high risk 

of relapsing conditions with this patient 

population. The commenters believe 

this should be a consideration in skilled 

nursing assessment during the initial 

five-day assessment period, and that 

such care should be appropriately 

reimbursed, as it is in the current RUG 

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structure. These commenters stated that 

removal of this qualifier will lower the 

payment to SNFs, and that when IV 

medication does qualify, moving from 

Extensive Services to Clinically 

Complex will also result in lower 

payment. The commenters believed the 

nursing care of administering the IV will 

no longer count as a key factor in 

obtaining a refinement RUG and will 

essentially eliminate the refinement 

RUGs in most if not all Medicare stays. 

In addition, they believed that the 

reimbursement will not be enough to 

pay for the cost of the IV, let alone the 

cost of providing the nursing care 

required to administer the IV. 

Several commenters believed the 

appropriate and necessary monitoring of 

the patient to prevent recurrence or 

exacerbation of the condition for which 

the IV medication was provided is a 

reason for inclusion in the Extensive 

Services category, and that it has not 

been considered in the removal of IV 

medication in the look-back period. 

Some commenters noted that the 

STRIVE data analysis of the 14-day 

‘‘look back’’ period for IV medication 

and 7-day ‘‘look back’’ period for IV 

fluids did not demonstrate a statistically 

significant difference in nursing time. 

The commenters suggested that CMS 

look at the nursing time spent 

monitoring when a resident has had an 

IV medication administered within the 

last 7 days, and factor it into the nursing 

component. The commenters believed 

that residents receiving IV medication 

in this time frame require a significant 

amount of nursing time to monitor side 

effects of the medications, as well as 

disease exacerbations. The commenters 

referenced literature indicating that 

SNFs have a lower rate of return to the 

hospital than other post acute settings; 

therefore, the time spent monitoring 

residents, notifying physicians of 

condition changes, and implementing 

care plan changes must be taken into 

consideration when making changes in 

the RUG system. The commenters 

recommended shortening the window 

as opposed to removing the provision 

altogether, that is, a 7-day look-back to 

capture IV meds. The commenters 

requested alternatives be considered 

before the proposed rule is 

implemented. 

Response: CMS recognizes the 

concern of the nursing home 

community regarding levels of 

reimbursement. However, as discussed 

above in section III.C.1.b.iv of this final 

rule and in the proposed rule (74 FR 

22228), our analysis of the STRIVE data 

supported the conclusion that the 

capture of certain preadmission services 

by the look-back does not provide an 

effective proxy for medical complexity 

in the SNF, and thus is not an effective 

predictor of subsequent resource 

intensity during the SNF stay. 

Therefore, we believe it is appropriate to 

eliminate the look-back to the hospital 

stay for P1a services, rather than adopt 

a shorter look-back period. However, we 

noted in the proposed rule that it is still 

important that the SNF consider 

preadmission services for care planning 

purposes and we have designed the 

MDS 3.0 accordingly. Regarding the IV 

medications qualifier, as discussed 

above, the STRIVE data showed that the 

average resource times related to IV 

medications are more reflective of 

conditions in the Clinically Complex 

category. Therefore, we believe that 

under RUG–IV, facilities will be 

appropriately reimbursed according to 

the wage-weighted resource staff time 

associated with a patient’s condition. As 

discussed above, CMS recognizes the 

impact of high-cost IV medications on 

SNFs, and is developing a protocol to 

assess the impact of non-therapy 

ancillaries, as discussed in the FY 2010 

proposed rule (74 FR 22238–41). 

Finally, we do not agree that eliminating 

the look-back period to the hospital stay 

eliminates the presumption of coverage, 

because even in the absence of the lookback, it remains possible for a resident 

to be assigned on the initial 5-day, 

Medicare-required assessment to one of 

the RUGs that we have designated as 

qualifying the resident for the 

presumption. 

Patient Acuity and RN Care 

Comment: Several commenters noted 

that the residents requiring IV 

medications are sick, as evidenced by 

the infection causing the need for IV 

antibiotics, and require extra nursing 

observation in addition to the RN time 

for IV starts, IV ordering, and IV 

administration. The commenters 

supported not coding the IVs that were 

given in the hospital, but questioned 

whether we are adequately accounting 

for the amount of care provided to 

residents receiving rehabilitation and 

in-house IVs, noting that there is no 

longer a provision for them to get a 

higher RUG rate. These commenters did 

not support dropping the IV 

medications and fluids to a lower RUG 

group, arguing that this is a situation 

requiring the presence, vigilance, and 

assessment skills of a RN. In addition, 

these commenters asserted that the 

complex nature of the residents of some 

SNFs can involve co-morbidities, nonverbal status with varying 

communication methods, various levels 

of cognitive abilities, and difficult 

feeding strategies that can best be 

treated within a specific type of facility, 

and that the patients are discharged 

from acute care much earlier than the 

typical geriatric resident. 

Response: CMS appreciates the 

support of the recommendation not to 

include a 14-day IV look-back as a 

qualifier for the RUG–IV classification. 

We recognize and value the presence, 

vigilance, and assessment skills of an 

RN. However, all of the elements 

mentioned in the comment, including 

nursing observation time, IV starts, IV 

ordering, and IV administration, were 

captured in all of the nursing homes 

participating in the STRIVE time study. 

The STRIVE data did not reflect a 

statistically significant increase in wageweighted staff time resource utilization 

for the patient population receiving IV 

medications, and the average staff 

resource time for these patients was 

more reflective of the Clinically 

Complex category. 

Non-Patient Nursing Time 

Comment: Some commenters objected 

to moving the IV medication qualifier to 

the Clinically Complex category and 

stated that the RUG–IV nursing case-mix 

index assigned to IV medications does 

not account for the additional expended 

nurse resources. They noted that those 

resources are affiliated with the increase 

in documentation associated with IV 

medication administration, and the 

specific nurse training required for 

effective administration and 

management of patients receiving IV 

medications; for example, when caring 

for a patient receiving IV medications, 

the nurse’s time requirements go beyond 

the time he/she spends directly with the 

patient, and include completing 

detailed IV assessment flow sheets, 

preparing the IV medication, reviewing 

lab work and consulting with the 

pharmacist, and becoming IV certified. 

Response: Administrative 

documentation and other non-patient 

nursing time were incorporated into the 

STRIVE time study. In addition, the 

costs of training and administrative 

documentation were captured in the 

1995 base year for the SNF PPS’s 

bundled rate; any bedside training and 

administrative documentation 

performed during the time study would 

have been captured. Further, as 

discussed above, the STRIVE results 

supported moving the IV medications 

qualifier to the Clinically Complex 

category. 

Financial Hardship 

Comment: Several commenters 

believed that dropping IV medications 

from the Rehabilitation/Extensive 

Services category and the Extensive 

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Services category will cause financial 

hardship to long-term care facilities, and 

undue stress to the residents. The 

commenters cited the following reasons: 

• They are very expensive, which 

may be a factor for consideration in 

determining potential admissions to 

long-term care facilities. It is hard 

enough now not to lose money on 

patients requiring expensive IV 

medications. 

• They are used for very ill residents 

who require more nursing hours than 

any of the conditions included in any of 

the Extensive Care or Special Care 

categories. 

The commenters did not question the 

general findings of the STRIVE project, 

but expressed concern about the specific 

implications of those findings for IV 

medications used in the facilities. 

One commenter requested that data 

analyses be performed to compare 

nursing home residents admitted with 

IV therapy to those admitted without IV 

therapy, both for their facilities’ 

residents and for a benchmark of 

nursing home residents nationwide. The 

commenter presented the results of one 

such study. The national benchmark 

was constructed using MDS data for all 

clients from a specific organization and 

its members and includes more than 

2,700 facilities nationwide with more 

than 400,000 MDS assessments. Two 

MDS variables were used in this 

analysis: (1) Item P1ac (IV medications), 

and (2) item K5a (IV fluids). The 

commenter’s analysis of data from the 

specific facilities and from the national 

data showed statistically significant 

differences between the group with IV 

therapy and the group without IV 

therapy, with the former group having a 

higher level of acuity and a greater need 

for skilled nursing resources. The 

commenters questioned the validity of 

the STRIVE study, which demonstrated 

no time difference between giving a 

patient an oral antibiotic versus 

administering an IV antibiotic. 

The commenters stated that most of 

the patients receiving IV therapy are 

elderly and have suffered a major illness 

or hospitalization and, thus, require the 

IV therapy they are receiving. These 

commenters questioned the incentive 

for SNFs to continue to provide IV 

therapy services if the RUG–IV system 

is implemented as proposed. 

Another commenter pointed out that 

IV medications and IV fluids provided 

in a SNF require the presence of an RN 

in most States, and that facilities must 

employ RNs specifically to provide the 

residents with IV services, which can be 

costly in rural areas where there are 

shortages of healthcare professionals. 

The commenter asserted that prior to 

the RUG–53 refinement to the SNF PPS, 

residents requiring IV medications or 

fluids were frequently rejected by SNFs 

because of the expense and difficulty in 

finding nurses to provide care. The 

commenter expressed concern that 

bumping the IV medications down to 

the Clinically Complex category will 

again adversely affect resident 

admissions to nursing homes. 

Response: The STRIVE study 

captured, and the data reflects, resource 

time expended by all staff levels. As 

discussed above, the STRIVE study 

indicated that the average resource 

times associated with IV medications 

are more reflective of conditions in the 

Clinically Complex category. 

Thus, we believe that classification 

and reimbursement under the Clinically 

Complex category for IV medications is 

appropriate, and should not result in 

financial hardship. Under RUG–IV, 

reimbursement for patients with 

complex nursing needs such as IV 

therapy will increase significantly, and 

should be sufficient to cover the cost 

associated with these patients. We will, 

of course, continue to monitor 

utilization practices to determine 

whether there is any impact on access 

to or quality of care. 

Still, as the payment under RUG–IV 

reflects the nursing resources and 

patient complexity associated with the 

provision of IV medications, we do not 

believe that access to care will be 

adversely affected. As discussed above, 

CMS recognizes the impact of high-cost 

medications on SNFs and is presently 

developing a protocol to assess the 

impact of non-therapy ancillaries as 

discussed in the FY 2010 proposed rule 

(74 FR 22238–41). 

Behavioral Symptoms and Cognitive 

Performance Category 

Comment: One commenter supported 

the combined Behavior Symptoms and 

Cognitive Performance Category in the 

RUG–IV model. This category combines 

the two separate categories of Impaired 

Cognition and Behavior Problems in 

RUG–III into the single new category 

with a combined total of 4 RUG groups 

as opposed to 4 in Impaired Cognition 

and another 4 in Behavior Problems. 

One commenter noted that while 

patients would classify in this group 

when they display only behavioral 

symptoms, or when they display only 

issues of cognition, they also remain in 

this group even when they have both 

conditions. The commenter added that 

many residents have issues with both 

dementia and behavioral problems and 

probably require more resources or staff 

time to deal with both issues. The 

commenter believes that there needs to 

be an additional category with a higher 

CMI that recognizes the combination of 

both issues. 

Response: During the meeting of the 

Technical Expert Panel in Spring 2009, 

this issue was discussed at some length. 

Unlike the results from other countries, 

the United States STRIVE time study 

analysis did not indicate that there was 

an increased wage-weighted staff time 

resource utilization with patients 

exhibiting both behavioral and cognitive 

issues. Reasons for this may include 

effective, monitored medication, and 

specialized, well-equipped nursing 

facility settings in this country. In 

addition, we need to consider whether 

the needs of individuals with cognitive 

impairment or serious behavior 

problems are addressed through 

specialized State programs similar to the 

Intermediate Care Facilities for the 

Mentally Retarded (ICFs/MR) for 

targeted populations. 

Reduced Physical Function Category 

Comment: One commenter supported 

the increased case-mix classification 

assigned to patients receiving restorative 

therapy in the Reduced Physical 

Function Category. The commenter 

believes this will better reflect the 

amount of nursing resources needed to 

implement an effective and efficient 

restorative program. A few commenters 

responded to CMS’s request for 

comments on the tertiary split for 

restorative nursing in the RUG–IV 

model. Specifically, they noted a 

discrepancy between the reported 

service and the nursing minutes; in 

approximately half the Reduced 

Physical Function groups, the nursing 

minutes were lower for patients where 

restorative nursing was reported on the 

MDS than for patients who were not 

receiving the service. Commenters 

suggested most of the nursing 

rehabilitation may be provided by 

individuals under the direction of 

nursing staff who are not classified as 

nursing personnel, such as nurse aides 

on the floor, therapy aides, and 

recreation therapy aides. This, coupled 

with the facilities limiting the time 

these residents might have received 

from licensed nurses, could yield the 

results seen. Commenters suggested that 

it might be helpful to see whether 

licensed nurse time has been reduced 

for these residents inappropriately or if 

an additional use of aides has 

appropriately reduced the level of 

licensed nurse need. Regardless, the 

commenters believed that the retention 

of this split is crucial, as it encourages 

continued help for residents to maintain 

their highest physical functioning. 

Another commenter concurred with the 

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proposed rule’s position that restorative 

nursing programs benefit all residents, 

and cited the findings of a Federal grant 

that studied nursing facilities in 

Colorado having good restorative 

nursing programs, including: 

• Decrease in the number of acquired 

pressure ulcers. 

• Increase in the number of residents 

ambulating independently. 

• Increase in the number of residents 

feeding themselves. 

• Decrease in the number of 

incontinent residents. 

• Decrease in the number of Foley 

catheters. 

• Decrease in the number of physical 

constraints. 

• Increase in the number of residents 

involved in sensory stimulation, 

exercise, and grooming classes. 

• Decrease in the number of 

contractures. 

• Decrease in the number of 

accidents. 

• Increase in the individual’s mental 

stature and awareness. 

Response: We appreciate the possible 

explanations of the reduced nursing 

minutes for patients receiving 

restorative nursing. It is plausible that 

much of the nursing rehabilitation may 

now be provided by aides and that the 

wage-weighted staff time resource 

utilization for the licensed nurses is 

now less than the time attributed to the 

various types of aides and assistants. As 

we proposed, we are retaining the 

tertiary split for restorative nursing in 

RUG–IV, as we believe that it benefits 

all patients. As the commenter 

suggested, we will consider monitoring 

restorative nursing to see whether 

licensed nurse time has been reduced 

for these residents inappropriately or if 

an additional use of aides has 

appropriately reduced the level of 

licensed nurse need. 

Finally, we note that it was brought to 

our attention during the comment 

period that there were certain 

inconsistencies in our FY 2010 

proposed rule. We noted these 

inconsistencies on our Web site, at 

http://www.cms.hhs.gov/snfpps/ 

02_spotlight.asp. First, we identified 

some inconsistencies between the 

preamble text at 74 FR 22231 and the 

tables in the proposed rule (Table 14 

and Table C in the Addendum) 

regarding the qualifying conditions for 

the Special Care High, Special Care 

Low, and Clinically Complex categories. 

We are clarifying that the information in 

the tables was accurate, with the 

correction noted below. In addition, we 

identified a necessary technical 

correction to Table C in the Addendum 

of the FY 2010 proposed rule. The 

Special Care High, Special Care Low, 

and Clinically Complex categories for 

RUG–IV stated in the Notes section, 

‘‘Signs of depression used for end splits; 

PHQ score <= 9 or CPS >=3.’’ This 

should have read, ‘‘Signs of depression 

used for end splits consisted of PHQ 

score >=9.5.’’ 

Accordingly, we are finalizing the 

RUG–IV classification system as 

proposed in the FY 2010 proposed rule 

(74 FR 22229–36) for implementation in 

FY 2011, with the corrections noted 

above and with the following 

modifications: 

• Fever with feeding tube has been 

added to Special Care High; 

• We are clarifying that dehydration 

has been deleted as a qualifier in any 

category, including the Special Care and 

Clinically Complex categories; 

• Respiratory failure in combination 

with oxygen therapy while a resident is 

added to Special Care Low; 

• Oxygen therapy alone while a 

resident is moved to Clinically 

Complex; and 

• A patient will also qualify in the 

Special Care Low category if 1 of the 

following is present along with 2 or 

more skin treatments: 

Æ 2 or more venous/arterial ulcers; or 

Æ 1 Stage 2 pressure ulcer and 1 

venous/arterial ulcer. 

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BILLING CODE 4120–01–C 

3. Development of the FY 2011 CaseMix Indexes 

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

requires that the Federal rates be 

adjusted for case mix. Pursuant to the 

statute, such adjustment must be based 

on a resident classification system, 

established by the Secretary, that 

accounts for the relative resource 

utilization of different patient types. 

The case-mix adjustment must be based 

on resident assessment data and other 

data the Secretary considers 

appropriate. 

As discussed in the previous section, 

we are finalizing the RUG–IV model to 

be implemented in FY 2011. The RUG– 

IV update uses data collected in 2006– 

2007 during the STRIVE project, and 

reflects current medical practice and 

resource use in SNFs across the country. 

Our description of the proposed RUG– 

IV model in the FY 2010 proposed rule 

included a discussion of the 

development of the case-mix indexes to 

be used under this model (74 FR 22208, 

22236–22238, May 12, 2009). 

The case-mix indexes will be applied 

to the unadjusted rates resulting in 66 

separate rates, each corresponding with 

one of the 66 RUG–IV classification 

groups. To determine the appropriate 

payment rate, SNFs will classify each of 

their patients into a RUG–IV group 

based on assessment data from the MDS 

3.0. 

Our intent in implementing RUG–IV 

is to allocate payments more accurately 

based on current medical practice and 

updated staff resource data obtained 

during the STRIVE study, and not to 

decrease or increase overall 

expenditures. Thus, consistent with the 

policy in place when we transitioned to 

the RUG–III 53-group model in FY 2006 

(as discussed in section III.B.2.b of this 

final rule), we believe that overall 

expenditures under the RUG–IV model 

should maintain parity with overall 

expenditures under the RUG–III 53- 

group model. Therefore, we simulated 

payments under the RUG–III 53-group 

model and the RUG–IV 66-group model 

to ensure that the change in 

classification systems did not result in 

greater or lesser aggregate payments. 

We used the resource minute data 

collected from STRIVE to create a new 

set of unadjusted relative weights, or 

case-mix indexes (CMIs), for the RUG– 

IV model as described in the proposed 

rule (74 FR 22208, 22236–22238, May 

12, 2009). We then compared the CMIs 

for the RUG–53 and RUG–66 models in 

a way that is intended to ensure that 

estimated total payments under the 66- 

group RUG–IV model would be equal to 

those payments that would have been 

made under the 53-group RUG–III 

model. In the FY 2010 proposed rule, 

we stated that we used STRIVE data 

with sample weights applied and FY 

2007 claims data (the most recent final 

claims data available at the time) to 

compare the distribution of payment 

days by RUG category in the 53-group 

model with the anticipated payments by 

RUG category in the new 66-group 

RUG–IV model. However, after the 


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proposed rule was published, final FY 

2008 claims data became available. As 

we stated in the proposed rule, in the 

absence of actual RUG–IV utilization, 

we believe that the most recent final 

claims data are the best source available, 

as they are closest to the FY 2011 

timeframe. Because our intent, as 

expressed in the FY 2010 proposed rule, 

was to use the most recent data 

available, we updated our analysis using 

FY 2008 final claims data to enhance 

the accuracy of our calculation of the 

adjustment necessary to achieve parity 

between the RUG–53 model and RUG– 

IV. Our projections of future utilization 

patterns under the new case-mix system 

indicated that the 66-group RUG–IV 

model would produce lower overall 

payments than under the original RUG– 

III 53-group model. Therefore, 

consistent with the policy in place 

when we transitioned to the RUG–III 53- 

group model in FY 2006 (as discussed 

in section III.B.2.b of this final rule), we 

proposed to provide for an adjustment 

to the nursing CMIs that would achieve 

‘‘parity’’ between the old and new 

models (that is, would not cause any 

change in overall payment levels). 

Based on our analysis using FY 2008 

claims data, the adjustment to the 

nursing weights necessary to achieve 

‘‘parity’’ is an upward adjustment of 

59.4 percent. 

The parity adjustment relies on 

projecting the utilization for a new 

classification system, RUG–IV, based on 

a new assessment instrument, MDS 3.0. 

