DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 488

CMS-1605-P

RIN 0938-AS07 Medicare Program; Prospective Payment Syst em and Consolidated Billing for Skilled Nursing Facilities for FY 2015

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

ACTION: Proposed rule.

SUMMARY: This proposed rule would update the pa yment rates used under the prospective payment system (PPS) for skilled nursing facili ties (SNFs) for fiscal year (FY) 2015. In addition, it includes a proposal to adopt the mo st recent Office of Management and Budget (OMB) statistical area delineations to identify a f acility’s urban or rural status for the purpose of determining which set of rate tables would appl y to the facility and to determine the SNF PPS wage index including a proposed one -year transition with a blended wage index for all providers

for FY 2015. It also includes a discussion of the SNF therapy paymen t research currently underway within CMS. This proposed rule also proposes a revision to policies related to the Change of Therapy (COT) Other Medicare Require d Assessment (OMRA). This proposed rule includes a discussion of a provision related to th e Affordable Care Act involving Civil Money Penalties. Finally, this proposed rule includes a discussion of observed tre nds related to therapy utilization among SNF providers and a discussion of accelerating health information exchange in

SNFs.

DATES: To be assured consideration, comments mu st be received at one of the addresses provided below, no later than 5 p.m. on [OFR--inser t date 60 days after th e date of display for public inspection by the Office of the Federal Register ].2

ADDRESSES: In commenting, please refer to file code CMS-1605-P. Because of staff and resource limitations, we ca nnot accept comments by facsimile (FAX) transmission. You may submit comments in one of four ways (please choose only one of the ways listed): 1. Electronically. You may submit elec tronic comments on this regulation to http://www.regulations.gov . Within the search bar, enter the Regulation Identifier Number associated with this regulation, 0938-AS07, a nd then click on the “Comment Now” box 2. By regular mail. You may mail written comments to the following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1605-P, P.O. Box 8016, Baltimore, MD 21244-8016.

Please allow sufficient time for mailed comment s to be received before the close of the comment period. 3. By express or overnight mail. You may send written comments to the following

address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1605-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. 4. By hand or courier. If you prefer, you may deliver (by ha nd or courier) your3

written comments before the close of the comment period to either of the following addresses:

a. Centers for Medicare & Medicaid Services Department of Health and Human Services Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, S.W., Washington, DC 20201 (Because access to the interior of the H ubert H. Humphrey Building is not readily available to persons without Fe deral Government identification, commenters are encouraged to

leave their comments in the CMS drop slots located in the main lobby of the building. A stampin clock is available for persons wishing to reta in a proof of filing by st amping in and retaining an extra copy of the comments being filed.)

b. Centers for Medicare & Medicaid Services Department of Health and Human Services 7500 Security Boulevard, Baltimore, MD 21244-1850 If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period. For information on viewing public co mments, see the beginning of the

"SUPPLEMENTARY INFORMATION" section.

FOR FURTHER INFORMATION CONTACT: Penny Gershman, (410) 786-6643, for informa tion related to c linical issues. John Kane, (410) 786-0557, for information related to the development of the payment rates and4

case-mix indexes. Kia Sidbury, (410) 786-7816, for informa tion related to the wage index. Karen Tritz, (410) 786-8021, for informa tion related to Civil Money Penalties. Bill Ullman, (410) 786-5667, for information re lated to level of care determinations, consolidated billing, a nd general information.

SUPPLEMENTARY INFORMATION : Inspection of Public Comments: All comments

received before the close of the comment period are available for viewing by the public, including any personally identifiab le or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following website as soon as possible after they have been received: http://www.regulations.gov . Follow the search instructions on that website to view public

comments. Comments received timely will also be av ailable for public inspection as they are received, generally beginning approximately 3 w eeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951. Availability of Certain Tables Exclusivel y Through the Internet on the CMS Website In the past, tables setting forth the Wage Index for Urban Area s Based on CBSA Labor Market Areas and the Wage Index Based on CBS A Labor Market Areas for Rural Areas were published in the Federal Register as an Addendum to the annual SNF PPS rulemaking (that is, the SNF PPS proposed and final rule s or, when applicable, the curr ent update notice). However,

as finalized in the FY 2014 SNF PPS final rule (78 FR 47936, 47964), beginning in FY 2015, these wage index tables ar e no longer published in the Federal Register . Instead, these tables5

will be available exclusively through the Internet. The wage index tables for this proposed rule are available exclusively through th e Internet on the CMS website at http://www.cms.gov/Medicare/Medicare-Fee- for-Service-Payment/SNFPPS/WageIndex.html

. Readers who experience any problems accessing any of the tables that are posted on the

CMS websites identified above should contact Kia Sidbury at (410) 786-7816.

To assist readers in referenci ng sections contained in this document, we are providing the following Table of Contents.

Table of Contents I. Executive Summary A. Purpose B. Summary of Major Provisions C. Summary of Cost and Benefits II. Background A. Statutory Basis and Scope

B. Initial Transition C. Required Annual Rate Updates III. SNF PPS Rate Setting Methodology and FY 2015 Update

A. Federal Base Rates B. SNF Market Basket Update

1. SNF Market Basket Index 2. Use of the SNF Market Basket Percentage 3. Forecast Error Adjustment 4. Multifactor Productivity Adjustment

a. Incorporating the Multifactor Productivity Adjustment into the Market Basket Update6

5. Market Basket Update Factor for FY 2015 C. Case-Mix Adjustment D. Wage Index Adjustment E. Adjusted Rate Computation Example IV. Additional Aspects of the SNF PPS A. SNF Level of Care--Administrative Presumption B. Consolidated Billing C. Payment for SNF-Level Swing-Bed Services

V. Other Issues A. Proposed Changes to SNF PPS Wage Index 1. Background 2. Proposed Implementation of New Labor Market Definitions a. Micropolitan Areas b. Urban Counties Becoming Rural c. Rural Counties Becoming Urban d. Urban Counties Moving to a Different Urban CBSA

e. Transition Period

3. Labor-Related Share B. SNF Therapy Research Project C. Proposed Revisions to Policies Related to the Change of Therapy (COT) Other Medicare Required Assessment (OMRA) D. Civil Money Penalties (section 6111 of the Affordable Care Act) E. Observations on Therapy Utilization Trends F. Accelerating Health Information Exchange in the SNF PPS7

VI. Provisions of the Proposed Rule VII. Collection of Information Requirements VIII. Response to Comments IX. Economic Analyses Regulation Text Acronyms In addition, because of the many terms to which we refer by acronym in this proposed rule, we are listing these abbreviations and th eir corresponding terms in alphabetical order

below: AIDS Acquired Immune Deficiency Syndrome

ARD Assessment reference date BBA Balanced Budget Act of 1997, Pub. L. 105-33 BBRA Medicare, Medicaid, and SCHIP Balan ced Budget Refinement Act of 1999, Pub.

L. 106-113 BIPA Medicare, Medicaid, and SCHIP Benefits Improveme nt and Protection Act of 2000, Pub. L. 106-554 CAH Critical access hospital

CBSA Core-based statistical area CFR Code of Federal Regulations

CMI Case-mix index CMP Civil money penalties

CMS Centers for Medicare & Medicaid Services COT Change of therapy ECI Employment Cost Index8

eCQM Electronically specified clinical quality measures

EHR Electronic health record EOT End of therapy EOT-R End of therapy - resumption FQHC Federally qualified health center FR Federal Register FY Fiscal year GAO Government Accountability Office

HCPCS Healthcare Common Procedure Coding System HIE Health information exchange HIT Health information technology

HOMER Home office Medicare records ICR Information Collection Requirements IGI IHS (Information Handling Services) Global Insight, Inc. IPPS Inpatient Prospective Payment System

MDS Minimum data set MFP Multifactor productivity MMA Medicare Prescription Drug, Improveme nt, and Modernization Act of 2003, Pub.

L. 108-173 MSA Metropolitan statistical area

NAICS North American Industr ial Classification System NF Nursing facility OMB Office of Management and Budget OMRA Other Medicare Required Assessment9

PAMA Protecting Access to Me dicare Act of 2014, Pub. L 113-93 PPS Prospective Payment System

RAI Resident assessment instrument RAVEN Resident assessment validation entry RFA Regulatory Flexibil ity Act, Pub. L. 96-354

RHC Rural health clinic RIA Regulatory impact analysis RUG-III Resource Utilization Groups, Version 3 RUG-IV Resource Utilization Groups, Version 4 RUG-53 Refined 53-Group RUG-III Ca se-Mix Classification System SCHIP State Children's Health Insurance Program SNF Skilled nursing facility

STM Staff time measurement STRIVE Staff time and resource intensity verification UMRA Unfunded Mandates Reform Act, Pub. L. 104-4 I. Executive Summary A. Purpose This proposed rule would update the SNF prospective payment rates for FY 2015 as required under section 1888(e)(4)(E ) of the Act. It would also respond to section 1888(e)(4)(H) of the Act, which requires the Secretar y to “provide for publication in the Federal Register ” before the August 1 that precedes the start of each fiscal year, certain specified information relating to the payment update (see section II.C.). B. Summary of Major Provisions In accordance with sections 1888(e)(4)(E)(ii)( IV) and 1888(e)(5) of the Act, the federal10

rates in this proposed rule woul d reflect an update to the rates that we published in the SNF PPS final rule for FY 2014 (78 FR 47936) which reflec ts the SNF market basket index, adjusted by the forecast error correction, if applicable, and the multifactor pr oductivity adjustment for FY

2015. C. Summary of Cost and Benefits Provision Description Total Transfers Proposed FY 2015 SNF PPS payment rate update. The overall economic impact of this proposed rule would be an estimated increase of $750 million in aggregate payments to SNFs during FY 2015.

II. Background A. Statutory Basis and Scope As amended by section 4432 of the Balan ced Budget Act of 1997 (BBA, Pub. L. 105-33, enacted on August 5, 1997), section 1888(e) of the Ac t provides for the implementation of a PPS for SNFs. This methodology uses prospective, case-mix adjusted per diem payment rates applicable to all covered SNF services defined in section 1888(e)(2)(A) of the Act. The SNF PPS is effective for cost reporting periods beginning on or after Ju ly 1, 1998, and covers all costs of furnishing covered SNF services (routine, ancill ary, and capital-related co sts) other than costs associated with approved educational activities an d bad debts. Under section 1888(e)(2)(A)(i) of the Act, covered SNF services include post-hospital extended care services for which benefits are provided under Part A, as well as those items and services (other than a small number of excluded services, such as physician services) for which payment may otherwise be made under

Part B and which are furnished to Medicare be neficiaries who are residents in a SNF during a covered Part A stay. A comprehensive disc ussion of these provisions appears in the May 12, 1998 interim final rule (63 FR 26252). In addition, a detailed discussion of the legislative history of the SN F PPS is available online at11

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/SNFPPS/Downloads/Legislative_History_07302013.pdf

. As noted in section I.F. of that legisl ative history, on March 23, 2010, the Patient Protection and Affordable Care Act (Pub. L. 111- 148) was enacted. Then, the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted on March 30, 2010) amended certain provisions of Pub. L. 111-148 and certain sections of the Social Security Act and, in certain instances, included “freestanding” provis ions. In this proposed rule, Pub. L. 111-148 and Pub. L. 111-152 are collectively referre d to as the “Affordable Care Ac t.” In section V. of this proposed rule, we include discussions of one speci fic provision related to the Affordable Care Act involving Civil Money Penalties (as discussed in section V.D.).

B. Initial Transition Under sections 1888(e) (1)(A) and 1888(e)(11) of the Act, the SNF PPS included an initial, three-phase transition that blended a facility-specific rate (reflecting the individual facility’s historical cost expe rience) 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 b een paid at the full federal ra te effective with cost reporting periods beginning in FY 2002. As we now base payments for SNFs entirely on the adjusted federal per diem rates, we no longer include ad justment factors under the transition related to facility-specific rates for the upcoming FY. C. Required Annual Rate Updates Section 1888(e)(4)(E) of the Act requires the SNF PPS payment rates to be updated annually. The most recent annual update occurred in a final rule that set forth updates to the SNF PPS payment rates for FY 2014 (78 FR 47936, August 6, 2013). We subsequently12

published two correction notices (78 FR 61202, October 3, 2013, and 79 FR 63, January 2, 2014) with respect to that final rule , as well as a notice that made corrections to the January 2, 2014 correction notice (79 FR 1742, January 10, 2014). Section 1888(e)(4)(H) of the Ac t specifies that we provide for publication annually in the Federal Register of the following:

● The unadjusted federal per diem rates to be applied to days of covered SNF services furnished during the upcoming FY.

● The case-mix classification system to be applied for these services during the upcoming FY.

● The factors to be applied in making the area wage adjustment for these services. Along with other revisions discussed later in this preamble, this proposed rule would provide the required annual updates to the pe r diem payment rates for SNFs for FY 2015. III. SNF PPS Rate Setting Methodology and FY 2015 Update

A. Federal Base Rates Under section 1888(e)(4) of the Act, the SNF PPS uses per diem federal payment rates based on mean SNF costs in a base year (FY 199 5) updated for inflation to the first effective period of the PPS. We developed the federal pa yment rates using allowable costs from hospitalbased and freestanding SNF cost reports for re porting periods beginning in FY 1995. The data used in developing the federal rates also incorpor ated a “Part B add-on,” which is an estimate of the amounts that, prior to the SNF PPS, would ha ve been payable under Part B for covered SNF

services furnished to individua ls during the course of a cove red Part A stay in a SNF. In developing the rates for the initial period, we updated costs to the fi rst effective year of the PPS (the 15-month period beginning July 1, 1998) using a SNF mark et basket index, and then standardized for geographic variations in wa ges and for the costs of facility differences in13

case mix. In compiling the database used to co mpute the federal payment rates, we excluded those providers that received new provider exemp tions from the routine cost limits, as well as costs related to payments for exceptions to the ro utine cost limits. Using the formula that the BBA prescribed, we set the federal rates at a le vel equal to the weight ed 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) combin ed. We computed and applied separately the payment rates for facilities located in urban and rural areas, and adjusted the portion of the federal rate attributable to wage -related costs by a wage index to reflect geographic variations in

wages. B. SNF Market Basket Update

1. SNF Market Basket Index Section 1888(e)(5)(A) of the Act requires us to establish a SN F market basket index that reflects changes over time in the prices of an appropriate mix of goods and services included in covered SNF services. Accordingly, we have developed a SNF market basket index that encompasses the most commonly used cost ca tegories for SNF routine services, ancillary services, and capital-related expenses. We use the SNF market basket index, adjusted in the manner described below, to update the federal rate s on an annual basis. In the SNF PPS final rule for FY 2014 (78 FR 47939 through 47946), we revised and rebased the market basket, which included updating the base year from FY 2004 to FY 2010. For the FY 2015 proposed rule, the FY 2010-base d SNF market basket growth rate is estimated to be 2.4 percent, which is based on the IHS Global Insight, Inc. (IGI) first quarter 2014 forecast with historical data through four th quarter 2013. In section III.B.5. of this proposed rule, we discuss the spec ific application of this adjust ment to the forthcoming annual update of the SNF PPS payment rates.14

2. Use of the SNF Market Basket Percentage Section 1888(e)(5)(B) of the Act defines th e SNF market basket percentage as the percentage change in the SNF ma rket basket index from the midpoi nt of the previ ous FY to the midpoint of the current FY. For the federal rate s set forth in this proposed rule, we use the percentage change in the SNF market basket index to compute the update factor for FY 2015. This is based on the IGI first quarter 2014 foreca st (with historical data through the fourth quarter 2013) of the FY 2015 per centage increase in the FY 2010-based SNF market basket index for routine, ancillary, a nd capital-related expenses, which is used to compute the update factor in this proposed rule. As discussed in sections III.B.3. and III.B.4. of this proposed rule, this market basket percentage change would be reduced by the forecast error correction (as described in §413.337(d)(2)) if app licable, and by the multifactor productivity adjustment as required by section 1888(e)(5)(B )(ii) of the Act. Finally, as di scussed in section II.B. of this proposed rule, we no longer compute update factors to adjust a facility-s pecific portion of the SNF PPS rates, because the initial three-phase transition period from facility-specific to full federal rates that started with cost reporti ng periods beginning in July 1998 has expired. 3. Forecast Error Adjustment As discussed in the June 10, 2003 supplemental proposed rule (68 FR 34768) and finalized in the August 4, 2003, final rule ( 68 FR 46057 through 46059), the regulations at §413.337(d)(2) provide for an adjustment to account for market basket forecast error. The initial adjustment for market basket forecast error applied to the update of the FY 2003 rate for FY 2004, and took into account the cumulative fo recast error for the period from FY 2000 through FY 2002, resulting in an increase of 3.26 percent to the FY 2004 update. Subsequent adjustments in succeeding FYs take into accoun t the forecast error from the most recently available FY for which there is final data, and apply the difference between the forecasted and15

actual change in the market basket when the difference exceeds a specified threshold. We originally used a 0.25 percentage point thres hold for this purpose; however, for the reasons specified in the FY 2008 SNF PPS final ru le (72 FR 43425, August 3, 2007), we adopted a 0.5 percentage point threshold eff ective for FY 2008 and subsequent fiscal years. As we stated

in the final rule for FY 2004 that first issued the market basket forecast error adjustment (68 FR 46058, August 4, 2003), the adjustment w ill “. . . reflect both upward and downward adjustments, as appropriate.” For FY 2013 (the most recently available FY fo r which there is final data), the estimated

increase in the market basket index was 2.5 percentage points, wh ile the actual in crease for FY 2013 was 2.2 percentage points, resulting in the ac tual increase being 0.3 percentage point lower than the estimated increase. Accordingly, as the difference between the estimated and actual amount of change in the market basket index do es not exceed the 0.5 percentage point threshold, the payment rates for FY 2015 do not include a fo recast error adjustment. Table 1 shows the

forecasted and actual market basket amounts for FY 2013.

