```

[Federal Register Volume 79, Number 150 (Tuesday, August 5, 2014)]
[Rules and Regulations]
[Pages 45627-45659]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18335]

[[Page 45627]]

Vol. 79

Tuesday,

No. 150

August 5, 2014

Part III

Department of Health and Human Services

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Center for Medicare & Medicaid Services

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42 CFR Part 488

Medicare Program; Prospective Payment System and Consolidated Billing 
for Skilled Nursing Facilities for FY 2015; Final Rule

Federal Register / Vol. 79 , No. 150 / Tuesday, August 5, 2014 / 
Rules and Regulations

[[Page 45628]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 488

[CMS-1605-F]
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: Final rule.

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SUMMARY: This final rule updates the payment rates used under the 
prospective payment system (PPS) for skilled nursing facilities (SNFs) 
for fiscal year (FY) 2015. In addition, it adopts 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 will apply to the facility, and to 
determine the SNF PPS wage index including a 1-year transition with a 
blended wage index for all providers for FY 2015. This final rule also 
contains a revision to policies related to the Change of Therapy (COT) 
Other Medicare Required Assessment (OMRA). This final rule includes a 
discussion of a provision related to the Affordable Care Act involving 
Civil Money Penalties. Finally, this final rule discusses the SNF 
therapy payment research currently underway within CMS, observed trends 
related to therapy utilization among SNF providers, and the agency's 
commitment to accelerating health information exchange in SNFs.

DATES: Effective Date: This final rule is effective on October 1, 2014.

FOR FURTHER INFORMATION CONTACT:
    Penny Gershman, (410) 786-6643, for information related to clinical 
issues.
    John Kane, (410) 786-0557, for information related to the 
development of the payment rates and case-mix indexes.
    Kia Sidbury, (410) 786-7816, for information related to the wage 
index.
    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:

Availability of Certain Tables Exclusively Through the Internet on the 
CMS Web Site

    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 will be 
available exclusively through the Internet. The wage index tables for 
this final rule are available exclusively through the Internet on the 
CMS Web site 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 Web site 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 Impacts
II. Background
    A. Statutory Basis and Scope
    B. Initial Transition
    C. Required Annual Rate Updates
III. Summary of the Provisions of the FY 2015 SNF PPS Proposed Rule
IV. Analysis of and Responses to Public Comments on the FY 2015 SNF 
PPS Proposed Rule
    A. General Comments on the FY 2015 SNF PPS Proposed Rule
    B. SNF PPS Rate Setting Methodology and FY 2015 Update
    1. Federal Base Rates
    2. SNF Market Basket Update
    a. SNF Market Basket Index
    b. Use of the SNF Market Basket Percentage
    c. Forecast Error Adjustment
    d. Multifactor Productivity Adjustment
    i. Incorporating the Multifactor Productivity Adjustment Into 
the Market Basket Update
    e. Market Basket Update Factor for FY 2015
    3. Case-Mix Adjustment
    4. Wage Index Adjustment
    5. Adjusted Rate Computation Example
    C. Additional Aspects of the SNF PPS
    1. SNF Level of Care--Administrative Presumption
    2. Consolidated Billing
    3. Payment for SNF-Level Swing-Bed Services
    D. Other Issues
    1. Changes to the SNF PPS Wage Index
    a. Labor-Related Share
    2. SNF Therapy Research Project
    3. Revisions to Policies Related to the Change of Therapy (COT) 
Other Medicare Required Assessment (OMRA)
    4. Civil Money Penalties (section 6111 of the Affordable Care 
Act)
    5. Observations on Therapy Utilization Trends
    6. Accelerating Health Information Exchange in the SNF PPS
    7. SNF Value Based Purchasing
V. Provisions of the Final Rule; Regulations Text
VI. Collection of Information Requirements
VII. Economic Analyses
Regulations Text

Acronyms

    In addition, because of the many terms to which we refer by acronym 
in this final 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, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999, Public Law 106-113
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000, Public Law 106-554
CAH Critical access hospital
CBSA Core-based statistical area
CFR Code of Federal Regulations
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
COT Change of therapy
EHR Electronic health record
EOT End of therapy
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
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, Public Law 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
PAMA Protecting Access to Medicare Act of 2014, Public Law 113-93
PPS Prospective Payment System
RAI Resident assessment instrument
RAVEN Resident assessment validation entry

[[Page 45629]]

RFA Regulatory Flexibility Act, Public Law 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, Public Law 104-4

I. Executive Summary

A. Purpose

    This final rule updates 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, 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 rates in this final rule 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 Impacts

----------------------------------------------------------------------------------------------------------------
                        Provision description                                       Total transfers
----------------------------------------------------------------------------------------------------------------
FY 2015 SNF PPS payment rate update.................................  The overall economic impact of this final
                                                                       rule is 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 http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/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 Public Law 111-148 and certain sections of the Social 
Security Act and, in certain instances, included ``freestanding'' 
provisions. In this final rule, Public Law 111-148 and Public Law 111-
152 are collectively referred to as the ``Affordable Care Act.'' In 
section IV.D.4 of this final rule, we discuss one specific provision 
related to the Affordable Care Act involving Civil Money Penalties.

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 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 
final rule provides the required annual updates to the per diem payment 
rates for SNFs for FY 2015.

III. Summary of the Provisions of the FY 2015 SNF PPS Proposed Rule

    In the FY 2014 SNF PPS proposed rule (79 FR 25767), we proposed an 
update to the payment rates used under the PPS for SNFs for FY 2015. In 
addition, we proposed to adopt the most recent 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 
1-year transition with a blended wage index for all providers for FY 
2015. It also included a discussion of the SNF therapy payment research 
currently underway within CMS. The proposed rule also proposed a 
revision to policies

[[Page 45630]]

related to the COT OMRA. The proposed rule included a discussion of a 
provision related to the Affordable Care Act involving Civil Money 
Penalties. Finally, the proposed rule included a discussion of observed 
trends related to therapy utilization among SNF providers and a 
discussion of accelerating health information exchange in SNFs.

IV. Analysis of and Responses to Public Comments on the FY 2015 SNF PPS 
Proposed Rule

    In response to the publication of the FY 2015 SNF PPS proposed 
rule, we received 26 timely public comments from individuals, 
providers, corporations, government agencies, private citizens, trade 
associations, and major organizations. The following are brief 
summaries of each proposed provision, a summary of the public comments 
that we received related to that proposal, and our responses to the 
comments.

A. General Comments on the FY 2015 SNF PPS Proposed Rule

    In addition to the comments we received on the proposed rule's 
discussion of specific aspects of the SNF PPS (which we address later 
in this final rule), commenters also submitted the following, more 
general observations on the payment system. A discussion of these 
comments, along with our responses, appears below.
    Comment: We received a few comments about the operational aspects 
of updating the subregulatory guidance contained in the MDS RAI manual, 
including the frequency of updates and process for announcing 
revisions. These commenters stated that CMS has made major revisions to 
the RAI manual with little or no notice to providers and without 
meaningful consultation with stakeholders. These commenters further 
stated that CMS should utilize a more formal process for announcing 
revisions and reinterpretations of the RAI manual.
    Response: We appreciate the commenters' suggestions and we 
recognize that the MDS 3.0 is a complex assessment tool. We have 
provided education, clarification and training associated with the MDS 
3.0, as well as discussion of potential revisions and updates to the 
RAI manual, at national training conferences, and postings to the MDS 
3.0 and SNF PPS Web site. We also provide support to and consult with 
stakeholders through oral and written inquiries and, most notably, 
through our regular and special Open Door Forums. We are committed to 
continuing training on the MDS 3.0 and to ensuring that the update 
process is predictable for providers and gives providers sufficient 
notice of and time to discuss, incorporate and train on any revisions 
to the manual which may occur. We will take the commenters' suggestions 
into consideration for future operational enhancements.
    Comment: Several commenters raised concerns regarding the 
compensation for Non-Therapy Ancillaries (NTAs), specifically for 
hospital-based SNFs within the SNF PPS. These commenters urged CMS to 
expedite the research necessary to develop a new model for NTA payment 
and to implement such a model shortly thereafter.
    Response: We appreciate the comments on this topic and the broad 
support for our research efforts on the development of a new NTA 
payment model. Furthermore, the comments we received provided a number 
of interesting and creative ideas for future consideration. We look 
forward to working with providers and stakeholders in the future as we 
continue to research possible refinements to address concerns with the 
SNF PPS, such as the SNF therapy research work discussed in section 
IV.D.2 of this final rule.
    Comment: One commenter recommended that we address the need for CMS 
to broaden the categories of healthcare professionals who may order 
patient diets. The commenter stated that such a change will improve 
patient health and allows SNFs to respond more quickly to resident 
nutritional needs.
    Response: We appreciate this comment, but note that the specific 
issues the commenter raised about who, within a SNF, may prescribe 
resident diets relate to the certification standards for long-term care 
facilities, and therefore, are beyond the scope of this final rule. We 
have, however, shared this comment with CMS's survey and certification 
staff so that they can consider these suggestions as part of their 
ongoing review and refinement of our policies.
    Comment: One commenter supported CMS's proposal to include several 
new outcomes measures as part of the FY 2017 Hospital Value-Based 
Purchasing program.
    Response: We appreciate this comment, but note that this comment 
does not relate to the SNF PPS and involves a program that does not 
apply to SNFs. We have, however, shared this comment with CMS staff who 
work more closely with the Hospital Value-Based Purchasing program to 
consider as part of their ongoing review and refinement of their 
proposed policies.

B. SNF PPS Rate Setting Methodology and FY 2015 Update

    In the FY 2015 SNF PPS proposed rule (79 FR 25770 through 25779), 
we outlined the basic methodology used to set the rates for the SNF 
PPS. We also discussed a proposal associated with our rate setting 
methodology, specifically 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. Our discussion of the 
rate setting methodology, our proposed changes associated with this 
methodology, and the comments, along with our responses, on these 
proposals appear below.
1. 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 
hospital-based 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 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

[[Page 45631]]

costs by a wage index to reflect geographic variations in wages.
2. SNF Market Basket Update
a. 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 final rule, the FY 2010-based SNF market basket 
growth rate is estimated to be 2.5 percent, which is based on the IHS 
Global Insight, Inc. (IGI) second quarter 2014 forecast with historical 
data through first quarter 2014. In section IV.B.2.e. of this final 
rule, we discuss the specific application of this adjustment to the 
forthcoming annual update of the SNF PPS payment rates.
b. 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 final 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 second quarter 2014 forecast (with 
historical data through the first quarter 2014) 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 final rule. As discussed in sections 
IV.B.2.c. and IV.B.2.d. of this final rule, this market basket 
percentage change would be reduced by the forecast error correction (as 
described in Sec.  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 final rule, we no 
longer compute update factors to adjust a facility-specific portion of 
the SNF PPS rates, because the initial three-phase transition period 
from facility-specific to full federal rates that started with cost 
reporting periods beginning in July 1998 has expired.
c. Forecast Error Adjustment
    As discussed in the June 10, 2003 supplemental proposed rule (68 FR 
34768) and finalized in the August 4, 2003, final rule (68 FR 46057 
through 46059), the regulations at Sec.  413.337(d)(2) provide for an 
adjustment to account for market basket forecast error. The initial 
adjustment 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 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
----------------------------------------------------------------------------------------------------------------
                                                           Forecasted FY      Actual FY 2013        FY 2013
                         Index                            2013 increase *      increase **         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 second quarter 2014 IHS Global Insight forecast, with historical data through the first quarter
  2014 (2004-based index).

d. 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 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).

[[Page 45632]]

i. 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 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 0.5 percent. Consistent with section 
1888(e)(5)(B)(i) of the Act and Sec.  413.337(d)(2) of the regulations, 
the market basket percentage for FY 2015 for the SNF PPS is based on 
IGI's second quarter 2014 forecast of the SNF market basket update, and 
is estimated to be 2.5 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 Sec.  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 
0.5 percentage point, which is calculated as described above and based 
on IGI's second quarter 2014 forecast. The resulting MFP-adjusted SNF 
market basket update is equal to 2.0 percent, or 2.5 percent less 0.5 
percentage point.
e. 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 2.5 percent. As further explained in section IV.B.2.c. of this final 
rule, as 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. For FY 2013 (the most 
recently available FY for which there is final data), the difference 
between the forecasted SNF market basket percentage change and the 
actual SNF market basket percentage change does not exceed 0.5 
percentage point, so the FY 2015 market basket of 2.5 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 0.5 
percentage point, as described in section IV.B.2.d. of this final rule. 
The resulting MFP-adjusted SNF market basket update is equal to 2.0 
percent, or 2.5 percent less 0.5 percentage point. 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 case-mix.
    We proposed in the FY 2015 SNF PPS proposed rule (79 FR 25772) that 
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, 
beginning on October 1, 2014 we would use the revised OMB statistical 
area delineations discussed in section IV.D.1 of this final rule to 
identify a facility's urban or rural status for the purpose of 
determining which set of rate tables would apply to a facility. As 
noted in that discussion, 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 
allows us to determine more accurately 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 did not receive any comments 
on this proposal. Therefore, for the reasons discussed above, we are 
finalizing our proposal to use the revised OMB delineations discussed 
in section IV.D.1 of this final rule to identify a facility's urban or 
rural status for the purpose of determining which set of rate tables 
will apply to a facility beginning on October 1, 2014.

                             Table 2--FY 2015 Unadjusted Federal Rate per Diem Urban
----------------------------------------------------------------------------------------------------------------
                                               Nursing--case-   Therapy--case-   Therapy--non-
               Rate component                       mix              mix            case-mix       Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount.............................         $169.28          $127.51           $16.79           $86.39
----------------------------------------------------------------------------------------------------------------

                             Table 3--FY 2015 Unadjusted Federal Rate per Diem Rural
----------------------------------------------------------------------------------------------------------------
                                               Nursing--case-   Therapy--case-   Therapy--non-
               Rate component                       mix              mix            case-mix       Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount.............................         $161.72          $147.02           $17.94           $87.99
----------------------------------------------------------------------------------------------------------------

[[Page 45633]]

3. 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 
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 case-mix 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.C.1. 
of this final 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 assessment is completed. For payment and 
quality monitoring purposes, the RAI Manual consists of both the Manual 
instructions and the interpretive guidance and policy clarifications 
posted on the appropriate MDS Web site at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-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 add-on 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 
$423.12 (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 $964.71.