Our calculation of the parity adjustment 

uses the most recent data available to 

estimate RUG–IV utilization for FY 

2011. In the absence of actual RUG–IV 

utilization data for this timeframe, we 

believe the most recent data are the best 

source available, as they are closest to 

the FY 2011 timeframe. As actual data 

for RUG–IV utilization become 

available, we intend to assess the 

effectiveness of the parity adjustment in 

maintaining budget neutrality and, if 

necessary, to recalibrate the adjustment 

in future years. 

We intend to actively monitor the 

changes in beneficiary access and 

utilization patterns as a response to the 

implementation of RUG–IV. For 

example, we anticipate that the changes 

to the Extensive Services category could 

result in increased beneficiary access for 

patients with severe respiratory 

conditions. In addition, we intend to 

monitor utilization for any potential 

coding changes that could occur as a 

result of the changes to the SNF PPS. If, 

in future years, evidence becomes 

available that indicates that a change in 

aggregate payments are a result of 

changes in the coding or classification 

of residents that do not reflect real 

changes in case mix, CMS will consider 

the authority given to the Secretary 

under Section 1888(e)(4)(F) of the Act to 

provide for an adjustment to the 

unadjusted Federal per diem rates so as 

to eliminate the effect of such coding 

and classification changes. 

We are finalizing the RUG–IV CMIs 

utilizing the methodology discussed. 

The final RUG–IV CMIs reflecting the 

parity adjustment are displayed in Table 

14 and, as discussed in the previous 

section, we will implement these CMIs 

with the RUG–IV system beginning in 

FY 2011. 

TABLE 14—RUG–IV CASE-MIX

INDEXES

RUG Nursing index Therapy index 

RUX .......... 3.55 1.87 

RUL ........... 3.41 1.87 

RVX .......... 3.48 1.28 

RVL ........... 2.92 1.28 

RHX .......... 3.40 0.85 

RHL ........... 2.86 0.85 

RMX .......... 3.28 0.55 

RML .......... 2.92 0.55 

RLX ........... 3.01 0.28 

RUC .......... 2.08 1.87 

RUB .......... 2.08 1.87 

RUA .......... 1.32 1.87 

RVC .......... 2.00 1.28 

RVB .......... 1.48 1.28 

RVA .......... 1.47 1.28 

RHC .......... 1.92 0.85 

RHB .......... 1.59 0.85 

RHA .......... 1.22 0.85 

RMC .......... 1.81 0.55 

RMB .......... 1.62 0.55 

RMA .......... 1.12 0.55 

RLB ........... 1.99 0.28 

RLA ........... 0.94 0.28 

ES3 ........... 3.55 ........................

ES2 ........... 2.65 ........................

ES1 ........... 2.29 ........................

HE2 ........... 2.20 ........................

HE1 ........... 1.72 ........................

HD2 ........... 2.02 ........................

HD1 ........... 1.58 ........................

HC2 ........... 1.87 ........................

HC1 ........... 1.47 ........................

HB2 ........... 1.84 ........................

HB1 ........... 1.45 ........................

LE2 ........... 1.94 ........................

LE1 ........... 1.52 ........................

LD2 ........... 1.84 ........................

LD1 ........... 1.45 ........................

LC2 ........... 1.54 ........................

LC1 ........... 1.21 ........................

LB2 ........... 1.44 ........................

LB1 ........... 1.13 ........................

CE2 ........... 1.66 ........................

CE1 ........... 1.49 ........................

CD2 ........... 1.54 ........................

CD1 ........... 1.37 ........................

CC2 ........... 1.28 ........................

CC1 ........... 1.14 ........................

CB2 ........... 1.14 ........................

CB1 ........... 1.01 ........................

CA2 ........... 0.87 ........................

CA1 ........... 0.77 ........................

TABLE 14—RUG–IV CASE-MIX

INDEXES—Continued 

RUG Nursing index Therapy index 

BB2 ........... 0.96 ........................

BB1 ........... 0.89 ........................

BA2 ........... 0.69 ........................

BA1 ........... 0.64 ........................

PE2 ........... 1.49 ........................

PE1 ........... 1.39 ........................

PD2 ........... 1.37 ........................

PD1 ........... 1.27 ........................

PC2 ........... 1.09 ........................

PC1 ........... 1.01 ........................

PB2 ........... 0.83 ........................

PB1 ........... 0.77 ........................

PA2 ........... 0.58 ........................

PA1 ........... 0.54 ........................

The comments that we received on 

this subject, and our responses, appear 

below. 

Comment: Several commenters 

questioned our use of Bureau of Labor 

Statistics data to determine the wageweighted staff time. Some suggested that 

we should have used industry sources 

instead. One commenter believed that 

the BLS data we used (2006) should be 

updated to 2008. A few commenters 

said that we did not include enough 

information about how the wage 

weights were calculated. 

Response: In the STRIVE study, wageweighted nursing and rehabilitation 

staff times were computed at the 

resident level by multiplying the 

number of minutes of care that were 

provided by each staff type by a wage 

weight for that staff type, and then 

summing over all staff types. 

We believe we included sufficient 

information regarding how the wage 

weights were calculated in the FY 2010 

proposed rule (74 FR 22237). To 

establish wage weights for each staff 

type, the STRIVE study obtained 

national median wage values for staff 

types from the May 2006 Bureau of 

Labor Statistics/Occupational 

Employment Statistics (BLS/OES). Next, 

we computed the ratio of median 

salaries for the different nursing and 

rehabilitation therapy staff to the 

median salary of a certified nurse aide. 

These ratios were used as salary weights 

for each staff category. The BLS/OES 

provides national data by staff type for 

Nursing Care Facilities and is publicly 

available. We considered many other 

sources of wage data, such as the BLS 

National Compensation Survey 

Employer Cost for Employee 

Compensation product; however, this 

product does not provide national 

averages and is not very specific to 

nursing homes. We also considered 

survey data collected by the industry. 

We found that these data were less 

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nationally representative, as they were 

collected for a smaller number of 

facilities and for specific types of 

nursing homes. In addition, they were 

more limited in the staff types collected. 

BLS/OES data contained nearly all of 

the staff types we encountered during 

the STRIVE data collection. 

The STRIVE study allowed facilities 

to select from a wide range of staff type 

categories. For example, there were 11 

different categories for non-licensed 

aide staff, as follows: 

• Certified Medication Aide. 

• Certified Nursing Assistant (CNA). 

• Geriatric Nursing Assistant. 

• Resident Care Technician. 

• Restorative Aide. 

• Feeding Aide. 

• Transportation. 

• Bath Aide. 

• Non-certified care tech. 

• Clinical Associate. 

• Psychological Therapy Aide. 

When one of these staff categories 

appeared in the BLS/OES, then the 

corresponding median hourly wage for 

that category was used by the STRIVE 

study. The participating facilities used a 

variety of titles for staff with similar job 

duties; for example, different kinds of 

certified nurse assistants (CNAs) or 

aides. When a staff category did not 

appear in the BLS/OES, a decision was 

made to set the wage for STRIVE 

computations to a value relative to most 

comparable staff category available in 

BLS/OES. The relative value used was 

based on an assessment of the functions 

performed by the staff in relation to the 

functions performed by the most 

comparable staff category available in 

BLS/OES. For example, ‘‘restorative 

aide’’ did not occur in BLS/OES and the 

wage for restorative aide was set to the 

75th percentile of CNA wage. ‘‘Geriatric 

nursing assistant’’ did not appear in the 

BLS/OES and the wage for this staff type 

was set to the median CNA wage. ‘‘Bath 

aide’’ was not listed in the BLS/OES and 

the wage for this staff type was set to the 

25th percentile of CNA wage, as aides 

in this staffing category were restricted 

to a single function. Generally, the few 

staff categories that were not available 

in the BLS/OES reported very few 

resident-specific time minutes. 

BLS/OES is widely used as a source 

for average salary information. In fact, 

both MedPAC (‘‘Report to Congress: 

Promoting Greater Efficiency in 

Medicare’’, June 2007) and Acumen, 

LLC (http://www.acumenllc.com/ 

reports/cms) have considered the BLS 

data for use in an alternative method to 

compute the wage index. Considering 

all of the alternatives, we believe that 

the BLS/OES represents the best source 

of data to establish the STRIVE wage 

weights. 

The following table presents the 

STRIVE study wages and corresponding 

wage weights. Wage weights were 

standardized so that the CNA value 

equaled 1.00. This allowed an 

interpretation of a wage-weighted time 

as ‘‘CNA equivalent minutes.’’ 

TABLE 15—STRIVE STUDY WAGES AND CORRESPONDING WAGE WEIGHTS

Job title Decision * 

Median hourly 

wage 

(2006$) 

Wage weight 

Nursing Staff 

Registered Nurse .......................................................... Use BLS median .......................................................... $27.54 2.58 

Nurse Practitioner ......................................................... Use median RN wage .................................................. 27.54 2.58 

Licensed Practical Nurse .............................................. Use BLS median .......................................................... 17.57 1.65 

Licensed Vocational Nurse ........................................... Use median Licensed Practical Nurse wage ............... 17.57 1.65 

Certified Medication Aide ............................................. Use median CNA wage ................................................ 10.67 1.00 

Certified Nursing Assistant (CNA) ................................ Use BLS median .......................................................... 10.67 1.00 

Geriatric Nursing Assistant ........................................... Use median CNA wage ................................................ 10.67 1.00 

Resident Care Technician ............................................ Use median CNA wage ................................................ 10.67 1.00 

Restorative Aide ........................................................... Use 75th percentile CNA wage .................................... 12.80 1.20 

Feeding Aide ................................................................ Use 25th percentile CNA wage .................................... 9.09 0.85 

Transportation ............................................................... Use 25th percentile CNA wage .................................... 9.09 0.85 

Bath Aide ...................................................................... Use 25th percentile CNA wage .................................... 9.09 0.85 

Non-certified care tech ................................................. Use 25th percentile CNA wage .................................... 9.09 0.85 

Clinical Associate ......................................................... Use median CNA wage ................................................ 10.67 1.00 

Respiratory Therapist ................................................... Use BLS median .......................................................... 22.80 2.14 

Respiratory Therapy Assistant ..................................... Use BLS median .......................................................... 18.81 1.76 

Psychological Therapy Aide ......................................... Use BLS median .......................................................... 11.49 1.08 

Therapy Staff 

Physical Therapist ........................................................ Use BLS median .......................................................... 31.83 2.98 

Physical Therapy Assistant .......................................... Use BLS median .......................................................... 19.88 1.86 

Physical Therapy Aide .................................................. Use BLS median .......................................................... 10.61 0.99 

Occupational Therapist ................................................. Use BLS median .......................................................... 29.07 2.72 

Occupational Therapy Assistant ................................... Use BLS median .......................................................... 20.22 1.90 

Occupational Therapy Aide .......................................... Use BLS median .......................................................... 12.03 1.13 

Speech Language Pathologist ..................................... Use BLS median .......................................................... 27.74 2.60 

Audiologist .................................................................... Use BLS median .......................................................... 27.46 2.57 

Therapy Aide ................................................................ Use the average of PT & OT aides ............................. 11.32 1.06 

Therapy Transport ........................................................ Use the average of PT & OT aides ............................. 11.32 1.06 

We note that staff types not included 

in this table were not considered in 

calculating nursing time in the STRIVE 

study. Some staff types (for example, 

nurse practitioner and dialysis 

technician) were excluded because there 

was little or no time for this staff type 

in the STRIVE study. Others were 

excluded because their services are not 

covered under Medicare Part A (for 

example, acupuncturist) or their 

services are not included in the 

Medicare Part A nursing rate component 

(for example, dietitian). 

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Finally, we used 2006 BLS/OES data 

to construct the wage weights, and 

although more recent data are available, 

we believe that the 2006 data represent 

the wages related to the staffing patterns 

in use during a period of time when the 

STRIVE data were collected. Although 

the absolute wages change over time, we 

have evaluated the differences in the 

wage weights from 2006–2008 and find 

that wage weights for most staff types 

over this period are stable. In other 

words, although the absolute wages 

change, the relative wages between staff 

types are not changing significantly. 

Therefore, we are finalizing our decision 

to use the 2006 BLS/OES data to 

calculate the wage weights used to 

construct the case-mix indexes. 

Comment: Some commenters 

suggested that the parity adjustment be 

applied to both the nursing and therapy 

indexes. 

Response: We considered this as an 

alternative to applying the parity 

adjustment entirely to the nursing CMIs. 

However, we believe it is most 

appropriate to apply the parity 

adjustment to the nursing CMIs. The 

parity adjustment accounts for the 

difference in payments between the 

RUG–III and RUG–IV systems 

accumulated across all RUGs. The 

nursing CMIs are applied to each of the 

66 RUGs in the RUG–IV payment 

system and, therefore, we believe it is 

most appropriate to apply that 

adjustment to all RUGs. When applying 

a portion of the parity adjustment to the 

therapy CMIs, aggregate payment rates 

for therapy RUGs do not uniformly 

increase compared to aggregate payment 

rates for therapy RUGs if calculated by 

applying the entire parity adjustment to 

the nursing CMIs. The nursing 

component, even for most therapy 

groups, is usually the largest contributor 

to the aggregate payment rate. 

Comment: One commenter noted RUB 

and RUC, and RVA and RVB have the 

same case-mix index for RUG–IV. For 

RUG–III, ‘‘B’’ ADL pays more than ‘‘A,’’ 

and ‘‘C’’ pays more than ‘‘B.’’ The 

commenter stated that this does not 

account for the increased resources used 

when providing care for a patient with 

‘‘B’’ ADLs versus ‘‘C’’ ADLs, or ‘‘A’’ 

ADLs versus ‘‘B’’ ADLs. 

Response: The RUG–IV CMIs are 

based on the time resource data from the 

STRIVE project. In the situations that 

the commenter cites, the STRIVE data 

indicated less nursing time for RUC 

than RUB and the resulting CMI for RUC 

would be less than that for RUB. A 

situation where the time resource use 

for groups within a category does not 

increase with increasing ADL scores is 

often referred to as an ‘‘ADL inversion.’’ 

The STRIVE data produced a few of 

these types of inversions, and they have 

existed in previous time studies as well. 

Previous time studies have adjusted for 

most of these inversions before 

calculating final CMIs. We believe it is 

appropriate to adjust these inversions so 

that the CMIs reflect higher resource use 

for more dependent patients and 

eliminate payment incentives that may 

cause practice patterns to be altered. 

Therefore, using the method described 

in section III.C.1.a of this final rule, we 

decided to ‘‘smooth’’ the inversion by 

combining a pair of groups and 

assigning the weighted average across 

the 2 groups as the mean resource time 

for each group. This is why the final 

means, and therefore the CMIs, for RUB 

and RUC are equal. We believe this is 

preferable to allowing the 

reimbursement for less dependent 

patients to be higher than the 

reimbursement for patients that are 

more dependent. We note that the CMI 

for RVB is slightly higher than the CMI 

for RVA using the final database. 

4. Relationship of RUG–IV Classification 

System to Existing Skilled Nursing 

Facility Level-of-Care Criteria 

As discussed previously in section 

III.B.5 of this final rule, the existing 

level of care presumption currently 

applies to the upper 35 groups of the 

refined 53-group RUG–III model. In the 

FY 2010 proposed rule (74 FR 22208, 

22238, May 12, 2009), we proposed that 

under the new 66-group RUG–IV model, 

this presumption would apply to the 

upper 52 groups, as encompassed by the 

following 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. We received 

no comments on this proposal, and in 

this final rule, we are implementing this 

provision as proposed. 

5. Prospective Payment for SNF 

Nontherapy Ancillary Costs 

The FY 2010 proposed rule discussed 

the issue of payment for nontherapy 

ancillary costs under the SNF PPS (74 

FR 22208, 22238–22241, May 12, 2009). 

This discussion described the previous 

research that has been conducted in this 

area as well as current policy and 

analysis, and also specifically examined 

this issue as it relates to the temporary 

AIDS add-on payment established by 

section 511 of the MMA (see section I.E 

of this final rule). The comments that 

we received on this subject, and our 

responses, appear below. 

Comment: A commenter stated that 

payments for ventilator services are 

inadequate to prevent ventilator patients 

from experiencing access barriers in 

SNFs. The commenter urged CMS to 

consider MedPAC’s proposal to adjust 

payments to account specifically for 

nontherapy ancillary services, of which 

non-nursing ventilator services are a 

part. Several commenters also stated 

that CMS should provide for a rate 

adjustment specific to providers of 

ventilator services to compensate them 

for ventilator-related costs not covered 

under the PPS as currently configured 

or as proposed to be modified in the 

proposed rule. Further, commenters 

proposed that an outlier payment or 

add-on similar to the AIDS add-on be 

adopted for ventilator patients as an 

interim measure. 

Response: Ventilator patients are 

addressed in our proposal for a 

redefined Extensive Services group. Our 

proposal does not make any changes in 

the method of paying for NTA costs; all 

such payments continue to be 

proportional to the nursing costs paid in 

the relevant case-mix group. Because 

the nursing component weight for 

Extensive Services will rise 

substantially under our refinements, 

payments for NTA costs associated with 

these patients will also rise 

substantially. However, we recognize 

the need for further research to revise 

the payment methodology for NTA 

costs, as described in our approach to 

the analysis in the proposed rule (74 FR 

22238). We are reviewing MedPAC’s 

NTA cost predictors as part of this work. 

The suggestion of an outlier payment or 

add-on payment cannot be implemented 

under current law, as we have no 

statutory authority to make such a 

change. 

Comment: A commenter stated that 

the criteria we described for a system to 

adjust payments for NTA services by 

case mix appear reasonable, but went on 

to emphasize that CMS has not been 

able to identify appropriate case-mix 

adjustments for NTA in multiple prior 

efforts. The commenter further looks 

forward to seeing whether the new 

criteria produce a methodology that 

explains more than 20 percent of the 

variation in NTA needs of patients. 

Response: We acknowledge that past 

efforts have not been uniformly 

successful and resulted in no 

implementable proposals. We have not 

targeted any specific level of ‘‘goodness 

of fit’’ for a future methodology. 

However, we note that the quality of the 

data available to conduct this research 

could significantly affect the 

explanatory power of any model that we 

may develop. 

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Comment: Several commenters 

recommended that we consider an 

outlier payment for NTA services or 

specifically, for intravenous 

medications. One commenter cited 

facilities that are losing money due to 

the high cost of the IV medications. 

Another commenter stated that under 

our proposal, bariatric, wound care, and 

certain chemotherapy patients, among 

others, incur unaccounted-for 

equipment and/or drug costs, resulting 

in restricted access for these patients. 

The commenter suggested that an 

outlier payment structure would remedy 

this situation. 

Response: As we note elsewhere in 

this final rule, we have no statutory 

authority at this time to implement an 

outlier policy for NTA services. We 

welcome information about the 

incidence of high-cost IV medication 

days, bariatric patient days requiring 

special equipment, and other incidence 

information which could inform future 

efforts to design an outlier policy, if it 

is authorized. 

Comment: A commenter stated that a 

payment add-on for non-therapy 

ancillary costs would be worth 

exploring. 

Response: As discussed above, we do 

not have statutory authority to 

implement an outlier or add-on 

payment for NTA services. However, we 

discussed the possibility of 

implementing a case-mix adjustment for 

NTA services in the proposed rule. We 

believe that we currently have authority 

to create a separate NTA component of 

the Federal per diem rate, which would 

be carved out of the existing nursing 

component. Such a proposal would be 

contingent on developing a workable 

methodology for predicting NTA costs 

per day. The discussion in the proposed 

rule described the criteria that we 

envision for such a system. At the 

inception of the SNF PPS, average daily 

NTA costs were included in the nursing 

component. Any new, carved-out 

component would, in effect, recover the 

original costs from the nursing 

component and adjust them separately 

for case mix, using information that 

better predicts NTA costs than does the 

RUG methodology. However, this does 

not mean that overall expenditures 

under the SNF PPS would increase as a 

result of the creation of this NTA 

component and index. 

Comment: A commenter criticized the 

RUG–IV proposal for removing IV 

patients from the Extensive Services 

group on the basis that staff time caring 

for such patients is not sufficiently 

large, noting that the actual drug costs 

for IV patients were not included in the 

staff time data. 

Response: We recognize that the 

RUG–IV proposal did not take drug 

costs directly into account. The STRIVE 

study showed that collecting accurate 

and complete primary data on drug 

costs was not feasible. We anticipate 

that future work on paying for NTA 

costs, of which IV drugs are a part, will 

rely on administrative data resources. 

