26364 Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 413, 424, and 455 

[CMS–1351–P] 

RIN 0938–AQ29 

Medicare Program; Prospective 

Payment System and Consolidated 

Billing for Skilled Nursing Facilities; 

Disclosures of Ownership and 

Additional Disclosable Parties 

Information 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule presents 

two options for updating the payment 

rates used under the prospective 

payment system for skilled nursing 

facilities (SNFs), for fiscal year 2012. In 

this context, it examines recent changes 

in provider behavior relating to the 

implementation of the Resource 

Utilization Groups, version 4 (RUG–IV) 

case-mix classification system and 

considers a possible recalibration of the 

case-mix indexes so that they more 

accurately reflect parity in expenditures 

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

includes a discussion of a Non-Therapy 

Ancillary component and outlier 

research currently under development 

within CMS. In addition, this proposed 

rule discusses the impact of certain 

provisions of the Affordable Care Act. It 

proposes to require for fiscal year 2012 

and subsequent fiscal years that the SNF 

market basket percentage change be 

reduced by the multi-factor productivity 

adjustment. It also proposes to require 

Medicare SNFs and Medicaid nursing 

facilities to disclose certain information 

to the Secretary of the United States 

Department of Health and Human 

Services (the Secretary) and other 

entities regarding the ownership and 

organizational structure of their 

facilities. Finally, it proposes certain 

changes relating to the payment of 

group therapy services and proposes 

new resident assessment policies. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on June 27, 2011. 

ADDRESSES: In commenting, please refer 

to file code CMS–1351–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the instructions under the ‘‘More Search 

Options’’ tab. 

2. By regular mail. You may mail 

written comments to the following 

address only: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–1351–P, P.O. Box 8016, Baltimore, 

MD 21244–8016. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address only: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–1351–P, Mail 

Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments before the close 

of the comment period to either of the 

following addresses: 

a. Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue, SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal Government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

7195 in advance to schedule your 

arrival with one of our staff members. 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Sandra Bastinelli, (410) 786–3630 (for 

disclosure of ownership). 

Penny Gershman, (410) 786–6643 (for 

information related to clinical issues). 

John Kane, (410) 786–0557 (for 

information related to the 

development of the payment rates and 

case-mix indexes). Kia Sidbury, (410) 

786–7816 (for information related to 

the wage index). 

Bill Ullman, (410) 786–5667 (for 

information related to level of care 

determinations, consolidated billing, 

and general information). 

SUPPLEMENTARY INFORMATION: Inspection 

of Public Comments: All comments 

received before the close of the 

comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http:// 

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 

8:30 a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

To assist readers in referencing 

sections contained in this document, we 

are providing the following Table of 

Contents. 

Table of Contents 

I. Background 

A. Current System for Payment of SNF 

Services Under Part A of the Medicare 

Program 

B. Requirements of the Balanced Budget 

Act of 1997 (BBA) for Updating the 

Prospective Payment System for Skilled 

Nursing Facilities 

C. The Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 1999 

(BBRA) 

D. The Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (BIPA) 

E. The Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) 

F. The Affordable Care Act 

G. Skilled Nursing Facility Prospective 

Payment—General Overview 

1. Payment Provisions—Federal Rate 

2. FY 2012 Rate Updates Using the Skilled 

Nursing Facility Market Basket Index 

II. FY 2012 Annual Update of Payment Rates 

Under the Prospective Payment System 

for Skilled Nursing Facilities 

A. Federal Prospective Payment System 

1. Costs and Services Covered by the 

Federal Rates 


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2. Methodology Used for the Calculation of 

the Federal Rates 

B. Case-Mix Adjustments 

1. Background 

2. Parity Adjustment 

a. Option for Recalibration of the Parity 

Adjustment 

b. Option for Application of Standard 

Update for FY 2012 Without 

Recalibration 

C. Wage Index Adjustment to Federal Rates 

D. Updates to Federal Rates 

E. Relationship of Case-Mix Classification 

System to Existing Skilled Nursing 

Facility Level-of-Care Criteria 

F. Example of Computation of Adjusted 

PPS Rates and SNF Payment 

III. Resource Utilization Groups, Version 4 

(RUG–IV) 

A. Prospective Payment for SNF NonTherapy Ancillary Costs 

1. Previous Research 

2. Conceptual Analysis 

3. Analytic Sample 

4. Approach to Analysis 

5. Payment Methodology 

a. Routine Non-Therapy Ancillary Payment 

b. Tiered Non-Routine NTA Bundled 

Payment 

c. Non-Routine NTA Outlier Payment 

6. Temporary AIDS Add-On Payment 

Under Section 511 of the MMA 

IV. Ongoing Initiatives Under the Affordable 

Care Act 

A. Value-Based Purchasing (Section 3006) 

B. Payment Adjustment for HospitalAcquired Conditions (Section 3008) 

C. Nursing Home Transparency and 

Improvement (Section 6104) 

V. Other Issues 

A. Required Disclosure of Ownership and 

Additional Disclosable Parties 

Information (Section 6101) 

B. Therapy Student Supervision 

C. Group Therapy and Therapy 

Documentation 

D. Proposed Changes to the MDS 3.0 

Assessment Schedule and Other 

Medicare-Required Assessments 

E. Discussion of Possible Future Initiatives 

VI. The Skilled Nursing Facility Market 

Basket Index 

A. Use of the Skilled Nursing Facility 

Market Basket Percentage 

B. Market Basket Forecast Error 

Adjustment 

C. Multifactor Productivity Adjustment 

1. Incorporating the Multifactor 

Productivity Adjustment Into the Market 

Basket Update 

D. Federal Rate Update Factor 

VII. Consolidated Billing 

VIII. Application of the SNF PPS to SNF 

Services Furnished by Swing-Bed 

Hospitals 

IX. Provisions of the Proposed Rule 

X. Collection of Information Requirements 

XI. Response to Comments 

XII. Economic Analyses 

A. Regulatory Impact Analysis 

1. Introduction 

2. Statement of Need 

3. Overall Impacts 

4. Detailed Economic Analysis 

a. Impacts of Implementing the 

Recalibration Option for FY 2012 

b. Impacts of Not Implementing the 

Recalibration Option for FY 2012 

5. Alternatives Considered 

6. Accounting Statement 

7. Conclusion 

B. Regulatory Flexibility Act Analysis 

C. Unfunded Mandates Reform Act 

Analysis 

D. Federalism Analysis 

Regulation Text 

Addendum: 

FY 2012 CBSA-Based Wage Index Tables 

(Tables A & B) 

Abbreviations 

In addition, because of the many 

terms to which we refer by abbreviation 

in this proposed rule, we are listing 

these abbreviations and their 

corresponding terms in alphabetical 

order below: 

ABN Advance Beneficiary Notice 

AIDS Acquired Immune Deficiency 

Syndrome 

ARD Assessment Reference Date 

ASAP Assessment Submission and 

Processing 

BBA Balanced Budget Act of 1997, Public 

Law 105–33 

BBRA Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 1999, 

Public Law 106–113 

BIMS Brief Interview for Mental Status 

BIPA Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection Act 

of 2000, Public Law 106–554 

CAH Critical Access Hospital 

CBSA Core-Based Statistical Area 

CCR Cost-to-Charge Ratio 

CFR Code of Federal Regulations 

CMI Case-Mix Index 

CMS Centers for Medicare & Medicaid 

Services 

COT Change of Therapy 

EOT End of Therapy 

EOT–R End of Therapy—Resumption 

FQHC Federally Qualified Health Center 

FR Federal Register 

FY Fiscal Year 

GAO Government Accountability Office 

HAC Hospital-Acquired Condition 

HCC Hierarchical Condition Category 

HCPCS Healthcare Common Procedure 

Coding System 

HR–III Hybrid Resource Utilization Groups, 

Version 3 

IGI IHS (Information Handling Services) 

Global Insight, Inc. 

MDS Minimum Data Set 

MFP Multifactor Productivity 

MIPPA Medicare Improvements for Patients 

and Providers Act of 2008, Public Law 

110–275 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003, Public Law 108–173 

MMSEA Medicare, Medicaid, and SCHIP 

Extension Act of 2007, Public Law 110–173 

MPAF Medicare PPS Assessment Form 

MSA Metropolitan Statistical Area 

NTA Non-Therapy Ancillary 

OMB Office of Management and Budget 

OMRA Other Medicare-Required 

Assessment 

ONTA Other Non-Therapy Ancillary 

OSCAR Online Survey Certification and 

Reporting System 

PAC–PRD Post Acute Care Payment Reform 

Demonstration 

PECOS Medicare Provider Enrollment, 

Chain, and Ownership System 

PPS Prospective Payment System 

QIES Quality Improvement and Evaluation 

System 

RAI Resident Assessment Instrument 

RAVEN Resident Assessment Validation 

Entry 

RFA Regulatory Flexibility Act, Public Law 

96–354 

RNP Routine NTA Bundled Payment 

RHC Rural Health Clinic 

RIA Regulatory Impact Analysis 

RTM Reimbursable Therapy Minutes 

RUG–III Resource Utilization Groups, 

Version 3 

RUG–IV Resource Utilization Groups, 

Version 4 

RUG–53 Refined 53–Group RUG–III CaseMix Classification System 

SCHIP State Children’s Health Insurance 

Program 

SNF Skilled Nursing Facility 

STM Staff Time Measurement 

STRIVE Staff Time and Resource Intensity 

Verification 

TNP Tiered Non-routine NTA Payment 

UMRA Unfunded Mandates Reform Act, 

Public Law 104–4 

I. Background 

Annual updates to the prospective 

payment system (PPS) rates for skilled 

nursing facilities (SNFs) are required by 

section 1888(e) of the Social Security 

Act (the Act), as added by section 4432 

of the Balanced Budget Act of 1997 

(BBA, Public Law 105–33, enacted on 

August 5, 1997), and amended by 

subsequent legislation as discussed 

elsewhere in this preamble. Our most 

recent annual update occurred in an 

update notice with comment period (75 

FR 42886, July 22, 2010) that set forth 

updates to the SNF PPS payment rates 

for fiscal year (FY) 2011. We 

subsequently published a correction 

notice (75 FR 55801, September 14, 

2010) with respect to those payment rate 

updates. We will respond to public 

comments which relate to the FY 2011 

update notice, along with those relating 

to this current proposed rule, in the FY 

2012 final rule. 

A. Current System for Payment of 

Skilled Nursing Facility Services Under 

Part A of the Medicare Program 

Section 4432 of the BBA amended 

section 1888 of the Act to provide for 

the implementation of a per diem PPS 

for SNFs, covering all costs (routine, 

ancillary, and capital-related) of covered 

SNF services furnished to beneficiaries 

under Part A of the Medicare program, 

effective for cost reporting periods 

beginning on or after July 1, 1998. In 

this proposed rule, we would update the 


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per diem payment rates for SNFs for FY 

2012. Major elements of the SNF PPS 

include: 

• Rates. As discussed in section I.G.1. 

of this proposed rule, we established per 

diem Federal rates for urban and rural 

areas using allowable costs from FY 

1995 cost reports. These rates also 

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

of the cost of those services that, before 

July 1, 1998, were paid under Part B but 

furnished to Medicare beneficiaries in a 

SNF during a Part A covered stay). We 

adjust the rates annually using a SNF 

market basket index, and we adjust 

them by the hospital inpatient wage 

index to account for geographic 

variation in wages. We also apply a 

case-mix adjustment to account for the 

relative resource utilization of different 

patient types. As further discussed in 

section I.G.1. of this proposed rule, for 

FY 2012 this adjustment will utilize the 

Resource Utilization Groups, version 4 

(RUG–IV) case-mix classification, and 

will use information obtained from the 

required resident assessments using 

version 3.0 of the Minimum Data Set 

(MDS 3.0). (The resident assessment is 

approved under OMB# 0938–0739.) 

Additionally, as noted elsewhere in this 

preamble, the payment rates at various 

times have also reflected specific 

legislative provisions for certain 

temporary adjustments. 

• Transition. Under sections 

1888(e)(1)(A) and (e)(11) of the Act, the 

SNF PPS included an initial, threephase transition that blended a facilityspecific rate (reflecting the individual 

facility’s historical cost experience) with 

the Federal case-mix adjusted rate. The 

transition extended through the 

facility’s first three cost reporting 

periods under the PPS, up to and 

including the one that began in FY 

2001. Thus, the SNF PPS is no longer 

operating under the transition, as all 

facilities have been paid at the full 

Federal rate effective with cost reporting 

periods beginning in FY 2002. As we 

now base payments entirely on the 

adjusted Federal per diem rates, we no 

longer include adjustment factors 

related to facility-specific rates for the 

coming FY. 

• Coverage. The establishment of the 

SNF PPS did not change Medicare’s 

fundamental requirements for SNF 

coverage. However, because the casemix classification is based, in part, on 

the beneficiary’s need for skilled 

nursing care and therapy, we have 

attempted, where possible, to coordinate 

claims review procedures with the 

existing resident assessment process 

and case-mix classification system. As 

further discussed in section II.E. of this 

proposed rule, in FY 2012, 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 casemix classification system to assist in 

making certain SNF level of care 

determinations. In the July 30, 1999 

final rule (64 FR 41670), we indicated 

that we would announce any changes to 

the guidelines for Medicare level of care 

determinations related to modifications 

in the case-mix classification structure 

(see section II.E. of this proposed rule 

for a more detailed discussion of the 

relationship between the case-mix 

classification system and SNF level of 

care determinations). 

• Consolidated Billing. The SNF PPS 

includes a consolidated billing 

provision that requires a SNF to submit 

consolidated Medicare bills to its fiscal 

intermediary or Medicare 

Administrative Contractor for almost all 

of the services that its residents receive 

during the course of a covered Part A 

stay. In addition, this provision places 

with the SNF the Medicare billing 

responsibility for physical therapy, 

occupational therapy, and speechlanguage pathology services that the 

resident receives during a noncovered 

stay. The statute excludes a small list of 

services from the consolidated billing 

provision (primarily those of physicians 

and certain other types of practitioners), 

which remain separately billable under 

Part B when furnished to a SNF’s Part 

A resident. A more detailed discussion 

of this provision appears in section VII. 

of this proposed rule. 

• Application of the SNF PPS to SNF 

services furnished by swing-bed 

hospitals. Section 1883 of the Act 

permits certain small, rural hospitals to 

enter into a Medicare swing-bed 

agreement, under which the hospital 

can use its beds to provide either acute 

or SNF care, as needed. For critical 

access hospitals (CAHs), Part A pays on 

a reasonable cost basis for SNF services 

furnished under a swing-bed agreement. 

However, in accordance with section 

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

furnished by non-CAH rural hospitals 

are paid under the SNF PPS, effective 

with cost reporting periods beginning 

on or after July 1, 2002. A more detailed 

discussion of this provision appears in 

section VIII. of this proposed rule. 

B. Requirements of the Balanced Budget 

Act of 1997 (BBA) for Updating the 

Prospective Payment System for Skilled 

Nursing Facilities 

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

requires that we provide for publication 

annually in the Federal Register: 

1. The unadjusted Federal per diem 

rates to be applied to days of covered 

SNF services furnished during the 

upcoming FY. 

2. The case-mix classification system 

to be applied with respect to these 

services during the upcoming FY. 

3. The factors to be applied in making 

the area wage adjustment with respect 

to these services. 

Along with other revisions discussed 

later in this preamble, this proposed 

rule provides these required annual 

updates to the Federal rates. 

C. The Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 

1999 (BBRA) 

There were several provisions in the 

BBRA (Pub. L. 106–113, enacted on 

November 29, 1999) that resulted in 

adjustments to the SNF PPS. We 

described these provisions in detail in 

the SNF PPS final rule for FY 2001 (65 

FR 46770, July 31, 2000). In particular, 

section 101(a) of the BBRA provided for 

a temporary 20 percent increase in the 

per diem adjusted payment rates for 15 

specified groups in the original, 44- 

group Resource Utilization Groups, 

version 3 (RUG–III) case-mix 

classification system. In accordance 

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

temporary payment adjustment expired 

on January 1, 2006, upon the 

implementation of a refined, 53-group 

version of the RUG–III system, RUG–53 

(see section I.G.1. of this proposed rule). 

We included further information on 

BBRA provisions that affected the SNF 

PPS in Program Memoranda A–99–53 

and A–99–61 (December 1999). 

Also, section 103 of the BBRA 

designated certain additional services 

for exclusion from the consolidated 

billing requirement, as discussed in 

section VII. of this proposed rule. 

Further, for swing-bed hospitals with 

more than 49 (but less than 100) beds, 

section 408 of the BBRA provided for 

the repeal of certain statutory 

restrictions on length of stay and 

aggregate payment for patient days, 

effective with the end of the SNF PPS 

transition period described in section 

1888(e)(2)(E) of the Act. In the final rule 

for FY 2002 (66 FR 39562, July 31, 

2001), we made conforming changes to 

the regulations at § 413.114(d), effective 

for services furnished in cost reporting 

periods beginning on or after July 1, 

2002, to reflect section 408 of the BBRA. 

D. The Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (BIPA) 

The BIPA (Pub. L. 106–554, enacted 

December 21, 2000) also included 

several provisions that resulted in 

adjustments to the SNF PPS. We 

described these provisions in detail in 


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the final rule for FY 2002 (66 FR 39562, 

July 31, 2001). In particular: 

• Section 203 of the BIPA exempted 

CAH swing beds from the SNF PPS. We 

included further information on this 

provision in Program Memorandum A– 

01–09 (Change Request #1509), issued 

January 16, 2001, which is available 

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

transmittals/downloads/a0109.pdf. 

• Section 311 of the BIPA revised the 

statutory update formula for the SNF 

market basket, and also directed us to 

conduct a study of alternative case-mix 

classification systems for the SNF PPS. 

In 2006, we submitted a report to the 

Congress on this study, which is 

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

SNFPPS/Downloads/RC_2006_PCPPSSNF.pdf. 

• Section 312 of the BIPA provided 

for a temporary increase of 16.66 

percent in the nursing component of the 

case-mix adjusted Federal rate for 

services furnished on or after April 1, 

2001, and before October 1, 2002; 

accordingly, this add-on is no longer in 

effect. This section also directed the 

Government Accountability Office 

(GAO) to conduct an audit of SNF 

nursing staff ratios and submit a report 

to the Congress on whether the 

temporary increase in the nursing 

component should be continued. The 

report (GAO–03–176), which GAO 

issued in November 2002, is available 

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

new.items/d03176.pdf. 

• Section 313 of the BIPA repealed 

the consolidated billing requirement for 

services (other than physical therapy, 

occupational therapy, and speechlanguage pathology services) furnished 

to SNF residents during noncovered 

stays, effective January 1, 2001. (A more 

detailed discussion of this provision 

appears in section VII. of this proposed 

rule.) 

• Section 314 of the BIPA corrected 

an anomaly involving three of the RUGs 

that section 101(a) of the BBRA had 

designated to receive the temporary 

payment adjustment discussed above in 

section I.C. of this proposed rule. (As 

noted previously, in accordance with 

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

temporary payment adjustment expired 

upon the implementation of case-mix 

refinements on January 1, 2006.) 

• Section 315 of the BIPA authorized 

us to establish a geographic 

reclassification procedure that is 

specific to SNFs, but only after 

collecting the data necessary to establish 

a SNF wage index that is based on wage 

data from nursing homes. To date, this 

has proven to be unfeasible due to the 

volatility of existing SNF wage data and 

the significant amount of resources that 

would be required to improve the 

quality of that data. 

We included further information on 

several of the BIPA provisions in 

Program Memorandum A–01–08 

(Change Request #1510), issued January 

16, 2001, which is available online at 

http://www.cms.gov/transmittals/ 

downloads/a0108.pdf. 

E. The Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) 

The MMA (Pub. L. 108–173, enacted 

on December 8, 2003) included a 

provision that resulted in a further 

adjustment to the SNF PPS. Specifically, 

section 511 of the MMA amended 

section 1888(e)(12) of the Act, to 

provide for a temporary increase of 128 

percent in the PPS per diem payment 

for any SNF residents with Acquired 

Immune Deficiency Syndrome (AIDS), 

effective with services furnished on or 

after October 1, 2004. This special AIDS 

add-on was to remain in effect until 

‘‘* * * the Secretary certifies that there 

is an appropriate adjustment in the case 

mix * * * to compensate for the 

increased costs associated with [such] 

residents * * *.’’ The AIDS add-on is 

also discussed in Program Transmittal 

#160 (Change Request #3291), issued on 

April 30, 2004, which is available 

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

transmittals/downloads/r160cp.pdf. In 

the SNF PPS final rule for FY 2010 (74 

FR 40288, August 11, 2009), we did not 

address the certification of the AIDS 

add-on in that final rule’s 

implementation of the case-mix 

refinements for RUG–IV, thus allowing 

the temporary add-on payment created 

by section 511 of the MMA to remain in 

effect. 

For the limited number of SNF 

residents that qualify for the AIDS addon, implementation of this provision 

results in a significant increase in 

payment. For example, using FY 2009 

data, we identified less than 3,500 SNF 

residents with a diagnosis code of 042 

(Human Immunodeficiency Virus (HIV) 

Infection). For FY 2012, an urban 

facility with a resident with AIDS in 

RUG–IV group ‘‘HC2’’ would have a 

case-mix adjusted payment of $400.01 

(see Table 5) before the application of 

the MMA adjustment. After an increase 

of 128 percent, this urban facility would 

receive a case-mix adjusted payment of 

approximately $912.02. 

In addition, section 410 of the MMA 

contained a provision that excluded 

from consolidated billing certain 

services furnished to SNF residents by 

rural health clinics (RHCs) and 

Federally Qualified Health Centers 

(FQHCs). (Further information on this 

provision appears in section VII of this 

proposed rule.) 

F. The Affordable Care Act 

On March 23, 2010, the Patient 

Protection and Affordable Care Act, 

Public Law 111–148, was enacted. 

Following the enactment of Public Law 

111–148, the Health Care and Education 

Reconciliation Act of 2010 (Pub. L. 111– 

152, enacted on March 30, 2010) 

amended certain provisions of Public 

Law 111–148 and certain sections of the 

Social Security Act and, in certain 

instances, included ‘‘freestanding’’ 

provisions (Pub. L. 111–148 and Pub. L. 

111–152 are collectively referred to in 

this proposed rule as ‘‘the Affordable 

Care Act’’). Section 10325 of the 

Affordable Care Act included a 

provision involving the SNF PPS. 

Section 10325 postponed the 

implementation of the RUG–IV case-mix 

classification system published in the 

FY 2010 SNF PPS final rule (74 FR 

40288, August 11, 2009), requiring that 

the Secretary not implement the RUG– 

IV case-mix classification system before 

October 1, 2011. Notwithstanding this 

postponement of overall RUG–IV 

implementation, section 10325 further 

specified that the Secretary implement, 

effective October 1 2010, the changes 

related to concurrent therapy and the 

look-back period that were finalized as 

components of RUG–IV (see 74 FR 

40315–19, 40322–24, August 11, 2009). 

As we noted in the FY 2011 SNF PPS 

update notice (75 FR 42889), 

implementing the particular 

combination of RUG–III and RUG–IV 

features specified in section 10325 of 

the Affordable Care Act would require 

developing a revised grouper, something 

that could not be accomplished by that 

provision’s effective date (October 1, 

2010) without risking serious disruption 

to providers, suppliers, and State 

agencies. Accordingly, in the FY 2011 

update notice (75 FR 42889), we 

announced our intention to proceed on 

an interim basis with implementation of 

the full RUG–IV case-mix classification 

system as of October 1, 2010, followed 

by a retroactive claims adjustment, 

using a hybrid RUG–III (HR–III) system 

reflecting the Affordable Care Act 

configuration, once we had developed a 

revised grouper that could 

accommodate it. In that update notice, 

we also invited public comment 

specifically on our plans for 

implementing section 10325 of the 

Affordable Care Act in this manner. 

However, on December 15, 2010, the 

President signed H.R. 4994, the 

‘‘Medicare and Medicaid Extenders Act 

of 2010’’ (Pub. L. 111–309), in which 

section 202 repeals section 10325 of the 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
26368 Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Proposed Rules 

Affordable Care Act. We will, therefore, 

leave in place permanently the 

implementation of the full RUG–IV 

system as of FY 2011, as finalized in the 

FY 2010 SNF PPS final rule (74 FR 

40288). Moreover, as the repeal of 

section 10325 of the Affordable Care Act 

has now eliminated the need for a 

subsequent transition to the HR–III 

system, this also effectively renders 

moot any further discussion of public 

comments that we had invited on our 

planned implementation of that 

transition. In addition, we note that 

implementation of version 3.0 of the 

Minimum Data Set (MDS 3.0) has 

proceeded as originally scheduled, with 

an effective date of October 1, 2010. The 

MDS 3.0 RAI Manual and MDS 3.0 Item 

Set are published on the MDS 3.0 

Training Materials Web site, at http:// 

www.cms.gov/ 

NursingHomeQualityInits/ 

45_NHQIMDS30TrainingMaterials.asp. 

We note that a parity adjustment was 

applied to the RUG–53 nursing case-mix 

weights when the RUG–III system was 

initially refined in 2006, in order to 

ensure that the implementation of the 

refinements would not cause any 

change in overall payment levels (70 FR 

45031, August 4, 2005). A detailed 

discussion of the parity adjustment in 

the specific context of the RUG–IV 

payment rates appears in the FY 2010 

SNF PPS proposed rule (74 FR 22236– 

38, May 12, 2009) and final rule (74 FR 

40338–40339, August 11, 2009), and in 

the FY 2011 update notice (75 FR 

42892–42893). 

Accordingly, as discussed above, 

effective October 1, 2010, we 

implemented and paid claims under the 

RUG–IV system that was finalized in the 

FY 2010 SNF PPS final rule. In section 

IV. of this proposed rule, we discuss 

certain ongoing Affordable Care Act 

initiatives that relate to SNFs, and in 

section V.A., we discuss proposed 

revisions involving section 6101 of the 

Affordable Care Act, regarding required 

disclosure of ownership and additional 

disclosable parties information. 

G. Skilled Nursing Facility Prospective 

Payment—General Overview 

We implemented the Medicare SNF 

PPS effective with cost reporting 

periods beginning on or after July 1, 

1998. This methodology uses 

prospective, case-mix adjusted per diem 

payment rates applicable to all covered 

SNF services. These payment rates 

cover all costs of furnishing covered 

skilled nursing services (routine, 

ancillary, and capital-related costs) 

other than costs associated with 

approved educational activities and bad 

debts. Covered SNF services include 

post-hospital services for which benefits 

are provided under Part A, as well as 

those items and services (other than 

physician and certain other services 

specifically excluded under the BBA) 

which, before July 1, 1998, had been 

paid under Part B but furnished to 

Medicare beneficiaries in a SNF during 

a covered Part A stay. A comprehensive 

discussion of these provisions appears 

in the May 12, 1998 interim final rule 

(63 FR 26252). 

1. Payment Provisions—Federal Rate 

The PPS uses per diem Federal 

payment rates based on mean SNF costs 

in a base year (FY 1995) updated for 

inflation to the first effective period of 

the PPS. We developed the Federal 

payment rates using allowable costs 

from hospital-based and freestanding 

SNF cost reports for reporting periods 

beginning in FY 1995. The data used in 

developing the Federal rates also 

incorporated an estimate of the amounts 

that would be payable under Part B for 

covered SNF services furnished to 

individuals during the course of a 

covered Part A stay in a SNF. 

In developing the rates for the initial 

period, we updated costs to the first 

effective year of the PPS (the 15-month 

period beginning July 1, 1998) using a 

SNF market basket index, and then 

standardized for the costs of facility 

differences in case mix and for 

geographic variations in wages. In 

compiling the database used to compute 

the Federal payment rates, we excluded 

those providers that received new 

provider exemptions from the routine 

cost limits, as well as costs related to 

payments for exceptions to the routine 

cost limits. Using the formula that the 

BBA prescribed, we set the Federal rates 

at a level equal to the weighted mean of 

freestanding costs plus 50 percent of the 

difference between the freestanding 

mean and weighted mean of all SNF 

costs (hospital-based and freestanding) 

combined. We computed and applied 

separately the payment rates for 

facilities located in urban and rural 

areas. In addition, we adjusted the 

portion of the Federal rate attributable 

to wage-related costs by a wage index. 

The Federal rate also incorporates 

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

accounts for the relative resource 

utilization of different patient types. 

The RUG–IV classification system uses 

beneficiary assessment data from the 

MDS 3.0 completed by SNFs to assign 

beneficiaries to one of 66 RUG–IV 

groups. The original RUG–III case-mix 

classification system used beneficiary 

assessment data from the MDS, version 

2.0 (MDS 2.0) completed by SNFs to 

assign beneficiaries to one of 44 RUG– 

III groups. Then, under incremental 

refinements that became effective on 

January 1, 2006, we added nine new 

groups—comprising a new 

Rehabilitation plus Extensive Services 

category—at the top of the RUG–III 

hierarchy. The May 12, 1998 interim 

final rule (63 FR 26252) included a 

detailed description of the original 44- 

group RUG–III case-mix classification 

system. A comprehensive description of 

the refined RUG–53 system appeared in 

the proposed and final rules for FY 2006 

(70 FR 29070, May 19, 2005, and 70 FR 

45026, August 4, 2005), and a detailed 

description of the current 66-group 

RUG–IV system appeared in the 

proposed and final rules for FY 2010 (74 

FR 22208, May 12, 2009, and 74 FR 

40288, August 11, 2009). 

Further, in accordance with sections 

1888(e)(4)(E)(ii)(IV) and (e)(5) of the Act, 

the Federal rates in this proposed rule 

reflect an update to the rates that we 

published in the update notice for FY 

2011 (75 FR 42886, July 22, 2010) and 

the associated correction notice (75 FR 

55801, September 14, 2010), equal to the 

full change in the SNF market basket 

index, adjusted by the forecast error 

correction, if applicable, and the 

Multifactor Productivity (MFP) 

adjustment for FY 2012. A more 

detailed discussion of the SNF market 

basket index and related issues appears 

in sections I.G.2. and VI. of this 

proposed rule. 