    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. 113-93) was enacted. Section 212 of PAMA, titled 
``Delay in Transition from ICD-9 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.'' In 
light of PAMA, in the FY 2015 SNF PPS proposed rule, we stated that the 
effective date of the change from ICD-9-CM code 042 to ICD-10-CM code 
B20 for purposes of applying the AIDS add-on would be the date when 
ICD-10-CM becomes the required medical data code set for use on 
Medicare SNF claims and that, until that time, we would continue to use 
ICD-9-CM code 042 for this purpose. On May 1, 2014, the Department 
announced that, in light of section 212 of PAMA, ``the U.S. Department 
of Health and Human Services expects to release an interim final rule 
in the near future that will include a new compliance date that would 
require the use of ICD-10 beginning October 1, 2015. The rule will also 
require HIPAA covered entities to continue to use ICD-9-CM through 
September 30, 2015.'' The Department has not yet published the interim 
final rule, however, we are proceeding in accordance with the 
announcement. Therefore, the effective date of the change from ICD-9-CM 
code 042 to ICD-10-CM code B20 for purposes of applying the AIDS add-on 
is October 1, 2015. Until that time, we will continue to use ICD-9-CM 
code 042 for this purpose.

[[Page 45634]]

    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 final rule reflect the 
use of the RUG-IV case-mix classification system from October 1, 2014, 
through September 30, 2015. We list the case-mix adjusted RUG-IV 
payment rates, provided separately for urban and rural SNFs, in Tables 
4 and 5 with corresponding case-mix values. As discussed above, we will 
use the revised OMB delineations in order to identify a facility's 
urban or rural status for the purpose of determining which set of rate 
tables will apply to the facility 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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Nursing         Therapy      Non-case mix    Non-case mix
             RUG-IV category               Nursing index   Therapy index     component       component     therapy comp      component      Total rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUX.....................................            2.67            1.87         $451.98         $238.44  ..............          $86.39         $776.81
RUL.....................................            2.57            1.87          435.05          238.44  ..............           86.39          759.88
RVX.....................................            2.61            1.28          441.82          163.21  ..............           86.39          691.42
RVL.....................................            2.19            1.28          370.72          163.21  ..............           86.39          620.32
RHX.....................................            2.55            0.85          431.66          108.38  ..............           86.39          626.43
RHL.....................................            2.15            0.85          363.95          108.38  ..............           86.39          558.72
RMX.....................................            2.47            0.55          418.12           70.13  ..............           86.39          574.64
RML.....................................            2.19            0.55          370.72           70.13  ..............           86.39          527.24
RLX.....................................            2.26            0.28          382.57           35.70  ..............           86.39          504.66
RUC.....................................            1.56            1.87          264.08          238.44  ..............           86.39          588.91
RUB.....................................            1.56            1.87          264.08          238.44  ..............           86.39          588.91
RUA.....................................            0.99            1.87          167.59          238.44  ..............           86.39          492.42
RVC.....................................            1.51            1.28          255.61          163.21  ..............           86.39          505.21
RVB.....................................            1.11            1.28          187.90          163.21  ..............           86.39          437.50
RVA.....................................            1.10            1.28          186.21          163.21  ..............           86.39          435.81
RHC.....................................            1.45            0.85          245.46          108.38  ..............           86.39          440.23
RHB.....................................            1.19            0.85          201.44          108.38  ..............           86.39          396.21
RHA.....................................            0.91            0.85          154.04          108.38  ..............           86.39          348.81
RMC.....................................            1.36            0.55          230.22           70.13  ..............           86.39          386.74
RMB.....................................            1.22            0.55          206.52           70.13  ..............           86.39          363.04
RMA.....................................            0.84            0.55          142.20           70.13  ..............           86.39          298.72
RLB.....................................            1.50            0.28          253.92           35.70  ..............           86.39          376.01
RLA.....................................            0.71            0.28          120.19           35.70  ..............           86.39          242.28
ES3.....................................            3.58  ..............          606.02  ..............          $16.79           86.39          709.20
ES2.....................................            2.67  ..............          451.98  ..............           16.79           86.39          555.16
ES1.....................................            2.32  ..............          392.73  ..............           16.79           86.39          495.91
HE2.....................................            2.22  ..............          375.80  ..............           16.79           86.39          478.98
HE1.....................................            1.74  ..............          294.55  ..............           16.79           86.39          397.73
HD2.....................................            2.04  ..............          345.33  ..............           16.79           86.39          448.51
HD1.....................................            1.60  ..............          270.85  ..............           16.79           86.39          374.03
HC2.....................................            1.89  ..............          319.94  ..............           16.79           86.39          423.12
HC1.....................................            1.48  ..............          250.53  ..............           16.79           86.39          353.71
HB2.....................................            1.86  ..............          314.86  ..............           16.79           86.39          418.04
HB1.....................................            1.46  ..............          247.15  ..............           16.79           86.39          350.33
LE2.....................................            1.96  ..............          331.79  ..............           16.79           86.39          434.97
LE1.....................................            1.54  ..............          260.69  ..............           16.79           86.39          363.87
LD2.....................................            1.86  ..............          314.86  ..............           16.79           86.39          418.04
LD1.....................................            1.46  ..............          247.15  ..............           16.79           86.39          350.33
LC2.....................................            1.56  ..............          264.08  ..............           16.79           86.39          367.26
LC1.....................................            1.22  ..............          206.52  ..............           16.79           86.39          309.70
LB2.....................................            1.45  ..............          245.46  ..............           16.79           86.39          348.64
LB1.....................................            1.14  ..............          192.98  ..............           16.79           86.39          296.16
CE2.....................................            1.68  ..............          284.39  ..............           16.79           86.39          387.57
CE1.....................................            1.50  ..............          253.92  ..............           16.79           86.39          357.10
CD2.....................................            1.56  ..............          264.08  ..............           16.79           86.39          367.26
CD1.....................................            1.38  ..............          233.61  ..............           16.79           86.39          336.79
CC2.....................................            1.29  ..............          218.37  ..............           16.79           86.39          321.55
CC1.....................................            1.15  ..............          194.67  ..............           16.79           86.39          297.85
CB2.....................................            1.15  ..............          194.67  ..............           16.79           86.39          297.85
CB1.....................................            1.02  ..............          172.67  ..............           16.79           86.39          275.85
CA2.....................................            0.88  ..............          148.97  ..............           16.79           86.39          252.15
CA1.....................................            0.78  ..............          132.04  ..............           16.79           86.39          235.22
BB2.....................................            0.97  ..............          164.20  ..............           16.79           86.39          267.38
BB1.....................................            0.90  ..............          152.35  ..............           16.79           86.39          255.53
BA2.....................................            0.70  ..............          118.50  ..............           16.79           86.39          221.68
BA1.....................................            0.64  ..............          108.34  ..............           16.79           86.39          211.52
PE2.....................................            1.50  ..............          253.92  ..............           16.79           86.39          357.10
PE1.....................................            1.40  ..............          236.99  ..............           16.79           86.39          340.17
PD2.....................................            1.38  ..............          233.61  ..............           16.79           86.39          336.79
PD1.....................................            1.28  ..............          216.68  ..............           16.79           86.39          319.86
PC2.....................................            1.10  ..............          186.21  ..............           16.79           86.39          289.39

[[Page 45635]]

 
PC1.....................................            1.02  ..............          172.67  ..............           16.79           86.39          275.85
PB2.....................................            0.84  ..............          142.20  ..............           16.79           86.39          245.38
PB1.....................................            0.78  ..............          132.04  ..............           16.79           86.39          235.22
PA2.....................................            0.59  ..............           99.88  ..............           16.79           86.39          203.06
PA1.....................................            0.54  ..............           91.41  ..............           16.79           86.39          194.59
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                      Table 5--RUG-IV Case-Mix Adjusted Federal Rates and Associated Indexes Rural
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Nursing         Therapy      Non-case mix    Non-case mix
             RUG-IV category               Nursing index   Therapy index     component       component     therapy comp      component      Total rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
RUX.....................................            2.67            1.87         $431.79         $274.93  ..............          $87.99         $794.71
RUL.....................................            2.57            1.87          415.62          274.93  ..............           87.99          778.54
RVX.....................................            2.61            1.28          422.09          188.19  ..............           87.99          698.27
RVL.....................................            2.19            1.28          354.17          188.19  ..............           87.99          630.35
RHX.....................................            2.55            0.85          412.39          124.97  ..............           87.99          625.35
RHL.....................................            2.15            0.85          347.70          124.97  ..............           87.99          560.66
RMX.....................................            2.47            0.55          399.45           80.86  ..............           87.99          568.30
RML.....................................            2.19            0.55          354.17           80.86  ..............           87.99          523.02
RLX.....................................            2.26            0.28          365.49           41.17  ..............           87.99          494.65
RUC.....................................            1.56            1.87          252.28          274.93  ..............           87.99          615.20
RUB.....................................            1.56            1.87          252.28          274.93  ..............           87.99          615.20
RUA.....................................            0.99            1.87          160.10          274.93  ..............           87.99          523.02
RVC.....................................            1.51            1.28          244.20          188.19  ..............           87.99          520.38
RVB.....................................            1.11            1.28          179.51          188.19  ..............           87.99          455.69
RVA.....................................            1.10            1.28          177.89          188.19  ..............           87.99          454.07
RHC.....................................            1.45            0.85          234.49          124.97  ..............           87.99          447.45
RHB.....................................            1.19            0.85          192.45          124.97  ..............           87.99          405.41
RHA.....................................            0.91            0.85          147.17          124.97  ..............           87.99          360.13
RMC.....................................            1.36            0.55          219.94           80.86  ..............           87.99          388.79
RMB.....................................            1.22            0.55          197.30           80.86  ..............           87.99          366.15
RMA.....................................            0.84            0.55          135.84           80.86  ..............           87.99          304.69
RLB.....................................            1.50            0.28          242.58           41.17  ..............           87.99          371.74
RLA.....................................            0.71            0.28          114.82           41.17  ..............           87.99          243.98
ES3.....................................            3.58  ..............          578.96  ..............           17.94           87.99          684.89
ES2.....................................            2.67  ..............          431.79  ..............           17.94           87.99          537.72
ES1.....................................            2.32  ..............          375.19  ..............           17.94           87.99          481.12
HE2.....................................            2.22  ..............          359.02  ..............           17.94           87.99          464.95
HE1.....................................            1.74  ..............          281.39  ..............           17.94           87.99          387.32
HD2.....................................            2.04  ..............          329.91  ..............           17.94           87.99          435.84
HD1.....................................            1.60  ..............          258.75  ..............           17.94           87.99          364.68
HC2.....................................            1.89  ..............          305.65  ..............           17.94           87.99          411.58
HC1.....................................            1.48  ..............          239.35  ..............           17.94           87.99          345.28
HB2.....................................            1.86  ..............          300.80  ..............           17.94           87.99          406.73
HB1.....................................            1.46  ..............          236.11  ..............           17.94           87.99          342.04
LE2.....................................            1.96  ..............          316.97  ..............           17.94           87.99          422.90
LE1.....................................            1.54  ..............          249.05  ..............           17.94           87.99          354.98
LD2.....................................            1.86  ..............          300.80  ..............           17.94           87.99          406.73
LD1.....................................            1.46  ..............          236.11  ..............           17.94           87.99          342.04
LC2.....................................            1.56  ..............          252.28  ..............           17.94           87.99          358.21
LC1.....................................            1.22  ..............          197.30  ..............           17.94           87.99          303.23
LB2.....................................            1.45  ..............          234.49  ..............           17.94           87.99          340.42
LB1.....................................            1.14  ..............          184.36  ..............           17.94           87.99          290.29
CE2.....................................            1.68  ..............          271.69  ..............           17.94           87.99          377.62
CE1.....................................            1.50  ..............          242.58  ..............           17.94           87.99          348.51
CD2.....................................            1.56  ..............          252.28  ..............           17.94           87.99          358.21
CD1.....................................            1.38  ..............          223.17  ..............           17.94           87.99          329.10
CC2.....................................            1.29  ..............          208.62  ..............           17.94           87.99          314.55
CC1.....................................            1.15  ..............          185.98  ..............           17.94           87.99          291.91
CB2.....................................            1.15  ..............          185.98  ..............           17.94           87.99          291.91
CB1.....................................            1.02  ..............          164.95  ..............           17.94           87.99          270.88
CA2.....................................            0.88  ..............          142.31  ..............           17.94           87.99          248.24
CA1.....................................            0.78  ..............          126.14  ..............           17.94           87.99          232.07
BB2.....................................            0.97  ..............          156.87  ..............           17.94           87.99          262.80
BB1.....................................            0.90  ..............          145.55  ..............           17.94           87.99          251.48
BA2.....................................            0.70  ..............          113.20  ..............           17.94           87.99          219.13
BA1.....................................            0.64  ..............          103.50  ..............           17.94           87.99          209.43
PE2.....................................            1.50  ..............          242.58  ..............           17.94           87.99          348.51
PE1.....................................            1.40  ..............          226.41  ..............           17.94           87.99          332.34
PD2.....................................            1.38  ..............          223.17  ..............           17.94           87.99          329.10

[[Page 45636]]

 
PD1.....................................            1.28  ..............          207.00  ..............           17.94           87.99          312.93
PC2.....................................            1.10  ..............          177.89  ..............           17.94           87.99          283.82
PC1.....................................            1.02  ..............          164.95  ..............           17.94           87.99          270.88
PB2.....................................            0.84  ..............          135.84  ..............           17.94           87.99          241.77
PB1.....................................            0.78  ..............          126.14  ..............           17.94           87.99          232.07
PA2.....................................            0.59  ..............           95.41  ..............           17.94           87.99          201.34
PA1.....................................            0.54  ..............           87.33  ..............           17.94           87.99          193.26
--------------------------------------------------------------------------------------------------------------------------------------------------------

4. 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. In the FY 2015 SNF PPS 
proposed rule (79 FR 25775), we proposed 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 
data also excludes any wage data related to SNFs. Therefore, we believe 
that using the updated hospital inpatient 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 the FY 2015 SNF PPS proposed rule (79 FR 25775 through 25776), 
we also proposed 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 without hospitals for which 
we would apply this policy. 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 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. We did not 
receive any comments on these proposals, and thus we will 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.