TABLE 1: Difference Between the Forecasted a nd Actual Market Bask et Increases for FY 2013

Index Forecasted FY 2013 Increase * Actual FY 2013 Increase** FY 2013 Difference SNF 2.5 2.2 -0.3 *Published in Federal Register ; based on second quarter 2012 IGI forecast (2004-based index). **Based on the first quarter 2014 IHS Global Insight forecast, with historical data through the fourth quarter 2013 (2004-based index). 4. Multifactor Productivity Adjustment Section 3401(b) of the Affordable Care Act requires that, in FY 2012 (and in subsequent FYs), the market basket percentage under the SNF payment system as described in section 1888(e)(5)(B)(i) of the Act is to be reduced annually by the pr oductivity adjustment described in section 1886(b)(3)(B)(x i)(II) of the Act. S ection 1886(b)(3)(B )(xi)(II) of the Act, added by16

section 3401(a) of the Affordable Care Act, sets forth the definition of this productivity adjustment. The statute defines the productivity adjustment to be equal to “the 10-year moving average of changes in annual economy-wide pr ivate nonfarm business multi-factor productivity (as projected by the Secretary for the 10-year peri od ending with the applicab le fiscal year, year, cost-reporting period, or other a nnual period)” (the MFP adjustment). The Bureau of Labor Statistics (BLS) is the agency that publishes the official measure of private nonfarm business multifactor productivity (MFP). Please see http://www.bls.gov/mfp to obtain the BLS historical published MFP data. The projection of MFP is currently produced by IGI, an economic forecasting firm. To generate a forecast of MFP, IG I replicated the MFP measure calculated by the BLS, using a series of proxy variables derive d from IGI’s U.S. macroeconomic models. This process is described in greater detail in section III.F.3. of the FY 2012 SNF PPS final rule (76 FR 48527 through 48529). a. Incorporating the Multifactor Productivity Adjustment into the Market Basket Update According to section 1888(e)(5 )(A) of the Act, the Secretary “shall establish a skilled nursing facility market basket index that reflects changes over time in the prices of an appropriate mix of goods and servic es included in covered skilled nursing facility services.” Section 1888(e)(5)(B)(ii) of the Act, added by section 3401(b) of the Affordable Care Act, requires that for FY 2012 and each subsequent FY, after determining the market basket percentage described in section 1888(e)(5)(B)(i) of the Act, “the Secretary shall reduce such percentage by the productivity adjustment descri bed in section 1886(b)(3)( B)(xi)(II)” (which we refer to as the MFP adjustment). Section 1888(e )(5)(B)(ii) of the Act further states that the reduction of the market basket percentage by the MFP adjustment may result in the market basket percentage being less th an zero for a FY, and may resu lt in payment rates under section17

1888(e) of the Act for a FY being less than such payment rates for the preceding FY. Thus, if the application of the MFP adjustment to the mark et basket percentage calculated under section 1888(e)(5)(B)(i) of the Act results in an MFP-adjusted market ba sket percentage that is less than zero, then the annual update to the unadjusted federal pe r diem rates under section 1888(e)(4)(E)(ii) of the Act would be negative, and such rates would decrease relative to the prior FY. For the FY 2015 update, the MFP adjustment is calculated as the 10-year moving average of changes in MFP for the period ending Septembe r 30, 2015, which is 0.4 percent. Consistent with section 1888(e)(5)(B )(i) of the Act and §413.337(d )(2) of the regulations , the market basket percentage for FY 2015 for the SNF PPS is based on IGI’s first quarter 2014 forecast of the SNF market basket update, and is estimated to be 2.4 percent. In accordance with section 1888(e)(5)(B)(ii) of the Act (a s added by section 3401(b) of th e Affordable Care Act) and §413.337(d)(3), this market basket percentage is then reduced by the MFP adjustment (the 10- year moving average of changes in MFP fo r the period ending September 30, 2015) of 0.4 percent, which is calculated as described above and based on IGI’s first quarter 2014 forecast. The resulting MFP-adjusted SNF market basket upda te is equal to 2.0 percent, or 2.4 percent less 0.4 percentage point. 5. Market Basket Update Factor for FY 2015 Sections 1888(e)(4)(E)(ii) (IV) and 1888(e)(5)(i) of the Act require th at the update factor used to establish the FY 2015 unadj usted federal rates be at a level equal to the market basket index percentage change. Accordingly, we determ ined the total growth from the average market basket level for the period of October 1, 2013 through September 30, 2014 to the average market basket level for the period of October 1, 2014 through September 30, 2015. This process yields an update factor of 2.4 percent. As further expl ained in section III.B.3. of this proposed rule, as18

applicable, we adjust the market basket update f actor by the forecast error from the most recently

available FY for which there is final data and apply this adjustment whenever the difference

between the forecasted and act ual percentage change in the market basket exceeds a 0.5 percentage point threshold. Since the difference between the forecasted FY 2013 SNF market basket percentage change and the actual FY 2013 SNF market basket percentage change (FY 2013 is the most recently available FY fo r which there is final data) does not exceed 0.5 percentage point, the FY 2015 market basket of 2.4 percent would not be adjusted by the applicable difference. In addition, for FY 2015, section 1888(e)(5)(B)(ii) of the Act requires us to reduce the market basket percentage by the MFP adjustment (the 10-year moving average of changes in MFP for the period ending Septembe r 30, 2015) of 0.4 percent, as described in section III.B.4. of this proposed rule. The re sulting MFP-adjusted SNF market basket update would be equal to 2.0 percent, or 2.4 percent less 0.4 percentage point. We note that if more recent data become available (for example, a mo re recent estimate of the SNF market basket, MFP adjustment, and/or FY 2004-based SNF ma rket basket used for the forecast error calculation), we would use such data, if appr opriate, to determine th e FY 2015 SNF market basket update, FY 2015 labor-related share relativ e importance, and MFP adjustment in the FY

2015 SNF PPS final rule. We used the SNF market basket, adjusted as described above, to adjust each per diem component of the federal rates forward to re flect the change in the average prices for FY 2015 from average prices for FY 2014. We would further adjust the rates by a wage index budget neutrality factor , described later in this secti on. Tables 2 and 3 reflect the updated components of the unadjusted federal rates for FY 2015, prior to adjustment for casemix. While we would continue to compute and appl y separate federal per diem rates for SNFs

located in urban and rural areas as we have in the past, we propose to use the revised OMB19

statistical area delineations discus sed in Section V.A below to identify a facility’s urban or rural status for the purpose of determining which set of rate tables would apply to a facility beginning on October 1, 2014. We believe that the most current OMB delineations more accurately reflect the contemporary urban and rural nature of ar eas across the country, a nd that use of such delineations would allow us to more accurately de termine the appropriate rate tables to apply under the SNF PPS. Thus, we believe it is appropr iate to use the most current OMB delineations for this purpose, in order to enhance the accuracy of payments under the SNF PPS. We invite comments on this proposal. TABLE 2: FY 2015 Unadjusted Federal Rate Per Diem Urban

Rate Component Nursing - Case-Mix Therapy - CaseMix Therapy - NonCase-mix Non-Case-Mix Per Diem Amount $169.14 $127.41 $16.78 $86.32 TABLE 3: FY 2015 Unadjusted Federal Rate Per Diem Rural

Rate Component Nursing - Case-Mix Therapy - CaseMix Therapy - NonCase-mix Non-Case-Mix Per Diem Amount $161.59 $146.90 $17.92 $87.92

C. Case-Mix Adjustment Under section 1888(e)(4)( G)(i) of the Act, the federal rate also incorporates an adjustment to account for facility case-mix, usi ng a classification system that accounts for the

relative resource utilization of different patient types. The stat ute specifies that the adjustment is to reflect both a resident classification system th at the Secretary establishes to account for the relative resource use of different pa tient types, as well as resident assessment data and other data that the Secretary considers appr opriate. In the interim final rule with comment period that initially implemented the SNF PPS (63 FR 26252, May 12, 1998), we developed the RUG-III case-mix classification system, which tied the am ount of payment to resident resource use in20

combination with resident characteristic inform ation. Staff time measurement (STM) studies conducted in 1990, 1995, and 1997 provided informati on on resource use (time spent by staff members on residents) and resident characteristic s that enabled us not only to establish RUG-III, but also to create case-mix indexes (CMIs). The original RUG-III grouper logic was based on

clinical data collected in 1990, 1995, and 1997. As discussed in the SNF PPS proposed rule for FY 2010 (74 FR 22208), we subsequently conducted a multi-year data collection and analysis under the Staff Time and Resource Intensity Veri fication (STRIVE) project to update the casemix classification system for FY 2011. The re sulting Resource Utilization Groups, Version 4 (RUG-IV) case-mix classification system reflected the data co llected in 2006-2007 during the STRIVE project, and was finalized in the FY 2010 SNF PPS final rule (74 FR 40288) to take effect in FY 2011 concurrently with an updated new resident assessment instrument, version 3.0 of the Minimum Data Set (MDS 3.0), which co llects the clinical data used for case-mix

classification under RUG-IV. We note that case-mix classification is based, in part, on the beneficiary's need for skilled nursing care and therapy services. The case-mix classification system uses clinical data from the MDS to assign a case-mix group to each patient that is then used to calcul ate a per diem payment

under the SNF PPS. As discussed in section IV.A. of this proposed rule, the clinical orientation of the case-mix classification system supports the SNF PPS’s use of an administrative presumption that considers a beneficiary’s ini tial case-mix classification to assist in making

certain SNF level of care determinations. Furt her, because the MDS is used as a basis for payment, as well as a clinical assessment, we have provided extensive training on proper coding and the time frames for MDS completion in our Resident Assessment Instrument (RAI) Manual.

For an MDS to be considered valid for use in determining payment, the MDS assessment must be completed in compliance with the instructions in the RAI Manual in effect at the time the21

assessment is completed. For payment and quality monitoring purposes, the RAI Manual

consists of both the Manual instructions and th e interpretive guidance and policy clarifications posted on the appropriate MDS website at http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/NursingH omeQualityInits/MDS30RAIManual.html

. In addition, we note that s ection 511 of the Medicare Pr escription Drug, Improvement, and Modernization Act of 2003 (MMA, Pub. L. 108-173) amended section 1888(e)(12) of the Act to provide for a temporary increase of 128 percent in the PPS per diem payment for any SNF residents with Acquired Immune Deficiency Syndro me (AIDS), effective with services furnished on or after October 1, 2004. This special add-on for SNF residents with AIDS was to remain in effect until “. . . the Secretary certifies that there is an appropriate adjustment in the case mix . . . to compensate for the increased costs associated w ith [such] residents . . . .” The add-on for SNF

residents with AIDS is also discussed in Program Transmittal #160 (Change Request #3291), issued on April 30, 2004, which is available online at www.cms.gov/transmittals/downloads/r160cp.pdf . In the SNF PPS final rule for FY 2010 (74 FR 40288), we did not address the certification of the add-on fo r SNF residents with AIDS in that final rule’s implementation of the case-mix refinements for RUG-IV, thus allowing the addon payment required by section 511 of the MMA to re main in effect. For the limited number of SNF residents that qualify for this add-on, ther e is a significant increase in payments. For example, using FY 2012 data, we identified fe wer than 4,355 SNF residents with a diagnosis code of 042 (Human Immunodeficiency Virus (HIV ) Infection). For FY 2015, an urban facility with a resident with AIDS in RUG-IV group “H C2” would have a case-mix adjusted per diem payment of $422.77 (see Table 4) before the appl ication of the MMA adjustment. After an increase of 128 percent, this urban facility woul d receive a case-mix adju sted per diem payment of approximately $963.92.22

Currently, we use the International Classifi cation of Diseases, 9t h revision, Clinical Modification (ICD-9-CM) code 042 to identify those residents for whom it is appropriate to apply the AIDS add-on established by section 511 of the MMA. In this context, we note that the Department published a final rule in the September 5, 2012 Federal Register (77 FR 54664) which requires us to stop using ICD-9- CM on September 30, 2014, and begin using the International Classification of Diseases, 10th revision, Clinical Modi fication (ICD-10-CM), on October 1, 2014. Regarding the above-referenced ICD-9-CM diagnosis code of 042, in the FY 2014 SNF PPS proposed rule (78 FR 26444, May 6, 2013), we proposed to transition to the equivalent ICD-10-CM diagnosis code of B20 upon the overa ll conversion to ICD-10-CM on October 1, 2014, and we subsequen tly finalized that proposal in the FY 2014 SNF PPS final rule (78 FR 47951 through 47952). However, on April 1, 2014, the Protecting A ccess to Medicare Act of 2014 (PAMA) (Pub. L. No. 113-93) was enacted. Section 212 of PAMA, titled “Delay in Transition from ICD9 to ICD-10 Code Sets,” provides that “[t]he Secretary of Hea lth and Human Services may not, prior to October 1, 2015, adopt IC D-10 code sets as the standard for code sets under section 1173(c) of the Social Security Act (42 U.S.C. 1320d-2(c)) and section 162.1002 of title 45, Code of Federal Regulations.” As of now, the Secr etary has not implemented this provision under HIPAA. In light of PAMA, the effective date of the change fr om ICD-9-CM code 042 to ICD10-CM code B20 for purposes of applying the AIDS add-on would be the date when ICD-10 becomes the required medical data code set for use on Medicare SNF claims. Until that time, we would continue to use ICD-9-CM code 042 for this purpose. Under section 1888(e)(4)(H), each update of th e payment rates must include the case-mix classification methodology applicab le for the upcoming FY. The pa yment rates set forth in this proposed rule reflect the use of the RUG-IV case-mix classifi cation system from October 1,23

2014, through September 30, 2015. We list the pr oposed case-mix adjusted RUG-IV payment rates, provided separately for urban and rural SN Fs, in Tables 4 and 5 with corresponding casemix values. As discussed above, facilities woul d use the proposed revised OMB delineations in order to identify their urban or ru ral status for the purpose of determ ining which set of rate tables would apply to them beginning on October 1, 2014. These tables do not reflect the add-on for SNF residents with AIDS enacted by secti on 511 of the MMA, which we apply only after making all other adjustments (such as wage index and case-mix). TABLE 4: RUG-IV Case-Mix Adjusted Fe deral Rates and Associated Indexes URBAN

RUG-IV Category Nursing Index Therapy Index Nursing Component Therapy Component Non-case Mix Therapy Comp Non-case Mix Component Total Rate RUX 2.67 1.87 $451.60 $238.26 $86.32 $776.18 RUL 2.57 1.87 $434.69 $238.26 $86.32 $759.27 RVX 2.61 1.28 $441.46 $163.08 $86.32 $690.86 RVL 2.19 1.28 $370.42 $163.08 $86.32 $619.82 RHX 2.55 0.85 $431.31 $108.30 $86.32 $625.93 RHL 2.15 0.85 $363.65 $108.30 $86.32 $558.27 RMX 2.47 0.55 $417.78 $70.08 $86.32 $574.18 RML 2.19 0.55 $370.42 $70.08 $86.32 $526.82 RLX 2.26 0.28 $382.26 $35.67 $86.32 $504.25 RUC 1.56 1.87 $263.86 $238.26 $86.32 $588.44 RUB 1.56 1.87 $263.86 $238.26 $86.32 $588.44 RUA 0.99 1.87 $167.45 $238.26 $86.32 $492.03 RVC 1.51 1.28 $255.40 $163.08 $86.32 $504.80 RVB 1.11 1.28 $187.75 $163.08 $86.32 $437.15 RVA 1.10 1.28 $186.05 $163.08 $86.32 $435.45 RHC 1.45 0.85 $245.25 $108.30 $86.32 $439.87 RHB 1.19 0.85 $201.28 $108.30 $86.32 $395.90 RHA 0.91 0.85 $153.92 $108.30 $86.32 $348.54 RMC 1.36 0.55 $230.03 $70.08 $86.32 $386.43 RMB 1.22 0.55 $206.35 $70.08 $86.32 $362.75 RMA 0.84 0.55 $142.08 $70.08 $86.32 $298.48 RLB 1.50 0.28 $253.71 $35.67 $86.32 $375.70 RLA 0.71 0.28 $120.09 $35.67 $86.32 $242.08 ES3 3.58 $605.52 $16.78 $86.32 $708.62 ES2 2.67 $451.60 $16.78 $86.32 $554.70 ES1 2.32 $392.40 $16.78 $86.32 $495.50 HE2 2.22 $375.49 $16.78 $86.32 $478.59 HE1 1.74 $294.30 $16.78 $86.32 $397.4024

RUG-IV Category Nursing Index Therapy Index Nursing Component Therapy Component Non-case Mix Therapy Comp Non-case Mix Component Total Rate HD2 2.04 $345.05 $16.78 $86.32 $448.15 HD1 1.60 $270.62 $16.78 $86.32 $373.72 HC2 1.89 $319.67 $16.78 $86.32 $422.77 HC1 1.48 $250.33 $16.78 $86.32 $353.43 HB2 1.86 $314.60 $16.78 $86.32 $417.70 HB1 1.46 $246.94 $16.78 $86.32 $350.04 LE2 1.96 $331.51 $16.78 $86.32 $434.61 LE1 1.54 $260.48 $16.78 $86.32 $363.58 LD2 1.86 $314.60 $16.78 $86.32 $417.70 LD1 1.46 $246.94 $16.78 $86.32 $350.04 LC2 1.56 $263.86 $16.78 $86.32 $366.96 LC1 1.22 $206.35 $16.78 $86.32 $309.45 LB2 1.45 $245.25 $16.78 $86.32 $348.35 LB1 1.14 $192.82 $16.78 $86.32 $295.92 CE2 1.68 $284.16 $16.78 $86.32 $387.26 CE1 1.50 $253.71 $16.78 $86.32 $356.81 CD2 1.56 $263.86 $16.78 $86.32 $366.96 CD1 1.38 $233.41 $16.78 $86.32 $336.51 CC2 1.29 $218.19 $16.78 $86.32 $321.29 CC1 1.15 $194.51 $16.78 $86.32 $297.61 CB2 1.15 $194.51 $16.78 $86.32 $297.61 CB1 1.02 $172.52 $16.78 $86.32 $275.62 CA2 0.88 $148.84 $16.78 $86.32 $251.94 CA1 0.78 $131.93 $16.78 $86.32 $235.03 BB2 0.97 $164.07 $16.78 $86.32 $267.17 BB1 0.90 $152.23 $16.78 $86.32 $255.33 BA2 0.70 $118.40 $16.78 $86.32 $221.50 BA1 0.64 $108.25 $16.78 $86.32 $211.35 PE2 1.50 $253.71 $16.78 $86.32 $356.81 PE1 1.40 $236.80 $16.78 $86.32 $339.90 PD2 1.38 $233.41 $16.78 $86.32 $336.51 PD1 1.28 $216.50 $16.78 $86.32 $319.60 PC2 1.10 $186.05 $16.78 $86.32 $289.15 PC1 1.02 $172.52 $16.78 $86.32 $275.62 PB2 0.84 $142.08 $16.78 $86.32 $245.18 PB1 0.78 $131.93 $16.78 $86.32 $235.03 PA2 0.59 $99.79 $16.78 $86.32 $202.89 PA1 0.54 $91.34 $16.78 $86.32 $194.4425

TABLE 5: RUG-IV Case-Mix Adjusted Fe deral Rates and Associated Indexes RURAL

RUG-IV Category Nursing Index Therapy Index Nursing Component Therapy Component Non-case Mix Therapy Comp Non-case Mix Component Total Rate RUX 2.67 1.87 $431.45 $274.70 $87.92 $794.07 RUL 2.57 1.87 $415.29 $274.70 $87.92 $777.91 RVX 2.61 1.28 $421.75 $188.03 $87.92 $697.70 RVL 2.19 1.28 $353.88 $188.03 $87.92 $629.83 RHX 2.55 0.85 $412.05 $124.87 $87.92 $624.84 RHL 2.15 0.85 $347.42 $124.87 $87.92 $560.21 RMX 2.47 0.55 $399.13 $80.80 $87.92 $567.85 RML 2.19 0.55 $353.88 $80.80 $87.92 $522.60 RLX 2.26 0.28 $365.19 $41.13 $87.92 $494.24 RUC 1.56 1.87 $252.08 $274.70 $87.92 $614.70 RUB 1.56 1.87 $252.08 $274.70 $87.92 $614.70 RUA 0.99 1.87 $159.97 $274.70 $87.92 $522.59 RVC 1.51 1.28 $244.00 $188.03 $87.92 $519.95 RVB 1.11 1.28 $179.36 $188.03 $87.92 $455.31 RVA 1.10 1.28 $177.75 $188.03 $87.92 $453.70 RHC 1.45 0.85 $234.31 $124.87 $87.92 $447.10 RHB 1.19 0.85 $192.29 $124.87 $87.92 $405.08 RHA 0.91 0.85 $147.05 $124.87 $87.92 $359.84 RMC 1.36 0.55 $219.76 $80.80 $87.92 $388.48 RMB 1.22 0.55 $197.14 $80.80 $87.92 $365.86 RMA 0.84 0.55 $135.74 $80.80 $87.92 $304.46 RLB 1.50 0.28 $242.39 $41.13 $87.92 $371.44 RLA 0.71 0.28 $114.73 $41.13 $87.92 $243.78 ES3 3.58 $578.49 $17.92 $87.92 $684.33 ES2 2.67 $431.45 $17.92 $87.92 $537.29 ES1 2.32 $374.89 $17.92 $87.92 $480.73 HE2 2.22 $358.73 $17.92 $87.92 $464.57 HE1 1.74 $281.17 $17.92 $87.92 $387.01 HD2 2.04 $329.64 $17.92 $87.92 $435.48 HD1 1.60 $258.54 $17.92 $87.92 $364.38 HC2 1.89 $305.41 $17.92 $87.92 $411.25 HC1 1.48 $239.15 $17.92 $87.92 $344.99 HB2 1.86 $300.56 $17.92 $87.92 $406.40 HB1 1.46 $235.92 $17.92 $87.92 $341.76 LE2 1.96 $316.72 $17.92 $87.92 $422.56 LE1 1.54 $248.85 $17.92 $87.92 $354.69 LD2 1.86 $300.56 $17.92 $87.92 $406.40 LD1 1.46 $235.92 $17.92 $87.92 $341.76 LC2 1.56 $252.08 $17.92 $87.92 $357.92 LC1 1.22 $197.14 $17.92 $87.92 $302.98 LB2 1.45 $234.31 $17.92 $87.92 $340.1526

