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 System 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 payment rates used under the prospective 

payment system (PPS) for skilled nursing facilities (SNFs) for fiscal year (FY) 2015. In 

addition, it includes a proposal to adopt the most recent Office of Management and Budget 

(OMB) statistical area delineations to identify a facility’s urban or rural status for the purpose of 

determining which set of rate tables would apply 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 payment research currently 

underway within CMS. This proposed rule also proposes a revision to policies related to the 

Change of Therapy (COT) Other Medicare Required Assessment (OMRA). This proposed rule 

includes a discussion of a provision related to the Affordable Care Act involving Civil Money 

Penalties. Finally, this proposed rule includes a discussion of observed trends related to therapy 

utilization among SNF providers and a discussion of accelerating health information exchange in 

SNFs.

DATES: To be assured consideration, comments must be received at one of the addresses 

provided below, no later than 5 p.m. on [OFR--insert date 60 days after the 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 cannot accept comments by facsimile (FAX) transmission. 

 You may submit comments in one of four ways (please choose only one of the ways 

listed): 

 1. Electronically. You may submit electronic comments on this regulation to 

http://www.regulations.gov. Within the search bar, enter the Regulation Identifier Number 

associated with this regulation, 0938-AS07, and 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 comments to be received before the close of the 

comment period. 

 3. By express or overnight mail. You may send written comments to the following 

address ONLY: 

 Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 Attention: CMS-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 hand or courier) your 
 3 

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 Hubert H. Humphrey Building is not readily 

available to persons without Federal Government identification, commenters are encouraged to 

leave their comments in the CMS drop slots located in the main lobby of the building. A stampin clock is available for persons wishing to retain a proof of filing by stamping in and retaining 

an extra copy of the comments being filed.) 

 b. Centers for Medicare & Medicaid Services 

 Department of Health and Human Services 

 7500 Security Boulevard, 

 Baltimore, MD 21244-1850 

 If you intend to deliver your comments to the Baltimore address, please call telephone 

number (410) 786-7195 in advance to schedule your arrival with one of our staff members. 

 Comments mailed to the addresses indicated as appropriate for hand or courier delivery 

may be delayed and received after the comment period. 

 For information on viewing public comments, see the beginning of the 

"SUPPLEMENTARY INFORMATION" section. 

FOR FURTHER INFORMATION CONTACT: 

Penny Gershman, (410) 786-6643, for information related to clinical issues. 

John Kane, (410) 786-0557, for information related to the development of the payment rates and 
 4 

case-mix indexes. 

Kia Sidbury, (410) 786-7816, for information related to the wage index. 

Karen Tritz, (410) 786-8021, for information related to Civil Money Penalties. 

Bill Ullman, (410) 786-5667, for information related to level of care determinations, 

consolidated billing, and general information. 

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 

received before the close of the comment period are available for viewing by the public, 

including any personally identifiable or confidential business information that is included in a 

comment. We post all comments received before the close of the comment period on the 

following 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 available for public inspection as they are 

received, generally beginning approximately 3 weeks after publication of a document, at the 

headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To 

schedule an appointment to view public comments, phone 1-800-743-3951. 

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

In the past, tables setting forth the Wage Index for Urban Areas Based on CBSA Labor 

Market Areas and the Wage Index Based on CBSA Labor Market Areas for Rural Areas were 

published in the Federal Register as an Addendum to the annual SNF PPS rulemaking (that is, 

the SNF PPS proposed and final rules or, when applicable, the current 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 are no longer published in the Federal Register. Instead, these tables 
 5 

will be available exclusively through the Internet. The wage index tables for this proposed rule 

are available exclusively through the 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 referencing sections contained in this document, we are providing the 

following Table of Contents.

Table of Contents 

I. Executive Summary 

A. Purpose 

B. Summary of Major Provisions 

C. Summary of Cost and Benefits 

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 Update 
 6 

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 PPS 
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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 their 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 Balanced Budget Refinement Act of 1999, Pub. 

L. 106-113 

BIPA Medicare, Medicaid, and SCHIP Benefits Improvement 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 Index 
 8 

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, Improvement, and Modernization Act of 2003, Pub. 

L. 108-173 

MSA Metropolitan statistical area 

NAICS North American Industrial Classification System 

NF Nursing facility 

OMB Office of Management and Budget 

OMRA Other Medicare Required Assessment 
 9 

PAMA Protecting Access to Medicare Act of 2014, Pub. L 113-93 

PPS Prospective Payment System 

RAI Resident assessment instrument 

RAVEN Resident assessment validation entry 

RFA Regulatory Flexibility 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 Case-Mix Classification System 

SCHIP State Children's Health Insurance Program 

SNF Skilled nursing facility 

STM Staff time measurement 

STRIVE Staff time and resource intensity verification 

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 Secretary 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 federal 
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rates in this proposed rule would reflect an update to the rates that we published in the SNF PPS 

final rule for FY 2014 (78 FR 47936) which reflects the SNF market basket index, adjusted by 

the forecast error correction, if applicable, and the multifactor productivity 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 Balanced Budget Act of 1997 (BBA, Pub. L. 105-33, 

enacted on August 5, 1997), section 1888(e) of the Act provides for the implementation of a PPS 

for SNFs. This methodology uses prospective, case-mix adjusted per diem payment rates 

applicable to all covered SNF services defined in section 1888(e)(2)(A) of the Act. The SNF 

PPS is effective for cost reporting periods beginning on or after July 1, 1998, and covers all costs 

of furnishing covered SNF services (routine, ancillary, and capital-related costs) other than costs 

associated with approved educational activities and bad debts. Under section 1888(e)(2)(A)(i) of 

the Act, covered SNF services include post-hospital extended care services for which benefits are 

provided under Part A, as well as those items and services (other than a small number of 

excluded services, such as physician services) for which payment may otherwise be made under 

Part B and which are furnished to Medicare beneficiaries who are residents in a SNF during a 

covered Part A stay. A comprehensive discussion of these provisions appears in the 

May 12, 1998 interim final rule (63 FR 26252). In addition, a detailed discussion of the 

legislative history of the SNF PPS is available online at 
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http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/SNFPPS/Downloads/Legislative_History_07302013.pdf. 

As noted in section I.F. of that legislative 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” provisions. In this proposed rule, Pub. L. 111-148 and 

Pub. L. 111-152 are collectively referred to as the “Affordable Care Act.” In section V. of this 

proposed rule, we include discussions of one specific 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 experience) with the federal case-mix adjusted rate. The transition 

extended through the facility’s first three cost reporting periods under the PPS, up to and 

including the one that began in FY 2001. Thus, the SNF PPS is no longer operating under the 

transition, as all facilities have been paid at the full federal rate effective with cost reporting 

periods beginning in FY 2002. As we now base payments for SNFs entirely on the adjusted 

federal per diem rates, we no longer include adjustment factors under the transition related to 

facility-specific rates for the upcoming FY. 

C. Required Annual Rate Updates 

Section 1888(e)(4)(E) of the Act requires the SNF PPS payment rates to be updated 

annually. The most recent annual update occurred in a final rule that set forth updates to the 

SNF PPS payment rates for FY 2014 (78 FR 47936, August 6, 2013). We subsequently 
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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 Act specifies that we provide for publication annually in the 

Federal Register of the following: 

● The unadjusted federal per diem rates to be applied to days of covered SNF services 

furnished during the upcoming FY. 

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

upcoming FY. 

● The factors to be applied in making the area wage adjustment for these services. 

Along with other revisions discussed later in this preamble, this proposed rule would 

provide the required annual updates to the per diem payment rates for SNFs for FY 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 1995) updated for inflation to the first effective 

period of the PPS. We developed the federal payment rates using allowable costs from hospitalbased and freestanding SNF cost reports for reporting periods beginning in FY 1995. The data 

used in developing the federal rates also incorporated a “Part B add-on,” which is an estimate of 

the amounts that, prior to the SNF PPS, would have been payable under Part B for covered SNF 

services furnished to individuals during the course of a covered Part A stay in a SNF. 

 In developing the rates for the initial period, we updated costs to the first effective year of 

the PPS (the 15-month period beginning July 1, 1998) using a SNF market basket index, and 

then standardized for geographic variations in wages and for the costs of facility differences in 
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case mix. In compiling the database used to compute the federal payment rates, we excluded 

those providers that received new provider exemptions from the routine cost limits, as well as 

costs related to payments for exceptions to the routine cost limits. Using the formula that the 

BBA prescribed, we set the federal rates at a level equal to the weighted mean of freestanding 

costs plus 50 percent of the difference between the freestanding mean and weighted mean of all 

SNF costs (hospital-based and freestanding) combined. We computed and applied separately the 

payment rates for facilities located in urban and rural areas, and adjusted the portion of the 

federal rate attributable to wage-related costs by a wage index to reflect geographic variations in 

wages. 