2. FY 2012 Rate Updates Using the 

Skilled Nursing Facility Market Basket 

Index 

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

us to establish a SNF market basket 

index that reflects changes over time in 

the prices of an appropriate mix of 

goods and services included in covered 

SNF services. We use the SNF market 

basket index, adjusted in the manner 

described below, to update the Federal 

rates on an annual basis. In the SNF PPS 

final rule for FY 2008 (72 FR 43425 

through 43430, August 3, 2007), we 

revised and rebased the market basket, 

which included updating the base year 

from FY 1997 to FY 2004. The proposed 

FY 2012 market basket increase is 2.7 

percent, which is based on IHS Global 

Insight, Inc. (IGI) first quarter 2011 

forecast with historical data through 

fourth quarter 2010. 

In addition, as explained in the final 

rule for FY 2004 (66 FR 46058, August 

4, 2003) and in section VI.B. of this 

proposed rule, the annual update of the 

payment rates includes, as appropriate, 

an adjustment to account for market 

basket forecast error. As described in the 

final rule for FY 2008, the threshold 


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percentage that serves to trigger an 

adjustment to account for market basket 

forecast error is 0.5 percentage point 

effective for FY 2008 and subsequent 

years. This adjustment takes into 

account the forecast error from the most 

recently available FY for which there is 

final data, and applies whenever the 

difference between the forecasted and 

actual change in the market basket 

exceeds a 0.5 percentage point 

threshold. For FY 2010 (the most 

recently available FY for which there is 

final data), the estimated increase in the 

market basket index was 2.2 percentage 

points, while the actual increase was 2.0 

percentage points, resulting in the 

actual increase being 0.2 percentage 

point lower than the estimated increase. 

Accordingly, as the difference between 

the estimated and actual amount of 

change does not exceed the 0.5 

percentage point threshold, the payment 

rates for FY 2012 do not include a 

forecast error adjustment. As we stated 

in the final rule for FY 2004 that first 

promulgated the forecast error 

adjustment (68 FR 46058, August 4, 

2003), the adjustment will ‘‘* * * reflect 

both upward and downward 

adjustments, as appropriate.’’ Table 1 

shows the forecasted and actual market 

basket amounts for FY 2010. 

TABLE 1—DIFFERENCE BETWEEN THE FORECASTED AND ACTUAL MARKET BASKET INCREASES FOR FY 2010 

Index Forecasted 

FY 2010 increase * 

Actual 

FY 2010 increase ** FY 2010 difference 

SNF .............................................................................................. 2.2 2.0 ¥0.2 

* Published in Federal Register; based on second quarter 2009 IHS Global Insight Inc. forecast (2004-based index). 

** Based on the first quarter 2011 IHS Global Insight forecast, with historical data through the fourth quarter 2010 (2004-based index). 

Furthermore, effective FY 2012, as 

required by section 3401(b) of the 

Affordable Care Act, the market basket 

percentage is reduced by a productivity 

adjustment equal to ‘‘the 10-year moving 

average of changes in annual economywide private nonfarm business multifactor productivity (as projected by the 

Secretary for the 10-year period ending 

with the applicable fiscal year, year, 

cost-reporting period or other annual 

period)’’ (the MFP adjustment). As 

discussed in greater detail in section 

VI.C of this proposed rule, the proposed 

MFP adjustment for FY 2012 is 1.2 

percent. 

II. FY 2012 Annual Update of Payment 

Rates Under the Prospective Payment 

System for Skilled Nursing Facilities 

A. Federal Prospective Payment System 

This proposed rule sets forth a 

schedule of Federal prospective 

payment rates applicable to Medicare 

Part A SNF services beginning October 

1, 2011. The schedule incorporates per 

diem Federal rates that provide Part A 

payment for almost all costs of services 

furnished to a beneficiary in a SNF 

during a Medicare-covered stay. 

1. Costs and Services Covered by the 

Federal Rates 

In accordance with section 

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

rates apply to all costs (routine, 

ancillary, and capital-related) of covered 

SNF services other than costs associated 

with approved educational activities as 

defined in § 413.85. Under section 

1888(e)(2)(A)(i) of the Act, covered SNF 

services include post-hospital SNF 

services for which benefits are provided 

under Part A (the hospital insurance 

program), as well as all items and 

services (other than those services 

excluded by statute) that, before July 1, 

1998, were paid under Part B (the 

supplementary medical insurance 

program) but furnished to Medicare 

beneficiaries in a SNF during a Part A 

covered stay. (These excluded service 

categories are discussed in greater detail 

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

interim final rule (63 FR 26295 through 

26297)). 

2. Methodology Used for the Calculation 

of the Federal Rates 

The FY 2012 rates reflect an update 

using the latest market basket index, 

reduced by the MFP adjustment. The FY 

2012 market basket increase factor is 2.7 

percent, which as discussed in section 

VI.C of this proposed rule, is reduced by 

a 1.2 percent MFP adjustment. A 

complete description of the multi-step 

process used to calculate Federal rates 

initially appeared in the May 12, 1998 

interim final rule (63 FR 26252), as 

further revised in subsequent rules. As 

explained above in section I.C of this 

proposed rule, under section 101(c)(2) 

of the BBRA, the previous temporary 

increases in the per diem adjusted 

payment rates for certain designated 

RUGs (as specified in section 101(a) of 

the BBRA and section 314 of the BIPA) 

are no longer in effect due to the 

implementation of case-mix refinements 

as of January 1, 2006. However, the 

temporary increase of 128 percent in the 

per diem adjusted payment rates for 

SNF residents with AIDS, enacted by 

section 511 of the MMA, remains in 

effect. 

We used the SNF market basket to 

adjust each per diem component of the 

Federal rates forward to reflect cost 

increases occurring between the 

midpoint of the Federal FY beginning 

October 1, 2010, and ending September 

30, 2011, and the midpoint of the 

Federal FY beginning October 1, 2011, 

and ending September 30, 2012, to 

which the payment rates apply. In 

accordance with sections 

1888(e)(4)(E)(ii)(IV) and (e)(5) of the Act, 

we update the payment rates for FY 

2012 by a factor equal to the market 

basket index percentage increase, as 

discussed in sections I.G.2 and VI. of 

this proposed rule. As further explained 

in sections I.G.2 and VI. of this 

proposed rule, as applicable, we adjust 

the market basket index by the forecast 

error from the most recently available 

FY for which there is final data and 

apply this adjustment whenever the 

difference between the forecasted and 

actual change in the market basket 

exceeds a 0.5 percentage point 

threshold. In addition, as further 

explained in sections I.G.2 and VI. of 

this proposed rule, effective FY 2012 

and each subsequent fiscal year, we are 

required to reduce the market basket 

percentage by the MFP adjustment. We 

further adjust the rates by a wage index 

budget neutrality factor, described later 

in this section. Tables 2 and 3 reflect the 

updated components of the unadjusted 

Federal rates for FY 2012, prior to 

adjustment for case-mix. 


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TABLE 2—FY 2012 UNADJUSTED FEDERAL RATE PER DIEM URBAN

Rate component Nursing— 

case-mix 

Therapy— 

case-mix 

Therapy— 

non-case-mix Non-case-mix 

Per Diem Amount .................................................................... $160.20 $120.68 $15.90 $81.76 

TABLE 3—FY 2012 UNADJUSTED FEDERAL RATE PER DIEM RURAL

Rate component Nursing— 

case-mix 

Therapy— 

case-mix 

Therapy— 

non-case-mix Non-case-mix 

Per Diem Amount .................................................................... $153.07 $139.15 $16.97 $83.28 

B. Case-Mix Adjustments 

1. Background 

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

requires the Secretary to make an 

adjustment to account for case mix. The 

statute specifies that the adjustment is 

to reflect both a resident classification 

system that the Secretary establishes to 

account for the relative resource use of 

different patient types, as well as 

resident assessment and other data that 

the Secretary considers appropriate. In 

first implementing the SNF PPS (63 FR 

26252, May 12, 1998), we developed the 

RUG–III case-mix classification system, 

which tied the amount of payment to 

resident resource use in combination 

with resident characteristic information. 

Staff time measurement (STM) studies 

conducted in 1990, 1995, and 1997 

provided information on resource use 

(time spent by staff members on 

residents) and resident characteristics 

that enabled us not only to establish 

RUG–III, but also to create case-mix 

indexes (CMIs). 

Although the establishment of the 

SNF PPS did not change Medicare’s 

fundamental requirements for SNF 

coverage, there is a correlation between 

level of care and provider payment. One 

of the elements affecting the SNF PPS 

per diem rates is the case-mix 

adjustment derived from a classification 

system based on comprehensive 

resident assessments using the MDS. 

Case-mix classification is based, in part, 

on the beneficiary’s need for skilled 

nursing care and therapy. The case-mix 

classification system uses clinical data 

from the MDS, and wage-adjusted staff 

time measurement data, to assign a casemix group to each patient record that is 

then used to calculate a per diem 

payment under the SNF PPS. Because 

the MDS is a payment as well as a 

clinical document, we have provided 

extensive training on proper coding and 

the time frames for MDS completion in 

our Resident Assessment Instrument 

(RAI) Manual. For an MDS to be 

considered valid for use in determining 

payment, the MDS assessment must be 

completed in compliance with the 

instructions in the RAI Manual in effect 

at the time the assessment is completed. 

For payment and quality monitoring 

purposes, the RAI Manual consists of 

both the Manual instructions and the 

interpretive guidance and policy 

clarifications posted on the appropriate 

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

NursingHomeQualityInits/25_

NHQIMDS30.asp. 

The original RUG–III grouper logic 

was based on clinical data collected in 

1990, 1995, and 1997. As discussed in 

the SNF PPS proposed rule for FY 2010 

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

subsequently conducted a multi-year 

data collection and analysis under the 

Staff Time and Resource Intensity 

Verification (STRIVE) project to update 

the case-mix classification system for 

FY 2011. The resulting RUG–IV casemix classification system reflected the 

data collected in 2006–2007 during the 

STRIVE project, and was finalized in the 

FY 2010 SNF PPS final rule (74 FR 

40288, August 11, 2009) to take effect in 

FY 2011 concurrently with an updated 

new resident assessment instrument, the 

MDS 3.0, which collects the clinical 

data used for case-mix classification 

under RUG–IV. 

Under the BBA, each update of the 

SNF PPS payment rates must include 

the case-mix classification methodology 

applicable for the coming Federal FY. 

As indicated in section I.G of this 

proposed rule, the payment rates set 

forth herein reflect the use of the RUG– 

IV case-mix classification system from 

October 1, 2011, through September 30, 

2012. 

2. Parity Adjustment 

As discussed further below, we are 

considering two options for the CMIs 

that would be applied to the FY 2012 

RUG–IV payment rates. 

a. Option for Recalibration of the Parity 

Adjustment 

As explained in the FY 2011 SNF PPS 

notice with comment period (75 FR 

42886, 42892, July 22, 2010), we applied 

an upward adjustment of 61 percent to 

the RUG–IV nursing CMIs to achieve 

parity between the RUG–53 and RUG– 

IV models, based on an analysis using 

final FY 2009 claims data. Our 

calculation of the parity adjustment 

used the most recent data available to 

estimate RUG–IV utilization. As we 

stated in the FY 2010 SNF PPS final rule 

(74 FR 40339), in the absence of actual 

RUG–IV utilization for FY 2011, we 

believed the most recent data 

represented the best source available, by 

virtue of being the closest to the FY 

2011 timeframe. We also stated that as 

actual data for RUG–IV utilization 

became available, we intended to assess 

the effectiveness of the parity 

adjustment in maintaining budget 

neutrality and, if necessary, to 

recalibrate the adjustment in future 

years (see 74 FR 40339). 

Since the FY 2011 SNF PPS update 

notice was published, actual first 

quarter RUG–IV claims data became 

available. Our continued monitoring of 

recent claims data indicates that actual 

RUG–IV utilization patterns differ 

significantly from those we had 

projected using the FY 2009 claims data. 

In particular, the proportion of patients 

grouped in the highest-paying RUG 

therapy categories, such as Ultra High 

Rehabilitation, greatly exceeded our 

expectations. This is likely due to the 

significant reduction in the use of 

concurrent therapy, which first quarter 

2011 RUG–IV claims data suggest has 

been reduced to less than 5 percent of 

all therapy utilization. These first 

quarter 2011 RUG–IV claims also 

suggest a significant increase in the 

utilization of individual and group 

therapy, which, given current MDS 

coding instructions, may also account 

for the high proportion of SNF residents 

classified in the Ultra High 

Rehabilitation RUG categories. 

Based on this initial RUG–IV claims 

data, it would appear that rather than 

simply achieving parity, the FY 2011 

parity adjustment may have 

inadvertently triggered a significant 

increase in overall payment levels. We 


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believe that if this preliminary 

assessment is confirmed as further FY 

2011 RUG–IV claims data become 

available, a recalibration of the parity 

adjustment may become warranted in 

the FY 2012 final rule, in order to 

ensure that the adjustment continues to 

serve as intended to make the transition 

from RUG–53 to RUG–IV in a budgetneutral manner. As discussed in the FY 

2010 SNF PPS final rule (74 FR 40296), 

we believe that ensuring parity (that is, 

ensuring that the RUG–IV classification 

system is implemented as intended on 

a budget-neutral basis) is integral to the 

process of providing ‘‘for an appropriate 

adjustment to account for case mix’’ that 

is based upon appropriate data in 

accordance with section 1888(e)(4)(G)(i) 

of the Act. Accordingly, in this 

proposed rule, we include the following 

analysis based on first quarter RUG–IV 

data in order to provide the public with 

information on the potential scope and 

impact of the recalibration we are 

considering for FY 2012. 

To determine a specific parity 

adjustment factor that, under the initial 

RUG–IV claims data currently available, 

would be needed to reestablish budget 

neutrality, we used approximately 

920,000 first quarter 2011 claims (the 

most current data available at the time) 

to compare the distribution of payment 

days by RUG category under the original 

RUG–53 model with the distribution of 

payment days observed in the first 

quarter of 2011 under the RUG–IV 

model. Using a file which linked these 

920,000 claims to the corresponding 

MDS assessments, we determined the 

appropriate RUG group for the patients 

covered by the aforementioned set of 

claims under RUG–53. This permitted a 

more precise comparison of the same 

patients under both systems, to control 

for potential variations in case-mix or 

patient volume. Given the RUG 

assignments for this set of SNF residents 

under both RUG–53 and RUG–IV, we 

were able to determine a distribution of 

RUG assignments. 

To determine the appropriate parity 

adjustment, consistent with the 

methodology described in the FY 2010 

SNF PPS final rule (74 FR 40296) and 

detailed in the FY 2006 SNF PPS 

proposed rule (70 FR 29077 through 

29079), we determined the total number 

of first quarter FY 2011 RUG–IV 

payment days, as well as the number of 

first quarter FY 2011 payment days of 

each RUG–IV category based on the first 

quarter FY 2011 SNF PPS claims. By 

linking these FY 2011 claims with the 

corresponding MDS 3.0 data, we were 

able to determine the appropriate RUG– 

53 category for each FY 2011 SNF 

resident represented in the sample of FY 

2011 claims. We multiplied the 

percentage of SNF residents in each 

RUG–IV and RUG–53 category by the 

total number of first quarter FY 2011 

payment days of service in order to 

determine a distribution of RUG–IV and 

RUG–53 payment days, given the first 

quarter FY 2011 claims and linked MDS 

3.0 data. We then multiplied the 

projected RUG–IV and RUG–53 days of 

service by the FY 2012 unadjusted 

Federal per diem payment rate 

components, multiplied by the 

unadjusted case mix indexes to 

establish expenditures under the RUG– 

53 and RUG–IV systems. The parity 

adjustment used to ensure that the 

transition between the two systems is 

budget-neutral and does not create, in 

and of itself, an increase in the amount 

of SNF expenditures, was determined as 

the percent increase necessary for the 

nursing CMIs to generate estimated 

expenditure levels under the RUG–IV 

system that were equal to those 

estimated under the RUG–53 system. 

Based on the first quarter FY 2011 RUG– 

IV claims data, we determined that the 

adjustment, which had originally 

produced an increase of 61 percent to 

the nursing CMIs as discussed in the FY 

2011 SNF PPS update notice, would 

need to be decreased to 22.55 percent to 

achieve budget neutrality, if we were to 

apply the parity adjustment equally to 

all nursing CMIs as we have done in the 

past. However, given that the most 

notable differences between expected 

and actual utilization patterns occurred 

within the therapy RUG categories, we 

believe that rather than applying the 

new parity adjustment percentage to all 

the nursing CMIs, it would be more 

appropriate to achieve budget neutrality 

between the RUG–53 and RUG–IV 

systems by maintaining the 61 percent 

parity adjustment to the nursing CMIs 

for the RUG–IV non-therapy groups, and 

reducing the 61 percent parity 

adjustment as it applied to the nursing 

CMIs for the RUG–IV therapy groups. 

Using this recalibration methodology 

described above, we found that the 

adjustment to the nursing CMIs of the 

RUG–IV therapy groups necessary to 

achieve parity, while maintaining the 61 

percent parity adjustment for RUG–IV 

non-therapy groups, would be an 

updated adjustment of 19.81 percent. 

An analysis of recent utilization 

patterns is provided in Table 4. In this 

proposed rule, we are including Tables 

5A and 6A, which illustrate the 

payment rates that would be derived 

from nursing CMIs reflecting this 

recalibration methodology. 

TABLE 4—FY 2011 PROJECTED

VERSUS ACTUAL RUG–IV UTILIZATION DISTRIBUTION AS PERCENT OF

TOTAL DAYS OF SERVICE

RUG–IV group Projected 

(percent) 

Actual 

(percent) 

RUX .................. 0.18 0.60 

RUL ................... 0.05 0.75 

RVX .................. 0.36 0.41 

RVL ................... 0.53 0.56 

RHX .................. 0.43 0.17 

RHL ................... 0.72 0.19 

RMX .................. 0.76 0.33 

RML .................. 0.79 0.28 

RLX ................... 0.00 0.01 

RUC .................. 3.56 12.68 

RUB .................. 3.26 16.19 

RUA .................. 2.12 12.80 

RVC .................. 5.49 7.82 

RVB .................. 7.17 9.67 

RVA .................. 8.61 9.13 

RHC .................. 6.34 3.77 

RHB .................. 7.09 3.54 

RHA .................. 11.41 3.54 

RMC .................. 4.95 3.06 

RMB .................. 6.84 2.42 

RMA .................. 8.74 2.41 

RLB ................... 0.21 0.07 

RLA ................... 0.23 0.06 

ES3 ................... 0.52 0.14 

ES2 ................... 0.17 0.14 

ES1 ................... 0.35 0.29 

HE2 ................... 0.04 0.10 

HE1 ................... 1.40 0.32 

HD2 ................... 0.32 0.09 

HD1 ................... 1.30 0.42 

HC2 ................... 0.78 0.06 

HC1 ................... 1.33 0.33 

HB2 ................... 0.78 0.07 

HB1 ................... 0.61 0.31 

LE2 ................... 0.05 0.12 

LE1 ................... 0.70 0.65 

LD2 ................... 0.28 0.12 

LD1 ................... 1.31 0.78 

LC2 ................... 0.26 0.07 

LC1 ................... 0.60 0.57 

LB2 ................... 0.02 0.04 

LB1 ................... 0.34 0.23 

CE2 ................... 0.15 0.04 

CE1 ................... 0.21 0.21 

CD2 ................... 0.58 0.07 

CD1 ................... 0.70 0.46 

CC2 ................... 0.36 0.07 

CC1 ................... 0.67 0.53 

CB2 ................... 0.65 0.05 

CB1 ................... 0.53 0.44 

CA2 ................... 0.32 0.07 

CA1 ................... 1.41 0.66 

BB2 ................... 0.07 0.02 

BB1 ................... 0.27 0.22 

BA2 ................... 0.01 0.01 

BA1 ................... 0.26 0.17 

PE2 ................... 0.03 0.02 

PE1 ................... 0.07 0.17 

PD2 ................... 0.00 0.03 

PD1 ................... 0.38 0.38 

PC2 ................... 0.01 0.05 

PC1 ................... 1.26 0.51 

PB2 ................... 0.02 0.01 

PB1 ................... 0.59 0.25 

PA2 ................... 0.05 0.01 


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TABLE 4—FY 2011 PROJECTED

VERSUS ACTUAL RUG–IV UTILIZATION DISTRIBUTION AS PERCENT OF

TOTAL DAYS OF SERVICE—Continued 

RUG–IV group Projected 

(percent) 

Actual 

(percent) 

PA1 ................... 0.40 0.24 

Note: Projected utilization data based on 

STRIVE study results. Actual utilization data 

based on first quarter 2011 claims data. 

We want to emphasize that any such 

recalibration would be implemented on 

a prospective basis only, which we 

believe would be the most equitable 

approach with regard to its potential 

impact on providers. For FY 2012, the 

aggregate impact of the recalibration 

described in this proposed rule would 

be the difference between the increase 

of 61 percent for all nursing CMIs (as set 

forth in the FY 2011 update notice), and 

the recalibrated increase of 19.81 

percent for the nursing CMIs for the 

RUG–IV therapy groups (maintaining 

the 61 percent parity adjustment to the 

nursing CMIs for the RUG–IV nontherapy groups), or a negative $4.47 

billion. We note that the negative $4.47 

billion would be partly offset by the FY 

2012 market basket adjustment factor of 

1.5 percent, or $530 million, with a net 

result of a negative $3.94 billion update 

for FY 2012 (an aggregate negative 

impact of 11.3 percent). 

We note that as an alternative to the 

preceding recalibration methodology, 

we initially considered applying a 

recalibration to all nursing CMIs, 

irrespective of RUG category. However, 

we found that such a recalibration most 

drastically affected non-therapy RUG 

groups, such as the Extensive Services 

RUG–IV group, which seemed 

incongruent with the perceived reasons 

for differences between expected and 

actual utilization patterns, as noted in 

Table 4. In addition, we considered 

using an analytical approach that would 

reflect implementing partial 

adjustments to the case-mix indexes 

over multiple years until parity is 

achieved. However, we believe that 

such an approach would continue to 

reimburse in amounts that significantly 

exceed our intended policy. Moreover, 

as we move forward with programs 

designed to enhance and restructure our 

post-acute care payment systems, we 

believe that payments under the SNF 

PPS should be established at their 

intended and most appropriate levels. 

We believe that stabilizing the baseline 

is a necessary first step toward properly 

implementing and maintaining the 

integrity of the RUG–IV classification 

methodology and the SNF PPS as a 

whole. 

As explained above, in determining 

the parity adjustment in the FY 2011 

update notice, we used CY 2009 data as 

representing the most recent final 

claims data available at that time. 

However, we believe that it is 

appropriate to standardize the new 

model for the time period in which it is 

used, and we believe that using actual 

claims data under RUG–IV would allow 

us to calibrate the RUG–IV model more 

precisely. While, in the past, we have 

waited for a full year of claims data 

before recalibrating the CMIs, under the 

recalibration methodology discussed 

above, we are considering using partial 

FY 2011 claims data (that is, FY 2011 

RUG–IV claims data available at the 

time of the final rule) to recalibrate the 

CMIs for FY 2012 if our analysis of such 

data prior to the final rule confirms our 

initial assessment (based on first quarter 

FY 2011 claims data) that the parity 

adjustment implemented in the FY 2011 

update notice has inadvertently 

triggered an increase in overall 

payments as discussed above. We 

believe it would be reasonable and 

appropriate to use actual RUG–IV 

claims data from FY 2011 to estimate 

utilization under RUG–IV, as we believe 

that it provides the most recent, clear 

evidence of utilization patterns and 

evolving provider behaviors under 

RUG–IV. Additionally, using FY 2010 

claims data, we analyzed the quality of 

representation of the first quarter of FY 

2010, in terms of both the volume of 

claims received and RUG distribution, 

for FY 2010 as a whole and found there 

to be no examples of seasonality which 

would affect predictions of SNF volume 

or utilization patterns. Given this 

analysis, we believe that using the 

partial FY 2011 claims data would 

provide a representative and reasonable 

sample from which to project FY 2011 

utilization patterns and expenditures. 

We invite comments on the 

recalibration methodology considered 

above, as well as on potential alternative 

methodologies for recalibrating the 

parity adjustment in an accurate and 

equitable manner. 

We also note that any measures taken 

to achieve parity for RUG–IV may 

happen to coincide with the 

introduction of various revisions under 

the RUG–IV system (for example, the 

original RUG–IV parity adjustment took 

effect on October 1, 2010, along with the 

allocation of concurrent therapy time). 

As noted in our discussion of the 

proposed allocation of group therapy 

time that appears later in this proposed 

rule in section V.C, preliminary data 

indicate a recent significant increase in 

the provision of individual and group 

therapy services, which have not, to 

date, been subject to the allocation 

requirement, and a corresponding 

decrease in the provision of concurrent 

therapy, which has been subject to the 

allocation requirement. We anticipate 

that imposing a similar allocation 

requirement for group therapy time (as 

discussed further in section V.C of this 

proposed rule) would eliminate an 

existing incentive to substitute such 

therapy for either concurrent or 

individual therapy. 

However, even if the distribution of 

therapy minutes between individual, 

concurrent, and group therapy changes, 

this does not mean that a reduction in 

the parity adjustment for the RUG–IV 

therapy groups would be inappropriate. 

As explained previously, the purpose of 

the parity adjustment is simply to 

ensure that the transition from the 

RUG–53 model to the RUG–IV model 

does not trigger, in and of itself, an 

increase or decrease in overall payment 

levels. Because the FY 2011 first quarter 

RUG–IV utilization trends indicated that 

the most notable differences between 

expected and actual RUG–IV utilization 

patterns occurred within the therapy 

RUG categories, we believe that focusing 

any recalibration on these groups would 

provide for budget neutrality in an 

equitable manner given the RUG–IV 

utilization. 

Moreover, even under the previous 

RUG–53 model, it is clear that the 

predominant mode of therapy that the 

payment rates were designed to address 

was individual therapy rather than 

concurrent or group therapy. As far back 

as the SNF PPS final rule for FY 2000, 

we specified that the minutes of group 

therapy received by the beneficiary may 

account for no more than 25 percent of 

the therapy (per discipline) received in 

a 7-day period (64 FR 41662, July 30, 

1999). In addition, the SNF PPS 

rulemaking has on numerous occasions 

included discussions of concurrent 

therapy: In the FY 2002 proposed rule 

(66 FR 23991–23992, May 10, 2001) and 

final rule (66 FR 39567–68, July 31, 

2001); in the FY 2006 proposed rule (70 

FR 29082–29083, May 19, 2005) and 

final rule (70 FR 45036–45037, August 

4, 2005); and, most recently, in the FY 

2010 proposed rule (74 FR 22222–23, 

May 12, 2009) and final rule (74 FR 

40315–19, August 11, 2009). These 

discussions clearly establish that we 

have always considered concurrent 

therapy as an infrequent exception 

rather than the norm. However, as 

discussed previously, the significant 

increase in individual and group 

therapy services and the reduction in 

concurrent therapy utilization reflected 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
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in the first quarter RUG–IV data indicate 

that actual RUG–IV utilization patterns 

differ significantly from those we had 

projected using FY 2009 claims data in 

calculating the parity adjustment. The 

resulting unintended and significant 

increase in overall payment levels has 

prompted the need to reexamine the 

parity adjustment. 

Thus, under the Medicare program, 

the standard of practice in the SNF 

setting has always been individual 

therapy, which is generally necessary to 

ensure that the services being delivered 

provide the high degree of 

individualized treatment and complex 

skill level required for Medicare 

coverage. We recognize that some SNFs 

may have actually used a less intensive 

combination of therapy modalities in 

the past year for some patients in 

response to the way in which therapy 

minutes were counted. However, the 

SNF PPS payment rates themselves have 

always reflected a standard of practice 

in which individual therapy is the 

predominant treatment modality. 

Further, because the overall payment 

rates under the previous RUG–III model 

were constructed to be sufficient to 

accommodate this level of resource 

intensity, we believe that the adequacy 

of those payment rates in this context 

would carry over to the payment rates 

under the current RUG–IV model, even 

if modified by an updated parity 

adjustment. 

Given the apparent magnitude of the 

recalibration that would be needed to 

restore parity based on the initial RUG– 

IV claims data currently available (as 

discussed in the preceding analysis), we 

have provided in Tables 5A and 6A the 

case-mix adjusted RUG–IV payment 

rates which reflect the parity adjustment 

recalibration considered above based on 

our preliminary analysis using first 

quarter FY 2011 claims data. As further 

FY 2011 RUG–IV data become available, 

before we publish the final rule, we 

would review such additional data to 

confirm our preliminary assessment of 

the recalibration that would be 

necessary to achieve parity between the 

RUG–53 and RUG–IV models and 

would revise the parity adjustment in 

the final rule as necessary based on this 

additional data. We believe that the very 

magnitude of the potential recalibration, 

based on first quarter FY 2011 data, 

would make it inappropriate for us 

merely to consider payment rates for FY 

2012 that solely reflect the standard 

update methodology without regard to 

the need for maintaining parity, as such 

an approach ultimately could result in 

continuing to make overall payments 

that significantly exceed their intended 

levels for an indefinite period. 

b. Option for Application of Standard 

Update for FY 2012 Without 

Recalibration 

Although our preliminary analysis of 

the RUG–IV data currently available 

suggests that recalibration of the parity 

adjustment would be needed to restore 

parity between the RUG–53 and RUG– 

IV models, in the circumstances 

discussed below, we are also 

considering not recalibrating the CMIs 

for FY 2012 and applying the standard 

update to the FY 2011 payment rates. As 

we observed in the preceding discussion 

of the recalibration option, it would 

appear from the currently available FY 

2011 claims data that overall payments 

under the parity adjustment are 

significantly exceeding their intended 

levels. However, it is also possible that 

the apparent magnitude of the 

overpayments may itself represent a 

temporary aberrance resulting from the 

limited FY 2011 data that are available 

at this point in time. Moreover, we note 

that as with any significant 

programmatic change, the transition 

from the previous case-mix 

classification system to RUG–IV has 

been accompanied by a learning curve 

for providers, as they work to 

familiarize themselves with the 

requirements of the new system. As a 

consequence, it is possible that as 

additional FY 2011 claims data become 

available, they may indicate utilization 

patterns that are more consistent with 

our projections, and expenditures that 

are more in parity with those under the 

previous RUG–53 model. For this 

reason, we reserve the option to not 

implement in the final rule the type of 

recalibration discussed above, and 

instead to apply the standard update of 

the payment rates for FY 2012 if we find 

that the additional RUG–IV claims data 

collected prior to publication of the 

final rule are consistent with parity in 

expenditures between the current RUG– 

IV and previous RUG–53 models. 