RUG-IV Category Nursing Index Therapy Index Nursing Component Therapy Component Non-case Mix Therapy Comp Non-case Mix Component Total Rate LB1 1.14 $184.21 $17.92 $87.92 $290.05 CE2 1.68 $271.47 $17.92 $87.92 $377.31 CE1 1.50 $242.39 $17.92 $87.92 $348.23 CD2 1.56 $252.08 $17.92 $87.92 $357.92 CD1 1.38 $222.99 $17.92 $87.92 $328.83 CC2 1.29 $208.45 $17.92 $87.92 $314.29 CC1 1.15 $185.83 $17.92 $87.92 $291.67 CB2 1.15 $185.83 $17.92 $87.92 $291.67 CB1 1.02 $164.82 $17.92 $87.92 $270.66 CA2 0.88 $142.20 $17.92 $87.92 $248.04 CA1 0.78 $126.04 $17.92 $87.92 $231.88 BB2 0.97 $156.74 $17.92 $87.92 $262.58 BB1 0.90 $145.43 $17.92 $87.92 $251.27 BA2 0.70 $113.11 $17.92 $87.92 $218.95 BA1 0.64 $103.42 $17.92 $87.92 $209.26 PE2 1.50 $242.39 $17.92 $87.92 $348.23 PE1 1.40 $226.23 $17.92 $87.92 $332.07 PD2 1.38 $222.99 $17.92 $87.92 $328.83 PD1 1.28 $206.84 $17.92 $87.92 $312.68 PC2 1.10 $177.75 $17.92 $87.92 $283.59 PC1 1.02 $164.82 $17.92 $87.92 $270.66 PB2 0.84 $135.74 $17.92 $87.92 $241.58 PB1 0.78 $126.04 $17.92 $87.92 $231.88 PA2 0.59 $95.34 $17.92 $87.92 $201.18 PA1 0.54 $87.26 $17.92 $87.92 $193.10 D. Wage Index Adjustment Section 1888(e)(4)(G)(ii) of the Act requires that we adjust the federal rates to account for differences in area wage levels, using a wage index that the Secretary determines appropriate. Since the inception of the SNF PPS, we have used hospital inpatient wage data in developing a wage index to be applied to SNFs. We propose to continue this practice for FY 2015, as we

continue to believe that in the absence of SN F-specific wage data, using the hospital inpatient wage index data is appropriate and reasonable for the SNF PPS. As explained in the update notice for FY 2005 (69 FR 45786), the SNF PPS doe s 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; mo reover, the collection of the occupational wage27

data also excludes any wage data related to SNFs. Therefore, we believe that using the updated wage data exclusive of the occupational mix ad justment continues to be appropriate for SNF payments. For FY 2015, the updated wage data ar e for hospital cost re porting periods beginning on or after October 1, 2010 and before October 1, 2011 (FY 2011 co st report data). We note that section 315 of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106- 554, enacted on December 21, 2000) authorized us to establish a geographic reclassification proc edure that is specific to SNFs, but only after collecting the data necessary to establish a SNF wage index that is based on wage data from nursing homes. However, to date, this has prove n to be unfeasible due to the volatility of existing SNF wage data and the significant amou nt of resources that would be required to improve the quality of that data. In addition, we propose to continue to us e the same methodology discussed in the SNF PPS final rule for FY 2008 (72 FR 43423) to addr ess those geographic areas in which there are no hospitals, and thus, no hospital wage index data on which to base the calculation of the FY 2015 SNF PPS wage index. For rural geographic areas that do not have hospitals, and therefore, lack hospital wage data on which to base an area wage adjustment, we would use the average wage index from all contiguous Core-Based Stat istical Areas (CBSAs) as a reasonable proxy. For FY 2015, there are no rural geographic areas that do not have hospitals, and thus, this methodology would not be applied. For rural Puer to Rico, we would not apply this methodology

due to the distinct economic circumstances that exist there (for example, due to the close proximity to one another of almost all of Puer to Rico’s various urban and non-urban areas, this methodology would produce a wage index for rural Puerto Rico that is higher th an that in half of its urban areas); instead, we would continue to use the most recent wage index previously

available for that area. For urban areas without specific hospital wage in dex data, we would use28

the average wage indexes of all of the urban areas within the stat e to serve as a reasonable proxy for the wage index of that urban CBSA. For FY 2015, the only urban area without wage index data available is CBSA 25980, Hinesville-Fort Stewart, GA. Once calculated, we would apply the wage inde x adjustment to the labor-related portion of the federal rate. Each year, we calculate a revised labor-relat ed share, based on the relative importance of labor-related cost categories (that is, those cost ca tegories that are sensitive to local area wage costs) in the input price index. In the SNF PPS final rule for FY 2014 (78 FR 47944 through 47946), we finalized a proposal to revi se the labor-related share to reflect the relative importance of the revised FY 2010-base d SNF market basket cost weights for the following cost categories: wages and salaries ; employee benefits; the labor-related portion of nonmedical professional fees; admi nistrative and facilities suppor t services; all other--laborrelated services; and a proportion of capital-related expenses. We calculate the labor-related relative importa nce from the SNF market basket, and it approximates the labor-related portion of the total costs after taking into account historical and projected price changes between the base year and FY 2015. The price proxies that move the different cost categories in the market basket do not necessarily change at the same rate, and the relative importance captures these changes. Accordingly, the relative importance figure more closely reflects the cost share weights for FY 2015 than the base year weights from the SNF

market basket. We calculate the labor-related relative importa nce for FY 2015 in four steps. First, we compute the FY 2015 price index level for the total market basket and each cost category of the market basket. Second, we calculate a ratio fo r each cost category by dividing the FY 2015 price index level for that cost category by the total market basket price index level. Third, we determine the FY 2015 relative importance for each cost category by multiplying this ratio by the29

base year (FY 2010) weight. Finally, we add the FY 2015 relative importance for each of the labor-related cost categories (wages and salari es, employee benefits, the labor-related portion of non-medical professional fees, administrative an d facilities support servi ces, all other: laborrelated services, and a portion of capital-related expenses) to produce the FY 2015 labor-related relative importance. Tables 6 and 7 show the RUG-IV case-mix adjusted federal rates by laborrelated and non-labor-related components. As discussed above, the proposed new OMB delineations would be used to identify a facili ty’s urban or rural st atus for the purpose of determining which set of rate tables would a pply to them beginning on October 1, 2014. Table 12 in section V.A.3. provides the FY 2015 labor -related share components based on the SNF

market basket. TABLE 6: RUG-IV Case-Mix Adjust ed Federal Rates for Urban SNFs By Labor and Non-Labor Component RUG-IV Category Total Rate Labor Portion Non-Labor Portion RUX 776.18 $539.55 $236.63 RUL 759.27 $527.79 $231.48 RVX 690.86 $480.24 $210.62 RVL 619.82 $430.86 $188.96 RHX 625.93 $435.10 $190.83 RHL 558.27 $388.07 $170.20 RMX 574.18 $399.13 $175.05 RML 526.82 $366.21 $160.61 RLX 504.25 $350.52 $153.73 RUC 588.44 $409.04 $179.40 RUB 588.44 $409.04 $179.40 RUA 492.03 $342.02 $150.01 RVC 504.80 $350.90 $153.90 RVB 437.15 $303.88 $133.27 RVA 435.45 $302.69 $132.76 RHC 439.87 $305.77 $134.10 RHB 395.90 $275.20 $120.70 RHA 348.54 $242.28 $106.26 RMC 386.43 $268.62 $117.81 RMB 362.75 $252.16 $110.59 RMA 298.48 $207.48 $91.00 RLB 375.70 $261.16 $114.54 RLA 242.08 $168.28 $73.80 ES3 708.62 $492.58 $216.04 ES2 554.70 $385.59 $169.1130

RUG-IV Category Total Rate Labor Portion Non-Labor Portion ES1 495.50 $344.44 $151.06 HE2 478.59 $332.68 $145.91 HE1 397.40 $276.24 $121.16 HD2 448.15 $311.52 $136.63 HD1 373.72 $259.78 $113.94 HC2 422.77 $293.88 $128.89 HC1 353.43 $245.68 $107.75 HB2 417.70 $290.36 $127.34 HB1 350.04 $243.32 $106.72 LE2 434.61 $302.11 $132.50 LE1 363.58 $252.74 $110.84 LD2 417.70 $290.36 $127.34 LD1 350.04 $243.32 $106.72 LC2 366.96 $255.08 $111.88 LC1 309.45 $215.11 $94.34 LB2 348.35 $242.15 $106.20 LB1 295.92 $205.70 $90.22 CE2 387.26 $269.20 $118.06 CE1 356.81 $248.03 $108.78 CD2 366.96 $255.08 $111.88 CD1 336.51 $233.92 $102.59 CC2 321.29 $223.34 $97.95 CC1 297.61 $206.88 $90.73 CB2 297.61 $206.88 $90.73 CB1 275.62 $191.59 $84.03 CA2 251.94 $175.13 $76.81 CA1 235.03 $163.38 $71.65 BB2 267.17 $185.72 $81.45 BB1 255.33 $177.49 $77.84 BA2 221.50 $153.97 $67.53 BA1 211.35 $146.92 $64.43 PE2 356.81 $248.03 $108.78 PE1 339.90 $236.27 $103.63 PD2 336.51 $233.92 $102.59 PD1 319.60 $222.16 $97.44 PC2 289.15 $201.00 $88.15 PC1 275.62 $191.59 $84.03 PB2 245.18 $170.43 $74.75 PB1 235.03 $163.38 $71.65 PA2 202.89 $141.03 $61.86 PA1 194.44 $135.16 $59.28

TABLE 7: RUG-IV Case-Mix Adjusted Federa l Rates for Rural SNFs by Labor and NonLabor Component

RUG-IV Category Total Rate Labor Portion Non-Labor Portion31

RUG-IV Category Total Rate Labor Portion Non-Labor Portion RUX 794.07 $551.98 $242.09 RUL 777.91 $540.75 $237.16 RVX 697.70 $484.99 $212.71 RVL 629.83 $437.81 $192.02 RHX 624.84 $434.35 $190.49 RHL 560.21 $389.42 $170.79 RMX 567.85 $394.73 $173.12 RML 522.60 $363.27 $159.33 RLX 494.24 $343.56 $150.68 RUC 614.70 $427.30 $187.40 RUB 614.70 $427.30 $187.40 RUA 522.59 $363.27 $159.32 RVC 519.95 $361.43 $158.52 RVB 455.31 $316.50 $138.81 RVA 453.70 $315.38 $138.32 RHC 447.10 $310.79 $136.31 RHB 405.08 $281.58 $123.50 RHA 359.84 $250.14 $109.70 RMC 388.48 $270.04 $118.44 RMB 365.86 $254.32 $111.54 RMA 304.46 $211.64 $92.82 RLB 371.44 $258.20 $113.24 RLA 243.78 $169.46 $74.32 ES3 684.33 $475.70 $208.63 ES2 537.29 $373.49 $163.80 ES1 480.73 $334.17 $146.56 HE2 464.57 $322.94 $141.63 HE1 387.01 $269.02 $117.99 HD2 435.48 $302.72 $132.76 HD1 364.38 $253.29 $111.09 HC2 411.25 $285.87 $125.38 HC1 344.99 $239.81 $105.18 HB2 406.40 $282.50 $123.90 HB1 341.76 $237.57 $104.19 LE2 422.56 $293.73 $128.83 LE1 354.69 $246.56 $108.13 LD2 406.40 $282.50 $123.90 LD1 341.76 $237.57 $104.19 LC2 357.92 $248.80 $109.12 LC1 302.98 $210.61 $92.37 LB2 340.15 $236.45 $103.70 LB1 290.05 $201.62 $88.43 CE2 377.31 $262.28 $115.03 CE1 348.23 $242.07 $106.16 CD2 357.92 $248.80 $109.12 CD1 328.83 $228.58 $100.25 CC2 314.29 $218.47 $95.82 CC1 291.67 $202.75 $88.9232

RUG-IV Category Total Rate Labor Portion Non-Labor Portion CB2 291.67 $202.75 $88.92 CB1 270.66 $188.14 $82.52 CA2 248.04 $172.42 $75.62 CA1 231.88 $161.19 $70.69 BB2 262.58 $182.53 $80.05 BB1 251.27 $174.67 $76.60 BA2 218.95 $152.20 $66.75 BA1 209.26 $145.46 $63.80 PE2 348.23 $242.07 $106.16 PE1 332.07 $230.83 $101.24 PD2 328.83 $228.58 $100.25 PD1 312.68 $217.35 $95.33 PC2 283.59 $197.13 $86.46 PC1 270.66 $188.14 $82.52 PB2 241.58 $167.93 $73.65 PB1 231.88 $161.19 $70.69 PA2 201.18 $139.85 $61.33 PA1 193.10 $134.23 $58.87

Section 1888(e)(4)(G)(ii) of the Act also requires that we apply this wage index in a manner that does not result in aggregate paymen ts under the SNF PPS that are greater or less than would otherwise be made if the wage adju stment had not been made. For FY 2015 (federal rates effective October 1, 2014), we would apply an adjustment to fulfill the budget neutrality requirement. We would meet this requirement by multiplying each of the components of the unadjusted federal rates by a budget ne utrality factor equal to the ratio of the weighted average wage adjustment factor for FY 2014 to the weig hted average wage adjustment factor for FY 2015, based on the blended wage index for FY 2015 as proposed later in th is proposed rule. For this calculation, we use the same FY 2013 claims utilization data for both the numerator and denominator of this ratio. We define the wage ad justment factor used in this calculation as the labor share of the rate compone nt multiplied by the wage index plus the non-labor share of the rate component. The budget neutra lity factor for FY 2015 would be 1.0001 In the SNF PPS final rule for FY 2006 (70 FR 45026, August 4, 2005), we adopted the33

changes discussed in the OMB Bulletin N o. 03-04 (June 6, 2003), available online at www.whitehouse.gov/omb/bulletins/b03-04.html , which announced revised definitions for MSAs, and the creation of micropolitan statisti cal areas and combined statistical areas. In adopting the CBSA geographic designations, we provided for a one-year transition in FY 2006 with a blended wage index for all prov iders. 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 inde x (both using FY 2002 hospital data). We referred to the blended wage index as the FY 2006 SNF PPS transition wage index. As

discussed in the SNF PPS final rule for FY 2006 (70 FR 45041), since the expiration of this one-year transition on September 30, 2006, we ha ve used the full CBSA-based wage index

values. On February 28, 2013, OMB issued OMB Bu lletin No. 13-01, announcing revisions to the delineation of MSAs, Micropolitan Statisti cal Areas, and Combined Statistical Areas, and guidance on uses of the delineation of these areas. A copy of this bulletin is available online at http://www.whitehouse.gov/sites/defaul t/files/omb/bulle tins/2013/b-13-01.pdf . This bulletin states that it “provides the delineations of all Me tropolitan Statistical Areas, Metropolitan Divisions, Micropolitan Statisti cal Areas, Combined Statistical Areas, and New England City

and Town Areas in the United States and Puerto Rico based on the standards published on June 28, 2010, in the Federal Register (75 FR 37246 - 37252) and Ce nsus Bureau data.” While the revisions OMB published on Febr uary 28, 2013 are not as sweeping as the changes made when we adopted the CBSA geog raphic designations for FY 2006, the February 28, 2013 bulletin does contain a number of significan t changes. For example, there are new CBSAs, urban counties that become rural, rural counties that become urban, and existing CBSAs that are being split apart.34

As discussed in the SNF PPS proposed rule for FY 2014 (78 FR 26448), the changes made by the bulletin and their ramifications re quired extensive review by CMS before using them for the SNF PPS wage index. Having comp leted our assessment, we are proposing changes to the SNF PPS wage index based on the newe st OMB delineations, as described in OMB Bulletin No. 13-01, beginning in FY 2015, includ ing a proposed one-year transition with a blended wage index for FY 2015. These proposed ch anges are discussed further in section V.A. of this proposed rule. The proposed wage index applicable to FY 2015 is set forth in Table A

available on the CMS website at http://cms.gov/Medicare/Med icare-Fee-for-ServicePayment/SNFPPS/WageIndex.html

. Table A provides a crosswalk between the FY 2015 wage index for a provider using the current OMB delineations in effect in FY 2014 and the FY 2015 wage index using the proposed revised OMB de lineations, as well as the proposed transition wage index values that would be in effect in FY 2015 if thes e proposed changes are finalized. E. Adjusted Rate Computation Example Using the hypothetical SNF XYZ described be low, Table 8 shows the adjustments made to the federal per diem rates to compute the provi der's actual per diem PPS payment. We derive

the Labor and Non-labor columns from Table 6. Th e wage index used in this example is based on the proposed transition wage i ndex, which may be found in Table A as referenced above. As illustrated in Table 8, SNF XYZ’s total PPS payment would equal $42,299.26. TABLE 8: Adjusted Rate Computation Example SNF XYZ: Located in Cedar Ra pids, IA (Urban CBSA 16300) Wage Index: 0.8883 (See Proposed Transition Wage Index in Table A) 1

RUG-IV Group Labor Wage Index Adjusted Labor NonLabor Adjusted Rate Percent Adjustment Medicare Days Payment RVX $480.24 0.8883 $426.60 $210.62 $637.22 $637.22 14 $8,921.08 ES2 $385.59 0.8883 $342.52 $169.11 $511.63 $511.63 30 $15,348.90 RHA $242.28 0.8883 $215.22 $106.26 $321.48 $321.48 16 $5,143.68 CC2* $223.34 0.8883 $198.39 $97.95 $296.34 $675.66 10 $6,756.60 BA2 $153.97 0.8883 $136.77 $67.53 $204.30 $204.30 30 $6,129.00 100 $42,299.2635

*Reflects a 128 percent adjustment from section 511 of the MMA. 1 available on the CMS website at http://www.cms.gov/Medicare/ Medicare-Fee-for-ServicePayment/SNFPPS/WageIndex.html

. IV. Additional Asp ects of the SNF PPS A. SNF Level of Care--Administrative Presumption

The establishment of the SNF PPS did not ch ange Medicare's fundamental requirements for SNF coverage. However, because the case-m ix 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 assessme nt process and case-mix classification system discussed in section III.C. of this proposed rule. This approach includes an administrative presumption that utilizes a benefi ciary’s initial classifica tion in one of the upper 52 RUGs of the 66-group RUG-IV case-mix classification syst em to assist in making certain