B. SNF Market Basket Update 

1. SNF Market Basket Index 

Section 1888(e)(5)(A) of the Act requires us to establish a SNF market basket index that 

reflects changes over time in the prices of an appropriate mix of goods and services included in 

covered SNF services. Accordingly, we have developed a SNF market basket index that 

encompasses the most commonly used cost categories for SNF routine services, ancillary 

services, and capital-related expenses. We use the SNF market basket index, adjusted in the 

manner described below, to update the federal rates on an annual basis. In the SNF PPS final 

rule for FY 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-based 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 fourth quarter 2013. In section III.B.5. of this 

proposed rule, we discuss the specific application of this adjustment 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 the SNF market basket percentage as the 

percentage change in the SNF market basket index from the midpoint of the previous FY to the 

midpoint of the current FY. For the federal rates 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 forecast (with historical data through the fourth 

quarter 2013) of the FY 2015 percentage increase in the FY 2010-based SNF market basket 

index for routine, ancillary, and 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 applicable, and by the multifactor productivity adjustment as 

required by section 1888(e)(5)(B)(ii) of the Act. Finally, as discussed in section II.B. of this 

proposed rule, we no longer compute update factors to adjust a facility-specific portion of the 

SNF PPS rates, because the initial three-phase transition period from facility-specific to full 

federal rates that started with cost reporting periods beginning in July 1998 has expired. 

3. Forecast Error Adjustment 

As discussed in the June 10, 2003 supplemental proposed rule (68 FR 34768) and 

finalized in the August 4, 2003, final rule (68 FR 46057 through 46059), 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 forecast error for the period from FY 2000 

through FY 2002, resulting in an increase of 3.26 percent to the FY 2004 update. Subsequent 

adjustments in succeeding FYs take into account the forecast error from the most recently 

available FY for which there is final data, and apply the difference between the forecasted and 
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actual change in the market basket when the difference exceeds a specified threshold. We 

originally used a 0.25 percentage point threshold for this purpose; however, for the reasons 

specified in the FY 2008 SNF PPS final rule (72 FR 43425, August 3, 2007), we adopted a 

0.5 percentage point threshold effective for FY 2008 and subsequent 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 will “. . . reflect both upward and downward 

adjustments, as appropriate.” 

For FY 2013 (the most recently available FY for which there is final data), the estimated 

increase in the market basket index was 2.5 percentage points, while the actual increase for FY 

2013 was 2.2 percentage points, resulting in the actual 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 does not exceed the 0.5 percentage point threshold, 

the payment rates for FY 2015 do not include a forecast error adjustment. Table 1 shows the 

forecasted and actual market basket amounts for FY 2013. 

TABLE 1: Difference Between the Forecasted and Actual Market Basket 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 productivity adjustment described in 

section 1886(b)(3)(B)(xi)(II) of the Act. Section 1886(b)(3)(B)(xi)(II) of the Act, added by 
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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 private nonfarm business multi-factor productivity 

(as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, 

cost-reporting period, or other annual period)” (the MFP adjustment). 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, IGI replicated the MFP measure calculated by the BLS, using a 

series of proxy variables derived 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 services 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 described in section 1886(b)(3)(B)(xi)(II)” (which we 

refer to as the MFP adjustment). Section 1888(e)(5)(B)(ii) of the Act further states that the 

reduction of the market basket percentage by the MFP adjustment may result in the market 

basket percentage being less than zero for a FY, and may result in payment rates under section 
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1888(e) of the Act for a FY being less than such payment rates for the preceding FY. Thus, if 

the application of the MFP adjustment to the market basket percentage calculated under section 

1888(e)(5)(B)(i) of the Act results in an MFP-adjusted market basket percentage that is less than 

zero, then the annual update to the unadjusted federal per diem rates under section 

1888(e)(4)(E)(ii) 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 September 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 (as added by section 3401(b) of the 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 for the period ending September 30, 2015) of 0.4 

percent, which is calculated as described above and based on IGI’sfirst quarter 2014 forecast. 

The resulting MFP-adjusted SNF market basket update 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 that the update factor 

used to establish the FY 2015 unadjusted federal rates be at a level equal to the market basket 

index percentage change. Accordingly, we determined the total growth from the average market 

basket level for the period of October 1, 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 explained in section III.B.3. of this proposed rule, as 
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applicable, we adjust the market basket update factor by the forecast error from the most recently 

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

between the forecasted and actual percentage change in the market basket exceeds a 

0.5 percentage point threshold. Since the difference between the forecasted FY 2013 SNF 

market basket percentage change and the actual FY 2013 SNF market basket percentage change 

(FY 2013 is the most recently available FY for 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 September 30, 2015) of 0.4 percent, as described in 

section III.B.4. of this proposed rule. The resulting 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 more recent estimate of the SNF market basket, 

MFP adjustment, and/or FY 2004-based SNF market basket used for the forecast error 

calculation), we would use such data, if appropriate, to determine the FY 2015 SNF market 

basket update, FY 2015 labor-related share relative 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 reflect 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 section. 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 apply 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 OMB 
 19 

statistical area delineations discussed 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 areas across the country, and that use of such 

delineations would allow us to more accurately determine the appropriate rate tables to apply 

under the SNF PPS. Thus, we believe it is appropriate 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, using a classification system that accounts for the 

relative resource utilization of different patient types. The statute specifies that the adjustment is 

to reflect both a resident classification system that the Secretary establishes to account for the 

relative resource use of different patient types, as well as resident assessment data and other data 

that the Secretary considers appropriate. In the interim final rule with comment period that 

initially implemented the SNF PPS (63 FR 26252, May 12, 1998), we developed the RUG-III 

case-mix classification system, which tied the amount of payment to resident resource use in 
 20 

combination with resident characteristic information. Staff time measurement (STM) studies 

conducted in 1990, 1995, and 1997 provided information on resource use (time spent by staff 

members on residents) and resident characteristics that enabled us not only to establish RUG-III, 

but also to create case-mix indexes (CMIs). The original RUG-III grouper logic was based on 

clinical data collected in 1990, 1995, and 1997. As discussed in the SNF PPS proposed rule for 

FY 2010 (74 FR 22208), we subsequently conducted a multi-year data collection and analysis 

under the Staff Time and Resource Intensity Verification (STRIVE) project to update the casemix classification system for FY 2011. The resulting Resource Utilization Groups, Version 4 

(RUG-IV) case-mix classification system reflected the data collected in 2006-2007 during the 

STRIVE project, and was finalized in the FY 2010 SNF PPS final rule (74 FR 40288) to take 

effect in FY 2011 concurrently with an updated new resident assessment instrument, version 3.0 

of the Minimum Data Set (MDS 3.0), which collects the clinical data used for case-mix 

classification under RUG-IV. 

We note that case-mix classification is based, in part, on the beneficiary's need for skilled 

nursing care and therapy services. The case-mix classification system uses clinical data from the 

MDS to assign a case-mix group to each patient that is then used to calculate a per diem payment 

under the SNF PPS. As discussed in section IV.A. of this proposed rule, the clinical orientation 

of the case-mix classification system supports the SNF PPS’s use of an administrative 

presumption that considers a beneficiary’s initial case-mix classification to assist in making 

certain SNF level of care determinations. Further, because the MDS is used as a basis for 

payment, as well as a clinical assessment, we have provided extensive training on proper coding 

and the time frames for MDS completion in our Resident Assessment Instrument (RAI) Manual. 

For an MDS to be considered valid for use in determining payment, the MDS assessment must 

be completed in compliance with the instructions in the RAI Manual in effect at the time the 
 21 

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

consists of both the Manual instructions and the interpretive guidance and policy clarifications 

posted on the appropriate MDS website at http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/NursingHomeQualityInits/MDS30RAIManual.html.

In addition, we note that section 511 of the Medicare Prescription 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 Syndrome (AIDS), effective with services furnished 

on or after October 1, 2004. This special add-on for SNF residents with AIDS was to remain in 

effect until “. . . the Secretary certifies that there is an appropriate adjustment in the case mix . . . 

to compensate for the increased costs associated with [such] residents . . . .” The 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 for 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 remain in effect. For the limited number of 

SNF residents that qualify for this add-on, there is a significant increase in payments. For 

example, using FY 2012 data, we identified fewer 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 “HC2” would have a case-mix adjusted per diem 

payment of $422.77 (see Table 4) before the application of the MMA adjustment. After an 

increase of 128 percent, this urban facility would receive a case-mix adjusted per diem payment 

of approximately $963.92. 
 22 

Currently, we use the International Classification of Diseases, 9th 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 Modification (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 overall conversion to ICD-10-CM on 

October 1, 2014, and we subsequently finalized that proposal in the FY 2014 SNF PPS final rule 

(78 FR 47951 through 47952). 