Accordingly, in this proposed rule, 

we are considering two separate options 

regarding the FY 2012 payment rates: 

One that incorporates the kind of 

recalibration discussed above which, 

based on the initial RUG–IV claims data 

currently available, may be necessary to 

restore overall payments under the 

parity adjustment to their intended 

levels (which recalibration may be 

adjusted based on further FY 2011 

RUG–IV claims data that become 

available prior to publication of the final 

rule), and another that simply reflects 

the standard update to the FY 2011 

payment rates without a recalibration of 

the FY 2011 parity adjustment. We 

solicit comments on these options as 

described above. 

We list the case-mix adjusted RUG–IV 

payment rates which would exist if we 

choose to move forward with the 

recalibration of the parity adjustment 

described throughout this section, 

provided separately for urban and rural 

SNFs in Tables 5A and 6A, with the 

corresponding case-mix values which 

reflect the parity adjustment 

recalibration discussed above. Similarly, 

the case-mix adjusted RUG–IV rates, 

which would occur in the absence of 

such a recalibration of the parity 

adjustment, are listed in Tables 5B and 

6B. These tables do not reflect the AIDS 

add-on enacted by section 511 of the 

MMA, which we apply only after 

making all other adjustments (wage and 

case-mix). 

TABLE 5A—RUG–IV CASE-MIX ADJUSTED FEDERAL RATES AND ASSOCIATED INDEXES (INCLUDING PARITY ADJUSTMENT

RECALIBRATION) 

[Urban] 

RUG–IV category Nursing index Therapy index Nursing 

component 

Therapy component Non-case mix 

therapy comp 

Non-case mix 

component Total rate 

RUX .............................. 2.67 1.87 $427.73 $225.67 ........................ $81.76 $735.16 

RUL .............................. 2.57 1.87 411.71 225.67 ........................ 81.76 719.14 

RVX .............................. 2.61 1.28 418.12 154.47 ........................ 81.76 654.35 

RVL .............................. 2.19 1.28 350.84 154.47 ........................ 81.76 587.07 

RHX .............................. 2.55 0.85 408.51 102.58 ........................ 81.76 592.85 

RHL .............................. 2.15 0.85 344.43 102.58 ........................ 81.76 528.77 

RMX ............................. 2.47 0.55 395.69 66.37 ........................ 81.76 543.82 

RML .............................. 2.19 0.55 350.84 66.37 ........................ 81.76 498.97 

RLX .............................. 2.26 0.28 362.05 33.79 ........................ 81.76 477.60 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
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TABLE 5A—RUG–IV CASE-MIX ADJUSTED FEDERAL RATES AND ASSOCIATED INDEXES (INCLUDING PARITY ADJUSTMENT

RECALIBRATION)—Continued 

[Urban] 

RUG–IV category Nursing index Therapy index Nursing 

component 

Therapy component Non-case mix 

therapy comp 

Non-case mix 

component Total rate 

RUC ............................. 1.56 1.87 249.91 225.67 ........................ 81.76 557.34 

RUB .............................. 1.56 1.87 249.91 225.67 ........................ 81.76 557.34 

RUA .............................. 0.99 1.87 158.60 225.67 ........................ 81.76 466.03 

RVC .............................. 1.51 1.28 241.90 154.47 ........................ 81.76 478.13 

RVB .............................. 1.11 1.28 177.82 154.47 ........................ 81.76 414.05 

RVA .............................. 1.10 1.28 176.22 154.47 ........................ 81.76 412.45 

RHC ............................. 1.45 0.85 232.29 102.58 ........................ 81.76 416.63 

RHB .............................. 1.19 0.85 190.64 102.58 ........................ 81.76 374.98 

RHA .............................. 0.91 0.85 145.78 102.58 ........................ 81.76 330.12 

RMC ............................. 1.36 0.55 217.87 66.37 ........................ 81.76 366.00 

RMB ............................. 1.22 0.55 195.44 66.37 ........................ 81.76 343.57 

RMA ............................. 0.84 0.55 134.57 66.37 ........................ 81.76 282.70 

RLB .............................. 1.50 0.28 240.30 33.79 ........................ 81.76 355.85 

RLA .............................. 0.71 0.28 113.74 33.79 ........................ 81.76 229.29 

ES3 .............................. 3.58 ........................ 573.52 ........................ 15.90 81.76 671.18 

ES2 .............................. 2.67 ........................ 427.73 ........................ 15.90 81.76 525.39 

ES1 .............................. 2.32 ........................ 371.66 ........................ 15.90 81.76 469.32 

HE2 .............................. 2.22 ........................ 355.64 ........................ 15.90 81.76 453.30 

HE1 .............................. 1.74 ........................ 278.75 ........................ 15.90 81.76 376.41 

HD2 .............................. 2.04 ........................ 326.81 ........................ 15.90 81.76 424.47 

HD1 .............................. 1.60 ........................ 256.32 ........................ 15.90 81.76 353.98 

HC2 .............................. 1.89 ........................ 302.78 ........................ 15.90 81.76 400.44 

HC1 .............................. 1.48 ........................ 237.10 ........................ 15.90 81.76 334.76 

HB2 .............................. 1.86 ........................ 297.97 ........................ 15.90 81.76 395.63 

HB1 .............................. 1.46 ........................ 233.89 ........................ 15.90 81.76 331.55 

LE2 ............................... 1.96 ........................ 313.99 ........................ 15.90 81.76 411.65 

LE1 ............................... 1.54 ........................ 246.71 ........................ 15.90 81.76 344.37 

LD2 ............................... 1.86 ........................ 297.97 ........................ 15.90 81.76 395.63 

LD1 ............................... 1.46 ........................ 233.89 ........................ 15.90 81.76 331.55 

LC2 ............................... 1.56 ........................ 249.91 ........................ 15.90 81.76 347.57 

LC1 ............................... 1.22 ........................ 195.44 ........................ 15.90 81.76 293.10 

LB2 ............................... 1.46 ........................ 233.89 ........................ 15.90 81.76 331.55 

LB1 ............................... 1.14 ........................ 182.63 ........................ 15.90 81.76 280.29 

CE2 .............................. 1.68 ........................ 269.14 ........................ 15.90 81.76 366.80 

CE1 .............................. 1.50 ........................ 240.30 ........................ 15.90 81.76 337.96 

CD2 .............................. 1.56 ........................ 249.91 ........................ 15.90 81.76 347.57 

CD1 .............................. 1.38 ........................ 221.08 ........................ 15.90 81.76 318.74 

CC2 .............................. 1.29 ........................ 206.66 ........................ 15.90 81.76 304.32 

CC1 .............................. 1.15 ........................ 184.23 ........................ 15.90 81.76 281.89 

CB2 .............................. 1.15 ........................ 184.23 ........................ 15.90 81.76 281.89 

CB1 .............................. 1.02 ........................ 163.40 ........................ 15.90 81.76 261.06 

CA2 .............................. 0.88 ........................ 140.98 ........................ 15.90 81.76 238.64 

CA1 .............................. 0.78 ........................ 124.96 ........................ 15.90 81.76 222.62 

BB2 .............................. 0.97 ........................ 155.39 ........................ 15.90 81.76 253.05 

BB1 .............................. 0.90 ........................ 144.18 ........................ 15.90 81.76 241.84 

BA2 .............................. 0.70 ........................ 112.14 ........................ 15.90 81.76 209.80 

BA1 .............................. 0.64 ........................ 102.53 ........................ 15.90 81.76 200.19 

PE2 .............................. 1.50 ........................ 240.30 ........................ 15.90 81.76 337.96 

PE1 .............................. 1.40 ........................ 224.28 ........................ 15.90 81.76 321.94 

PD2 .............................. 1.38 ........................ 221.08 ........................ 15.90 81.76 318.74 

PD1 .............................. 1.28 ........................ 205.06 ........................ 15.90 81.76 302.72 

PC2 .............................. 1.10 ........................ 176.22 ........................ 15.90 81.76 273.88 

PC1 .............................. 1.02 ........................ 163.40 ........................ 15.90 81.76 261.06 

PB2 .............................. 0.84 ........................ 134.57 ........................ 15.90 81.76 232.23 

PB1 .............................. 0.78 ........................ 124.96 ........................ 15.90 81.76 222.62 

PA2 .............................. 0.59 ........................ 94.52 ........................ 15.90 81.76 192.18 

PA1 .............................. 0.54 ........................ 86.51 ........................ 15.90 81.76 184.17 

TABLE 5B—RUG–IV CASE-MIX ADJUSTED FEDERAL RATES AND ASSOCIATED INDEXES (WITHOUT PARITY ADJUSTMENT

RECALIBRATION) 

[Urban] 

RUG–IV category Nursing index Therapy index Nursing 

component 

Therapy 

component 

Non-case mix 

therapy comp 

Non-case mix 

component Total rate 

RUX .............................. 3.59 1.87 $575.12 $225.67 ........................ $81.76 $882.55 

RUL .............................. 3.45 1.87 552.69 225.67 ........................ 81.76 860.12 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Proposed Rules 26375 

TABLE 5B—RUG–IV CASE-MIX ADJUSTED FEDERAL RATES AND ASSOCIATED INDEXES (WITHOUT PARITY ADJUSTMENT

RECALIBRATION)—Continued 

[Urban] 

RUG–IV category Nursing index Therapy index Nursing 

component 

Therapy 

component 

Non-case mix 

therapy comp 

Non-case mix 

component Total rate 

RVX .............................. 3.51 1.28 562.30 154.47 ........................ 81.76 798.53 

RVL .............................. 2.95 1.28 472.59 154.47 ........................ 81.76 708.82 

RHX .............................. 3.43 0.85 549.49 102.58 ........................ 81.76 733.83 

RHL .............................. 2.89 0.85 462.98 102.58 ........................ 81.76 647.32 

RMX ............................. 3.31 0.55 530.26 66.37 ........................ 81.76 678.39 

RML .............................. 2.95 0.55 472.59 66.37 ........................ 81.76 620.72 

RLX .............................. 3.04 0.28 487.01 33.79 ........................ 81.76 602.56 

RUC ............................. 2.10 1.87 336.42 225.67 ........................ 81.76 643.85 

RUB .............................. 2.10 1.87 336.42 225.67 ........................ 81.76 643.85 

RUA .............................. 1.33 1.87 213.07 225.67 ........................ 81.76 520.50 

RVC .............................. 2.02 1.28 323.60 154.47 ........................ 81.76 559.83 

RVB .............................. 1.49 1.28 238.70 154.47 ........................ 81.76 474.93 

RVA .............................. 1.48 1.28 237.10 154.47 ........................ 81.76 473.33 

RHC ............................. 1.94 0.85 310.79 102.58 ........................ 81.76 495.13 

RHB .............................. 1.60 0.85 256.32 102.58 ........................ 81.76 440.66 

RHA .............................. 1.23 0.85 197.05 102.58 ........................ 81.76 381.39 

RMC ............................. 1.83 0.55 293.17 66.37 ........................ 81.76 441.30 

RMB ............................. 1.63 0.55 261.13 66.37 ........................ 81.76 409.26 

RMA ............................. 1.13 0.55 181.03 66.37 ........................ 81.76 329.16 

RLB .............................. 2.01 0.28 322.00 33.79 ........................ 81.76 437.55 

RLA .............................. 0.95 0.28 152.19 33.79 ........................ 81.76 267.74 

ES3 .............................. 3.58 ........................ 573.52 ........................ 15.90 81.76 671.18 

ES2 .............................. 2.67 ........................ 427.73 ........................ 15.90 81.76 525.39 

ES1 .............................. 2.32 ........................ 371.66 ........................ 15.90 81.76 469.32 

HE2 .............................. 2.22 ........................ 355.64 ........................ 15.90 81.76 453.30 

HE1 .............................. 1.74 ........................ 278.75 ........................ 15.90 81.76 376.41 

HD2 .............................. 2.04 ........................ 326.81 ........................ 15.90 81.76 424.47 

HD1 .............................. 1.60 ........................ 256.32 ........................ 15.90 81.76 353.98 

HC2 .............................. 1.89 ........................ 302.78 ........................ 15.90 81.76 400.44 

HC1 .............................. 1.48 ........................ 237.10 ........................ 15.90 81.76 334.76 

HB2 .............................. 1.86 ........................ 297.97 ........................ 15.90 81.76 395.63 

HB1 .............................. 1.46 ........................ 233.89 ........................ 15.90 81.76 331.55 

LE2 ............................... 1.96 ........................ 313.99 ........................ 15.90 81.76 411.65 

LE1 ............................... 1.54 ........................ 246.71 ........................ 15.90 81.76 344.37 

LD2 ............................... 1.86 ........................ 297.97 ........................ 15.90 81.76 395.63 

LD1 ............................... 1.46 ........................ 233.89 ........................ 15.90 81.76 331.55 

LC2 ............................... 1.56 ........................ 249.91 ........................ 15.90 81.76 347.57 

LC1 ............................... 1.22 ........................ 195.44 ........................ 15.90 81.76 293.10 

LB2 ............................... 1.46 ........................ 233.89 ........................ 15.90 81.76 331.55 

LB1 ............................... 1.14 ........................ 182.63 ........................ 15.90 81.76 280.29 

CE2 .............................. 1.68 ........................ 269.14 ........................ 15.90 81.76 366.80 

CE1 .............................. 1.50 ........................ 240.30 ........................ 15.90 81.76 337.96 

CD2 .............................. 1.56 ........................ 249.91 ........................ 15.90 81.76 347.57 

CD1 .............................. 1.38 ........................ 221.08 ........................ 15.90 81.76 318.74 

CC2 .............................. 1.29 ........................ 206.66 ........................ 15.90 81.76 304.32 

CC1 .............................. 1.15 ........................ 184.23 ........................ 15.90 81.76 281.89 

CB2 .............................. 1.15 ........................ 184.23 ........................ 15.90 81.76 281.89 

CB1 .............................. 1.02 ........................ 163.40 ........................ 15.90 81.76 261.06 

CA2 .............................. 0.88 ........................ 140.98 ........................ 15.90 81.76 238.64 

CA1 .............................. 0.78 ........................ 124.96 ........................ 15.90 81.76 222.62 

BB2 .............................. 0.97 ........................ 155.39 ........................ 15.90 81.76 253.05 

BB1 .............................. 0.90 ........................ 144.18 ........................ 15.90 81.76 241.84 

BA2 .............................. 0.70 ........................ 112.14 ........................ 15.90 81.76 209.80 

BA1 .............................. 0.64 ........................ 102.53 ........................ 15.90 81.76 200.19 

PE2 .............................. 1.50 ........................ 240.30 ........................ 15.90 81.76 337.96 

PE1 .............................. 1.40 ........................ 224.28 ........................ 15.90 81.76 321.94 

PD2 .............................. 1.38 ........................ 221.08 ........................ 15.90 81.76 318.74 

PD1 .............................. 1.28 ........................ 205.06 ........................ 15.90 81.76 302.72 

PC2 .............................. 1.10 ........................ 176.22 ........................ 15.90 81.76 273.88 

PC1 .............................. 1.02 ........................ 163.40 ........................ 15.90 81.76 261.06 

PB2 .............................. 0.84 ........................ 134.57 ........................ 15.90 81.76 232.23 

PB1 .............................. 0.78 ........................ 124.96 ........................ 15.90 81.76 222.62 

PA2 .............................. 0.59 ........................ 94.52 ........................ 15.90 81.76 192.18 

PA1 .............................. 0.54 ........................ 86.51 ........................ 15.90 81.76 184.17 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
26376 Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Proposed Rules 

TABLE 6A—RUG–IV CASE-MIX ADJUSTED FEDERAL RATES AND ASSOCIATED INDEXES (INCLUDING PARITY ADJUSTMENT

RECALIBRATION) 

[Rural] 

RUG–IV category Nursing index Therapy index Nursing 

component 

Therapy 

component 

Non-case mix 

therapy comp 

Non-case mix 

component Total rate 

RUX .............................. 2.67 1.87 $408.70 $260.21 ........................ $83.28 $752.19 

RUL .............................. 2.57 1.87 393.39 260.21 ........................ 83.28 736.88 

RVX .............................. 2.61 1.28 399.51 178.11 ........................ 83.28 660.90 

RVL .............................. 2.19 1.28 335.22 178.11 ........................ 83.28 596.61 

RHX .............................. 2.55 0.85 390.33 118.28 ........................ 83.28 591.89 

RHL .............................. 2.15 0.85 329.10 118.28 ........................ 83.28 530.66 

RMX ............................. 2.47 0.55 378.08 76.53 ........................ 83.28 537.89 

RML .............................. 2.19 0.55 335.22 76.53 ........................ 83.28 495.03 

RLX .............................. 2.26 0.28 345.94 38.96 ........................ 83.28 468.18 

RUC ............................. 1.56 1.87 238.79 260.21 ........................ 83.28 582.28 

RUB .............................. 1.56 1.87 238.79 260.21 ........................ 83.28 582.28 

RUA .............................. 0.99 1.87 151.54 260.21 ........................ 83.28 495.03 

RVC .............................. 1.51 1.28 231.14 178.11 ........................ 83.28 492.53 

RVB .............................. 1.11 1.28 169.91 178.11 ........................ 83.28 431.30 

RVA .............................. 1.10 1.28 168.38 178.11 ........................ 83.28 429.77 

RHC ............................. 1.45 0.85 221.95 118.28 ........................ 83.28 423.51 

RHB .............................. 1.19 0.85 182.15 118.28 ........................ 83.28 383.71 

RHA .............................. 0.91 0.85 139.29 118.28 ........................ 83.28 340.85 

RMC ............................. 1.36 0.55 208.18 76.53 ........................ 83.28 367.99 

RMB ............................. 1.22 0.55 186.75 76.53 ........................ 83.28 346.56 

RMA ............................. 0.84 0.55 128.58 76.53 ........................ 83.28 288.39 

RLB .............................. 1.50 0.28 229.61 38.96 ........................ 83.28 351.85 

RLA .............................. 0.71 0.28 108.68 38.96 ........................ 83.28 230.92 

ES3 .............................. 3.58 ........................ 547.99 ........................ 16.97 83.28 648.24 

ES2 .............................. 2.67 ........................ 408.70 ........................ 16.97 83.28 508.95 

ES1 .............................. 2.32 ........................ 355.12 ........................ 16.97 83.28 455.37 

HE2 .............................. 2.22 ........................ 339.82 ........................ 16.97 83.28 440.07 

HE1 .............................. 1.74 ........................ 266.34 ........................ 16.97 83.28 366.59 

HD2 .............................. 2.04 ........................ 312.26 ........................ 16.97 83.28 412.51 

HD1 .............................. 1.60 ........................ 244.91 ........................ 16.97 83.28 345.16 

HC2 .............................. 1.89 ........................ 289.30 ........................ 16.97 83.28 389.55 

HC1 .............................. 1.48 ........................ 226.54 ........................ 16.97 83.28 326.79 

HB2 .............................. 1.86 ........................ 284.71 ........................ 16.97 83.28 384.96 

HB1 .............................. 1.46 ........................ 223.48 ........................ 16.97 83.28 323.73 

LE2 ............................... 1.96 ........................ 300.02 ........................ 16.97 83.28 400.27 

LE1 ............................... 1.54 ........................ 235.73 ........................ 16.97 83.28 335.98 

LD2 ............................... 1.86 ........................ 284.71 ........................ 16.97 83.28 384.96 

LD1 ............................... 1.46 ........................ 223.48 ........................ 16.97 83.28 323.73 

LC2 ............................... 1.56 ........................ 238.79 ........................ 16.97 83.28 339.04 

LC1 ............................... 1.22 ........................ 186.75 ........................ 16.97 83.28 287.00 

LB2 ............................... 1.46 ........................ 223.48 ........................ 16.97 83.28 323.73 

LB1 ............................... 1.14 ........................ 174.50 ........................ 16.97 83.28 274.75 

CE2 .............................. 1.68 ........................ 257.16 ........................ 16.97 83.28 357.41 

CE1 .............................. 1.50 ........................ 229.61 ........................ 16.97 83.28 329.86 

CD2 .............................. 1.56 ........................ 238.79 ........................ 16.97 83.28 339.04 

CD1 .............................. 1.38 ........................ 211.24 ........................ 16.97 83.28 311.49 

CC2 .............................. 1.29 ........................ 197.46 ........................ 16.97 83.28 297.71 

CC1 .............................. 1.15 ........................ 176.03 ........................ 16.97 83.28 276.28 

CB2 .............................. 1.15 ........................ 176.03 ........................ 16.97 83.28 276.28 

CB1 .............................. 1.02 ........................ 156.13 ........................ 16.97 83.28 256.38 

CA2 .............................. 0.88 ........................ 134.70 ........................ 16.97 83.28 234.95 

CA1 .............................. 0.78 ........................ 119.39 ........................ 16.97 83.28 219.64 

BB2 .............................. 0.97 ........................ 148.48 ........................ 16.97 83.28 248.73 

BB1 .............................. 0.90 ........................ 137.76 ........................ 16.97 83.28 238.01 

BA2 .............................. 0.70 ........................ 107.15 ........................ 16.97 83.28 207.40 

BA1 .............................. 0.64 ........................ 97.96 ........................ 16.97 83.28 198.21 

PE2 .............................. 1.50 ........................ 229.61 ........................ 16.97 83.28 329.86 

PE1 .............................. 1.40 ........................ 214.30 ........................ 16.97 83.28 314.55 

PD2 .............................. 1.38 ........................ 211.24 ........................ 16.97 83.28 311.49 

PD1 .............................. 1.28 ........................ 195.93 ........................ 16.97 83.28 296.18 

PC2 .............................. 1.10 ........................ 168.38 ........................ 16.97 83.28 268.63 

PC1 .............................. 1.02 ........................ 156.13 ........................ 16.97 83.28 256.38 

PB2 .............................. 0.84 ........................ 128.58 ........................ 16.97 83.28 228.83 

PB1 .............................. 0.78 ........................ 119.39 ........................ 16.97 83.28 219.64 

PA2 .............................. 0.59 ........................ 90.31 ........................ 16.97 83.28 190.56 

PA1 .............................. 0.54 ........................ 82.66 ........................ 16.97 83.28 182.91 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Proposed Rules 26377 

TABLE 6B—RUG–IV CASE-MIX ADJUSTED FEDERAL RATES AND ASSOCIATED INDEXES: WITHOUT PARITY ADJUSTMENT

RECALIBRATION) 

[Rural] 

RUG–IV category Nursing index Therapy index Nursing 

component 

Therapy 

component 

Non-case mix 

therapy comp 

Non-case mix 

component Total rate 

RUX .............................. 3.59 1.87 $549.52 $260.21 ........................ $83.28 $893.01 

RUL .............................. 3.45 1.87 528.09 260.21 ........................ 83.28 871.58 

RVX .............................. 3.51 1.28 537.28 178.11 ........................ 83.28 798.67 

RVL .............................. 2.95 1.28 451.56 178.11 ........................ 83.28 712.95 

RHX .............................. 3.43 0.85 525.03 118.28 ........................ 83.28 726.59 

RHL .............................. 2.89 0.85 442.37 118.28 ........................ 83.28 643.93 

RMX ............................. 3.31 0.55 506.66 76.53 ........................ 83.28 666.47 

RML .............................. 2.95 0.55 451.56 76.53 ........................ 83.28 611.37 

RLX .............................. 3.04 0.28 465.33 38.96 ........................ 83.28 587.57 

RUC ............................. 2.10 1.87 321.45 260.21 ........................ 83.28 664.94 

RUB .............................. 2.10 1.87 321.45 260.21 ........................ 83.28 664.94 

RUA .............................. 1.33 1.87 203.58 260.21 ........................ 83.28 547.07 

RVC .............................. 2.02 1.28 309.20 178.11 ........................ 83.28 570.59 

RVB .............................. 1.49 1.28 228.07 178.11 ........................ 83.28 489.46 

RVA .............................. 1.48 1.28 226.54 178.11 ........................ 83.28 487.93 

RHC ............................. 1.94 0.85 296.96 118.28 ........................ 83.28 498.52 

RHB .............................. 1.60 0.85 244.91 118.28 ........................ 83.28 446.47 

RHA .............................. 1.23 0.85 188.28 118.28 ........................ 83.28 389.84 

RMC ............................. 1.83 0.55 280.12 76.53 ........................ 83.28 439.93 

RMB ............................. 1.63 0.55 249.50 76.53 ........................ 83.28 409.31 

RMA ............................. 1.13 0.55 172.97 76.53 ........................ 83.28 332.78 

RLB .............................. 2.01 0.28 307.67 38.96 ........................ 83.28 429.91 

RLA .............................. 0.95 0.28 145.42 38.96 ........................ 83.28 267.66 

ES3 .............................. 3.58 ........................ 547.99 ........................ $16.97 83.28 648.24 

ES2 .............................. 2.67 ........................ 408.70 ........................ 16.97 83.28 508.95 

ES1 .............................. 2.32 ........................ 355.12 ........................ 16.97 83.28 455.37 

HE2 .............................. 2.22 ........................ 339.82 ........................ 16.97 83.28 440.07 

HE1 .............................. 1.74 ........................ 266.34 ........................ 16.97 83.28 366.59 

HD2 .............................. 2.04 ........................ 312.26 ........................ 16.97 83.28 412.51 

HD1 .............................. 1.60 ........................ 244.91 ........................ 16.97 83.28 345.16 

HC2 .............................. 1.89 ........................ 289.30 ........................ 16.97 83.28 389.55 

HC1 .............................. 1.48 ........................ 226.54 ........................ 16.97 83.28 326.79 

HB2 .............................. 1.86 ........................ 284.71 ........................ 16.97 83.28 384.96 

HB1 .............................. 1.46 ........................ 223.48 ........................ 16.97 83.28 323.73 

LE2 ............................... 1.96 ........................ 300.02 ........................ 16.97 83.28 400.27 

LE1 ............................... 1.54 ........................ 235.73 ........................ 16.97 83.28 335.98 

LD2 ............................... 1.86 ........................ 284.71 ........................ 16.97 83.28 384.96 

LD1 ............................... 1.46 ........................ 223.48 ........................ 16.97 83.28 323.73 

LC2 ............................... 1.56 ........................ 238.79 ........................ 16.97 83.28 339.04 

LC1 ............................... 1.22 ........................ 186.75 ........................ 16.97 83.28 287.00 

LB2 ............................... 1.46 ........................ 223.48 ........................ 16.97 83.28 323.73 

LB1 ............................... 1.14 ........................ 174.50 ........................ 16.97 83.28 274.75 

CE2 .............................. 1.68 ........................ 257.16 ........................ 16.97 83.28 357.41 

CE1 .............................. 1.50 ........................ 229.61 ........................ 16.97 83.28 329.86 

CD2 .............................. 1.56 ........................ 238.79 ........................ 16.97 83.28 339.04 

CD1 .............................. 1.38 ........................ 211.24 ........................ 16.97 83.28 311.49 

CC2 .............................. 1.29 ........................ 197.46 ........................ 16.97 83.28 297.71 

CC1 .............................. 1.15 ........................ 176.03 ........................ 16.97 83.28 276.28 

CB2 .............................. 1.15 ........................ 176.03 ........................ 16.97 83.28 276.28 

CB1 .............................. 1.02 ........................ 156.13 ........................ 16.97 83.28 256.38 

CA2 .............................. 0.88 ........................ 134.70 ........................ 16.97 83.28 234.95 

CA1 .............................. 0.78 ........................ 119.39 ........................ 16.97 83.28 219.64 

BB2 .............................. 0.97 ........................ 148.48 ........................ 16.97 83.28 248.73 

BB1 .............................. 0.90 ........................ 137.76 ........................ 16.97 83.28 238.01 

BA2 .............................. 0.70 ........................ 107.15 ........................ 16.97 83.28 207.40 

BA1 .............................. 0.64 ........................ 97.96 ........................ 16.97 83.28 198.21 

PE2 .............................. 1.50 ........................ 229.61 ........................ 16.97 83.28 329.86 

PE1 .............................. 1.40 ........................ 214.30 ........................ 16.97 83.28 314.55 

PD2 .............................. 1.38 ........................ 211.24 ........................ 16.97 83.28 311.49 

PD1 .............................. 1.28 ........................ 195.93 ........................ 16.97 83.28 296.18 

PC2 .............................. 1.10 ........................ 168.38 ........................ 16.97 83.28 268.63 

PC1 .............................. 1.02 ........................ 156.13 ........................ 16.97 83.28 256.38 

PB2 .............................. 0.84 ........................ 128.58 ........................ 16.97 83.28 228.83 

PB1 .............................. 0.78 ........................ 119.39 ........................ 16.97 83.28 219.64 

PA2 .............................. 0.59 ........................ 90.31 ........................ 16.97 83.28 190.56 

PA1 .............................. 0.54 ........................ 82.66 ........................ 16.97 83.28 182.91 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
26378 Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Proposed Rules 

C. Wage Index Adjustment to Federal 

Rates 

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

requires that we adjust the Federal rates 

to account for differences in area wage 

levels, using a wage index that we find 

appropriate. Since the inception of a 

PPS for SNFs, we have used hospital 

wage data in developing a wage index 

to be applied to SNFs. We are 

maintaining that practice for FY 2012, 

as we continue to believe that in the 

absence of SNF-specific wage data, 

using the hospital inpatient wage index 

is appropriate and reasonable for the 

SNF PPS. As explained in the update 

notice for FY 2005 (69 FR 45786, July 

30, 2004), the SNF PPS does not use the 

hospital area wage index’s occupational 

mix adjustment, as this adjustment 

serves specifically to define the 

occupational categories more clearly in 

a hospital setting; moreover, the 

collection of the occupational wage data 

also excludes any wage data related to 

SNFs. Therefore, we believe that using 

the updated wage data exclusive of the 

occupational mix adjustment continues 

to be appropriate for SNF payments. 