SNF level of care determinations. In accordance with section 1888(e)(4)(H)(ii) of the Act and the regulations at §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 repr esent the required SNF level of care, as provided in §409.30. As set fort h in the FY 2011 SNF PPS update notice (75 FR 42910), this designation reflects an administrative presumption under the 66-group RUG-IV system that beneficiaries who are correctly as signed to one of the upper 52 RUG-IV groups on the initial five-day, Medicare-required assessment are automatically classified as meeting the SNF level of care definition up to and including the assessment reference date on the five-day Medicare-required assessment. A beneficiary assigned to any of the lo wer 14 RUG-IV groups is not automatically classified as either meeting or not meeting the definition, but inst ead receives an individual level of care determination using the existing administra tive criteria. This presumption recognizes the strong likelihood that beneficiaries assigned to one of the upper 52 RUG-IV groups during the36

immediate post-hospital period requi re a covered level of care, which would be less likely for those beneficiaries assigned to one of the lower 14 RUG-IV groups. In the July 30, 1999 final rule (64 FR 41670) , we indicated that we would announce any changes to the guidelines for Medicare level of ca re determinations related to modifications in the case-mix classification structure. In this pr oposed rule, we would continue to designate the upper 52 RUG-IV groups for purposes of this ad ministrative presumption, consisting of all groups encompassed by the following RUG-IV categories:

• Rehabilitation plus Extensive Services;

• Ultra High Rehabilitation;

• Very High Rehabilitation;

• High Rehabilitation;

• Medium Rehabilitation;

• Low Rehabilitation;

• Extensive Services;

• Special Care High;

• Special Care Low; and,

• Clinically Complex. However, we note that this administrative presumption policy does not supersede the SNF’s responsibility to ensure that its decisi ons relating to level of care are appropriate and timely, including a review to confirm that the se rvices prompting the beneficiary’s assignment to one of the upper 52 RUG-IV groups (which, in turn, serves to trigger the administrative presumption) are themselves medically necessa ry. As we explained in the FY 2000 SNF PPS final rule (64 FR 41667), the ad ministrative presumption:

“. . . is itself rebuttable in those individual cases in which the services actually received37

by the resident do not meet the basic statutor y criterion of being reasonable and necessary to diagnose or treat a beneficiary's condition (according to section 1862(a)(1) of the Act). Accordingly, the presumption would not apply, for example, in those situations in which a resident's assignment to one of the upper . . . groups is itself ba sed on the receipt of services that are subsequently determined to be not reasonable and necessary.” Moreover, we want to stress the importance of careful monitoring for changes in each patient’s condition to determine the continuing need fo r Part A SNF benefits after the assessment reference date of the 5-day assessment. B. Consolidated Billing Sections 1842(b)(6)(E) and 1862( a)(18) of the Act (as adde d by section 4432(b) of the BBA) require a SNF to submit consolidated Medicare bills to its Medicare Administrative

Contractor for almost all of the services that it s residents receive during the course of a covered Part A stay. In addition, secti on 1862(a)(18) places the responsibi lity with the SNF for billing Medicare for physical therapy, occupational th erapy, and speech-language pathology services that the resident receives during a noncovered stay. Section 1888(e )(2)(A) of the Act excludes a

small list of services from the consolidated bil ling provision (primarily th ose services furnished by physicians and certain other t ypes of practitioners), which re main separately billable under

Part B when furnished to a SNF’s Part A resi dent. These excluded service categories are discussed in greater detail in section V.B.2. of the May 12, 1 998 interim final rule (63 FR 26295 through 26297). A detailed discussion of the legislative hist ory of the consolidated billing provision is

available on the SNF PPS website at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/SNFPPS/Downloads/Legislative_History_07302013.pdf . In particular, section 103 of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L.38

106-113, enacted on November 29, 1999) amended s ection 1888(e)(2)(A) of the Act by further excluding a number of individual “h igh-cost, low probability” servic es, identified by Healthcare Common Procedure Coding System (HCPCS) c odes, within several broader categories (chemotherapy items, chemotherapy administra tion services, radioiso tope services, and customized prosthetic devices) th at otherwise remained subject to the provision. We discuss this BBRA amendment in greater detail in the SNF PPS proposed and final rules for FY 2001 (65 FR 19231 through 19232, April 10, 2000, and 65 FR 46790 through 46795, July 31, 2000), as well as in Program Memorandum AB-00- 18 (Change Request #1070), issued March 2000,

which is available online at www.cms.gov/transmittals/downloads/ab001860.pdf

. As explained in the FY 2001 proposed rule (65 FR 19232), the amendments enacted in section 103 of the BBRA not only identified for exclusion from this provision a number of particular service codes with in 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 sp ecified service categor ies.” In the proposed rule for FY 2001, we

also noted that the BBRA Conf erence report (H.R. Rep. No. 106- 479 at 854 (1999) (Conf. Rep.))

characterizes the individual services that this le gislation targets for exclusion as “. . . high-cost, low probability events that could have devast ating financial impacts because their costs far exceed the payment [SNFs] receive under the prosp ective payment system . . . .” According to the conferees, section 103(a) of the BBRA “is an attempt to exclude from the PPS certain services and costly items that are provided infreq uently in SNFs . . . .” By contrast, we noted that the Congress declined to de signate for exclusion any of the remaining services within those four categories (thus, leaving all of those services subject to SNF consolid ated billing), because they are relatively inexpensive and are furnished routinely in SNFs.39

As we further explained in the final rule for FY 2001 (65 FR 46790), and as our longstanding policy, any additiona l service codes that we might designate for exclusion under our discretionary authority must meet the same st atutory criteria used in identifying the original codes excluded from consolidated billing unde r 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 ma jor significance that may occur over time (for example, the development of new medical technologi es or other advances in the state of medical practice)” (65 FR 46791). In this proposed ru le, we specifically inv ite public comments identifying HCPCS codes in any of these f our service categories (chemotherapy items, chemotherapy administration services, radioisotope services, and customized prosthetic devices) representing recent medical advances that might meet our criteria for exclusion from SNF consolidated billing. We may c onsider excluding a particular se rvice if it meets our criteria for exclusion as specified above. Commenters should identify in their comments the specific

HCPCS code that is associated with the service in question, as well as their rationale for requesting that the identified HCPCS code(s) be excluded. We note that the original BBRA amendment (as well as the implementing regulations) identified a set of excluded services by means of specifying HCPCS codes th at were in effect as of a particular date (in that case, as of July 1, 1999). Identifying the excluded services in this manner made it possible for us to utilize prog ram issuances as the vehicle for accomplishing routine updates of the excluded c odes, to reflect any minor revi sions that might subsequently occur in the coding system itself (for example, the assignment of a different code number to the40

same service). Accordingly, in the event that we identify th rough the current rulemaking cycle any new services that would actually represen t a substantive change in the scope of the exclusions from SNF consolidated billing, we w ould identify these additi onal excluded services by means of the HCPCS codes that are in effect as of a specific date (in this case, as of October 1, 2014). By making any new exclusions in this manner, we could similarly accomplish routine future updates of these additional code s through the issuance of program instructions. C. Payment for SNF-Level Swing-Bed Services Section 1883 of the Act permits certain small, rural hospitals to enter into a Medicare swing-bed agreement, under which the hospital can use its beds to provide either acute- or SNFlevel care, as needed. For critical access hospita ls (CAHs), Part A pays on a reasonable cost

basis for SNF-level services furnished under a sw ing-bed agreement. However, in accordance with section 1888(e)(7) of the Act, these services furnished by non-CAH rural hospitals are paid under the SNF PPS, effective with cost reporting periods beginning on or after July 1, 2002. As explained in the FY 2002 final rule (66 FR 39562), this effective date is consistent with the statutory provision to integrat e swing-bed rural hospitals into the SNF PPS by the end of the transition period, June 30, 2002. Accordingly, all non-CAH swing-bed rural hosp itals have now come under the SNF PPS. Therefore, all rates and wage i ndexes outlined in earlier sections of this proposed rule for the SNF PPS also apply to all non-CAH swing-bed rural hospitals. A co mplete discussion of assessment schedules, the MDS, and the transm ission software (RAVEN-SB for Swing Beds) appears in the FY 2002 final ru le (66 FR 39562) and in the FY 2010 final rule (74 FR 40288).

As finalized in the FY 2010 SNF PPS final ru le (74 FR 40356-57), effective October 1, 2010, non-CAH swing-bed rural hospitals are required to complete an MDS 3.0 swing-bed assessment which is limited to the required de mographic, payment, and quality items. The latest changes in41

the MDS for swing-bed rural hospitals appear on the SNF PPS website at http://www.cms.gov/Medicare/Medicare-F ee-for-Service-Payment/SNFPPS/index.html

. V. Other Issues A. Proposed Changes to SNF PPS Wage Index 1. Background Section 1888(e)(4)(G)(ii) of the Act requires that we adjust the federal rates to account for differences in area wage levels, using a wage index that the Secretary determines appropriate. Since the inception of the SNF PPS, we have used hospital inpatient wage data, exclusive of the occupational mix adjustment, in developing a wage index to be applied to SNFs. As noted previously in section III.D of th is proposed rule, we are proposi ng to continue that practice for FY 2015. The wage index used for the SNF PPS is calculated using the Inpatient Prospective Payment System (IPPS) wage index data on the basi s of the labor market area in which the acute care hospital is located, but w ithout taking into account geogr aphic reclassifications under section 1886(d)(8) and (d)(10) of the Act, and without applyi ng the IPPS rural floor under section 4410 of the BBA, the IPPS imputed rural floor under 42 CFR 412.64(h), and the outmigration adjustment under section 1886(d)( 13) (see the FY 2006 SNF PPS proposed rule (70 FR 29090 through 29092)). The applicable SNF wage index value is assigned to a SNF on the

basis of the labor market area in which the SNF is geographically located. Under section 1888(e)(4)(G)(ii) of the Act, be ginning with FY 2006, we delineate labor market areas based on the Core-Based Statistical Areas (CBSAs) esta blished by the Office of Management and Budget (OMB). The current statistica l areas used in FY 2014 are base d on OMB standards published on December 27, 2000 (65 FR 82228) and Census 2000 data and Census Bureau population estimates for 2007 and 2008 (OMB Bulletin No. 10-02) . For a discussion of OMB’s delineations of CBSAs and our implementation of the CBSA definitions, we refer readers to the preamble of42

the FY 2006 SNF PPS proposed rule (70 FR 29090 through 29096) and final rule (70 FR 45040 through 45041). As stated in the FY 2014 SNF PPS proposed rule (78 FR 26448) and final rule (78 FR 47952), on February 28, 2013, OMB issued OMB Bulletin No. 13-01, which established revised delineations for Metropolitan Statisti cal Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guida nce on the use of the delineations of these statistical areas. A copy of th is bulletin may be obtained at http://www.whitehouse.gov/sites/default/ files/omb/bulletin s/2013/b-13-01.pdf. According to OMB, “[t]his bulletin provides the delineations of all Metropolitan Statistical Areas, Metropolitan Divisions, Micropolitan Statistical Areas, Comb ined Statistical Areas, and New England City and Town Areas in the United St ates and Puerto Rico based on the standards published on June 28, 2010, in the Federal Register (75 FR 37246 - 37252) and Census Bureau

data.” While the revisions OMB published on Febr uary 28, 2013 are not as sweeping as the changes made when we adopted the CBSA geog raphic designations for FY 2006, the February 28, 2013 OMB bulletin does contain a number of signi ficant changes. For example, there are new CBSAs, urban counties that have become rura l, rural counties that have become urban, and existing CBSAs that have been split apart. Ho wever, because the bulletin was not issued until February 28, 2013, with supporting data not availa ble until later, and because the changes made by the bulletin and their ramifications needed to be extensively reviewed and verified, we were unable to undertake such a lengthy process befo re publication of the FY 2014 SNF PPS proposed rule and, thus, did not implement changes to the wage index for FY 2014 based on these new

OMB delineations. In the FY 2014 SNF PPS fina l rule (78 FR 47952), we stated that we intended to propose changes to the wage index based on the most current OMB delineations in this FY 2015 SNF PPS proposed rule. As discus sed below, in this proposed rule, we are43

proposing to implement the new OMB delineations as described in the February 28, 2013 OMB Bulletin No. 13-01, for SNF PPS wa ge index beginning in FY 2015. 2. Proposed Implementation of Ne w Labor Market Delineations As discussed in the FY 2014 SNF PPS proposed rule (78 FR 26448) and final rule (78 FR 47952), CMS delayed implementing the new OMB st atistical area delineations to allow for sufficient time to assess the new changes. We believe it is important for the SNF PPS to use the

latest OMB delineations available in order to maintain a more accurate and up-to-date payment system that reflects the reality of population shif ts and labor market c onditions. While CMS and other stakeholders have explored potential alternatives to the current CBSA-based labor market system (we refer readers to the CMS website at www.cms.gov/Medicare/Medicare-Fee-forService-Payment/AcuteInpatie ntPPS/Wage-Index-Reform.html ), no consensus has been achieved regarding how best to implement a re placement system. As discussed in the FY 2005 IPPS final rule (69 FR 49027), “While we recogni ze that MSAs are not designed specifically to define labor market areas, we believe they do re present a useful proxy fo r this purpose.” We further believe that using the most current OMB delineations would increase the integrity of the SNF PPS wage index by creating a more accurate representation of geographic variation in wage levels. We have reviewed our findings and im pacts relating to the ne w OMB delineations, and have concluded that there is no compelling reason to further delay implementation. Because we

believe that we have broad au thority under section 1888(e)(4)(G)(ii) to determine the labor market areas used for the SNF PPS wage index, and because we also believe that the most current OMB delineations accurately reflect the local economies and wage levels of the areas in which hospitals are currently lo cated, we are proposing to implement the new OMB delineations as described in the February 28, 2013 OMB Bu lletin No. 13-01, for the SNF PPS wage index effective beginning in FY 2015. As discussed fu rther below, we are proposing to implement a44

one-year transition with a blended wage index for all providers in FY 2015 to assist providers in adapting to the new OMB delineations (if we finaliz e implementation of such delineations for the SNF PPS wage index beginning in FY 2015). We invite comments on this proposal. This proposed transition is discussed in more detail below. a. Micropolitan Statistical Areas As discussed in the FY 2006 SNF PPS pr oposed rule (70 FR 29093 through 29094) and final rule (70 FR 45041), CMS considered how to use the Micropolitan Statistical Area definitions in the calculation of the wage index. OMB defines a “Micropolitan Statistical Area”

as a CBSA “associated with at least one urban cl uster that has a populatio n of at least 10,000, but less than 50,000” (75 FR 37252). We refer to th ese as Micropolitan Areas. After extensive impact analysis, consistent with the treatment of these areas u nder the IPPS as discussed in the FY 2005 IPPS final rule (69 FR 49029 through 49032) , CMS determined the best course of action would be to treat Micropoli tan Areas as “rural” and include them in the calculation of each state’s SNF PPS rural wage index (s ee 70 FR 29094 and 70 FR 45040 through 45041)). Thus, the SNF PPS statewide rural wage index is determined using IPPS hospital data from hospitals located in non-MSA ar eas, and the statewide rural wage index is assigned to SNFs located in those areas. Because Micropolit an Areas tend to encompass smaller population centers and contain fewer hospitals than MSAs, we determined that if Micropolitan Areas were to be treated as separate labor market ar eas, the SNF PPS wage index would have included significantly more single-provider labor market areas. As we explained in the FY 2006 SNF PPS proposed rule (70 FR 29094), recognizing Micro politan Areas as independent labor markets would generally increase the poten tial for dramatic shifts in year-to-year wage index values because a single hospital (or group of hospitals) could have a disp roportionate effect on the wage

index of an area. Dramatic shifts in an area’s wage index from year to year are problematic and45

create instability in the payment levels from y ear to year, which could make fiscal planning for SNFs difficult if we adopted this approach. Fo r these reasons, we adopted a policy to include Micropolitan Areas in the state’ s rural wage area for purposes of the SNF PPS wage index, and have continued this poli cy through the present. Based upon the new 2010 Decennial Census da ta, a number of urban counties have switched status and have joined or became Mi cropolitan Areas, and so me counties that once were part of a Micropolitan Area, have become urban. Overall, there are fewer Micropolitan Areas (541) under the new OMB delineations base d on the 2010 Census than existed under the latest data from the 2000 Census (581). We believe that the best course of action would be to continue the policy established in the FY 2006 SNF PPS final rule and include Micropolitan Areas in each state’s rural wage index. These ar eas continue to be defi ned as having relatively small urban cores (populations of 10,000 to 49,999). We do not believe it would be appropriate to calculate a separate wage index for areas that typically may include only a few hospitals for

the reasons discussed in the FY 2006 SNF PP S proposed rule, and as discussed above. Therefore, in conjunction with our proposal to implement the new OMB labor market delineations beginning in FY 2015 and consistent with the tr eatment of Micropolitan Areas under the IPPS, we are proposing to continue to treat Micropolit an Areas as “rural” and to include Micropolitan Areas in the calcul ation of the state’s rural wage index. b. Urban Counties Becoming Rural As previously discussed, we are proposi ng to implement the new OMB statistical area delineations (based upon the 2010 decennial Cens us data) beginning in FY 2015 for the SNF PPS wage index. Our analysis shows that a total of 37 counties (and county equivalents) that are currently considered part of an urban CBSA w ould be considered located in a rural area,46

beginning in FY 2015, if we adopt the new OMB de lineations. Table 9 below lists the 37 urban

counties that would be ru ral if we finalize our proposal to implement the new OMB delineations.

TABLE 9: Counties That Would Lose Urban Status

County State Previous CBSA Previous Urban Area (Constituent Counties) Greene County IN 14020 Bloomington, IN Anson County NC 16740 Charlotte-Gastonia-Rock Hill, NC-SC Franklin County IN 17140 Cinc innati-Middletown, OH-KY-IN Stewart County TN 17300 Clarksville, TN-KY Howard County MO 17860 Columbia, MO Delta County TX 19124 Dallas- Fort Worth-Arlington, TX Pittsylvania County VA 19260 Danville, VA Danville City VA 19260 Danville, VA Preble County OH 19380 Dayton, OH Gibson County IN 21780 Evansville, IN-KY Webster County KY 21780 Evansville, IN-KY Franklin County AR 22900 Fort Smith, AR-OK Ionia County MI 24340 Grand Rapids-Wyoming, MI Newaygo County MI 24340 Gra nd Rapids-Wyoming, MI Greene County NC 24780 Greenville, NC Stone County MS 25060 Gulfport-Biloxi, MS Morgan County WV 25180 Hagerstown-Martinsburg, MD-WV San Jacinto County TX 26420 Hous ton-Sugar Land-Baytown, TX Franklin County KS 28140 Kansas City, MO-KS Tipton County IN 29020 Kokomo, IN Nelson County KY 31140 Louisvil le/Jefferson County, KY-IN Geary County KS 31740 Manhattan, KS Washington County OH 37620 Parker sburg-Marietta-Vienna, WV-OH Pleasants County WV 37620 Parker sburg-Marietta-Vienna, WV-OH George County MS 37700 Pascagoula, MS Power County ID 38540 Pocatello, ID Cumberland County VA 40060 Richmond, VA King and Queen County VA 40060 Richmond, VA Louisa County VA 40060 Richmond, VA Washington County MO 41180 St. Louis, MO-IL Summit County UT 41620 Salt Lake City, UT Erie County OH 41780 Sandusky, OH Franklin County MA 44140 Springfield, MA Ottawa County OH 45780 Toledo, OH Greene County AL 46220 Tuscaloosa, AL47

County State Previous CBSA Previous Urban Area (Constituent Counties) Calhoun County TX 47020 Victoria, TX Surry County VA 47260 Virginia Beach-Norfolk-Newport News, VA-NC

We are proposing that the wage data for a ll hospitals located in the counties listed above

would now be considered rural wh en calculating their respective st ate’s rural wage index value, which rural wage index value would be used under the SNF PPS. Furthermore, for SNF providers currently located in an urban county th at would be considered rural, should this proposal be finalized, CMS would utilize the ru ral unadjusted per-diem rates, found in Table 3 above, as the basis for determining this facil ity’s payment rates beginning on October 1, 2014. c. Rural Counties Becoming Urban Analysis of the new OMB delineations (based upon the 2010 decennial Census data) shows that a total of 105 counties (and county equi valents) that are curr ently located in rural

areas would be located in urba n areas, if we finalize our propos al to implement the new OMB

delineations. Table 10 below lists the 105 rural coun ties that would be urba n if we finalize this proposal.