However, on April 1, 2014, the Protecting Access 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 Health and Human Services may not, 

prior to October 1, 2015, adopt ICD-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 Secretary has not implemented this provision under 

HIPAA. In light of PAMA, the effective date of the change from 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 the payment rates must include the case-mix 

classification methodology applicable for the upcoming FY. The payment rates set forth in this 

proposed rule reflect the use of the RUG-IV case-mix classification system from October 1, 
 23 

2014, through September 30, 2015. We list the proposed case-mix adjusted RUG-IV payment 

rates, provided separately for urban and rural SNFs, in Tables 4 and 5 with corresponding casemix values. As discussed above, facilities would use the proposed revised OMB delineations in 

order to identify their urban or rural status for the purpose of determining 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 section 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 Federal 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 $397.40 
 24 

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 $194.44 
 25 

TABLE 5: RUG-IV Case-Mix Adjusted Federal 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 $340.15 
 26 

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 SNF-specific wage data, using the hospital inpatient 

wage index data is appropriate and reasonable for the SNF PPS. As explained in the update 

notice for FY 2005 (69 FR 45786), the SNF PPS does not use the hospital area wage index’s 

occupational mix adjustment, as this adjustment serves specifically to define the occupational 

categories more clearly in a hospital setting; moreover, the collection of the occupational wage 
 27 

data also excludes any wage data related to SNFs. Therefore, we believe that using the updated 

wage data exclusive of the occupational mix adjustment continues to be appropriate for SNF 

payments. For FY 2015, the updated wage data are for hospital cost reporting periods beginning 

on or after October 1, 2010 and before October 1, 2011 (FY 2011 cost 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 procedure that is specific to SNFs, but only after 

collecting the data necessary to establish a SNF wage index that is based on wage data from 

nursing homes. However, to date, this has proven to be unfeasible due to the volatility of 

existing SNF wage data and the significant amount of resources that would be required to 

improve the quality of that data. 

In addition, we propose to continue to use the same methodology discussed in the SNF 

PPS final rule for FY 2008 (72 FR 43423) to address those geographic areas in which there are 

no hospitals, and thus, no hospital wage index data on which to base the calculation of the FY 

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 Statistical 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 Puerto Rico, we would not apply this methodology 

due to the distinct economic circumstances that exist there (for example, due to the close 

proximity to one another of almost all of Puerto Rico’s various urban and non-urban areas, this 

methodology would produce a wage index for rural Puerto Rico that is higher than that in half of 

its urban areas); instead, we would continue to use the most recent wage index previously 

available for that area. For urban areas without specific hospital wage index data, we would use 
 28 

the average wage indexes of all of the urban areas within the state to serve as a reasonable proxy 

for the wage index of that urban CBSA. For FY 2015, the only urban area without wage index 

data available is CBSA 25980, Hinesville-Fort Stewart, GA. 

Once calculated, we would apply the wage index adjustment to the labor-related portion 

of the federal rate. Each year, we calculate a revised labor-related share, based on the relative 

importance of labor-related cost categories (that is, those cost categories that are 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 revise the labor-related share to reflect the 

relative importance of the revised FY 2010-based SNF market basket cost weights for the 

following cost categories: wages and salaries; employee benefits; the labor-related portion of 

nonmedical professional fees; administrative and facilities support services; all other--laborrelated services; and a proportion of capital-related expenses. 

We calculate the labor-related relative importance from the SNF market basket, and it 

approximates the labor-related portion of the total costs after taking into account historical and 

projected price changes between the base year and FY 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 importance 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 for 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 the 
 29 

base year (FY 2010) weight. Finally, we add the FY 2015 relative importance for each of the 

labor-related cost categories (wages and salaries, employee benefits, the labor-related portion of 

non-medical professional fees, administrative and facilities support services, 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 facility’s urban or rural status for the purpose of 

determining which set of rate tables would apply 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 Adjusted 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 $169.11 
 30 

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 Federal Rates for Rural SNFs by Labor and NonLabor Component 

RUG-IV 

Category 

Total 

Rate 

Labor 

Portion 

Non-Labor 

Portion 
 31 

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 $88.92 
 32 

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 payments under the SNF PPS that are greater or less 

than would otherwise be made if the wage adjustment had not been made. For FY 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 neutrality factor equal to the ratio of the weighted average 

wage adjustment factor for FY 2014 to the weighted average wage adjustment factor for FY 

2015, based on the blended wage index for FY 2015 as proposed later in this 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 adjustment factor used in this calculation as the 

labor share of the rate component multiplied by the wage index plus the non-labor share of the 

rate component. The budget neutrality factor for FY 2015 would be 1.0001 

In the SNF PPS final rule for FY 2006 (70 FR 45026, August 4, 2005), we adopted the 
 33 

changes discussed in the OMB Bulletin No. 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 statistical 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 providers. For FY 2006, the wage index for each 

provider consisted of a blend of 50 percent of the FY 2006 MSA-based wage index and 50 

percent of the FY 2006 CBSA-based wage index (both using FY 2002 hospital data). We 

referred to the blended wage index as the FY 2006 SNF PPS transition wage index. As 

discussed in the SNF PPS final rule for FY 2006 (70 FR 45041), since the expiration of this 

one-year transition on September 30, 2006, we have used the full CBSA-based wage index 

values. 

On February 28, 2013, OMB issued OMB Bulletin No. 13-01, announcing revisions to 

the delineation of MSAs, Micropolitan Statistical 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/default/files/omb/bulletins/2013/b-13-01.pdf. This bulletin 

states that it “provides the delineations of all Metropolitan Statistical Areas, Metropolitan 

Divisions, Micropolitan Statistical 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 Census Bureau data.” 

 While the revisions OMB published on February 28, 2013 are not as sweeping as the 

changes made when we adopted the CBSA geographic designations for FY 2006, the February 

28, 2013 bulletin does contain a number of significant 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 required extensive review by CMS before using 

them for the SNF PPS wage index. Having completed our assessment, we are proposing changes 

to the SNF PPS wage index based on the newest OMB delineations, as described in OMB 

Bulletin No. 13-01, beginning in FY 2015, including a proposed one-year transition with a 

blended wage index for FY 2015. These proposed changes 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/Medicare-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 delineations, as well as the proposed transition 

wage index values that would be in effect in FY 2015 if these proposed changes are finalized. 

E. Adjusted Rate Computation Example 

 Using the hypothetical SNF XYZ described below, Table 8 shows the adjustments made 

to the federal per diem rates to compute the provider's actual per diem PPS payment. We derive 

the Labor and Non-labor columns from Table 6. The wage index used in this example is based 

on the proposed transition wage index, 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 Rapids, 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 $42,299.26 
 35 

*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 Aspects of the SNF PPS 

A. SNF Level of Care--Administrative Presumption 

The establishment of the SNF PPS did not change Medicare's fundamental requirements 

for SNF coverage. However, because the case-mix classification is based, in part, on the 

beneficiary’s need for skilled nursing care and therapy, we have attempted, where possible, to 

coordinate claims review procedures with the existing resident assessment process and case-mix 

classification system discussed in section III.C. of this proposed rule. This approach includes an 

administrative presumption that utilizes a beneficiary’s initial classification in one of the upper 

52 RUGs of the 66-group RUG-IV case-mix classification system 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 represent the required SNF level of 

care, as provided in §409.30. As set forth in the FY 2011 SNF PPS update notice (75 FR 

42910), this designation reflects an administrative presumption under the 66-group RUG-IV 

system that beneficiaries who are correctly assigned to one of the upper 52 RUG-IV groups on 

the initial 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 lower 14 RUG-IV groups is not automatically 

classified as either meeting or not meeting the definition, but instead receives an individual level 

of care determination using the existing administrative criteria. This presumption recognizes the 

strong likelihood that beneficiaries assigned to one of the upper 52 RUG-IV groups during the 
 36 

immediate post-hospital period require a covered level of care, which would be less likely for 

those beneficiaries assigned to one of the lower 14 RUG-IV groups. 

In the July 30, 1999 final rule (64 FR 41670), we indicated that we would announce any 

changes to the guidelines for Medicare level of care determinations related to modifications in 

the case-mix classification structure. In this proposed rule, we would continue to designate the 

upper 52 RUG-IV groups for purposes of this administrative presumption, consisting of all 

groups encompassed by the following RUG-IV categories: 

• Rehabilitation plus Extensive Services; 

• Ultra High Rehabilitation; 

• Very High Rehabilitation; 

• High Rehabilitation; 

• Medium Rehabilitation; 

• Low Rehabilitation; 

• Extensive Services; 

• Special Care High; 

• Special Care Low; and, 

• Clinically Complex. 

However, we note that this administrative presumption policy does not supersede the 

SNF’s responsibility to ensure that its decisions relating to level of care are appropriate and 

timely, including a review to confirm that the services prompting the beneficiary’s assignment to 

one of the upper 52 RUG-IV groups (which, in turn, serves to trigger the administrative 

presumption) are themselves medically necessary. As we explained in the FY 2000 SNF PPS 

final rule (64 FR 41667), the administrative presumption: 

“. . . is itself rebuttable in those individual cases in which the services actually received 
 37 

by the resident do not meet the basic statutory criterion of being reasonable and necessary 

to diagnose or treat a beneficiary's condition (according to section 1862(a)(1) of the Act). 