Finally, we 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 2012 SNF 

PPS wage index. For rural geographic 

areas that do not have hospitals and, 

therefore, lack hospital wage data on 

which to base an area wage adjustment, 

we use the average wage index from all 

contiguous Core-Based Statistical Areas 

(CBSAs) as a reasonable proxy. This 

methodology was used to construct the 

wage index for rural Massachusetts for 

FY 2011. However, there is now a rural 

hospital with wage data upon which to 

base an area wage index for rural 

Massachusetts. Therefore, it is not 

necessary to apply this methodology to 

rural Massachusetts for FY 2012. For 

rural Puerto Rico, we do not apply this 

methodology due to the distinct 

economic circumstances that exist there, 

but instead continue using the most 

recent wage index previously available 

for that area. For urban areas without 

specific hospital wage index data, we 

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 2012, there 

is an additional urban area without 

hospital wage index data. Therefore, for 

FY 2012, the two urban areas without 

wage index data available are CBSA 

25980, Hinesville-Fort Stewart, GA, and 

CBSA 49700, Yuba City, CA. 

To calculate the SNF PPS wage index 

adjustment, we apply the wage index 

adjustment to the labor-related portion 

of the Federal rate, which is 68.805 

percent of the total rate. This percentage 

reflects the labor-related relative 

importance for FY 2012, using the 

revised and rebased FY 2004-based 

market basket. The labor-related relative 

importance for FY 2011 was 69.311, as 

shown in Table 11. We calculate the 

labor-related relative importance from 

the SNF market basket, and it 

approximates the labor-related portion 

of the total costs after taking into 

account historical and projected price 

changes between the base year and FY 

2012. The price proxies that move the 

different cost categories in the market 

basket do not necessarily change at the 

same rate, and the relative importance 

captures these changes. Accordingly, 

the relative importance figure more 

closely reflects the cost share weights 

for FY 2012 than the base year weights 

from the SNF market basket. 

We calculate the labor-related relative 

importance for FY 2012 in four steps. 

First, we compute the FY 2012 price 

index level for the total market basket 

and each cost category of the market 

basket. Second, we calculate a ratio for 

each cost category by dividing the FY 

2012 price index level for that cost 

category by the total market basket price 

index level. Third, we determine the FY 

2012 relative importance for each cost 

category by multiplying this ratio by the 

base year (FY 2004) weight. Finally, we 

add the FY 2012 relative importance for 

each of the labor-related cost categories 

(wages and salaries, employee benefits, 

non-medical professional fees, laborintensive services, and a portion of 

capital-related expenses) to produce the 

FY 2012 labor-related relative 

importance. Tables 7A and 8A show the 

case-mix adjusted RUG–IV Federal rates 

by labor-related and non-labor-related 

components that would exist if we 

choose to move forward with the parity 

adjustment recalibration described in 

section II.B.2. Similarly, Tables 7B and 

8B show the case-mix adjusted RUG–IV 

Federal rates by labor-related and nonlabor related components in the absence 

of such a parity adjustment 

recalibration. 

TABLE 7A—RUG–IV CASE-MIX ADJUSTED FEDERAL RATES FOR URBAN

SNFS BY LABOR AND NON-LABOR

COMPONENT

[Including parity adjustment recalibration] 

RUG–IV 

category 

Total 

rate 

Labor 

portion 

Non-labor 

portion 

RUX ........ $735.16 $505.83 $229.33 

RUL ......... 719.14 494.80 224.34 

RVX ........ 654.35 450.23 204.12 

RVL ......... 587.07 403.93 183.14 

RHX ........ 592.85 407.91 184.94 

RHL ......... 528.77 363.82 164.95 

RMX ........ 543.82 374.18 169.64 

RML ........ 498.97 343.32 155.65 

RLX ......... 477.60 328.61 148.99 

RUC ........ 557.34 383.48 173.86 

RUB ........ 557.34 383.48 173.86 

RUA ........ 466.03 320.65 145.38 

RVC ........ 478.13 328.98 149.15 

RVB ........ 414.05 284.89 129.16 

RVA ........ 412.45 283.79 128.66 

RHC ........ 416.63 286.66 129.97 

RHB ........ 374.98 258.00 116.98 

RHA ........ 330.12 227.14 102.98 

RMC ........ 366.00 251.83 114.17 

RMB ........ 343.57 236.39 107.18 

RMA ........ 282.70 194.51 88.19 

RLB ......... 355.85 244.84 111.01 

RLA ......... 229.29 157.76 71.53 

ES3 ......... 671.18 461.81 209.37 

ES2 ......... 525.39 361.49 163.90 

ES1 ......... 469.32 322.92 146.40 

HE2 ......... 453.30 311.89 141.41 

HE1 ......... 376.41 258.99 117.42 

HD2 ......... 424.47 292.06 132.41 

HD1 ......... 353.98 243.56 110.42 

HC2 ......... 400.44 275.52 124.92 

HC1 ......... 334.76 230.33 104.43 

HB2 ......... 395.63 272.21 123.42 

HB1 ......... 331.55 228.12 103.43 

LE2 ......... 411.65 283.24 128.41 

LE1 ......... 344.37 236.94 107.43 

LD2 ......... 395.63 272.21 123.42 

LD1 ......... 331.55 228.12 103.43 

LC2 ......... 347.57 239.15 108.42 

LC1 ......... 293.10 201.67 91.43 

LB2 ......... 331.55 228.12 103.43 

LB1 ......... 280.29 192.85 87.44 

CE2 ......... 366.80 252.38 114.42 

CE1 ......... 337.96 232.53 105.43 

CD2 ......... 347.57 239.15 108.42 

CD1 ......... 318.74 219.31 99.43 

CC2 ......... 304.32 209.39 94.93 

CC1 ......... 281.89 193.95 87.94 

CB2 ......... 281.89 193.95 87.94 

CB1 ......... 261.06 179.62 81.44 

CA2 ......... 238.64 164.20 74.44 

CA1 ......... 222.62 153.17 69.45 

BB2 ......... 253.05 174.11 78.94 

BB1 ......... 241.84 166.40 75.44 

BA2 ......... 209.80 144.35 65.45 

BA1 ......... 200.19 137.74 62.45 

PE2 ......... 337.96 232.53 105.43 

PE1 ......... 321.94 221.51 100.43 

PD2 ......... 318.74 219.31 99.43 

PD1 ......... 302.72 208.29 94.43 

PC2 ......... 273.88 188.44 85.44 

PC1 ......... 261.06 179.62 81.44 

PB2 ......... 232.23 159.79 72.44 

PB1 ......... 222.62 153.17 69.45 

PA2 ......... 192.18 132.23 59.95 

PA1 ......... 184.17 126.72 57.45 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Proposed Rules 26379 

TABLE 7B—RUG–IV CASE-MIX ADJUSTED FEDERAL RATES FOR URBAN

SNFS BY LABOR AND NON-LABOR

COMPONENT

[Without parity adjustment recalibration] 

RUG–IV 

category 

Total 

rate 

Labor 

portion 

Non-labor 

portion 

RUX ........ $882.55 $607.24 $275.31 

RUL ......... 860.12 591.81 268.31 

RVX ........ 798.53 549.43 249.10 

RVL ......... 708.82 487.70 221.12 

RHX ........ 733.83 504.91 228.92 

RHL ......... 647.32 445.39 201.93 

RMX ........ 678.39 466.77 211.62 

RML ........ 620.72 427.09 193.63 

RLX ......... 602.56 414.59 187.97 

RUC ........ 643.85 443.00 200.85 

RUB ........ 643.85 443.00 200.85 

RUA ........ 520.50 358.13 162.37 

RVC ........ 559.83 385.19 174.64 

RVB ........ 474.93 326.78 148.15 

RVA ........ 473.33 325.67 147.66 

RHC ........ 495.13 340.67 154.46 

RHB ........ 440.66 303.20 137.46 

RHA ........ 381.39 262.42 118.97 

RMC ........ 441.30 303.64 137.66 

RMB ........ 409.26 281.59 127.67 

RMA ........ 329.16 226.48 102.68 

RLB ......... 437.55 301.06 136.49 

RLA ......... 267.74 184.22 83.52 

ES3 ......... 671.18 461.81 209.37 

ES2 ......... 525.39 361.49 163.90 

ES1 ......... 469.32 322.92 146.40 

HE2 ......... 453.30 311.89 141.41 

HE1 ......... 376.41 258.99 117.42 

HD2 ......... 424.47 292.06 132.41 

HD1 ......... 353.98 243.56 110.42 

HC2 ......... 400.44 275.52 124.92 

HC1 ......... 334.76 230.33 104.43 

HB2 ......... 395.63 272.21 123.42 

HB1 ......... 331.55 228.12 103.43 

LE2 ......... 411.65 283.24 128.41 

LE1 ......... 344.37 236.94 107.43 

LD2 ......... 395.63 272.21 123.42 

LD1 ......... 331.55 228.12 103.43 

LC2 ......... 347.57 239.15 108.42 

LC1 ......... 293.10 201.67 91.43 

LB2 ......... 331.55 228.12 103.43 

LB1 ......... 280.29 192.85 87.44 

CE2 ......... 366.80 252.38 114.42 

CE1 ......... 337.96 232.53 105.43 

CD2 ......... 347.57 239.15 108.42 

CD1 ......... 318.74 219.31 99.43 

CC2 ......... 304.32 209.39 94.93 

CC1 ......... 281.89 193.95 87.94 

CB2 ......... 281.89 193.95 87.94 

CB1 ......... 261.06 179.62 81.44 

CA2 ......... 238.64 164.20 74.44 

CA1 ......... 222.62 153.17 69.45 

BB2 ......... 253.05 174.11 78.94 

BB1 ......... 241.84 166.40 75.44 

BA2 ......... 209.80 144.35 65.45 

BA1 ......... 200.19 137.74 62.45 

PE2 ......... 337.96 232.53 105.43 

PE1 ......... 321.94 221.51 100.43 

PD2 ......... 318.74 219.31 99.43 

PD1 ......... 302.72 208.29 94.43 

PC2 ......... 273.88 188.44 85.44 

PC1 ......... 261.06 179.62 81.44 

PB2 ......... 232.23 159.79 72.44 

PB1 ......... 222.62 153.17 69.45 

PA2 ......... 192.18 132.23 59.95 

PA1 ......... 184.17 126.72 57.45 

TABLE 8A—RUG–IV CASE-MIX ADJUSTED FEDERAL RATES FOR RURAL

SNFS BY LABOR AND NON-LABOR

COMPONENT

[Including parity adjustment recalibration] 

RUG–IV 

category 

Total 

rate 

Labor 

portion 

Non-labor 

portion 

RUX ........ $752.19 $517.54 $234.65 

RUL ......... 736.88 507.01 229.87 

RVX ........ 660.90 454.73 206.17 

RVL ......... 596.61 410.50 186.11 

RHX ........ 591.89 407.25 184.64 

RHL ......... 530.66 365.12 165.54 

RMX ........ 537.89 370.10 167.79 

RML ........ 495.03 340.61 154.42 

RLX ......... 468.18 322.13 146.05 

RUC ........ 582.28 400.64 181.64 

RUB ........ 582.28 400.64 181.64 

RUA ........ 495.03 340.61 154.42 

RVC ........ 492.53 338.89 153.64 

RVB ........ 431.30 296.76 134.54 

RVA ........ 429.77 295.70 134.07 

RHC ........ 423.51 291.40 132.11 

RHB ........ 383.71 264.01 119.70 

RHA ........ 340.85 234.52 106.33 

RMC ........ 367.99 253.20 114.79 

RMB ........ 346.56 238.45 108.11 

RMA ........ 288.39 198.43 89.96 

RLB ......... 351.85 242.09 109.76 

RLA ......... 230.92 158.88 72.04 

ES3 ......... 648.24 446.02 202.22 

ES2 ......... 508.95 350.18 158.77 

ES1 ......... 455.37 313.32 142.05 

HE2 ......... 440.07 302.79 137.28 

HE1 ......... 366.59 252.23 114.36 

HD2 ......... 412.51 283.83 128.68 

HD1 ......... 345.16 237.49 107.67 

HC2 ......... 389.55 268.03 121.52 

HC1 ......... 326.79 224.85 101.94 

HB2 ......... 384.96 264.87 120.09 

HB1 ......... 323.73 222.74 100.99 

LE2 ......... 400.27 275.41 124.86 

LE1 ......... 335.98 231.17 104.81 

LD2 ......... 384.96 264.87 120.09 

LD1 ......... 323.73 222.74 100.99 

LC2 ......... 339.04 233.28 105.76 

LC1 ......... 287.00 197.47 89.53 

LB2 ......... 323.73 222.74 100.99 

LB1 ......... 274.75 189.04 85.71 

CE2 ......... 357.41 245.92 111.49 

CE1 ......... 329.86 226.96 102.90 

CD2 ......... 339.04 233.28 105.76 

CD1 ......... 311.49 214.32 97.17 

CC2 ......... 297.71 204.84 92.87 

CC1 ......... 276.28 190.09 86.19 

CB2 ......... 276.28 190.09 86.19 

CB1 ......... 256.38 176.40 79.98 

CA2 ......... 234.95 161.66 73.29 

CA1 ......... 219.64 151.12 68.52 

BB2 ......... 248.73 171.14 77.59 

BB1 ......... 238.01 163.76 74.25 

BA2 ......... 207.40 142.70 64.70 

BA1 ......... 198.21 136.38 61.83 

PE2 ......... 329.86 226.96 102.90 

PE1 ......... 314.55 216.43 98.12 

PD2 ......... 311.49 214.32 97.17 

PD1 ......... 296.18 203.79 92.39 

PC2 ......... 268.63 184.83 83.80 

PC1 ......... 256.38 176.40 79.98 

PB2 ......... 228.83 157.45 71.38 

PB1 ......... 219.64 151.12 68.52 

PA2 ......... 190.56 131.11 59.45 

PA1 ......... 182.91 125.85 57.06 

TABLE 8B—RUG–IV CASE-MIX ADJUSTED FEDERAL RATES FOR RURAL

SNFS BY LABOR AND NON-LABOR

COMPONENT

[Without parity adjustment recalibration] 

RUG–IV 

category 

Total 

rate 

Labor 

portion 

Non-Labor 

portion 

RUX ........ 893.01 $614.44 $278.57 

RUL ......... 871.58 599.69 271.89 

RVX ........ 798.67 549.52 249.15 

RVL ......... 712.95 490.55 222.40 

RHX ........ 726.59 499.93 226.66 

RHL ......... 643.93 443.06 200.87 

RMX ........ 666.47 458.56 207.91 

RML ........ 611.37 420.65 190.72 

RLX ......... 587.57 404.28 183.29 

RUC ........ 664.94 457.51 207.43 

RUB ........ 664.94 457.51 207.43 

RUA ........ 547.07 376.41 170.66 

RVC ........ 570.59 392.59 178.00 

RVB ........ 489.46 336.77 152.69 

RVA ........ 487.93 335.72 152.21 

RHC ........ 498.52 343.01 155.51 

RHB ........ 446.47 307.19 139.28 

RHA ........ 389.84 268.23 121.61 

RMC ........ 439.93 302.69 137.24 

RMB ........ 409.31 281.63 127.68 

RMA ........ 332.78 228.97 103.81 

RLB ......... 429.91 295.80 134.11 

RLA ......... 267.66 184.16 83.50 

ES3 ......... 648.24 446.02 202.22 

ES2 ......... 508.95 350.18 158.77 

ES1 ......... 455.37 313.32 142.05 

HE2 ......... 440.07 302.79 137.28 

HE1 ......... 366.59 252.23 114.36 

HD2 ......... 412.51 283.83 128.68 

HD1 ......... 345.16 237.49 107.67 

HC2 ......... 389.55 268.03 121.52 

HC1 ......... 326.79 224.85 101.94 

HB2 ......... 384.96 264.87 120.09 

HB1 ......... 323.73 222.74 100.99 

LE2 ......... 400.27 275.41 124.86 

LE1 ......... 335.98 231.17 104.81 

LD2 ......... 384.96 264.87 120.09 

LD1 ......... 323.73 222.74 100.99 

LC2 ......... 339.04 233.28 105.76 

LC1 ......... 287.00 197.47 89.53 

LB2 ......... 323.73 222.74 100.99 

LB1 ......... 274.75 189.04 85.71 

CE2 ......... 357.41 245.92 111.49 

CE1 ......... 329.86 226.96 102.90 

CD2 ......... 339.04 233.28 105.76 

CD1 ......... 311.49 214.32 97.17 

CC2 ......... 297.71 204.84 92.87 

CC1 ......... 276.28 190.09 86.19 

CB2 ......... 276.28 190.09 86.19 

CB1 ......... 256.38 176.40 79.98 

CA2 ......... 234.95 161.66 73.29 

CA1 ......... 219.64 151.12 68.52 

BB2 ......... 248.73 171.14 77.59 

BB1 ......... 238.01 163.76 74.25 

BA2 ......... 207.40 142.70 64.70 

BA1 ......... 198.21 136.38 61.83 

PE2 ......... 329.86 226.96 102.90 

PE1 ......... 314.55 216.43 98.12 

PD2 ......... 311.49 214.32 97.17 

PD1 ......... 296.18 203.79 92.39 

PC2 ......... 268.63 184.83 83.80 

PC1 ......... 256.38 176.40 79.98 

PB2 ......... 228.83 157.45 71.38 

PB1 ......... 219.64 151.12 68.52 

PA2 ......... 190.56 131.11 59.45 

PA1 ......... 182.91 125.85 57.06 


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

also requires that we apply this wage 

index in a manner that does not result 

in aggregate payments that are greater or 

less than would otherwise be made in 

the absence of the wage adjustment. For 

FY 2012 (Federal rates effective October 

1, 2011), we apply an adjustment to 

fulfill the budget neutrality requirement. 

We meet this requirement by 

multiplying each of the components of 

the unadjusted Federal rates by a budget 

neutrality factor equal to the ratio of the 

weighted average wage adjustment 

factor for FY 2011 to the weighted 

average wage adjustment factor for FY 

2012. For this calculation, we use the 

same 2010 claims utilization data for 

both the numerator and denominator of 

this ratio. We define the wage 

adjustment factor used in this 

calculation as the labor share of the rate 

component multiplied by the wage 

index plus the non-labor share of the 

rate component. The budget neutrality 

factor for this year is 1.0001. The wage 

index applicable to FY 2012 is set forth 

in Tables A and B, which appear in the 

Addendum of this proposed rule. 

In the SNF PPS final rule for FY 2006 

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

adopted the changes discussed in the 

Office of Management and Budget 

(OMB) Bulletin No. 03–04 (June 6, 

2003), available online at http:// 

www.whitehouse.gov/omb/bulletins/ 

b03-04.html, which announced revised 

definitions for Metropolitan Statistical 

Areas (MSAs), and the creation of 

Micropolitan Statistical Areas and 

Combined Statistical Areas. In addition, 

OMB published subsequent bulletins 

regarding CBSA changes, including 

changes in CBSA numbers and titles. As 

indicated in the FY 2008 SNF PPS final 

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

and all subsequent SNF PPS rules and 

notices are considered to incorporate 

the CBSA changes published in the 

most recent OMB bulletin that applies 

to the hospital wage data used to 

determine the current SNF PPS wage 

index. The OMB bulletins are available 

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

omb/bulletins/index.html. 

In adopting the OMB CBSA 

geographic designations, we provided 

for a 1-year transition with a blended 

wage index for all providers. For FY 

2006, the wage index for each provider 

consisted of a blend of 50 percent of the 

FY 2006 MSA-based wage index and 50 

percent of the FY 2006 CBSA-based 

wage index (both using FY 2002 

hospital data). We referred to the 

blended wage index as the FY 2006 SNF 

PPS transition wage index. As discussed 

in the SNF PPS final rule for FY 2006 

(70 FR 45041), subsequent to the 

expiration of this 1-year transition on 

September 30, 2006, we used the full 

CBSA-based wage index values, as now 

presented in Tables A and B in the 

Addendum of this proposed rule. 

D. Updates to the Federal Rates 

In accordance with section 

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

section 311 of the BIPA, and section 

1888(e)(5)(B) of the Act as amended by 

section 3401(b) of the Affordable Care 

Act, the payment rates in this proposed 

rule reflect an update equal to the full 

SNF market basket, estimated at 2.7 

percentage points, reduced by the MFP 

adjustment. As discussed in sections 

I.G.2 and VI.C of this proposed rule, the 

annual update includes a 1.2 percentage 

point reduction to account for the MFP 

adjustment described in the latter 

section, for a net update of 1.5 percent 

for FY 2012. We continue to 

disseminate the rates, wage index, and 

case-mix classification methodology 

through the Federal Register before the 

August 1 that precedes the start of each 

succeeding FY. 

E. Relationship of Case-Mix 

Classification System to Existing Skilled 

Nursing Facility Level-of-Care Criteria 

As discussed in § 413.345, we include 

in each update of the Federal payment 

rates in the Federal Register the 

designation of those specific RUGs 

under the classification system that 

represent the required SNF level of care, 

as provided in § 409.30. As set forth in 

the FY 2011 SNF PPS update notice (75 

FR 42910, July 22, 2010), this 

designation reflects an administrative 

presumption under the 66-group RUG– 

IV system that beneficiaries who are 

correctly assigned to one of the upper 52 

RUG–IV groups on the initial 5-day, 

Medicare-required assessment are 

automatically classified as meeting the 

SNF level of care definition up to and 

including the assessment reference date 

on the 5-day Medicare-required 

assessment. 

A beneficiary assigned to any of the 

lower 14 RUG–IV groups is not 

automatically classified as either 

meeting or not meeting the definition, 

but instead receives an individual level 

of care determination using the existing 

administrative criteria. This 

presumption recognizes the strong 

likelihood that beneficiaries assigned to 

one of the upper 52 RUG–IV groups 

during the immediate post-hospital 

period require a covered level of care, 

which would be less likely for those 

beneficiaries assigned to one of the 

lower 14 RUG–IV groups. 

In this proposed rule, we once again 

propose to designate the upper 52 RUG– 

IV groups for purposes of this 

administrative presumption, consisting 

of all groups encompassed by the 

following RUG–IV categories: 

• Rehabilitation plus Extensive 

Services; 

• Ultra High Rehabilitation; 

• Very High Rehabilitation; 

• High Rehabilitation; 

• Medium Rehabilitation; 

• Low Rehabilitation; 

• Extensive Services; 

• Special Care High; 

• Special Care Low; and, 

• Clinically Complex. 

However, we note that this 

administrative presumption policy does 

not supersede the SNF’s responsibility 

to ensure that its decisions relating to 

level of care are appropriate and timely, 

including a review to confirm that the 

services prompting the beneficiary’s 

assignment to one of the upper 52 RUG– 

IV groups (which, in turn, serves to 

trigger the administrative presumption) 

are themselves medically necessary. As 

we explained in the FY 2000 SNF PPS 

final rule (64 FR 41667, July 30, 1999), 

the administrative presumption 

* * * is itself rebuttable in those 

individual cases in which the services 

actually received by the resident do not meet 

the basic statutory criterion of being 

reasonable and necessary to diagnose or treat 

a beneficiary’s condition (according to 

section 1862(a)(1) of the Act). Accordingly, 

the presumption would not apply, for 

example, in those situations in which a 

resident’s assignment to one of the upper 

* * * groups is itself based on the receipt of 

services that are subsequently determined to 

be not reasonable and necessary. 

Moreover, we want to stress the 

importance of careful monitoring for 

changes in each patient’s condition to 

determine the continuing need for Part 

A SNF benefits after the assessment 

reference date of the 5-day assessment. 

F. Example of Computation of Adjusted 

PPS Rates and SNF Payment 

Using the hypothetical SNF XYZ 

described below, Tables 9A and 9B 

show the adjustments made to the 

Federal per diem rates to compute the 

provider’s actual per diem PPS payment 

under each of the described scenarios 

(that is, with a parity adjustment 

recalibration and without a parity 

adjustment recalibration). SNF XYZ’s 

12-month cost reporting period begins 

October 1, 2011. As illustrated in Table 

9A, SNF XYZ’s total PPS payment 

would equal $40,021.02 with the 

application of a parity adjustment 

recalibration (calculated using first 

quarter FY 2011 data), as described in 

section II.B.2 above. SNF XYZ’s total 

PPS payment would equal $42,636.62 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
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without the application of the parity 

adjustment recalibration considered in 

section II.B.2, as illustrated in Table 9B. 

We derive the Labor and Non-labor 

columns from Tables 7A and 7B. 

TABLE 9A—RUG–IV—INCLUDING PARITY ADJUSTMENT RECALIBRATION SNF XYZ: LOCATED IN CEDAR RAPIDS, IA 

[(Urban CBSA 16300) Wage Index: 0.8857] 

RUG–IV group Labor Wage index Adjusted 

labor Non-labor Adjusted rate 

Percent 

adjustment 

Medicare 

days Payment 

RVX .................................. $450.23 0.8857 $398.77 $204.12 $602.89 $602.89 14 $8,440.46 

ES2 .................................. 361.49 0.8857 320.17 163.90 484.07 484.07 30 14,522.10 

RHA .................................. 227.14 0.8857 201.18 102.98 304.16 304.16 16 4,866.56 

CC2 * ................................ 209.39 0.8857 185.46 94.93 280.39 639.29 10 6,392.90 

BA2 .................................. 144.35 0.8857 127.85 65.45 193.30 193.30 30 5,799.00 

100 40,021.02 

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

TABLE 9B—RUG–IV—WITHOUT PARITY ADJUSTMENT RECALIBRATION SNF XYZ: LOCATED IN CEDAR RAPIDS, IA 

[(Urban CBSA 16300) Wage Index: 0.8857] 

RUG–IV group Labor Wage index Adjusted 

labor Non-labor Adjusted rate 

Percent 

adjustment 

Medicare 

days Payment 

RVX .................................. $549.43 0.8857 $486.63 $249.10 $735.73 $735.73 14 $10,300.22 

ES2 .................................. 361.49 0.8857 320.17 163.90 484.07 484.07 30 14,522.10 

RHA .................................. 262.42 0.8857 232.43 118.97 351.40 351.40 16 5,622.40 

CC2* ................................. 209.39 0.8857 185.46 94.93 280.39 639.29 10 6,392.90 

BA2 .................................. 144.35 0.8857 127.85 65.45 193.30 193.30 30 5,799.00 

100 42,636.62 

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

III. Resource Utilization Groups, 

Version 4 (RUG–IV) 

A. Prospective Payment for SNF Nontherapy Ancillary Costs 

1. Previous Research 

We have conducted several studies 

since 1999 to refine the reimbursement 

methodology for non-therapy ancillary 

(NTA) services covered by the SNF PPS. 

At the inception of the SNF PPS, 

payment for NTA services was included 

in the 44-group RUG system of case-mix 

groups. Analysis showed that there was 

only a weak correlation between NTA 

services costs and the RUG–III 

classification group. As the current 

RUG–IV system, similar to the RUG–III 

system, has maintained NTA costs 

coverage as part of the nursing CMIs, we 

believe that the present methodology for 

case-mix adjusting the NTA payment 

amount may not be the most accurate 

predictor of NTA costs. We are 

particularly concerned that the present 

system could underestimate NTA costs 

for the patients with the highest NTA 

needs, which could lead to restricted 

access to care for those patients. 

As a result of research conducted in 

the late 1990s, one proposal included in 

the FY 2001 proposed rule was to 

modify the RUG system by adding 14 

additional RUG groups (65 FR 19193– 

19194, 19203, April 10, 2000). These 

additional groups were designed to 

recognize that patients qualifying for 

both a Rehabilitation RUG and an 

Extensive Services RUG incurred NTA 

costs estimated to be as much as three 

times higher than those of patients who 

qualify solely for a Rehabilitation RUG. 

As noted in the 2006 Report to 

Congress on case-mix refinements 

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

SNFPPS/Downloads/RC_2006_PCPPSSNF.pdf), additional research 

conducted by Abt Associates in the late 

1990s experimented with several 

mathematical models of NTA costs. 

Results from this work could have 

practical application as an ancillary 

‘‘add-on’’ index based on the 

beneficiary’s predicted, per diem NTA 

costs. As discussed in the FY 2001 SNF 

PPS proposed rule (65 FR 19195, April 

10, 2000), NTA index models (both 

weighted and unweighted) were tested 

after exploring MDS variables that 

appeared to be predictive of NTA costs. 

In the unweighted model, cost 

predictions were based on counts of 

qualifying patient characteristics 

(characteristics such as respiratory 

infection or skin wounds). In the 

weighted models, a small set of payment 

groups were defined from ‘‘index 

models’’ that weighted the predictors 

where the weights were proportional to 

the marginal impact of a patient 

characteristic on estimated NTA costs. 

The array of predicted costs generated 

by the equation could be subdivided 

into ranges of costs, or intervals, in 

order to define a small number of 

payment groups. As discussed in the 

Technical Appendix to the FY 2001 

proposed rule (65 FR 19240, 19248, 

April 10, 2000), variations were created 

by applying the index models to 

alternative sets of RUG groups. As 

further discussed in the FY 2001 

proposed rule (65 FR 19196), we 

proposed a separate unweighted NTA 

index to be applied to certain RUG 

categories based on clinical variables on 

the MDS. In addition, to facilitate the 

incorporation of this proposed 

refinement into the case-mix 

classification system, we proposed to 

create a new component of the payment 

rates for NTA services (65 FR 19192). 