TABLE 10: Counties That Would Gain Urban Status

County State New CBSA Urban Area (Constituent Counties) Utuado Municipio PR 10380 Aguadilla-Isabela, PR Linn County OR 10540 Albany, OR Oldham County TX 11100 Amarillo, TX Morgan County GA 12060 Atlanta-Sandy Springs-Roswell, GA Lincoln County GA 12260 Augusta-Richmond County, GA-SC Newton County TX 13140 Beaumont-Port Arthur, TX Fayette County WV 13220 Beckley, WV Raleigh County WV 13220 Beckley, WV Golden Valley County MT 13740 Billings, MT Oliver County ND 13900 Bismarck, ND Sioux County ND 13900 Bismarck, ND48

County State New CBSA Urban Area (Constituent Counties) Floyd County VI 13980 Blacksburg-Ch ristiansburg-Radford, VA De Witt County IL 14010 Bloomington, IL Columbia County PA 14100 Bloomsburg-Berwick, PA Montour County PA 14100 Bl oomsburg-Berwick, PA Allen County KY 14540 Bowling Green, KY Butler County KY 14540 Bowling Green, KY St. Mary’s County MD 15680 Ca lifornia-Lexington Park, MD Jackson County IL 16060 Carbondale-Marion, IL Williamson County IL 16060 Carbondale-Marion, IL Franklin County PA 16540 Chambersburg-Waynesboro, PA Iredell County NC 16740 Charlotte-Concord-Gastonia, NC-SC Lincoln County NC 16740 Charlo tte-Concord-Gastonia, NC-SC Rowan County NC 16740 Charlotte-Concord-Gastonia, NC-SC Chester County SC 16740 Charlotte-Concord-Gastonia, NC-SC Lancaster County SC 16740 Charlotte-Concord-Gastonia, NC-SC Buckingham County VA 16820 Charlottesville, VA Union County IN 17140 Cincinnati, OH-KY-IN Hocking County OH 18140 Columbus, OH Perry County OH 18140 Columbus, OH Walton County FL 18880 Crestview-Fort Walton Beach-Destin, FL Hood County TX 23104 Dallas-Fo rt Worth-Arlington, TX Somervell County TX 23104 Dalla s-Fort Worth-Arlington, TX Baldwin County AL 19300 Da phne-Fairhope-Foley, AL Monroe County PA 20700 East Stroudsburg, PA Hudspeth County TX 21340 El Paso, TX Adams County PA 23900 Gettysburg, PA Hall County NE 24260 Grand Island, NE Hamilton County NE 24260 Grand Island, NE Howard County NE 24260 Grand Island, NE Merrick County NE 24260 Grand Island, NE Montcalm County MI 24340 Gr and Rapids-Wyoming, MI Josephine County OR 24420 Grants Pass, OR Tangipahoa Parish LA 25220 Hammond, LA Beaufort County SC 25940 Hilton Head Island-Bluffton-Beaufort, SC Jasper County SC 25940 Hilton Head Island-Bluffton-Beaufort, SC Citrus County FL 26140 Homosassa Springs, FL Butte County ID 26820 Idaho Falls, ID Yazoo County MS 27140 Jackson, MS Crockett County TN 27180 Jackson, TN Kalawao County HI 27980 Kahul ui-Wailuku-Lahaina, HI49

County State New CBSA Urban Area (Constituent Counties) Maui County HI 27980 Kahului-Wailuku-Lahaina, HI Campbell County TN 28940 Knoxville, TN Morgan County TN 28940 Knoxville, TN Roane County TN 28940 Knoxville, TN Acadia Parish LA 29180 Lafayette, LA Iberia Parish LA 29180 Lafayette, LA Vermilion Parish LA 29180 Lafayette, LA Cotton County OK 30020 Lawton, OK Scott County IN 31140 Louisville/Jefferson County, KY-IN Lynn County TX 31180 Lubbock, TX Green County WI 31540 Madison, WI Benton County MS 32820 Memphis, TN-MS-AR Midland County MI 33220 Midland, MI Martin County TX 33260 Midland, TX Le Sueur County MN 33460 Minneapo lis-St. Paul-Bloomington, MN-WI Mille Lacs County MN 33460 Minneapo lis-St. Paul-Bloomington, MN-WI Sibley County MN 33460 Minneapo lis-St. Paul-Bloomington, MN-WI Maury County TN 34980 Nashville-Davidson—Murfreesboro— Franklin, TN Craven County NC 35100 New Bern, NC Jones County NC 35100 New Bern, NC Pamlico County NC 35100 New Bern, NC St. James Parish LA 35380 Ne w Orleans-Metairie, LA Box Elder County UT 36260 Ogden-Clearfield, UT Gulf County FL 37460 Panama City, FL Custer County SD 39660 Rapid City, SD Fillmore County MN 40340 Rochester, MN Yates County NY 40380 Rochester, NY Sussex County DE 41540 Salisbury, MD-DE Worcester County MA 41540 Salisbury, MD-DE Highlands County FL 42700 Sebring, FL Webster Parish LA 43340 Shre veport-Bossier City, LA Cochise County AZ 43420 Sierra Vista-Douglas, AZ Plymouth County IA 43580 Sioux City, IA-NE-SD Union County SC 43900 Spartanburg, SC Pend Oreille County WA 44060 Spokane-Spokane Valley, WA Stevens County WA 44060 Spokane-Spokane Valley, WA Augusta County VA 44420 St aunton-Waynesboro, VA Staunton City VA 44420 St aunton-Waynesboro, VA Waynesboro City VA 44420 Staunton-Waynesboro, VA Little River County AR 45500 Texarkana, TX-AR50

County State New CBSA Urban Area (Constituent Counties) Sumter County FL 45540 The Villages, FL Pickens County AL 46220 Tuscaloosa, AL Gates County NC 47260 Virginia Beach-Norfolk-Newport News, VANC Falls County TX 47380 Waco, TX Columbia County WA 47460 Walla Walla, WA Walla Walla County WA 47460 Walla Walla, WA Peach County GA 47580 Warner Robins, GA Pulaski County GA 47580 Warner Robins, GA Culpeper County VA 47894 Washington-Arlington- Alexandria, DC-VAMD-WV Rappahannock County VA 47894 Washington-Arlington- Alexandria, DC-VAMD-WV Jefferson County NY 48060 Wate rtown-Fort Drum, NY Kingman County KS 48620 Wichita, KS Davidson County NC 49180 Winston-Salem, NC Windham County CT 49340 Worcester, MA-CT

We are proposing that when calculating the area wage index, the wage data for hospitals

located in these counties would be included in their new respectiv e urban CBSAs. Furthermore, for SNF providers currently located in a rural county that would be considered urban, should this proposal be finalized, CMS would utilize the urban unadjusted pe r-diem rates, found in Table 2 above, as the basis for determining this faci lity’s payment rates be ginning on October 1, 2014 d. Urban Counties Moving to a Different Urban CBSA In addition to rural counties becoming urba n and urban counties becoming rural, several

urban counties would shift from one urban CBS A to another urban CBS A under our proposal to adopt the new OMB delineations. In other ca ses, applying the new OMB delineations would involve a change only in CBSA name or number, while the CBSA continues to encompass the same constituent counties. For example, CBSA 29140 (Lafayette, IN), w ould experience both a change to its number and its name, and w ould become CBSA 29200 (Lafayette-West Lafayette, IN), while all of its three constituent counties would remain the same. We are not discussing51

these proposed changes in this section because th ey are inconsequential ch anges with respect to the SNF PPS wage index. However, in other cases, if we adopt the new OMB delineations, counties would shift between existing and new CBSAs, changing the constituent makeup of the

CBSAs. In one type of change, an entire CBSA would be subsumed by another CBSA. For example, CBSA 37380 (Palm Coast, FL) currentlyis a single county (Flagler, FL) CBSA. Flagler County would be a part of CBSA 19660 (Deltona-Daytona Beach-Ormond Beach, FL)

under the new OMB delineations. In another type of change, some CBSAs have counties that would split off to become part of or to form entirely new labor market areas. For example, CBSA 37964 (Philadelphia Metropolitan Division of MSA 3798 0) currently is comprised of five Pennsylvania counties (Bucks, Chester, Delaware, Montgomery, and Philadelphia). If we adopt the new OMB delineations, Montgomery, Bucks, and Chester counties would split off and form the new CBSA 33874 (Montgomery County-Bucks County-Chester C ounty, PA Metropolitan Division of MSA 37980), while Delaware and Philadelphia counties would remain in CBSA 37964. Finally, in some cases, a CBS A would lose counties to another existing CBSA if we adopt the new OMB delineations. For example, Lincoln County and Putnam County, WV would move from CBSA 16620 (C harleston, WV) to CBSA 26580 (Huntington-Ashland, WV-KY-OH). CBSA 16620 would stil l exist in the new labor mark et delineations with fewer

constituent counties. Table 11 lists the urban counties that w ould move from one urban CBSA to

another urban CBSA if we a dopt the new OMB delineations. TABLE 11: Counties That Would Change to a Different CBSA Prior CBSA New CBSA County State 11300 26900 Madison County IN 11340 24860 Anderson County SC 14060 14010 McLean County IL52

Prior CBSA New CBSA County State 37764 15764 Essex County MA 16620 26580 Lincoln County WV 16620 26580 Putnam County WV 16974 20994 DeKalb County IL 16974 20994 Kane County IL 21940 41980 Ceiba Municipio PR 21940 41980 Fajardo Municipio PR 21940 41980 Luquillo Municipio PR 26100 24340 Ottawa County MI 31140 21060 Meade County KY 34100 28940 Grainger County TN 35644 35614 Bergen County NJ 35644 35614 Hudson County NJ 20764 35614 Middlesex County NJ 20764 35614 Monmouth County NJ 20764 35614 Ocean County NJ 35644 35614 Passaic County NJ 20764 35084 Somerset County NJ 35644 35614 Bronx County NY 35644 35614 Kings County NY 35644 35614 New York County NY 35644 20524 Putnam County NY 35644 35614 Queens County NY 35644 35614 Richmond County NY 35644 35614 Rockland County NY 35644 35614 Westchester County NY 37380 19660 Flagler County FL 37700 25060 Jackson County MS 37964 33874 Bucks County PA 37964 33874 Chester County PA 37964 33874 Montgomery County PA 39100 20524 Dutchess County NY 39100 35614 Orange County NY 41884 42034 Marin County CA 41980 11640 Arecibo Municipio PR 41980 11640 Camuy Municipio PR 41980 11640 Hatillo Municipio PR

41980 11640 Quebradillas Municipio PR 48900 34820 Brunswick County NC 49500 38660 Guánica Municipio PR53

Prior CBSA New CBSA County State

49500 38660 Guayanilla Municipio PR 49500 38660 Peñuelas Municipio PR 49500 38660 Yauco Municipio PR

If providers located in th ese counties move from one CBSA to another under the new OMB delineations, there may be impacts, both ne gative and positive, upon their specific wage index values. As discussed below, we propose to implement a transition wage index to adjust for these possible impacts.

e. Transition Period Overall, we believe implementing the new OM B delineations would result in wage index values being more representative of the actual costs of labor in a give n area. Further, we recognize that some providers (15 percent) would have a higher wage index due to our proposed implementation of the new labor market area de lineations. However, we also recognize that more providers (22 percent) woul d experience decreases in wage i ndex values as a result of our proposed implementation of the new labor market area delineations. Th erefore, we believe it would be appropriate to consid er, as we did in FY 2006, whet her or not a transition period should be used in order to implement thes e proposed changes to the wage index. We considered having no transition peri od and fully implementing the proposed new OMB delineations beginning in FY 2015. This w ould mean that we would adopt the revised OMB delineations for all providers on October 1, 2014. However, this would not provide any time for providers to adapt to the new OMB delin eations. As discussed above, more providers would experience a decrease in wage index due to implementation of the proposed new OMB delineations than would experience an increase. T hus, we believe that it would be appropriate to provide for a transition period to mitigate the resulting short-term instability and negative impacts on these providers, and to provide time for providers to adjust to their new labor market54

area delineations. Furthermore, in light of the comments received during the FY 2006 rulemaking cycle on our proposal in the FY 2006 SNF PPS proposed rule (70 FR 29094 – 29095) to adopt the new CBSA definitions with out a transition period, we anticipate that providers would have similar concerns with not having a transition period for the proposed new OMB delineations. Therefore, as further discusse d below, similar to the policy adopted in the FY 2006 SNF PPS final rule (70 FR 45041) when we first adopted OMB’s CBSA definitions for purposes of the SNF PPS wage index, we are proposing a one-year transition blended wage index for all SNFs to assist providers in ad apting to the new OMB delineations (should we finalize implementation of such delineations for the SNF PPS wage index beginning in FY 2015). In determining an appropriate transiti on methodology, consistent with the objectives set forth in the FY 2006 SNF PPS final rule (70 FR 45041), we looked for approaches that would provide relief to the largest percentage of advers ely-affected SNFs with the least impact to the

rest of the facilities First, we considered transitioning the wage index to the revised OMB delineations over a number of years in order mini mize the impact of the proposed wage index changes in a given year. However, we also believe this must be balanced agains t the need to ensure the most accurate payments possible, which argues for a fast er transition to the revised OMB delineations. As discussed above in section V.A.2 of this propos ed rule, we believe that using the most current OMB delineations would increase the integrity of the SNF PPS wage index by creating a more accurate representation of geographi c variation in wage levels. As such, we believe that utilizing

a one-year (rather than a multiple year) transition with a blended wage index in FY 2015 would

strike the best balance. Second, we considered what type of blend would be appropriate for purposes of the transition wage index. We are proposing that providers would receive a one-year blended wage55

index using 50 percent of their FY 2015 wa ge index based on the proposed new OMB delineations and 50 percent of their FY 2015 wage index based on the OMB delineations used in

FY 2014. We believe that a 50/50 blend would best mitigate the negative payment impacts associated with the implementation of th e proposed new OMB delineations. While we

considered alternatives to the 50/ 50 blend, we believe this type of split balances the increases and decreases in wage index values associated wi th this proposal, as well as provides a readily understandable calculation for providers. Next, we considered whether or not the bl ended wage index should be used for all providers or for only a subset of providers, su ch as those providers that would experience a decrease in their respective wage index valu es due to implementation of the revised OMB delineations. If we were to apply the transi tion policy only to those providers that would experience a decrease in their respective wage index values due to the implementation of the revised OMB delineations, then pr oviders that would experience e ither no change in wage index or an increase in wage index due to the re vised OMB delineations would be immediately transitioned to the FY 2015 wage index under th e revised OMB delineations. As required in Section 1888(e)(4)(G)(ii) of the Act, the wage index adjustment must be implemented in a budget-neutral manner. As such, if we were to a pply the transition policy only to those providers that would experience a decrease in their respective wage index values due to implementation of the revised OMB delineations, the budget neutrality factor, discussed in section III.D, calculated based on this this approach would be 0.9986, whic h would result in reduced base rates for all providers as compared to the budget neutrali ty factor of 1.0001 which would result from applying the blended wage index to all providers. Furthermore, based on our analysis of the wage index changes associated with fully implementing the revised OMB delineations, we

determined that the new OMB delineations w ould only affect the wage index values of56

approximately 37 percent of facilities. Given that our goal is to provide relief to the largest percentage of adversely-affected SNFs with the l east impact to the rest of the facilities (whose wage index values either would remain the same or would increase), we believe that using a blended wage index for all providers would be th e best option. This option would assist the 22 percent of providers that would be adversely affected by the pr oposed implementation of the new OMB delineations without reducing the base rates for all providers, 63 percent of which would otherwise be unaffected by the proposed implemen tation of the new OMB delineations. In other words, this option is based on a balance between the interests of all SN F providers, including the 15 percent of providers that woul d experience an increase in thei r wage index value due to the proposed implementation of the new OMB delineatio ns, the 22 percent of providers that would experience a decrease in their wage index value due to the proposed implementation of the new OMB delineations, and the 63 percent of provide rs that would be unaffected by the proposed implementation of the new OMB delineations. As discussed above, if we were to apply the blended wage index only to the 22 percent of provid ers that would experience a decrease in their respective wage index values due to the propos ed implementation of the new OMB delineations in an effort to preserve the full increase in wa ge index value for the 15 pe rcent of providers that would experience such an increase due to the proposed implementation of the new OMB delineations, the budget neutrality factor of 1.0001 referenced in section III.D, which is based on applying the blended wage index to all providers, would be re vised to 0.9986. As such, this

would mean a reduction in the base rate for all providers, most notab ly the 63 percent of providers that would be unaffected by th e proposed implementation of the new OMB delineations, but also for that 15 percent of provide rs that would experience an increase in their wage index value. Moreover, while providers expe rience wage index changes from year to year based on57

updating the wage data, full implementation of the proposed new OMB delineations would dramatically increase the magnit ude of those changes for some providers. Year-to-year wage index changes usually vary from decreases as high as 10 percent to increases as high as 10 percent. Using FY 2011 wage data (the data used for the FY 2015 wage index), the range of changes in the wage index values due solely to full implementation of the proposed OMB delineations would span from decreases of over 20 percent to increases of over 30 percent. Therefore, in addition to mitigating the im pact of the proposed OMB delineations on the facilities that are adversely affected by them and providing a period to adjust, we believe a transition wage index could also mitigate the volatility of the SNF PPS wage index caused by these proposed changes. Therefore, for the reasons discussed above, if we finalize implementation of the new OMB delineations, we are proposing to apply a on e-year transition with a 50/50 blended wage index for all providers in FY 2015. We propose to calculate the FY 2015 wage indexes using both the current FY 2014 and proposed new labor ma rket delineations. Specifically, providers would receive 50 percent of their FY 2015 wage index based on the new OMB delineations, and 50 percent of their FY 2015 wage index based on the labor market area delineations for FY 2014 (both using FY 2011 hospital wage data ). This ultimately results in an average of the two values.

As we stated in the FY 2006 SNF PPS final rule (70 FR 45041), we believe that our proposed transition approach would best ach ieve our objective of providing re lief to the largest percentage of adversely-affected SNFs with the least impact to the rest of the facilities, because it reduces the impact of the transition on the base rates for all providers. For the reasons discussed above, and based on provider reaction during the FY 2006 rulemaking cycle to the proposed adoption of the new CBSA definitions, we are proposing to pr ovide a one-year blended wage index for all SNFs to assist providers in adapting to these prop osed changes. We refer to this blended wage58

index as the FY 2015 SNF PPS transi tion wage index. This transition policy would be for a oneyear period, going into effect October 1, 2014, and continuing through September 30, 2015. Thus, beginning October 1, 2015, the wage index fo r all SNFs would be fully based on the new

OMB delineations. We invite comments on our proposed transition methodology, as well as on the other transition options discussed above. The proposed wage index applicable to FY 2015 is set forth in Ta ble A available on the

CMS website at http://cms.gov/Medicare/Medi care-Fee-for-ServicePayment/SNFPPS/WageIndex.html

. Table A provides a crosswalk between the FY 2015 wage index for a provider using the current OMB delineations in effect in FY 2014 and the FY 2015 wage index using the proposed revised OMB de lineations, as well as the proposed transition wage index values that would be in effect in FY 2015 if thes e proposed changes are finalized.