Under RUG–III, nursing weights for IV 

patients ranged from 1.17 to 1.72. 

However, the changes we are 

implementing to the case-mix 

classification system reallocated to the 

nursing component of the SNF PPS 

payment savings derived from more 

accurate accounting for therapy time. As 

a result, nursing weights for IV therapy 

patients range from .73 to 3.43, 

depending on whether IV therapy cooccurs with other qualifying conditions, 

such as infection isolation, septicemia, 

etc. 

Comment: A commenter stated that 

ventilator-dependent patients should 

have their own classification. 

Response: The revised Extensive 

Services group includes only three types 

of patients: Tracheostomy, ventilator/ 

respirator, and infection isolation. 

Analysis of the STRIVE time study data 

suggested that these patients had 

similarly high nursing costs. Thus, it is 

likely that subdividing this group to 

classify ventilator patients separately 

would needlessly complicate the SNF 

PPS. 

Comment: A number of commenters, 

while urging us to maintain the existing 

AIDS add-on until an alternate payment 

methodology can be developed, also 

indicated that we should consider 

creating a similar add-on payment 

mechanism for anti-rejection drugs, low 

molecular weight heparin, appetite 

stimulating agents, and erythropoiesis 

stimulating agents. 

Response: We note that in contrast to 

the AIDS add-on (which was 

specifically created by section 511 of the 

MMA), the law contains no similar addon payment authority for the other 

services mentioned. 

D. Minimum Data Set, Version 3.0 (MDS 

3.0) 

Sections 1819(f)(6)(A)–(B) and 

1919(f)(6)(A)–(B) of the Act, as amended 

by the Omnibus Budget Reconciliation 

Act of 1987 (OBRA 1987), require the 

Secretary to specify a Minimum Data 

Set (MDS) of core elements and 

common definitions for use by nursing 

homes in conducting assessments of 

their residents, and to designate one or 

more instruments which are consistent 

with these specifications. As stated in 

regulations at § 483.20, Medicare- and 

Medicaid-participating nursing homes 

must conduct initially and periodically 

‘‘a comprehensive, accurate, 

standardized, reproducible assessment’’ 

of each nursing home resident’s 

functional capacity. The FY 2010 

proposed rule included an examination 

of various aspects of a new version of 

the MDS, MDS 3.0 (74 FR 22208, 22241, 

May 12, 2009), as discussed in the 

following sections. 

1. Description of the MDS 3.0 

The FY 2010 proposed rule described 

the major features of the MDS 3.0 (74 FR 

22241). We determined that including 

information on the MDS 3.0 would be 

beneficial to stakeholders, as RUG–IV 

and MDS 3.0 will be introduced at the 

same time, as requested by virtually all 

stakeholders last year. Even though we 

included a discussion of the MDS 3.0 in 

the SNF PPS proposed rule, the 

instrument itself was not proposed. 

However, we did receive many 

comments on the MDS 3.0, which we 

summarize below. 

Comment: Some of the general 

comments regarding the MDS 3.0 

conveyed support, while others raised 

concerns about burden and the amount 

of testing that has been performed on 

the instrument. There were many 

comments that sought clarification or 

offered suggestions for items included 

in the draft MDS 3.0 item set posted at 

http://www.cms.hhs.gov/ 

NursingHomeQualityInits/Downloads/ 

MDS30DraftItemSetv26.pdf. 

Response: We chose to use the SNF 

PPS rule to announce the upcoming 

October 2010 scheduled 

implementation of the MDS 3.0 and 

appreciates the comments in support of 

it. Concerning the comments about the 

possibility of increased burden and the 

need for additional testing of the 

instrument before implementation, 

findings from the pilot testing of MDS 

3.0 in 2008 did not suggest that the MDS 

3.0 was overly burdensome. We believe 

that any more recent changes made to 

the MDS 3.0 are minor and not 

substantive and, thus, that additional 

testing is not necessary. 

Concerning the comments seeking 

clarification of the draft MDS 3.0 item 

set, CMS believes that these issues will 

be addressed with the MDS 3.0 RAI 

Manual and MDS 3.0 Final Item Set that 

are scheduled to be published on the 

CMS Web site, http://www.cms.hhs.gov, 

in October 2010. The specific 

recommendations for new or revised 

items for the MDS 3.0 instrument have 

been forwarded to the MDS 3.0 

development team at CMS for review 

and consideration. The MDS 3.0 RAI 

Manual, Data Set, and Data 

Specifications are scheduled to be 

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published in October 2009 with 

subsequent implementation of the MDS 

3.0 in October 2010. This time frame 

provides for an entire year for CMS, its 

contractors, and SNFs to prepare and 

train in anticipation of the October 1, 

2010 implementation date. 

Comment: Some comments discussed 

the MDS 3.0 item set content and format 

of the ‘‘paper’’ tool. Among the issues 

raised were: Maintaining the MDS 2.0 

section G, ADL items, and DAVE 

discrepancy rates; the order of section A 

being problematic for the paper version 

when reviewing the assessment; 

adopting the OASIS diagnosis format; 

providing greater resident involvement 

by implementing interview tools; the 

need for pressure ulcer items to be more 

clinically based; suggestions for adding 

specific diagnoses to section I; and 

concerns that section Q may affect State 

agency staff resources. One commenter 

suggested that CMS simply address the 

specific problem areas with MDS 2.0, 

such as pressure ulcers, and not change 

any other aspects of it. Another 

commenter requested that the RAI 

manual be made available by August 1, 

2009. 

Response: We will take into 

consideration the suggestions submitted 

in response to the SNF PPS proposed 

rule. We agree that the MDS 3.0 

provides a greater resident involvement 

in care and that the items being 

surveyed are more clinically based than 

the existing MDS 2.0. However, given 

the current specifications of the MDS 

2.0, we are unable to adopt the 

commenter’s suggestion of simply 

revising certain problematic items, due 

to limitations in the data string. 

We understand the concern of 

maintaining the MDS 2.0 scoring system 

for ADLs. We have revised the ADLSelf-performance response codes to 

address a care planning concern raised 

by stakeholders. While we agree that the 

Data Assessment and Verification 

(DAVE) findings on discrepancy rates 

for the ADL items are high, the DAVE 

contractor did not, as part of its 

analysis, factor into account the degree 

or severity of the discrepancy. For 

example, in a situation where one 

assessor coded a resident as 

supervision, the DAVE project did not 

consider whether the second assessor 

coded the same person as limited 

assistance, extensive assistance, or total 

dependence, but simply determined 

whether the codes were the same. We 

are currently working with stakeholders 

to ensure that the MDS 3.0 RAI manual 

provides clear guidance. 

While we want to ensure that a paper 

version of the MDS 3.0 is user-friendly, 

we encourage providers and users to 

move toward an electronic model. We 

will take into consideration the 

concerns provided to us on the record 

layout. 

Comment: One commenter stated that 

CMS has ‘‘tinkered’’ with the 

assessment tool, which creates 

confusion and jeopardizes timely 

rollout. Another asserted that MDS 3.0 

does not meet the criteria CMS set out 

to accomplish. One commenter 

requested CMS to ‘‘batch’’ revisions to 

the MDS 3.0 and implement in a 

systematic fashion. Another suggested 

that CMS provide a ‘‘journal’’ of all 

changes in a central location that is 

available to all users and assessors. One 

commenter remarked that the data 

gathered during the STRIVE project is 

not valid for evaluating the effectiveness 

of the proposed MDS 3.0 assessment. 

Response: Our goals for updating the 

assessment instrument used in nursing 

homes were to introduce advances in 

assessment measurement, increase 

relevance of items, improve accuracy 

and validity of the tool, and increase our 

knowledge of residents’ experience of 

care by introducing more resident 

interview items. We believe we have 

achieved these goals, as evidenced by 

features such as the following: 

• Addition of pressure ulcer items 

where the clinician reports the actual 

stage of the ulcer, not the appearance; 

• Use of resident interview items for 

mood and other areas; 

• Use of valid and reliable assessment 

tools, such as the Brief Interview for 

Mental Status; and 

• Improvement of pain assessment 

items. 

Therefore, we do not agree with the 

assertion that we did not accomplish 

what we had intended. 

We have stated from the outset of 

releasing version 3.0 of the MDS that it 

was in draft form, and that providers 

and users should not consider the draft 

version final. We have built upon 

RAND’s study to improve the 

assessment further and ensure that it 

meets, as much as possible, the needs of 

multiple users, such as Medicaid State 

Agencies for payment purposes and 

return-to-the-community initiatives. 

Lastly, the STRIVE project did not 

‘‘evaluate’’ the effectiveness of the MDS 

3.0. RAND’s responsibility was to 

improve the clinical effectiveness of the 

instrument. They were not required to 

ensure that quality measures and 

indicators or the RUG classification 

systems were kept fully ‘‘intact.’’ RAND 

was aware of the other purposes of the 

MDS and did take this into 

consideration during their study and 

analysis. We did not approach the issue 

with the belief that a single project 

would meet the needs of all users, and 

have actually incorporated lessons 

learned from other CMS projects, such 

as the CARE tool. The STRIVE project 

did not evaluate the effectiveness of the 

MDS 3.0. In fact, the STRIVE study was 

conducted at the same time the RAND 

staff were testing the pilot MDS 3.0 

instrument. The STRIVE contractor did 

conduct analysis to ensure that payment 

systems and quality measures were not 

negatively affected based on data 

collected under the MDS 3.0 project. 

Currently, we post updates to the 

MDS 2.0 on the CMS Web site so that 

all users and assessors are able to access 

the changes. Our expectation is that the 

MDS 3.0 instrument and RAI manual 

will not require updates for some time. 

However, the format, that is, the item 

numbering and layout, as well as the 

specifications, will provide us with the 

ability to update the tool in a simple 

and quick method when the need arises. 

Finally, we will take into consideration 

the comment on ‘‘batching’’ updates, 

and will work with stakeholders to 

ensure that they have access to the 

updates in a timely fashion. 

Comment: A few recommendations 

were received on the MDS 3.0’s 

relationship to Health Information 

Technology (HIT) standards. The 

recommendations include: 

• Increasing efforts in Federallymandated initiatives to adopt costeffective use of information technology 

in healthcare settings; 

• Consider present and future data 

use and exchange requirements to 

format and exchange MDS 3.0 data; 

• Incorporate all standardized 

terminology approved by Consolidated 

Health Informatics (CHI), Office of the 

National Coordinator for Health 

Information Technology (ONC), 

National Institute of Standards and 

Technology (NIST), or American 

National Standards Institute (ANSI) in 

all HIT projects; and 

• Consider incorporating all available 

approved terminology and exchange 

standards for use in all Health 

Information Exchange or HIT projects. 

Contained in the comments was the 

suggestion that if CMS were unable to 

carry out the approach outlined in the 

bullets above for MDS 3.0, then CMS 

should consider placing efforts on the 

CARE tool. 

Response: CMS appreciates the 

comments that were submitted with 

regard to HIT standards and will 

consider these comments as the MDS 

3.0 is implemented. 

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2. MDS Elements, Common Definitions, 

and Resident Assessment Protocols 

(RAPs) Used under the MDS 

The FY 2010 proposed rule included 

a discussion of the MDS 3.0’s MDS 

elements, common definitions, and 

RAPs (74 FR 22243). The comments that 

we received on this subject, and our 

responses, appear below. 

Comment: One commenter expressed 

concern about our proposal to remove 

language identifying MDS domains and 

common definitions at §§ 483.315(e)(1) 

through (18) and instead reference the 

domain requirements at § 483.20(b)(1)(i) 

through (xviii) and use the RAI manual 

for specific details regarding the MDS 

domains and common definitions. 

Although the commenter acknowledged 

the need for us to make timely MDS 

changes, the commenter stated that 

removing the MDS domains and 

common definitions could affect 

assessment reliability, consistency, 

accuracy, validity, and reimbursement, 

and could deny the public a meaningful 

voice in challenging proposed changes 

or offering official recommendations. 

Response: Rapid changes in clinical 

practice make it imperative for us to 

have the flexibility to change or add to 

the MDS domains and common 

definitions quickly in order to protect 

the health and safety of nursing home 

patients. 

For example, the CDC Advisory 

Committee on Immunization Practices 

(ACIP) has recommended vaccination 

against the varicella zoster virus (VZV, 

that is, chicken pox) for individuals 

over age 60. VZV can reactivate 

clinically decades after initial infection 

to cause herpes zoster (that is, shingles), 

a localized and generally painful 

cutaneous eruption that occurs most 

frequently among older adults and 

affects approximately 1 million 

individuals in the United States every 

year. A common complication of zoster 

is post-herpetic neuralgia (PHN), a 

chronic pain condition that can last 

months or even years. Complications 

include involvement of the eye that can 

threaten sight, bacterial super 

infections, and disfiguring facial 

scarring. Another example is the annual 

CDC ACIP recommendations regarding 

the provision of influenza vaccinations 

in relation to the timing and duration of 

the influenza season. Based on 

recommendations such as these, we 

need the flexibility to add or change 

vaccinations promptly to the MDS 

domains. 

In a December 23, 1997 final rule (62 

FR 67174), we removed the MDS and its 

instructions from the regulation text that 

was inserted in the December 28, 1992 

proposed rule (57 FR 61414). In that 

final rule, we noted this was necessary 

in order to allow us to easily modify the 

MDS so that it requires collection of 

information that is clinically relevant 

and meets evaluative needs as clinical 

practice evolves (62 FR 67174, 67203). 

These notations still continue to reflect 

our current view. 

In the past, as we have proposed 

changes to the MDS domains and 

common definitions, we have given the 

public ample opportunity to comment 

through the use of CMS Open Door 

Forums and Town Hall meetings; 

dedicated mailboxes for comments; 

CMS Web site postings; and meetings 

with stakeholder organizations. We 

believe that in directly discussing and 

negotiating with affected parties, it will 

be possible to maintain an MDS 

assessment process that is clinically 

relevant while also obtaining public 

comment. We will continue to use these 

venues to solicit public comments on 

proposed changes, and we believe they 

are sufficient to allow robust public 

input and address the commenter’s 

concerns. Therefore, we are not 

accepting the comment. Accordingly, 

this final rule removes the language 

identifying MDS domains and common 

definitions at §§ 483.315(e)(1) through 

(18), and instead references the domain 

requirements at § 483.20(b)(1)(i) through 

(xviii). We will use the RAI Manual for 

specific details regarding the MDS 

domains and common definitions. 

Comment: One commenter expressed 

concern that the proposed rule did not 

specify when an MDS is considered to 

be complete, noting that this 

information is currently available for the 

MDS 2.0 in the RAI User’s Manual. 

Response: Federal regulations at 42 

CFR 483.20(i)(1) and (2) require the RN 

assessment coordinator to sign and 

certify that the assessment is complete. 

This completion attestation is made 

when the MDS assessment is considered 

complete; the timing varies depending 

on the assessment type. Federal 

regulations at 42 CFR 483.20(b)(2) and 

(c) specify the timeframes for 

conducting the various assessment 

types. As the commenter noted, this 

specific information is currently 

available for MDS 2.0 in the RAI User’s 

Manual. As this information will 

continue to be provided for MDS 3.0 in 

the RAI User’s Manual and is already 

covered in the regulations text, we 

believe that this information is 

adequately provided. 

Comment: Although commenters 

expressed various concerns, several 

were supportive of the proposed 

changes to the MDS 3.0 RAPs. 

Response: We were pleased with the 

support expressed through the 

comments. While it is true that the 

structure of the proposed changes to the 

MDS 3.0 RAPs process was not fully 

specified in the proposed rule, CMS is 

aware of most of the issues raised in the 

comments, and has been actively 

working on them. We have provided 

responses to specific comments in the 

following paragraphs. 

Comment: We received a few 

comments requesting us to clarify that, 

while RAPs are no longer mandatory, it 

is CMS’s intent that facilities must 

continue to use care area triggers (CATs) 

from the MDS and current, evidencebased clinical guidance or resources to 

assist them in the care planning process. 

Response: CMS values the opinions 

and insights provided by our 

stakeholders, and we plan to clarify that 

this is, in fact, our intent. As the 

planning for the RAI process 

instructions moves forward, we fully 

intend to clarify our instructions in this 

area and will continue to involve our 

stakeholders. 

Comment: Several commenters 

expressed concern about the level of 

burden that might be imposed by no 

longer mandating the use of the RAPs 

and, therefore, leaving the 

determination of what clinical 

guidance/practice tools will be used in 

the care planning decision process to 

the discretion of the facilities. The 

commenters indicated that such a 

system would create inefficiencies and 

inequalities in the care delivery system, 

and also expressed concern about how 

CATs and outside resources will be 

utilized for guidance in the future. 

Response: When the RAPs were 

originally developed, facilities lacked 

easy access to Internet resources, which 

is no longer the case. A great many 

clinical practice guidelines have been 

developed by professional organizations 

and government agencies, many of 

which are available at no cost. The 

RAPs were limited in the number of 

topics they covered and, due to ongoing 

changes in clinical practice, they would 

need to be regularly updated by CMS, 

necessitating changes to the 

requirements. We believe this is no 

longer necessary or efficient, as the 

relevant information is now widely 

available from a variety of authoritative 

sources. At this phase in the planning 

effort, CMS has developed a set of tools 

(formerly known as RAPs) that will be 

available for facility use via the MDS 

manual; however, they will not be 

mandatory. We are also publishing in 

the manual a list of other resources that 

practitioners can use, most of which are 

available at no cost. The facility’s 

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clinical team can use these resources or 

any others that they deem appropriate. 

We found the comments very helpful, 

and expect that these resources will 

minimize any burden as much as 

possible. 

Comment: We received a few 

comments pointing out the need for 

CMS to partner with its stakeholders 

and nursing home industry experts to 

design care planning practices, 

including development of a Technical 

Expert Panel. Commenters suggested 

including clarification in the RAI 

manual regarding the use of an 

interdisciplinary team approach. 

Response: We have reported on our 

work and progress regarding the care 

areas and care planning as part of the 

RAI process in stakeholder meetings 

and on Open Door Forum calls. As the 

planning for the RAI process 

instructions moves forward, we will 

continue to involve our stakeholders. 

Comment: Several commenters 

pointed out the need for CMS to 

reconsider the use of CATs in relation 

to the care planning process. 

Response: While it is true that the 

structure of the proposed changes to the 

MDS 3.0 RAPs process was not fully 

specified in the proposed rule, we agree 

that the proposed rule’s language 

regarding the use of CATs did not 

adequately convey the proposed 

changes. We also acknowledge that 

CATs represent only one part of a 

dynamic process and may also cause 

industry confusion. Accordingly, the 

final rule includes the term ‘‘Care Area 

Assessment’’ (CAA) to denote the 

process that was formerly known as the 

RAPs process. However, CMS will 

continue to use the CATs terminology to 

represent the triggers from the MDS for 

a particular care area problem or issue. 

Of course, we plan to continue to 

involve our stakeholders as the planning 

for the RAI process instructions moves 

forward, and we will continue to work 

to clarify the care planning process. 

Comment: A few commenters 

questioned how the State Survey 

Agencies (SSAs) would handle their 

nursing home surveys without the 

direction of the RAPs. 

Response: The specific issues that 

were raised about the design of the 

nursing home survey program are 

beyond the scope of this final rule. 

However, it is important to note that 

CMS is fully aware of this issue and is 

working to provide direction to the 

SSAs about the full range of guidance or 

resources they may encounter, 

including instructions that are provided 

to facilities through the RAI manual. We 

appreciate the careful consideration that 

this comment reflected, and will bring 

it to the attention of appropriate CMS 

staff. 

Comment: In addition to the 

comments that we received on the 

proposed change to the RAPs, several 

commenters provided discussion of 

specific issues involving prescriptive 

care planning and the use of electronic 

RAPs for nursing homes. 

Response: The specific issues that 

were raised about the design of care 

planning and the use of electronic RAPs 

for nursing homes are beyond the scope 

of this final rule. However, we 

appreciate the careful consideration that 

these comments reflected, and will 

bring them to the attention of 

appropriate CMS staff. 

3. Data Submission Requirements under 

the MDS 3.0 

The FY 2010 proposed rule included 

a discussion of data submission 

requirements under the MDS 3.0 (74 FR 

22243). The comments that we received 

on this subject, and our responses, 

appear below. 