    A discussion of the general comments that we received on the wage 
index adjustment to the federal rates, and our responses to those 
comments, appears below. Comments on the specific proposal to use 
revised OMB delineations as part of the wage index are discussed in 
section IV.D.1. of this final rule.
    Comment: Several commenters stated that hospital cost data may not 
be the most reliable resource when determining geographical differences 
in salary structure for skilled nursing facilities. These commenters 
also stated that, if CMS plans to continue using hospital cost data as 
the basis of SNF wage index adjustments, then CMS should consider 
adopting certain wage index policies in use under the IPPS, such as 
reclassification, because SNFs compete in a similar labor pool as acute 
care hospitals. Commenters stated that even if reclassification is not 
permissible, CMS should consider using the post-reclassification 
hospital wage data to influence SNF PPS wage index policy decisions. In 
addition, a few commenters recommended that CMS develop a SNF-specific 
wage index. Finally, a few commenters recommended that CMS attempt to 
smooth out the perceived volatility of annual wage index changes by 
implementing a floor and ceiling for annual changes to the wage index 
that are above or below a certain level.
    Response: Consistent with our previous responses to these recurring 
comments (most recently published in the FY 2014 SNF PPS final rule (78 
FR 47952)), developing a wage index that utilizes data specific to SNFs 
would require us to engage in a resource-intensive audit process. Also, 
we note that section 315 of BIPA authorized us to establish a 
geographic reclassification procedure that is specific to SNFs, but 
only after collecting the data necessary to establish a SNF-specific 
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. Furthermore, we 
believe the collection of SNF-specific wage data would place a 
significant amount of additional burden on SNFs. As discussed above, we 
continue to believe that in the absence of SNF-specific wage data, 
using the pre-reclassified hospital inpatient wage data

[[Page 45637]]

(without the occupational mix adjustment) is appropriate and reasonable 
for the SNF PPS. Additionally, we believe that using post-
reclassification inpatient hospital wage data to influence SNF PPS wage 
index policy decisions, as suggested by commenters, would not be 
appropriate as such reclassification data are specific to those 
hospitals making that request, which may or may not apply to a given 
SNF in a given instance.
    Furthermore, we do not believe it would be appropriate to establish 
a floor and ceiling for annual wage index changes which are above or 
below a given level. Any perceived volatility in the wage index would 
be based upon volatility in actual wages in that area, which is 
something outside of CMS's control. As stated above, under section 
1888(e)(4)(G)(ii) of the Act and Sec.  413.337(a)(1)(ii) of the 
regulations, we adjust the SNF PPS rates to account for differences in 
area wage levels. We believe that applying a ceiling or floor to annual 
wage index changes would make the area wage index less reflective of 
the area wage levels. Additionally, we note that establishing an 
artificial ceiling for annual changes in the wage index could not only 
result in a wage index that does not accurately reflect the wage levels 
in the area, but would also have an adverse impact on those providers 
that would otherwise experience a larger increase in their wage index 
absent a ceiling.
    After considering the comments received, for the reasons discussed 
above and in the FY 2015 SNF PPS proposed rule (79 FR 25775), we are 
finalizing our proposal to continue to use the updated hospital 
inpatient wage data, exclusive of the occupational mix adjustment, to 
develop the SNF PPS wage index. 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).
    Once calculated, we apply the wage index adjustment to the labor-
related portion of the federal rate, which is 69.180 percent of the 
total rate. This percentage reflects the labor-related relative 
importance for FY 2015, using the FY 2010-based SNF market basket. 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. As discussed in section IV.B.2 of this final rule, for the 
FY 2014 SNF PPS update, we revised 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: Labor-
related services (previously referred to in the FY 2004-based SNF 
market basket as labor-intensive); 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 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: Labor-related 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 
labor-related and non-labor-related components. As discussed 
previously, the new OMB delineations will be used to identify a 
facility's urban or rural status for the purpose of determining which 
set of rate tables will apply to them beginning on October 1, 2014. 
Table 12 in section IV.D.1.c 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
----------------------------------------------------------------------------------------------------------------
                                                                                                     Non-labor
                         RUG-IV category                            Total rate     Labor portion      portion
----------------------------------------------------------------------------------------------------------------
RUX.............................................................          776.81         $537.40         $239.41
RUL.............................................................          759.88          525.68          234.20
RVX.............................................................          691.42          478.32          213.10
RVL.............................................................          620.32          429.14          191.18
RHX.............................................................          626.43          433.36          193.07
RHL.............................................................          558.72          386.52          172.20
RMX.............................................................          574.64          397.54          177.10
RML.............................................................          527.24          364.74          162.50
RLX.............................................................          504.66          349.12          155.54
RUC.............................................................          588.91          407.41          181.50
RUB.............................................................          588.91          407.41          181.50
RUA.............................................................          492.42          340.66          151.76
RVC.............................................................          505.21          349.50          155.71
RVB.............................................................          437.50          302.66          134.84
RVA.............................................................          435.81          301.49          134.32
RHC.............................................................          440.23          304.55          135.68
RHB.............................................................          396.21          274.10          122.11
RHA.............................................................          348.81          241.31          107.50
RMC.............................................................          386.74          267.55          119.19
RMB.............................................................          363.04          251.15          111.89
RMA.............................................................          298.72          206.65           92.07
RLB.............................................................          376.01          260.12          115.89

[[Page 45638]]

 
RLA.............................................................          242.28          167.61           74.67
ES3.............................................................          709.20          490.62          218.58
ES2.............................................................          555.16          384.06          171.10
ES1.............................................................          495.91          343.07          152.84
HE2.............................................................          478.98          331.36          147.62
HE1.............................................................          397.73          275.15          122.58
HD2.............................................................          448.51          310.28          138.23
HD1.............................................................          374.03          258.75          115.28
HC2.............................................................          423.12          292.71          130.41
HC1.............................................................          353.71          244.70          109.01
HB2.............................................................          418.04          289.20          128.84
HB1.............................................................          350.33          242.36          107.97
LE2.............................................................          434.97          300.91          134.06
LE1.............................................................          363.87          251.73          112.14
LD2.............................................................          418.04          289.20          128.84
LD1.............................................................          350.33          242.36          107.97
LC2.............................................................          367.26          254.07          113.19
LC1.............................................................          309.70          214.25           95.45
LB2.............................................................          348.64          241.19          107.45
LB1.............................................................          296.16          204.88           91.28
CE2.............................................................          387.57          268.12          119.45
CE1.............................................................          357.10          247.04          110.06
CD2.............................................................          367.26          254.07          113.19
CD1.............................................................          336.79          232.99          103.80
CC2.............................................................          321.55          222.45           99.10
CC1.............................................................          297.85          206.05           91.80
CB2.............................................................          297.85          206.05           91.80
CB1.............................................................          275.85          190.83           85.02
CA2.............................................................          252.15          174.44           77.71
CA1.............................................................          235.22          162.73           72.49
BB2.............................................................          267.38          184.97           82.41
BB1.............................................................          255.53          176.78           78.75
BA2.............................................................          221.68          153.36           68.32
BA1.............................................................          211.52          146.33           65.19
PE2.............................................................          357.10          247.04          110.06
PE1.............................................................          340.17          235.33          104.84
PD2.............................................................          336.79          232.99          103.80
PD1.............................................................          319.86          221.28           98.58
PC2.............................................................          289.39          200.20           89.19
PC1.............................................................          275.85          190.83           85.02
PB2.............................................................          245.38          169.75           75.63
PB1.............................................................          235.22          162.73           72.49
PA2.............................................................          203.06          140.48           62.58
PA1.............................................................          194.59          134.62           59.97
----------------------------------------------------------------------------------------------------------------

         Table 7--RUG-IV Case-Mix Adjusted Federal Rates for Rural SNFs by Labor and Non-Labor Component
----------------------------------------------------------------------------------------------------------------
                                                                                                     Non-labor
                         RUG-IV category                            Total rate     Labor portion      portion
----------------------------------------------------------------------------------------------------------------
RUX.............................................................          794.71         $549.78         $244.93
RUL.............................................................          778.54          538.59          239.95
RVX.............................................................          698.27          483.06          215.21
RVL.............................................................          630.35          436.08          194.27
RHX.............................................................          625.35          432.62          192.73
RHL.............................................................          560.66          387.86          172.80
RMX.............................................................          568.30          393.15          175.15
RML.............................................................          523.02          361.83          161.19
RLX.............................................................          494.65          342.20          152.45
RUC.............................................................          615.20          425.60          189.60
RUB.............................................................          615.20          425.60          189.60
RUA.............................................................          523.02          361.83          161.19
RVC.............................................................          520.38          360.00          160.38
RVB.............................................................          455.69          315.25          140.44
RVA.............................................................          454.07          314.13          139.94
RHC.............................................................          447.45          309.55          137.90
RHB.............................................................          405.41          280.46          124.95
RHA.............................................................          360.13          249.14          110.99
RMC.............................................................          388.79          268.96          119.83

[[Page 45639]]

 
RMB.............................................................          366.15          253.30          112.85
RMA.............................................................          304.69          210.78           93.91
RLB.............................................................          371.74          257.17          114.57
RLA.............................................................          243.98          168.79           75.19
ES3.............................................................          684.89          473.81          211.08
ES2.............................................................          537.72          371.99          165.73
ES1.............................................................          481.12          332.84          148.28
HE2.............................................................          464.95          321.65          143.30
HE1.............................................................          387.32          267.95          119.37
HD2.............................................................          435.84          301.51          134.33
HD1.............................................................          364.68          252.29          112.39
HC2.............................................................          411.58          284.73          126.85
HC1.............................................................          345.28          238.86          106.42
HB2.............................................................          406.73          281.38          125.35
HB1.............................................................          342.04          236.62          105.42
LE2.............................................................          422.90          292.56          130.34
LE1.............................................................          354.98          245.58          109.40
LD2.............................................................          406.73          281.38          125.35
LD1.............................................................          342.04          236.62          105.42
LC2.............................................................          358.21          247.81          110.40
LC1.............................................................          303.23          209.77           93.46
LB2.............................................................          340.42          235.50          104.92
LB1.............................................................          290.29          200.82           89.47
CE2.............................................................          377.62          261.24          116.38
CE1.............................................................          348.51          241.10          107.41
CD2.............................................................          358.21          247.81          110.40
CD1.............................................................          329.10          227.67          101.43
CC2.............................................................          314.55          217.61           96.94
CC1.............................................................          291.91          201.94           89.97
CB2.............................................................          291.91          201.94           89.97
CB1.............................................................          270.88          187.39           83.49
CA2.............................................................          248.24          171.73           76.51
CA1.............................................................          232.07          160.55           71.52
BB2.............................................................          262.80          181.81           80.99
BB1.............................................................          251.48          173.97           77.51
BA2.............................................................          219.13          151.59           67.54
BA1.............................................................          209.43          144.88           64.55
PE2.............................................................          348.51          241.10          107.41
PE1.............................................................          332.34          229.91          102.43
PD2.............................................................          329.10          227.67          101.43
PD1.............................................................          312.93          216.48           96.45
PC2.............................................................          283.82          196.35           87.47
PC1.............................................................          270.88          187.39           83.49
PB2.............................................................          241.77          167.26           74.51
PB1.............................................................          232.07          160.55           71.52
PA2.............................................................          201.34          139.29           62.05
PA1.............................................................          193.26          133.70           59.56
----------------------------------------------------------------------------------------------------------------

    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 what would otherwise be 
made if the wage adjustment had not been made. For FY 2015 (federal 
rates effective October 1, 2014), we apply an adjustment to fulfill the 
budget neutrality requirement. We meet this requirement by multiplying 
each of the components of the unadjusted federal rates by a budget 
neutrality factor equal to the ratio of the weighted average wage 
adjustment factor for FY 2014 to the weighted average wage adjustment 
factor for FY 2015, based on the blended wage index for FY 2015 as 
discussed later in this final 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 is 1.0009.
    In the SNF PPS final rule for FY 2006 (70 FR 45026, August 4, 
2005), we adopted the 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 1-
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 1-year transition on September 30,

[[Page 45640]]

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.
    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, in the FY 2015 SNF PPS proposed 
rule (79 FR 25779 through 25786), we proposed 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 1-year 
transition with a blended wage index for FY 2015. These changes, and 
associated comments, are discussed further in section IV.D.1. of this 
final rule. The wage index applicable to FY 2015 is set forth in Table 
A available on the CMS Web site at http://cms.gov/Medicare/Medicare-Fee-for-Service-Payment/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 revised OMB delineations, as well as the transition 
wage index values that will be in effect in FY 2015.
5. 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 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: 0.8850
                                                       [See Transition Wage Index in Table A] \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Adjusted                  Adjusted     Percent      Medicare
                  RUG-IV group                       Labor      Wage index     labor      Non-labor       rate      adjustment      days       Payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
RVX.............................................      $478.32        0.885      $423.31      $213.10      $636.41      $636.41           14    $8,909.74
ES2.............................................       384.06        0.885       339.89       171.10       510.99       510.99           30    15,329.70
RHA.............................................       241.31        0.885       213.56       107.50       321.06       321.06           16     5,136.96
CC2 *...........................................       222.45        0.885       196.87        99.10       295.97       674.81           10     6,748.10
BA2.............................................       153.36        0.885       135.72        68.32       204.04       204.04           30     6,121.20
                                                                                                                               -------------------------
                                                                                                                                        100   $42,245.70
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Reflects a 128 percent adjustment from section 511 of the MMA.
\1\ Available on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html.

C. Additional Aspects of the SNF PPS

1. 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 IV.B.3 of this final rule. This approach includes an 
administrative presumption that utilizes a beneficiary's initial 
classification in one of the upper 52 RUGs of the 66-group RUG-IV case-
mix classification system to assist in making certain SNF level of care 
determinations.
    In accordance with section 1888(e)(4)(H)(ii) of the Act and the 
regulations at Sec.  413.345, we include in each update of the federal 
payment rates in the Federal Register the designation of those specific 
RUGs under the classification system that represent the required SNF 
level of care, as provided in Sec.  409.30. As set forth in the FY 2010 
SNF PPS final rule (74 FR 40341), 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 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 final 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;

[[Page 45641]]

     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 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.
2. 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 Web site at 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/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. 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.