3. Labor-Related Share Each year, we calculate a revised labor-related share based on the relative importance of labor-related cost categories in the SNF market basket as discussed in Section III.D of this proposed rule. Table 12 summarizes the pr oposed updated labor-related share for FY 2015, compared to the labor-relate d share that was used for th e FY 2014 SNF PPS final rule. TABLE 12: Labor-related Relative Importance, FY 2014 and FY 2015 Relative importance, labor-related, FY 2014 13:2 forecast 1 Relative importance, labor-related, FY 2015 14:1 forecast 2 Wages and salaries 49.118 49. 116 Employee benefits 11.423 11. 373 Nonmedical Professional fees: labor-related 3.446 3. 460 Administrative and facilities support services 0.499 0. 503 All Other: Labor-related services 2.287 2. 285 Capital-related (.391) 2.772 2.77659

Relative importance, labor-related, FY 2014 13:2 forecast 1 Relative importance, labor-related, FY 2015 14:1 forecast 2 Total 69.545 69.513 1 Published in the Federal Register ; based on second quarter 2013 IGI forecast 2 Based on first quarter 2014 IGI forecast, with historical data through fourth quarter 2013.

B. SNF Therapy Research Project As discussed in the FY 2014 SNF PPS pr oposed rule (78 FR 26466, May 6, 2013), CMS contracted with Acumen, LLC and the Brookings In stitution to identify potential alternatives to the existing methodology used to pay for therapy services received under the SNF PPS. Under the current payment model, the therapy payment rate component of the SNF PPS is based solely on the amount of therapy provide d to a patient during the 7-day look-back period, regardless of the specific patient characteristics. The amount of therapy a patient receives is used to classify the resident into a RUG category, which then determ ines the per diem payment for that resident. In the FY 2014 SNF PPS proposed rule (78 FR 26466, May 6, 2013), we invited public comment on this project. In the FY 2014 SNF PPS fina l rule (78 FR 47963, August 6, 2013), we discussed the comments we received on this project, all of which supported the ove rall goals and objective of the project, and a few highlighted the importa nce of maintaining contact with the stakeholder community. In this proposed rule, we are taking the oppor tunity to update the public on the current state of this project. In September 2013, we comp leted the first phase of the research project, which included a literature review, stakeh older outreach, supplementary analyses, and a comprehensive review of options for a viable alte rnative to the current therapy payment model. CMS produced a report outlining the most promising and viable options that we plan to pursue in the second phase of the project. The re port is available on the CMS website at60

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/SNFPPS/therapyresearch.html

. During the second phase of the project, which began in September 2013, our team will further develop the options outlined in the aforementioned report and perform more comprehensive data analysis to determine which of these options would work best as a potential replacement for the existing therapy payment mode l. In keeping with the public comments we received on this project previ ously, we also plan to engage the stakeholder community by convening a Technical Expert Pa nel during this sec ond phase of the project to discuss the available alternatives, as well as present some of the initial data analysis that is currently being conducted. We hope that by convening this Technical Expert Panel, we can best ensure that we utilize the expertise of the stak eholder community in identifying the most viable alternative to the current therapy payment model. As before, comments may be included as part of comments on this proposed rule. We are also soliciting comments outside the rulemaking pr ocess and these comments should be sent via

email to SNFTherapyPayments@cms.hhs.gov . Information regarding this project can be found on the project website at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/SNFPPS/therapyresearch.html. C. Proposed Revisions to Policies Related to the Change of Therapy (COT) Other Medicare Required Assessment (OMRA) On October 1, 2011, CMS introduced the Cha nge of Therapy (COT) Other Medicare Required Assessment (OMRA), which is an asse ssment designed to capture changes in the therapy services provided to a gi ven SNF resident during the past 7 days. As discussed in the FY 2012 SNF PPS final rule, this assessment was impl emented because we had found that in certain cases, “the therapy recorded on a given PPS asse ssment did not provide an accurate account of61

the therapy provided to a given re sident outside the observation wi ndow used for the most recent assessment” (76 FR 48518). To address this situation, effective for se rvices provided on or after October 1, 2011, we required facilities to complete a COT OMRA for patients classified into a RUG-IV therapy category, whenever the intensity of therapy (t hat is, the total reimbursable therapy minutes delivered or other therapy categor y qualifiers, such as the number of days the patient received therapy during the week or the number of therapy disciplines) ch anges to such a degree that it would no longer reflect the RUG-IV classificat ion and payment assigned for a given SNF

resident based on the most recent assessment us ed for Medicare payment (see 76 FR 48525). In addition, as discussed in the FY 2012 SNF PPS final rule (76 FR 48523 through 48524, 48526), the COT OMRA policy also applies to patients w ho are receiving a level of therapy sufficient for classification into a therapy R UG, but are classified into a nursing RUG because of index maximization. An evaluation of the necessity for a COT OMRA must be completed every 7 calendar days starting from the day following th e Assessment Reference Date (ARD) set for the

most recent scheduled or unscheduled PPS assessm ent (or in the case of an End of Therapy– Resumption-OMRA, starting the day that therapy resumes). This rolling 7-day window is called the COT observation period. As discussed in the FY 2012 SNF PPS fina l rule (76 FR 48523), the purpose of the COT OMRA is to track change s in a patient’s condit ion and in the provision of therapy services more accurately to ensure that the patient is placed in the appropriate RUG category, thereby improving the accuracy of reimbursement. As discussed above, the resident must be cla ssified into a RUG-IV therapy category or into a nursing RUG because of index maximization (while receivi ng a level of therapy sufficient

for classification into a RUG-IV therapy category) in order for the COT OMRA requirements to apply. However, since implementation of this as sessment, we have learned that, in rare cases62

where a resident has been classified into a R UG-IV therapy category, th erapy services provided to the resident during a COT obser vation period may not be sufficien t to continue to qualify the resident for any therapy RUG, re sulting in classification of the re sident into a non-therapy RUG. During a subsequent week when the therapy servi ces are sufficient to again qualify the resident for a therapy RUG, providers have indicated that they cannot complete a subsequent COT OMRA to reclassify the resident into a ther apy RUG because the resident is no longer in a therapy RUG or in a nursing RUG because of in dex maximization as discussed above (pursuant

to the conditions set forth in the FY 2012 SNF PPS final rule and in Section 2.9 of the MDS 3.0 RAI manual). As a result, providers are unable to use the COT OMRA to capture the increased therapy services provided to the resident to ensure accurate payment for the services provided, which is the express pu rpose of the COT OMRA. Accordingly, we propose to revise the exis ting COT OMRA policy to permit providers to complete a COT OMRA for a resident who is no t currently classified into a RUG-IV therapy group, or receiving a level of therapy sufficient fo r classification into a RUG-IV therapy group as discussed above, but only in thos e rare cases where the resident had qualified for a RUG-IV therapy group on a prior assessmen t during the resident’s current Medicare Part A stay and had no discontinuation of therapy services between Day 1 of the COT observation period for the

COT OMRA that classified the resident into his/her current non-therapy RUG-IV group and the ARD of the COT OMRA that reclassified the pa tient into a RUG-IV therapy group. Under the proposed policy, while a COT OMRA may be used to reclassify a resident into a therapy RUG in the circumstances described above, it may not be used to initially classify a resident into a therapy RUG. We believe it is appropriate to revise the COT OMRA po licy in this manner to provide for more accurate payment for services provided to those residents who have qualified for a RUG-IV therapy group during their Medicare Part A stay and continue to receive skilled63

therapy services during their Medicare Part A st ay (even though they may have been classified into a non-therapy RUG as discussed above). Consider, for example, if Mr. A. was clas sified into the RUG group RUA on his 30-day assessment with an ARD set for Day 30 of his stay. On Day 37, the facility checks how much therapy was provided to Mr. A. a nd finds that while Mr. A. did receive the requisite number of therapy minutes to qualify for this RUG categor y, he only received therapy on 4 distinct calendar days, which would make it impossible for him to qualify for an Ultra-High Rehabilitation RUG group. Moreover, due to the lack of 5 distinct calendar days of thera py and the lack of any restorative nursing services, Mr. A. does not qua lify for any therapy RUG group. As a result, the facility must complete a COT OMRA for Mr. A ., on which he may only classify to a non-therapy RUG group. Let us further assume that the faci lity continues to provide Mr. A. with skilled therapy and that, when looking back on Mr. A.’s services from Da y 44 (7 days after the ARD of the COT OMRA), Mr. A. again qualifies fo r classification in the RUG group RUA. Under the existing COT OMRA policy, it woul d not be possible for this provider to reclassify Mr. A. back into RUA from the non-therapy group by using a COT OMRA. Instead, Mr. A. could only be classified into a therapy RUG either by discontinuing his therapy using an End of Therapy (EOT) OMRA and beginning a ne w therapy program and completing a Start of Therapy (SOT) OMRA, or by waiting until the next scheduled assessment. Under our proposed revised policy, this provider would be permitted to complete a COT OMRA with an ARD of Day 44 in order to reclassify Mr. A. back into the RUA group. The facility would then continue to review the therapy services provided to Mr. A. in order to ensure that thes e services continue to

reflect Mr. A.’s current RUG -IV therapy classification. To further clarify the scope of this proposal , consider a slightly different example in

which Mr. A. is classified in to the RUG group RUA on his 30-day assessment with an ARD set64

for Day 30 of his stay. On Day 37, the facility checks the amount of th erapy that was provided

to Mr. A. and finds that while Mr. A. did rece ive the requisite number of therapy minutes to qualify for this RUG category, he only received therapy on 4 distinct calendar days, which would make it impossible for him to qualify for an Ultra-High Rehabilitation RUG group. Moreover,

due to the lack of 5 distinct calendar days of therapy and the lack of any restorative nursing services, Mr. A. does not qualify for any therapy RUG group. As a result , the facility must complete a COT OMRA for Mr. A., on which he may only classify for a non-therapy RUG group. However, as opposed to the previous s ituation where the reside nt’s therapy continued during the week following the COT OMRA, let us a ssume that the facility decides to discontinue his therapy services by completing an End of Therapy OMRA with an ARD set for Day 39, resulting in a non-therapy RUG cla ssification for Mr. A. The facility subsequently decides to restart Mr. A.’s therapy services , beginning on Day 41 of his stay. The facility looks back from Day 47 (7 days following the day therapy be gan on Day 41, including Day 41) to review the therapy services provided to Mr . A. during the prior week and finds that Mr. A. would qualify for the RUG group RVA. As in the prior example, under the existi ng COT OMRA policy, it would not be possible for this provider to classify Mr. A. into RVA from the non-therapy group by using a COT OMRA. However, as opposed to the prior example, under the revised COT OMRA policy proposed in this proposed rule, the facility would still not be permitted to complete the COT OMRA in this instance, as a discontinuation of therapy services had occu rred between Day 1 of the COT observation period for the COT OMRA that classified the resident into his/her current non-therapy RUG-IV group and the ARD of the COT OMRA that would have been used to reclassify the patient into a RUG-IV therapy group if it had been permitted. Based on this example, in order to reclassify the resident into a RUG-IV therapy gr oup, the provider would65

need to either complete a Start of Therapy OM RA or wait until the ne xt regularly scheduled

assessment. We believe this proposal would address th e concern of those providers who have experienced the rare occurrence of a COT OMRA classifying a re sident into a non-therapy RUG group from a therapy RUG group, where the patient continues to receive therapy and later qualifies again for a therapy RUG. We believe this proposed revision to the COT OMRA policy would ensure the most accurate payment for therapy services furnished to such residents by allowing providers to capture variations in therap y services on a weekly basis. As with other similar policy changes, if this revision is finali zed, then we intend to monitor the impact of this

revision to ensure that is has the intended eff ect. We invite comments on this proposed change to the existing COT OMRA policy. D. Civil Money Penalties (section 6111 of the Affordable Care Act)

Sections 6111 of the Patient Protection and A ffordable Care Act (Affordable Care Act), amended sections 1819(h) and 1919(h) of the Act to incorporate specific provisions pertaining to the imposition and collection of civil money penalties (CMPs). Sections 1819(h)(2)(B)(ii)(IV)(ff) and 1919(h)(3)(C)(ii) (IV)(ff) of the Act specifies that some portion of such amounts collected may be used to support activities that benefit residents, including assistance to support and protect resi dents of a facility that closes (voluntarily or involuntarily) or is decertified (includi ng offsetting costs of relocating resi dents to home and community-based settings or another facility), projects that support resident and family councils and other consumer involvement in assuring quality care in facilities, and facility improvement initiatives approved by the Secretary (including joint traini ng of facility staff and surveyors, technical assistance for facilities implementing quality as surance programs, the appointment of temporary management firms, and other activit ies approved by the Secretary). These changes were66

implemented in a final rule published on Ma rch 18, 2011 entitled “Medicare and Medicaid Programs; Civil Money Penalties for Nursing Ho mes.” At §488.433, we specify that these funds may not be used for survey and certification opera tions but must be used entirely for activities that protect or improve the quality of care for resi dents and that these acti vities must be approved by CMS. This proposed rule would clar ify statutory requirements as specified in section 6111 of the Affordable Care Act regarding the approva l and use of CMPs imposed by CMS. It is important to note that these clar ifications not only apply to th e Federal share of collected CMP funds granted for approved projec ts that benefit residents under §488.433, but they also apply to the portion of the CMPs collected by CMS that is disbursed to the stat es based on the proportion of Medicaid eligible nursing home residents under §488.442(e )(2) and (f). The amendments made by section 6111 of the Affordable Care Act makes it clear that the specified use of CMP funds collected from SNFs, SNF/NFs, and NF-onl y facilities as a resu lt of CMPs imposed by CMS, must be approved by CMS by specifying that the activities that CMP funds are used for must be approved by the Secretary. Sections 1819(h)(2 )(B)(ii)(IV)(ff) and 1919(h)(3)(C)(ii)(IV)(ff) of the Act also provide for flexibility on how CMP funds imposed by CMS may be used within the bounds established by law. Th e regulations at §488.433 specify that collected CMP funds must be used entirely for activities that protec t or improve the quality of care for residents, and may not be used for su rvey and certification op erations. However, we

are aware of instances in which states have used federal CMP funds without obtaining prior approval from CMS, have used these funds even though CMS had disapproved their intended use, have not used these funds at all, or have used these funds for purposes other than to support

activities that benef it residents as specified in statute a nd regulation. For example, information reported by the CMS Regional Offices for CY 2012 indicates that 24 states had not approved any67

projects using CMP fund s. While some states have only small amounts of CMP funds available

and seek to maintain a core reserve in the even t of emergencies or involuntary termination that necessitates timely relocation for resident safety and well-being, other states maintain significant amounts of funds. One state, for example, main tained more than $15 million in FY 2012. While it is very prudent to maintain a reserve fund fo r emergencies, we believe that maintenance of large amounts of unused CMP funds is not desirabl e or consistent with ensuring that collected CMP funds be used to benefit nursing home re sidents. In addition, large amounts of unused CMP funds may create the appearance that CMPs ar e being levied for purposes other than to benefit nursing home residents. A key function of the CMP remedy is to prompt quick compliance with the federal health and safety requirements. These monies must be us ed to support projects or activities that will benefit nursing home residents. Entities applyi ng for approval of project s utilizing CMP funds must demonstrate that the planned use will benefit nursing home residents and promote compliance with the regulations. We propose changes to the CMS enforcem ent regulations at §488.433 to clarify and strengthen these provisions to provide more specifi c instructions to states regarding the use of CMPs and the approval process, and to permit an opportunity for greater transparency and accountability of CMP monies utilized by States. We invite public comment on our proposed cha nges. This proposed rule would explicitly clarify the intended use and statutory requirements of collect ed CMP funds. Specifically, we propose to: (1) specify that CMP funds may not be used for state management operations except

for the reasonable costs that are consistent wi th managing projects util izing CMP funds; (the

rationale for this clarification is explained further in section VI.) ; (2) clarify CMS’s expectations that States must obtain prio r approval for use of these CMP funds; (3) outline specific68

requirements that must be included in propos als submitted for CMS approval; (4) specify that CMPs funds may not be used for projects that have been disapproved by CMS;(5) specify that states are responsible for having an acceptable plan to solicit, accept, monitor and track projects utilizing CMP funds and make the results of a ll approved projects publicly available on at least an annual basis; (6) specify that state plans must ensure that a core amount of civil money penalty funds will be held in reserve for emergencie s, such as relocation of residents in the event of involuntary termination from Medicare and Medi caid, and (7) specify th at if a state is not spending collected CMPs in accordance with the law or not at all, that CMS has authority to take appropriate steps to ensure th at these funds are used for their intended purpose, such as withholding future disbursements of CMP amounts. We do not believe this has significant cost implications and it will benefit nursing home reside nts to ensure that CMP funds will be used for their intended purpose. We further invite public comment on CMS’s proposed methods to ensure compliance with these requirements. E. Observations on Therapy Utilization Trends In the FY 2014 SNF PPS final rule (7 8 FR 47959 through 47960), we discussed our monitoring efforts associated with the impact of certain policy changes finalized in the FY 2012 SNF PPS final rule (76 FR 48486). We noted that we would continue these monitoring efforts and report any new information as appropriate. We are not proposing ne w Medicare policy in this discussion of observed trends but merely high lighting that we will continue to monitor these observed trends which may serve as the basis for future policy development. In the FY 2014 SNF PPS proposed rule (78 FR 26464), we presented data which compared various utilization metr ics including, in particular, th e case-mix distribution for the RUG-IV therapy categories (Ultra -High Rehabilitation or RU, Ve ry-High Rehabilitation or RV, High Rehabilitation or RH, Medium Rehabilitati on or RM, and Low Rehabilitation or RL), for69

FY 2011 and FY 2012. It was observed based on those data that the percentage of billed days of service being classified into the RU RUG groups had increased from 44. 8 percent in FY 2011 to 48.6 percent in FY 2012, while utilization in all ot her therapy RUG categor ies either remained stable or declined. We have since updated th is data set using data from FY 2013 and have posted a memo to the SNF PPS website (available at http://www.cms.gov/M edicare/MedicareFee-for-Service-Payment/SNFPPS/Spotlight.html ) which demonstrates that the percentage of billed service days in the RU RUG groups has incr eased to over 50 percent. These revised data in the aforementioned memo are presented in a s lightly different format than they have been presented in the past, which is to show how, over the course of the past 3 years since October of 2010, the percentage of residents classified into one of these Ultra-High Rehabilitation groups has not only increased, but done so rather steadily.

The second identified trend that we would hi ghlight here and is discussed in the memo referenced above is that, most notably in th e cases of RU and RV RUG groups, the amount of therapy reported on the MDS is just enough to surpass the releva nt therapy minute threshold for a given therapy RUG category. For example, as demonstrated in Figure 2 in the aforementioned memo, the percentage of claims-matched MDS assessments in the range of 720 minutes to 739 minutes, which is just enough to surpass the therapy minute th reshold for RU RUG groups of 720 minutes, has increased from 21 percent in FY 2011 to 33 per cent in FY 2013. As stated above, this trend also holds for residents clas sified into a RV RUG group, where the largest percentage of service days were provided in th e 500 to 520 minutes range, which just surpasses the therapy minute threshold for th e RV RUG groups of 500 minutes. We invite comment on the data presented he re and the discussion of observed trends. F. Accelerating Health Information Exchange in SNFs As we have stated in the past, we believe al l patients, and others involved in the patient’s70

care, and their healthcare providers should have consistent and timely access to their health

information in a standardized format that can be securely exchange d between the patient, providers, and others involved in the patient’s care. (HHS A ugust 2013 Statement, “Principles and Strategies for Accelerating Health Informa tion Exchange.”) The Department is committed to accelerating health information exchange (HIE ) through the use of elec tronic health records (EHRs) and other types of health informa tion technology (HIT) acro ss the broader care continuum through a number of initiatives includ ing: (1) alignment of incentives and payment adjustments to encourage provi der adoption and optimization of HIT and HIE services through Medicare and Medicaid payment policies; (2) adopti on of common standards and certification requirements for interoperable HIT; (3) support fo r privacy and security of patient information

across all HIE-focused in itiatives; and (4) governan ce of health information networks. These initiatives are designed to improve care deliv ery and coordination ac ross the entire care continuum and encourage HIE among all health care providers, includi ng professionals and hospitals eligible for the Medicare and Medica id EHR Incentive Programs and those who are not eligible for the EHR Incentive Programs. To in crease flexibility in ONC's HIT Certification Program and expand HIT certification, ONC has i ssued a proposed rule concerning a voluntary

2015 Edition of EHR certification cr iteria which would more easily accommodate certification of HIT used in other types of hea lth care settings where individual or institutional health care providers are not typically eligible for incen tive payments under the Medicare and Medicaid EHR Incentive Programs, such as long-term and pos t-acute care and behavior al health settings.