Accordingly, the presumption would not apply, for example, in those situations in which 

a resident's assignment to one of the upper . . . groups is itself based on the receipt of 

services that are subsequently determined to be not reasonable and necessary.” 

Moreover, we want to stress the importance of careful monitoring for changes in each patient’s 

condition to determine the continuing need for Part A SNF benefits after the assessment 

reference date of the 5-day assessment. 

B. Consolidated Billing 

Sections 1842(b)(6)(E) and 1862(a)(18) of the Act (as added 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 its residents receive during the course of a covered 

Part A stay. In addition, section 1862(a)(18) places the responsibility with the SNF for billing 

Medicare for physical therapy, occupational therapy, and speech-language pathology services 

that the resident receives during a noncovered stay. Section 1888(e)(2)(A) of the Act excludes a 

small list of services from the consolidated billing provision (primarily those services furnished 

by physicians and certain other types of practitioners), which remain separately billable under 

Part B when furnished to a SNF’s Part A resident. These excluded service categories are 

discussed in greater detail in section V.B.2. of the May 12, 1998 interim final rule (63 FR 26295 

through 26297). 

A detailed discussion of the legislative history of the consolidated billing provision is 

available on the SNF PPS website at http://www.cms.gov/Medicare/Medicare-Fee-for-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 section 1888(e)(2)(A) of the Act by further 

excluding a number of individual “high-cost, low probability” services, identified by Healthcare 

Common Procedure Coding System (HCPCS) codes, within several broader categories 

(chemotherapy items, chemotherapy administration services, radioisotope services, and 

customized prosthetic devices) that otherwise remained subject to the provision. We discuss this 

BBRA amendment in greater detail in the SNF PPS proposed and final rules for FY 2001 

(65 FR 19231 through 19232, April 10, 2000, and 65 FR 46790 through 46795, July 31, 2000), 

as well as in Program Memorandum AB-00-18 (Change Request #1070), issued March 2000, 

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

As explained in the FY 2001 proposed rule (65 FR 19232), the amendments enacted in 

section 103 of the BBRA not only identified for exclusion from this provision a number of 

particular service codes within four specified categories (that is, chemotherapy items, 

chemotherapy administration services, radioisotope services, and customized prosthetic devices), 

but also gave the Secretary “. . . the authority to designate additional, individual services for 

exclusion within each of the specified service categories.” In the proposed rule for FY 2001, we 

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

characterizes the individual services that this legislation targets for exclusion as “. . . high-cost, 

low probability events that could have devastating financial impacts because their costs far 

exceed the payment [SNFs] receive under the prospective 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 infrequently in SNFs . . . .” By contrast, we noted 

that the Congress declined to designate for exclusion any of the remaining services within those 

four categories (thus, leaving all of those services subject to SNF consolidated billing), because 

they are relatively inexpensive and are furnished routinely in SNFs. 
 39 

As we further explained in the final rule for FY 2001 (65 FR 46790), and as our 

longstanding policy, any additional service codes that we might designate for exclusion under 

our discretionary authority must meet the same statutory criteria used in identifying the original 

codes excluded from consolidated billing under section 103(a) of the BBRA: they must fall 

within one of the four service categories specified in the BBRA; and they also must meet the 

same standards of high cost and low probability in the SNF setting, as discussed in the BBRA 

Conference report. Accordingly, we characterized this statutory authority to identify additional 

service codes for exclusion “. . . as essentially affording the flexibility to revise the list of 

excluded codes in response to changes of major significance that may occur over time (for 

example, the development of new medical technologies or other advances in the state of medical 

practice)” (65 FR 46791). In this proposed rule, we specifically invite public comments 

identifying HCPCS codes in any of these four service categories (chemotherapy items, 

chemotherapy administration services, radioisotope services, and customized prosthetic devices) 

representing recent medical advances that might meet our criteria for exclusion from SNF 

consolidated billing. We may consider excluding a particular service if it meets our criteria for 

exclusion as specified above. Commenters should identify in their comments the specific 

HCPCS code that is associated with the service in question, as well as their rationale for 

requesting that the identified HCPCS code(s) be excluded. 

We note that the original BBRA amendment (as well as the implementing regulations) 

identified a set of excluded services by means of specifying HCPCS codes that were in effect as 

of a particular date (in that case, as of July 1, 1999). Identifying the excluded services in this 

manner made it possible for us to utilize program issuances as the vehicle for accomplishing 

routine updates of the excluded codes, to reflect any minor revisions that might subsequently 

occur in the coding system itself (for example, the assignment of a different code number to the 
 40 

same service). Accordingly, in the event that we identify through the current rulemaking cycle 

any new services that would actually represent a substantive change in the scope of the 

exclusions from SNF consolidated billing, we would identify these additional excluded services 

by means of the HCPCS codes that are in effect as of a specific date (in this case, as of 

October 1, 2014). By making any new exclusions in this manner, we could similarly accomplish 

routine future updates of these additional codes through the issuance of program instructions. 

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 hospitals (CAHs), Part A pays on a reasonable cost 

basis for SNF-level services furnished under a swing-bed agreement. However, in accordance 

with section 1888(e)(7) of the Act, 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 integrate swing-bed rural hospitals into the SNF PPS by the end of the 

transition period, June 30, 2002. 

Accordingly, all non-CAH swing-bed rural hospitals have now come under the SNF PPS. 

Therefore, all rates and wage indexes outlined in earlier sections of this proposed rule for the 

SNF PPS also apply to all non-CAH swing-bed rural hospitals. A complete discussion of 

assessment schedules, the MDS, and the transmission software (RAVEN-SB for Swing Beds) 

appears in the FY 2002 final rule (66 FR 39562) and in the FY 2010 final rule (74 FR 40288). 

As finalized in the FY 2010 SNF PPS final rule (74 FR 40356-57), effective October 1, 2010, 

non-CAH swing-bed rural hospitals are required to complete an MDS 3.0 swing-bed assessment 

which is limited to the required demographic, payment, and quality items. The latest changes in 
 41 

the MDS for swing-bed rural hospitals appear on the SNF PPS website at 

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/index.html. 

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 this proposed rule, we are proposing 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 basis of the labor market area in which the acute 

care hospital is located, but without taking into account geographic reclassifications under 

section 1886(d)(8) and (d)(10) of the Act, and without applying 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, beginning with FY 2006, we delineate labor market areas based on 

the Core-Based Statistical Areas (CBSAs) established by the Office of Management and Budget 

(OMB). The current statistical areas used in FY 2014 are based 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 of 
 42 

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 Statistical Areas, Micropolitan Statistical Areas, and 

Combined Statistical Areas, and provided guidance on the use of the delineations of these 

statistical areas. A copy of this bulletin may be obtained at 

http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. According to 

OMB, “[t]his bulletin provides the delineations of all Metropolitan Statistical Areas, 

Metropolitan Divisions, Micropolitan Statistical 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 Census Bureau 

data.” 

While the revisions OMB published on February 28, 2013 are not as sweeping as the 

changes made when we adopted the CBSA geographic designations for FY 2006, the February 

28, 2013 OMB bulletin does contain a number of significant changes. For example, there are 

new CBSAs, urban counties that have become rural, rural counties that have become urban, and 

existing CBSAs that have been split apart. However, because the bulletin was not issued until 

February 28, 2013, with supporting data not available 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 before 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 final 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 discussed below, in this proposed rule, we are 
 43 

proposing to implement the new OMB delineations as described in the February 28, 2013 OMB 

Bulletin No. 13-01, for SNF PPS wage index beginning in FY 2015. 

2. Proposed Implementation of New 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 statistical 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 shifts and labor market conditions. 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/AcuteInpatientPPS/Wage-Index-Reform.html), no consensus has been 

achieved regarding how best to implement a replacement system. As discussed in the FY 2005 

IPPS final rule (69 FR 49027), “While we recognize that MSAs are not designed specifically to 

define labor market areas, we believe they do represent a useful proxy for 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 impacts relating to the new OMB delineations, and 

have concluded that there is no compelling reason to further delay implementation. Because we 

believe that we have broad authority 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 located, we are proposing to implement the new OMB delineations 

as described in the February 28, 2013 OMB Bulletin No. 13-01, for the SNF PPS wage index 

effective beginning in FY 2015. As discussed further below, we are proposing to implement a 
 44 

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 finalize 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 proposed 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 cluster that has a population of at least 10,000, but 

less than 50,000” (75 FR 37252). We refer to these as Micropolitan Areas. After extensive 

impact analysis, consistent with the treatment of these areas under 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 Micropolitan Areas as “rural” and include them in the calculation of 

each state’s SNF PPS rural wage index (see 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 areas, and the statewide rural wage index is assigned to SNFs 

located in those areas. Because Micropolitan 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 areas, 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 Micropolitan Areas as independent labor markets 

would generally increase the potential for dramatic shifts in year-to-year wage index values 

because a single hospital (or group of hospitals) could have a disproportionate effect on the wage 

index of an area. Dramatic shifts in an area’s wage index from year to year are problematic and 
 45 

create instability in the payment levels from year to year, which could make fiscal planning for 

SNFs difficult if we adopted this approach. For 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 policy through the present. 