Comment: One commenter voiced 

concerns regarding whether the 

proposal for SNFs to submit resident 

assessment data to the national CMS 

system rather than to the States will 

require a change in electronic software 

programs at the facility level to 

accommodate reporting directly to the 

Federal level. The commenter also 

stated that, if this is the case, adequate 

time should be provided for this 

transition software. 

Response: There is no software 

program change required, as the MDS 

data will be collected centrally at the 

Federal level rather than from each 

State. However, there will be a new 

software program required to implement 

the new MDS 3.0 data and file 

specifications. CMS believes that 

adequate time is being provided for this 

development. 

Comment: One commenter noted that 

the proposed 14-day timeframe for 

transmission of MDS data will shorten 

the current time period by 2 weeks. The 

commenter also observed that in some 

States, this requirement (or even a 

shorter time period) has already been 

imposed at the State level for a number 

of years. The commenter pointed out 

that the State of Washington, where 

submissions must be within 10 days of 

completion for the MDS to be 

considered timely, finds that this 

requirement has improved the quality of 

MDS submissions, with fewer 

submissions ‘‘falling through the 

cracks.’’ Another commenter remarked 

that State agencies will be able to better 

track those residents who would like to 

return to the community. A few 

commenters opposed shortening the 

submission requirement to 14 days, 

stating that this would pose a hardship 

on nurses who have ‘‘other 

responsibilities,’’ may be difficult in 

small nursing homes, and would 

increase the pressure to complete 

assessments. 

Response: We appreciate the 

comment informing CMS that some 

States currently have stricter submission 

requirements than the one we proposed. 

We are pleased to learn that a 

submission timeframe of 14 days or less 

is working well in those States that 

already have such a requirement in 

place. We anticipate that there will be 

an equally smooth transition for 

facilities in the remaining States. 

Further, swing-bed facilities have been 

required to submit their MDS 

assessments within 14 days of 

completion since 2002. These facilities 

tend to have fewer SNF patients than 

most nursing homes and also tend to 

have shorter lengths of stay. In fact, 

swing-bed facilities do not appear to 

have difficulty meeting this 

requirement. Therefore, we do not agree 

that shortening the submission time 

frame to 14 days will be problematic or 

cause hardship on facilities. In fact, 

almost 75 percent of the MDS 

assessments are submitted by nursing 

homes within 14 days of completion. 

We are concerned with the comment 

that shortening the submission time 

frame will create pressure to complete 

assessments. We have outlined the 

requirements for completing MDS 

assessments in the RAI manual. The 

submission time frame is based on the 

completion date of the assessment. 

Thus, the submission time frame does 

not drive the completion of assessments; 

rather, the reverse is true—the 

completion of the assessment 

determines the submission date. Lastly, 

as noted by commenters’ remarks on 

obtaining quality measures on swing 

beds as discussed below in section III.H 

of this final rule, we are simply holding 

both types of providers to the same 

standards. 

Comment: Several commenters 

expressed concern and confusion over 

the requirement that facilities have 7 

days after completing a resident’s 

assessment to be capable of transmitting 

that assessment data. They also 

questioned what the term ‘‘capable’’ 

meant, and whether this requirement reinstituted the ‘‘locking’’ concept that 

has been inactive for several years. 

Response: The regulations at 42 CFR 

483.20(f)(2) regarding facility capability 

to transmit a resident’s assessment data 

within 7 days of completing the 

assessment is not new, nor did we 

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propose it through this rule. What we 

did propose was changing the language 

to note that facilities must be capable of 

transmitting to the CMS System instead 

of to the State. It is not our intent to reinstitute the ‘‘locking’’ concept. The 

term ‘‘capable’’ as used in the 

regulations text here means that the 

facility has encoded the MDS 

assessment information and put that 

data into a format that conforms to 

standard record layouts and data 

dictionaries defined by CMS and the 

State. 

Comment: One commenter expressed 

confusion over the requirements 

regarding State responsibilities with 

respect to MDS 3.0 data. Specifically, 

the commenter questioned State 

responsibilities regarding supporting 

and maintaining the MDS State system 

and database, the receipt of facility data 

from CMS, and the resolution of all 

errors. The commenter noted that the 

States are not in a position to ensure 

that all errors are resolved, as some 

(such as a late submission) cannot be 

resolved. 

Response: The provision at 42 CFR 

483.315(h) regarding the requirements 

for the State to maintain an MDS 

database and ensure that a facility 

resolves errors upon receipt of data is 

not new, nor did we propose it through 

this rule. What we did propose was 

changing the language to note that 

States must continue to maintain an 

MDS database for receipt of facility data 

from CMS. We also added the term 

‘‘support’’ to the regulations at 42 CFR 

483.315(h)(1) to note that each State is 

still responsible for supporting all their 

users and uses of the MDS 3.0 data. It 

is our intent for the regulation text 

regarding facility data at 42 CFR 

483.315(h)(3) to denote that MDS 3.0 

data are received by the States from the 

CMS system. We agree with the 

commenter that some facility data 

errors, such as a late submission, may 

not be able to be resolved completely. 

Our intent through this language was 

simply to retain the requirement for 

States to work with their respective 

facilities to resolve errors. However, 

after further consideration of this issue, 

we are retracting our proposal to 

include the term ‘‘all’’ in the regulation 

text at 42 CFR 483.315(h)(3). In 

addition, as it has come to our attention 

that the regulation text at 42 CFR 

483.315(h) did not adequately convey 

who in the State had the responsibilities 

regarding the State MDS database, we 

have added the term ‘‘agency,’’ in order 

to indicate that these are responsibilities 

of the State Survey Agency. 

4. Proposed Change to Section T of the 

Resident Assessment Instrument (RAI) 

under the MDS 3.0 

In the context of the MDS 3.0 

discussion, the FY 2010 proposed rule 

proposed certain revisions to the 

reporting of therapy services effective 

October 1, 2010 (74 FR 22244). First, we 

proposed to eliminate Section T of the 

RAI. In addition, we proposed (a) to 

revise the therapy reporting procedures 

related to short-stay patients so that the 

appropriate therapy level is calculated 

using items that will be reported on the 

MDS 3.0 (using the procedures set forth 

in the proposed rule); (b) to provide 

SNFs with the option to use the Other 

Medicare Required Assessment (OMRA) 

to signal the start of therapy; and (c) to 

require SNFs to complete an OMRA 

with an ARD that is set 1 to 3 days 

(rather than 8 to 10 days) from the last 

day therapy services were provided. A 

more detailed description of the 

proposals appears in the SNF PPS 

proposed rule for FY 2010 (74 FR 

22244). The comments that we received 

on these proposed revisions, and our 

responses, appear below. 

Comment: Several commenters 

supported the elimination of section T 

(items T1b, c, d) of the MDS, thereby 

preventing Medicare from paying for 

therapy services that were ordered, but 

not actually furnished to patients. They 

stated that these changes will increase 

the accuracy of payments to providers. 

Other commenters were opposed to the 

elimination of section T, indicating that 

the proposed change reflected a 

payment model more akin to fee-forservice than a prospective payment. 

Some commenters stated that 

eliminating section T would result in 

providers not being paid for therapy 

services that they actually provide 

during the first 14 days of a SNF stay. 

They also believed that there would be 

financial pressure to provide less care 

than the beneficiary needs. 

Response: As we stated in the 

proposed rule, the GAO found that onequarter of the patients classified using 

estimated minutes of therapy did not 

receive the amount of therapy they were 

assessed as needing, while threequarters eventually did. Further, the 

GAO found that in 2001, half of the 

patients initially categorized in the 

Medium and High Rehabilitation groups 

did not actually receive the minimum 

amount of therapy required to be 

classified in those groups, due in part to 

the use of estimated therapy minutes. 

We agree that by eliminating section T, 

there is a risk that the therapy data 

would not be captured for some patient 

days where the service was actually 

provided. However, we also proposed to 

provide for an optional start-of-therapy 

OMRA with an ARD that is set 5 to 7 

days from the first day therapy services 

are provided. Based on this OMRA, 

payment for the start of therapy would 

begin the day that therapy is started. We 

proposed that a SNF may complete a 

start-of-therapy OMRA when therapy 

started between MDS observation 

periods. However, in response to 

comments stating that under our 

proposed revised reporting procedures, 

providers may not be paid for therapy 

services that they actually provide 

during the first 14 days, we are allowing 

SNFs to complete the optional start-oftherapy OMRA not only when therapy 

starts in between assessment windows, 

but also when therapy has started 

within the Medicare-required 

assessment window. For the second 

situation, the optional start-of-therapy 

OMRA may be completed as a standalone assessment or it may be combined 

with a scheduled Medicare-required 

assessment. For example, the SNF must 

complete a 5-day Medicare-required 

assessment with an ARD between day 1 

and day 8. If therapy begins on day 5 

and if the provider chooses day 7 as the 

5-day ARD, then only 3 days of therapy, 

at most, would have been provided by 

the ARD and, thus, a rehabilitation RUG 

would not have been assigned (or 

achieved). The provider may then 

complete an optional start-of-therapy 

OMRA with an ARD of day 9, 10, or 11. 

If the provider chooses day 11, then the 

start-of-therapy OMRA may be 

combined with the 14-day Medicarerequired assessment (day 11 is in the 

assessment window of the 14-day 

Medicare-required assessment). 

Payment for the rehabilitation RUG 

would begin on the day that therapy 

started, for example, day 5, and would 

continue until day 30 as long as the SNF 

level of care coverage requirements are 

met, and/or therapy was not 

discontinued, and/or another 

assessment was not required that 

resulted in a different RUG assignment. 

If the provider chooses day 9 or day 10 

as the ARD for the optional start-oftherapy OMRA, the Rehabilitation RUG 

would also begin on the day therapy 

started, but the provider would also be 

required to complete a 14-day Medicarerequired assessment as long as the 

patient continues to meet SNF level of 

care requirements and remains in the 

facility after day 14. Lastly, if the 

provider chooses not to complete the 

optional start-of-therapy OMRA, either 

as a stand-alone or in combination with 

a Medicare-required assessment, the 

rehabilitation RUG would then begin 

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with the payment period of the next 

Medicare-required assessment. As the 

provider may complete the optional 

start-of-therapy OMRA in situations 

where therapy has started within the 

assessment window, but a rehabilitation 

RUG was not assigned because the daily 

requirement had not been met, we do 

not believe that eliminating section T 

will result in ‘‘financial pressures’’ to 

provide less care than the resident 

requires. Therefore, after review of the 

comments, effective October 1, 2010, we 

will delete section T (T1b, c, d) from the 

MDS 3.0 as we proposed in the FY 2010 

SNF PPS proposed rule. In addition, we 

will implement the optional start-oftherapy OMRA, which may be 

completed not only when therapy starts 

in between assessment windows, but 

also when therapy has started in a 

Medicare-required assessment window. 

As explained above, we believe that the 

option to use the start-of-therapy 

OMRA, regardless of when therapy 

starts, eliminates the risk that therapy 

data would not be captured for some 

patient days. 

Comment: Several commenters stated 

that eliminating the projection could 

result in a mismatch of the therapy plan 

of care with the beneficiary’s needs or 

a misallocation of the therapy resources 

that the beneficiary requires, because 

section T assists the therapist in making 

clinical projections which, in turn, 

results in better coordination of care. 

Response: While we are eliminating 

the projection of therapy services in 

section T, we are also providing for a 

start-of-therapy OMRA. We rely on the 

clinician’s judgment to make decisions 

on the need for and volume and 

frequency of therapy services. The 

documentation currently required in 

section T under the MDS 2.0 simply 

shows the results of the clinical 

evaluation. We do not believe that a 

projection methodology can serve to 

provide clinical guidance to a therapist 

and, thus, we do not expect that the 

elimination of this particular 

documentation requirement will 

adversely affect patient care. 

Comment: Several commenters 

supported the voluntary start-of-therapy 

OMRA so that patients can be assigned 

to rehabilitation RUGs based on when 

therapy services are started, especially 

when therapy is started outside the 

assessment reference window. Many 

commenters also supported the change 

to the end-of-therapy assessment. They 

stated that these proposed changes will 

increase the accuracy of payments to 

providers. However, some commenters 

disagreed with introducing either the 

optional start-of-therapy OMRA or the 

end-of-therapy OMRA, stating that 

increasing the number of assessments 

providers will need to complete would 

represent an added burden. A few 

suggested that CMS should develop a 

methodology to compensate facilities for 

the added burden of work associated 

with the OMRAs. One commenter 

disagreed with changing the end-oftherapy OMRA ARD from 8–10 days 

after the discontinuation of therapy to 

the proposed 1 to 3 days, as a therapy 

RUG might still be assigned. One 

commenter suggested that requiring 

SNFs to complete an OMRA within 1 to 

3 days following therapy discharge 

could affect the nurse’s assessment of 

the need for skilled nursing services. 

These commenters also asserted that the 

proposed change would deny patients 

valuable time in recovery while being 

closely observed by nursing for 7 days 

following the discharge from therapy, 

and could potentially cause an 

inappropriate over-utilization of the 

OMRA by triggering additional 

assessments (which might not have been 

necessary if the patient had been 

maintained in a therapy group). Some 

commenters stated that when therapy is 

not provided for a few days due to an 

illness, an end-of-therapy OMRA would 

be required and then a start-of-therapy 

OMRA once the patient is again able to 

participate in therapy. They believe this 

would increase the number of 

assessments required and, thus, would 

represent an added burden. 

Response: We agree with the 

commenters that the changes to provide 

for a voluntary start-of-therapy OMRA 

and a required end-of-therapy OMRA 

will result in more accurate payments to 

providers. Under current practice, the 

assessment reference date (ARD) for the 

OMRA is required to be set within 8 to 

10 days of the end of all therapies. The 

proposed change that we are adopting in 

this final rule would simply require the 

ARD for the end-of-therapy OMRA to be 

set in a shorter time frame, that is, no 

more than 3 days following the 

cessation of all therapies, and would not 

increase the number of assessments. 

Further, the start-of-therapy OMRA is 

completely voluntary and is not 

required and, thus, we do not believe it 

is an additional burden. In addition, 

because the provider would be able to 

combine the start-of-therapy OMRA 

with a Medicare-required assessment, 

there would be no additional burden. 

However, we are aware that completing 

the stand-alone voluntary start-oftherapy OMRA might result in an 

increase of assessments. Therefore, in 

response to concerns expressed by 

commenters regarding the increase in 

the number of assessments, we will 

provide for an abbreviated OMRA for 

the stand-alone start-of-therapy OMRA, 

which will include only the required 

demographic information (needed for all 

assessment types), the therapy items, 

restorative therapy items and bladder 

and bowel training items, and the 

extensive services items. The other 

clinical payment items would not be 

required, as the purpose of the optional 

start-of-therapy OMRA is to classify a 

person in a rehabilitation RUG 

(including Rehabilitation plus Extensive 

Services). In addition, we note that 

commenters expressed concern 

regarding the possibility that our revised 

ARD requirement for the end-of-therapy 

OMRA may increase the number of 

assessments needed. Although we do 

not agree that changing the ARD 

requirement for the end-of-therapy 

OMRA would increase the number of 

assessments required, in order to 

alleviate the commenter’s concerns and 

because the MDS 3.0 gives us the 

capability, we will also shorten the endof-therapy OMRA so that it consists 

only of the required demographic items 

and all of the payment items (unlike the 

MPAF, which includes all of the 

required demographic items, the 

payment items, and many other clinical 

items). However, as discussed above, we 

do not agree that CMS is requiring 

additional assessments. We note that the 

start-of-therapy OMRA is optional, thus 

making it entirely voluntary and not 

required. CMS has no authority to 

provide for additional reimbursement 

for this assessment itself; however, the 

voluntary start-of-therapy OMRA would 

typically be completed when 

assignment to the new therapy group 

would result in higher reimbursement. 

The end-of-therapy OMRA is already 

required and, therefore, the cost of 

completing the end-of-therapy OMRA is 

already included in the payment rates 

for SNFs. 

In reality, we have actually reduced 

the burden associated with the end-oftherapy OMRA, by including only the 

required demographic items and 

payment items. As we stated in the 

proposed rule, we have included the 

ability to provide two Medicare RUG 

classifications. The first will be the 

‘‘therapy’’ RUG, which is based on all of 

the payment items, including the 

rehabilitation items. The second RUG is 

the ‘‘non-therapy’’ RUG. This RUG 

classification will not consider any of 

the rehabilitation items when assigning 

a RUG. Therefore, when submitting a 

claim for days of service after therapy 

has been discontinued, the provider 

would use the ‘‘non-therapy’’ RUG. We 

will provide detailed MDS coding and 

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billing instructions in the Internet-only 

Manuals and the RAI Manual. 

We do not agree that requiring SNFs 

to complete an OMRA within 1 to 3 

days following the discontinuation of 

therapy would result in patients being 

denied valuable recovery time by no 

longer paying for therapy services for 7 

days after all therapy is discontinued. It 

is the responsibility of the professional 

therapist to determine when a patient 

has met the goals established for the 

patient in the therapy plan of care, and 

to avoid discontinuing therapy 

prematurely. If this determination is 

appropriately made by the therapist, we 

do not believe requiring an OMRA to be 

completed within 1 to 3 days after the 

discontinuation of therapy should cause 

inappropriate utilization of the OMRA 

triggering additional assessments. Also, 

we do not believe that changing the 

ARD for the end-of-therapy OMRA will 

affect the assessment of the need for 

continued skilled nursing services, as 

the nursing needs of a resident should 

not be affected by whether therapy is 

being provided. The SNF should be 

providing for all of the resident’s needs 

during the entire SNF stay, regardless of 

when the ARD for the end-of-therapy 

OMRA is required to be set. In addition, 

if the patient continues to receive 

skilled nursing after the therapy has 

been discontinued, the patient will 

continue to be covered under the 

Medicare Part A benefit until such time 

as a skilled level of care is no longer 

required. For these reasons, we do not 

agree that additional assessments would 

be needed, or that additional days paid 

at the therapy RUG would affect the 

recovery of the patient or the assessment 

of the need for continued skilled 

nursing services. 

We do not agree with the commenters 

that a brief illness would increase the 

number of required assessments. As 

stated in the ‘‘daily basis’’ criteria at 42 

CFR 409.34(b), ‘‘a break of one to two 

days in the furnishing of rehabilitation 

services will not preclude coverage if 

discharge would not be practical for the 

one or two days during which, for 

instance, the physician has suspended 

the therapy sessions because the patient 

exhibited extreme fatigue.’’ Therefore, 

according to these regulations, a brief 

illness would not necessarily result in 

the provider having to complete an endof-therapy OMRA. Based on the 

concerns expressed by these 

commenters, we would like to take this 

opportunity to help ensure that the endof-therapy OMRA is completed timely 

and appropriately. We proposed that the 

end-of-therapy OMRA be completed 

with an ARD of 1 to 3 days after the 

discontinuation of all therapies (speechlanguage pathology services and 

occupational and physical therapies). 

For purposes of the ARD for an end-oftherapy OMRA, the provider shall 

consider day 1 the day after all therapies 

are discontinued. When a facility 

provides rehabilitation therapies five 

days a week (Monday through Friday), 

we would like to clarify that day 1 

would correspond to the first day, 

following the cessation of therapy 

services, on which therapy services 

would normally be provided. For 

example, if all therapies are 

discontinued on October 15, 2010 

(which is a Friday), the next day that 

therapy would normally be provided 

would be Monday, October 18, and this 

day would become day 1 after therapies 

were discontinued. The provider would 

have the ability to choose the ARD to be 

set on October 18 (day 1), October 19 

(day 2), or October 20 (day 3). As set 

forth in 42 CFR 409.34(a)(2), when 

therapy services are not available 7 days 

a week, therapy services must be needed 

and provided at least 5 days a week. 

When a facility only provides therapy 5 

days a week, the therapy department 

would not be open on the weekend. 

Therefore, the weekend days would not 

be counted toward the establishment of 

the ARD for the end-of-therapy OMRA. 

Again, as discussed above, we believe 

the ability to choose the ARD up to 3 

days after the discontinuation of all 

therapies will not lead to overutilization of OMRAs. 