We believe that HIE and the use of certifie d EHRs by SNFs and other types of providers that are ineligible for the Medicare and Medi caid EHR Incentive Programs can effectively and efficiently help providers improve internal ca re delivery practices, support management of patient care across the continuum, and enable th e reporting of electronically specified clinical71

quality measures (eCQMs). More information on the identification of EHR certification criteria and development of standards applicable to SNFs can be found at:

● http://healthit.gov/policy-researchers-imple menters/standards-and-certificationregulations

.

● http://www.healthit.gov/facas/FACAS /health-it-policy-committee/hitpcworkgroups/certificationadoption

.

● http://wiki.siframework.org/LCC+LTPAC+Care+Transition+SWG

.

● http://wiki.siframework.org/Long itudinal+Coordination+of+Care

. VI. Provisions of the Proposed Rule As discussed in section III. of this propos ed rule, this proposed rule would update the payment rates under the SNF PPS for FY 2015 as required by section 18 88(e)(4)(E)(ii) of the Act. In addition, we propose to use the most current OMB delineations (discussed in section V.A) to identify a facility’s urba n or rural status for the purpose of determining which set of rate tables would apply to the facility (section III.B.). Furthermore, as discussed in section V. of this proposed rule, we propose changes to the wa ge index based on the most current OMB delineations, including a one-year transition wi th a blended wage index for FY 2015 (section V.A.); propose to revise the policy governing use of the COT OMRA (section V.C.); and finally, propose changes to the enforcement regulations rela ted to civil money penalties utilized by states (section V.D.). With reference to the civil money penalty pr ovisions discussed in section V.D. of this proposed rule, we propose to modify current CMS re gulations to provide fu rther clarification to states and the public regarding pr ior approval and appropriate use of these federal-imposed civil money penalty funds. At §488.433, civil money penalties: uses and ap proval of civil money penalties imposed72

by CMS, we propose to amend this regulation to specify that civil money penalties may not be used for state management operations except for the costs that are consistent with managing the civil money penalty funds, specify that all activiti es utilizing civil money penalty funds must be approved in advance by CMS, outline specific requi rements that must be included in proposals submitted for CMS approval, specify that states are responsible for monitoring and tracking the results of all approved activities utilizing civ il money penalties and making this information publicly available, specify that state plans must ensure that a co re amount of civil money penalty funds will be held in reserve for emergencies, su ch as relocation of resi dents in the event of involuntary termination from Medicare and Medicai d , and specify steps CM S will take if civil money penalty funds are being used for disappr oved purposes or not being used at all . The proposed CMS regulation would explicitly clarify the intended use of these civil money penalty funds including the pr ocesses for prior approval of all activities using civil money penalty funds by CMS and how CMS will address a state’s use of civil money penalty funds for

activities that have been disa pproved by CMS or used by states for activities other than those explicitly specified in statute or regulations. At proposed §488.433(a), we would clarify that approved projects may work to improve residents’ quality of life and not just quality of care. We would also clarify that states while states may not use funds for survey and certifica tion operations or state ex penses, they may use a reasonable amount of civil money penalty funds fo r the actual administration of grant awards, including the tracking, monitori ng, and evaluating of approved pr ojects. Some states have maintained that effective use and management of the civil money penalty funds requires more state oversight and planning than they are able to provide curren tly, and that an allowance for such management would remove a barrier to th e effective use of these funds. We have not proposed a monetary or numeric li mit on what might be considered reasonable, although one to 373

percent of available funds might be considered reasonable for an established fund. We invite comment on the question of appropriate limits. At proposed §488.433(b)(5), we would clarify in a new paragraph that in extraordinary situations involving closure of a facility, civil monetary penalty funds may be used to pay the salary of a temporary manager when CMS concl udes that it is infeasible to ensure timely payment for such a manager by the facility. We have encountered situa tions, for example, in which a facility is in bankruptcy and the court has frozen all funds at the very time that residents are being relocated and closure is proceedi ng. In another situa tion involving involuntary termination from Medicare and impending closure of the facility, the f acility was not making payments for staff or for its utilit ies, and residents were at risk due to the imminent departure of staff and the absence of a manager. While §489.55 permits Medicare and Medicaid payments to a facility to continue for up to 30 days after th e effective date of a facility’s termination or possibly longer (or shorter) if a facility has submitted a notif ication of closure under §483.75(r) in order to promote the orderly and safe relocatio n of residents, if the continued Medicare and Medicaid payments are being used to pay for f acility operations during the relocation period but are being diverted elsewhere by th e facility, then residents may be placed at increased risk. The proposed change at §488.433(b)(5) would clarify not only that CMS places a priority on resident protection and protection of the Tr ust Fund and allows such emerge ncy use of civil money funds, but that CMS also intends to stop or suspend the payments to the facility under §489.55 when

such a situation occurs. At new §488.433(c), we specify the require ments for all CMP fund proposals being submitted to CMS for approval. At new §488.433 (d), we state that CMP funds may not be used for activities that have been disapproved by CMS.74

At new §488.433(e), we propose that states mu st maintain an acceptable plan for the effective use of civil monetary penalty funds, including a description of methods by which the state will solicit, accept, mon itor, and track approved projects funded by CMP amounts and make key information publicly available. Exam ples of information that must be publically available would include information on the proj ects that have been approved by CMS, the grantee and project recipients, the dollar amounts of projects a pproved, and the results of the projects. We also propose that these plans pr ovide for a minimum amount of funds that will generally be held in reserve for emergencies, unless the state’s plan demonstrates the availability of other funds to cover emergency situations, an d a reasonable aggregate amount of civil money penalty funds, beyond the emergency reserve amount, that the state e xpects to disburse each year for grants or contracts of projec ts that benefit residents and are consistent with the statute and CMS regulations. We appreciate that states may wish to develop a multi-year plan and provide an approximate range of total amount that the stat e plans to disburse. The intent is to ensure there is an acceptable plan, and that a state is prepared to respond to emergencies while at the same time is not maintaining a large unused amount of civil mone tary penalty funds. In §488.433(f), we propose that CMS may withhold future disbursement of collected civil money penalty funds to a state if CMS finds that the state has not spent such funds in accordance with the statute and regulations, fails to make use of funds to benefit the qual ity of care or life of residents, or fails to maintain an acceptable plan approved by CMS. VII. Collection of Information Requirements Under the Paperwork Reduction Act of 1995 (PRA ), we are required to publish a 60-day

notice in the Federal Register and solicit public comments before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to evaluate fairly whether an informati on collection should be approved by75

OMB, section 3506(c)(2)(A) of the PRA require s that we solicit comments on the following

issues:

● The need for the information collection and its usefulness in carrying out the proper functions of our agency.

● The accuracy of our estimate of the information collection burden.

● The quality, utility, and clarity of the information to be collected.

● Recommendations to minimize the inform ation collection burden on the affected public, including automate d collection techniques. A. Information Collection Requirements (ICRs) While this proposed rule does not have any PRA implications, we are soliciting comment on the following: 1. ICRs Regarding the SNF PPS Rate Setting Methodology (preamble sections III and V) While sections III and V propose to revise ce rtain policies related to the current rate setting methodology (such as the use of updated OM B delineations to assign a facility the urban or rural per diem rate and to calculate wage index adjustments) , the provisions would not impose any new or revised reporting, recordkeeping, or th ird-party disclosure requirements. Nor would they require the development, acquisition, inst allation, and utilization of any new or revised technology or information systems. Conseque ntly, they do not requ ire review under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). The information collection requirements discussed in section III.C. concerning the resident assessment instrument (MDS 3.0) are currently approved by OMB under OCN 0938- 1140 (CMS-10387). 2. ICRs Regarding the COT OMRA (preamble section V.C.)76

While section V.C. proposes to revise current COT OMRA policy by permitting providers to complete a COT OMRA for a resident who is not currently classified into a RUG-IV therapy group in certain circumstances, this provision does not impose any new or revised reporting, recordkeeping, or third-party disclosu re requirements. Consequently, it does not require review under the authority of the Pa perwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). 3. ICRs Regarding the Use of Civil Money Penalties (§488.433(c)) In §488.433(c), states proposing to use civil money penalties for cer tain activities are required to submit descriptions of the intende d outcomes, deliverables, sustainability, and methods by which the results will be assessed, incl uding specific measures. Prior to using these funds, the activities must be approved by CM S under existing regulations. The proposed language in this rule provides methods to ensu re that these requireme nts are followed and to promote additional transparency. The provision does not requi re additional OMB review under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). In addition, as stated in the Civil Money Penalties for Nursing Homes final ru le published on March 18, 2011 (76 FR 15125), sections 4204(b) and 4214(d) of the Omnibus Budget Reconcili ation Act of 1987 (OBRA ’87), Public Law 100–203, enacted on December 21, 1987, provi de waivers of Office of Management and Budget review of informati on collection requirements for th e purpose of implementing the nursing home reform amendments. The provisions of OBRA ’87 that exempt agency actions to

collect information from states or facilities releva nt to survey and enforcement activities from the Paperwork Reduction Act are not time-limited. 4. ICRs Regarding Civil Mone y Penalty Plans (§488.433(e))77

In §488.433(e), states would be required to maintain an acceptable plan (approved by CMS) for the effective use of civil money funds. The plan must include a description of methods by which the state will: (1) solicit, accept, m onitor, and track projects utilizing civil money penalty funds; (2) make information about th e use of civil money penalty funds publicly available, including key informati on about approved projects, the gr antee or contract recipients, and the results of projects; (3) ensure that a core amount of civil money penalty funds will be held in reserve for emergencies, such as unpl anned relocation of residents pursuant to an involuntary termination from Medi care and Medicaid; and (4) ensure that a reasonable amount of funds, beyond those held in reserve, will be awarded or contracted each year. Since current statute, regulations and/or CMS policy guidance rele ased to the states already specifies that all proposed activities using civil money penalty funds must be submitted to CMS for approval and must contain informati on on the expected final outcomes of the activity

and how the results of th e activity will be assessed, s tates must already have plans in place to monitor and track the outcomes of all approved ac tivities using these funds . Consequently, the proposed provision would not require any substantiv e revision to any state plans and would not impose any additional burden to states. Since the provisions in §488.433(e) would not impose any new or revised reporting, recordkeeping, or third-party disclosure requ irements, they do not require additional OMB review under the authority of the Paperwork Reduc tion Act of 1995 (44 U.S.C. 3501 et seq.). In addition, as stated in the Civ il Money Penalties for Nursing Homes final rule published on March 18, 2011 (76 FR 15125), sections 4204(b) and 4214( d) of the Omnibus Budget Reconciliation Act of 1987 (OBRA ’87), Public Law 100–203, enacted on December 21, 1987, provides

waivers of OMB review of information collecti on requirements for the purpose of implementing the nursing home reform amendments. The provisi ons of OBRA ’87 that exempt agency actions78

to collect information from states or facilities relevant to survey and enforcement activities from the Paperwork Reduction Act are not time-limited.

B. Submission of PRA-Related Comments If you comment on any of these information collection requirements, please submit your comments electronically as specified in th e ADDRESSES section of this proposed rule. Comments must be received on/by [I NSERT DATE 60-DAYS AFTER THE DATE OF

DISPLAY FOR PUBLIC INSPECTION BY THE FEDERAL REGISTER]. VIII. Response to Comments Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the "DATES" section of this preamble, and when we proceed with a subse quent document, we will respond to the comments in the preamble to that document. IX. Economic Analyses A. Regulatory Impact Analysis

1. Introduction We have examined the impacts of this pr oposed rule as required by Executive Order 12866 on Regulatory Planning and Review (Sep tember 30, 1993), Executive Order 13563 on Improving Regulation and Regulator y Review (January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), sec tion 1102(b) of the Act, section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA, March 22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999), and th e Congressional Review Act (5 U.S.C. 804(2)). Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of79

available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been designated an economically significant rule, under section 3(f)(1) of Executive Order 12866. Accord ingly, we have prepared a regulatory impact analysis (RIA) as further discussed below. Al so, the rule has been reviewed by OMB.

2. Statement of Need This proposed rule would update the SNF prospective payment rates for FY 2015 as required under section 1888( e)(4)(E) of the Act. It also res ponds to section 1888(e)(4)(H) of the Act, which requires the Secretary to “provide for publication in the Federal Register ” before the August 1 that precedes the start of each fiscal year, the unadjuste d federal per diem rates, the case-mix classification system, and the factors to be applied in making the area wage adjustment. As these statutory provisions prescribe a detailed methodology fo r calculating and disseminating payment rates under the SNF PPS, we do not ha ve the discretion to adopt an alternative approach. In addition, this proposed rule woul d clarify statutory requi rements and intent as specified in section 6111 of the Affordable Care Act regarding the appr oval and use of civil money penalties imposed by CMS. 3. Overall Impacts This proposed rule sets forth proposed update s of the SNF PPS rates contained in the SNF PPS final rule for FY 2014 (78 FR 47936). Based on the above, we estimate that the aggregate impact would be an increase of $750 milli on in payments to SNFs, resulting from the SNF market basket update to the payment rates, as adjusted by the MFP adjustment. The impact analysis of this proposed rule represents the projected effects of the changes in the SNF PPS80

from FY 2014 to FY 2015. Although the best data available are utilized, there is no attempt to predict behavioral responses to these changes, or to make adjustments for future changes in such variables as days or case-mix. Certain events may occur to limit the scope or accuracy of our impact analysis, as this analysis is future-oriented and, thus, very susceptib le 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 genera l Medicare program funding change s by the Congress, or changes specifically related to SNFs. In addition, change s to the Medicare program may continue to be made as a result of previously-e nacted legislation, or new stat utory provisions. Although these changes may not be specific to the SNF PPS, the na ture of the Medicare program is such that the changes may interact and, thus, th e complexity of the interaction of these changes could make it difficult to predict accurately the fu ll scope of the impact upon SNFs. In accordance with sections 1888(e)(4)(E) and 1888(e)(5) of the Act, we update the FY 2014 payment rates by a factor e qual to the market basket inde x percentage change adjusted by the FY 2013 forecast error adjustment (if app licable) and the MFP adjustment to determine the payment rates for FY 2015. As discussed pr eviously, for FY 2012 and each subsequent FY, as required by section 1888( e)(5)(B) of the Act as amended by section 3401(b) of the Affordable Care Act, the market basket percentage is re duced by the MFP adjustment. The special AIDS add-on established by section 511 of the MMA remains in effect unt il “. . . such date as the Secretary certifies that there is an appropriate adjustment in the case mix . . . .” We have not provided a separate impact analysis for the MMA provision. Our latest estimates indicate that there are fewer than 4,355 beneficiaries who qua lify for the add-on payment for residents with AIDS. The impact to Medicare is included in the “total” column of Ta ble 13. In updating the SNF PPS rates for FY 2015, we made a number of standard annual revision s and clarifications81

mentioned elsewhere in this proposed rule (for example, the update to the wage and market basket indexes used for adju sting the federal rates). The annual update set forth in this proposed rule applies to SNF PPS payments in FY 2015. Accordingly, the analysis that follows only de scribes the impact of this single year. In accordance with the requirements of the Act, we will publish a notice or rule for each subsequent FY that will provide for an upda te to the SNF PPS payment rates and include an associated impact analysis. As discussed in Section V.D. of this propos ed rule, we would also clarify statutory requirements and intent as specifi ed in section 6111 of the Affo rdable Care Act regarding the approval and use of civil money pe nalties imposed by CMS. There would be no impact to States unless they failed to follow the new regulations regarding the approval and use of civil money penalty funds. In FY 2011, the approximate total amount of civil money pena lties returned to the states was $28 million. In FY 2012, the approx imate total amount of civil money penalties returned to the states was $32 million. In FY 2013, the approximate total amount of civil money penalties returned to the states was $35 million.. The estimated amount that we expect to be returned to the states in FY2015, based on data from previous years, is approximately $33 million. These payments to the states would only be withheld in the event that states did not spend civil money penalty funds in accordance with the statute a nd this regulation, or failed to

make use of funds to benefit the quality of care or life of residents, or failed to maintain an acceptable plan for the use of these funds. Even if CMP funds are withheld from a state, we expect that the state would eventually come into compliance and that the state would later gain

access to the withheld funds. 4. Detailed Economic Analysis82

The FY 2015 impacts appear in Table 13. Usi ng the most recently available data, in this case FY 2013, we apply the current FY 2014 wage index and labor-related share value to the number of payment days to simulate FY 2014 pa yments. Then, using the same FY 2013 data, we apply the FY 2015 wage index, as proposed in Section V.A above, and labor-related share value to simulate FY 2015 payments. We tabulate the resulting payments according to the classifications in Table 13 (for ex ample, facility type, geographic region, facility ownership), and compare the difference between current and proposed payments to determine the overall impact. The breakdown of the various categorie s of data in th e table follows.

The first column shows the breakdown of all SNFs by urban or rural status, hospitalbased or freestanding status, census region, and ownership. The first row of figures describes the esti mated effects of the various changes on all

facilities. The next six rows show the eff ects on facilities split by hospital-based, freestanding, urban, and rural categories. The urban and rura l designations are based on the location of the facility under the new OMB delineations that we are proposing to implem ent beginning in FY 2015. Facilities should use these proposed OMB delineations to identify their urban or rural status for purposes of identifying what areas of the impact table would apply to them beginning on October 1, 2014. The next nineteen rows show the effects on facilities by urban versus rural status by census region. The last three rows sh ow the effects on facilities by ownership (that is, government, profit, and non-profit status).

The second column shows the number of facilities in the impact database.

The third column shows the effect of the annual update to the wage index. This represents the effect of using the most recent wage data avai lable, without taki ng into account the proposed revised OMB delineations. That is, the imp act represented in this column is solely that of updating from the FY 2014 wage index to the FY 2015 wage index without any changes to the83

OMB delineations. The total impact of this change is zero percent; however, there are distributional effects of the change.

The fourth column shows the effect of adopting the updated OMB delineations (as set forth in OMB Bulletin NO. 13-01) for wage i ndex purposes for FY 2015, independent of the effect of using the most recent wage data availa ble, captured in Column 3. That is, the impact represented in this column is that of the proposed use of the revised OMB delinea tions, utilizing the proposed blended wage index. The total impact of this change is zero percent; however,

there are distributional effects of the change.