Based upon the new 2010 Decennial Census data, a number of urban counties have 

switched status and have joined or became Micropolitan Areas, and some counties that once 

were part of a Micropolitan Area, have become urban. Overall, there are fewer Micropolitan 

Areas (541) under the new OMB delineations based 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 areas continue to be defined 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 PPS 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 treatment of Micropolitan Areas 

under the IPPS, we are proposing to continue to treat Micropolitan Areas as “rural” and to 

include Micropolitan Areas in the calculation of the state’s rural wage index. 

b. Urban Counties Becoming Rural 

 As previously discussed, we are proposing to implement the new OMB statistical area 

delineations (based upon the 2010 decennial Census 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 would be considered located in a rural area, 
 46 

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

counties that would be rural 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 Cincinnati-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 Grand 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 Houston-Sugar Land-Baytown, TX 

Franklin County KS 28140 Kansas City, MO-KS 

Tipton County IN 29020 Kokomo, IN 

Nelson County KY 31140 Louisville/Jefferson County, KY-IN 

Geary County KS 31740 Manhattan, KS 

Washington County OH 37620 Parkersburg-Marietta-Vienna, WV-OH 

Pleasants County WV 37620 Parkersburg-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, AL 
 47 

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 all hospitals located in the counties listed above 

would now be considered rural when calculating their respective state’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 that would be considered rural, should this 

proposal be finalized, CMS would utilize the rural unadjusted per-diem rates, found in Table 3 

above, as the basis for determining this facility’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 equivalents) that are currently located in rural 

areas would be located in urban areas, if we finalize our proposal to implement the new OMB 

delineations. Table 10 below lists the 105 rural counties that would be urban 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, ND 
 48 

County State 

New 

CBSA Urban Area (Constituent Counties) 

Floyd County VI 13980 Blacksburg-Christiansburg-Radford, VA 

De Witt County IL 14010 Bloomington, IL 

Columbia County PA 14100 Bloomsburg-Berwick, PA 

Montour County PA 14100 Bloomsburg-Berwick, PA 

Allen County KY 14540 Bowling Green, KY 

Butler County KY 14540 Bowling Green, KY 

St. Mary’s County MD 15680 California-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 Charlotte-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-Fort Worth-Arlington, TX 

Somervell County TX 23104 Dallas-Fort Worth-Arlington, TX 

Baldwin County AL 19300 Daphne-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 Grand 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 Kahului-Wailuku-Lahaina, HI 
 49 

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 Minneapolis-St. Paul-Bloomington, MN-WI 

Mille Lacs County MN 33460 Minneapolis-St. Paul-Bloomington, MN-WI 

Sibley County MN 33460 Minneapolis-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 New 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 Shreveport-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 Staunton-Waynesboro, VA 

Staunton City VA 44420 Staunton-Waynesboro, VA 

Waynesboro City VA 44420 Staunton-Waynesboro, VA 

Little River County AR 45500 Texarkana, TX-AR 
 50 

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 Watertown-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 respective 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 per-diem rates, found in Table 2 

above, as the basis for determining this facility’s payment rates beginning on October 1, 2014 

d. Urban Counties Moving to a Different Urban CBSA 

 In addition to rural counties becoming urban and urban counties becoming rural, several 

urban counties would shift from one urban CBSA to another urban CBSA under our proposal to 

adopt the new OMB delineations. In other cases, 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), would experience both a 

change to its number and its name, and would become CBSA 29200 (Lafayette-West Lafayette, 

IN), while all of its three constituent counties would remain the same. We are not discussing 
 51 

these proposed changes in this section because they are inconsequential changes 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) currently is 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 37980) 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 County, PA Metropolitan Division of MSA 

37980), while Delaware and Philadelphia counties would remain in CBSA 37964. 

Finally, in some cases, a CBSA 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 (Charleston, WV) to CBSA 26580 (Huntington-Ashland, 

WV-KY-OH). CBSA 16620 would still exist in the new labor market delineations with fewer 

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

another urban CBSA if we adopt 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 IL 
 52 

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 PR 
 53 

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 these counties move from one CBSA to another under the new 

OMB delineations, there may be impacts, both negative 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 OMB delineations would result in wage index 

values being more representative of the actual costs of labor in a given 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 delineations. However, we also recognize that 

more providers (22 percent) would experience decreases in wage index values as a result of our 

proposed implementation of the new labor market area delineations. Therefore, we believe it 

would be appropriate to consider, as we did in FY 2006, whether or not a transition period 

should be used in order to implement these proposed changes to the wage index. 

 We considered having no transition period and fully implementing the proposed new 

OMB delineations beginning in FY 2015. This would 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 delineations. 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. Thus, 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 market 
 54 

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 period, we anticipate that 

providers would have similar concerns with not having a transition period for the proposed new 

OMB delineations. Therefore, as further discussed 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 adapting 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 transition 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 adversely-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 minimize the impact of the proposed wage index changes in a given 

year. However, we also believe this must be balanced against the need to ensure the most 

accurate payments possible, which argues for a faster transition to the revised OMB delineations. 

As discussed above in section V.A.2 of this proposed 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 geographic 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 wage 
 55 

index using 50 percent of their FY 2015 wage 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 the 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 with this proposal, as well as provides a readily 

understandable calculation for providers. 

Next, we considered whether or not the blended wage index should be used for all 

providers or for only a subset of providers, such as those providers that would experience a 

decrease in their respective wage index values due to implementation of the revised OMB 

delineations. If we were to apply the transition 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 providers that would experience either no change in wage index 

or an increase in wage index due to the revised OMB 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 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, which would result in reduced base rates 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, based 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 index values of 
 56 

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 index values either would remain the same or would increase), we believe that using a 

blended wage index 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 the new 

OMB delineations without reducing the base rates for all providers, 63 percent of which 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 SNF providers, including the 

15 percent of providers that would experience an increase in their wage index value due to the 

proposed implementation of the new OMB delineations, 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 providers 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 providers that would experience a decrease in their 

respective wage index values due to the proposed implementation of the new OMB delineations 

in an effort to preserve the full increase in wage index value for the 15 percent 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 revised to 0.9986. As such, this 

would mean a reduction in the base rate for all providers, most notably the 63 percent 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 experience wage index changes from year to year based on 
 57 

updating the wage data, full implementation of the proposed new OMB delineations would 

dramatically increase the magnitude 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 impact 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 one-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 market 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 achieve our objective of providing relief 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 provide a one-year blended wage index for all 

SNFs to assist providers in adapting to these proposed changes. We refer to this blended wage 
 58 

index as the FY 2015 SNF PPS transition 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 for 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 Table A available on the 

CMS website at http://cms.gov/Medicare/Medicare-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 delineations, as well as the proposed transition 

wage index values that would be in effect in FY 2015 if these 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 proposed updated labor-related share for FY 2015, 

compared to the labor-related share that was used for the 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 forecast1

Relative importance, 

labor-related, 

FY 2015 

14:1 forecast2

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 2.776 
 59 

Relative importance, 

labor-related, 

FY 2014 

13:2 forecast1

Relative importance, 

labor-related, 

FY 2015 

14:1 forecast2

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 proposed rule (78 FR 26466, May 6, 2013), CMS 

contracted with Acumen, LLC and the Brookings Institution 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 provided 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 determines 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 final rule (78 FR 47963, August 6, 2013), we discussed 

the comments we received on this project, all of which supported the overall goals and objective 

of the project, and a few highlighted the importance of maintaining contact with the stakeholder 

community. 

In this proposed rule, we are taking the opportunity to update the public on the current 

state of this project. In September 2013, we completed the first phase of the research project, 

which included a literature review, stakeholder outreach, supplementary analyses, and a 

comprehensive review of options for a viable alternative 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 report is available on the CMS website at 
 60 

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 model. In keeping with the public comments we 

received on this project previously, we also plan to engage the stakeholder community by 

convening a Technical Expert Panel during this second 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 stakeholder 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 process 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 Change of Therapy (COT) Other Medicare 

Required Assessment (OMRA), which is an assessment designed to capture changes in the 

therapy services provided to a given SNF resident during the past 7 days. As discussed in the FY 

2012 SNF PPS final rule, this assessment was implemented because we had found that in certain 

cases, “the therapy recorded on a given PPS assessment did not provide an accurate account of 
 61 

the therapy provided to a given resident outside the observation window used for the most recent 

assessment” (76 FR 48518). 