    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), and since 
that time, we have periodically invited the public to submit comments 
identifying codes that might meet the criteria for exclusion. In the FY 
2015 SNF PPS proposed rule (79 FR 25779), we specifically invited 
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, and we requested commenters to 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. A discussion of the public 
comments received on this topic, along with our responses, appears 
below.
    Comment: One commenter recommended four particular chemotherapy 
drugs for exclusion. As described by Healthcare Common Procedure Coding 
System (HCPCS) code J8562, the first drug (fludarabine phosphate, 10 
mg) is administered orally, but this same drug is already excluded 
under code J9185 when administered in a 50 mg dosage via intravenous 
injection. The commenter incorrectly characterized the second 
recommended drug, Revlimid (lenalidomide), as being assigned to code 
J3590 (whose descriptor is actually ``unclassified biologic''); in 
fact, that drug, along with the commenter's third recommended drug, 
Zytiga (Abiraterone acetate), is not assigned a specific code

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of its own, but instead comes under the heading of one of the broader, 
``not otherwise specified'' (NOS) codes, J8999 (``Prescription drug, 
oral, chemotherapeutic, NOS''). The fourth chemotherapy drug that the 
commenter recommended for exclusion was code J9219 (Leuprolide acetate 
implant, 65 mg).
    Response: Regarding the first drug that the commenter cited (code 
J8562), the only oral fludarabine product is Oforta[supreg], which was 
withdrawn from the market in September 2011. In addition, 
Oforta[supreg] is marked as discontinued on the drugs@FDA Web site (see 
http://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Set_Current_Drug&ApplNo=022273&DrugName=OFORTA&ActiveIngred=FLUDARABINE%20PHOSPHATE&SponsorApplicant=SANOFI%20AVENTIS%20US&ProductMktStatus=3&goto=Search.DrugDetails), and there are no generics listed for the oral form.
    Regarding the comment involving two chemotherapy drugs that have 
not been assigned their own specific HCPCS codes, we note that the 
assignment of such a code has been an essential element of identifying 
certain chemotherapy drugs for exclusion ever since the BBRA first 
created the statutory exclusion list in 1999, as reflected in the 
drafting of the statutory provision itself as well as in our periodic 
solicitation of ``codes'' that might meet the criteria for exclusion. 
When the Congress previously enacted the original consolidated billing 
legislation in section 4432(b) of the BBA, chemotherapy drugs did not 
appear in the initial set of exclusions from this provision. 
Accordingly, all chemotherapy drugs were originally subject to 
consolidated billing, and none were separately billable under Part B 
when furnished to an SNF's Part A resident. Then, in section 103 of the 
BBRA, the Congress excluded certain items and services involving 
chemotherapy and its administration from the SNF consolidated billing 
requirement, effective with items and services furnished on or after 
April 1, 2000. However, this legislation did not categorically exclude 
all chemotherapy drugs from SNF consolidated billing; rather, as 
explained in the BBRA's Conference Report, it specifically targeted 
those ``high-cost, low probability'' drugs that ``. . . are not 
typically administered in a SNF, or are exceptionally expensive, or are 
given as infusions, thus requiring special staff expertise to 
administer'' (H.R. Conf. Rep. No. 106-479 at 854). By contrast, other 
types of chemotherapy drugs that ``. . . are relatively inexpensive and 
are administered routinely in SNFs'' were to remain subject to SNF 
consolidated billing. The approach that the Congress adopted to 
identify the individual chemotherapy drugs being designated for 
exclusion consisted of listing them by HCPCS code in the statute 
itself. Thus, a chemotherapy drug's assignment to its own specific code 
has always served as the mechanism of designating that drug for 
exclusion, as well as the means by which the claims processing system 
is able to recognize that exclusion. This means that an NOS code such 
as J8999, which is broadly comprised of miscellaneous chemotherapy 
drugs ``not otherwise specified'' in the coding system, would be 
unsuitable for this function, as such a code would not allow for 
distinguishing the particular chemotherapy drug that is intended for 
exclusion from the various other, non-excluded chemotherapy drugs also 
encompassed by that same code.
    Regarding code J9219 (Leuprolide acetate implant, 65 mg), we have 
noted previously in the FY 2008 SNF PPS final rule (72 FR 43431, August 
3, 2007) that this drug

. . . is a hormonal agent which is clinically analogous to other 
existing codes that have not been designated for exclusion; 
moreover, as this drug is used in treating the commonly-occurring 
condition of prostate cancer, we believe that it is unlikely to meet 
the criterion of ``low probability'' specified in the BBRA.

    Comment: One commenter reiterated recommendations that commenters 
had repeatedly urged us to adopt in previous years, by expanding the 
existing chemotherapy exclusion to encompass related drugs that are 
commonly administered in conjunction with chemotherapy to ameliorate 
the side effects of the chemotherapy drugs, and by excluding certain 
additional categories of services beyond those specified in the BBRA, 
such as the antibiotic drug, Vancomycin. Another commenter cited 
previously-expressed objections from numerous prior public comment 
periods regarding the limited scope of the existing administrative 
exclusion for certain specified types of high-intensity outpatient 
services (which applies only when such services are furnished in the 
outpatient hospital setting and not when furnished in other, 
freestanding settings), and stated that this exclusion should focus on 
the nature of the excluded service itself rather than on the location 
in which the service is furnished.
    Response: Regarding the exclusion of chemotherapy-related drugs, we 
have noted repeatedly in this and previous final rules--such as the FY 
2014 SNF PPS final rule (78 FR 47958-59, August 6, 2013)--that the BBRA 
authorizes us to identify additional service codes for exclusion only 
within those particular service categories (chemotherapy items; 
chemotherapy administration services; radioisotope services; and, 
customized prosthetic devices) that it has designated for this purpose, 
and does not give us the authority to exclude additional services 
which, though they may be related to one of the categories designated 
for exclusion, fall outside of the specified service categories 
themselves. Thus, while such drugs as anti-emetics (anti-nausea drugs) 
and drugs that stimulate the body's production of blood cells to 
replace those destroyed by chemotherapy are commonly administered in 
conjunction with chemotherapy, they are not inherently chemotherapeutic 
in nature (that is, they do not actively destroy cancer cells) and, 
consequently, do not fall within the excluded chemotherapy category 
designated in the BBRA. Regarding the exclusion of the antibiotic drug 
Vancomycin, we noted in the FY 2012 SNF PPS final rule that ``. . . we 
decline to add to the exclusion list those services submitted by 
commenters that have already been considered and not excluded in 
previous years based on their being outside the particular service 
categories that the statute authorizes for exclusion'' (76 FR 48531, 
August 8, 2011). Such services would include antibiotics, as discussed 
previously in the FY 2004 SNF PPS final rule (68 FR 46060, August 4, 
2003). The statute does not provide the Secretary the authority to 
create additional categories of excluded services beyond those 
specified in the law. Finally, we note that the administrative 
exclusion for certain designated types of outpatient services does 
indeed consider the exceptionally intensive nature of the excluded 
services themselves, and in fact, as we have explained on numerous 
occasions (including, most recently, in the FY 2014 SNF PPS final rule 
(78 FR 47957-58, August 6, 2013)), this is precisely the reason for 
limiting this exclusion to the outpatient hospital setting:

. . . as we initially noted in the FY 2009 SNF PPS final rule (73 FR 
46436, August 8, 2008) and then reiterated in a number of subsequent 
final rules, the repeated calls to expand the administrative 
exclusion for high-intensity outpatient services in this manner 
would appear to reflect . . . a continued misunderstanding of the 
underlying purpose of this provision. As we have consistently noted 
in response to comments on this issue in previous years . . . and as 
also explained in MLN Matters article SE0432 . . . the

[[Page 45643]]

rationale for establishing this exclusion was to address those types 
of services that are so far beyond the normal scope of SNF care that 
they require the intensity of the hospital setting in order to be 
furnished safely and effectively.

Moreover, we note that when the Congress enacted the consolidated 
billing exclusion for certain RHC and FQHC services in section 410 of 
the MMA, the accompanying legislative history's description of present 
law acknowledged that the existing exclusions for exceptionally 
intensive outpatient services are specifically limited to `. . . 
certain outpatient services from a Medicare-participating hospital or 
critical access hospital . . .' (emphasis added). (See the House Ways 
and Means Committee Report (H. Rep. No. 108-178, Part 2 at 209), and 
the Conference Report (H. Conf. Rep. No. 108-391 at 641)). Therefore, 
these services are excluded from SNF consolidated billing only when 
furnished in the outpatient hospital or CAH setting, and not when 
furnished in other, freestanding (non-hospital or non-CAH) settings.
    Comment: One commenter reiterated the recurring objections to 
excluding certain high-intensity outpatient services only when 
furnished in the hospital setting, specifically in the context of 
radiation therapy. However, in addition to restating the same positions 
on this point that had already been advanced and addressed repeatedly 
in prior rules--most recently, in the FY 2014 SNF PPS final rule (78 FR 
47957-58, August 6, 2013)--the commenter also presented a new line of 
reasoning, stating that radiation therapy is, in fact, already 
encompassed by the existing exclusion for radioisotope services at 
section 1888(e)(2)(A)(iii)(IV) of the Act (which, as a statutory 
exclusion, is not restricted to only those services furnished in the 
outpatient hospital setting). The commenter explained that, of the 
three types of radiation treatment, two can involve the use of 
radioisotopes: Systemic radioisotopes administered through infusion or 
oral ingestion (which are already addressed in the 79000-series codes 
currently set forth in the statutory exclusion) and brachytherapy 
(sealed source radiation placed precisely in the area under treatment, 
as identified in a number of 77000-series codes). (The commenter noted 
in passing that the third type, external beam radiation therapy, at one 
time also utilized a radioisotope (Cobalt 60) as well, but added that 
this particular application is now ``very rarely used,'' as it ``. . . 
poses increased radiation risk, decreased accuracy, and unfavorable 
treatment beam characteristics''). In addition to the relatively narrow 
range of 79000-series codes that the statute currently excludes as 
radioisotope services, the commenter recommended excluding a 
substantially broader range of radiation oncology codes (primarily in 
the 77000 series), including a number of supplemental clinical 
treatment and planning codes that can be furnished not only in 
connection with a radioisotope procedure, but also more generally with 
various other forms of radiation treatment as well. In this context, 
the commenter cited our own characterization of the BBRA legislation as 
conferring on the Secretary ``. . . the authority to designate 
additional, individual services for exclusion within each of the 
specified service categories'' (emphasis added), and stated that the 
particular ``specified service category'' at issue here is actually the 
Part B benefit category at section 1861(s)(4) of the Act, which 
encompasses ``X-ray, radium, and radioactive isotope therapy, including 
materials and services of technicians.'' As a consequence, the 
commenter asserted that the existing statutory exclusion of 
``radioisotope services'' should be considered to encompass every type 
of radiation treatment described in section 1861(s)(4) of the Act, even 
in those instances where no actual use of radioisotopes is involved.
    Response: We note that two of the specific codes (79300 and 79403) 
that the commenter recommended adding to the list of excluded 
radioisotope services already appear as such in Major Category III.C 
(``Radioisotopes and their Administration'') of the online exclusion 
list, which is available in the 2014 Part A MAC Update at http://www.cms.gov/Medicare/Billing/SNFConsolidatedBilling/2014-Part-A-MAC-Update.html. Beyond that, we agree that the statutory exclusion of 
radioisotope services at section 1888(e)(2)(A)(iii)(IV) of the Act is 
not confined to the fairly narrow range of 79000-series codes specified 
in the law itself (identifying systemic radioisotopes administered 
through infusion or oral ingestion), but rather, is intended to 
encompass all of the ``high-cost, low probability'' forms of radiation 
treatment that actually involve the use of radioisotope services (which 
can include brachytherapy as well). Accordingly, we will make 
appropriate revisions in Major Category III.C to reflect this, by 
adding the brachytherapy-related code 77014 (computed tomography 
guidance for placement of radiation therapy fields for brachytherapy), 
as well as the clinical brachytherapy code range of 77750 to 77799. 
However, we are not adding external beam radiation therapy to this 
category of the exclusion list (even when it involves the use of the 
radioisotope Cobalt 60) in view of the commenter's characterization of 
this particular radioisotope application in terms that would raise 
questions about whether it continues to be used as well as inherent 
questions about its safety and efficacy in this context. In our 
discussion of the statutory exclusion for chemotherapy services in the 
FY 2014 SNF PPS final rule, we noted that ``. . . when an otherwise 
excluded chemotherapy drug is prescribed for a use that does not 
involve treating cancer, the drug would not qualify as an excluded 
`chemotherapy' drug in that instance'' (78 FR 47958). Similarly, we 
note that to the extent any of the additional brachytherapy codes we 
now specify for exclusion as ``radioisotope services'' under section 
1888(e)(2)(A)(iii)(IV) of the Act could serve to identify non-
radioisotope, as well as radioisotope procedures, the radioisotope 
exclusion under Major Category III.C would apply only in those 
particular instances that actually involve the use of radioisotopes. 
(Of course, even when associated with a non-radioisotope procedure, a 
particular code that also appears in Major Category I.D (``Radiation 
Therapy'') of the online exclusion list could still qualify for 
exclusion on that basis when furnished in the outpatient hospital 
setting.)
    We are also not adopting the commenter's recommendation to exclude 
a number of supplemental but more generic clinical treatment and 
planning codes beyond those that specifically identify the actual 
performance of the radioisotope procedure itself. We decline to exclude 
such codes, not because these supplemental activities would never occur 
in connection with a radioisotope procedure (as this is indeed possible 
in certain instances), but rather, because they are unlikely in 
themselves to meet the ``high-cost, low probability'' threshold which 
determines those specific radioisotope services that qualify for 
exclusion under this provision. We believe that for treatments 
involving the use of radioisotope services, it is the actual 
performance of the radioisotope procedure itself (rather than any 
associated preparatory and planning activities) that would account for 
the preponderance of the cost, so that those separate, supplemental 
codes would be unlikely in themselves to meet the ``high-cost'' 
threshold for exclusion.

[[Page 45644]]

Similarly, we do not believe that these supplemental codes would meet 
the ``low probability'' criterion, as they are associated not just with 
radioisotope procedures alone, but also more generally with various 
other, more commonly used forms of radiation treatment.