The fifth column shows the effect of all of the changes on the FY 2015 payments. The update of 2.0 percent (consisting of the market ba sket increase of 2.4 per centage points, reduced by the 0.4 percentage point MFP adjustment) is constant for all provid ers and, though not shown individually, is included in the total column. It is projected that aggregate payments will increase by 2.0 percent, assuming facilities do not ch ange their care delivery and billing practices in response. As illustrated in Table 13, the combined effects of all of the changes vary by specific types of providers and by location. For example, due to changes proposed in this rule, providers in the rural Pacific region woul d experience a 4.5 percent increase in FY 2015 total payments. TABLE 13: RUG-IV Projected Impa ct to the SNF PPS for FY 2015

Number of Facilities FY 2015 Update Wage Data Update OMB Delineations Total Change Group Total 15,397 0.0% 0.0% 2.0% Urban 10,860 0.0% 0.0% 2.0% Rural 4,537 0.1% -0.2% 1.9% Hospital based urban 572 0.1% 0.0% 2.0% Freestanding urban 10,288 0.0% 0.0% 2.0% Hospital based rural 640 0.1% -0.3% 1.7%84

Number of Facilities FY 2015 Update Wage Data Update OMB Delineations Total Change Freestanding rural 3,897 0.1% -0.2% 1.9%

Urban by region New England 803 0.9% 0.0% 2.9% Middle Atlantic 1,490 0.3% 0.1% 2.5% South Atlantic 1,853 -0.3% 0.0% 1.7% East North Central 2,054 -0.3% 0.0% 1.6% East South Central 544 -1.0% 0.0% 1.0% West North Central 889 0.0% 0.0% 2.0% West South Central 1,293 -0.4% 0.0% 1.6% Mountain 501 0.1% -0.1% 2.0% Pacific 1,427 0.3% 0.0% 2.3% Outlying 6 0.6% -0.2% 2.4%

Rural by region New England 144 0.7% 0.1% 2.8% Middle Atlantic 228 1.5% -1.6% 1.8% South Atlantic 504 -0.4% -0.2% 1.4% East North Central 925 -0.1% 0.0% 1.9% East South Central 533 -0.3% -0.2% 1.4% West North Central 1,093 0.3% -0.2% 2.2% West South Central 770 0.3% -0.4% 1.9% Mountain 235 -0.7% 0.0% 1.3% Pacific 105 2.6% -0.1% 4.5% Outlying 0 0.0% 0.0% 2.0%

Ownership Government 852 0.1% 0.1% 2.2% Profit 10,783 0.0% 0.0% 2.0% Non-profit 3,762 0.1% 0.0% 2.0% Note: The Total column includes the 2.4 percent market basket increase, reduced by the 0.4 percentage point MFP adjustment. Additionally, we found no SNFs in rural outlying areas. 5. Alternatives Considered As described above, we estimate that the aggregate impact for FY 2015 would be an increase of $750 million in payments to SNFs, re sulting from the SNF market basket update to85

the payment rates, as adjusted by the MFP adjustment. Section 1888(e) of the Act establishes the SNF PPS for th e payment of Medicare SNF services for cost report ing 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 inco rporated a number of elements into the SNF PPS (for example, case- mix classification methodology, a market basket index, a wage index, and the urban and rural distinction used in the development or adjustment of the federal rates). Further, section 1888(e)(4 )(H) of the Act specifically requires us to disseminate the payment rates for each new FY through the Federal Register , and to do so before the August 1 that precedes the start of the new FY. Accordingly, we are not pursuing alternatives with respect to the pa yment methodology as discussed above. With regard to the proposal discussed in sec tion V.A of this rule related to our proposed adoption of the revised OMB delineations for purpos es of calculating the wage index, we believe implementing the new OMB delineations would result in wage index values being more representative of the actual cost s of labor in a given area. Fu rther, we recognize that some providers (15 percent) would have a higher wage index due to our proposed implementation of the new labor market delineations. However, we also recognize that more providers (22 percent) would experience decreases in wa ge index values as a result of our proposed implementation of

the new labor market area delineations. Theref ore, we believe it would be appropriate to consider, as we did in FY 2006, wh ether or not a transition period should be used in order to implement these proposed changes to the wage index. We considered having no transition peri od and fully implementing the proposed new86

OMB delineations beginning in FY 2015. This w ould mean that we would adopt the revised OMB delineations for all providers on October 1, 2014. However, this would not provide any time for providers to adapt to the new OMB delin eations. As discussed above, more providers would experience a decrease in wage index due to implementation of the proposed new OMB delineations than would experience an increase. T hus, we believe that it w ould be appropriate to provide for a transition period to mitigate the resulting short-term instability and negative impact on these providers, and to provide time for providers to adjust to their new labor market area delineations. Furthermore, in light of the comments received during the FY 2006 rulemaking cycle on our proposal in the FY 2006 SNF PPS proposed rule (70 FR 29094 – 29095) to adopt the new CBSA definitions without a transition pe riod, we anticipate that providers would have

similar concerns with not ha ving a transition period for the proposed new OMB delineations. Therefore, as further discussed below, sim ilar to the policy adopted in the FY 2006 SNF PPS final rule (70 FR 45041) when we first adopted OMB’s CBSA definitions for purposes of the SNF PPS wage index, we are proposing a one-year tr ansition blended wage index for all SNFs to assist providers in adapting to the new OMB de lineations (should we finalize implementation of such delineations for the SNF PPS wage inde x beginning in FY 2015). In determining an appropriate transition methodology, consistent with the objectives set forth in the FY 2006 SNF PPS final rule (70 FR 45041), we looked for approach es that would provide relief to the largest percentage of adversely-affected SNFs with th e least impact to the re st of the facilities First, we considered transitioning the wage index to the revised OMB delineations over a number of years in order mini mize the impact of the proposed wage index changes in a given year. However, we also believe this must be balanced agains t the need to ensure the most accurate payments possible, which argues for a fast er transition to the revised OMB delineations. As discussed above in section V.A.2 of this propos ed rule, we believe that using the most current87

OMB delineations would increase the integrity of the SNF PPS wage index by creating a more accurate representation of geographi c variation in wage levels. As such, we believe that utilizing a one-year (rather than a multiple year) transition with a blende d wage index in FY 2015 would

strike the best balance. Second, we considered what type of blend would be appropriate for purposes of the transition wage index. We are proposing that providers would receive a one-year blended wage index using 50 percent of their FY 2015 wa ge index based on the proposed new OMB delineations and 50 percent of their FY 2015 wage index based on the FY 2014 OMB delineations. We believe that a 50/50 blend would best mitigate the negative payment impacts associated with the implementation of th e proposed new OMB delineations. While we

considered alternatives to the 50/ 50 blend, we believe this type of split balances the increases and decreases in wage index values associated wi th this proposal, as well as provides a readily understandable calculation for providers. Next, we considered whether or not the bl ended wage index should be used for all providers or for only a subset of providers, su ch as those providers that would experience a decrease in their respective wage index valu es due to implementation of the revised OMB delineations. If we were to apply the transi tion policy only to those providers that would experience a decrease in their respective wage index values due to the implementation of the revised OMB delineations, then pr oviders that would experience e ither no change in wage index or an increase in wage due to the revised OM B delineations would be immediately transitioned to the FY 2015 wage index under the revised OMB delineations. As required in section 1888(e)(4)(G)(ii) of the Act, the wage index adjustment must be implemented in a budget-neutral manner. As such, if we were to apply the tran sition policy only to those providers that would experience a decrease in their re spective wage index values due to implementation of the revised88

OMB delineations, the budget neutrality factor, di scussed in section III.D, calculated based on this this approach would be 0.9986, which would resu lt in reduced base rate s for all providers as compared to the budget neutrality factor of 1.0001 which would result from applying the blended wage index to all providers. Furthermore, ba sed on our analysis of the wage index changes associated with fully implementing the revised OMB delineations, we determined that the new OMB delineations would only affect the wage in dex values of approximately 37 percent of facilities. Given that our goal is to provide relief to the largest percentage of adversely-affected SNFs with the least impact to the rest of the facilities (whose wage i ndex values either would remain the same or increase), we believe that using a blended wage inde x for all providers would be the best option. This option would assist the 22 percent of providers that would be adversely affected by the proposed implementation of th e new OMB delineations without reducing the base rates for all providers, 63 percent of whic h would otherwise be unaffected by the proposed implementation of the new OMB delineations. In other words, this option is based on a balance

between the interests of all SN F providers, including the 15 per cent of providers that would experience an increase in their wage index valu e due to the proposed implementation of the new OMB delineations, the 22 percent of providers th at would experience a decrease in their wage index value due to the proposed implementa tion of the new OMB delineations, and the 63 percent of providers that woul d be unaffected by the proposed implementation of the new OMB

delineations. As discussed above , if we were to apply the bl ended wage index only to the 22 percent of providers that would experience a decrease in their re spective wage index values due to the proposed implementation of the new OMB de lineations in an effort to preserve the full increase in wage index value for the 15 percent of providers that woul d experience such an increase due to the proposed implementation of the new OMB delineations, the budget neutrality factor of 1.0001 referenced in section III.D, whic h is based on applying the blended wage index89

to all providers, would be revised to 0.9986. As such, this would mean a reduction in the base rate for all providers, most notably the 63 percen t of providers that would be unaffected by the proposed implementation of the new OMB delineations , but also for that 15 percent of providers that would experience an increase in their wage index value. Moreover, while providers expe rience wage index changes from year to year based on updating the wage data, full implementation of the proposed new OMB delineations would dramatically increase the magnit ude of those changes for some providers. Year-to-year wage index changes usually vary from decreases as high as 10 percent to increases as high as 10 percent. Using FY 2011 wage data (the data used for the FY 2015 wage index), the range of changes in the wage index values due solely to full implementation of the proposed OMB delineations would span from decreases of over 20 percent to increases of over 30 percent. Therefore, in addition to mitigating the im pact of the proposed OMB delineations on the facilities that are adversely affected by them and providing a period to adjust, we believe a transition wage index could also mitigate the vol atility of the SNF PPS wage index for certain providers caused by these proposed changes. Therefore, if we finalize implementation of the new OMB delineations for the SNF PPS wage index, we are proposing to use a one-year transition with a blende d wage index for all providers in FY 2015, as outlined in Section V. A.2.e. For the reasons discussed above, we believe that this proposed transi tion approach appropriately balanc es the interests of all SNFs, and would best achieve our objectiv e of providing relief to the la rgest percentage of adversely

affected SNFs with the l east impact to the rest of the faciliti es. We believe this approach would mitigate negative impacts on providers as well as the volatility of the SNF PPS wage index for certain providers resulting fr om implementation of the proposed new OMB delineations. We

invite comments on the alternatives discussed in this analysis.90

6. Accounting Statement As required by OMB Circular A-4 (available online at www.whitehouse.gov/sites/default/files/omb /assets/regulatory_matters_pdf/a-4.pdf ), in Table 14, we have prepared an accounting statement s howing the classification of the expenditures associated with the provisions of this proposed rule. Table 14 provides ou r best estimate of the possible changes in Medicare pa yments under the SNF PPS as a re sult of the policies in this proposed rule, based on the data for 15,397 SNFs in our database. All expenditures are classified as transfers to Medicare pr oviders (that is, SNFs).

TABLE 14: Accounting Statement: Classifi cation of Estimated Expenditures, from the 2014 SNF PPS Fiscal Year to the 2015 SNF PPS Fiscal Year Category Transfers Annualized Monetized Transfers $750 million* From Whom To Whom? Federal Gove rnment to SNF Medicare Providers * The net increase of $750 million in tr ansfer payments is a result of the M FP-adjusted market basket increase of $750 million. 7. Conclusion This proposed rule sets forth updates of the SNF PPS rates contained in the SNF PPS final rule for FY 2014 (78 FR 47936). Based on the above, we estimate the overall estimated payments for SNFs in FY 2015 are projecte d to increase by $750 million, or 2.0 percent, compared with those in FY 2014. We estimate that in FY 2015 under RUG-IV, SNFs in urban and rural areas would experience, on average, a 2.0 and 1.9 per cent increase, respectively, in estimated payments compared with FY 2014. Providers in the rural Pacific region would experience the largest estimated increase in paymen ts of approximately 4.5 pe rcent. Providers in the urban East South Central region would experi ence the smallest increase in payments of 1.0 percent. B. Regulatory Flexibility Act Analysis The RFA requires agencies to analyze options for regulatory relief of small entities, if a91

rule has a significant impact on a substantial number of small entit ies. For purposes of the RFA,

small entities include small businesses, non profit organizations, and small governmental jurisdictions. Most SNFs and mo st other providers and suppliers are small entities, either by their non-profit status or by having revenues of $25.5 million or less in any 1 year. We utilized the revenues of individual SNF providers (from recen t Medicare Cost Reports) to classify a small business, and not the revenue of a larger firm th ey may be affiliated with. As a result, we estimate approximately 91 percent of SNFs ar e considered small businesses according to the

Small Business Administration's latest size st andards (NAICS 623110), with total revenues of $25.5 million or less in any 1 year. (For details, see the Small Business Administration’s website

at http://www.sba.gov/category/navigation-structure/co ntracting/contracting- officials/eligibilitysize-standards ). In addition, approximately 25 percent of SNFs classified as small entities are non-profit organizations. Finally, individuals and states are not included in the definition of a small entity. This proposed rule sets forth updates of the SNF PPS rates contained in the SNF PPS final rule for FY 2014 (78 FR 47936). Based on the above, we estimate that the aggregate impact would be an increase of $750 million in payments to SNFs, resulting from the SNF market basket update to the payment rates, as adjusted by the MFP ad justment. While it is projected in Table 13 that all providers would experience a net increase in payments, we note that some individual providers within the same region or group may experi ence different impacts on payments than others due to the distributio nal impact of the FY 2015 wage indexes and the degree of Medicare utilization. Guidance issued by the Department of H ealth and Human Services on the proper assessment of the impact on small entities in rule makings, utilizes a cost or revenue impact of 3 to 5 percent as a sign ificance threshold under th e RFA. According to MedPAC, Medicare covers92

approximately 11 percent of total patient days in freestanding facilities and 22 percent of facility revenue (Report to the Congress: Medicare Payment Policy, March 2014, available at http://www.medpac.gov/documents/Mar14_EntireReport.pdf ). However, it is worth noting that the distribution of days and payments is highly va riable. That is, the majority of SNFs have significantly lower Medicare util ization (Report to the Congre ss: Medicare Payment Policy, March 2014, available at http://www.medpac.gov/documents/Mar14_EntireReport.pdf ). As a result, for most facilities, when all payers are included in the revenue st ream, the overall impact

on total revenues should be substa ntially less than those impacts presented in Table 13. As indicated in Table 13, the effect on facilities is projected to be an aggregate positive impact of 2.0 percent. As the overall impact on the indus try as a whole, and thus on small entities specifically, is less than the 3 to 5 percen t threshold discussed above, the Secretary has determined that this proposed rule would not ha ve a significant impact on a substantial number

of small entities. In addition, section 1102(b) of th e Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the ope rations of a substantial number of small rural hospitals. This analysis must conform to the pr ovisions of section 603 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Ar ea and has fewer than 100 beds. This proposed rule would affect small rural hospitals that (1) furnish SNF serv ices under a swing-bed agreement or (2) have a hospital-based SNF. We anticipa te that the impact on small rural hospitals would be similar to the impact on SNF providers overall. Moreover, as noted in previous SNF PPS final rules (most recently the one for FY 2014 (78 FR 47968)), the category of small rural hospitals would be included within the analysis of the impact of this proposed rule on small entities in general. As indicated in Table 13, the effect on facilities is projected to be an aggregate positive impact of93

2.0 percent. As the overall impact on the industry as a whole is less than the 3 to 5 percent threshold discussed above, the Secretary has determ ined that this proposed rule would not have a significant impact on a substantial nu mber of small ru ral hospitals. C. Unfunded Mandates Reform Act Analysis

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 do llars, updated annually for inflation. In 2014, that threshold is approximately $141 million. This proposed rule would not impose spending costs on state, local, or tribal governments in the aggregate, or by the private sector, of $141

million. D. Federalism Analysis Executive Order 13132 establishes certain requirem ents that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that impos e substantial direct requirement costs on state and local governme nts, preempts state law, or otherwise has federalism implications. This proposed rule woul d have no substantial dir ect effect on state and local governments, preempt state law, or otherwise have federalism implications.94

List of Subjects in 42 CFR Part 488 Administrative practice and procedure, Health facilitie s, Medicare, Reporting and recordkeeping requirements.95

For the reasons set forth in the preamble, the Centers for Medicar e & Medicaid Services proposes to amend 42 CFR chapter IV as set forth below: PART 488—Survey, Certification and Enforcement Procedures 1. The authority citation for part 48 8 continues to read as follows: Authority: Secs. 1102, 1128I and 1871 of the Social Security Act, unless otherwise noted (42 U.S.C. 1302, 1320a-7j, and 1395hh); Pub. L. 110-149, 121 Stat. 1819.

2. Section 488.433 is revised to read as follows: §488.433 Civil money penalties: Uses and appr oval of civil money penalties imposed by

CMS. (a) Ten percent of the collected civil money penalty funds that are required to be held in escrow pursuant to §488.431 and that remain af ter a final administrative decision will be deposited with the Department of the Treas ury in accordance with §488.442(f). The remaining ninety percent of the collected ci vil money penalty funds that are required to be held in escrow pursuant to §488.431 and that remain af ter a final administrative deci sion must be used entirely for activities that protect or impr ove the quality of care or quality of life for residents consistent with paragraph (b) of this secti on and may not be used for survey and certification operations or State expenses, except that reasonable expenses nece ssary to administer, monitor, or evaluate the effectiveness of projects utilizing civ il money penalty funds may be permitted. (b) All activities and plans for utilizing civil money penalt y funds, including any expense used to administer grants utilizing CMP funds , must be approved in advance by CMS and may include, but are not limited to: (1) Support and protection of residents of a facility that clos es (voluntarily or involuntarily).96

(2) Time-limited expenses incurred in the process of relocating residents to home and community-based settings or a nother facility when a facility is closed (voluntarily or involuntarily) or downsized pursuant to an agreement with the State Medicaid agency. (3) Projects that support resi dent and family councils and ot her consumer involvement in assuring quality care in facilities. (4) Facility improvement initiatives, such as joint training of facility staff and surveyors or technical assistance for facilities imple menting quality assurance and performance improvement programs. (5) Development and maintenance of tempor ary management or receivership capability such as but not limited to, recruitment, traini ng, retention or other sy stem infrastructure expenses. However, as specified in §488.415(c), a temporary manager’s salary must be paid by the facility. In rare situations , if the facility is closing, CMS plans to stop or suspend continued payments to the facility u nder §489.55 of this chapter duri ng the temporary manager’s duty period, and CMS determines that extraordinary ac tion is necessary to pr otect the residents until

relocation efforts are successful , civil money penalty funds may be used to pay the manager’s salary. (c) At a minimum, proposed activities submitted to CMS for prior approval must include a description of the intended outco mes, deliverables, and sustainability; and a description of the methods by which the activity results will be assessed, including specific measures. (d) Civil money penalty funds may not be used for activities that have been disapproved by CMS. (e) The State must maintain an acceptable plan for the effective use of civil money funds, including a description of met hods by which the State will:97

(1) Solicit, accept, monitor, and track projects util izing civil money penalty funds including any funds used for state administration. (2) Make information about the use of ci vil money penalty funds publicly available, including about the dollar amount awarded for approved projects , the grantee or contract recipients, the results of proj ects, and other key information. (3) Ensure that: (i) A core amount of civil money penalty funds will be held in rese rve for emergencies,

such as relocation of resident s pursuant to an involuntary termination from Medicare and

Medicaid. (ii) A reasonable amount of funds, beyond t hose held in reserve under paragraph (i) of this section, will be awarded or c ontracted each year for the purpos es specified in this section. (f) If CMS finds that a State has not spen t civil money penalty f unds in accordance with this section, or fails to make use of funds to benefit the quality of care or life of residents, or fails to maintain an acceptable plan for the use of funds that is approved by CMS, then CMS may withhold future disbursements of civil money penalty funds to the State until the State has submitted an acceptable plan to comply with this section.98

Dated: April 16, 2014

______________________________ Marilyn Tavenner, Administrator, Centers for Medicare & Medicaid

Services.

Approved: April 22, 2014

__________________________________ Kathleen Sebelius, Secretary.

BILLING CODE 4120-01-P

[FR Doc. 2014-10319 Filed 05/01/2014 at 4:15 pm; Publication Date: 05/06/2014]