To address this situation, effective for services 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 (that is, the total reimbursable therapy minutes 

delivered or other therapy category qualifiers, such as the number of days the patient received 

therapy during the week or the number of therapy disciplines) changes to such a degree that it 

would no longer reflect the RUG-IV classification and payment assigned for a given SNF 

resident based on the most recent assessment used for Medicare payment (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 who are receiving a level of therapy sufficient for 

classification into a therapy RUG, but are classified into a nursing RUG because of index 

maximization. An evaluation of the necessity for a COT OMRA must be completed every 7 

calendar days starting from the day following the Assessment Reference Date (ARD) set for the 

most recent scheduled or unscheduled PPS assessment (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 final rule (76 FR 48523), 

the purpose of the COT OMRA is to track changes in a patient’s condition and in the provision 

of therapy services more accurately to ensure that the patient is placed in the appropriate RUG 

category, thereby improving the accuracy of reimbursement. 

As discussed above, the resident must be classified into a RUG-IV therapy category or 

into a nursing RUG because of index maximization (while receiving 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 assessment, we have learned that, in rare cases 
 62 

where a resident has been classified into a RUG-IV therapy category, therapy services provided 

to the resident during a COT observation period may not be sufficient to continue to qualify the 

resident for any therapy RUG, resulting in classification of the resident into a non-therapy RUG. 

During a subsequent week when the therapy services 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 therapy RUG because the resident is no longer in a 

therapy RUG or in a nursing RUG because of index 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 purpose of the COT OMRA. 

Accordingly, we propose to revise the existing COT OMRA policy to permit providers to 

complete a COT OMRA for a resident who is not currently classified into a RUG-IV therapy 

group, or receiving a level of therapy sufficient for classification into a RUG-IV therapy group as 

discussed above, but only in those rare cases where the resident had qualified for a RUG-IV 

therapy group on a prior assessment 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 patient 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 policy 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 skilled 
 63 

therapy services during their Medicare Part A stay (even though they may have been classified 

into a non-therapy RUG as discussed above). 

Consider, for example, if Mr. A. was classified 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. and finds that while Mr. A. did receive 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 to a non-therapy 

RUG group. Let us further assume that the facility continues to provide Mr. A. with skilled 

therapy and that, when looking back on Mr. A.’s services from Day 44 (7 days after the ARD of 

the COT OMRA), Mr. A. again qualifies for classification in the RUG group RUA. 

Under the existing COT OMRA policy, it would 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 new 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 these 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 into the RUG group RUA on his 30-day assessment with an ARD set 
 64 

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

to Mr. A. and finds that while Mr. A. did receive 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 situation where the resident’s therapy continued 

during the week following the COT OMRA, let us assume 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 classification 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 began 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 existing 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 occurred 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 group, the provider would 
 65 

need to either complete a Start of Therapy OMRA or wait until the next regularly scheduled 

assessment. 

We believe this proposal would address the concern of those providers who have 

experienced the rare occurrence of a COT OMRA classifying a resident 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 therapy services on a weekly basis. As with other 

similar policy changes, if this revision is finalized, then we intend to monitor the impact of this 

revision to ensure that is has the intended effect. 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 Affordable 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 residents of a facility that closes (voluntarily or involuntarily) or 

is decertified (including offsetting costs of relocating residents 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 training of facility staff and surveyors, technical 

assistance for facilities implementing quality assurance programs, the appointment of temporary 

management firms, and other activities approved by the Secretary). These changes were 
 66 

implemented in a final rule published on March 18, 2011 entitled “Medicare and Medicaid 

Programs; Civil Money Penalties for Nursing Homes.” At §488.433, we specify that these funds 

may not be used for survey and certification operations but must be used entirely for activities 

that protect or improve the quality of care for residents and that these activities must be approved 

by CMS. 

This proposed rule would clarify statutory requirements as specified in section 6111 of 

the Affordable Care Act regarding the approval and use of CMPs imposed by CMS. It is 

important to note that these clarifications not only apply to the Federal share of collected CMP 

funds granted for approved projects that benefit residents under §488.433, but they also apply to 

the portion of the CMPs collected by CMS that is disbursed to the states 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-only facilities as a result 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. The regulations at §488.433 specify 

that collected CMP funds must be used entirely for activities that protect or improve the quality 

of care for residents, and may not be used for survey and certification operations. 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 benefit residents as specified in statute and regulation. For example, information 

reported by the CMS Regional Offices for CY 2012 indicates that 24 states had not approved any 
 67 

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

and seek to maintain a core reserve in the event 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, maintained more than $15 million in FY 2012. While 

it is very prudent to maintain a reserve fund for emergencies, we believe that maintenance of 

large amounts of unused CMP funds is not desirable or consistent with ensuring that collected 

CMP funds be used to benefit nursing home residents. In addition, large amounts of unused 

CMP funds may create the appearance that CMPs are 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 used to support projects or activities that will 

benefit nursing home residents. Entities applying for approval of projects 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 enforcement regulations at §488.433 to clarify and 

strengthen these provisions to provide more specific 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 changes. This proposed rule would explicitly 

clarify the intended use and statutory requirements of collected 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 with managing projects utilizing CMP funds; (the 

rationale for this clarification is explained further in section VI.); (2) clarify CMS’s expectations 

that States must obtain prior approval for use of these CMP funds; (3) outline specific 
 68 

requirements that must be included in proposals 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 all 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 emergencies, such as relocation of residents in the event 

of involuntary termination from Medicare and Medicaid, and (7) specify that 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 that 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 residents 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 (78 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 new Medicare policy in 

this discussion of observed trends but merely highlighting 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 metrics including, in particular, the case-mix distribution for the 

RUG-IV therapy categories (Ultra-High Rehabilitation or RU, Very-High Rehabilitation or RV, 

High Rehabilitation or RH, Medium Rehabilitation or RM, and Low Rehabilitation or RL), for 
 69 

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 other therapy RUG categories either remained 

stable or declined. We have since updated this data set using data from FY 2013 and have 

posted a memo to the SNF PPS website (available at http://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/SNFPPS/Spotlight.html) which demonstrates that the percentage of 

billed service days in the RU RUG groups has increased to over 50 percent. These revised data 

in the aforementioned memo are presented in a slightly 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 highlight here and is discussed in the memo 

referenced above is that, most notably in the cases of RU and RV RUG groups, the amount of 

therapy reported on the MDS is just enough to surpass the relevant 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 threshold for RU RUG groups of 

720 minutes, has increased from 21 percent in FY 2011 to 33 percent in FY 2013. As stated 

above, this trend also holds for residents classified into a RV RUG group, where the largest 

percentage of service days were provided in the 500 to 520 minutes range, which just surpasses 

the therapy minute threshold for the RV RUG groups of 500 minutes. 

We invite comment on the data presented here and the discussion of observed trends. 

F. Accelerating Health Information Exchange in SNFs 

As we have stated in the past, we believe all patients, and others involved in the patient’s 
 70 

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

information in a standardized format that can be securely exchanged between the patient, 

providers, and others involved in the patient’s care. (HHS August 2013 Statement, “Principles 

and Strategies for Accelerating Health Information Exchange.”) The Department is committed 

to accelerating health information exchange (HIE) through the use of electronic health records 

(EHRs) and other types of health information technology (HIT) across the broader care 

continuum through a number of initiatives including: (1) alignment of incentives and payment 

adjustments to encourage provider adoption and optimization of HIT and HIE services through 

Medicare and Medicaid payment policies; (2) adoption of common standards and certification 

requirements for interoperable HIT; (3) support for privacy and security of patient information 

across all HIE-focused initiatives; and (4) governance of health information networks. These 

initiatives are designed to improve care delivery and coordination across the entire care 

continuum and encourage HIE among all health care providers, including professionals and 

hospitals eligible for the Medicare and Medicaid EHR Incentive Programs and those who are not 

eligible for the EHR Incentive Programs. To increase flexibility in ONC's HIT Certification 

Program and expand HIT certification, ONC has issued a proposed rule concerning a voluntary 

2015 Edition of EHR certification criteria which would more easily accommodate certification of 

HIT used in other types of health care settings where individual or institutional health care 

providers are not typically eligible for incentive payments under the Medicare and Medicaid 

EHR Incentive Programs, such as long-term and post-acute care and behavioral health settings. 

We believe that HIE and the use of certified EHRs by SNFs and other types of providers 

that are ineligible for the Medicare and Medicaid EHR Incentive Programs can effectively and 

efficiently help providers improve internal care delivery practices, support management of 

patient care across the continuum, and enable the reporting of electronically specified clinical 
 71 

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-implementers/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/Longitudinal+Coordination+of+Care. 

VI. Provisions of the Proposed Rule 

 As discussed in section III. of this proposed rule, this proposed rule would update the 

payment rates under the SNF PPS for FY 2015 as required by section 1888(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 urban 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 wage index based on the most current OMB 

delineations, including a one-year transition with 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 related to civil money penalties utilized by states 

(section V.D.). 

With reference to the civil money penalty provisions discussed in section V.D. of this 

proposed rule, we propose to modify current CMS regulations to provide further clarification to 

states and the public regarding prior approval and appropriate use of these federal-imposed civil 

money penalty funds. 