    Moreover, we do not share the commenter's view that the ``specified 
service category'' at issue here is the Part B benefit category at 
section 1861(s)(4) of the Act, which provides for broader coverage of 
radiation treatment beyond just that involving the use of radioisotope 
services. We note that the statutory exclusion for ``radioisotope 
services'' at section 1888(e)(2)(A)(iii)(IV) of the Act stands in 
marked contrast, for example, to the ones for dialysis and 
erythropoietin (EPO) at section 1888(e)(2)(A)(ii) of the Act, which 
consist of--and, in fact, are defined by--explicit cross-references to 
the corresponding Part B benefit categories appearing in sections 
1861(s)(2)(F) and 1861(s)(2)(O) of the Act, respectively. Conversely, 
the statutory exclusion at section 1888(e)(2)(A)(iii)(IV) of the Act 
does not contain such a cross-reference to the Part B benefit category 
at section 1861(s)(4) of the Act for general coverage of radiation 
treatments, and thus, applies specifically to ``radioisotope services'' 
alone.
3. 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 SNF-level 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 
this final rule for the SNF PPS also apply to all non-CAH swing-bed 
rural hospitals. A complete discussion of assessment schedules, the 
MDS, and the transmission software (RAVEN-SB for Swing Beds) appears in 
the 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 
through 40357), effective October 1, 2010, non-CAH swing-bed rural 
hospitals are required to complete an MDS 3.0 swing-bed assessment 
which is limited to the required demographic, payment, and quality 
items. The latest changes in the MDS for swing-bed rural hospitals 
appear on the SNF PPS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/index.html. We received no comments on 
this aspect of the proposed rule.

D. Other Issues

1. Proposed Changes to the SNF PPS Wage Index
a. 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 IV.B.4. of 
this final rule, we will 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), the frontier state floor under section 
1886(d)(3)(E)(iii) of the Act, and the outmigration adjustment under 
section 1886(d)(13) (see the FY 2006 SNF PPS proposed rule (70 FR 29090 
through 29095)). 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 preambles of 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 the FY 2015 SNF PPS 
proposed rule. As discussed in the FY 2015 SNF PPS proposed rule (79 FR 
25779 through 25786), we proposed to implement the new OMB delineations 
as described in the February 28, 2013 OMB Bulletin No. 13-01, for the 
SNF PPS wage index beginning in FY 2015, because we believe it is 
important for the SNF PPS to use the latest OMB delineations available 
in order to

[[Page 45645]]

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 Web 
site at www.cms.gov/Medicare/Medicare-Fee-for-Service-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. As noted in the FY 2015 SNF PPS proposed rule, 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 (79 FR 25780). 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 proposed to implement the new OMB delineations as described 
in the February 28, 2013 OMB Bulletin No. 13-01, for the SNF PPS wage 
index beginning in FY 2015. Further, we proposed a transition period of 
1 year, during which a 50/50 blended wage index would be used for all 
providers in FY 2015, in order to mitigate the resulting short-term 
instability and negative impacts on certain providers and to provide 
time for providers to adjust to their new labor market delineations. 
Under this proposal, 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 delineations for FY 
2014 (both using FY 2011 hospital wage data). In addition, we proposed 
to continue to treat Micropolitan Statistical Areas (referred to here 
as Micropolitan Areas) as rural and to include such areas in the 
calculation of the state's rural wage index. As we explained in the FY 
2015 SNF PPS proposed rule (79 FR 25780), because Micropolitan Areas 
tend to encompass smaller population centers and contain fewer 
hospitals than MSAs, if Micropolitan Areas were to be treated as 
separate labor market areas, the SNF PPS wage index would include 
significantly more single-provider labor market areas. We further 
explained that 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 create instability in the payment levels from year to 
year, which could make fiscal planning for SNFs difficult if we adopted 
this approach. For a full discussion of our proposals and associated 
rationale related to the implementation of the new OMB delineations, we 
refer readers to the FY 2015 SNF PPS proposed rule (79 FR 25779 through 
25786). The comments we received on the proposed changes to the wage 
index, including those comments on our proposed transition methodology, 
as well as responses to these comments, appear below.
    Comment: We received a few comments on the proposed implementation 
of the new OMB delineations for the SNF PPS wage index, primarily 
focused on how such changes would be implemented. Specifically, one 
commenter requested a 2-year phase-in (rather than our proposed 1-year 
transition) for the proposed wage index changes. Other commenters 
stated that CMS should utilize similar implementation policies for the 
SNF wage index changes as were proposed for hospital providers in the 
FY 2015 Inpatient Prospective Payment System (IPPS) proposed rule (79 
FR 27978). More specifically, these commenters urged CMS to establish a 
three-year transition policy (similar to that proposed under IPPS) for 
urban SNFs that would become rural under the new OMB delineations.
    Response: As noted in the FY 2015 SNF PPS proposed rule (79 FR 
25785), we considered proposing a multi-year transition approach, 
whether it be 2, 3, or some other 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 based on the most current geographic 
delineations, which supports the use of a shorter transition to the 
revised OMB delineations. As discussed in the FY 2015 SNF PPS proposed 
rule (79 FR 25785), 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 1-year (rather than a 
multiple-year) transition with a blended wage index in FY 2015 would 
strike the best balance.
    It should also be noted that the implementation of the revised OMB 
delineations, which we are finalizing in this rule, sets SNF payments 
at a level that more accurately reflects the costs of labor in a SNF's 
geographic area. Accordingly, under this policy, SNFs will experience a 
decrease from their current wage index value only to the extent that 
their current wage index value actually exceeds what the latest area 
wage data warrants using the revised OMB delineations, and they will 
experience an increase from their current wage index value to the 
extent that their current wage index value is less than what the latest 
area wage data warrants using the revised OMB delineations. We believe 
that pursuing a longer transition period would advantage the former 
group by delaying implementation of the full decrease in their wage 
index values under the new OMB delineations, at the further expense of 
the latter group which would experience an extended delay in 
implementation of the full increase in their wage index values. We 
believe that utilizing a 1-year (rather than a multiple-year) 
transition with a blended wage index in FY 2015 strikes an appropriate 
balance between the interests of these two groups of providers.
    Commenters also suggested that CMS consider a 3-year transition 
methodology similar to that proposed in the FY 2015 IPPS proposed rule. 
In the FY 2015 IPPS proposed rule, CMS proposed a 3-year transition for 
those hospitals that are currently in urban areas that would become 
rural under the new OMB delineations, under which such hospitals would 
receive the urban wage index of the CBSA in which they are currently 
located for FY 2014 for a period of three fiscal years (see the FY 2015 
IPPS proposed rule, 79 FR 28060). However, there are important 
differences between the IPPS and SNF PPS which give rise to different 
implementation and impact considerations. Most notably, IPPS hospital 
providers are subject to the rural floor, which requires that the wage 
index applicable to any hospital located in an urban area of a state 
not be less than the rural wage index of the state (see the FY 2015 
IPPS proposed rule, 79 FR 28068). This guarantees that the wage index 
for rural hospitals is not

[[Page 45646]]

greater than the wage index of any urban hospitals in the same state. 
As a result, hospitals moving from urban to rural status under the new 
OMB delineations are more likely to experience a decrease in their wage 
index, while hospitals moving from rural to urban status under the new 
OMB delineations are more likely to experience an increase in their 
wage index. This is not the case in the SNF PPS, where the rural floor 
is not applied and such differential impacts on urban and rural 
providers do not exist. Under the SNF PPS, the subsets of providers 
that will experience increases and decreases in wage index due to 
implementation of the new OMB delineations are quite varied. For 
example, 22 SNFs changing from urban to rural status under the new OMB 
delineations will have a higher wage index than they had in their urban 
CBSA. This would be less likely to occur if the rural floor were 
applied under the SNF PPS. Given the impacts discussed above, we 
believe that the 3-year transition policy proposed in the FY 2015 IPPS 
proposed rule and discussed above is not necessary or appropriate to 
address the impacts on SNF providers. By contrast, under the IPPS, 
hospitals currently located in urban areas that would become rural 
under the revised OMB delineations are more likely to experience a wage 
index decrease as discussed above, raising concerns over the potential 
adverse impact of the new OMB delineations on those hospitals that are 
specific to the IPPS. Therefore, we do not agree with the commenter 
that a 3-year transition policy, similar to that proposed under the 
IPPS, should be applied to those SNFs changing from urban to rural 
status under the new OMB delineations.
    To further address commenters' general suggestion that we utilize 
similar implementation policies as were proposed for hospital providers 
in the FY 2015 IPPS proposed rule, we also considered whether it would 
appropriate to apply a variation of the 3-year transition discussed 
above, pursuant to which SNFs that would experience a decrease in their 
wage index under the new OMB delineations would receive the wage index 
of the CBSA in which they are currently located for FY 2014 for a 
period of three fiscal years. This would involve applying a different 
transition policy for this subset of SNFs (allowing them to maintain 
the wage index of the CBSA in which they are currently located for 
three fiscal years) than would be applied to other SNFs. However, 
because revisions in the SNF PPS wage index must be made in a budget 
neutral manner, as required by section 1888(e)(4)(G)(ii) of the Act, if 
such a 3-year transition policy were to be applied to this subset of 
providers, the resulting budget neutrality adjustment would reduce the 
base payment rates for all SNFs in FY 2015, as well as potentially 
reduce base rates for each of the two additional years during which 
this transition policy would be in effect. In terms of the overall 
impact on SNFs, pursuing this type of transition policy would, in 
effect, aid the 21 percent of SNFs experiencing a decrease in their 
wage index due to the new OMB delineations (who would nevertheless also 
experience a decrease in their base rates under this alternative) at 
the expense the remaining 79 percent of SNFs, all of which would 
experience a decrease in their base rates due to the budget neutrality 
adjustment (including those SNFs experiencing either no change or an 
increase in their wage index under the new OMB delineations). As we 
stated in the FY 2015 SNF PPS proposed rule (79 FR 25785), we looked 
for a transition approach that would provide relief to the largest 
percentage of adversely affected SNFs with the least impact to the rest 
of facilities. As discussed in the FY 2015 SNF PPS proposed rule (79 FR 
25785-25786), we believe that the application of a one-year transition 
blended wage index for all providers best achieves this goal, as it 
mitigates the negative payment impacts of the new OMB delineations for 
adversely affected SNFs, without reducing the base rates for all 
providers. Furthermore, as discussed above, we do not believe a multi-
year transition approach would be appropriate, given the need to ensure 
the most accurate payments possible based on the most current 
geographic delineations.
    While we understand the concern raised by these commenters 
regarding the potential impact on the subset of SNFs that would 
experience a decrease in their wage index, we believe this must be 
weighed against the interests of and impact on all SNFs. As discussed 
above, and in the SNF PPS proposed rule (79 FR 25785), we believe that 
our proposed 1-year transition policy with a 50/50 blended wage index 
for all SNFs appropriately mitigates the negative payment impacts on 
SNFs that will experience a wage index decrease due to implementation 
of the new OMB delineations, while having the least impact on the rest 
of the facilities.
    Accordingly, for the reasons specified in this final rule and in 
the FY 2015 SNF PPS proposed rule (79 FR 25779 through 25786), we are 
finalizing, without modification, our proposal to implement the new OMB 
delineations as described in the February 28, 2013 OMB Bulletin No. 13-
01, for the SNF PPS wage index beginning in FY 2015. Under this policy, 
as proposed, we will continue to treat Micropolitan Areas as rural and 
to include such areas in the calculation of the state's rural wage 
index. Further, as proposed in the FY 2015 SNF PPS proposed rule, we 
are finalizing a transition period of 1 year, during which a 50/50 
blended wage index will be used for all providers in FY 2015. In FY 
2015, SNFs will 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 OMB delineations in effect for FY 2014 (both using FY 2011 
hospital wage data). Beginning October 1, 2015, the wage index for all 
SNFs will be fully based on the new OMB delineations.
    The wage index applicable to FY 2015 is set forth in Table A 
available on the CMS Web site at http://cms.gov/Medicare/Medicare-Fee-for-Service-Payment/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 
revised OMB delineations, as well as the transition wage index values 
that will be in effect in FY 2015.
a. 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 IV.B.4 of this final rule. Table 12 
summarizes the updated labor-related share for FY 2015, compared to the 
labor-related share that was used for the FY 2014 SNF PPS final rule.

[[Page 45647]]

    Table 12--Labor-Related Relative Importance, FY 2014 and FY 2015
------------------------------------------------------------------------
                                             Relative        Relative
                                            importance,     importance,
                                          labor-related,  labor-related,
                                            FY 2014 13:2    FY 2015 14:2
                                           forecast \1\    forecast \2\
------------------------------------------------------------------------
Wages and salaries......................          49.118          48.816
Employee benefits.......................          11.423          11.365
Nonmedical Professional fees: Labor-               3.446           3.450
 related................................
Administrative and facilities support              0.499           0.502
 services...............................
All Other: Labor-related services.......           2.287           2.276
Capital-related (.391)..................           2.772           2.771
                                         -------------------------------
    Total...............................          69.545         69.180.
------------------------------------------------------------------------
\1\ Published in the Federal Register; based on second quarter 2013 IGI
  forecast.
\2\ Based on second quarter 2014 IGI forecast, with historical data
  through first quarter 2014.

2. 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 the FY 2015 SNF PPS proposed rule (79 FR 25786), we provided an 
update on the current state of this project and invited public comments 
on this project. The comments we received on this topic, with their 
responses, appear below.
    Comment: All of the comments we received on this work supported 
CMS's research effort in developing a new methodology for paying for 
therapy services received in the SNF. Most commenters urged CMS to 
expedite the research necessary to develop a new therapy payment model, 
with one commenter expressing disappointment that CMS has not 
implemented a model to date. A few commenters stated that CMS should 
seek input from stakeholders on how best to revise the current therapy 
payment model.
    Response: We appreciate the broad support for this research 
initiative and understand the importance of completing this work in 
both a timely and efficient manner. We also recognize the importance of 
seeking input from stakeholders on how best to revise the current 
therapy payment model, which is why one of our central focuses in 
leading this research effort has been to solicit stakeholder feedback 
through listening sessions and through the creation of a SNF therapy 
research email box at SNFTherapyPayments@cms.hhs.gov. Stakeholders can 
send input on a revised therapy payment model to this email box at any 
time, and every email is read and considered by both CMS staff and 
contractors. We also plan to solicit feedback through more formal 
avenues such as a technical expert panel in the near future.