As explained in the FY 2001 SNF PPS 

final rule (65 FR 46773, July 31, 2000), 

while the expanded RUG groups 

approach and the NTA index approach 

initially appeared to improve payment 

accuracy in comparison to the existing 

case-mix system, attempts to validate 

the results on a later national PPS data 

set did not confirm the initial findings. 

As a result, we did not finalize the 

proposals made in April 2000. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
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We sponsored subsequent research by 

the Urban Institute using claims 

samples from 2001. This work led to the 

FY 2006 final rule (70 FR 45026, 45030– 

34, August 4, 2005), which essentially 

implemented a variation of the 58-group 

RUG proposal developed by Abt 

Associates discussed above. In that rule, 

we finalized a system composed of 53 

groups, by augmenting the original 44- 

group system with nine additional 

groups identifying patients 

simultaneously qualifying for the 

Extensive Services and Rehabilitation 

groups. This incremental change to the 

grouping system was accompanied by 

an across-the-board increase in the casemix weights for the payment component 

that includes NTA costs. Both of these 

modifications were intended to enable 

the original RUG–III payment model to 

account more accurately for variation in 

NTA costs. 

Using the 2001 data set, the Urban 

Institute also experimented with 

prediction models that were extensions 

of the original Abt Associates NTA 

index approaches. A small number of 

additional variables (for example, age) 

and improvements to the methodology 

used to measure independent variables 

in the data base led to potential 

improvements over the earlier model. 

The Urban Institute also explored 

substantially more complex models that 

incorporated variables derived from 

qualifying hospital stay claims; these 

models were estimated separately for 

patients after subdividing them into one 

of three groups: Acute, chronic, or 

rehabilitation. 

In 2008, the Medicare Payment 

Advisory Commission (MedPAC) 

sponsored analyses by researchers from 

the Urban Institute extending some of 

the Institute’s earlier work. This led to 

a MedPAC proposal that was based on 

the most promising results of the 

Institute’s earlier work. The study used 

2003 Medicare data. It resulted in a 

prediction equation for NTA services 

that used a large number of variables 

derived from the MDS assessments and 

hospital claims (for example, diagnosis), 

a measure of length of stay, as well as 

patient age (Bowen Garrett and Douglas 

A. Wissoker, ‘‘Modeling Alternative 

Designs for a Revised PPS for Skilled 

Nursing Facilities: A study conducted 

by staff from the Urban Institute for the 

Medicare Payment Advisory 

Commission,’’ June, 2008; available 

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

documents/Jun08_SNF_PPS_

CONTRACTOR_CC.pdf). MedPAC did 

not propose a system of NTA case-mix 

groups based on the prediction 

equation. However, the basic equation 

could be used to generate an array of 

predictions in the population and to 

group the predictions into cost intervals 

for defining a smaller number of 

payment groups. This is the same 

approach that Abt Associates took with 

its index model. 

In a June 2010 memo to MedPAC 

(available online at http:// 

www.medpac.gov/documents/Oct10_

SNF_NonTherapyAncillary

_CONTRACTOR_CC.pdf), the Urban 

Institute described a series of 

refinements to MedPAC’s 2008 

proposed model. Most importantly, with 

their 2010 model, the Urban Institute 

sought to reduce the number of 

indicators from nearly 70 and ensure 

that all indicators are derived from 

information based on available 

administrative data. Additionally, when 

the Urban Institute used 2007 SNF data 

files (as compared to the 2003 data files 

used to support the previous model), 

they found that the predictive ability of 

the model was reduced slightly from 23 

percent to 21 percent. 

After completing a revised statistical 

analysis and eliminating indicators for 

conditions that were either relatively 

rare or had little impact on NTA costs, 

the Urban Institute advanced a 20- 

variable ‘‘streamlined’’ model that 

maintained almost equivalent predictive 

accuracy to MedPAC’s 2008 proposed 

model described above. The streamlined 

model included many of the ‘‘highimpact’’ variables contained in the 69- 

variable model, such as IV medication 

use and respiratory services. 

Additionally, the streamlined model 

included variables suggested by CMS, 

such as the nursing case-mix index and 

the MDS diabetes diagnosis, which were 

also found to be strong indicators of 

anticipated NTA costs. 

2. Conceptual Analysis 

Based on our initial research, we 

continue to believe that an 

administratively feasible and equitable 

approach to prospective payments for 

NTA costs would incorporate the 

following criteria: 

• Uses information from available 

administrative data (data available on 

claims or on the MDS assessment); 

• Uses predictor variables that 

represent meaningful correlates of NTA 

services that are highly predictive, 

clinically sensible, sensitive to patient 

NTA variation, and do not promote 

undesirable incentives for providers; 

• Is developed by using the best and 

most recently available data sources, in 

order to assure that it reflects current 

care practices and resource utilization; 

• Results in a separate NTA 

component and index that uses a 

minimal number of payment groups, or 

tiers, to limit the complexity of the SNF 

PPS as a whole; and 

• Uses payment groups and predictor 

variables that are readily 

understandable and clinically intuitive. 

These criteria and our initial research 

intent were discussed in the FY 2010 

SNF PPS proposed rule (74 FR 22238 

through 22241, May 12, 2009), and 

responses to comments on this initial 

research proposal were part of the FY 

2010 SNF PPS final rule (74 FR 40341 

through 40342, August 11, 2009). These 

comments helped to guide our initial 

research to develop the conceptual 

model discussed in this proposed rule. 

In addition to the criteria specified 

above, our research is also guided by the 

results of multiple recent studies, such 

as those conducted by the Urban 

Institute, regarding the relationship 

between NTA utilization and resident 

condition. Most relevant to our work in 

this area, these studies suggest that the 

highest-cost ancillary services (such as 

respiratory services, enteral and 

parenteral feeding, and treatment of 

chronic conditions, such as AIDS) are 

used by a small subset of the SNF 

population, and that the high and varied 

cost of individual services or drugs by 

these populations—rather than the 

volume of NTA utilization—can at least 

partially explain the wide variance in 

NTA costs. 

To continue our analytic work for 

developing a payment methodology for 

NTA costs, we have utilized a large 

analytic data file that combines 

Medicare SNF claims, cost reports, and 

MDS assessments from FY 2007. The 

file has been used to study relationships 

between reported claims charges for 

NTA-related revenue centers and 

predictor variables defined from items 

on the MDS. We augmented the analytic 

file with diagnosis information from the 

patient’s qualifying hospital stay as a 

way of compensating for potentially 

incomplete diagnosis reporting on MDS 

and on SNF claims. (As noted earlier, it 

is not our intention to use hospitalassigned diagnoses directly in any tiered 

system we may propose.) Because threequarters of the NTA costs are pharmacyrelated, we have summarized the 

patient’s recent diagnoses using the 

diagnosis classification system CMS 

developed for Medicare Part D risk 

adjustment. This is known as the 

RxHCC system. The RxHCC system was 

developed from the Hierarchical 

Condition Categories (HCCs) used for 

risk-adjustment in Medicare Part C. We 

also continue to examine the 

performance of the diagnosis flags from 

Section I of the MDS. 

Now that more recent data are 

available, we are developing a similar 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
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file using FY 2009 data, which may be 

used to test our initial model formulas 

and monitor any recent changes to NTA 

utilization patterns. We solicit comment 

on the criteria specified above and the 

conceptual model discussed in the 

following sections. 

3. Analytic Sample 

To develop the analytic sample, we 

linked FY 2007 SNF cost reports with 

SNF Medicare Part A claims covering 

services delivered during the SNF’s cost 

reporting period. The actual cost of the 

NTA services is determined by adjusting 

claims charges for NTA services in 

accordance with cost-to-charge ratios 

(CCRs) from the cost report. The NTA 

costs are then used as the dependent 

variable in all subsequent analyses, 

while MDS items and claims diagnoses 

act as the independent variables. We 

collected all claims, and used only those 

claims submitted within the reporting 

period for the cost reports available. 

Requiring a matched cost report 

eliminated some SNFs represented in 

the 2007 National Claims History. The 

SNFs that do not meet this threshold 

tend to be smaller SNFs, though this 

requirement does not adversely affect 

the representativeness of the analytic 

sample. 

We have studied the same three 

general categories of NTAs as previous 

research has suggested: Respiratoryrelated costs (for example, ventilator 

services), drug-related costs, and other 

non-therapy ancillary (ONTA) costs (for 

example, wound dressings). We derive 

category-specific CCRs for each facility’s 

cost report remaining in the sample. An 

additional requirement for an SNF to be 

in the sample is that it reports some 

drug and ONTA charges on the claims; 

otherwise, the facility’s data may not be 

accurate enough to be used in the 

sample. Positive respiratory charges are 

not necessary, as these types of charges 

are not always reported. One reason is 

that some respiratory charges, such as 

oxygen-related supplies, are reported as 

ONTAs, based on certain reporting 

standards. 

We trimmed the sample to eliminate 

facilities with extreme values for CCRs, 

as outlying CCRs could skew the results 

of our analysis. Finally, we compared 

the drug and ONTA charges on the 

claims to the SNF’s cost report drug and 

ONTA charges, since wide differences 

could be the result of incomplete or 

inaccurate reporting. Facilities that were 

found to exhibit such wide differences 

were dropped from the sample. For our 

analysis, accurate charge reporting is 

critical for the measurement of our 

dependent-variable, CCR-adjusted NTA 

charges. 

4. Approach to Analysis 

The dependent variable in our 

analysis is the NTA charges, adjusted by 

CCRs. The independent variables are 

diagnosis groupings and variables 

selected from the matched MDS 

assessments. With the recent 

implementation of the MDS 3.0, we will 

monitor any changes in our selected set 

of variables and, based on research 

conducted as part of the Post Acute Care 

Payment Reform Demonstration (PAC– 

PRD), we may explore changes to the 

MDS assessment which would allow us 

to collect more detailed information on 

NTA costs and utilization. However, as 

our current analytic database is based 

on FY 2007 and FY 2009 data, our 

analysis still utilizes the MDS 2.0. The 

following sections of the MDS 2.0 

contribute variables to be tested for their 

predictive value: 

E: Mood and Behavior Problems 

G: Physical Functioning and Structural 

Problems 

H: Continence in Last 14 Days 

I: Disease Diagnoses 

J: Health Conditions 

K: Oral/Nutritional Status 

L: Oral/Dental Status 

M: Skin Condition 

O: Medications 

P: Special Treatments and Procedures 

Our study of the ability of particular 

MDS items and diagnosis groupings to 

predict NTA costs builds on previous 

research discussed above and adheres to 

the criteria outlined earlier in this 

section. Now that we have completed 

the initial phase of this research, we are 

in a better position to understand the 

relationship between NTA costs and 

certain classes of illness. Understanding 

these relationships has led us to explore 

potential groupings of conditions, 

distinct from the RUG classification or 

qualifying hospital condition, which 

could suggest a feasible system for NTA 

payment tiers. 

5. Payment Methodology 

The payments associated with a new 

NTA component of the SNF PPS would 

be financed by reallocating that portion 

of the current nursing component which 

has been previously considered to 

account for NTA costs. Our intent in 

adding a separate NTA component, 

distinct from the nursing component, 

would be to provide greater predictive 

ability, promote more equitable NTA 

reimbursement, and achieve a more 

cost-effective payment structure for 

SNFs. 

The NTA payment would be broken 

into two parts: A routine NTA bundled 

payment (RNP) and a tiered non-routine 

NTA payment (TNP). 

a. Routine Non-Therapy Ancillary 

Payment 

The RNP would constitute a base 

payment for every patient day, distinct 

from the tiered NTA payment described 

below and separate from the nursing 

component, to cover the cost of routine 

NTA services (drugs, laboratory 

services, etc.) that are commonly given 

to a wide range of SNF patients. CMS 

is currently analyzing SNF claims data 

linked to specially collected data from 

Medicare research projects, such as the 

STRIVE study and the PAC–PRD 

project, to help determine the specific 

drugs and services that would be 

included in the RNP and an appropriate 

per diem amount to cover their 

purchase and administration. Examples 

of such routine NTAs could include 

high blood pressure medication, 

common analgesics, anti-infective 

agents, sleep aids, laxatives, and 

standard blood tests, among others. The 

RNP would help capture the daily cost 

of administering these types of routine 

NTAs, thereby allowing for a more 

clearly defined and appropriate tiered 

NTA bundled payment to cover nonroutine NTA services, as well as a more 

transparent payment for such routine 

costs incurred by providers. We also 

believe that, in conjunction with a 

possible NTA outlier policy (discussed 

below), having an RNP component 

would limit the administrative burdens 

associated with reporting that might be 

required to administer outlier payments. 

As with the other components of the 

SNF PPS, the RNP piece of the NTA 

component would be updated annually 

to account for changes in the market 

basket and other relevant adjustments. It 

would operate in much the same way as 

the non-therapy non-case mix adjusted 

component of the current SNF PPS, in 

that it would constitute a flat amount 

added to the payment for all applicable 

SNF claims. 

b. Tiered Non-Routine NTA Bundled 

Payment 

The TNP would operate as a variation 

of the model previously discussed in the 

FY 2001 SNF PPS proposed rule (65 FR 

19188, April 10, 2000). Specifically, we 

are in the process of developing a tiered 

NTA bundled payment, where payment 

tiers track relative variations in NTA 

costs and utilization. The June 2008 

Urban Institute report referenced above 

(Garrett and Wissoker, June 2008) 

suggested that average wage-adjusted 

per diem NTA costs were approximately 

$68, with a standard deviation of $94, 

which would support the use of 

multiple case-mix-adjusted tiers. 


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The TNP is designed to capture the 

average cost of the drugs and services, 

given the patient’s clinical 

characteristics, excluding the drugs and 

services covered by the RNP or those 

already excluded from the SNF PPS 

altogether under the consolidated 

billing requirements. Such a cost 

schedule and tier structure is currently 

under development, using recent 

Medicare Part A claims data and data 

from the PAC–PRD. 

We have focused on developing an 

index model in which predictions are 

arrayed and then subdivided into fixed 

ranges of cost values to form distinct 

payment groups, or tiers, as we believe 

this type of approach is better equipped 

to handle the number of explanatory 

variables needed to predict NTA costs 

reasonably well. The tiers which 

constitute the TNP will be based on 

average NTA costs as measured from 

available administrative data. Generally, 

based on the resident’s case mix and the 

variables selected for predicting NTA 

costs, if the resident’s expected NTA 

costs exceed a particular threshold, then 

the facility would be paid a prospective 

amount, which would be added to the 

base RNP amount. 

c. Non-Routine NTA Outlier Payment 

Though we currently lack explicit 

statutory authority to establish an SNF 

outlier policy, we are continuing to 

explore how such a policy could be 

implemented in the event that we 

receive statutory authority. Results of 

the STRIVE study suggest that it is the 

cost of individual high-cost 

pharmaceuticals and other NTAs, rather 

than a particular patient’s use of a high 

volume of NTA services, which creates 

high NTA costs. Given the effect of 

specific high-cost items like 

prescription drugs or respiratory 

services, it is clear that any type of 

averaging system (such as the 

conceptual NTA model discussed here) 

will not in all cases account for the cost 

of such items. It will be insufficiently 

sensitive to high NTA costs deriving 

from variations among costs of 

individual medications and ONTAs. 

Accordingly, we are currently 

reviewing the available data to 

determine how an outlier approach 

could be designed to address patientspecific expenditures that exceed the 

routine and non-routine NTA payments 

that we would make, while allowing for 

an outlier threshold. While we have not 

yet fully simulated a potential SNF 

outlier payment policy, we believe it is 

appropriate to conduct analysis at the 

stay level, because NTA utilization can 

fluctuate significantly during a given 

SNF stay. Using a stay-level analysis of 

potential NTA cost outliers would help 

us to predict NTA costs more accurately 

over the course of a given SNF stay. Any 

further developments in this area will 

be discussed in future rulemaking. 

6. Temporary AIDS Add-On Payment 

Under Section 511 of the MMA 

As discussed in section I.E of this 

proposed rule, section 511 of the MMA 

amended section 1888(e)(12) of the Act 

to provide for a temporary increase of 

128 percent in the PPS per diem 

payment for any SNF residents with 

Acquired Immune Deficiency Syndrome 

(AIDS), effective for services furnished 

on or after October 1, 2004. This special 

AIDS add-on was to remain in effect 

until ‘‘* * * the Secretary certifies that 

there is an appropriate adjustment in 

the case mix * * * to compensate for 

the increased costs associated with 

[such] residents. * * *’’ We know, as a 

result of the STRIVE study and a review 

of SNF cost data, that SNF residents 

with AIDS require much greater and 

more costly care than those without 

AIDS and that much of this additional 

cost is the result of NTAs, specifically 

high-cost medications. 

Accordingly, as we have not yet 

completed work on the NTA component 

or an SNF outlier policy, we cannot yet 

determine whether such policy changes 

would be sufficient to compensate 

facilities for the costs associated with 

the treatment of residents with AIDS, in 

accordance with section 511 of the 

MMA. We will continue to study the 

relationship between NTA costs and 

resource use as they pertain to this 

population in order to develop an 

‘‘appropriate adjustment’’ to account for 

such costs, as envisioned in the MMA. 

IV. Ongoing Initiatives Under the 

Affordable Care Act 

The Affordable Care Act contains a 

number of provisions that involve 

ongoing initiatives relating to SNFs. 

Here, we highlight several of these 

initiatives. 

A. Value-Based Purchasing (Section 

3006) 

Section 3006(a) of the Affordable Care 

Act directs the Secretary to develop a 

plan to implement a value-based 

purchasing program for SNFs, with a 

report to Congress due by October 1, 

2011. As we discussed previously in the 

SNF PPS proposed rule (73 FR 25932, 

May 7, 2008) and final rule (73 FR 

46431–32, August 8, 2008) for FY 2009, 

value-based purchasing programs are 

intended to tie payment to performance 

in such a way as to reduce inappropriate 

or poorly provided care and identify 

and reward those who provide effective 

and efficient patient care. 

We are in the process of developing 

the SNF value-based purchasing 

implementation plan and report. In 

accordance with section 3006(a) of the 

Affordable Care Act, we will be 

consulting with stakeholders in 

developing the implementation plan, as 

well as considering the outcomes of any 

recent demonstration projects related to 

value-based purchasing which we 

believe might be relevant to the SNF 

setting. We anticipate being able to 

provide further information on the 

progress of our efforts in future 

rulemaking. 

B. Payment Adjustment for HospitalAcquired Conditions (Section 3008) 

As we discussed previously in the 

SNF PPS proposed rule for FY 2009 (73 

FR 25932, May 7, 2008), ‘‘The 

preventable hospital-acquired 

conditions (HAC) payment provision for 

IPPS hospitals is another of CMS’ valuebased purchasing initiatives. The 

principal behind the HAC payment 

provision (Medicare not paying more for 

healthcare-associated conditions) could 

be applied to the Medicare payment 

systems for other settings of care.’’ 

Section 3008 of the Affordable Care Act 

amends section 1886 of the Act by 

adding a new subsection (p) to establish 

a payment adjustment beginning in FY 

2015 for subsection (d) hospitals that 

fall in the top quartile of national, riskadjusted HAC rates. For such hospitals, 

the payment amount under section 

1886, section 1814(b)(3), or section 

1814(l)(4) of the Act for all discharges 

would be reduced by 1 percent. Section 

3008(b) of the Affordable Care Act goes 

on to direct the Secretary to conduct a 

study on expanding the already-existing 

HAC policy found in section 

1886(d)(4)(D) of the Act to payments 

made in various post-acute settings, 

including SNFs. In developing this 

study, the Secretary is directed to 

include the impact of expanding the 

HAC policy on patient care, safety, and 

overall payments. 

In accordance with section 3008 of 

the Affordable Care Act, we are in the 

process of developing such a study, the 

outcomes of which are to be reported to 

Congress no later than January 1, 2012. 

As with the value-based purchasing 

program described above, we plan to 

consult with stakeholders in developing 

this study, and anticipate being able to 

provide information on our progress in 

future rulemaking. 


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C. Nursing Home Transparency and 

Improvement (Section 6104) 

This provision of the Affordable Care 

Act requires SNFs to report 

expenditures separately for direct care 

staff wages and benefits on the Medicare 

cost report, for cost reporting periods 

beginning on or after 2 years after its 

enactment. Not later than 1 year after 

enactment of this section of the 

Affordable Care Act, the Secretary must 

redesign the cost report after 

consultation with private sector 

accountants experienced with Medicare 

and Medicaid nursing facility home cost 

reports. Within 30 months of its 

enactment, the provision requires the 

Secretary, in consultation with the 

Medicare Payment Advisory 

Commission (MedPAC), the Medicaid 

and CHIP Payment and Access 

Commission, the Inspector General of 

the United States Department of Health 

and Human Services, and other expert 

parties the Secretary determines 

appropriate, to categorize expenditures 

for each SNF into specific functional 

accounts on an annual basis. The 

provision also requires the Secretary to 

establish procedures to make 

information on the expenditures 

available to interested parties upon 

request, subject to the requirements the 

Secretary may specify under such 

procedures. A discussion of the 

information collection requirements 

currently being proposed in connection 

with this provision appears in a notice 

that was published in the March 11, 

2011 Federal Register (76 FR 13415 

through 13418). 

V. Other Issues 

A. Required Disclosure of Ownership 

and Additional Disclosable Parties 

Information (Section 6101) 

Section 6101 of the Affordable Care 

Act was enacted in March 2010 to 

improve transparency of information in 

all Medicare SNFs and Medicaid 

nursing facilities. Specifically, it 

requires these facilities to make 

available on request by the Secretary 

and others certain information on 

ownership, including a description of 

the governing body and organizational 

structure of the relevant Medicare SNF 

or Medicaid nursing facility, and 

information regarding additional 

disclosable parties. Thus, we are 

proposing additional information that 

must be disclosed by Medicare SNFs 

and Medicaid nursing facilities in order 

for them to maintain their enrollment in 

Medicare and/or Medicaid. 

According to nursing home quality 

data collected by CMS in 2008, about 

1.5 million Americans reside in the 

Nation’s 16,000 nursing homes on any 

given day. More than 3 million 

Americans rely on services provided by 

a nursing home at some point during the 

year. Those individuals, and an even 

larger number of their family members, 

friends, and relatives, must be able to 

count on nursing homes to provide 

reliable care of consistently high 

quality. 

In 2007, the New York Times 

analyzed trends at nursing homes 

purchased by private investment 

groups. It subsequently reported that 

upon ownership by these private 

investment firms, the facilities’ 

managers quickly cut costs by 

significantly decreasing the number of 

registered nurses, budgets for nursing 

supplies, resident activities, and other 

services. CMS’s data revealed that of 

those homes bought by large private 

investment groups from 2000 to 2006, in 

60 percent of those acquisitions, 

managers cut the number of clinical 

registered nurses far below levels 

required by the Medicare long-term care 

facility participation requirements 

under 42 CFR 483.30. Nursing homes 

owned by large private investment firms 

provided one clinical registered nurse 

for every 20 residents, which was 35 

percent below the national average. 

In its 2010 report to Congress entitled 

‘‘Nursing Homes: Complexity of Private 

Investment Purchases Demonstrates 

Need for CMS to Improve the Usability 

and Completeness of Ownership Data’’ 

(GAO–10–710, available online at 

http://www.gao.gov/new.items/ 

d10710.pdf), the GAO reported similar 

findings. The GAO found that, although 

certain information on ownership was 

available to the public upon request, 

that information was not transparent 

because it did not establish the 

relationship of each owner to the 

nursing home and to one another. Also, 

it was found that the information was 

not being utilized by the State agencies 

for review purposes. 

Hearings were conducted in 

November and December of 2007 by the 

House Committee on Ways and Means, 

the United States Senate Special 

Committee on Aging, and the United 

States Senate Committee on Finance, 

seeking information on investor-owned 

nursing homes. Congress found through 

several hearings that legal schemes were 

being used by investment firms to shield 

themselves from liability and, in effect, 

to deny residents and their families 

legal remedy against the nursing home. 

Congress believed that these complex 

legal structures can also result in a lack 

of transparency regarding who is 

responsible for resident care and the 

operation of investor-owned nursing 

homes. 

We currently collect ownership 

information on nursing homes using the 

Medicare Provider Enrollment, Chain, 

and Ownership System (PECOS). In 

addition, we currently capture 

ownership information on Medicaid 

nursing facilities using the Online 

Survey Certification and Reporting 

System (OSCAR). Nursing home 

providers, along with any other provider 

or supplier, must report information 

about any individual or entity with a 5 

percent ownership interest. As 

discussed in section IX. of this proposed 

rule, we are hereby proposing to revise 

the reporting requirements that 

Medicare SNFs and Medicaid nursing 

facilities must disclose at the time of 

enrollment and when any change in 

ownership occurs, in order to 

implement section 6101 of the 

Affordable Care Act. 

B. Therapy Student Supervision 

In this proposed rule, we are 

proposing to revise a policy that 

originally appeared in the SNF PPS final 

rule for FY 2000 (64 FR 41644, July 30, 

1999). The preamble in that final rule 

had indicated (at 64 FR 41661) that a 

therapy student in the SNF setting must 

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

of supervision of the professional 

therapist.’’ We note that the 

corresponding standards for the other 

inpatient settings under Part A (such as 

acute care hospitals and inpatient 

rehabilitation facilities) are silent on the 

issue of therapy student supervision and 

currently do not impose this type of 

restriction, so that each provider is free 

to determine for itself the most 

appropriate manner of supervision in 

this context, consistent with applicable 

State and local laws and practice 

standards. Because we consider it 

inequitable for SNFs to be subject to a 

more restrictive set of standards in this 

regard than the other inpatient settings, 

we believe that line-of-sight supervision 

should no longer be required in the SNF 

setting. Instead, as with other inpatient 

settings, each SNF would determine for 

itself the appropriate manner of 

supervision of therapy students, 

consistent with applicable State and 

local laws and practice standards. 

Accordingly, we are proposing to revise 

our current policy regarding supervision 

of therapy students, such that a therapy 

student working in an SNF would no 

longer be required to be in the 

supervising therapist’s line of sight. We 

invite comments on our proposed 

revision to the supervision requirements 

for therapy students working in SNFs, 

and note that we plan to continue 


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monitoring the provision of therapy 

services in the SNF setting. We also note 

that we may revisit this issue in the 

future; however, consistent with the aim 

of promoting greater uniformity across 

inpatient settings on this point, we 

believe that such an analysis would 

most appropriately take place in the 

broader context of therapy standards 

that pertain to inpatient settings 

generally. 

C. Group Therapy and Therapy 

Documentation 

When the original RUG–III model was 

developed, most therapy services were 

furnished on a one-to-one basis, and the 

minutes reported on the MDS served as 

a proxy for the staff resource time 

needed to provide the therapy care. 

However, the results of our multi-year 

STRIVE project showed that provider 

practice patterns had changed and that 

a significant amount of therapy was 

provided on a concurrent basis, which 

at that time was defined as 

simultaneous treatment of multiple 

patients who were receiving different 

types of therapy services. In the FY 2010 

final rule (74 FR 40315), we stated that 

as Medicare and Medicaid patients are 

among the frailest and most vulnerable 

populations in nursing homes, we 

believed the most appropriate mode of 

providing therapy would usually be 

individual therapy, not concurrent 

therapy. Further, we expressed concern 

that the method for reporting concurrent 

therapy on the MDS under RUG–III 

created an inappropriate payment 

incentive to perform concurrent therapy 

in place of individual therapy, because 

the method of reporting under RUG–III 

permitted concurrent therapy time to be 

counted in the same manner as 

individual therapy time. As we stated in 

the SNF PPS final rule for FY 2010 (74 

FR 40315), the SNF PPS is based on 

resource allocation and costs. When a 

therapist treats two patients 

concurrently for an hour, it does not 

cost the SNF twice the amount (or 2 

hours of the therapist’s salary) to 

provide those services. As a result, with 

the introduction of RUG–IV, we 

modified the way providers report and 

are reimbursed for concurrent therapy 

services such that allocated concurrent 

therapy minutes are used to assign 

patients to RUG–IV groups. Providers 

can no longer be reimbursed for one 

hour’s therapy time for each of the two 

Medicare beneficiaries treated 

concurrently for one hour. Effective 

October 1, 2010, providers are required 

to report on the MDS 3.0 for each 

patient the total unallocated minutes of 

concurrent therapy and specify the 

mode as concurrent. We then divide the 

total concurrent therapy time (60 

minutes in this case) between the two 

patients in determining each patient’s 

RUG–IV payment level (74 FR 40315– 

19). As we stated in the FY 2010 final 

rule (74 FR 40318), allocating 

concurrent therapy time reflects 

resource utilization more accurately for 

this type of therapy, and allows for more 

accurate RUG classification as well as 

the application of more appropriate 

CMIs. We note that in the FY 2010 final 

rule (74 FR 40317), we limited the 

number of concurrent therapy 

participants to two. 

In comparison, we also considered the 

treatment of group therapy in the FY 

2010 final rule (74 FR 40318); that is, 

simultaneous treatment of no more than 

four individuals (regardless of payer 

source) doing similar activities directed 

by a single therapist. Our STRIVE data 

showed that group therapy was used 

sparingly, and that utilization had not 

changed significantly since the 

inception of the SNF PPS in 1998. 

Further, in the FY 2010 proposed rule 

(74 FR 22223), we noted the difference 

between group and concurrent therapy. 