Comment: Commenters had various 

understandings of what constitutes a 

short stay. In their comments regarding 

our revisions to section T and the 

therapy reporting procedures (that is, 

therapy reporting procedures for shortstay patients, implementation of a startof-therapy OMRA, and revised ARD for 

the end-of-therapy OMRA), a few 

commenters provided examples of a 

short-stay resident with different 

lengths of stay. Their remarks varied 

from the first ‘‘few’’ days to the first 5 

days of the SNF stay. Comments 

regarding the STRIVE project on a short 

stay often cited 7 days as being a short 

stay (that is, a discharge before day 8). 

Response: We realize that our 

discussion in the FY 2010 SNF PPS 

proposed rule of the revised reporting of 

therapy services for short-stay patients 

(74 FR 22245) may have caused 

confusion. When the SNF PPS was 

introduced in July 1998, we expanded 

the collection of MDS data to include 

new assessments that were primarily 

used to determine payment. These 

Medicare-required assessments were 

defined in our May 1998 SNF rule (63 

FR 26252, 26265–69), and processing 

instructions are included in the MDS 

manual. 

For SNF PPS purposes, SNFs are 

required to complete the Medicarerequired 5-day assessment in order to 

initiate Medicare payment for the stay. 

The facility captures clinical data with 

an ARD from days 1 through 8 of the 

covered stay on this Medicare-required 

5-day assessment, which is then used to 

assign the patient to a RUG group. 

Generally, the RUG group assigned 

using the Medicare 5-day assessment is 

used to pay for up to 14 days of the 

covered stay. 

Since the inception of the SNF PPS, 

CMS has allowed providers to record 

therapy services based on a projection 

via section T of the MDS. This 

projection can only be made when two 

criteria are met. First, the need for 

therapy must have been established 

through a therapy evaluation and a 

physician’s order. Second, therapy 

could not be initiated early enough in 

the beneficiary’s stay to capture (on the 

Medicare-required 5-day assessment) 

the 5 days of therapy required to assign 

a therapy case-mix group. The projected 

therapy days and minutes are used in 

the calculation of the assigned RUG, 

thus allowing an SNF to receive 

payment for therapy services that it 

plans to provide to a beneficiary in the 

beginning of the stay. Even when 

patients are discharged before the 

Medicare 5-day assessment can be fully 

completed (that is, prior to day 8, the 

last allowed date that can be used to 

report the MDS clinical data), providers 

are still expected to complete section T 

as accurately as possible and submit at 

least a partial Medicare-required 5-day 

assessment. Because the Medicarerequired 5 day assessment may be 

performed until day 8 of the resident’s 

stay, we believe that it is appropriate to 

define a short-stay patient as one who 

is discharged on day 8 or earlier. 

Based on the comments that we 

received, it appears that our proposal 

regarding the revised therapy reporting 

procedures for short-stay patients (74 FR 

22245) may have caused some 

confusion among commenters, as we 

inadvertently described a short-stay 

patient as a patient who is discharged 

prior to day 14. Therefore, we are 

clarifying in this final rule that shortstay patients are patients who are 

discharged on day 8 or earlier, and that 

the revised reporting procedures for 

short-stay patients apply to those 

patients who are discharged on day 8 or 

earlier. The RUG–IV group established 

under this revised reporting procedure 

can then be used to reimburse SNFs at 

the therapy rate from day 1 to the date 

of short-stay discharge. 

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Comment: A few commenters stated 

that our proposed methodology for 

determining the assigned rehabilitation 

RUG for short-stay patients did not 

account for therapy services that are 

provided at a higher level than Medium, 

even though the SNF may have 

provided greater amounts of therapy, 

such as one of the High rehabilitation 

groups. They expressed concern that by 

only allowing for Rehabilitation Low 

and Medium categories, SNFs would 

not be adequately reimbursed for 

providing a more intense level of 

therapy and, thus, some patients may 

not receive the appropriate and 

adequate amount of therapy in the 

beginning of the SNF stay. 

Response: We agree that for residents 

who are discharged early in the posthospital stay (day 8 or earlier) and have 

not been able to complete 5 days of 

therapy, and when the SNF has 

provided therapy at the intensity of 

Rehabilitation High or greater, the 

resident should be able to be assigned 

to a rehabilitation RUG greater than 

Medium. We also agree that the SNF 

should be adequately reimbursed for the 

therapy services they provided. Thus, 

when calculating the rehabilitation RUG 

for a resident who is discharged early in 

the post-hospital stay (day 8 or earlier) 

and when the patient has not been able 

to report delivery of 5 days of therapy 

on the 5-day MDS 3.0, a therapy RUG 

will be calculated by using items from 

the MDS 3.0. As proposed, these items 

will include: the actual number of 

therapy minutes provided, the date of 

admission, the date therapy started, the 

patient’s ADL level, and the ARD. In 

addition, as stated in the proposed rule, 

if the average daily therapy minutes 

provided are between 15–29 minutes, 

the record will be assigned to the 

Rehabilitation Low category (RLx). In 

addition, in response to comments 

received, the assignment for other 

rehabilitation categories will be based 

on the average daily minutes of therapy 

provided, as follows: 

• Average daily therapy minutes are 

between 30–64 minutes, a 

Rehabilitation Medium category (RMx). 

• Average daily therapy minutes are 

between 65–99 minutes, a 

Rehabilitation High category (RHx). 

• Average daily therapy minutes are 

between 100–143 minutes, a 

Rehabilitation Very High category 

(RVx). 

• Average daily therapy minutes are 

144 or greater, a Rehabilitation Ultra 

High category (RUx). 

We determined the minutes above for 

each rehabilitation RUG category by 

taking the minimum required minutes 

for each category and dividing by 5, 

which represents the minimum weekly 

required number of days of therapy 

according to the SNF level of care 

criteria’s daily basis requirement (42 

CFR 409.34). Accordingly, we are taking 

this opportunity to update the example 

that we provided in the FY 2010 

proposed rule regarding the therapy 

reporting procedure for short-stay 

patients. Physical therapy is started on 

day 4 and the resident is discharged on 

day 7; the resident received 65 minutes 

of individual therapy on day 4, 70 

minutes of individual therapy on day 5, 

73 minutes of individual therapy on day 

6, and 67 minutes of individual therapy 

on day 7. The ARD on the assessment 

is day 7. The total physical therapy 

minutes provided are 275. The average 

number of daily therapy minutes is 

68.75. The rehabilitation RUG assigned 

will be RHx (the average daily therapy 

minutes are between 65–99). 

We are reiterating that this policy 

only applies to the short-stay resident 

whose stay is 8 days or less and who 

received less than 5 days of therapy. 

Also, as stated in the proposed rule, the 

ADL index will be based on the ADL 

level reported on the MDS. Together, 

the ADL index and the average daily 

therapy minutes determine the RUG–IV 

group that will be assigned. We will 

provide detailed instructions in the 

online Medicare manuals and the MDS 

3.0 RAI Manual. 

Comment: A few commenters 

requested that we clarify how the ARD 

should be set for the start-of-therapy 

OMRA. They believe CMS intended to 

say that the ARD would be set 4–6 days 

after the start of therapy, rather than 5– 

7. 

Response: We understand the 

confusion that may have arisen from the 

use of the phrase ‘‘5–7 days after 

therapy starts.’’ We will, therefore, take 

the opportunity to provide an example 

to clarify the policy. As we stated above, 

if therapy starts on day 5 of the stay, the 

provider may set the ARD for the 

optional start-of-therapy OMRA on day 

9, 10, or 11. The day that therapy starts 

is counted as day 1. The purpose of 

stating 5–7 days and counting the 

therapy start date as day 1 was to 

coincide with the look-back period 

when completing the MDS. The lookback for the therapy items for days and 

minutes on the MDS is 7 days. The 

concept is for the provider to capture 

the first day of therapy when 

completing the MDS. Therefore, 5 days 

from the start of therapy is day 9 (day 

5=1, day 6=2, day 7=3, day 8=4, day 

9=5). If, on the other hand, the SNF 

chooses day 7 after the start of therapy 

in the previous example (which would 

be day 11 of the stay), the day that 

therapy started (day 5) would still be 

captured in the look-back period. We 

will work with industry stakeholders to 

ensure that our instructions in Medicare 

manuals and the RAI Manual are clear. 

Comment: Several comments stated 

that changes in discontinuing therapy at 

a skilled level may create technical 

issues with regard to a resident 

receiving Part B therapy during a Part A 

stay. 

Response: This comment would 

appear to reflect a misunderstanding of 

the SNF benefit structure, as a resident 

cannot receive Part B therapy during a 

Part A stay. Under the SNF PPS, the Part 

A payment represents payment in full 

for all costs (routine, ancillary, and 

capital-related) incurred by the facility 

to provide care to the resident, 

including those services that were 

previously covered under Part B. 

Comment: Several commenters stated 

that reporting the dates that physical 

and/or occupational therapy and/or 

speech-language pathology services start 

and end on the claim when billing a 

rehabilitation RUG will be burdensome. 

Response: We are in the process of 

evaluating our data needs to support 

both RUG–IV and a possible separate 

NTA payment mechanism. Changes to 

billing requirements will be introduced 

through updated instructions in the 

claims processing manuals, and will be 

addressed in our FY 2011 SNF PPS 

proposed rule as appropriate. 

Therefore, effective October 1, 2010, 

we will eliminate section T of the MDS 

and revise the therapy reporting 

procedures as proposed in the FY 2010 

proposed rule (74 FR 22244–46) (that is, 

reporting procedures for short-stay 

patients, implementation of an optional 

start-of-therapy OMRA, and revised 

ARD for the end-of-therapy OMRA), 

with the modifications and 

clarifications discussed above. 

E. Other Issues 

1. Invitation of Comments on Possible 

Quarterly Reporting of Nursing Home 

Staffing Data 

Although we did not propose specific 

regulatory language in this area under 

the FY 2010 proposed rule, we did 

request public comment on a possible 

requirement for nursing homes to report 

nursing staffing data to CMS on a 

quarterly basis. 

Comment: Although commenters 

expressed various concerns, most were 

supportive of the proposed quarterly 

payroll-based collection of staffing data. 

Response: We were pleased with the 

level of support expressed through the 

comments. While it is true that the 

design of the proposed electronic 

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payroll-based nursing home staffing 

data collection system was not fully 

specified in the proposed rule, CMS is 

aware of most of the issues raised in the 

comments, and has been actively 

working on them. We provide responses 

to specific comments in the following 

paragraphs. 

Comment: We received several 

comments pointing out the need for 

CMS to partner with its stakeholders 

during the design of any new staffing 

data collection. 

Response: CMS values the opinions 

and insights provided by our 

stakeholders. We have reported on our 

funded staffing studies and other efforts 

to improve the accuracy of nursing 

home staffing data in stakeholder 

meetings and conference calls, and on 

Open Door Forum calls. As the planning 

for a payroll-based data collection 

system moves forward, we certainly 

plan to continue to involve our 

stakeholders. 

Comment: Several commenters 

expressed concern about the level of 

administrative burden that might be 

imposed by a quarterly payroll-based 

reporting system for staffing data. One 

commenter believed that such a system 

would create inefficiencies in the care 

delivery system. 

Response: CMS shares the 

commenters’ concern about the need to 

avoid unnecessary administrative 

burden, and for this reason, we 

specifically requested comments in the 

proposed rule on the level of burden to 

nursing homes imposed by a quarterly 

payroll-based reporting system for 

staffing data. We would hope to 

minimize any burden to the extent 

possible, and we found the comments 

very helpful. 

Comment: A few commenters raised 

the issue of the financial cost to 

individual nursing homes of a 

computerized staffing collection system: 

For the cost of software and updates, 

initial costs for the introduction of a 

computerized payroll system, or added 

costs with payroll vendors. 

Response: The financial cost to 

nursing homes of providing quarterly 

payroll-based staffing data electronically 

is also an area of concern to CMS. As 

with the administrative burden, we 

would also hope to design and 

implement the system in such a way as 

to minimize any burden to the extent 

possible. The comments provided were 

very helpful to our planning. 

Comment: A few commenters 

expressed concern about issues of 

privacy involved with the use of payroll 

data. 

Response: This data collection effort 

is currently in a planning phase, but we 

want to be clear that it is not our 

intention to collect names, social 

security numbers, or wage data for staff 

members. CMS is interested in each staff 

member’s time spent caring for 

residents, and in the start and end date 

of service in the facility. We envision 

each staff member’s data being 

identified with a facility-level 

identification number and, within the 

facility data, an individual staff member 

identification number. 

Comment: One commenter pointed 

out the need under any new system for 

careful and consistent directions for 

coding of staff categories and for 

consistent directions on how to handle 

non-productive versus productive time. 

Response: We agree that clear, 

consistent directions for specifying staff 

categories and for handling nonproductive time are vital to ensuring 

accuracy of any data collected. 

Comment: Several commenters 

pointed out the importance of including 

data in the proposed system that would 

allow the calculation of staff turnover 

and retention. 

Response: We agree that data to 

address turnover and retention are 

important to include in a staffing data 

collection system. Staff turnover and 

staff retention measures were developed 

as part of the CMS-funded 

‘‘Development of Staffing Quality 

Measures’’ Project (2003–2008). Both 

measures were found to be related to the 

quality of care in the nursing home. 

Comment: Several commenters 

pointed out the need to carefully 

address collection of contract and 

agency staff data. Specifically, one 

commenter was concerned with the 

burden of potentially having to handsort invoices as a basis for data 

reporting. 

Response: An assessment of the best 

way to collect staffing data for contract 

and agency staff is currently being 

conducted under a CMS-funded study. 

While we currently believe that an 

auditable source of data such as 

invoices would be preferable, we are 

awaiting the results of our study. We 

appreciate the comment, and are 

conscious of the level of effort entailed 

in a system requiring hand-sorting. 

Comment: A few commenters 

discussed the need for a data collection 

system to allow a ‘‘complete staffing 

picture’’ by including therapists, 

physician extenders, and other staff 

providing resident care. 

Response: This data collection effort 

is currently in a planning phase. At this 

point it is not entirely clear which staff 

categories will be included in the data 

collection. Being able to see a ‘‘complete 

staffing picture’’ for a facility would 

certainly be helpful, and we will take 

the comment into account. 

Comment: A commenter pointed out 

the need for any new system to be 

sensitive to the staffing patterns of 

culture change facilities and to allow 

the staff to be fairly represented. 

Response: We are aware of concerns 

that the currently used staffing form 

(CMS–671) does not well accommodate 

the broad range of newer nursing home 

care staff roles. The staffing patterns of 

culture change facilities are good 

examples of this issue. We will be 

sensitive to this concern in developing 

the definitions for the payroll-based 

data collection system. 

Comment: We received a few 

comments urging that any staffing data 

collected be standardized for acuity (or 

case-mix) of residents and for the 

facility census. 

Response: Facility-level staffing data 

that are currently posted on the CMS 

Nursing Home Compare Web site are 

expressed as hours of care per resident 

per day, so they are, in effect, 

standardized for the census of the 

facility. Although the staffing data used 

in the Five Star Quality Rating System 

calculations are case-mix adjusted using 

Resource Utilization Group categories, 

the case-mix adjusted measures 

themselves are not reported. We will 

give consideration to the comment as 

we plan for implementing the payrollbased system. 

Comment: Several commenters 

suggested that any quarterly collection 

of staffing data could be most easily 

accomplished through the use of the 

MDS reporting systems. 

Response: At this phase in the 

planning efforts, we are considering the 

use of the MDS reporting system, as 

well as several other options. 

Comment: A commenter suggested 

basing any new system on the publicly 

posted staffing information in each 

facility that is currently required by 

CMS. The data include nursing home 

census and staffing resources by shift. 

Response: We have been funding 

work concerned with ensuring the 

accuracy of nursing home staffing data 

since 1998, with the beginning of the 

Phase I Staffing Study (designed to 

investigate the appropriateness of 

minimum staffing ratios in nursing 

homes). The results of both the Phase I 

and the Phase II Staffing Studies 

suggested that using payroll data as a 

basis for staffing produced more 

accurate data than other sources, such 

as cost reports or the current Online 

Survey Certification and Reporting 

System (OSCAR), which houses the data 

collected at the time of survey. A later 

CMS-funded Study (Development of 

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Staffing Quality Measures (SQM)— 

2003–2008), following the advice of a 

panel of technical experts, provided a 

further assessment of the use of payroll 

data for staffing. This study assembled 

a database of payroll data from 1453 

nursing homes and, using those data, 

developed a number of measures of 

direct care staffing, including turnover 

and retention. A comparison of these 

data with OSCAR data showed clear 

differences. 

While we have not assessed the 

relative accuracy of the staffing data 

posted publicly in each facility 

compared to payroll data, the research 

base supports the use of payroll data as 

a more accurate source for staffing data. 

Comment: Several commenters 

suggested uses of the data that involved 

collection of wage data in addition to 

staffing time data. 

Response: The payroll-based staffing 

data collection, as it is currently 

proposed, does not include collection of 

wage data. 

Comment: In addition to the 

comments that we received on the 

proposed quarterly staffing data 

collection, several commenters provided 

discussion of specific issues involving 

the CMS Five Star Quality Rating 

System for Nursing Homes. 

Response: The specific issues that 

were raised about the design of the Five 

Star Quality Rating System for Nursing 

Homes and the calculations involved in 

the rating system are beyond the scope 

of this final rule. However, we 

appreciate the careful consideration that 

these comments reflected, and we will 

direct them to the attention of 

appropriate staff in CMS. 

2. Miscellaneous Technical Corrections 

and Clarifications 

In the FY 2010 proposed rule, we 

proposed to correct the paragraph 

heading in the regulations text at 

§ 483.75(j), by removing the phrase 

‘‘Level B requirement:’’ and italicizing 

the remaining text in the heading 

(‘‘Laboratory services’’). We received no 

comments on this proposal, and in this 

final rule, we are revising this portion 

of the regulations text as proposed. 

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 2010 proposed rule, we stated that 

the proposed rule incorporated the 

latest available projections of the SNF 

market basket index. In this final rule, 

we are updating projections based on 

the latest available projections 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. 

Comment: One commenter stated that 

the SNF market basket factor is 

defective and continues to understate 

compensation, pharmacy, and operating 

costs, and that current market basket 

weights do not reflect changing staffing, 

higher pharmacy costs, and rising 

liability insurance. 

Response: The 2004-based SNF 

market basket is a fixed-weight index 

that is intended to measure the price 

increases associated with the same mix 

of goods and services over time. The 

market basket is not intended to 

measure actual costs and, therefore, we 

do not accept the commenter’s argument 

that the SNF market basket factor is 

defective and continues to understate 

compensation, pharmacy, and operating 

costs. The current FY 2010 market 

basket update factor of 2.2 percent is 

based on the IHS Global Insight (IGI) 

second quarter 2009 forecast, and 

reflects the projected price changes for 

all cost categories in the market basket 

(including those associated with 

compensation, pharmacy, and other 

operating costs). IGI is a nationally 

recognized economic and financial 

forecasting firm that contracts with CMS 

to forecast the components of the market 

baskets. 

We also do not agree with the 

commenter’s claim that the market 

basket does not reflect changing staffing 

costs, higher pharmacy costs, and rising 

liability insurance. For the FY 2008 

final rule (72 FR 43424–43429), we 

adopted a revised and rebased 2004- 

based SNF market basket that reflected 

the 2004 cost structures of Medicareparticipating SNFs. The previous SNF 

market basket was based on the 1997 

cost structures for Medicareparticipating SNFs. The major cost 

weights of the 2004-based SNF market 

basket, which are inclusive of 

compensation, pharmacy, and 

professional liability insurance, were 

derived mainly from 2004 Medicare cost 

reports. During the rebasing process, we 

revised our methodology for calculating 

the pharmacy cost weight to incorporate 

an estimate of Medicaid drug expenses 

(72 FR 43426) incurred by SNFs. The 

inclusion of these costs resulted in a 

pharmacy cost weight for the 2004- 

based SNF market basket that was twice 

as large as that of the 1997-based market 

basket pharmacy cost weight. We also 

explicitly designated a professional 

liability insurance cost category (which 

was not a separate cost category in the 

1997-based SNF market basket due to 

lack of sufficient data). As a result, we 

believe the current SNF market basket 

cost weights reflect the cost structures of 

Medicare-participating SNFs. 

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 16 summarizes the updated laborrelated share for FY 2010. 