    Currently, we are closely examining all of the models that have 
been suggested for improving SNF therapy payment, including but not 
limited to models developed by MedPAC and the Urban Institute. We will 
carefully consider suggested models such as these by using their best 
attributes, combined with all of the stakeholder feedback and ideas we 
are receiving, and intend to develop a payment model that will pay 
accurately and appropriately for SNF therapy services, while also 
incentivizing the most appropriate treatment for the individual 
patient's care needs. Additional considerations for a revised SNF 
therapy payment approach go beyond existing research and will also need 
to include implementation strategies for the revised therapy payment 
methodology, along with the incorporation of the revised therapy 
payment approach into a single payment system that also includes 
payment for nursing services.
    In terms of the timeframe for completing this work and implementing 
a new payment model, we believe it would be premature at this time to 
speculate on when a new model will be ready to be implemented. As many 
of the comments on this issue indicate, it is very important to ensure 
that any change to the current therapy payment model addresses any 
concerns with the existing model, provides the proper incentives to 
treat patients in the most appropriate and efficient way, and provides 
sufficient time for providers to understand and prepare for 
implementation of such a model.
    Comments on this topic may still be provided 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 Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.
3. Proposed Revisions to Policies Related to the Change of Therapy 
(COT) Other Medicare Required Assessment (OMRA)
    In the FY 2015 SNF PPS proposed rule (79 FR 25786 through 25788), 
we discussed proposed changes to the existing COT OMRA policy which 
would 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, 
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. The comments we

[[Page 45648]]

received on this proposal, along with our responses, appear below.
    Comment: All of the comments we received on this topic supported 
the proposed revision to the existing COT OMRA policies. One commenter 
stated that this proposal is not necessary, stating that the current 
COT OMRA policy already allows for providers to complete a COT OMRA in 
the circumstances proposed in the FY 2015 SNF PPS proposed rule.
    Response: We appreciate the broad support we received on this 
proposal. With regard to the comment that this proposal is not 
necessary, we would note that the FY 2012 SNF PPS final rule (78 FR 
48525 through 48526) and section 2.9 of the MDS RAI manual (available 
at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/NursingHomeQualityInits/MDS30RAIManual.html) clearly state 
that the COT OMRA is to be used in those cases where the patient is 
classified into a RUG-IV therapy category, or where the patient is 
receiving a level of therapy sufficient for classification into a 
therapy RUG (but is classified into a nursing RUG because of index 
maximization). That providers may have misinterpreted the rules and are 
currently using the COT OMRA in a manner that is inconsistent with 
these guidelines does not affect how the policy was finalized and 
implemented. We would encourage providers to examine their current COT 
OMRA completion protocols to ensure they are aligned with existing COT 
OMRA guidelines, as provided in the aforementioned references, and 
immediately address any assessments that were completed 
inappropriately.
    Comment: Several commenters highlighted an issue in the second 
example that begins on page 25787 of the FY 2015 SNF PPS proposed rule. 
Specifically, these commenters pointed out that because the resident is 
no longer in a RUG-IV therapy group, an End of Therapy (EOT) OMRA would 
not be completed on this resident when the discontinuation of therapy 
occurs as this would violate the rules associated with the EOT OMRA, 
which require that the resident be in a RUG-IV therapy group for this 
assessment to be completed. These commenters requested that an 
additional example be added here to clarify this second example and the 
scope of this proposed revision. Finally, a few commenters requested 
that CMS provide as much detail as possible in this final rule 
regarding how this policy will be implemented and how this revision to 
the COT OMRA policy may affect other OMRAs.
    Response: We agree with the commenters that the reference to 
completing an EOT OMRA in the second example on page 25787 of the FY 
2015 SNF PPS proposed rule is incorrect. To address this issue, below 
we provide a new example that is intended to clarify the scope of this 
proposed revision to the COT OMRA policy.
    Assume Mr. A is 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 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 first example found on page 25787 of the FY 2015 SNF 
PPS proposed rule, where the resident's therapy continued during the 
week following the COT OMRA, let us assume the facility decides to 
discontinue his therapy services, with Day 39 representing the last day 
that Mr. A is provided therapy. The facility subsequently decides to 
provide Mr. A with therapy services due to observing Mr. A's 
deteriorating condition, with the first day of new therapy services 
being Day 48. On Day 54 (7 days following the day therapy began on Day 
48, including Day 48) the facility reviews the therapy services 
provided to Mr. A during the prior week and finds that Mr. A would 
qualify for the RUG group RUA.
    As intended in the second example in the FY 2015 SNF PPS proposed 
rule (79 FR 25787), this example represents a scenario where, under 
both the current and proposed COT OMRA policies, a COT OMRA may not be 
completed. This is because a discontinuation of therapy services 
occurred. To clarify our example and the scope of the proposed revision 
to the COT OMRA policy, we note that ``discontinuation of therapy 
services'' is defined in a manner consistent with how this phrase is 
described in the FY 2010 SNF PPS final rule (76 FR 40346 through 
40349), the FY 2012 SNF PPS final rule (78 FR 48517 through 48522), and 
Chapter 2, Section 2.9, of the MDS RAI manual. Consistent with what 
constitutes a discontinuation of therapy more globally within the SNF 
PPS, a ``discontinuation of therapy'' here refers to the planned or 
unplanned discontinuation of all rehabilitation therapies for 3 or more 
consecutive days. This was the actual intent of the erroneous reference 
to the EOT OMRA in the FY 2015 SNF PPS proposed rule, as noted by these 
commenters. In essence, the same criteria used to determine the need 
for an EOT OMRA (which is that the resident does not receive therapy 
services for 3 consecutive calendar days) will be used under our 
revised COT OMRA policy to determine whether there has been a 
discontinuation of therapy services and thus whether a COT OMRA may be 
completed for a given resident. In the above example, since the 
resident did not receive therapy services for 8 days, this would 
represent a discontinuation of therapy services as defined above and 
the COT OMRA that was planned with an ARD of Day 54 would not be 
permissible, both under our current policy and under our proposed 
revised COT OMRA policy.
    With regard to comments on how this revision would affect other 
OMRAs, the answer is that it does not have any impact on the other 
OMRAs within the SNF PPS. The rules and policies associated with all 
other assessment types remain the same. We also plan to provide 
additional details on the operation of this revised policy in a 
forthcoming MDS RAI manual revision, which would be effective October 
1, 2014.
    Accordingly, for the reasons specified in this final rule and in 
the FY 2015 SNF PPS proposed rule (79 FR 25786 through 25788), we are 
finalizing our proposal to permit providers, in certain circumstances 
(discussed below), 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, this would be allowed 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. This change 
in policy will be effective October 1, 2014, with further details on 
how this policy will

[[Page 45649]]

be implemented to be provided in a forthcoming MDS RAI manual revision 
and other guidance, consistent with the way we have provided 
implementation details for other MDS RAI policy revisions (for example, 
see Transition for Implementation of FY 2014 SNF PPS MDS 3.0 Policy 
Changes, available at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Spotlight.html).
4. Civil Money Penalties (section 6111 of the Affordable Care Act)
    In the FY 2015 SNF PPS proposed rule (79 FR 25788 through 25789), 
we discussed clarifications related to statutory requirements as 
specified in section 6111 of the Affordable Care Act regarding the 
approval and use of civil money penalties imposed by CMS. Further, we 
proposed changes to the CMS enforcement regulations at Sec.  488.433 to 
clarify and strengthen these provisions to provide more specific 
instructions to states regarding the use of civil money penalties and 
the approval process, and to permit an opportunity for greater 
transparency and accountability of civil money penalty monies utilized 
by states. Finally, we invited public comment on our proposed changes 
as well as on CMS's proposed methods to ensure compliance with these 
requirements. The comments received on this topic, along with our 
responses, appear below.
    Comment: A few commenters requested that we specify the 
requirements and CMS's expectations for soliciting civil money penalty 
funds and tracking approved civil money penalty projects. One commenter 
suggested that we establish a formula to determine how much is 
appropriate for a state to keep in reserve each year. Several 
commenters suggested that CMS should specify how information should be 
made public by the state, including the availability of grants, 
approved projects funded to date and the outcomes of previously funded 
projects. One commenter states that the proposed rule lacks clarity 
regarding what constitutes an ``acceptable'' state plan and how CMS 
would make such a determination.
    Response: Specific operational details regarding our expectations 
for the state are not appropriate for inclusion in regulation. We plan 
to issue subsequent guidance regarding these operational details and 
publish this guidance in the State Operations manual.
    Comment: One commenter asked if states will be required to share 
their acceptable plan for the effective use of civil money penalty 
funds with CMS. One commenter recommends formal CMS approval of all 
plans and public disclosure once the plan is approved. One commenter 
asked if CMS will require the acceptable plan be posted on some Web 
site.
    Response: We will require states to submit their plans to their 
respective CMS Regional Offices for formal approval. We have revised 
Sec.  488.433(e) to specify that the plan must be approved by CMS. 
Public reporting of particular information related to survey and 
certification information is addressed specifically in Sections 
1819(g)(5) and 1819(i) of the Act (as amended by section 6103 of the 
Affordable Care Act) and directs CMS to publish relevant enforcement 
information.
    Comment: One commenter asked if CMS has any plans to publicly 
report the amount of civil money penalty funds collected and returned 
to the states. Another commenter stated that CMS should publish a link 
to information on state's civil money penalty account balances on 
Nursing Home Compare. One commenter asked if the solicitation, 
acceptance and monitoring information of approved projects utilizing 
civil money penalty funds would be required to be posted on some Web 
site for transparency purposes. Several commenters suggested that CMS 
require information regarding state's use of civil money penalties to 
be posted online and updated annually. One commenter recommended that 
we include in the regulatory language at Sec.  488.433(e)(2) that the 
information be publicly available at all times and updated, at least 
annually. One commenter requested that a link to information on state's 
use of civil money penalties be included on the Nursing Home Compare 
Web site. One commenter asked CMS to specify what the reporting 
timeframe would be. This commenter also asked if State Medicaid Web 
sites would be an acceptable place to post civil money penalty 
information on, what the duration of the posting would be, and finally, 
if states would be required to post previously approved civil money 
penalty projects prior to the effective date of this ruling.
    Response: We will make key information publicly available regarding 
approved projects, CMP grant awards, and CMP funds disbursed to states. 
We will explore appropriate methods to present information in a manner 
that will be accessible and meaningful to the public. Currently, all 
projects that a state is recommending for approval are submitted to the 
CMS Regional Office for final approval. The CMS Regional Office is 
tracking all approved projects and submits this information to the CMS 
Central Office at least annually. Additionally, we will prepare an 
annual transparency report on approved civil money penalty projects. We 
will be posting this annual report on the CMS Web site. We expect the 
states to provide information in their plans for utilizing CMP funds to 
CMS on an annual basis to permit CMS to make a national report 
available on an annual basis; preferably aligning with the current 
civil money penalty uses transparency report which is compiled on a 
calendar year basis. The additional information required as a result of 
this rule would apply to all projects approved after the rule's 
effective date.
    In response to these comments, we will consider issuing guidance to 
states regarding making the information about their state plans for 
civil money penalties as well as approved civil money penalty projects 
publicly available, as required in this final rule, by posting on a 
state Web site and making sure that this information is updated on an 
annual basis. As to the length of time of the posting, we would 
anticipate that states would post a new report about the use of penalty 
funds on an annual basis that would include currently funded projects 
as well as information, or links to the information, for projects 
funded after this regulation even if the projects have ended.
    Comment: One commenter asked us to clarify what the terms ``results 
of projects'' and ``other key information'' would involve when we 
proposed that states ``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.''
    Response: We expect that states track the results of approved 
projects. Projects funded with civil money penalty monies should have 
clear goals and methodologies to achieve those goals. States will be 
required to make information available about the outcome or results of 
completed projects. These results should include the grant recipient, 
amount and duration of the grant, purpose and goals of the project, 
results of the project (for example, whether or not the project was 
successful), lessons learned, and similar key information, such as 
whether improvements have been institutionalized as a result of the 
project. Most importantly, we hope that the publicly-shared information 
would help others to gain insight into the methodologies to achieve 
important quality of care or quality of life goals,

[[Page 45650]]

even if the project was not successful in achieving such goals within 
the time period of the civil money penalty grant.
    Comment: One state asked that if there is a year when a state does 
not receive civil money penalty proposals that meet the CMS criteria, 
what would be the required next steps for a state to take.
    Response: If there is a year that a state has actively solicited 
for proposals and still receives no proposals that meet the CMS 
criteria for approval, then we would work with the state to explore 
opportunities to fund worthwhile projects that would benefit nursing 
home residents. We would do this by looking at the state's solicitation 
process, using successful projects that have been funded by other 
states as a model, and offering any guidance necessary to ensure that 
civil money penalty funds are being utilized for their intended 
purpose.
    Comment: We received several comments regarding the language at 
Sec.  488.433(b)(4), specifically on the potential that civil money 
penalty funds could be used for technical assistance for facilities 
implementing quality assurance and performance improvement (QAPI) 
programs. Commenters stated that quality assurance and performance 
improvement is a facility's responsibility and it will also soon be a 
requirement of participation. They stressed that civil money penalty 
funds should not be given to facilities to perform activities that they 
are already required and paid to perform under federal law. They noted 
that while language at Sec.  6111 of the Affordable Care Act authorizes 
the use of civil money penalties for ``technical assistance for 
facilities implementing quality assurance programs;'' general language 
about quality assurance should not be interpreted to include QAPI.
    Response: We agree that civil money penalty funds should not be 
used to pay for activities, functions, or products that nursing homes 
are required to provide. At the same time, we believe there is a 
tremendous need for knowledge and sharing of important ways to provide 
care and achieve results that may transcend the basic requirements in 
our regulations. Because there is a challenge to providing technical 
assistance while avoiding any supplanting of nursing home 
responsibilities, we require that proposed projects be approved by CMS 
and publicly reported. We expect, over time, that we will learn more 
about the projects that achieve the appropriate balance between 
providing effective technical assistance that advances the quality of 
care and quality of life for residents without supplanting what nursing 
homes are already required to do. At the present time we have already 
identified in CMS published guidance a variety of uses that are 
prohibited, and believe that the identified prohibitions are sufficient 
for now. With regard to QAPI in particular, section 1128I(c) of the Act 
directs CMS to provide technical assistance to facilities on the 
development of best practices in order to meet CMS' established QAPI 
standards. We expect most of the technical assistance will be done by 
the Quality Improvement Organizations (QIOs), but do not rule out the 
use of CMP funds for very targeted purposes that the QIOs are not able 
to accomplish, especially for nursing homes that have a high reliance 
on Medicaid funding or are among the lowest-performing facilities. 