At §488.433, civil money penalties: uses and approval of civil money penalties imposed 
 72 

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 activities utilizing civil money penalty funds must be 

approved in advance by CMS, outline specific requirements 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 civil money penalties and making this information 

publicly available, specify that state plans must ensure that a core amount of civil money penalty 

funds will be held in reserve for emergencies, such as relocation of residents in the event of 

involuntary termination from Medicare and Medicaid , and specify steps CMS will take if civil 

money penalty funds are being used for disapproved 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 processes 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 disapproved 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 certification operations or state expenses, they may use a 

reasonable amount of civil money penalty funds for the actual administration of grant awards, 

including the tracking, monitoring, and evaluating of approved projects. 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 currently, and that an allowance for 

such management would remove a barrier to the effective use of these funds. We have not 

proposed a monetary or numeric limit on what might be considered reasonable, although one to 3 
 73 

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 concludes that it is infeasible to ensure timely 

payment for such a manager by the facility. We have encountered situations, 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 proceeding. In another situation involving involuntary 

termination from Medicare and impending closure of the facility, the facility was not making 

payments for staff or for its utilities, 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 the effective date of a facility’s termination or 

possibly longer (or shorter) if a facility has submitted a notification of closure under §483.75(r) 

in order to promote the orderly and safe relocation of residents, if the continued Medicare and 

Medicaid payments are being used to pay for facility operations during the relocation period but 

are being diverted elsewhere by the 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 Trust Fund and allows such emergency 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 requirements 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 must 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, monitor, and track approved projects funded by CMP amounts and 

make key information publicly available. Examples of information that must be publically 

available would include information on the projects that have been approved by CMS, the 

grantee and project recipients, the dollar amounts of projects approved, and the results of the 

projects. We also propose that these plans provide 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, and a reasonable aggregate amount of civil money 

penalty funds, beyond the emergency reserve amount, that the state expects to disburse each year 

for grants or contracts of projects 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 state 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 monetary 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 quality 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 information collection should be approved by 
 75 

OMB, section 3506(c)(2)(A) of the PRA requires 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 information collection burden on the affected 

public, including automated 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 certain policies related to the current rate 

setting methodology (such as the use of updated OMB 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 third-party disclosure requirements. Nor would 

they require the development, acquisition, installation, and utilization of any new or revised 

technology or information systems. Consequently, they do not require 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 disclosure requirements. Consequently, it does not 

require review under the authority of the Paperwork 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 certain activities are 

required to submit descriptions of the intended outcomes, deliverables, sustainability, and 

methods by which the results will be assessed, including specific measures. Prior to using these 

funds, the activities must be approved by CMS under existing regulations. The proposed 

language in this rule provides methods to ensure that these requirements are followed and to 

promote additional transparency. 

 The provision does not require 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 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, provide waivers of Office of Management 

and Budget review of information collection requirements for the purpose of implementing the 

nursing home reform amendments. The provisions of OBRA ’87 that exempt agency actions to 

collect information from states or facilities relevant to survey and enforcement activities from the 

Paperwork Reduction Act are not time-limited. 

4. ICRs Regarding Civil Money 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, monitor, and track projects utilizing civil money 

penalty funds; (2) make information about the use of civil money penalty funds publicly 

available, including key information about approved projects, the grantee 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 unplanned relocation of residents pursuant to an 

involuntary termination from Medicare 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 released to the states 

already specifies that all proposed activities using civil money penalty funds must be submitted 

to CMS for approval and must contain information on the expected final outcomes of the activity 

and how the results of the activity will be assessed, states must already have plans in place to 

monitor and track the outcomes of all approved activities using these funds. Consequently, the 

proposed provision would not require any substantive 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 requirements, they do not require 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 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 collection requirements for the purpose of implementing 

the nursing home reform amendments. The provisions of OBRA ’87 that exempt agency actions 
 78 

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 the ADDRESSES section of this proposed rule. 

 Comments must be received on/by [INSERT 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 subsequent 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 proposed rule as required by Executive Order 

12866 on Regulatory Planning and Review (September 30, 1993), Executive Order 13563 on 

Improving Regulation and Regulatory Review (January 18, 2011), the Regulatory Flexibility Act 

(RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the 

Unfunded Mandates Reform Act of 1995 (UMRA, March 22, 1995; Pub. L. 104-4), Executive 

Order 13132 on Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of 
 79 

available regulatory alternatives and, if regulation is necessary, to select regulatory approaches 

that maximize net benefits (including potential economic, environmental, public health and 

safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the 

importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and 

of promoting flexibility. This rule has been designated an economically significant rule, under 

section 3(f)(1) of Executive Order 12866. Accordingly, we have prepared a regulatory impact 

analysis (RIA) as further discussed below. Also, the rule has been reviewed by OMB. 

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 responds to section 1888(e)(4)(H) of the 

Act, which requires the Secretary to “provide for publication in the Federal Register” before the 

August 1 that precedes the start of each fiscal year, the unadjusted federal per diem rates, the 

case-mix classification system, and the factors to be applied in making the area wage adjustment. 

As these statutory provisions prescribe a detailed methodology for calculating and disseminating 

payment rates under the SNF PPS, we do not have the discretion to adopt an alternative 

approach. In addition, this proposed rule would clarify statutory requirements and intent as 

specified in section 6111 of the Affordable Care Act regarding the approval and use of civil 

money penalties imposed by CMS. 

3. Overall Impacts 

This proposed rule sets forth proposed 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 adjustment. The impact 

analysis of this proposed rule represents the projected effects of the changes in the SNF PPS 
 80 

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 susceptible to forecasting errors due to certain events 

that may occur within the assessed impact time period. Some examples of possible events may 

include newly-legislated general Medicare program funding changes by the Congress, or changes 

specifically related to SNFs. In addition, changes to the Medicare program may continue to be 

made as a result of previously-enacted legislation, or new statutory provisions. Although these 

changes may not be specific to the SNF PPS, the nature of the Medicare program is such that the 

changes may interact and, thus, the complexity of the interaction of these changes could make it 

difficult to predict accurately the full scope of the impact upon SNFs. 

In accordance with sections 1888(e)(4)(E) and 1888(e)(5) of the Act, we update the 

FY 2014 payment rates by a factor equal to the market basket index percentage change adjusted 

by the FY 2013 forecast error adjustment (if applicable) and the MFP adjustment to determine 

the payment rates for FY 2015. As discussed previously, for FY 2012 and each subsequent FY, 

as required by section 1888(e)(5)(B) of the Act as amended by section 3401(b) of the Affordable 

Care Act, the market basket percentage is reduced by the MFP adjustment. The special AIDS 

add-on established by section 511 of the MMA remains in effect until “. . . such date as the 

Secretary certifies that there is an appropriate adjustment in the case mix . . . .” We have not 

provided a separate impact analysis for the MMA provision. Our latest estimates indicate that 

there are fewer than 4,355 beneficiaries who qualify for the add-on payment for residents with 

AIDS. The impact to Medicare is included in the “total” column of Table 13. In updating the 

SNF PPS rates for FY 2015, we made a number of standard annual revisions and clarifications 
 81 

mentioned elsewhere in this proposed rule (for example, the update to the wage and market 

basket indexes used for adjusting the federal rates). 

The annual update set forth in this proposed rule applies to SNF PPS payments in FY 

2015. Accordingly, the analysis that follows only describes the impact of this single year. In 

accordance with the requirements of the Act, we will publish a notice or rule for each subsequent 

FY that will provide for an update to the SNF PPS payment rates and include an associated 

impact analysis. 

As discussed in Section V.D. of this proposed rule, we would also clarify statutory 

requirements and intent as specified in section 6111 of the Affordable Care Act regarding the 

approval and use of civil money penalties 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 penalties returned to the 

states was $28 million. In FY 2012, the approximate 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 and 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 Analysis 
 82 

 The FY 2015 impacts appear in Table 13. Using 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 payments. 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 example, 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 categories of data in the 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 estimated effects of the various changes on all 

facilities. The next six rows show the effects on facilities split by hospital-based, freestanding, 

urban, and rural categories. The urban and rural designations are based on the location of the 

facility under the new OMB delineations that we are proposing to implement 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 show the effects on facilities by ownership (that is, 

government, profit, and non-profit status). 

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

 The third column shows the effect of the annual update to the wage index. This 

represents the effect of using the most recent wage data available, without taking into account the 

proposed revised OMB delineations. That is, the impact 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 the 
 83 

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 index purposes for FY 2015, independent of the 

effect of using the most recent wage data available, captured in Column 3. That is, the impact 

represented in this column is that of the proposed use of the revised OMB delineations, 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 basket increase of 2.4 percentage points, reduced 

by the 0.4 percentage point MFP adjustment) is constant for all providers and, though not shown 

individually, is included in the total column. It is projected that aggregate payments will 

increase by 2.0 percent, assuming facilities do not change 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 would experience a 4.5 percent increase in FY 2015 total payments. 

TABLE 13: RUG-IV Projected Impact 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, resulting from the SNF market basket update to 
 85 

the payment rates, as adjusted by the MFP adjustment. 