TABLE 16—LABOR-RELATED RELATIVE IMPORTANCE, FY 2009 AND FY 2010 

Relative importance, 

labor-related, 

FY 2009 

08:2 forecast*

Relative importance, 

labor-related, 

FY 2010 

09:2 forecast 

Wages and salaries ............................................................................................. 51.003 51.078 

Employee benefits ............................................................................................... 11.547 11.533 

Nonmedical professional fees ............................................................................. 1.331 1.323 

Labor-intensive services ...................................................................................... 3.434 3.446 

Capital-related (.391) ........................................................................................... 2.468 2.460 

Total .............................................................................................................. 69.783 69.840 

*

Published in the Federal Register (73 FR 46434); based on the second quarter 2009 IHS Global Insight Inc. revised forecast. 

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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 2010. This is 

based on the IHS Global Insight, Inc. 

(formerly DRI–WEFA) second quarter 

2009 forecast (with historical data 

through the first quarter 2009) of the FY 

2010 percentage increase in the FY 

2004-based SNF market basket index for 

routine, ancillary, and capital-related 

expenses, to compute the update factor 

in this final rule. 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 threephase transition period from facilityspecific 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 FY 2004 

supplemental proposed rule (68 FR 

34768, June 10, 2003) and finalized in 

the FY 2004 final rule (68 FR 46067, 

August 4, 2003), 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. 

Subsequent adjustments in succeeding 

FYs take into account the forecast error 

from the most recently available FY for 

which there is final data, and apply 

whenever the difference between the 

forecasted and actual change in the 

market basket exceeds a specified 

threshold. We originally used a 0.25 

percentage point threshold for this 

purpose; however, for the reasons 

specified in the FY 2008 SNF PPS final 

rule (72 FR 43425, August 3, 2007), we 

adopted a 0.5 percentage point 

threshold effective with FY 2008. As 

discussed previously in section I.F.2. of 

this final rule, because the difference 

between the estimated and actual 

amounts of increase in the market 

basket index for FY 2008 (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 2010 do not include a 

forecast error adjustment. 

Comment: One commenter suggested 

that CMS apply a cumulative forecast 

error to account for all of the variations 

in the market basket forecasts since FY 

2004 (that is, as of when CMS 

implemented the market basket forecast 

error correction policy.) The commenter 

asserted that the forecast adjustment 

process did not work as intended, citing 

the lack of any annual adjustments in 

subsequent years as evidence. The 

commenter recommended that the 

policy be modified to provide for an FY 

2010 cumulative adjustment of 1.0 

percent to restore these ‘‘lost’’ dollars to 

the SNF industry. 

Response: For FY 2004, CMS applied 

a one-time, cumulative forecast error 

correction of 3.26 percent (68 FR 46036, 

August 4, 2003). Since that time, the 

forecast errors have been relatively 

small and clustered near zero. 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 PPS 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. Federal Rate Update Factor 

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

requires that the update factor used to 

establish the FY 2010 Federal rates be 

at a level equal to the full 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, 2008 through 

September 30, 2009 to the average 

market basket level for the period of 

October 1, 2009 through September 30, 

2010. Using this process, the market 

basket update factor for FY 2010 SNF 

PPS Federal rates is 2.2 percent. We 

used this update factor to compute the 

Federal portion of 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 19231–19232, 

April 10, 2000, and 65 FR 46790–46795, 

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 24020–24021, May 10, 

2001, and 66 FR 39587–39588, 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 Program Transmittal #390 (Change 

Request #3575), issued December 10, 

2004, which is available online at http:// 

www.cms.hhs.gov/transmittals/

downloads/r390cp.pdf. 

Further, while not substantively 

revising the consolidated billing 

requirement itself, a related provision 

was enacted in the Medicare 

Improvements for Patients and 

Providers Act of 2008 (MIPPA, Pub. L. 

110–275). Specifically, section 149 of 

MIPPA amended section 

1834(m)(4)(C)(ii) of the Act to create a 

new subclause (VII), which adds SNFs 

(as defined in section 1819(a) of the Act) 

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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 Calendar Year (CY) 2009 (73 FR 

69726, 69879, November 19, 2008), a 

telehealth originating site receives a 

facility fee which is always separately 

payable under Part B outside of any 

other payment methodology. Section 

149(b) of MIPPA amended section 

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

telehealth services furnished under 

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

from the definition of ‘‘covered skilled 

nursing facility services’’ that are paid 

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

can receive separate payment for a 

telehealth originating site facility fee 

even in those instances where it also 

receives a bundled per diem payment 

under the SNF PPS for a resident’s 

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

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

the Act, a telehealth distant site service 

is payable under Part B to an eligible 

physician or practitioner only to the 

same extent that it would have been so 

payable if furnished without the use of 

a telecommunications system. Thus, as 

explained in the CY 2009 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 42 CFR 

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

clinical social workers, registered 

dietitians and nutrition professionals 

remain subject to consolidated billing 

when furnished to a SNF’s Part A 

resident and, thus, cannot qualify for 

separate Part B payment as telehealth 

distant site services in this situation. 

Additional information on this 

provision appears in 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 2010 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 (74 FR 22208, 

22249, May 12, 2009). The comments 

that we received on this subject, and our 

responses, appear below. 

Comment: Several commenters 

submitted additional chemotherapy 

codes that they recommended for 

exclusion from consolidated billing. 

Response: A review of the particular 

chemotherapy codes that commenters 

submitted in response to the proposed 

rule’s solicitation for comment revealed 

that many of them were codes that had 

already been submitted for 

consideration in past years, and which 

we had already decided previously not 

to exclude. Other codes that 

commenters submitted were themselves 

already in existence as of July 1, 1999, 

but did not fall within the specific code 

ranges statutorily designated for 

exclusion in the BBRA. As the statute 

does not specifically exclude these 

already-existing codes (and as further 

discussed later in this section of the 

final rule), we are not adding them to 

the exclusion list. Most of the other 

codes submitted represent services that, 

for various reasons, do not meet the 

statutory criteria for exclusion. For 

example, some represent oral 

medications that can be administered 

routinely in SNFs and are not 

reasonably characterized as ‘‘requiring 

special staff expertise to administer’’ in 

accordance with the previously-cited 

BBRA Conference report language. 

Other codes do not meet the BBRA 

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Conference report’s threshold criteria of 

high cost (that is, an item whose ‘‘* * * 

costs far exceed the payment [SNFs] 

receive under the prospective payment 

system’’) and low probability that the 

Congress imposed in enacting this 

exclusion. Still others represent drugs 

that are administered in conjunction 

with chemotherapy to address side 

effects such as nausea; however, as such 

drugs are not in themselves inherently 

chemotherapeutic in nature, they do not 

fall within the excluded chemotherapy 

category designated in the BBRA. Two 

particular codes that a commenter 

offered as possible candidates for the 

chemotherapy exclusion actually are not 

anti-cancer drugs, but rather, are used in 

hormone therapy and for the treatment 

of certain types of anemia, respectively. 

Finally, some other codes that were 

submitted represent services that, in 

fact, are already excluded from 

consolidated billing under existing 

instructions. 

Comment: Some commenters 

reiterated previous suggestions on 

expanding the existing chemotherapy 

exclusion to encompass related drugs 

that are commonly administered in 

conjunction with chemotherapy in order 

to treat the side effects of the 

chemotherapy drugs. The commenters 

cited examples such as anti-emetics 

(anti-nausea drugs) and erythropoietin 

(EPO). 

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 8, 

2008 SNF PPS final rule for FY 2009 (73 

FR 46437)), the BBRA authorizes us to 

identify additional services for 

exclusion only within those particular 

service categories—chemotherapy and 

its administration; 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 themselves inherently 

chemotherapeutic in nature and, 

consequently, do not fall within the 

excluded chemotherapy category 

designated in the BBRA. We also 

explained in the FY 2008 final rule that 

the existing statutory exclusion from 

consolidated billing for EPO is 

effectively defined by the scope of 

coverage under the Part B EPO benefit 

at section 1861(s)(2)(O) of the Act; that 

benefit, in turn, specifically limits EPO 

coverage to dialysis patients, and does 

not provide for such coverage in any 

other, non-dialysis situations such as 

chemotherapy (72 FR 43432). 

Comment: One comment concerned 

our longstanding view, most recently 

discussed in the SNF PPS final rule for 

FY 2009 (73 FR 46436, August 8, 2008) 

and the SNF PPS proposed rule for FY 

2010 (74 FR 22249, May 12, 2009), that 

the authority granted by the BBRA to 

identify additional codes for exclusion 

within the designated categories 

essentially serves to confer ‘‘* * * 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)’’ 

(emphasis added). Our position has 

always been that this discretionary 

authority applies solely to codes that 

were created subsequent to the 

enactment of the BBRA, 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 those codes that it 

designates for exclusion). Implicit in 

this position is an assumption that if a 

particular code was already in existence 

as of that date but not designated for 

exclusion, this indicated the Congress’s 

intent for that code to remain within the 

SNF PPS bundle. 

One commenter took exception to this 

position and cited the Conference report 

that accompanied the BBRA (H.R. Rep. 

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

which gives two examples of potential 

problems with the practice of ‘‘* * * 

excluding services or items from the 

[SNF] PPS by specifying codes in 

legislation’’: 

• Some already-existing items that 

meet the exclusion criteria may have 

inadvertently been left off of the original 

exclusion list. 

• New, extremely costly items may 

come into use or codes may change over 

time. 

The commenter then asserted that our 

discretionary authority to identify 

additional codes for exclusion should 

apply not only to the latter concern, but 

also to the former one as well. As a 

result, the commenter argued that our 

periodic review of the codes for possible 

additional exclusions from consolidated 

billing should not be limited to only 

new and revised codes, but should also 

consider the entire set of codes that 

were already in existence as of the 

BBRA legislation’s reference date, July 

1, 1999. 

Response: In contrast to the new and 

revised codes that reflect an ongoing 

process of change within the coding 

system, the codes that were in existence 

as of the BBRA reference date (July 1, 

1999) essentially comprise a closed code 

set at this point, one that remains static 

and unchanging from year to year. 

Accordingly, we do not believe that it 

would be either necessary or 

appropriate to conduct recurring 

reviews of this particular code set once 

it has received an initial review. 

Moreover, we note that after identifying 

the two potential problems with 

designating exclusions by code as 

discussed above, the BBRA Conference 

report that the commenter cites then 

goes on to issue two specific directives: 

it confers on the Secretary the authority 

‘‘* * * to review periodically and 

modify, as needed, the list of excluded 

services’’ (emphasis added), and it also 

directs the GAO ‘‘* * * to review the 

codes of the excluded items and make 

recommendations on whether the 

criteria for their exclusion are 

appropriate by July 1, 2000’’ (emphasis 

added). Accordingly, we believe it is 

clear that the GAO’s short-term, onetime-only review of the exclusion codes 

would serve to encompass those codes 

already in existence as of the BBRA 

reference date, while the Secretary’s 

ongoing authority to conduct reviews 

‘‘periodically’’ was intended to address 

changes in the coding system that occur 

subsequent to that point. 

Comment: Although the FY 2010 SNF 

PPS proposed rule specifically invited 

comments on possible exclusions 

within the particular service categories 

identified in the BBRA legislation, a 

number of commenters took this 

opportunity to reiterate concerns about 

other aspects of consolidated billing. 

For example, some commenters 

reiterated past comments made on 

previous rules, urging CMS to unbundle 

additional service categories. The 

commenters identified services such as 

hyperbaric oxygen treatments, 

observation services, and blood 

transfusions as appropriate candidates 

for exclusion. They also repeated 

previous calls to expand the existing 

exclusion for certain high-intensity 

outpatient hospital services to 

encompass services furnished in other, 

nonhospital settings, arguing that such 

nonhospital services may be cheaper 

and more accessible in certain localities 

(such as rural settings) than those 

furnished by hospitals. Some 

commenters expressed support for 

expanding the existing, partial 

exclusion of ambulance services from 

consolidated billing to encompass all 

ambulance services, but they also 

acknowledged that creating such an 

exclusion of an entire service category 

would require legislation by the 

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Congress. Another commenter 

recommended conducting a 

comprehensive overhaul of the entire 

set of existing consolidated billing 

exclusions, in a way that would 

streamline and simplify the current 

complex set of exclusion rules and make 

it easier to administer. 

Response: As we have consistently 

stated (most recently, in the August 8, 

2008 SNF PPS final rule for FY 2009 (73 

FR 46436)), the BBRA authorizes us to 

identify additional services for 

exclusion only within those particular 

service categories—chemotherapy and 

its administration; radioisotope services; 

and, customized prosthetic devices— 

that it has designated for this purpose, 

and does not give us the authority to 

carve out entire service categories 

beyond those specified in the law. 

Accordingly, as the particular services 

that these commenters recommended 

for exclusion do not fall within one of 

the specific service categories 

designated for this purpose in the 

statute itself, these services remain 

subject to consolidated billing. 

We have also 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 2009 SNF PPS final rule (73 FR 

46436, August 8, 2008): 

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 http:// 

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. In addition, with regard to the 

relative availability of such services in 

hospital versus nonhospital settings, we 

have also noted previously that: 

* * * to the extent that advances in medical 

practice over time may make it feasible to 

perform such a service more widely in a less 

intensive, nonhospital setting, this would not 

argue in favor of excluding the nonhospital 

performance of the service from consolidated 

billing under these regulations, but rather, 

would call into question whether the service 

should continue to be excluded from 

consolidated billing at all, even when 

performed in the hospital setting (70 FR 

45049, August 4, 2005). 

Regarding the comment on ambulance 

services, we agree with the commenters 

that carving out an entire service 

category from consolidated billing 

would require legislation by the 

Congress, and cannot be accomplished 

administratively. Finally, with reference 

to the suggestion for a comprehensive 

overhaul of the existing consolidated 

billing rules, while the commenter’s 

interest in promoting improved ease of 

administration is understandable, we 

note that current law contains no 

authority to adopt the suggested 

approach. 

Comment: Some comments cited 

ongoing concerns about the SNF PPS’s 

ability to account accurately for the cost 

of NTAs, and suggested that we create 

additional consolidated billing 

exclusions for certain exceptionally 

high-cost drugs as a means of addressing 

those concerns. 

Response: We note that, as mentioned 

previously in section III.C.2 of this final 

rule, we are continuing to conduct 

research relating to the treatment of 

NTAs under the SNF PPS, including the 

exploration of possible modifications in 

the case-mix classification system that 

might further improve its accuracy in 

accounting for these costs. However, as 

we indicated in the SNF PPS final rule 

for FY 2002 (66 FR 39588, July 31, 

2001), and again in the SNF PPS final 

rule for FY 2004 (68 FR 46062, August 

4, 2003), ‘‘* * * we do not share the 

view * * * that the creation of 

additional exclusions from consolidated 

billing could serve, in effect, as an 

interim substitute for [such] 

refinements.’’ Rather, we believe ‘‘* * * 

that payment adjustments relating to 

case-mix would best be accomplished 

directly through refinements in the casemix classification system’’ itself. 

Comment: In contrast to the preceding 

comments that advocated expanding the 

existing exclusion of certain 

exceptionally intensive outpatient 

services to encompass freestanding 

(nonhospital) settings, one commenter 

specifically acknowledged this 

exclusion’s restriction to the hospital 

setting, and then proceeded to 

recommend a particular drug, 

natalizumab (Tysabri®, HCPCS code 

J2323) for exclusion on this basis. 

Natalizumab is an intravenous infusion 

drug used for treating multiple sclerosis 

in cases where alternative therapies are 

not feasible. The commenter indicated 

that natalizumab not only meets the 

general criteria of high cost, low 

probability, and inelastic demand (that 

is, the service is unlikely to be 

overprovided even if separate payment 

under Part B becomes available for it) 

that characterize services under the 

exclusion, but also has a number of 

specific characteristics that could 

reasonably be viewed as requiring the 

intensity of the hospital setting for its 

safe and effective administration. The 

commenter noted that under the terms 

of this drug’s approval by the Food and 

Drug Administration (FDA), 

natalizumab is subject to a complex risk 

minimization action plan (RiskMAP) 

protocol that requires highly specialized 

expertise in its administration. The 

commenter also cited an FDA notice in 

the Federal Register (73 FR 16313, 

March 27, 2008), including natalizumab 

in a list of drugs that are deemed to have 

in effect an approved risk evaluation 

and mitigation strategy (REMS). (The 

REMS is designed to address certain 

drugs that, while providing an 

important benefit to patients, can be 

especially dangerous if not used 

properly.) The FDA notice also 

indicated that such drugs have in effect 

a number of elements to assure safe use, 

including their being ‘‘* * * dispensed 

to patients only in certain health care 

settings, such as hospitals . * * *’’ 

Accordingly, the commenter also 

suggested that we consider similarly 

excluding the other drugs identified in 

the FDA notice (which, like 

natalizumab, are deemed to have an 

approved REMS in effect). 

Response: We believe that the 

commenter’s observations merit further 

study to determine whether drugs of 

this type might, in fact, meet the 

outpatient hospital services exclusion’s 

longstanding threshold (most recently 

discussed, as noted previously, in the 

FY 2009 SNF PPS final rule (74 FR 

46436, August 8, 2008)) of being ‘‘* * * 

so far beyond the normal scope of SNF 

care that they require the intensity of 

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the hospital setting in order to be 

furnished safely and effectively.’’ 

Accordingly, we plan to examine the 

appropriateness of designating one or 

more of these drugs as exceptionally 

intensive outpatient hospital services 

for purposes of exclusion from 

consolidated billing. As we noted in the 

discussion of the outpatient hospital 

exclusion in the SNF PPS final rule for 

FY 2000 (64 FR 41676, July 30, 1999), 

while any broad refinements in the 

outpatient hospital exclusion’s 

underlying policy itself (which might be 

necessitated by the development of the 

outpatient hospital PPS) ‘‘* * * would 

be made through future rulemaking,’’ 

modifying the list of individual services 

encompassed by the exclusion would 

occur ‘‘* * * in future instructions.’’ 

Accordingly, we would use program 

instructions as the vehicle for specifying 

any additional services that we may 

decide to designate as qualifying for 

exclusion on this basis. 

H. Application of the SNF PPS to SNF 

Services Furnished by Swing-Bed 

Hospitals; Quality Monitoring of SwingBed Hospitals 

In accordance with section 1888(e)(7) 

of the Act, as amended by section 203 

of the BIPA, Part A pays 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 nonCAH 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). The latest changes in the 

MDS for swing-bed rural hospitals 

appear on the SNF PPS Web site, 

http://www.cms.hhs.gov/snfpps. It is our 

intention to include rural hospital swing 

beds in the transition to the MDS 3.0 

effective October 1, 2010, and to adopt 

the RUG–IV classification for swing-bed 

facilities on that same date. Under the 

RUG–III payment model, swing-bed 

hospitals have not been 

comprehensively monitored for quality 

of care, but have been required to 

submit four types of abbreviated MDS 

assessments: The abbreviated Medicare 

Assessments submitted on days 5, 14, 

30, 60, and 90 used to determine 

payment under the SNF PPS, entry and 

discharge tracking assessments, the 

clinical change assessments, and the 

Other Medicare Required Assessments 

(OMRAs). The limited use of the MDS 

for quality monitoring was established 

because we believed that swing-bed 

units, as parts of rural hospitals, were 

already subject to the hospital quality 

review process. In addition, our 

analyses showed that the average length 

of stay in swing-bed facilities was 

significantly lower than in either 

hospital-based or freestanding SNFs, 

and that our existing quality measures 

might be unable to evaluate short-stay 

patient care accurately. Thus, in the FY 

2002 final rule referenced above (65 FR 

39590), we decided that we would not 

‘‘require swing-bed facilities to perform 

the care planning and quality 

monitoring components included in the 

full MDS * * *’’ at that point. At the 

same time, we explained our intention 

of including ‘‘* * * an analysis of 

swing-bed requirements in our 

comprehensive reevaluation of all postacute data needs, and in the design of 

any future assessment and data 

collection tools.’’ 