In group therapy, patients are 

performing similar activities, and by 

interacting with one another, group 

therapy patients observe and learn from 

each other and apply this new 

information to their own therapy 

program to progress and benefit from 

the group therapy setting. By contrast, 

in concurrent therapy, patients are not 

performing similar activities and often 

do not interact with each other. Because 

we had not proposed in the FY 2010 

proposed rule to change the method in 

which group therapy minutes are used 

in RUG–IV classification, and the 

amount of group therapy being provided 

was low, in the FY 2010 final rule (74 

FR 40318), we retained the original SNF 

PPS policy for payment of group 

therapy services, that is, group therapy 

minutes were not allocated but were 

limited to no more than 25 percent of 

the total weekly minutes per discipline 

for a particular patient. However, in the 

FY 2010 final rule (74 FR 40318), we 

discussed our intent ‘‘* * * to monitor 

therapy provided in the group setting, 

analyze data associated with group 

therapy, and, if needed, address any 

issues at a later time’’ in order to update 

these reporting requirements as 

necessary to maintain the accuracy and 

integrity of the RUG–IV payment 

system. 

Using our STRIVE data as a baseline, 

we have identified two very significant 

changes in provider behavior related to 

the provision of therapy services to 

Medicare beneficiaries in SNFs under 

RUG–IV. First, we saw a major decrease 

in the amount of concurrent therapy 

performed in SNFs. At the same time, 

we found a significant increase in the 

amount of group therapy services which 

are not subject to the allocation 

requirement. Given this increase in 

group therapy services, we are 

concerned that the current method for 

reporting group therapy on the MDS 

creates an inappropriate payment 

incentive to perform the less intensive 

group therapy in place of individual 

therapy, because the current method of 

reporting group therapy time does not 

require allocation among patients. In 

addition, the allocation of concurrent 

therapy minutes effective FY 2011 may 

have created an incentive to perform 

group therapy in place of concurrent 

therapy in situations where concurrent 

therapy may have otherwise been 

appropriate. After further reviewing 

data associated with group therapy, we 

are proposing to change our policies 

relating to group therapy as further 

discussed below. 

As noted above, we believe there are 

unique benefits to group therapy. In 

group therapy, patients are performing 

similar activities. Thus, in contrast to 

concurrent therapy, group therapy gives 

patients the opportunity to benefit from 

each other’s therapy regimen by 

observing and interacting with one 

another, and applying the lessons 

learned from others to one’s own 

therapy program in order to progress. 

Large groups, such as those of five or 

more participants, can make it difficult 

for the participants to engage with one 

another over the course of the session. 

In addition, we have long believed that 

therapists could not adequately 

supervise large groups, and, since the 

inception of the SNF PPS in July 1998, 

we have capped the number of residents 

at four. 

Furthermore, we believe that groups 

of fewer than four participants do not 

maximize the group therapy benefit for 

the participants. As discussed above, 

and in the FY 2010 proposed rule (74 

FR 22223), the unique benefit of group 

therapy comes from the interaction 

between multiple patients, which 

permits them to observe and learn from 

one another and apply the new 

information to their own program to 

progress and benefit from the group 

therapy setting. We believe that in 

groups of 2 or 3 participants, the 

opportunities for patients in the group 

to interact and learn from each other are 

significantly diminished given the small 

size of the group. Thus, we believe that 

groups of two or three participants, 

given their small size, significantly limit 

the ability of patients to derive the 

unique benefits associated with group 


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therapy. In such small groups, these 

limitations become even more 

accentuated whenever one or two 

patients are absent from the therapy 

session (in fact, with groups of two 

participants, if one patient is absent 

from the session, there are no longer any 

patients with whom the remaining 

participant can interact, thereby 

eliminating any benefit that could be 

derived from participation in a group). 

Thus, for the reasons discussed above, 

we believe that the most appropriate 

group therapy size for the SNF setting 

is four, which we believe is the size that 

permits the therapy participants to 

derive the maximum benefit from the 

group therapy setting. 

As discussed in the FY 2010 final 

rule, we are responsible for determining 

Medicare coverage and payment policy, 

that is, ‘‘the scope of services that will 

be paid for by the Medicare program 

under the SNF PPS and the manner in 

which those services will be reported 

and paid’’ (74 FR 40316). Thus, for 

purposes of payment under the 

Medicare SNF PPS, for the reasons 

discussed above, we are proposing to 

establish a standard that defines group 

therapy as therapy provided 

simultaneously to four patients who are 

performing similar therapy activities. 

Furthermore, as we have stated 

previously, the SNF PPS is based on 

resource utilization and costs. We 

believe that when a therapist treats four 

patients in a group for an hour, it does 

not cost the SNF four times the amount 

(or four hours of a therapist’s salary) to 

provide those services. The therapist 

would appropriately receive one hour’s 

salary for the hour of therapy provided. 

Accordingly, we believe that allocating 

group therapy minutes among the four 

group therapy participants best captures 

the resource utilization associated with 

providing a maximally beneficial group 

therapy intervention. For therapists 

treating patients in a group setting, the 

full time spent by the therapist with 

these patients would be divided by 4 

(the number of patients that comprise a 

group). For example, if a therapist 

spends 1 hour with four residents in a 

group therapy session, regardless of 

payer source, then the time used to 

determine the appropriate RUG–IV 

classification for each Medicare 

beneficiary receiving SNF care benefits 

as part of a qualified Part A stay will be 

15 minutes, or 60 minutes of total 

therapist time divided by four. These 15 

minutes, which may be referred to as 

the therapist’s ‘‘reimbursable therapy 

minutes’’ (RTM), are those minutes used 

to classify a patient for therapy 

purposes. For each of the RUG–IV 

categories, it is the number of 

reimbursable therapy minutes that is 

used to classify a given patient into a 

therapy RUG–IV group. For example, if 

a therapist provides 400 minutes of 

individual therapy, 200 minutes of 

concurrent therapy, and 120 minutes of 

group therapy (given the proposed 

policy change to group therapy 

discussed here), then the therapist’s 

total RTM would be 530, or 400 RTM for 

individual therapy, 100 RTM for 

concurrent therapy, and 30 RTM for 

group therapy. The total of 530 RTM is 

what would be used to determine the 

patient’s appropriate RUG–IV 

classification. We hope that defining 

this concept of a reimbursable therapy 

minute will help clarify the number of 

minutes necessary to reach certain 

RUG–IV categories, given the allocation 

policies discussed here and in the FY 

2010 proposed and final rules. 

As is currently the procedure, the 

SNF would report the total unallocated 

group therapy minutes on the MDS 3.0 

(60 minutes in the scenario above) for 

each patient. In terms of RUG–IV 

classification, this total time would be 

allocated (that is, divided) among the 

four group therapy participants to 

determine the appropriate number of 

RTM and, therefore, the appropriate 

RUG–IV therapy group and payment 

level, for each participant. The 25 

percent cap on group therapy minutes, 

as defined in the July 30, 1999 final rule 

(64 FR 41662) will remain in effect, as 

we continue to believe that group 

therapy should serve only as an adjunct 

to individual therapy. The 25 percent 

cap would be applied to the patient’s 

reimbursable group therapy minutes. In 

addition, consistent with our current 

policy (64 FR 41662), the supervising 

therapist may not be supervising any 

individuals other than the four 

individuals who are in the group at the 

time of the therapy session. We invite 

comments on our proposals to revise 

our group therapy policies as discussed 

above, including the proposal to 

establish a standard that defines group 

therapy as a service provided to four 

patients, and the proposal to allocate 

group therapy minutes. 

While we believe that group therapy 

can play an important role in SNF 

patient care, we note that group therapy 

is not appropriate for either all patients 

or for all conditions, and is primarily 

effective as a supplement to individual 

therapy, which we maintain should be 

considered the primary therapy mode 

and standard of care in therapy services 

provided to SNF residents. As 

evidenced by the application of a cap on 

the amount of group therapy services 

that may be provided to SNF residents, 

we do not believe that a SNF providing 

the preponderance of therapy in the 

form of group therapy would be 

demonstrating the intensity of therapy 

appropriate to this most frail and 

vulnerable nursing home population. 

Accordingly, we believe it is important 

to clarify our expectations regarding the 

clinical documentation needed to 

support each patient’s plan of care, 

including the patient’s prescribed group 

therapy interventions, as further 

discussed below. Additionally, we 

specifically solicit comments on the 

types of patients for which group 

therapy may be appropriate, and the 

specific amounts of group therapy that 

may be beneficial for these types of 

patients. We anticipate using this 

information to assess the appropriate 

use of group therapy in SNFs and may 

revise standards of group therapy care 

in SNFs accordingly. 

SNFs are currently required to 

prescribe the type, amount, frequency, 

and duration of physical therapy, 

occupational therapy, and speechlanguage pathology services in a 

patient’s plan of care. Under § 409.23(c), 

Medicare pays for therapy services if 

they are furnished, among other things, 

in accordance with a plan that meets the 

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

Section 409.17(c)(1) states that the plan 

must prescribe ‘‘the type, amount, 

frequency, and duration of the physical 

therapy, occupational therapy, or 

speech-language pathology services to 

be furnished to the individual.’’ As 

evidenced by the discussion of care 

planning and the qualifications for 

skilled therapy services in Chapter 3, 

Section O of the RAI manual in relation 

to item O0400, SNFs are expected to 

include supporting documentation in 

each patient’s medical record on an 

ongoing basis. We further believe that 

such medical record documentation is 

needed so that SNFs can verify that the 

plan of care is being followed. In 

addition, we believe that such clinical 

documentation has always been 

necessary so that SNFs can identify 

when significant changes in a patient’s 

medical condition occur requiring an 

unscheduled assessment, such as a 

Significant Change in Status assessment. 

In fact, even when the clinical change 

is unrelated to the therapy program, 

these unscheduled assessments require 

completion of Section O, which reports 

therapy minutes by individual, 

concurrent, and group modes. Finally, 

we believe that such documentation has 

always been required so that contractors 

can verify medical necessity when they 

review SNF claims. 

Additionally, under § 409.17(c)(2), 

SNFs must indicate ‘‘the diagnosis and 

anticipated goals’’ associated with the 


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therapy services prescribed in 

accordance with § 409.17(c)(1), as 

described above. It is incumbent upon 

providers to ensure that skilled therapy 

services provided to a given SNF 

resident are appropriate to the goals of 

the patient’s individualized plan of care. 

Thus, it should be clear, based on the 

patient’s medical record, therapy notes, 

and/or other related documentation, 

how the prescribed skilled therapy 

services contribute to the patient’s 

anticipated progression toward the 

prescribed goals. Because group therapy 

is not appropriate for either all patients 

or all conditions, and in order to verify 

that group therapy is medically 

necessary and appropriate to the needs 

of each beneficiary, SNFs should 

include in the patient’s plan of care an 

explicit justification for the use of 

group, rather than individual or 

concurrent, therapy. This description 

should include, but need not be limited 

to, the specific benefits to that particular 

patient of including the documented 

type and amount of group therapy; that 

is, how the prescribed type and amount 

of group therapy will meet the patient’s 

needs and assist the patient in reaching 

the documented goals. In addition, we 

believe that the above documentation is 

necessary to demonstrate that the SNF 

is providing services to attain or 

maintain the highest practicable 

physical, mental, and psychosocial 

well-being of each resident in 

accordance with section 1819(b)(2) of 

the Act. 

Should the actual utilization of 

therapy services deviate significantly 

from the patient’s plan of care, we 

expect the facility to update the plan of 

care to prescribe the new type, amount, 

frequency, and duration of physical 

therapy, occupational therapy, and 

speech-language pathology services. 

Furthermore, we believe that such 

changes to the mode and/or intensity of 

therapy must be justified by changes in 

the beneficiary’s underlying health 

condition; thus, in order to demonstrate 

that such changes are medically 

necessary, the provider should clearly 

describe in the plan of care the reasons 

for deviating from the original care plan. 

Consistent with § 409.17(c), the revised 

care plan must outline the updated 

goals and the revised type (that is, 

mode), amount, frequency, and duration 

of physical therapy, occupational 

therapy, and speech-language pathology 

services to be furnished to the patient. 

In addition, with approximately 90 

percent of the beneficiaries in Medicare 

stays receiving therapy, changes in the 

mode, amount, frequency, and/or 

duration of therapy services can have 

significant payment implications when 

such changes also result in a 

reclassification of the beneficiary’s casemix group. Under § 413.343(b), SNFs are 

required to perform assessments on the 

5th, 14th, 30th, 60th, and 90th days of 

posthospital SNF care, ‘‘and such other 

assessments that are necessary to 

account for changes in patient care 

needs.’’ The unscheduled assessments 

exist to capture changes in a resident’s 

skilled nursing or therapy needs outside 

the observation window used for the 

scheduled PPS assessments. We expect 

that the data reported in these required 

assessments, both scheduled and 

unscheduled, provide an accurate 

representation of the skilled therapy and 

nursing needs of the patient. Thus, if 

providers find changes in clinical and 

therapy status which would affect the 

accuracy of a resident’s most recent 

assessment, then we would expect (as 

discussed above) that these changes 

would be recorded in the patient’s plan 

of care and medical record, as well as 

through the use of unscheduled 

assessments, to determine if a 

subsequent change in payment is 

necessary. However, based on the 

available data, we believe that changes 

in resident status outside the 

observation window do not always 

generate an unscheduled assessment, as 

the changes, while significant for 

payment, do not always rise to the level 

of a significant change in clinical status. 

Additionally, in some cases, changes in 

therapy utilization levels may even be 

unrelated to the patient’s clinical 

condition but may be caused by staffing 

constraints or facility practices. For 

these reasons, we are proposing 

alternative solutions which would help 

capture perceived changes in resident 

status, as discussed in section V.D 

below. 

D. Proposed Changes to the MDS 3.0 

Assessment Schedule and Other 

Medicare-Required Assessments 

Under section 1888(e)(6) of the Act, 

SNFs are required to provide the 

Secretary, in a manner and within the 

timeframes prescribed by the Secretary, 

the resident assessment data necessary 

to develop and implement the payment 

rates. In order to receive proper 

payment for services provided during 

Part A Medicare SNF stays, SNFs must 

perform patient assessments in 

accordance with the assessment 

schedule outlined in the May 12, 1998 

interim final rule (63 FR 26265–26268) 

and, under the discussion in that 

interim final rule, in accordance with 

the guidelines found in the RAI Manual, 

version 3.0. As discussed previously, 

the RAI Manual also includes the 

clarifications to the RAI Manual posted 

on the MDS Web site at http:// 

www.cms.gov/ 

NursingHomeQualityInits/ 

25_NHQIMDS30.asp. Following this 

schedule, SNFs must currently ‘‘perform 

patient assessments by the 5th day 

(although there is a grace period that 

allows performance by the 8th day) of 

the SNF stay, again by the 14th day, by 

the 30th day, and every 30 days 

thereafter as long as the patient is in a 

Medicare Part A stay’’ (63 FR 26265) 

(though there is a 5-day grace period for 

each of the 14-, 30-, 60-, and 90-day 

assessments as reflected in sections 2.8 

and 2.9 of the RAI Manual, version 3.0). 

The current assessment schedule is also 

described at § 413.343(b). As set forth in 

sections 2.8 and 2.9 of the RAI Manual, 

version 3.0, these Medicare-required 

assessments must be performed based 

on an Assessment Reference Date (ARD) 

within the specified window, which is 

the end-point of the observation period 

for the relevant MDS assessment. 

After further review of the MDS 3.0 

assessment schedule, we believe that 

the combination of the current grace 

period allowance and observation 

period could cause MDS assessments to 

be performed in such a way that some 

of the information coded on a 

subsequent assessment is duplicative of 

the previous assessment. For example, if 

a 5-day assessment is completed with an 

ARD of day 8 of the Part A stay, and the 

ARD for the 14-day assessment is set for 

day 11, then the patient’s status for four 

days of the stay will be coded twice for 

some items, that is, on the 5-day 

Medicare-required assessment and the 

14-day Medicare-required assessment 

(because, given the 7-day lookback 

period for some items, days 5 through 

8 would overlap between the two 

assessments). The intended purpose of 

the Medicare assessment schedule was 

to capture the changes in the patient’s 

status, especially during the first few 

weeks of the Medicare stay. However, 

because the observation periods overlap 

so closely, changes in the patient’s 

status are not reflected as originally 

intended. In addition, the ARD of the 

30-day Medicare-required assessment 

may be set as early as day 21 of the 

Medicare Part A stay, in which case, for 

some items the first day of the 

observation period may be as early as 

day 15 (for items with a 7-day look 

back). For example, the patient may 

have the Brief Interview for Mental 

Status (BIMS) conducted on day 15 and 

thus coded on the 30-day Medicarerequired assessment, which determines 

the RUG–IV group for payment days 31– 

60. Thus, the payment based on the 

assessment would not reflect the 


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patient’s cognitive status near the 30th 

day of the stay, but instead would 

actually reflect that status at the 15th 

day of the stay. 

Given the implications of these 

scenarios for both care quality and 

payment accuracy, we propose to 

modify the current Medicare-required 

assessment schedule (Table 10A) to 

incorporate new assessment windows 

and grace days, as indicated in Table 

10B, with appropriate changes to be 

made in the RAI Manual. 

TABLE 10A—CURRENT MDS 3.0 ASSESSMENT SCHEDULE

Medicare MDS assessment type 

Reason for 

assessment 

(A0310B code) 

Assessment 

reference date 

window 

Assessment 

reference date 

grace days 

Applicable 

medicare 

payment days 

5 day .............................................................................................. 01 Days 1–5 .......... 6–8 1 through 14. 

14 day ............................................................................................ 02 Days 11–14 ...... 15–19 15 through 30. 

30 day ............................................................................................ 03 Days 21–29 ...... 30–34 31 through 60. 

60 day ............................................................................................ 04 Days 50–59 ...... 60–64 61 through 90. 

90 day ............................................................................................ 05 Days 80–89 ...... 90–94 91 through 100. 

TABLE 10B—PROPOSED MDS 3.0 ASSESSMENT SCHEDULE

Medicare MDS assessment type 

Reason for 

assessment 

(A0310B code) 

Assessment 

reference date 

window 

Assessment 

reference date 

grace days 

Applicable 

medicare 

payment days 

5 day * ............................................................................................ 01 Days 1–5 .......... 6–8 1 through 14. 

14 day ............................................................................................ 02 Days 13–14 ...... 15–18 15 through 30. 

30 day ............................................................................................ 03 Days 27–29 ...... 30–33 31 through 60. 

60 day ............................................................................................ 04 Days 57–59 ...... 60–63 61 through 90. 

90 day ............................................................................................ 05 Days 87–89 ...... 90–93 91 through 100. 

* Changes would also apply to Readmission/Return Assessment (A0310B code = 06). 

We believe that these proposed 

changes to the Medicare-required 

assessment schedule will result in less 

duplication of information coded on 

subsequent assessments, and will better 

capture the patient’s change in status, as 

well as the change in services/ 

treatments, over the course of the stay 

without creating undue burden on 

providers. We also believe that ensuring 

the passage of a greater amount of time 

between assessments would improve 

patient and provider satisfaction and 

care quality, as it would not be 

necessary to repeat interview questions 

and assessment items required on the 

MDS assessments within such a short 

period of time. We solicit comments 

regarding these proposed changes to the 

current MDS 3.0 assessment schedule. 

In addition, with regard to the 

completion of unscheduled PPS 

assessments, we wish to clarify a policy 

which first appeared in the FY 2010 

final rule (74 FR 40347 through 40348). 

In the FY 2010 final rule (74 FR 40347 

through 40348), we finalized the policy 

that the ARD for an End-of-Therapy 

(EOT) OMRA must be set 1 to 3 days 

after the discontinuation of all therapies 

(speech-language pathology services and 

occupational and physical therapies). 

Based on this policy, the EOT OMRA 

must be completed, at the latest, when 

a patient has not received therapy for 

three consecutive days (although we 

note that, as finalized in the FY 2010 

final rule (74 FR 40348), in determining 

the ARD, days currently are counted 

differently for facilities that provide 

therapy services 5 days per week as 

compared to facilities that provide 

therapy services 7 days per week, as 

further discussed below). Further, in the 

FY 2010 final rule (74 FR 40348), we 

cite the ‘‘daily basis’’ criteria at 

§ 409.34(b) in order to clarify that a 

break in therapy of 1 or 2 days (such as 

may result from a brief illness or 

extreme fatigue), would not necessarily 

result in a provider having to complete 

an EOT OMRA. Thus, we are clarifying 

that, consistent with this policy and our 

policy regarding setting the ARD for the 

completion of an EOT OMRA, an EOT 

OMRA must be completed once such 

therapy services cease for three 

consecutive days, regardless of the 

reason. 

We note that some SNFs have 

expressed concern over the use of the 

phrase ‘‘discontinuation of therapy 

services.’’ Therefore, we wish to clarify 

what is meant by the phrase 

‘‘discontinuation of therapy services’’ as 

it applies to our policies governing 

completion of PPS assessments. We 

recognize that there may be two types of 

‘‘discontinuation of therapy services.’’ A 

discontinuation in therapy services may 

be temporary; for example, in cases of 

illness, patient refusal, or visits to a 

doctor’s office. Such breaks in therapy 

generally cannot be predicted in the 

plan of care and they may be 

characterized as an ‘‘unplanned’’ 

discontinuation of therapy services. 

These types of discontinuations usually 

reflect an expectation that therapy will 

resume at some point. Alternatively, a 

discontinuation of therapy services may 

be characterized as a ‘‘planned’’ 

discontinuation, that is, the 

discontinuation is consistent with the 

patient’s plan of care such as when the 

patient has reached the prescribed 

therapy goals. In the FY 2010 final rule, 

in finalizing our policy related to setting 

the ARD for an EOT OMRA at 1 to 3 

days after discontinuation of therapy 

services, we did not distinguish 

between planned and temporary 

unplanned discontinuation of therapy. 

Thus, the ARD for the EOT OMRA must 

be set for Day 1 to 3 after the 

discontinuation, planned or unplanned, 

of all therapy services. Accordingly, we 

are clarifying that providers must 

complete an EOT OMRA for a patient 

classified in a RUG–IV therapy group if 

that patient goes three consecutive days 

without being furnished any therapy 

services, regardless of the reason for the 

discontinuation of therapy. We believe 

this clarification of the policy related to 

setting the ARD for the EOT OMRA, is 

consistent with the intent of this policy 

as expressed in the FY 2010 proposed 

and final rules (that is, to allow for more 

accurate classification of patients based 

on services needed and provided to the 

patient) (74 FR 22246, 74 FR 40347–48), 

the discussion of this policy found in 

section 2.9.07 of the MDS 3.0 RAI 


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26390 Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Proposed Rules 

Manual and MDS 3.0 training materials, 

which may be found at http:// 

www.cms.gov/ 

NursingHomeQualityInits/ 

45_NHQIMDS30TrainingMaterials.asp, 

as well as with the criteria set forth in 

42 CFR 409.34(b), as discussed above. 

Accordingly, providers are required to 

complete an EOT OMRA in cases where 

a resident who is currently assigned to 

a therapy RUG–IV group has not 

received any therapy services for three 

consecutive days. By completing the 

EOT OMRA, SNFs will be paid at the 

appropriate non-therapy RUG–IV rate 

(starting the day following the last day 

that therapy services were furnished to 

the patient), depending on other 

relevant characteristics of the patient’s 

condition. If therapy resumes, the SNF 

may complete the optional Start-ofTherapy (SOT) OMRA, which can be 

used to reclassify the patient into a 

therapy RUG–IV group at any point 

during a resident’s Part A SNF stay until 

completion of the next regularly 

scheduled PPS assessment. 

Following publication of the FY 2010 

final rule, some SNFs have expressed 

concern regarding the difficulty in 

determining if a given facility should be 

considered a 5-day or 7-day facility, for 

the purposes of setting the ARD for the 

EOT OMRA (that is, whether a facility 

should be considered as providing 

therapy services 5 days per week or 7 

days per week). In the FY 2010 final 

rule, we discussed the days to be 

counted toward the establishment of the 

ARD for the EOT OMRA. In that rule (74 

FR 40348), we stated ‘‘when a facility 

only provides therapy 5 days a week 

* * * the weekend days would not be 

counted toward the establishment of the 

ARD for the end-of-therapy OMRA.’’ 

This policy has since caused significant 

confusion for providers who might use 

weekends to make up for therapy that 

was not provided during the week or 

who might only provide therapy on 

weekend days when a holiday falls on 

a weekday, as it is unclear to such 

providers whether they would be 

considered a 5-day facility or a 7-day 

facility. As such, to alleviate this 

confusion and add greater clarity and 

consistency to our policy regarding 

setting the ARD for the EOT OMRA as 

discussed above, we propose to 

eliminate the distinction between 5-day 

and 7-day facilities for purposes of 

setting the ARD for the EOT OMRA. 

Accordingly, we propose that, effective 

October 1, 2011, an EOT OMRA for a 

patient classified in a RUG–IV therapy 

group would be required if that patient 

goes three consecutive calendar days 

without being furnished any therapy 

services, regardless of whether the 

facility is a 5-day or 7-day facility or the 

reason for the discontinuation in 

therapy services. However, while the 

ARD for the EOT OMRA would be 

required to be set by the third 

consecutive calendar day after 

discontinuation of therapy services, as 

we discuss above and in the FY 2010 

final rule, the SNF also has the option 

of setting the ARD for the EOT OMRA 

on day 1 or day 2 after therapy services 

have been discontinued. Thus, if a 

facility (regardless of whether it is a 5- 

day or 7-day facility) discontinues 

therapy on a Friday, the ARD for the 

EOT OMRA would be required to be set 

for the immediately following Saturday, 

Sunday, or Monday, if the patient has 

not been provided therapy services in 

the interim. We believe that this 

proposed policy of requiring all SNFs to 

set the ARD for the EOT OMRA by the 

third consecutive calendar day after a 

patient’s therapy services have been 

discontinued, appropriately reflects that 

the frail and vulnerable populations 

within SNFs require consistent therapy 

without significant breaks in services. In 

addition, this policy is consistent with 

our discussion of 42 CFR 409.34(b) in 

the FY 2010 final rule, in which a break 

of 1 or 2 days would not necessarily 

result in a provider having to complete 

an EOT OMRA. We invite comments on 

this proposed change to our policy 

related to setting the assessment ARD 

for the EOT OMRA. 

In addition, some providers have 

suggested that the completion of an EOT 

OMRA and subsequent SOT OMRA may 

not be necessary for all patients, 

particularly in cases where therapy 

services resume at the same mode and 

intensity as the patient was receiving 

before the discontinuation of therapy 

service. We have considered this issue 

and we believe that, in some cases 

where an EOT OMRA has been 

completed and therapy resumes shortly 

thereafter, an SOT OMRA may not be 

necessary to establish the patient’s 

clinical condition, specifically where 

the RUG–IV classification level has not 

changed (as further discussed below). 

For the reasons discussed below, we 

propose that, effective for services 

provided on or after October 1, 2011, 

when an EOT OMRA has been 

completed and therapy subsequently 

resumes, SNFs may complete an End-ofTherapy Resumption (EOT–R) OMRA, 

rather than an SOT OMRA, in cases 

where therapy services have ceased for 

a period of no more than 5 consecutive 

calendar days, and have resumed at the 

same RUG–IV classification level that 

had been in effect prior to the EOT 

OMRA. In the situation where therapy 

services have resumed within such a 

short period of time at the same RUG– 

IV classification level, we do not believe 

that a new therapy evaluation and SOT 

OMRA would be necessary to reclassify 

the patient back into a RUG–IV therapy 

group because, given that the therapy 

resumed at the same RUG–IV 

classification level, it is likely that the 

patient’s clinical condition has not 

changed. Instead, the EOT–R OMRA 

may be used if the resumption date is 

no more than 5 consecutive calendar 

days after the date of the last therapy 

service furnished prior to the temporary 

discontinuation of therapy service 

reported on the EOT OMRA. To allow 

resumption of therapy reporting, two 

new items, O0450A and O0450B 

(Resumption of Therapy), would be 

added to the EOT OMRA item set so 

that it may be used as an EOT–R OMRA 

to report a resumption of therapy. These 

two new items would only be 

completed on an EOT OMRA (A0310C 

= 2 or 3) when therapy has resumed in 

the circumstances discussed above, for 

purposes of reporting the resumption of 

therapy services. As discussed above, 

we propose that the resumption of 

therapy must occur no more than 5 

calendar days after the date that all 

therapy ends in order for completion of 

an EOT–R ORMA to be appropriate. For 

example, if therapy services are 

discontinued on Day 35 of a stay, then 

therapy services must resume for that 

patient (at the same level as the patient’s 

RUG–IV classification prior to the 

discontinuation) by Day 39 of the stay 

in order for SNFs to have the option to 

complete an EOT–R OMRA for that 

patient. If therapy does not resume until 

Day 40 or later, then the SNF may not 

choose to complete an EOT–R OMRA 

under these circumstances. The 

resumption of therapy date is reported 

on the EOT OMRA if that EOT OMRA 

has not been submitted and accepted in 

the Quality Improvement and 

Evaluation System (QIES) Assessment 

Submission and Processing (ASAP) 

system. If the EOT OMRA has already 

been accepted in the ASAP system 

without a resumption of therapy date, 

then the prior EOT OMRA record 

should be modified to add the 

resumption of therapy date. No other 

changes should be made with this 

modification. 

In cases where therapy resumes more 

than five consecutive calendar days 

from the discontinuation of therapy 

service, we believe it is likely that the 

patient’s clinical condition needs to be 

evaluated to identify changes in clinical 

and/or therapy needs. Thus, in this case, 

the SNF could either perform an 

optional SOT OMRA to classify the 


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Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Proposed Rules 26391 

patient into a RUG–IV therapy group, or 

wait until the completion of the next 

regularly scheduled PPS assessment to 

classify the patient into a RUG–IV 

therapy group, if such a classification is 

clinically appropriate. In these 

situations, the therapist would be 

required to conduct a therapy 

evaluation and establish a new therapy 

care plan for the patient. 

As discussed above, SNFs would set 

the ARD for the EOT OMRA 1 to 3 

calendar days after the discontinuation 

of all therapies (speech-language 

pathology services and occupational 

and physical therapies). The EOT–R 

OMRA would include the same items as 

the EOT OMRA with the addition of 

O0450A and O0450B as described 

above. We note that the EOT–R OMRA 

would be an optional assessment. If 

therapy resumes after completion of an 

EOT OMRA and the criteria are met for 

performance of an EOT–R OMRA (as 

discussed above), the SNF would have 

the option of performing the EOT–R 

OMRA, an SOT OMRA, or waiting until 

the next regularly scheduled PPS 

assessment to assess the patient’s 

clinical condition. We solicit comments 

on our proposal to allow providers the 

option to complete an EOT–R OMRA in 

the circumstances described above. 