Section 1888(e) of the Act establishes the SNF PPS for the payment of Medicare SNF 

services for cost reporting periods beginning on or after July 1, 1998. This section of the statute 

prescribes a detailed formula for calculating payment rates under the SNF PPS, and does not 

provide for the use of any alternative methodology. It specifies that the base year cost data to be 

used for computing the SNF PPS payment rates must be from FY 1995 (October 1, 1994, 

through September 30, 1995). In accordance with the statute, we also incorporated a number of 

elements into the SNF PPS (for example, case-mix classification methodology, a market basket 

index, a wage index, and the urban and rural distinction used in the development or adjustment 

of the federal rates). Further, section 1888(e)(4)(H) of the Act specifically requires us to 

disseminate the payment rates for each new FY through the Federal Register, and to do so 

before the August 1 that precedes the start of the new FY. Accordingly, we are not pursuing 

alternatives with respect to the payment methodology as discussed above. 

With regard to the proposal discussed in section V.A of this rule related to our proposed 

adoption of the revised OMB delineations for purposes of calculating the wage index, we believe 

implementing the new OMB delineations would result in wage index values being more 

representative of the actual costs of labor in a given 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 delineations. However, we also recognize that more providers (22 percent) 

would experience decreases in wage index values as a result of our proposed implementation of 

the new labor market area delineations. Therefore, we believe it would be appropriate to 

consider, as we did in FY 2006, whether or not a transition period should be used in order to 

implement these proposed changes to the wage index. 

We considered having no transition period and fully implementing the proposed new 
 86 

OMB delineations beginning in FY 2015. This would 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 delineations. 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. Thus, we believe that it would 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 period, we anticipate that providers would have 

similar concerns with not having a transition period for the proposed new OMB delineations. 

Therefore, as further discussed 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 adapting 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 transition 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 adversely-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 minimize the impact of the proposed wage index changes in a given 

year. However, we also believe this must be balanced against the need to ensure the most 

accurate payments possible, which argues for a faster transition to the revised OMB delineations. 

As discussed above in section V.A.2 of this proposed rule, we believe that using the most current 
 87 

OMB delineations would increase the integrity of the SNF PPS wage index by creating a more 

accurate representation of geographic 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 wage 

index using 50 percent of their FY 2015 wage 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 the 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 with this proposal, as well as provides a readily 

understandable calculation for providers. 

Next, we considered whether or not the blended wage index should be used for all 

providers or for only a subset of providers, such as those providers that would experience a 

decrease in their respective wage index values due to implementation of the revised OMB 

delineations. If we were to apply the transition 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 providers that would experience either no change in wage index 

or an increase in wage due to the revised OMB 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 transition policy only to those providers that would 

experience a decrease in their respective wage index values due to implementation of the revised 
 88 

OMB delineations, the budget neutrality factor, discussed in section III.D, calculated based on 

this this approach would be 0.9986, which would result in reduced base rates 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, based 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 index 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 index values either would 

remain the same or increase), we believe that using a blended wage index 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 the new OMB delineations without reducing the 

base rates for all providers, 63 percent of which 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 SNF providers, including the 15 percent of providers that would 

experience an increase in their wage index value due to the proposed implementation of the new 

OMB delineations, 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 providers 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 providers that would experience a decrease in their respective wage index values due 

to the proposed implementation of the new OMB delineations in an effort to preserve the full 

increase in wage index value for the 15 percent 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 
 89 

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 percent 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 experience 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 magnitude 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 impact 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 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 blended 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 transition approach appropriately balances the interests of all SNFs, 

and would best achieve our objective of providing relief to the largest percentage of adversely 

affected SNFs with the least impact to the rest of the facilities. 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 from 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 showing the classification of the expenditures 

associated with the provisions of this proposed rule. Table 14 provides our best estimate of the 

possible changes in Medicare payments under the SNF PPS as a result of the policies in this 

proposed rule, based on the data for 15,397 SNFs in our database. All expenditures are classified 

as transfers to Medicare providers (that is, SNFs). 

TABLE 14: Accounting Statement: Classification 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 Government to SNF Medicare Providers 

* The net increase of $750 million in transfer payments is a result of the MFP-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 projected 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 percent increase, respectively, in 

estimated payments compared with FY 2014. Providers in the rural Pacific region would 

experience the largest estimated increase in payments of approximately 4.5 percent. Providers in 

the urban East South Central region would experience 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 a 
 91 

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

small entities include small businesses, non profit organizations, and small governmental 

jurisdictions. Most SNFs and most other providers and suppliers are small entities, either by 

their non-profit status or by having revenues of $25.5 million or less in any 1 year. We utilized 

the revenues of individual SNF providers (from recent Medicare Cost Reports) to classify a small 

business, and not the revenue of a larger firm they may be affiliated with. As a result, we 

estimate approximately 91 percent of SNFs are considered small businesses according to the 

Small Business Administration's latest size standards (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/contracting/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 adjustment. 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 experience different impacts 

on payments than others due to the distributional impact of the FY 2015 wage indexes and the 

degree of Medicare utilization. 

Guidance issued by the Department of Health and Human Services on the proper 

assessment of the impact on small entities in rulemakings, utilizes a cost or revenue impact of 3 

to 5 percent as a significance threshold under the RFA. According to MedPAC, Medicare covers 
 92 

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 variable. That is, the majority of SNFs have 

significantly lower Medicare utilization (Report to the Congress: 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 stream, the overall impact 

on total revenues should be substantially 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 industry as a whole, and thus on small entities 

specifically, is less than the 3 to 5 percent threshold discussed above, the Secretary has 

determined that this proposed rule would not have a significant impact on a substantial number 

of small entities. 

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis 

if a rule may have a significant impact on the operations of a substantial number of small rural 

hospitals. This analysis must conform to the provisions of section 603 of the RFA. For purposes 

of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside 

of a Metropolitan Statistical Area and has fewer than 100 beds. This proposed rule would affect 

small rural hospitals that (1) furnish SNF services under a swing-bed agreement or (2) have a 

hospital-based SNF. We anticipate that the impact on small rural hospitals would be similar to 

the impact on SNF providers overall. Moreover, as noted in previous SNF PPS final rules (most 

recently the one for FY 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 of 
 93 

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 determined that this proposed rule would not have a 

significant impact on a substantial number of small rural 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 dollars, 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 requirements that an agency must meet when it 

promulgates a proposed rule (and subsequent final rule) that impose substantial direct 

requirement costs on state and local governments, preempts state law, or otherwise has 

federalism implications. This proposed rule would have no substantial direct effect on state and 

local governments, preempt state law, or otherwise have federalism implications. 
 94 

List of Subjects in 42 CFR Part 488 

Administrative practice and procedure, Health facilities, Medicare, Reporting and 

recordkeeping requirements. 
 95 

For the reasons set forth in the preamble, the Centers for Medicare & Medicaid Services 

proposes to amend 42 CFR chapter IV as set forth below: 

PART 488—Survey, Certification and Enforcement Procedures 

1. The authority citation for part 488 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 approval 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 after a final administrative decision will be 

deposited with the Department of the Treasury in accordance with §488.442(f). The remaining 

ninety percent of the collected civil money penalty funds that are required to be held in escrow 

pursuant to §488.431 and that remain after a final administrative decision must be used entirely 

for activities that protect or improve the quality of care or quality of life for residents consistent 

with paragraph (b) of this section and may not be used for survey and certification operations or 

State expenses, except that reasonable expenses necessary to administer, monitor, or evaluate the 

effectiveness of projects utilizing civil money penalty funds may be permitted. 

 (b) All activities and plans for utilizing civil money penalty 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 closes (voluntarily or 

involuntarily). 
 96 

 (2) Time-limited expenses incurred in the process of relocating residents to home and 

community-based settings or another facility when a facility is closed (voluntarily or 

involuntarily) or downsized pursuant to an agreement with the State Medicaid agency. 

 (3) Projects that support resident and family councils and other 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 implementing quality assurance and performance 

improvement programs. 

 (5) Development and maintenance of temporary management or receivership capability 

such as but not limited to, recruitment, training, retention or other system 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 under §489.55 of this chapter during the temporary manager’s duty 

period, and CMS determines that extraordinary action is necessary to protect 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 outcomes, 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 methods by which the State will: 
 97 

 (1) Solicit, accept, monitor, and track projects utilizing civil money penalty funds 

including any funds used for state administration. 

 (2) Make information about the use of civil money penalty funds publicly available, 

including about the dollar amount awarded for approved projects, the grantee or contract 

recipients, the results of projects, and other key information. 

 (3) Ensure that: 

 (i) A core amount of civil money penalty funds will be held in reserve for emergencies, 

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

Medicaid. 

 (ii) A reasonable amount of funds, beyond those held in reserve under paragraph (i) of 

this section, will be awarded or contracted each year for the purposes specified in this section. 

 (f) If CMS finds that a State has not spent civil money penalty funds 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]