Since that time, we have expanded 

our quality analysis in a variety of 

settings, and have made SNF 

information publicly available through 

Nursing Home Compare and other 

initiatives. While developing ways to 

monitor and compare quality across 

swing-bed facilities and between swingbed facilities and other SNFs would 

increase swing-bed facility data 

collection and transmission 

requirements, it would also increase the 

information available to patients, 

families, and oversight agencies for 

making placement decisions and 

evaluating the quality of care furnished 

by swing-bed facilities. For these 

reasons, in the FY 2010 proposed rule 

(74 FR 22208, 22250, May 12, 2009), we 

stated that we were considering a 

change in the swing-bed MDS (SB– 

MDS) reporting requirements that 

would go into effect with the 

introduction of the MDS 3.0. Since the 

current SB–MDS does not include the 

items needed to evaluate quality in the 

same way as for other nursing facilities, 

we proposed to eliminate the SB–MDS, 

and replace it with the MDS 3.0 

equivalent of the Medicare Payment 

Assessment Form (MPAF) that captures 

all of the items used in determining 

quality measures. Accordingly, in the 

FY 2010 proposed rule (74 FR 22208, 

22250, May 12, 2009), we solicited 

comments on expanding swing-bed 

MDS reporting requirements to apply 

the quality monitoring mechanism in 

place for all other SNF PPS facilities to 

rural swing-bed hospitals. The 

comments that we received on this 

subject, and our responses, appear 

below. 

Comment: Some commenters 

supported the quality monitoring of 

swing-bed services, while others 

opposed it. Those who opposed quality 

monitoring of swing-bed services 

asserted that the existing hospital 

quality review process is sufficient, and 

that the short length of stays for swingbed patients would not result in reliable 

measures. The commenters were also 

concerned with the burden associated 

with additional paperwork. A few 

commenters stated that this would 

impose a burden on CAHs. Those who 

supported quality monitoring of swingbed services argued that it would help 

achieve greater consistency between the 

swing-bed and SNF settings, and would 

allow consumers to make the same 

quality comparisons and evaluations for 

swing beds as for SNFs. 

Response: When the Congress enacted 

the swing-bed program, it described 

swing-bed services as ‘‘* * * services of 

the type which, if furnished by a skilled 

nursing facility, would constitute 

extended care services’’ (section 

1883(a)(1) of the Act). Therefore, we 

believe it is appropriate and in the best 

interest of beneficiaries to monitor the 

quality of care provided in swing-bed 

hospitals similar to the manner in 

which we monitor quality of care for 

SNFs, and to be able to inform 

consumers of the various choices they 

have for post acute care services in their 

community. We are cognizant of the 

short length of stays in swing beds and 

realize that the current CMS quality 

measures may not be applicable in 

many instances for swing-bed providers. 

However, we will not be able to make 

a sound decision unless we first gather 

the data to determine the best avenue 

for measuring quality similar to SNFs. 

Based on comments received, we will 

limit the items to be collected in the 

MDS 3.0 swing-bed assessment to the 

required demographic, payment, and 

quality items. The MDS 3.0 swing-bed 

assessment will be similar to the MDS 

3.0 MPAF; however, it will contain 

fewer items, as the MPAF includes 

clinical items that are not required for 

payment or quality measures. We will 

begin collecting the data from swing-bed 

facilities starting October 1, 2010, and 

then, once sufficient information is 

obtained, we will conduct an analysis 

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that includes (but is not limited to) the 

following: (1) Whether the length of stay 

in swing beds is adequate to measure 

changes (or outcomes) in patient care; 

(2) Whether these changes are 

measurable and attainable; and (3) 

Which quality measures are appropriate. 

We will also determine the best venue 

to share quality data on swing beds with 

consumers. Because CAHs are not 

subject to SNF PPS and MDS 

requirements at this time, they will not 

be required to complete the MDS 3.0 

and, thus, are not affected by the policy 

to collect quality data from swing beds 

based on MDS data. 

IV. Provisions of the Final Rule 

This final rule incorporates the 

provisions of the regulations text of the 

proposed rule (74 FR 22208), as herein 

modified. We have adopted the 

proposed changes from the above 

captioned proposed rule with regard to 

the Resident Assessment Instrument 

under the MDS 3.0 (including an 

implementation schedule) provision 

that will be introduced in conjunction 

with the RUG–IV classification system. 

In § 483.315(h), we have removed the 

term ‘‘survey’’ and replaced it with 

‘‘agency’’. 

In § 483.315(h)(3), we have removed 

the word ‘‘all’’. 

V. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, 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 Office of Management 

and Budget (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 Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We are soliciting public comment on 

each of these issues for the following 

sections of this document that contain 

information collection requirements 

(ICRs): 

Section 483.20 Resident Assessment 

Section 483.20(b) requires the facility 

to make a comprehensive assessment of 

a resident’s needs using the resident 

assessment instrument (RAI) provided 

by the State. 

Section 483.20(f)(3) requires upon 

completion of the RAI for the facility to 

electronically transmit encoded, 

accurate, complete MDS data to the 

CMS system. 

While there is burden associated with 

the requirements found under Section 

483.20, they are currently approved 

under OMB# 0938–0739. 

Section 483.315 Specification of 

Resident Assessment Instrument 

Section 483.315(h) requires the 

facility to support and maintain the 

CMS State system and database and 

analyze data and generate and transmit 

reports as specified by CMS. 

While there is burden associated with 

this requirement, we believe this 

requirement is exempt from the PRA as 

stated in sections 4204(b) and 4214(d) of 

the Omnibus Budget Reconciliation Act 

of 1987 (OBRA 1987, Pub. L. 100–203), 

which specifically waive PRA 

requirements with respect to the revised 

requirements for participation 

introduced by the nursing home reform 

legislation. 

In the FY 2002 SNF PPS proposed 

rule (66 FR 24026–28, May 10, 2001) 

and final rule (66 FR 39594–96, July 31, 

2001), we invited and discussed public 

comments on the information collection 

aspects of establishing the existing, 

abbreviated MDS completion 

requirements that apply to rural swingbed hospitals paid under the SNF PPS 

(CMS–10064, OMB# 0938–0872, 73 FR 

30105, May 23, 2008). Similarly, in the 

FY 2010 proposed rule (74 FR 22208, 

22250, May 12, 2009), we invited public 

comment with respect to the expansion 

of MDS reporting requirements so that 

the quality measures currently in place 

for all other SNF PPS facilities can be 

applied to swing-bed hospitals, as 

discussed previously in section III.H of 

this final rule. Specifically, we proposed 

to replace the SB–MDS with the MDS 

3.0 version of the MPAF. 

If you comment on these information 

collection and recordkeeping 

requirements, please submit your 

comments to the Office of Information 

and Regulatory Affairs, Office of 

Management and Budget, 

Attention: CMS Desk Officer, [1410– 

F]. 

Fax: (202) 395–6974; or 

E-mail: OIRA_submission@omb.eop.

gov. 

VI. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (September 19, 1980, 

RFA, Pub. L. 96–354), section 1102(b) of 

the Social Security Act (the Act), the 

Unfunded Mandates Reform Act of 1995 

(UMRA, Pub. L. 104–4), Executive Order 

13132 on Federalism, and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Order 12866 directs 

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). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). This final rule is an 

economically significant rule under 

Executive Order 12866, because we 

estimate the FY 2010 impact reflects a 

$690 million increase from the update 

to the payment rates and a $1.05 billion 

reduction (on an incurred basis) from 

the recalibration of the case-mix 

adjustment, thereby yielding a net 

decrease of $360 million in payments to 

SNFs. For FY 2011, we estimate that 

there will be no aggregate impact on 

payments as a result of the 

implementation of the RUG–IV model, 

which will be introduced on a budget 

neutral basis. The final FY 2011 impacts 

will be issued prior to August 1, 2010, 

and will include the FY 2011 market 

basket update, FY 2011 wage index, and 

any further FY 2011 policy changes. 

Furthermore, we are also considering 

this a major rule as defined in the 

Congressional Review Act (5 U.S.C. 

804(2)). 

The update set forth in this final rule 

would apply to payments in FY 2010. In 

addition, we include a preliminary 

estimate of the impact of the 

introduction of the RUG–IV model on 

FY 2011 payments. 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. Therefore, final 

estimates for FY 2011 will be published 

prior to August 1, 2010. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities, if a rule has a significant impact 

on a substantial number of small 

businesses or other small entities. For 

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purposes of the RFA, small entities 

include small businesses, nonprofit 

organizations, and small government 

jurisdictions. Most SNFs and most other 

providers and suppliers are small 

entities, either by their nonprofit status 

or by having revenues of $13.5 million 

or less in any 1 year. For purposes of the 

RFA, approximately 51 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 further 

information, see http://www.sba.gov/ 

idc/groups/public/documents/ 

sba_homepage/serv_sstd_tablepdf.pdf). 

Individuals and States are not included 

in the definition of a small entity. In 

addition, approximately 29 percent of 

SNFs are nonprofit organizations. 

This final rule updates the SNF PPS 

rates published in the final rule for FY 

2009 (73 FR 46416, August 8, 2008) and 

the associated correction notice (73 FR 

56998, October 1, 2008), thereby 

decreasing net payments by an 

estimated $360 million. As indicated in 

Table 17a, the effect on facilities will be 

a net negative impact of 1.1 percent. The 

total impact reflects a $1.05 billion 

reduction from the recalibration of the 

case-mix adjustment, offset by a $690 

million increase from the update to the 

payment rates. We also note that the 

percent decrease will vary due to the 

distributional impact of the FY 2010 

wage indexes and the degree of 

Medicare utilization. For FY 2011, we 

estimate that there will be no aggregate 

impact on payments due to the 

introduction of the RUG–IV model. 

However, we estimate that there will be 

distributional impacts that vary from 

slight increases to slight decreases due 

to the case-mix distribution of 

individual providers. 

Guidance issued by the Department of 

Health and Human Services, on the 

proper assessment of the impact on 

small entities in rulemakings, utilizes a 

revenue impact of 3 to 5 percent as a 

significance threshold under the RFA. 

While this final rule is considered 

economically significant, its relative 

impact on SNFs overall is small because 

Medicare is a relatively minor payer 

source for nursing home care. We 

estimate that Medicare covers 

approximately 10 percent of service 

days, and approximately 20 percent of 

payments. However, the distribution of 

days and payments is highly variable, 

with the majority of SNFs having 

significantly lower Medicare utilization. 

As a result, for most facilities, the 

impact to total facility revenues, 

considering all payers, should be 

substantially less than those shown in 

Table 17a. Therefore, the Secretary has 

determined that this final rule would 

not have a significant impact on a 

substantial number of small entities. 

However, in view of the potential 

economic impact on small entities, we 

have considered alternatives as 

described in section III.K.3 of this final 

rule. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 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 will be similar to 

the impact on SNF providers overall. 

Therefore, the Secretary has determined 

that this final rule will not have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates 

regulations 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. Further, while we realize 

that there is an impact on the Federal 

portion of the Medicaid payment, we 

have not yet determined the specific 

amount of that impact. However, we are 

working closely with State survey and 

Medicaid agencies to gain a better 

understanding of the impact from the 

transition to MDS 3.0 and the RUG–IV 

model. 

Section 202 of 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 2009, that threshold is approximately 

$133 million. This final rule would not 

impose spending costs on State, local, or 

Tribal governments in the aggregate, or 

by the private sector, of $133 million. 

B. Anticipated Effects 

This final rule sets forth updates of 

the SNF PPS rates contained in the final 

rule for FY 2009 (73 FR 46416, August 

8, 2008) and the associated correction 

notice (73 FR 56998, October 1, 2008). 

Based on the above, we estimate the FY 

2010 impact would be a net decrease of 

$360 million in payments to SNFs (this 

reflects a $1.05 billion reduction from 

the recalibration of the case-mix 

adjustment, offset by a $690 million 

increase from the update to the payment 

rates). The impact analysis of this final 

rule represents the projected effects of 

the changes in the SNF PPS from FY 

2009 to FY 2010. We assess the effects 

by estimating payments while holding 

all other payment-related variables 

constant. Although the best data 

available is 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. In addition, we provide an 

impact analysis projecting the changes 

for FY 2011 due to the introduction of 

the RUG–IV model. 

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) of the Act, we update the 

payment rates for FY 2009 by a factor 

equal to the full market basket index 

percentage increase plus the FY 2008 

forecast error adjustment to determine 

the payment rates for FY 2010. The 

special AIDS add-on established by 

section 511 of the MMA remains in 

effect until ‘‘* * * such date as the 

Secretary certifies that there is an 

appropriate adjustment in the case mix 

* * *.’’ We have not provided a 

separate impact analysis for the MMA 

provision. Our latest estimates indicate 

that there are slightly more than 2,700 

beneficiaries who qualify for the AIDS 

add-on payment. The impact to 

Medicare is included in the ‘‘total’’ 

column of Table 17a. In updating the 

rates for FY 2010, we make a number of 

standard annual revisions and 

clarifications mentioned elsewhere in 

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this final rule (for example, the update 

to the wage and market basket indexes 

used for adjusting the Federal rates). 

These revisions increase payments to 

SNFs by approximately $690 million. 

We estimate the net decrease in 

payments associated with this final rule 

to be $360 million for FY 2010. The 

decrease of $1.05 billion due to the 

recalibration of the case-mix 

adjustment, together with the market 

basket increase of $690 million, results 

in a net decrease of $360 million. 

The FY 2010 impacts appear in Table 

17a. The breakdown of the various 

categories of data in the table follows. 

The first column shows the 

breakdown of all SNFs by urban or rural 

status, hospital-based or freestanding 

status, and census region. 

The first row of figures in the first 

column describes the estimated effects 

of the various changes on all facilities. 

The next six rows show the effects on 

facilities split by hospital-based, 

freestanding, urban, and rural 

categories. The urban and rural 

designations are based on the location of 

the facility under the CBSA designation. 

The next twenty-two rows show the 

effects on urban versus rural status by 

census region. 

The second column in the table shows 

the number of facilities in the impact 

database. 

The third column of the table shows 

the effect of the annual update to the 

wage index. This represents the effect of 

using the most recent wage data 

available. The total impact of this 

change is zero percent; however, there 

are distributional effects of the change. 

The fourth column shows the effect of 

recalibrating the case-mix adjustment to 

the nursing CMIs. As explained 

previously in section II.B.2 of this final 

rule, we are proposing this recalibration 

so that the CMIs more accurately reflect 

parity in expenditures under the 

refined, 53-group RUG system 

introduced in 2006 relative to payments 

made under the original, 44-group RUG 

system, and in order to keep the NTA 

component at the appropriate level 

specified in the FY 2006 SNF PPS final 

rule. The total impact of this change is 

a decrease of 3.3 percent. We note that 

some individual providers may 

experience larger decreases in payments 

than others due to case-mix utilization. 

The fifth column shows the effect of 

all of the changes on the FY 2010 

payments. The market basket increase of 

2.2 percentage points 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 1.1 percent, 

assuming facilities do not change their 

care delivery and billing practices in 

response. 

As can be seen from Table 17a, the 

combined effects of all of the changes 

vary by specific types of providers and 

by location. For example, though nearly 

all facilities would experience payment 

decreases, providers in the rural 

Mountain region would show a slight 

increase of 0.1 percent for FY 2010 total 

payments. Of those facilities showing 

decreases, facilities in the urban New 

England and urban Mountain areas of 

the country show the smallest 

decreases. 

TABLE 17A—PROJECTED IMPACT TO THE SNF PPS FOR FY 2010 

Number of 

facilities 

Update 

wage data 

(percent) 

Revised 

CMIs 

(percent) 

Total FY 

2010 

change 

(percent) 

Total ................................................................................................................................. 15,307 0.0 ¥3.3 ¥1.1 

Urban ............................................................................................................................... 10,586 0.1 ¥3.3 ¥1.1 

Rural ................................................................................................................................ 4,721 ¥0.3 ¥3.1 ¥1.3 

Hospital based urban ....................................................................................................... 1,675 ¥0.1 ¥3.4 ¥1.4 

Freestanding urban .......................................................................................................... 8,911 0.1 ¥3.3 ¥1.1 

Hospital based rural ......................................................................................................... 1,065 ¥0.2 ¥3.3 ¥1.4 

Freestanding rural ............................................................................................................ 3,656 ¥0.3 ¥3.1 ¥1.3 

Urban by region: 

New England ............................................................................................................ 832 0.8 ¥3.4 ¥0.5 

Middle Atlantic .......................................................................................................... 1,489 ¥0.1 ¥3.5 ¥1.4 

South Atlantic ........................................................................................................... 1,742 0.0 ¥3.2 ¥1.1 

East North Central .................................................................................................... 2,024 ¥0.2 ¥3.2 ¥1.3 

East South Central ................................................................................................... 539 ¥0.4 ¥3.3 ¥1.5 

West North Central ................................................................................................... 874 0.3 ¥3.3 ¥0.9 

West South Central .................................................................................................. 1,200 ¥0.4 ¥3.2 ¥1.5 

Mountain ................................................................................................................... 478 0.8 ¥3.2 ¥0.3 

Pacific ....................................................................................................................... 1,402 0.4 ¥3.3 ¥0.8 

Outlying ..................................................................................................................... 6 ¥0.1 ¥3.6 ¥1.5 

Rural by region: 

New England ............................................................................................................ 148 ¥0.8 ¥3.1 ¥1.8 

Middle Atlantic .......................................................................................................... 254 0.0 ¥3.3 ¥1.2 

South Atlantic ........................................................................................................... 593 0.0 ¥3.1 ¥1.0 

East North Central .................................................................................................... 930 ¥0.5 ¥3.1 ¥1.5 

East South Central ................................................................................................... 533 ¥0.2 ¥3.1 ¥1.2 

West North Central ................................................................................................... 1,092 ¥0.5 ¥3.3 ¥1.6 

West South Central .................................................................................................. 788 ¥0.5 ¥3.1 ¥1.4 

Mountain ................................................................................................................... 247 1.2 ¥3.2 0.1 

Pacific ....................................................................................................................... 134 ¥0.3 ¥3.2 ¥1.3 

Outlying ..................................................................................................................... 2 1.1 ¥3.9 ¥0.7 

Ownership: 

Government .............................................................................................................. 652 ¥0.2 ¥3.5 ¥1.5 

Proprietary ................................................................................................................ 11,302 0.0 ¥3.2 ¥1.1 

Voluntary ................................................................................................................... 3,353 0.1 ¥3.4 ¥1.1 

Note: The Total column includes the 2.2 percent market basket increase. 

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Table 17b shows the estimated effects 

for the FY 2011 distributional changes 

due to the proposed RUG–IV 

classification system. Though the 

aggregate impact shows no change in 

total payments, it is estimated that some 

facilities will experience payment 

increases while others experience 

payment decreases due to the Medicare 

utilization under RUG–IV. For example, 

providers in the urban New England 

and urban Middle Atlantic regions show 

increases of 1.3 percent, while providers 

in the rural East North Central region 

show a decrease of 1.5 percent. In 

addition, voluntary providers show an 

increase of 0.2 percent, while there is no 

change for proprietary facilities in 

aggregate. 

TABLE 17B—PROJECTED IMPACT OF RUG–IV FOR FY 2011 

Number of 

facilities 

RUG–IV 

(percent) 

Total ....................................................................................................................................................................... 15,443 0.0 

Urban ..................................................................................................................................................................... 10,516 0.3 

Rural ...................................................................................................................................................................... 4,927 ¥0.8 

Hospital based urban ............................................................................................................................................. 609 ¥1.4 

Freestanding urban ................................................................................................................................................ 9,907 0.4 

Hospital based rural ............................................................................................................................................... 426 ¥0.8 

Freestanding rural .................................................................................................................................................. 4,501 ¥0.8 

Urban by region: 

New England .................................................................................................................................................. 833 1.3 

Middle Atlantic ................................................................................................................................................ 1,479 1.3 

South Atlantic ................................................................................................................................................. 1,724 ¥0.6 

East North Central .......................................................................................................................................... 2,018 0.0 

East South Central ......................................................................................................................................... 523 1.2 

West North Central ......................................................................................................................................... 864 0.1 

West South Central ........................................................................................................................................ 1,169 0.9 

Mountain ......................................................................................................................................................... 472 ¥0.5 

Pacific ............................................................................................................................................................. 1,427 0.2 

Outlying ........................................................................................................................................................... 7 0.5 

Rural by region: 

New England .................................................................................................................................................. 155 ¥1.3 

Middle Atlantic ................................................................................................................................................ 270 0.6 

South Atlantic ................................................................................................................................................. 622 ¥0.9 

East North Central .......................................................................................................................................... 945 ¥1.5 

East South Central ......................................................................................................................................... 557 ¥0.1 

West North Central ......................................................................................................................................... 1,123 ¥0.2 

West South Central ........................................................................................................................................ 846 ¥1.2 

Mountain ......................................................................................................................................................... 265 ¥0.9 

Pacific ............................................................................................................................................................. 144 ¥1.1 

Outlying ........................................................................................................................................................... 0 0.0 

Ownership: 

Government .................................................................................................................................................... 840 1.4 

Proprietary ...................................................................................................................................................... 10,539 0.0 

Voluntary ......................................................................................................................................................... 4,064 0.2 

Note: The wage index column is not included for FY 2011, as the FY 2011 wage index is unknown. In addition, the Total column is not included for FY 2011, as the market basket is unknown. 