In accordance with section 2.9.07 of 

the RAI Manual, Version 3.0 (available 

online at https://www.cms.gov/ 

NursingHomeQualityInits/ 

45_NHQIMDS30TrainingMaterials.asp), 

completion of an EOT OMRA is 

required ‘‘* * * when the resident was 

classified in a RUG–IV Rehabilitation 

Plus Extensive Services or 

Rehabilitation group and continues to 

need Part A SNF-level services after the 

discontinuation of all rehabilitation 

therapies’’ (emphasis added). 

Accordingly, we note that a SNF’s 

completion of an EOT OMRA does not 

automatically result in the immediate 

termination of Part A coverage. 

Typically, a resident in this situation 

will have ongoing medical conditions 

that are clearly of sufficient intensity to 

justify continued coverage under one of 

the non-therapy RUGs, based on the 

need for daily skilled nursing services. 

Even when it may not be readily 

apparent that this is, in fact, the case (for 

example, when a resident is assigned to 

one of the less intensive RUGs, such as 

one that would result in receiving an 

individual level of care determination 

under the administrative presumption 

described in section II.E of this 

proposed rule), there may still be a need 

for continued skilled services, as when 

skilled observation is indicated for a 

resident whose overall medical 

condition is precluding the resident 

from undergoing further therapy. 

Moreover, even in situations where 

skilled rehabilitation is the sole reason 

for the SNF stay, the temporary 

discontinuation of therapy may not in 

itself necessarily have the effect of 

terminating coverage, if it is followed 

shortly thereafter by a resumption of 

therapy. For example, in discussing the 

effect of a brief absence from the facility 

on a resident’s continued ability to meet 

the SNF level of care criterion of ‘‘daily’’ 

skilled rehabilitation, we noted in the 

FY 2000 final rule (64 FR 41670, July 

30, 1999) that ‘‘* * * the requirement 

for daily skilled services should not be 

applied so strictly that it would not be 

met merely because there is a brief, 

isolated absence from the facility in a 

situation where discharge from the 

facility would not be practical.’’ 

Similarly, a resident who does not leave 

the facility at all may nonetheless 

experience a temporary inability to 

undergo therapy for such a brief period 

that discharge from the facility would 

not be practical, as described in 42 CFR 

409.34(b). However, as discussed above, 

an EOT OMRA would need to be 

completed if the patient goes three 

consecutive calendar days without 

therapy services, regardless of the 

reason for the discontinuation of 

therapy services. 

A related point on which we have 

recently received inquiries is the 

manner in which these policies relate to 

the requirements for providing an 

Advance Beneficiary Notice of 

Noncoverage (ABN). As explained in 

§ 50.2.1 of the Medicare Claims 

Processing Manual, chapter 30 

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

manuals/downloads/clm104c30.pdf), an 

ABN serves to notify a beneficiary of the 

provider’s belief ‘‘* * * that an 

otherwise covered item or service may 

be denied either as not reasonable and 

necessary under § 1862(a)(1) of the Act 

or because the item or service 

constitutes custodial care under 

§ 1862(a)(9) of the Act.’’ Section 70.2.3.1 

describes the triggering events for 

issuance of an SNF ABN. 

In this context, it has been suggested 

by some providers that when a facility 

furnishes therapy only on weekdays, it 

should routinely issue an ABN every 

Friday afternoon in order to anticipate 

the possibility that a given resident 

might be unable or unwilling to undergo 

therapy on the following Monday, 

thereby triggering an EOT OMRA and 

potentially causing the patient to drop 

below a covered level of care in the 

SNF. 

We would note at the outset that 

under the current policy set forth in the 

FY 2010 final rule (74 FR 40348), a 

facility that provides therapy services 5 

days per week would not count the 

weekend days in determining the ARD 

for the EOT OMRA and, thus, an EOT 

OMRA would not necessarily be 

triggered if the patient were to be 

unwilling or unable to undergo therapy 

on the following Monday. Nevertheless, 

we note that, as discussed above, we are 

proposing in this rule to eliminate the 

distinction between 5 and 7-day 

facilities for purposes of setting the ARD 

for the EOT OMRA. Even so, it is still 

important to bear in mind that, in this 

situation, the decision to issue an ABN 

is an individualized action, and should 

not be applied across the board to all 

patients. The ABN should not be 

provided merely because of the 

possibility that the patient might be 

unwilling or unable to participate in 

therapy the next day. There must be an 

actual discontinuation of therapy before 

the SNF can anticipate that the patient 

may enter into custodial care. In 

addition, it may not be the case for 

every patient that the continued SNF 

stay would become noncovered 

custodial care as a result of the cessation 

of therapy. Thus, it is not until that 

point has actually been reached that the 

issuance of an ABN would become 

appropriate. The ABN should inform 

the beneficiary of the provider’s belief 

that Medicare will no longer pay for the 

SNF stay because the patient is 

unwilling or unable to continue therapy 

and that therapy was the only reason the 

SNF stay was covered by Medicare. This 

information will help the patient make 

an informed decision about the 

potential consequences of failing to 

undergo the therapy session. 

However, we expect that these 

unplanned discontinuations in service 

will be relatively rare. If such 

unplanned discontinuations in service 

occur on a repeated basis, the provider 

should carefully evaluate whether or not 

the patient continues to meet Medicare 

coverage criteria. 

Finally, as noted in section V.C above, 

we have found some cases where 

therapy services recorded on a given 

PPS assessment did not provide an 

accurate account of the therapy 

provided to a given resident outside the 

observation window used for the most 

recent assessment. We believe that 

when service levels change, whether 

inside or outside the observation period, 

such changes should be based on 

medical evidence. However, we have 

found that the current range of PPS 

assessments may not permit SNFs 

adequate flexibility to report such 

changes in therapy services outside the 

observation window. As discussed 


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above, based on the available data, we 

believe that changes in resident status 

outside the observation window do not 

always generate an unscheduled 

assessment, because the changes, while 

significant for payment, do not always 

rise to the level of a significant change 

in clinical status under 

§ 483.20(b)(2)(ii). Additionally, in some 

cases, changes in therapy utilization 

levels may even be unrelated to the 

patient’s clinical condition but may be 

caused by staffing constraints or facility 

practices. 

Accordingly, we propose that, 

effective for services provided on or 

after October 1, 2011, SNFs would be 

required to complete a Change of 

Therapy (COT) OMRA, for patients 

classified into a RUG–IV therapy group, 

whenever the intensity of therapy (that 

is, the total RTM delivered) changes to 

such a degree that it would no longer 

reflect the RUG–IV classification and 

payment assigned for a given SNF 

resident based on the most recent 

assessment used for Medicare payment. 

The COT OMRA would be a new type 

of required PPS assessment, which 

would use the same item set as the 

current EOT OMRA. The ARD for the 

COT OMRA would be set for Day 7 of 

a COT observation period, which is a 

rolling 7-day window beginning on the 

day following the ARD set for the most 

recent scheduled or unscheduled PPS 

assessment (or beginning the day 

therapy resumes in cases where an 

EOT–R OMRA is completed, as further 

discussed below), and ending every 7 

calendar days thereafter. For example, if 

a facility sets the ARD for its 14-day 

assessment to Day 14, then Day 1 for the 

purposes of the COT observation period 

would be Day 15 of the SNF stay, and 

the facility would be required to review 

its therapy minutes for the week 

consisting of Days 15 through 21. The 

ARD for the COT OMRA would then be 

set for Day 21, if the facility were to 

determine that the total RTM has 

changed such that the RUG 

classification found on the 14-day 

assessment (assuming no intervening 

assessments) is no longer accurate. If the 

SNF were to determine that the total 

RTM has not changed to such an extent 

that the RUG classification on the 14- 

day assessment is no longer accurate 

(assuming no intervening assessments), 

then the COT OMRA would not be 

completed and the next evaluation of 

the patient’s total RTM, for the purposes 

of completing a COT OMRA, would 

occur on Day 28. We want to stress that 

SNFs would be required to complete a 

COT OMRA only if a patient’s total 

RTM changes to such an extent that the 

patient’s RUG classification, based on 

their last PPS assessment, is no longer 

an accurate representation of their 

current clinical condition. However, an 

evaluation of the necessity for a COT 

OMRA (that is, an evaluation of the 

patient’s total RTM) must be completed 

every seven calendar days starting from 

the day following the ARD set for the 

most recent scheduled or unscheduled 

PPS assessment (or in the case of an 

EOT–R OMRA, starting the day that 

therapy resumes, as discussed below). 

In cases when an unscheduled 

assessment must be completed within a 

COT observation period, then Day 1, for 

the purposes of setting the ARD for the 

COT OMRA would be the day after the 

ARD set for the intervening assessment 

or, in a case where the intervening 

assessment is an EOT–R OMRA, Day 1 

would be the day that therapy resumed. 

For example, consider a patient for 

whom the ARD of the 30-day PPS 

assessment is set to Day 30 and is 

classified into a RUG–IV therapy group. 

The patient receives therapy on Days 31 

through 35, does not receive therapy on 

Days 36 through 39, but is expected to 

resume therapy on Day 40. In this case, 

the SNF would have evaluated the 

patient’s total RTM on Day 37. 

Assuming that the patient’s total RTM is 

consistent with the patient’s RUG 

classification on the 30-day assessment 

(most recent scheduled or unscheduled 

PPS assessment), then the next 

assessment that the SNF must complete, 

given the above scenario, would be an 

EOT OMRA with an ARD set for Day 36, 

Day 37, or Day 38 (given that therapy is 

expected to resume on Day 40, we 

would advise the SNF to hold off on 

submitting the EOT OMRA until after 

therapy has resumed, so that the EOT 

OMRA may be modified into an EOT– 

R OMRA with an accurate resumption 

date). Assuming therapy resumes on 

Day 40 at the same RUG classification 

level and an EOT–R OMRA is 

completed, the COT observation period 

for this patient would then begin on Day 

40, and the next evaluation of the 

patient’s total RTM would be necessary 

on Day 46. In terms of payment for this 

patient, the SNF would be paid 

beginning Day 31 at the rate for the 

RUG–IV therapy group determined on 

the basis of the patient’s clinical 

condition reported on the 30-day 

assessment, paid for Days 36 through 39 

at the corresponding non-therapy rate, 

based on the patient’s clinical condition 

reported on the 30-day assessment 

(because therapy services were 

discontinued on Day 36 and an EOT 

OMRA was completed) and, beginning 

Day 40, would resume payment at the 

previous therapy rate (because therapy 

services resumed at the same RUG 

classification level and an EOT–R 

OMRA was completed). Given this 

scenario, the next evaluation of the 

patient’s total RTM should occur on Day 

46. 

It should be noted that this proposed 

policy regarding the COT observation 

period and setting the ARD for 

completion of the COT OMRA would be 

independent of the policy for setting the 

ARD for the EOT OMRA as described 

previously. That is, if a patient 

classified in a RUG–IV therapy group 

does not receive any therapy services for 

three consecutive calendar days, then 

the provider would be required to 

complete an EOT OMRA with an ARD 

not later than the third calendar day (in 

accordance with the proposed policy 

discussed previously for setting the 

ARD for an EOT OMRA), even if the 

provider completed a COT OMRA 

during the temporary discontinuation of 

therapy service. For example, in 

contrast to the previous scenario, if the 

evaluation of the patient’s total RTM on 

Day 37 reveals that the intensity of 

therapy provided to the patient has 

changed to such a degree that it no 

longer reflects the patient’s RUG–IV 

classification as reported on the 30-day 

assessment, then the SNF would be 

required to complete a COT OMRA, 

with an ARD set for Day 37, which is 

the last day of that patient’s COT 

observation period. Assuming the 

patient is still classified into a RUG–IV 

therapy group after completion of the 

COT OMRA, and all other conditions of 

the above scenario remain the same, 

then the SNF would be paid at the 

revised therapy RUG–IV rate beginning 

Day 31, the corresponding non-therapy 

rate for Days 36 through 39, and would 

resume payment at the revised RUG–IV 

therapy group rate beginning Day 40 

(assuming therapy resumes at the same 

RUG classification level as determined 

on the COT OMRA). As in the above 

scenario, the next evaluation of the 

patient’s total RTM would occur on Day 

46. Thus, the new RUG–IV group 

resulting from the COT OMRA would be 

billed starting the first day of the COT 

observation period for which the COT 

OMRA was completed, and would 

remain at this level until a new 

assessment is completed which changes 

the patient’s RUG–IV classification. 

We believe that the COT OMRA 

would allow us to track changes in the 

patient’s condition and in the provision 

of therapy services more accurately, 

resulting in improving the accuracy of 

reimbursement for therapy services and 

enhancing the SNF’s ability to provide 

quality care to SNF residents. We invite 


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comments on this proposal to require a 

COT OMRA when the total RTM 

changes to such a degree as to affect 

RUG–IV classification and payment. 

E. Discussion of Possible Future 

Initiatives 

We are considering a number of 

possible future initiatives that may help 

to ensure the long-term stability of the 

SNF PPS and further improve the 

accuracy of the rate-setting process. 

Along with our broad, ongoing 

objectives of ensuring stability and 

promoting accuracy of the SNF PPS, this 

analysis has been prompted in 

particular by our recent experience of 

needing to recalibrate the CMIs in 2 of 

the last 3 years. Accordingly, we have 

begun to consider a number of possible 

future modifications to certain aspects 

of the SNF PPS. We note that we are not 

proposing new Medicare policy in this 

discussion of possible future 

modifications, as we recognize that 

depending on how such modifications 

are ultimately formulated, their actual 

implementation may require new 

statutory authority. 

We note that previous research by the 

Urban Institute, as cited in Chapter 8 of 

MedPAC’s June 2007 Report to Congress 

entitled ‘‘Promoting Greater Efficiency 

in Medicare’’ (available online at http:// 

www.medpac.gov/documents/ 

jun07_entirereport.pdf), has 

recommended an approach to therapy 

reimbursement based on actual patient 

need. This approach would consider 

patient diagnosis and service needs to 

predict and reimburse prospectively for 

an appropriate level of therapy. While 

this methodology would eliminate 

reliance on the actual minutes of 

therapy provided, we are evaluating 

ways to verify utilization to prevent 

underutilization or overutilization of 

therapy services. 

We are also more closely examining 

certain methodologies that could make 

at least partial payment prospectively 

for therapy services based on 

anticipated patient need, rather than 

solely on actual service utilization. This 

could resemble the methodology already 

in use under the home health PPS, in 

which the projected number of therapy 

visits on the assessment completed at 

the start of the episode serves as the 

initial basis for payment, but that 

projection is subsequently verified 

against the actual visit information 

submitted in line-item detail on the 

claim (please refer to § 10.1.19.1 in 

Chapter 10 of the Medicare Claims 

Processing Manual, which is available 

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

downloads/clm104c10.pdf). The 

advantage of this type of approach is 

that it could target therapy payments 

and the intensity of therapy provided to 

patients with those diagnoses and 

conditions that are most likely to 

require such services. 

A third possible approach would be to 

consider recalibrating the CMIs every 

year in order to account for significant 

fluctuations and changes in provider 

practices. Such a practice would be 

consistent with findings in a December 

2010 OIG report entitled ‘‘Questionable 

Billing by Skilled Nursing Facilities’’ 

(report no. OEI–02–09–00202, available 

online at http://oig.hhs.gov/oei/reports/ 

oei-02-09-00202.pdf), in which OIG 

noted a recent increase in questionable 

billings for higher-paying RUGs. In 

addition, we note that MedPAC recently 

cited plans to examine changes in SNF 

care costs and practice patterns as a 

possible prelude to considering the 

desirability of totally rebasing the 

system (please refer to page 10 of 

‘‘Assessing Payment Adequacy: Skilled 

Nursing Facilities,’’ January 13, 2011, 

available online at http:// 

www.medpac.gov/transcripts/ 

SNF%20Jan%202011%20public.pdf). 

Such an approach, while not a change 

in the payment methodology per se, 

would reestablish baseline expenditure 

levels using more recent data than the 

1995 cost reports. 

VI. The Skilled Nursing Facility Market 

Basket Index 

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

requires us to establish a SNF market 

basket index (input price index), that 

reflects changes over time in the prices 

of an appropriate mix of goods and 

services included in the SNF PPS. This 

proposed rule incorporates the latest 

available projections of the SNF market 

basket index. We will incorporate 

updated projections based on the latest 

available data when we publish the SNF 

final rule. Accordingly, we have 

developed a SNF market basket index 

that encompasses the most commonly 

used cost categories for SNF routine 

services, ancillary services, and capitalrelated expenses. 

Each year, we calculate a revised 

labor-related share based on the relative 

importance of labor-related cost 

categories in the input price index. 

Table 11 summarizes the updated laborrelated share for FY 2012. 

TABLE 11—LABOR-RELATED RELATIVE IMPORTANCE, FY 2011 AND FY 2012 

Relative 

importance, 

labor-related, 

FY 2011 

10:2 forecast*

Relative 

importance, 

labor-related, 

FY 2012 

11:1 

forecast ** 

Wages and salaries ................................................................................................................................................. 50.654 50.231 

Employee benefits ................................................................................................................................................... 11.511 11.514 

Nonmedical professional fees ................................................................................................................................. 1.320 1.308 

Labor-intensive services .......................................................................................................................................... 3.427 3.390 

Capital-related (.391) ............................................................................................................................................... 2.399 2.362 

Total .................................................................................................................................................................. 69.311 68.805 

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

** Based on the first quarter 2011 IHS Global Insight forecast, with historical data through the fourth quarter 2010. 

A. Use of the Skilled Nursing Facility 

Market Basket Percentage 

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

defines the SNF market basket 

percentage as the percentage change in 

the SNF market basket index from the 

average of the previous FY to the 

average of the current FY. For the 

Federal rates established in this 

proposed rule, we use the percentage 

increase in the SNF market basket index 

to compute the update factor for FY 

2012. This is based on the IGI (formerly 

DRI–WEFA) first quarter 2011 forecast 

(with historical data through the fourth 

quarter 2010) of the FY 2012 percentage 

increase in the FY 2004-based SNF 

market basket index for routine, 


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ancillary, and capital-related expenses, 

which is used to compute the update 

factor in this proposed rule. As 

discussed in section VI.C of this 

proposed rule, this market basket 

percentage change is reduced by the 

MFP adjustment as required by section 

1888(e)(5)(B)(ii) of the Act. Finally, as 

discussed in section I.A of this proposed 

rule, we no longer compute update 

factors to adjust a facility-specific 

portion of the SNF PPS rates, because 

the initial 3-phase transition period 

from facility-specific to full Federal 

rates that started with cost reporting 

periods beginning in July 1998 has 

expired. 

B. Market Basket Forecast Error 

Adjustment 

As discussed in the June 10, 2003, 

supplemental proposed rule (68 FR 

34768) and finalized in the August 4, 

2003, final rule (68 FR 46057 through 

46059), the regulations at 

§ 413.337(d)(2) provide for an 

adjustment to account for market basket 

forecast error. The initial adjustment 

applied to the update of the FY 2003 

rate for FY 2004, and took into account 

the cumulative forecast error for the 

period from FY 2000 through FY 2002, 

resulting in an increase of 3.26 percent. 

Subsequent adjustments in succeeding 

FYs take into account the forecast error 

from the most recently available FY for 

which there is final data, and apply 

whenever the difference between the 

forecasted and actual change in the 

market basket exceeds a specified 

threshold. We originally used a 0.25 

percentage point threshold for this 

purpose; however, for the reasons 

specified in the FY 2008 SNF PPS final 

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

adopted a 0.5 percentage point 

threshold effective with FY 2008. As 

discussed previously in section I.G.2 of 

this proposed rule, as the difference 

between the estimated and actual 

amounts of increase in the market 

basket index for FY 2010 (the most 

recently available FY for which there is 

final data) does not exceed the 0.5 

percentage point threshold, the payment 

rates for FY 2012 do not include a 

forecast error adjustment. 

C. Multifactor Productivity Adjustment 

Section 3401(b) of the Affordable Care 

Act requires that, in FY 2012 (and in 

subsequent FYs), the market basket 

percentage under the SNF payment 

system as described in section 

1888(e)(5)(B)(i) is to be reduced 

annually by the productivity adjustment 

described in section 1886(b)(3)(B)(xi)(II) 

of the Act. As explained in the Senate 

Finance Committee report that 

accompanied S.1796 (‘‘America’s 

Healthy Future Act of 2009,’’ the 

Senate’s initial version of the health 

reform legislation), the purpose of this 

type of productivity adjustment is to 

help ensure that the market basket 

update, in accounting for changes in the 

costs of goods and services used to 

provide patient care, also reflects ‘‘* * * 

increases in provider productivity that 

could reduce the actual cost of 

providing services (such as through new 

technology, fewer inputs, etc.)’’ (S. Rep. 

No. 111–89 at 261). Specifically, section 

3401(a) of the Affordable Care Act 

amends section 1886(b)(3)(B) of the Act 

to add clause (xi)(II), which sets forth 

the definition of this productivity 

adjustment. The statute defines the 

productivity adjustment to be equal to 

the 10-year moving average of changes 

in annual economy-wide private 

nonfarm business multi-factor 

productivity (MFP) (as projected by the 

Secretary for the 10-year period ending 

with the applicable fiscal year, year, 

cost reporting period, or other annual 

period) (the ‘‘MFP adjustment’’). The 

Bureau of Labor Statistics (BLS) is the 

agency that publishes the official 

measure of private nonfarm business 

MFP. Please see http://www.bls.gov/mfp 

to obtain the BLS historical published 

MFP data. 

The projection of MFP is currently 

produced by IGI, an economic 

forecasting firm. In order to generate a 

forecast of MFP, IGI replicated the MFP 

measure calculated by the BLS, using a 

series of proxy variables derived from 

IGI’s U.S. macroeconomic models. 

These models take into account a very 

broad range of factors that influence the 

total U.S. economy. IGI forecasts the 

underlying proxy components, such as 

Gross Domestic Product (GDP), capital, 

and labor inputs required to estimate 

MFP, and then combines those 

projections according to the BLS 

methodology. In Table 12, we identify 

each of the major MFP component series 

employed by the BLS to measure MFP. 

We also provide the corresponding 

concepts forecasted by IGI and 

determined to be the best available 

proxies for the BLS series. 

TABLE 12—MULTIFACTOR PRODUCTIVITY COMPONENT SERIES EMPLOYED BY THE BUREAU OF LABOR STATISTICS AND

IHS GLOBAL INSIGHT

BLS series IGI series 

Real value-added output, constant 2005 dollars ..................................... Non-housing non-government non-farm real GDP, Billions of chained 

2005 dollars—annual rate. 

Private non-farm business sector labor input; 2005 = 100.00 ................. Hours of all persons in private nonfarm establishments, 2005 = 100.00, 

adjusted for labor composition effects. 

Aggregate capital inputs; 2005 = 100.00 ................................................. Real effective capital stock used for full employment GDP, Billions of 

chained 2005 dollars. 

IGI found that the historical growth 

rates of the BLS components used to 

calculate MFP and the IGI components 

identified are consistent across all series 

and, therefore, suitable proxies for 

calculating MFP. We have included 

below a more detailed description of the 

methodology used by IGI to construct a 

forecast of MFP, which is aligned 

closely with the methodology employed 

by the BLS. For more information 

regarding the BLS method for estimating 

productivity, please see the following 

link: http://www.bls.gov/mfp/ 

mprtech.pdf. 

At the time of this proposed rule, the 

BLS has published a historical time 

series of private nonfarm business MFP 

for 1987 through 2009, with 2009 being 

a preliminary value. Using this 

historical MFP series and the IGI 

forecasted series, IGI has developed a 

forecast of MFP for 2010 through 2021, 

as described below. 

To create a forecast of BLS’ MFP 

index, the forecasted annual growth 

rates of the ‘‘non-housing, 

nongovernment, non-farm, real GDP,’’ 

‘‘hours of all persons in private nonfarm 

establishments adjusted for labor 

composition,’’ and ‘‘real effective capital 

stock’’ series (ranging from 2010 to 2021) 

are used to ‘‘grow’’ the levels of the ‘‘real 

value-added output,’’ ‘‘private non-farm 

business sector labor input,’’ and 

‘‘aggregate capital input’’ series 

published by the BLS. Projections of the 

‘‘hours of all persons’’ measure are 

calculated using the difference between 


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the projected growth rates of real output 

per hour and real GDP. This difference 

is then adjusted to account for changes 

in labor composition in the forecast 

interval. Using these three key concepts, 

MFP is derived by subtracting the 

contribution of labor and capital inputs 

from output growth. However, in order 

to estimate MFP, we need to understand 

the relative contributions of labor and 

capital to total output growth. 

Therefore, two additional measures are 

needed to operationalize the estimation 

of the IGI MFP projection: Labor 

compensation and capital income. The 

sum of labor compensation and capital 

income represents total income. The 

BLS calculates labor compensation and 

capital income (in current dollar terms) 

to derive the nominal values of labor 

and capital inputs. IGI uses the 

‘‘nongovernment total compensation’’ 

and ‘‘flow of capital services from the 

total private non-residential capital 

stock’’ series as proxies for the BLS’s 

income measures. These two proxy 

measures for income are divided by 

total income to obtain the shares of 

labor compensation and capital income 

to total income. In order to estimate 

labor’s contribution and capital’s 

contribution to the growth in total 

output, the growth rates of the proxy 

variables for labor and capital inputs are 

multiplied by their respective shares of 

total income. These contributions of 

labor and capital to output growth are 

subtracted from total output growth to 

calculate the ‘‘change in the growth rates 

of multifactor productivity’’ using the 

following formula: 

MFP = Total output growth — ((labor 

input growth * labor compensation 

share) + (capital input growth * 

capital income share)) 

The change in the growth rates (also 

referred to as the compound growth 

rates) of the IGI MFP are multiplied by 

100 in order to calculate the percent 

change in growth rates (the percent 

change in growth rates is published by 

the BLS for its historical MFP measure). 

Finally, the growth rates of the IGI MFP 

are converted to index levels based to 

2005 to be consistent with the BLS’ 

methodology. For benchmarking 

purposes, the historical growth rates of 

IGI’s proxy variables were used to 

estimate a historical measure of MFP, 

which was compared to the historical 

MFP estimate published by the BLS. 

The comparison revealed that the 

growth rates of the components were 

consistent across all series and, 

therefore, validated the use of the proxy 

variables in generating the IGI MFP 

projections. The resulting MFP index 

was then interpolated to a quarterly 

frequency using the Bassie method for 

temporal disaggregation. The Bassie 

technique utilizes an indicator (pattern) 

series for its calculations. IGI uses the 

index of output per hour (published by 

the BLS) as an indicator when 

interpolating the MFP index. 

1. Incorporating the Multifactor 

Productivity Adjustment Into the 

Market Basket Update 

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

the Act, the Secretary ‘‘shall establish a 

skilled nursing facility market basket 

index that reflects changes over time in 

the prices of an appropriate mix of 

goods and services included in covered 

skilled nursing facility services.’’ As 

described in section I.G.2 of this 

proposed rule, we are proposing to 

estimate the SNF PPS market basket 

percentage for FY 2012 under section 

1888(e)(5)(B)(i) of the Act based on the 

FY 2004-based SNF market basket. 

Section 3401(b) of the Affordable Care 

Act amends section 1888(e)(5)(B) of the 

Act, in part, by adding a new clause (ii), 

which requires that for FY 2012 and 

each subsequent FY, after determining 

the market basket percentage described 

in section 1888(e)(5)(B)(i) of the Act, 

‘‘the Secretary shall reduce such 

percentage by the productivity 

adjustment described in section 

1886(b)(3)(B)(xi)(II)’’ (which we refer to 

as the MFP adjustment). Section 

1888(e)(5)(B)(ii) of the Act further states 

that the reduction of the market basket 

percentage by the MFP adjustment may 

result in the market basket percentage 

being less than zero for a FY, and may 

result in payment rates under section 

1888(e) of the Act for a FY being less 

than such payment rates for the 

preceding FY. Thus, if the application of 

the MFP adjustment to the market 

basket percentage calculated under 

section 1888(e)(5)(B)(i) results in an 

MFP-adjusted market basket percentage 

that is less than zero, then the annual 

update to the unadjusted Federal per 

diem rates under section 

1888(e)(4)(E)(ii) would be negative, and 

such rates would decrease relative to the 

prior FY. 

To calculate the MFP-adjusted update 

for the SNF PPS, we propose that the 

MFP percentage adjustment will be 

subtracted from the FY 2012 market 

basket percentage calculated using the 

FY 2004-based SNF market basket. We 

propose that the end of the 10-year 

moving average of changes in the MFP 

should coincide with the end of the 

appropriate FY update period. Since the 

market basket percentage is reduced by 

the MFP adjustment to determine the 

annual update for the SNF PPS, we 

believe it is appropriate for the numbers 

associated with both components of the 

calculation (the market basket 

percentage and the productivity 

adjustment) to be projected as of the 

same end date so that changes in market 

conditions are aligned. Therefore, for 

the FY 2012 update, the MFP 

adjustment would be calculated as the 

10-year moving average of changes in 

MFP for the period ending September 

30, 2012. We propose to round the final 

annual adjustment to the one-tenth of 

one percentage point level up or down 

as applicable according to conventional 

rounding rules (that is, if the number we 

are rounding is followed by 5, 6, 7, 8, 

or 9, we will round the number up; if 

the number we are rounding is followed 

by 0, 1, 2, 3, or 4, we will round the 

number down). 