Further, at the present time there is no federal requirement for 
nursing homes to have a QAPI system, so there is little potential for 
supplanting facility compliance with a current expectation. Under 
section 1128I(c), following promulgation of regulations, all facilities 
will be required to develop and implement a QAPI program in the future, 
and we plan to administer the CMP funds in a manner that avoids 
supplanting of facility responsibilities when those rules become 
effective.
    Comment: While the proposed language at Sec.  488.433(b)(5) 
addresses and expands the appropriate use of civil money penalties for 
the infrastructure of the temporary management remedy, one commenter 
does not feel this provision will help as facilities cannot afford the 
temporary manager salary. This commenter urges CMS to allow facilities 
to use civil money penalties to pay the salaries of temporary managers 
when the alternative is decertification of the facility.
    Response: At Sec.  488.433(b)(5), we proposed to clarify in a new 
paragraph that in extraordinary situations involving closure of a 
facility, civil money penalty funds may be used to pay the salary of a 
temporary manager. Such a circumstance is very narrowly construed to 
situations where CMS concludes that it is otherwise infeasible to 
ensure timely payment for such a manager by the facility and CMS 
determines that extraordinary action is necessary in order to protect 
the residents until relocation efforts are successful. However, as 
specified in Sec.  488.415(c), in all other circumstances a temporary 
manager's salary must be paid by the facility. We do not propose to 
change this basic responsibility of a nursing home to pay the salary of 
the temporary manager.
    Comment: One commenter stated that they did not support the use of 
civil money penalty funds for the joint training of facility staff and 
surveyors and suggested that this use be a low level priority, be 
limited, and include other interested parties, such as consumers, 
ombudsman and advocates. This commenter also urged CMS to restore the 
language at the end of proposed Sec.  488.433(b)(4) which is included 
in current regulations, ``. . . when such facilities have been cited by 
CMS for deficiencies in the applicable requirements.''
    Response: We believe that there are benefits for joint training 
between State survey agencies and nursing home providers to improve 
understanding of federal requirements and to communicate specific 
policies and procedures. In fact, we have sponsored such joint 
trainings on a national basis dating back to the implementation of the 
nursing home reform provisions of Omnibus Budget Reconciliation Act of 
1987 (OBRA '87) to train both states and providers in the new health 
and safety requirements and enforcement rules. To provide optimum 
flexibility of such training, we do not propose to limit or to require 
other stakeholders in joint trainings nor do we propose to limit the 
facilities that may utilize civil money penalty funds for joint 
training to only those facilities that have been cited by CMS for 
deficiencies under the applicable requirements. However, we do agree 
that this is a lower-priority use of CMP funds and ought to be limited 
to special situations. We will further address this issue in CMS 
guidance.
    Comment: One commenter suggested that CMS should not limit itself 
to only withholding future civil money penalty disbursements in cases 
where states routinely failed to comply with the acceptable use of 
civil money penalty funds. They suggested referral to the Office of the 
Inspector General, or the recoupment of such funds. Another commenter 
recommended that we require states that failed to comply to submit an 
acceptable plan of correction within 30 days. They further suggested 
that, until an acceptable plan of correction had been submitted and 
approved by CMS, that CMS continue to award these civil money penalty 
funds to entities whose applications for use of such funds met CMS 
criteria. It was also suggested that a statement that CMS is 
withholding funds due to a state's non-compliance be posted clearly and 
visibly on the state survey agency's Web site. Additionally, it was 
urged that CMS monitor a withheld state's civil money penalty activity 
on a quarterly

[[Page 45651]]

basis for at least one year after funds are once again distributed.
    Response: Specific operational details regarding the withholding of 
future civil money penalty disbursements to a state are not appropriate 
for inclusion in regulation. We plan to issue subsequent guidance 
regarding these operational details and publish this guidance in the 
State Operations Manual. While we appreciate the suggestions offered 
for further enforcement action when states are not complying with the 
acceptable uses of civil money penalty funds as specified in Sec.  
488.433, we are optimistic that the possibility of funds being withheld 
will be incentive enough for states to comply with this regulation. 
While we do not rule out the idea of posting public information about a 
state that has had funds withheld, we expect that any withholding would 
be short-lived. We will take under advisement the additional 
suggestions offered by commenters for future consideration.
    Comment: Several commenters suggested that CMS develop a 
standardized application for use of civil money penalty funds. This 
application should clearly articulate how the proposed use is not 
duplicative of statutorily mandated services, including those related 
to quality of care or quality of life, and how residents, families, 
long term care ombudsman and consumer representatives were included in 
the development of the proposed use and how they will be engaged in the 
project activities.
    Response: We agree, and will develop a standardized application 
that states may make available to any entities seeking to submit 
proposals for projects to be funded with civil money penalties. We 
expect that such a template should be completed by early CY 2015.
    Comment: One commenter suggested that CMS allow states more 
autonomy to award civil money penalty funds to applicants consistent 
with CMS-prescribed guidelines. They further noted that because states 
vary in their specific needs, they are more knowledgeable about how to 
best meet their needs in order to best serve the beneficiaries and 
residents/patients of nursing centers within the state.
    Response: We will consider ways in which states may gain more 
autonomy over time, as we learn more about projects that are 
successful, are able to fully implement the additional processes in 
this regulation, and work with stakeholders. We recognize the critical 
role that states play and wish to bolster state ability to use civil 
money penalty funds effectively. Under the arrangements already in 
place, proposals for projects utilizing civil money penalty funds are 
submitted directly to the state survey agency. The state conducts the 
initial review of all proposals and forwards those that meet CMS 
criteria and that they are recommending for final approval to the CMS 
regional office. We believe the regulations we are finalizing here will 
make the entire state civil money penalty program more coherent, more 
transparent, and more effective.
    Comment: One commenter recommends that states be allowed to align 
their civil money penalty grant process with their fiscal year in order 
to coordinate existing state grant process timeframes.
    Response: We have no objections to states aligning their civil 
money penalty grant process with their fiscal year.
5. Observations on Therapy Utilization Trends
    In the FY 2015 SNF PPS proposed rule, we discussed recent observed 
trends related to therapy service provision under the SNF Part A 
benefit, specifically with regard to overall therapy case-mix 
distribution trending toward more residents classifying into the Ultra-
High Rehabilitation groups, and therapy being reported on the MDS in 
amounts that are just enough to surpass the relevant therapy minute 
threshold for a given therapy RUG category. We also posted a memo on 
the SNF PPS Web site (available at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Spotlight.html) which discussed 
these trends in greater depth. Finally, we invited comment on the data 
presented in the proposed rule (and associated memo) and the discussion 
of observed trends. The comments we received on this topic, as well as 
our responses, appear below.
    Comment: We received a number of comments on the discussion of 
observed therapy trends. All of the commenters supported CMS in 
monitoring these trends, with a few offering their own data analytics 
surrounding the same issues raised in the memo referenced above. A few 
commenters highlighted the lack of current medical evidence related to 
how much therapy a given resident should receive. One commenter 
recommended that CMS ensure that access to specialty populations be 
accounted for in our monitoring efforts. Another commenter highlighted 
that the trends memo provides evidence of concerns and issues of which 
they have become aware related to therapy minute demands on 
practitioners, shortened evaluation times, and pressure to reduce 
services inappropriately. This commenter also noted that the minimum 
minutes for a RUG level are often perceived as maximum minutes and that 
some providers may implement internal rules that prohibit clinicians, 
against their own professional judgment from providing therapy above 
the RUG levels.
    Response: We appreciate the support for our continued monitoring 
efforts. As always, we appreciate any assistance that stakeholders may 
wish to provide in terms of understanding existing trends and data.
    With regard to the comments which highlight the lack of existing 
medical evidence for how much therapy a given resident should receive, 
we would note that the trends memo was not intended to address such an 
issue. The memo was merely intended to highlight a trend indicating 
that, the current state of medical evidence on this point 
notwithstanding, the number of therapy minutes provided to SNF 
residents within certain therapy RUG categories is, in fact, clustered 
around the minimum thresholds for a given therapy RUG category. 
However, given the comments highlighting the lack of medical evidence 
related to the appropriate amount of therapy in a given situation, it 
is all the more concerning that practice patterns would appear to be as 
homogenized as the data would suggest.
    With regard to the comment on specialty populations, we agree with 
the commenter that access must be preserved for all categories of SNF 
residents, particularly those with complex medical and nursing needs. 
As appropriate, we will examine our current monitoring efforts to 
identify any revisions which may be necessary to account appropriately 
for these populations.
    With regard to the comment which highlighted potential explanatory 
factors for the observed trends, such as internal pressure within SNFs 
that would override clinical judgment, we find these potential 
explanatory factors troubling and entirely inconsistent with the 
intended use of the SNF benefit. Specifically, the minimum therapy 
minute thresholds for each therapy RUG category are certainly not 
intended as ceilings or targets for therapy provision. As discussed in 
Chapter 8, Section 30 of the Medicare Benefit Policy Manual (Pub. 100-
02), to be covered, the services provided to a SNF resident must be 
``reasonable and necessary for the treatment of a patient's illness or 
injury, that is, are consistent with the nature and severity of the 
individual's illness or injury, the individual's particular medical 
needs, and accepted standards of medical practice.''

[[Page 45652]]

(emphasis added) Therefore, services which are not specifically 
tailored to meet the individualized needs and goals of the resident, 
based on the resident's condition and the evaluation and judgment of 
the resident's clinicians, may not meet this aspect of the definition 
for covered SNF care, and we believe that internal provider rules 
should not seek to circumvent the Medicare statute, regulations and 
policies, or the professional judgment of clinicians.
6. Accelerating Health Information Exchange in SNFs
    In the FY 2015 SNF PPS proposed rule, we included a discussion of 
our commitment to accelerating Health Information Exchange (HIE) in 
SNFs. Specifically, we noted that the Department is committed to 
accelerating HIE through the use of electronic health records (EHRs) 
and other types of health information technology 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 health information technology and HIE services 
through Medicare and Medicaid payment policies; (2) adoption of common 
standards and certification requirements for interoperable health 
information technology; (3) support for privacy and security of patient 
information across all HIE-focused initiatives; and (4) governance of 
health information networks. A discussion of the comments received on 
this topic, with our response, appears below.
    Comment: All of the comments received on this topic supported the 
overall agency goal to accelerate HIE within SNFs, and among post-acute 
care providers generally. A few commenters urged CMS to consider 
potential barriers to HIE for certain providers, such as those within 
mountainous or rural areas where connectivity may be an issue. Other 
commenters also asked that CMS continue to coordinate with the Office 
of the National Coordinator for Health Information Technology. One 
commenter asked CMS to consider providing a financial incentive for 
providers to adopt health information technology.
    Response: We appreciate the broad support for this initiative and 
the helpful suggestions provided by the commenters. We will share these 
comments with the appropriate CMS staff and other governmental agencies 
to ensure they are taken into account as we continue to encourage 
adoption of health information technology.
7. SNF Value Based Purchasing
    As noted above, on April 1, 2014, PAMA (Pub. L. 113-93) was 
enacted. Section 215 of PAMA, titled ``Skilled nursing facility value-
based purchasing,'' amended section 1888 of the Social Security Act (42 
U.S.C. 1395yy) to create new subsections (g) and (h). The provisions of 
PAMA, including section 215, may be viewed at http://www.gpo.gov/fdsys/pkg/BILLS-113hr4302enr/pdf/BILLS-113hr4302enr.pdf. We will engage in 
future rulemaking, as appropriate, to implement this section of PAMA.

V. Provisions of the Final Rule; Regulations Text

    As discussed in section IV.B. of this final rule, we are updating 
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 will use the most current 
OMB delineations (discussed in section IV.D.1) to identify a facility's 
urban or rural status for the purpose of determining which set of rate 
tables will apply to the facility. Also, effective October 1, 2015, we 
will use ICD-10-CM code B20 (in place of ICD-9-CM code 042) to identify 
those residents for whom it is appropriate to apply the AIDS add-on. 
Further, as discussed in section IV.D.1 of this final rule, we are 
finalizing changes to the wage index based on the most current OMB 
delineations, including a 1-year transition with a blended wage index 
for all SNFs for FY 2015; revising the policy governing use of the COT 
OMRA (section IV.D.3); and finalizing changes to the enforcement 
regulations related to civil money penalties utilized by states 
(section IV.D.4.).
    With reference to the civil money penalty provisions discussed in 
section IV.D.4. of this final rule, as proposed we are modifying 
current CMS regulations to provide further clarification to states and 
the public regarding prior approval and appropriate use of these 
federally-imposed civil money penalty funds.
    At Sec.  488.433, civil money penalties: Uses and approval of civil 
money penalties imposed by CMS, we will amend the regulation to specify 
that civil money penalties may not be used for state management 
operations except for the reasonable costs that are consistent with 
managing the projects utilizing 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 CMP funds may not be 
used for projects that have not been approved by CMS; specify that 
states are responsible for soliciting, accepting, monitoring and 
tracking the results of all approved activities utilizing civil money 
penalties and making this information publicly available on at least an 
annual basis; 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, in other words, 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.
    The revised CMS regulations will 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 Sec.  488.433(a), we clarify that approved projects may work to 
improve residents' quality of life and not just quality of care. We 
also clarify that 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 did not propose a monetary or numeric 
limit on what might be considered reasonable, although one to three 
percent of available funds might be considered reasonable for an 
established fund.
    At Sec.  488.433(b)(5), we clarify in a new paragraph that in 
extraordinary situations involving closure of a facility, civil money 
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

[[Page 45653]]

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 Sec.  
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 Sec.  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 change at Sec.  
488.433(b)(5) clarifies 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 Sec.  489.55 when such a situation 
occurs.
    At new Sec.  488.433(c), we specify the requirements for all civil 
money penalty fund proposals being submitted to CMS for approval.
    At new Sec.  488.433(d), we provide that civil money penalty funds 
may not be used for activities that have been disapproved by CMS.