Comment: Several commenters 

expressed concern that the proposed 

RUG–IV case-mix classification system 

would adversely affect them from a 

fiscal standpoint. One commenter 

specifically cited the proposal to 

allocate concurrent therapy and the 

change in the method to calculate the 

ADL index. 

Response: The aggregate impact of the 

RUG–IV case-mix classification is 

budget neutral. We caution providers on 

determining the fiscal impact of RUG– 

IV based on only one or two areas of the 

entire system. Although we are making 

changes to the ADL index and allocation 

of concurrent therapy, the total payment 

rate is based on the combination of the 

nursing and therapy components. Total 

payment rates for therapy groups are not 

projected to decrease. Even after we 

consider that many patients will fall 

into lower rehabilitation RUGs under 

the allocation of concurrent therapy, 

because of the increase to the nursing 

CMIs to adjust for parity, total payment 

rates may actually be higher under 

RUG–IV for some comparable patients. 

We realize that there are distributional 

effects determined by an individual 

provider’s case-mix utilization and 

some providers will be negatively 

affected. In examining the impacts 

presented in the table above for FY 

2011, there are subsets of providers that 

are positively affected and other subsets 

that are negatively affected. However, in 

looking at large subsets such as the 

ownership type, proprietary owners are 

expected to be budget neutral, whereas 

voluntary providers are expected to see 

a slight increase in payments (0.2 

percent) compared to RUG–III. 

Another effect of the introduction of 

the RUG–IV model is a re-distribution of 

dollars between payment groups that 

focus on rehabilitation in contrast to 

those focused primarily on nursing 

services. In order to further understand 

the changes to specific provider types 

and case-mix, we evaluated the 

individual effect on the nursing and 

therapy portion of total payments. Table 

18 shows the nursing and therapy 

percentage change as a portion of total 

payments by comparing the nursing and 

therapy rate components using the 

RUG–III CMIs and RUG–IV CMIs. As 

shown in Table 18, although hospitalbased facilities do not show as large an 

increase in the nursing portion of total 

payments, they also show a slightly 

smaller decrease in the therapy portion 

of their payments. We expect that 

facilities providing more intensive 

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nursing services will show increases in payments under the proposed RUG–IV 

model. 

TABLE 18—PERCENTAGE CHANGE IN PAYMENT FOR THE NURSING AND THERAPY COMPONENTS

Rate component Urban 

(percent) 

Rural 

(percent) 

Nursing CMIs—Freestanding .............................................................................................................................................. 21.8 20.7 

Nursing CMIs—Hospital-Based ........................................................................................................................................... 11.0 11.6 

Therapy CMIs—Freestanding .............................................................................................................................................. ¥41.5 ¥41.2 

Therapy CMIs—Hospital-Based .......................................................................................................................................... ¥41.1 ¥40.7 

We further note that while this 

analysis is focused primarily on the 

anticipated impact to the Medicare 

program, we understand that States are 

also concerned about potential systems 

needs to address the transition to the 

MDS 3.0 and the RUG–IV case-mix 

system. Although our systems analysis 

showed that the transition to a national 

CMS data collection system would 

retain all existing functionality, we have 

been working closely with the State 

Agencies (SAs) to verify that the 

transition will be as seamless as 

possible. Starting in the Fall of 2008, we 

initiated monthly conference calls 

between CMS staff and representatives 

from the State Survey and Medicaid 

agencies to make sure that we have 

taken all State systems needs into 

account, and to develop strategies to 

support the SAs. Our progress has been 

hampered by three factors. First, many 

States have developed MDS-based 

applications to support a variety of State 

functions beyond the typical survey and 

payment operations. We are developing 

a comprehensive list of all affected State 

functions currently using the MDS so 

we can develop ways for the States to 

access the data once we adopt the MDS 

3.0 format. Second, most States have 

customized their Medicaid payment 

systems, which means that potential 

CMS data solutions cannot utilize a 

‘‘one size fits all’’ approach. 

The third issue is that the majority of 

the States have not yet reached a final 

decision on the payment system 

changes they will implement in October 

2010. Some States will maintain their 

existing RUG–III payment systems and 

will simply need support to convert 

MDS 3.0 data into an MDS 2.0 format to 

continue calculating their Medicaid 

payments. Other States are considering 

adopting all or part of the RUG–IV 

model, and will need more extensive 

support. 

We recently conducted a survey 

asking each State to identify their likely 

transition scenarios and system costs 

and are beginning to analyze the 

information provided. We will continue 

to work with individual States and will 

develop a comprehensive transition 

plan that will include an analysis of the 

systems costs likely to be incurred 

under each transition approach; that is, 

maintaining a standard RUG–III 

payment structure, maintaining a 

customized RUG–III structure, and 

adopting all or part of RUG–IV. 

For those States that will maintain 

their existing RUG–III based payment 

models, we have already started work 

on support systems that will allow 

States to convert or crosswalk the MDS 

3.0 data to the current MDS 2.0 

structure. The data specifications for 

these crosswalks are expected to be 

released by October 2010. We plan to 

work closely with the States to ensure 

a smooth transition. 

State Medicaid agencies are not 

required to adopt the RUG–IV model 

and will only do so after careful 

consideration of the cost and benefit of 

such a change on an individual Stateby-State basis. For those States choosing 

to adopt the RUG–IV model, CMS 

provides detailed program 

specifications free of charge, which will 

mitigate State program design costs 

associated with converting from RUG– 

III to RUG–IV. We intend to continue to 

work closely with State Medicaid 

agencies during the next year to assist 

them in evaluating the RUG–IV model 

for Medicaid use. 

C. Alternatives Considered 

We have determined that this final 

rule is an economically significant rule 

under Executive Order 12866. As 

described above, we estimate the FY 

2010 impact will be a net decrease of 

$360 million in payments to SNFs, 

resulting from a $690 million increase 

from the update to the payment rates 

and a $1.05 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, the 

MDS assessment schedule, a market 

basket index, a wage index, and the 

urban and rural distinction used in the 

development or adjustment of the 

Federal rates). Furthermore, section 

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

requires us to disseminate the payment 

rates for each new FY through the 

Federal Register, and to do so before the 

August 1 that precedes the start of the 

new FY. Accordingly, we are not 

pursuing alternatives with respect to the 

payment methodology as discussed 

above. However, in view of the potential 

economic impact on small entities, we 

have voluntarily considered alternative 

approaches to the recalibration of the 

case-mix adjustments. 

Using our authority to establish an 

appropriate adjustment for case mix 

under section 1888(e)(4)(G)(i) of the Act, 

this final rule recalibrates the 

adjustment to the nursing case-mix 

indexes based on actual CY 2006 data 

instead of FY 2001 data. In the SNF PPS 

final rule for FY 2006 (70 FR 45031, 

August 4, 2005), we committed to 

monitoring the accuracy and 

effectiveness of the case-mix indexes 

used in the 53-group model. We believe 

that using the CY 2006 actual claims 

data to perform the recalibration 

analysis results in case-mix weights that 

reflect the resources used, produces 

more accurate payment, and represents 

an appropriate case-mix adjustment. 

Using the CY 2006 data is consistent 

with our intent to make the change from 

the 44-group RUG model to the refined 

53-group model in a budget-neutral 

manner, as described in section III.B.2.b 

of this final rule and in the SNF PPS 

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final rule for FY 2006 (70 FR 45031, 

August 4, 2005). 

We investigated using alternative time 

periods in calculating the case-mix 

adjustments. One possibility was to use 

CY 2005 rather than CY 2006 data. 

However, using CY 2005 data still 

requires us to use a projection of the 

distributional shift to the nine new 

groups in the RUG–53 group model. We 

also looked at a second alternative, 

which involved comparing quarterly 

data periods directly before and after 

implementation of the RUG–53 model; 

for example, October through December 

2005 for the RUG–44 model and January 

through March 2006 for the RUG–53 

model. This approach uses a 

combination of projected and actual 

data for only a 6-month time period. 

However, we believe that using actual 

utilization data for the entire CY 2006 

is more accurate, as actual case mix 

during the calibration year is the basis 

for computing the case-mix adjustment. 

Accordingly, we have determined that 

performing the recalibration using the 

CY 2006 data is the most appropriate 

methodology. 

We considered various options for 

implementing the recalibrated case-mix 

adjustment. For example, we considered 

implementing partial adjustments to the 

case-mix indexes over multiple years 

until parity was achieved. However, we 

believe that these options would 

continue to reimburse in amounts that 

significantly exceed our intended 

policy. Moreover, as we move forward 

with programs designed to enhance and 

restructure our post-acute care payment 

systems, we believe that payments 

under the SNF PPS should be 

established at their intended and most 

appropriate levels. Stabilizing the 

baseline is a necessary first step toward 

implementing the RUG–IV classification 

methodology. As discussed in section 

III.C.2 of this final rule, RUG–IV will 

more accurately identify differences in 

patient acuity and will more closely tie 

reimbursement to the relative cost of 

goods and services needed to provide 

high quality care. 

We believe the introduction of the 

RUG–IV classification system better 

targets payments for beneficiaries with 

greater care needs, improving the 

accuracy of Medicare payment. In 

addition, RUG–IV changes such as 

eliminating the ‘‘look-back’’ period for 

preadmission services correct for 

existing vulnerabilities in the RUG–53 

system. Therefore, we believe it would 

be prudent to move to RUG–IV as 

quickly as possible. However, we also 

recognize the need to allow sufficient 

lead time to ensure an orderly and 

successful transition. Accordingly, 

while we initially considered 

implementing the RUG–IV model for FY 

2010, we are instead implementing the 

system for FY 2011. Many of the 

refinements of the RUG–IV model are 

integrated into the MDS 3.0 resident 

assessment instrument. The transition to 

both the MDS 3.0 and the RUG–IV casemix system requires careful planning, as 

it will affect multiple Medicare and 

Medicaid quality monitoring and 

production systems, including Medicaid 

PPS systems used by more than half the 

State agencies. In addition, State 

agencies, providers, and software 

vendors would benefit by receiving 

adequate time to prepare for a smooth 

transition. Therefore, we plan to 

implement RUG–IV for FY 2011. 

Comment: One commenter expressed 

concern that hierarchical maximization, 

instead of index maximization, was 

used to estimate the distribution of 

RUG–IV days. 

Response: We agree with the 

commenter that an index maximization 

approach provides the best estimation of 

the RUG–IV days of service distribution. 

The reason for this is that when RUG– 

IV is implemented for payment, an 

index maximizing approach will be 

used. However, use of RUG–IV 

hierarchical classification rather than 

index maximizing classification has 

very little impact on the fiscal estimates 

and simplified the work that was 

required to make those estimates. 

The final fiscal estimates are based on 

the distribution of RUG–IV days 

obtained by applying the STRIVE 

transition matrix that cross-tabulated 

RUG–III classifications with RUG–IV 

classifications for STRIVE Medicare Part 

A residents. The RUG–III classification 

used index maximizing, but the RUG–IV 

classification used a hierarchical 

approach. Grouper code allowing RUG– 

IV index maximizing classification has 

not yet been developed and tested and, 

therefore, it was not possible to use the 

index maximizing approach for RUG–IV 

at this time. 

When making fiscal estimates, it is 

absolutely critical that index 

maximizing be used for RUG–III. Index 

maximizing causes major shifts in the 

days of service for RUG–III. Most 

importantly, with index maximizing, 

some residents in RVL and all residents 

in RHX and RHL shift to either RMX or 

RML. In contrast, the use of index 

maximizing RUG–IV classification has 

very little impact on the fiscal estimates, 

because fewer residents will shift into 

other groups after index maximizing. 

With RUG–IV, index maximizing will 

only affect rare groups, and not all 

residents in a group will shift to another 

group. Analyses indicate that the 

maximum possible impact of RUG–IV 

index maximizing would be a 0.23 

percent increase in total estimated 

RUG–IV payments. The actual impact is 

likely to be much less, probably 0.1 

percent or less. 

Comment: Several commenters 

expressed concern that the proposed 

rule’s regulatory impact analysis 

significantly underestimated the total 

economic impact of the proposed policy 

changes, citing secondary effects such as 

indirect job losses and loss of tax 

revenue to the States. 

Response: As indicated in the impact 

analysis, the changes due to the 

recalibration of the CMIs are expected to 

result in a net decrease in Medicare 

payments to SNFs of about 3.3 percent. 

This estimate represents the direct 

impact on SNFs and does not include 

any of the ‘‘indirect,’’ ‘‘induced,’’ or 

‘‘ripple’’ effects that are raised by the 

commenters. Such secondary effects are 

extremely difficult to model and are 

highly uncertain as a result. Based on 

this uncertainty and the relatively small 

percentage of aggregate SNF revenues 

(from all payers) affected by this 

reduction, we cannot conclude with 

confidence that there will be significant 

impacts beyond those that are already 

described in the rule. Additionally, 

because these types of secondary effects 

are occurring within a dynamic, marketbased economy, it is our expectation 

that the market will properly adjust its 

economic resources in reaction to the 

appropriately recalibrated SNF PPS 

payments. For these reasons, we believe 

that the regulatory impact analysis 

adequately estimates the proposed rule’s 

economic impact. 

Comment: A few commenters said 

that they could not fully evaluate the 

impact of RUG–IV because CMS failed 

to provide the FY 2011 market basket 

and wage index. 

Response: Although the FY 2011 

market basket and wage index are 

required to set the final FY 2011 

payment rates, they are not necessary to 

evaluate the impact of RUG–IV. As 

discussed previously in this section, 

impacts are evaluated by determining 

the effect on payments of each policy 

change while holding all other paymentrelated variables constant. The market 

basket for FY 2011 will have the same 

impact for all providers. The FY 2011 

wage index will produce the same 

distributional effect due to changes in 

wage data, regardless of the 

classification system. Thus, the market 

basket and wage index have no effect on 

the RUG–IV policy. 

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D. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 19, we have 

prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this final rule. This table 

provides our best estimate of the change 

in Medicare payments under the SNF 

PPS as a result of the policies in this 

final rule based on the data for 15,307 

SNFs in our database. All expenditures 

are classified as transfers from Medicare 

providers (that is, SNFs). 

TABLE 19—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM THE 2009 SNF PPS FISCAL

YEAR TO THE 2010 SNF PPS FISCAL YEAR

Category Transfers 

Annualized Monetized Transfers .................................................................................................................................... ¥$360 million. * 

From Whom To Whom? ................................................................................................................................................. Federal Government to 

SNF Medicare Providers. 

* The net decrease of $360 million in transfer payments is a result of the decrease of $1.05 billion due to the recalibration of the case-mix adjustment, together with the market basket increase of $690 million. 

E. Conclusion 

Overall estimated payments for SNFs 

in FY 2010 are projected to decrease by 

$360 million, or 1.1 percent, compared 

with those in FY 2009. We estimate that 

SNFs in urban areas would experience 

a 1.1 percent decrease in estimated 

payments compared with FY 2009. We 

estimate that SNFs in rural areas would 

experience a 1.3 percent decrease in 

estimated payments compared with FY 

2009. Providers in the rural New 

England region would show decreases 

in payments of 1.8 percent, the highest 

decreases for any region. This area 

shows the largest decrease in payments 

due to the wage index. 

Though the FY 2011 aggregate impact 

due to the introduction of the RUG–IV 

model shows no change in payments, 

there are distributional effects for 

providers due to Medicare utilization. 

These effects range from a decrease of 

1.5 percent for Rural East North Central 

facilities to an increase of 1.4 percent for 

Government facilities. 

Finally, in accordance with the 

provisions of Executive Order 12866, 

this regulation was reviewed by the 

Office of Management and Budget. 

List of Subjects in 42 CFR Part 483 

Grants programs—health, Health 

facilities, Health professions, Health 

records, Medicaid, Medicare, Nursing 

homes, Nutrition, Reporting and 

recordkeeping requirements, Safety. 

■ For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

chapter IV as set forth below: 

PART 483—REQUIREMENTS FOR 

STATES AND LONG TERM CARE 

FACILITIES 

■ 1. The authority citation for part 483 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

Subpart B—Requirements for Long 

Term Care Facilities 

■ 2. Amend § 483.20 by— 

■ A. Republishing paragraph (b)(1) 

introductory text. 

■ B. Revising paragraph (b)(1)(xvii). 

■ C. Revising paragraph (f)(2). 

■ D. Revising paragraph (f)(3) 

introductory text. 

The revisions read as follows: 

§ 483.20 Resident assessment. 

* * * * * 

(b) Comprehensive assessment—(1) 

Resident assessment instrument. A 

facility must make a comprehensive 

assessment of a resident’s needs, using 

the resident assessment instrument 

(RAI) specified by the State. The 

assessment must include at least the 

following: 

* * * * * 

(xvii) Documentation of summary 

information regarding the additional 

assessment performed on the care areas 

triggered by the completion of the 

Minimum Data Set (MDS). 

* * * * * 

(f) * * * 

(2) Transmitting data. Within 7 days 

after a facility completes a resident’s 

assessment, a facility must be capable of 

transmitting to the CMS System 

information for each resident contained 

in the MDS in a format that conforms to 

standard record layouts and data 

dictionaries, and that passes 

standardized edits defined by CMS and 

the State. 

(3) Transmittal requirements. Within 

14 days after a facility completes a 

resident’s assessment, a facility must 

electronically transmit encoded, 

accurate, and complete MDS data to the 

CMS System, including the following: 

* * * * * 

■ 3. Amend § 483.75 by revising the 

heading of paragraph (j) to read as 

follows: 

§ 483.75 Administration. 

* * * * * 

(j) Laboratory services. * * * 

* * * * * 

Subpart F—Requirements that Must be 

Met by States and State Agencies, 

Resident Assessment 

■ 4. Amend § 483.315 by— 

■ A. Revising paragraph (d)(2). 

■ B. Revising paragraph (e). 

■ C. Removing and reserving paragraph 

(f). 

■ D. Revising paragraph (h). 

■ E. Revising paragraph (i) introductory 

text. 

■ F. Revising paragraph (i)(2). 

The revisions read as follows: 

§ 483.315 Specification of resident 

assessment instrument. 

* * * * * 

(d) * * * 

(2) Care area assessment (CAA) 

guidelines and care area triggers (CATs) 

that are necessary to accurately assess 

residents, established by CMS. 

* * * * * 

(e) Minimum data set (MDS). The 

MDS includes assessment in the areas 

specified in § 483.20(b)(i) through (xviii) 

of this chapter, and as defined in the 

RAI manual published in the State 

Operations Manual issued by CMS 

(CMS Pub. 100–07). 

* * * * * 

(h) State MDS system and database 

requirements. As part of facility agency 

responsibilities, the State Survey 

Agency must: 

(1) Support and maintain the CMS 

State system and database. 

(2) Specify to a facility the method of 

transmission of data, and instruct the 

facility on this method. 

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40364 Federal Register / Vol. 74, No. 153 / Tuesday, August 11, 2009 / Rules and Regulations 

(3) Upon receipt of facility data from 

CMS, ensure that a facility resolves 

errors. 

(4) Analyze data and generate reports, 

as specified by CMS. 

(i) State identification of agency that 

receives RAI data. The State must 

identify the component agency that 

receives RAI data, and ensure that this 

agency restricts access to the data except 

for the following: 

* * * * * 

(2) Transmission of reports to CMS. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: July 23, 2009. 

Charlene Frizzera, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: July 29, 2009. 

Kathleen Sebelius, 

Secretary. 

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[FR Doc. E9–18662 Filed 7–31–09; 4:15 pm] 

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