    At new Sec.  488.433(e), we provide that states must maintain an 
acceptable plan (approved by CMS) for the effective use of civil money 
penalty funds, including a description of methods by which the state 
will solicit, accept, monitor, and track approved projects funded by 
civil money penalty amounts and make key information publicly 
available. Examples of information that must be publicly 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 clarify that these 
plans provide for a core amount of funds that will generally be held in 
reserve for emergencies such as unplanned relocation of residents 
pursuant to an involuntary termination from Medicare and Medicaid, 
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 money 
penalty funds.
    In Sec.  488.433(f), we provide 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.

VI. Collection of Information Requirements

    In the May 6, 2014, proposed rule (79 FR 25767) we solicited public 
comment on that rule's information collection requirements. While PRA-
related comments were received, the proposed rule (and this final rule) 
does not contain any new or revised recordkeeping, reporting, or third-
party disclosure requirements. Consequently, this rule does not require 
additional OMB review/approval under the authority of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501 et seq.). A summary of the 
comments and our response can be found in section IV.D.4. of this 
preamble under, ``Civil Money Penalties (section 6111 of the Affordable 
Care Act).''

VII. Economic Analyses

A. Regulatory Impact Analysis

1. Introduction
    We have examined the impacts of this final rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993), Executive Order 13563 on Improving Regulation and Regulatory 
Review (January 18, 2011), the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA, March 
22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 
4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule has been designated an economically significant 
rule, under section 3(f)(1) of Executive Order 12866 and a major rule 
under the Congressional Review Act. 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 final rule updates 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 final rule clarifies 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 final 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. The 
impact analysis of this final rule represents the projected effects of 
the changes in the SNF PPS 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

[[Page 45654]]

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 mentioned elsewhere in this final 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 final 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 IV.D.4 of this final rule, we 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 civil money 
penalty funds are withheld from a state, we expect that the state would 
eventually come into compliance and that the state would later again be 
eligible to receive civil money penalty funds.
4. Detailed Economic Analysis
    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 discussed in section IV.D.1 of this final 
rule, 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, hospital-based 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 implementing 
beginning in FY 2015. Facilities should use these 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 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 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 using the revised OMB 
delineations, and utilizing the blended wage index finalized in section 
IV.D.1.b.v above. 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 2.5 percentage points, reduced by the 0.5 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 in this rule, providers in the rural Pacific 
region would experience a 4.8 percent increase in FY 2015 total 
payments.

[[Page 45655]]

                          Table 13--RUG-IV Projected Impact to the SNF PPS for FY 2015
----------------------------------------------------------------------------------------------------------------
                                                     Number of                      Update OMB
                                                  facilities  FY    Update wage    delineations    Total change
                                                       2015       data (percent)     (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Group:
    Total.......................................          15,399             0.0             0.0             2.0
    Urban.......................................          10,862             0.0             0.0             2.0
    Rural.......................................           4,537             0.2            -0.2             1.9
    Hospital based urban........................             574             0.1             0.0             2.1
    Freestanding urban..........................          10,288             0.0             0.0             2.0
    Hospital based rural........................             640             0.2            -0.3             1.9
    Freestanding rural..........................           3,897             0.2            -0.2             1.9
Urban by region:
    New England.................................             803             0.7             0.0             2.7
    Middle Atlantic.............................           1,490             0.0             0.2             2.1
    South Atlantic..............................           1,853            -0.3             0.0             1.7
    East North Central..........................           2,054             0.0             0.0             2.0
    East South Central..........................             544            -0.7             0.1             1.3
    West North Central..........................             889            -0.1             0.1             2.0
    West South Central..........................           1,293            -0.7             0.0             1.3
    Mountain....................................             501             0.2             0.0             2.2
    Pacific.....................................           1,429             0.5             0.0             2.5
    Outlying....................................               6             0.8            -0.1             2.6
Rural by region:
    New England.................................             144             0.5             0.1             2.6
    Middle Atlantic.............................             228             1.6            -1.6             2.0
    South Atlantic..............................             504            -0.2            -0.2             1.6
    East North Central..........................             925            -0.1             0.0             2.0
    East South Central..........................             533            -0.3            -0.2             1.5
    West North Central..........................           1,093             0.2            -0.1             2.1
    West South Central..........................             770             0.2            -0.4             1.8
    Mountain....................................             235            -0.6             0.0             1.4
    Pacific.....................................             105             2.8            -0.1             4.8
    Outlying....................................               0             0.0             0.0             2.1
Ownership:
    Government..................................             852             0.1            -0.1             2.0
    Profit......................................          10,784             0.0            -0.1             1.9
    Non-profit..................................           3,763             0.1            -0.1             1.9
----------------------------------------------------------------------------------------------------------------
Note: The Total column includes the 2.5 percent market basket increase, reduced by the 0.5 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 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 our implementation of the revised OMB delineations 
discussed in section IV.D.1 above, we considered a number of potential 
alternatives in the FY 2015 SNF PPS proposed rule (79 FR 25793 through 
25795), which we also address here.
    We considered having no transition period and fully implementing 
the 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 
will experience a decrease in wage index due to implementation of the 
new OMB delineations than will experience an increase. Thus, we believe 
that it is 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 through 29095) to adopt the new 
CBSA definitions without a transition period, we anticipated that 
providers would have similar concerns with not having a transition 
period for the new OMB delineations. Therefore, 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 implementing a 1-year transition blended wage index for all SNFs 
to assist providers in adapting to the new OMB delineations. In 
determining an appropriate transition methodology,

[[Page 45656]]

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 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 supports the use of a shorter transition to the revised 
OMB delineations. As discussed above in section IV.D.1 of this final 
rule, we believe that using the most current OMB delineations will 
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 1-year (rather than a multiple year) 
transition with a blended wage index in FY 2015 strikes the best 
balance.
    Second, we considered what type of blend would be appropriate for 
purposes of the transition wage index. We proposed that providers would 
receive a 1-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 best mitigates the negative payment impacts 
associated with the implementation of the 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 the transition, 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. 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, as 
discussed in the FY 2015 SNF PPS proposed rule (79 FR 25785), if we 
were to apply the blended wage index only to those providers that would 
experience a decrease in their respective wage index values due to the 
implementation of the revised OMB delineations, the budget neutrality 
factor calculated based on this approach would reduce the base rates 
for all providers. Pursuing this type of transition policy would, in 
effect, aid the 21 percent of SNFs experiencing a decrease in their 
wage index due to the new OMB delineations (who would nevertheless also 
experience a decrease in their base rates under this alternative) at 
the expense the remaining 79 percent of SNFs, all of which would 
experience a decrease in their base rates due to the budget neutrality 
adjustment (including those SNFs experiencing either no change or an 
increase in their wage index under the new OMB delineations). However, 
as discussed in the FY 2015 SNF PPS proposed rule (79 FR 25785), if we 
apply the blended wage index to all providers, the resulting budget 
neutrality factor would not reduce the base rates for any provider. As 
discussed in the FY 2015 SNF PPS proposed rule, our goal in 
implementing a transition is to provide relief to the largest 
percentage of adversely affected SNFs with the least impact to the rest 
of facilities. We believe that the application of a one-year transition 
blended wage index for all providers best achieves this goal, as it 
mitigates the negative payment impacts of the new OMB delineations for 
adversely affected SNFs, without reducing the base rates for all 
providers.
    As discussed in section IV.D.1 above, some commenters also 
suggested that CMS consider a 3-year transition methodology similar to 
that proposed in the FY 2015 IPPS proposed rule. In the FY 2015 IPPS 
proposed rule, CMS proposed a 3-year transition for those hospitals 
that are currently in urban areas that would become rural under the new 
OMB delineations, under which such hospitals would receive the urban 
wage index of the CBSA in which they are currently located for FY 2014 
for a period of three fiscal years (see the FY 2015 IPPS proposed rule, 
79 FR 28060). However, there are important differences between the IPPS 
and SNF PPS which give rise to different implementation and impact 
considerations. Most notably, IPPS hospital providers are subject to 
the rural floor, which requires that the wage index applicable to any 
hospital located in an urban area of a state not be less than the rural 
wage index of the state (see the FY 2015 IPPS proposed rule, 79 FR 
28068). This guarantees that the wage index for rural hospitals is not 
greater than the wage index of any urban hospitals in the same state. 
As a result, hospitals moving from urban to rural status under the new 
OMB delineations are more likely to experience a decrease in their wage 
index, while hospitals moving from rural to urban status under the new 
OMB delineations are more likely to experience an increase in their 
wage index. This is not the case in the SNF PPS, where the rural floor 
is not applied and such differential impacts on urban and rural 
providers do not exist. Under the SNF PPS, the subsets of providers 
that will experience increases and decreases in wage index due to 
implementation of the new OMB delineations are quite varied. For 
example, 22 SNFs changing from urban to rural status under the new OMB 
delineations will have a higher wage index than they had in their urban 
CBSA. This would be less likely to occur if the rural floor were 
applied under the SNF PPS. Given the impacts discussed above, we 
believe that the 3-year transition policy proposed in the FY 2015 IPPS 
proposed rule and discussed above is not necessary or appropriate to 
address the impacts on SNF providers. By contrast, under the IPPS, 
hospitals currently located in urban areas that would become rural 
under the revised OMB delineations are more likely to experience a wage 
index decrease as discussed above, raising concerns over the potential 
adverse impact of the new OMB delineations on those hospitals that are 
specific to the IPPS. Therefore, we do not agree with the commenter 
that a 3-year transition policy, similar to that proposed under the 
IPPS, should be applied to those SNFs changing from urban to rural 
status under the new OMB delineations.
    To further address commenters' general suggestion that we utilize 
similar implementation policies as were proposed for hospital providers 
in the FY 2015 IPPS proposed rule, we also considered whether it would 
appropriate to apply a variation of the 3-year transition discussed 
above, pursuant to which all SNFs that would experience a decrease in 
their wage index under the new OMB delineations would receive the wage 
index of the CBSA in which they are currently located for FY 2014 for a 
period of three fiscal years. This would involve applying a different 
transition policy for this subset of SNFs (allowing them to maintain 
the wage index of the CBSA in which they are currently located for 
three fiscal years) than would be applied to other SNFs. However, 
because revisions in the SNF PPS wage index must be made in a budget 
neutral manner, as required by section 1888(e)(4)(G)(ii) of the Act, if 
such a 3-year transition policy were to be applied to this subset of 
providers, the resulting budget neutrality adjustment would

[[Page 45657]]

reduce the base payment rates for all SNFs in FY 2015, as well as 
potentially reduce base rates for each of the two additional years 
during which this transition policy would be in effect. In terms of the 
overall impact on SNFs, pursuing this type of transition policy would, 
in effect, aid the 21 percent of SNFs experiencing a decrease in their 
wage index due to the new OMB delineations (who would nevertheless also 
experience a decrease in their base rates under this alternative) at 
the expense the remaining 79 percent of SNFs, all of which would 
experience a decrease in their base rates due to the budget neutrality 
adjustment (including those SNFs experiencing either no change or an 
increase in their wage index under the new OMB delineations). As we 
stated in the FY 2015 SNF PPS proposed rule (79 FR 25785), we looked 
for a transition approach that would provide relief to the largest 
percentage of adversely affected SNFs with the least impact to the rest 
of facilities. As discussed above, we believe that the application of a 
one-year transition blended wage index for all providers best achieves 
this goal, as it mitigates the negative payment impacts of the new OMB 
delineations for adversely affected SNFs, without reducing the base 
rates for all providers. Furthermore, as discussed above, we do not 
believe a multi-year transition approach would be appropriate, given 
the need to ensure the most accurate payments possible based on the 
most current geographic delineations.
    While we understand the concern raised by these commenters 
regarding the potential impact on the subset of SNFs that would 
experience a decrease in their wage index, we believe this must be 
weighed against the interests of and impact on all SNFs. As discussed 
above, and in the SNF PPS proposed rule (79 FR 25785), we believe that 
our proposed 1-year transition policy with a 50/50 blended wage index 
for all SNFs appropriately mitigates the negative payment impacts on 
SNFs that will experience a wage index decrease due to implementation 
of the new OMB delineations, while having the least impact on the rest 
of the facilities.
    We received a comment on the potential impact of finalizing the 
proposals in the FY 2015 SNF PPS proposed rule, which is not otherwise 
addressed in prior sections of this final rule. A discussion of this 
comment, and our response, appears below.
    Comment: In their March 2014 report (available at: http://www.medpac.gov/documents/Mar14_entirereport.pdf), and in their comment 
on this proposed rule, MedPAC recommended that CMS eliminate the market 
basket update for SNFs and rebase payments for the SNF PPS, beginning 
with a 4 percent reduction in the base payment rates.
    Response: With regard to MedPAC's proposals to eliminate the market 
basket update for SNFs and to implement a 4 percent reduction to the 
SNF PPS rates, we would note that CMS does not have the statutory 
authority to act on either one of these proposals at the current time.
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 final 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 final rule, based on the data for 15,399 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 final 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 4.8 percent. 
Providers in the urban East South Central and West South Central 
regions would experience the smallest increase in payments of 1.3 
percent.

B. Regulatory Flexibility Act Analysis

    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit 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 with which they may be affiliated. 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 Web site at 
http://www.sba.gov/category/navigation-structure/contracting/contracting-officials/eligibility-size-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 final 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 
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

[[Page 45658]]

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 final 
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 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. This final rule 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 final rule on small entities in general. 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 is less than the 3 to 5 percent threshold discussed above, 
the Secretary has determined that this final 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 final 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 final rule would have no substantial direct effect 
on state and local governments, preempt state law, or otherwise have 
federalism implications.

List of Subjects in 42 CFR Part 488

    Administrative practice and procedure, Health facilities, Medicare, 
Reporting and recordkeeping requirements.

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

PART 488--SURVEY, CERTIFICATION, AND ENFORCEMENT PROCEDURES

0
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.

0
2. Section 488.433 is revised to read as follows:

Sec.  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 Sec.  488.431 and that remain 
after a final administrative decision will be deposited with the 
Department of the Treasury in accordance with Sec.  488.442(f). The 
remaining ninety percent of the collected civil money penalty funds 
that are required to be held in escrow pursuant to Sec.  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 civil 
money penalty 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).
    (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 Sec.  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 
Sec.  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, approved by CMS, 
for the effective use of civil money funds, including a description of 
methods by which the State will:
    (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

[[Page 45659]]

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 (e)(3)(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.

    Dated: July 24, 2014.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: July 30, 2014.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2014-18335 Filed 7-31-14; 4:15 pm]
BILLING CODE 4120-01-P
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