In accordance with section 

1888(e)(5)(B)(i) of the Act, the market 

basket percentage for FY 2012 for the 

SNF PPS is based on the 1st quarter 

2011 forecast of the FY 2004-based SNF 

market basket update, which is 

estimated to be 2.7 percent. In 

accordance with section 1888(e)(5)(B)(ii) 

of the Act (as added by section 3401(b) 

of the Affordable Care Act), this market 

basket percentage would then be 

reduced by the MFP adjustment (the 10- 

year moving average of changes in MFP 

for the period ending September 30, 

2012) of 1.2 percent, which is calculated 

as described above and based on IGI’s 

1st quarter 2011 forecast. The resulting 

MFP-adjusted market basket update 

would be equal to 1.5 percent, or 2.7 

percent less 1.2 percentage points. 

Furthermore, in fiscal years where a 

forecast error adjustment is applicable, 

we would first apply the forecast error 

adjustment to the market basket 

percentage, before applying the MFP 

adjustment. As discussed previously, in 

determining whether a forecast error 

adjustment should be applied, CMS 

compares the forecasted market basket 

percentage computed under section 

1888(e)(5)(B)(i) of the Act for the most 

recently available fiscal year for which 

there is final data to the actual market 

basket percentage for that fiscal year. 

Because the forecast error adjustment is 

intended to address errors in the 

forecast of the market basket percentage, 

we believe that this adjustment is part 

of the establishment of the appropriate 

market basket percentage under section 

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

1888(e)(5)(B)(ii) of the Act (as added by 

section 3401(b) of the Affordable Care 

Act) requires the MFP adjustment to be 

applied ‘‘after determining the 

percentage described in clause (i).’’ 

Thus, we would apply the forecast error 

adjustment (when applicable) to the 

market basket percentage prior to 


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26396 Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Proposed Rules 

applying the MFP adjustment, to 

determine the update to the unadjusted 

Federal per diem rates for a fiscal year. 

Accordingly, we propose to revise 

§ 413.337 by adding a new paragraph 

(d)(3) to require, for FY 2012 and each 

subsequent FY, that the market basket 

index percentage change (as modified 

by any applicable forecast error 

adjustment) be reduced by the MFP 

adjustment described in section 

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

determining the annual update of the 

unadjusted Federal per diem rates. 

Consistent with section 1888(e)(5)(B)(ii) 

of the Act (as added by section 3401(b) 

of the Affordable Care Act), 

§ 413.337(d)(3) would also state that the 

reduction of the market basket 

percentage change by the MFP 

adjustment may result in the market 

basket percentage change being less 

than zero for a fiscal year, and may 

result in the unadjusted Federal 

payment rates for a fiscal year being less 

than such payment rates for the 

preceding fiscal year. 

In addition, we propose to revise 

existing paragraphs (d)(1) and (d)(2) of 

§ 413.337, as discussed below. First, we 

are proposing to revise § 413.337(d)(1) 

so that the text more accurately tracks 

the corresponding statutory 

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

the Act. Currently, § 413.337(d)(1) does 

not reflect the amendments made to 

section 1888(e)(4)(E)(ii) by section 311 

of the BIPA (see section I.D of this 

proposed rule). While we have always 

updated the unadjusted Federal per 

diem rates in accordance with the 

requirements set forth in section 

1888(e)(4)(E)(ii) of the Act as amended 

by section 311 of the BIPA, we have 

inadvertently failed to update the 

regulation text to conform with the 

BIPA requirements. Therefore, we now 

propose to revise § 413.337(d)(1) to 

conform with the current statutory 

language in section 1888(e)(4)(E) as 

amended by section 311 of the BIPA. 

Second, we propose to revise 

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

thresholds we employ in determining 

whether a forecast error adjustment is 

applicable. 

D. Federal Rate Update Factor 

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

requires that the update factor used to 

establish the FY 2011 unadjusted 

Federal rates be at a level equal to the 

market basket percentage change. 

Accordingly, to establish the update 

factor, we determined the total growth 

from the average market basket level for 

the period of October 1, 2010 through 

September 30, 2011 to the average 

market basket level for the period of 

October 1, 2011 through September 30, 

2012. Using this process, the market 

basket update factor for FY 2012 SNF 

PPS unadjusted Federal rates would be 

2.7 percent. As required by section 

1888(e)(5)(B) of the Act, this market 

basket percentage is then reduced by the 

MFP adjustment (the 10-year moving 

average of changes in MFP for the 

period ending September 30, 2012) of 

1.2 percent as described in section VI.C. 

The resulting MFP-adjusted market 

basket update would be equal to 1.5 

percent, or 2.7 percent less 1.2 

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

compute the SNF PPS rate shown in 

Tables 2 and 3. 

VII. Consolidated Billing 

Section 4432(b) of the BBA 

established a consolidated billing 

requirement that places the Medicare 

billing responsibility for virtually all of 

the services that the SNF’s residents 

receive with the SNF, except for a small 

number of services that the statute 

specifically identifies as being excluded 

from this provision. As noted previously 

in section I. of this proposed rule, 

subsequent legislation enacted a number 

of modifications in the consolidated 

billing provision. 

Specifically, section 103 of the BBRA 

amended this provision by further 

excluding a number of individual 

‘‘high-cost, low-probability’’ services, 

identified by the Healthcare Common 

Procedure Coding System (HCPCS) 

codes, within several broader categories 

(chemotherapy and its administration, 

radioisotope services, and customized 

prosthetic devices) that otherwise 

remained subject to the provision. We 

discuss this BBRA amendment in 

greater detail in the proposed and final 

rules for FY 2001 (65 FR 19231 through 

19232, April 10, 2000, and 65 FR 46790 

through 46795, July 31, 2000), as well as 

in Program Memorandum AB–00–18 

(Change Request #1070), issued March 

2000, which is available online at 

http://www.cms.gov/transmittals/ 

downloads/ab001860.pdf. 

Section 313 of the BIPA further 

amended this provision by repealing its 

Part B aspect; that is, its applicability to 

services furnished to a resident during 

a SNF stay that Medicare Part A does 

not cover. (However, physical therapy, 

occupational therapy, and speechlanguage pathology services remain 

subject to consolidated billing, 

regardless of whether the resident who 

receives these services is in a covered 

Part A stay.) We discuss this BIPA 

amendment in greater detail in the 

proposed and final rules for FY 2002 (66 

FR 24020 through 24021, May 10, 2001, 

and 66 FR 39587 through 39588, July 

31, 2001). 

In addition, section 410 of the MMA 

amended this provision by excluding 

certain practitioner and other services 

furnished to SNF residents by RHCs and 

FQHCs. We discuss this MMA 

amendment in greater detail in the 

update notice for FY 2005 (69 FR 45818 

through 45819, July 30, 2004), as well as 

in Medicare Learning Network (MLN) 

Matters article #MM3575, which is 

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

MLNMattersArticles/downloads/ 

MM3575.pdf. 

Further, while not substantively 

revising the consolidated billing 

requirement itself, a related provision 

was enacted in the Medicare 

Improvements for Patients and 

Providers Act of 2008 (MIPPA, Pub. L. 

110–275). Specifically, section 149 of 

MIPPA amended section 

1834(m)(4)(C)(ii) of the Act to add 

subclause (VII), which adds SNFs (as 

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

the list of entities that can serve as a 

telehealth ‘‘originating site’’ (that is, the 

location at which an eligible individual 

can receive, through a 

telecommunications system, services of 

a physician or other practitioner who is 

located elsewhere at a ‘‘distant site’’). 

As explained in the Medicare 

Physician Fee Schedule (PFS) final rule 

for calendar year (CY) 2009 (73 FR 

69726, 69879, November 19, 2008), a 

telehealth originating site receives a 

facility fee which is always separately 

payable under Part B outside of any 

other payment methodology. Section 

149(b) of MIPPA amended section 

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

telehealth services furnished under 

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

from the definition of ‘‘covered skilled 

nursing facility services’’ that are paid 

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

can receive separate payment for a 

telehealth originating site facility fee 

even in those instances where it also 

receives a bundled per diem payment 

under the SNF PPS for a resident’s 

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

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

the Act, a telehealth distant site service 

is payable under Part B to an eligible 

physician or practitioner only to the 

same extent that it would have been so 

payable if furnished without the use of 

a telecommunications system. Thus, as 

explained in the CY 2009 Physician Fee 

Schedule final rule (73 FR 69726), 

eligible distant site physicians or 

practitioners can receive payment for a 

telehealth service that they furnish 

* * * only if the service is separately 

payable under the PFS when furnished in a 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Proposed Rules 26397 

face-to-face encounter at that location. For 

example, we pay distant site physicians or 

practitioners for furnishing services via 

telehealth only if such services are not 

included in a bundled payment to the facility 

that serves as the originating site (73 FR 

69880). 

This means that in those situations 

where a SNF serves as the telehealth 

originating site, the distant site 

professional services would be 

separately payable under Part B only to 

the extent that they are not already 

included in the SNF PPS bundled per 

diem payment and subject to 

consolidated billing. Thus, for a type of 

practitioner whose services are not 

otherwise excluded from consolidated 

billing when furnished during a face-toface encounter, the use of a telehealth 

distant site would not serve to unbundle 

those services. In fact, consolidated 

billing does exclude the professional 

services of physicians, along with those 

of most of the other types of telehealth 

practitioners that the law specifies at 

section 1842(b)(18)(C) of the Act; that is, 

physician assistants, nurse practitioners, 

clinical nurse specialists, certified 

registered nurse anesthetists, certified 

nurse midwives, and clinical 

psychologists (see section 

1888(e)(2)(A)(ii) of the Act and 42 CFR 

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

clinical social workers, registered 

dietitians and nutrition professionals 

remain subject to consolidated billing 

when furnished to a SNF’s Part A 

resident and, thus, cannot qualify for 

separate Part B payment as telehealth 

distant site services in this situation. 

Additional information on this 

provision appears in MLN Matters 

article #MM6215, which is available 

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

MLNMattersArticles/downloads/ 

MM6215.pdf. 

To date, the Congress has enacted no 

further legislation affecting the 

consolidated billing provision. 

However, as noted above and explained 

in the proposed rule for FY 2001 (65 FR 

19232, April 10, 2000), the amendments 

enacted in section 103 of the BBRA not 

only identified for exclusion from this 

provision a number of particular service 

codes within four specified categories 

(that is, chemotherapy items, 

chemotherapy administration services, 

radioisotope services, and customized 

prosthetic devices), but also gave the 

Secretary ‘‘* * * the authority to 

designate additional, individual services 

for exclusion within each of the 

specified service categories.’’ In the 

proposed rule for FY 2001, we also 

noted that the BBRA Conference report 

(H.R. Rep. No. 106–479 at 854 (1999) 

(Conf. Rep.)) characterizes the 

individual services that this legislation 

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

have devastating financial impacts 

because their costs far exceed the 

payment [SNFs] receive under the 

prospective payment system * * *.’’ 

According to the conferees, section 

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

PPS certain services and costly items 

that are provided infrequently in SNFs 

* * *.’’ 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, July 31, 

2000), and as our longstanding policy, 

any additional service codes that we 

might designate for exclusion under our 

discretionary authority must meet the 

same statutory criteria used in 

identifying the original codes excluded 

from consolidated billing under section 

103(a) of the BBRA: They must fall 

within one of the four service categories 

specified in the BBRA, and they also 

must meet the same standards of high 

cost and low probability in the SNF 

setting, as discussed in the BBRA 

Conference report. Accordingly, we 

characterized this statutory authority to 

identify additional service codes for 

exclusion ‘‘* * * as essentially 

affording the flexibility to revise the list 

of excluded codes in response to 

changes of major significance that may 

occur over time (for example, the 

development of new medical 

technologies or other advances in the 

state of medical practice)’’ (65 FR 

46791). In this proposed rule, we 

specifically invite public comments 

identifying codes in any of these four 

service categories (chemotherapy items, 

chemotherapy administration services, 

radioisotope services, and customized 

prosthetic devices) representing recent 

medical advances that might meet our 

criteria for exclusion from SNF 

consolidated billing. We may consider 

excluding a particular service if it meets 

our criteria for exclusion as specified 

above. Commenters should identify in 

their comments the specific HCPCS 

code that is associated with the service 

in question, as well as their rationale for 

requesting that the identified HCPCS 

code(s) be excluded. 

We note that the original BBRA 

legislation (as well as the implementing 

regulations) identified a set of excluded 

services by means of specifying HCPCS 

codes that were in effect as of a 

particular date (in that case, as of July 

1, 1999). Identifying the excluded 

services in this manner made it possible 

for us to utilize program issuances as 

the vehicle for accomplishing routine 

updates of the excluded codes, in order 

to reflect any minor revisions that might 

subsequently occur in the coding system 

itself (for example, the assignment of a 

different code number to the same 

service). Accordingly, in the event that 

we identify through the current 

rulemaking cycle any new services that 

would actually represent a substantive 

change in the scope of the exclusions 

from SNF consolidated billing, we 

would identify these additional 

excluded services by means of the 

HCPCS codes that are in effect as of a 

specific date (in this case, as of October 

1, 2011). By making any new exclusions 

in this manner, we could similarly 

accomplish routine future updates of 

these additional codes through the 

issuance of program instructions. 

VIII. Application of the SNF PPS to 

SNF Services Furnished by Swing-Bed 

Hospitals 

In accordance with section 1888(e)(7) 

of the Act, as amended by section 203 

of the BIPA, Part A pays critical access 

hospitals (CAHs) on a reasonable cost 

basis for SNF services furnished under 

a swing-bed agreement. However, 

effective with cost reporting periods 

beginning on or after July 1, 2002, the 

swing-bed services of non-CAH rural 

hospitals are paid under the SNF PPS. 

As explained in the final rule for FY 

2002 (66 FR 39562, July 31, 2001), we 

selected this effective date consistent 

with the statutory provision to integrate 

swing-bed rural hospitals into the SNF 

PPS by the end of the SNF transition 

period, June 30, 2002. 

Accordingly, all non-CAH swing-bed 

rural hospitals have come under the 

SNF PPS as of June 30, 2003. Therefore, 

all rates and wage indexes outlined in 

earlier sections of this proposed rule for 

the SNF PPS also apply to all non-CAH 

swing-bed rural hospitals. A complete 

discussion of assessment schedules, the 

MDS and the transmission software 

(RAVEN–SB for Swing Beds) appears in 

the final rule for FY 2002 (66 FR 39562, 

July 31, 2001) and in the final rule for 

FY 2010 (74 FR 40288, August 11, 

2009). As finalized in the FY 2010 SNF 

PPS final rule (74 FR 40356–57), 

effective October 1, 2010, non-CAH 

swing-bed rural hospitals are required to 

complete an MDS 3.0 swing-bed 

assessment which is limited to the 

required demographic, payment, and 

quality items. The latest changes in the 

MDS for swing-bed rural hospitals 

appear on the SNF PPS Web site, 

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


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
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IX. Provisions of the Proposed Rule 

In this proposed rule, in addition to 

accomplishing the required annual 

update of the SNF PPS payment rates, 

we also propose making the following 

revisions to the regulation text: 

As discussed previously in section 

VI.C of this proposed rule, we are 

proposing to implement section 3401(b) 

of the Affordable Care Act by revising 

§ 413.337. We would add a new 

paragraph (d)(3) to that section to 

require that, for FY 2012 and each 

subsequent FY, the market basket 

percentage change (as modified by any 

applicable forecast error adjustment) be 

reduced by the MFP adjustment 

described in section 1886(b)(3)(B)(xi)(II) 

of the Act in determining the annual 

update of the unadjusted Federal per 

diem rates. In addition, consistent with 

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

added by section 3401(b) of the 

Affordable Care Act), § 413.337(d)(3) 

would also state that the reduction of 

the market basket percentage change by 

the MFP adjustment may result in the 

market basket percentage change being 

less than zero for a fiscal year, and may 

result in the unadjusted Federal 

payment rates for a fiscal year being less 

than such payment rates for the 

preceding fiscal year. 

Further, as discussed in section VI.C., 

we propose to revise existing paragraphs 

(d)(1) and (d)(2) of § 413.337 so that the 

text more accurately tracks the 

corresponding statutory requirements at 

section 1888(e)(4)(E) of the Act 

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

existing thresholds we apply in 

determining whether a forecast error 

adjustment is appropriate 

(§ 413.337(d)(2)). 

In addition, to implement section 

6101 of the Affordable Care Act as 

discussed previously in section V.A. of 

this proposed rule, we are proposing to 

revise the reporting requirements that 

Medicare SNFs and Medicaid nursing 

facilities must disclose at the time of 

enrollment and when any change in 

ownership occurs. These reporting 

requirements will occur in PECOS for 

Medicare SNFs, which will be revised to 

capture the additional requirements. We 

are proposing to add a definition for 

‘‘additional disclosable party’’ and 

‘‘organizational structure.’’ We also plan 

to require that these additional reporting 

requirements be included among the 

changes that must be reported in 

accordance with § 424.516(e) and 

§ 455.104. Consistent with the 

requirements set forth in section 6101 of 

the Affordable Care Act, we propose to 

define an ‘‘additional disclosable party’’ 

to mean, with respect to a Medicare SNF 

or Medicaid nursing facility, any person 

or entity (such as a contractor, full- and 

part-time employee or consultant) that 

exercises financial, operational, or 

managerial control over the facility (or 

a part thereof); provides policies or 

procedures for any of the operations of 

the facility, including policies or 

procedures that establish clinical 

decision making capabilities directly 

related to resident care; provides 

financial or cash management services 

to the facility; leases or subleases real 

property to the facility or owns a whole 

or part interest equal to or exceeding 5 

percent of the total value of such real 

property; or provides management or 

administrative services, management or 

clinical consulting services, or 

accounting or financial services to the 

facility. Broadly defined, this proposed 

definition mirrors the statutory 

definition of ‘‘additional disclosable 

party,’’ which is set forth at section 

1124(c)(5)(A) of the Act. Given the 

potentially broad nature of the term 

‘‘additional disclosable parties,’’ we 

understand that it may be difficult for 

SNFs and Medicaid nursing facilities, 

under certain circumstances, to 

reasonably know without explicit 

guidance which parties and individuals 

associated with their facility are subject 

to the disclosure requirements 

discussed in this section. Therefore, we 

specifically solicit comment on how 

best to narrow the scope of the 

definition of this term to ensure that the 

additional reporting requirements 

described in this section apply only to 

those parties and individuals that are 

capable of exercising actual operational, 

financial, or managerial control over the 

given facility or performing any of the 

other functions specified in section 

6101 of the Affordable Care Act. 

In addition, our proposed definition 

for ‘‘organizational structure’’ mirrors 

the statutory definition for that term, 

which is set forth at section 

1124(c)(5)(D) of the Act. With respect to 

the additional reporting requirements at 

§ 424.516(e) addressed by this proposed 

rule, for a Medicare SNF defined at 

section 1819(a) of the Act, we propose 

to define a ‘‘managing employee’’ to 

include consultants and any individual 

who directly or indirectly manages, 

advises or supervises any element of the 

practices, finances, or operations of the 

facility. 

In § 424.516, we are proposing to add 

new paragraphs (e)(4) and (e)(5). 

Paragraph (e)(4) includes the 

requirement that a Medicare SNF or 

Medicaid nursing facility must report 

the name, title, and period of service for 

each disclosable party. It observes that 

each Medicare SNF or Medicaid nursing 

facility must also report the 

organizational structure of each 

additional disclosable party of the 

facility and a description of each 

additional disclosable party’s 

relationship to the facility and to one 

another. Proposed paragraph (e)(5) 

states that Medicare SNFs (as defined in 

section 1819(a) of the Act) must certify 

as a condition of participation and 

payment under the program under Title 

XVIII of the Act that the information 

reported by the facility in accordance 

with these regulations is, to the best of 

the facility’s knowledge, accurate and 

correct. 

While we propose (as discussed in the 

preceding paragraph) to collect the 

required information consistent with the 

requirements set forth in § 424.516, we 

also seek comment on a potential 

alternative approach in which we would 

collect this information only upon 

revalidation consistent with the 

requirements set forth in § 424.515. In 

accordance with § 424.515, Medicare 

SNFs generally would be subject to 

revalidation requirements every 5 years. 

Paragraph (d) of § 424.515, however, 

provides for off-cycle revalidations. We 

believe that an approach that requires a 

Medicare SNF to report the additional 

requirements covered by this rule at the 

same time CMS requires the Medicare 

SNF to revalidate with the Medicare 

program may not only allow us to 

satisfy the legislative intent of collecting 

the required additional information, but 

also may generally represent a 

decreased burden on Medicare SNFs. 

Thus, we seek comment on this 

approach. 

We also propose to amend the 

definition of ‘‘managing employee’’ at 

§ 455.101, with respect to a Medicaid 

nursing facility as defined by section 

1919(a) of the Act, to include a 

consultant who directly or indirectly 

manages, advises or supervises any 

element of the practices, finances, or 

operations of the facility. In addition, 

we propose to include at § 455.101 

definitions of ‘‘additional disclosable 

party’’ and ‘‘organizational structure.’’ 

Finally, we propose to add a 

requirement to § 455.104 regarding these 

new disclosure requirements by 

Medicaid nursing facilities, which 

includes a certification as a condition of 

participation and payment under the 

program under Title XIX of the Act that 

the information reported by the facility 

in accordance with these regulations is, 

to the best of the facility’s knowledge, 

accurate and correct. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Proposed Rules 26399 

X. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995 (PRA), we are required to 

provide a 60-day notice in the Federal 

Register and solicit public comments 

before a collection of information 

requirement is submitted to OMB for 

review and approval. In order to 

evaluate fairly whether an information 

collection should be approved by OMB, 

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

requires that we solicit comments on the 

following issues: 

• Need for the information collection 

and its usefulness in carrying out the 

proper functions of our agency. 

• Accuracy of our estimate of the 

information collection burden. 

• Quality, utility, and clarity of the 

information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

The information collection 

requirements referenced in this 

proposed rule with regard to resident 

assessment information used to 

determine facility payments are 

currently approved under OMB #0938– 

0739, which relates to the Medicare PPS 

Assessment Form (MPAF) information 

collection, and OMB #0938–0872, 

which relates to the Minimum Data Set 

for Swing-Bed Hospitals. We note that 

this proposed rule will not affect the 

burden associated with either of those 

collections. 

With regard to the disclosure of 

information requirements included in 

section V.A of this rule, we currently 

require nursing home providers, 

including Medicare SNFs and Medicaid 

nursing facilities, to report information 

about any individual or entity with a 5 

percent or greater ownership interest. 

As discussed in section IX. of this 

proposed rule, we are proposing to 

revise existing regulations to require 

that Medicare SNFs and Medicaid 

nursing facilities report the following at 

the time of enrollment and when any 

change in ownership occurs: 

• Each member of the governing body 

of the facility, including the name, title, 

and period of service of each such 

member; 

• Each person or entity who is an 

officer, director, member, partner, 

trustee, or managing employee of the 

facility, including the name, title, and 

period of service of each such person or 

entity; and 

• Each person or entity who is an 

additional disclosable party of the 

facility. 

We are also requiring information on 

the organizational structure of each 

additional disclosable party of the 

facility and a description of the 

relationship of each such additional 

disclosable party to the facility and to 

one another. 

In connection with the proposed 

implementation of the disclosure of 

ownership provisions set forth in 

section 6101 of the Affordable Care Act, 

we note that if a provider wants to 

enroll in Medicare or maintain its 

Medicare enrollment status, then the 

provider must complete the application 

for enrollment (Form CMS–855A) and 

submit it to the appropriate Medicare 

Administrative Contractor or Fiscal 

Intermediary. Form CMS–855A will be 

revised so that it collects the additional 

information required by this proposed 

rule from Medicare providers. (We are 

seeking OMB approval for the revisions 

under notice and comment periods 

separate from those associated with this 

proposed rule.) The burden associated 

with this requirement is the time and 

effort necessary to complete and submit 

the Form CMS–855A. While this 

requirement is subject to the PRA, the 

associated burden has been approved 

under OMB control number 0938–0685 

with an expiration date of 1/31/2012. 

Section V.D. of this proposed rule also 

contains a discussion of information 

collections related to a new required 

resident assessment, the COT OMRA. 

The following is a discussion of this 

new required PPS assessment. 

As discussed previously in section 

V.D of this proposed rule, we are 

proposing to make certain modifications 

in the existing requirements for 

completing OMRAs. We propose to 

introduce a new COT OMRA, to be 

completed whenever the intensity of 

therapy (that is, the total RTM) changes 

to such an extent that it would no longer 

reflect the RUG–IV classification and 

payment assigned for a given SNF 

resident, based on the resident’s most 

recent assessment used for Medicare 

payment. This will help to ensure that 

the SNF’s payments accurately reflect 

the amount of therapy actually being 

provided. We have submitted a copy of 

this proposed rule to OMB for its review 

and approval of the information 

collection requirements discussed 

herein. 

SNFs would be required to complete 

a COT OMRA only when the intensity 

of therapy actually being furnished 

changes to such a degree that it would 

no longer reflect the RUG–IV 

classification and payment assigned for 

a given SNF resident based on the most 

recent assessment used for Medicare 

payment. The burden associated with 

this requirement is the time and effort 

necessary to complete the COT OMRA, 

coding the appropriate responses, and 

data reporting timeframes. Because 

providers currently are not required to 

report RTM that occur outside the 

observation window of a given PPS 

assessment, we do not have the relevant 

data to predict with certainty the 

number of COT OMRAs that may be 

required per year. However, we have 

attempted to use the administrative data 

currently available as a reasonable 

proxy to determine estimates of 

provider burden. We estimate that, 

based on average burden associated 

with the EOT OMRA, which uses the 

same basic item set as the proposed 

COT OMRA, it will take 50 minutes 

(0.83 hours) to collect the information 

necessary for coding a COT OMRA, 

10 minutes (0.17 hours) to code the 

responses, and 2 minutes (0.03 hours) to 

transmit the results, or a total of 62 

minutes (1.03 hours) to complete a 

single COT OMRA. The estimated cost 

per COT OMRA is $33.84, as discussed 

below. 

Based on information from the Bureau 

of Labor Statistics of May, 2009 and a 

30 percent benefits rate, we estimated 

hourly wage rates for a Registered Nurse 

(RN), and for a data operator. MDS 

preparation costs were estimated using 

RN hourly wage rates based on $56,060 

per year, which amounts to $0.45 per 

minute without consideration of 

employee benefits, and $0.58 per 

minute after increasing the rate by 30 

percent to account for employee benefit 

compensation. For coding functions, we 

used a blended rate of $41,090; this was 

the average for RNs ($56,060/year) and 

data operators ($26,120/year). The 

blended rate calculates to $0.33 per 

minute without consideration of 

employee benefits, and $0.43 per 

minute after increasing the rate by 30 

percent to account for employee benefit 

compensation. The blended rate of RN 

and data operator wages reflects that 

SNF providers historically have used 

both RN and support staff for the data 

entry function. For transmission 

personnel, we used data operator wages 

of $26,120 per year, or $0.21 per minute 

without consideration of employee 

benefits, and $0.27 per minute after 

increasing the rate by 30 percent to 

account for employee benefit 

compensation. The total amount of time 

for a single COT OMRA is 62 minutes 

(1.03 hours), consisting of 50 minutes 

(0.8333 hours) of RN time for 

preparation, 10 minutes (0.1667 hours) 

of blended RN/data operator time for 

coding, and 2 minutes (0.0333 hours) for 

data operator time for transmission. 

This results in an average estimated cost 

per COT OMRA of $33.84. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
26400 Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Proposed Rules 

The number of stays for 2009 was 

approximately 2.26 million. Based on a 

30-day average length of stay for RUG– 

IV, we believe the average number of 

times that a COT OMRA would need to 

be completed due to a decrease in 

therapy is once per stay. Based on our 

review of FY 2011 first quarter data, we 

found that approximately 40 percent of 

the claims resulted in assignment to a 

higher-than-projected Rehabilitation 

RUG. A possible reason for the 

difference between projected and actual 

FY 2011 RUG–IV case-mix utilization 

could involve instances where the 

intensity of therapy actually being 

furnished changed (that is, decreased) 

within the payment period to such a 

degree that it no longer reflected the 

RUG–IV classification and payment 

assigned for a given SNF resident based 

on the most recent assessment used for 

Medicare payment. As discussed 

previously, if such changes or decreases 

in therapy utilization occur outside the 

observation window of a given PPS 

assessment, such changes currently are 

not captured on a resident assessment, 

and the provider would continue to be 

reimbursed under a higher-paying 

Rehabilitation RUG until the next PPS 

assessment. 

For FY 2012, providers would be 

required to complete a COT OMRA in 

these situations. Although we believe 

that only some of the 40 percent 

difference is likely attributable to these 

instances, the 40 percent would provide 

a quantifiable maximum burden 

estimate for these cases. At this time, we 

are unable to determine other 

quantifiable estimates for decreases in 

therapy utilization necessitating a COT 

OMRA. Using the percentage of claims 

resulting in a higher-than-projected 

Rehabilitation RUG as a way to estimate 

the maximum number of times that a 

therapy decrease could result in the 

need for a COT OMRA, 40 percent or 

813,074 stays could be affected. The 

total number of estimated COT OMRAs 

per SNF for FY 2011 would be 57. 

In addition, the COT OMRA can be 

used when providers increase the 

amount of therapy provided. The Startof-Therapy (SOT) OMRA represents 

situations where therapy has increased 

to a level significant enough to change 

the RUG to a therapy RUG. The estimate 

for the possible number of times that a 

COT OMRA would be required due to 

an increase in therapy uses the number 

of SOT OMRAs as a proxy. Using the 

number of SOT OMRAs completed in 

the first quarter of FY 2011 projected for 

the entire year, we estimate that the 

total COT OMRAs required due to an 

increase in therapy would be 142,660, 

or 10 times per facility per year. 

Therefore, the estimated total number of 

COT OMRAs per facility per year is 67. 

The total annual hour burden for 

completing COT OMRAs is estimated to 

be 796,414 hours for reporting, 159,320 

hours for coding, and 31,826 hours for 

transmission for a total burden of 

987,560 hours for all 14,266 SNFs. 

Based on an average estimated cost per 

COT OMRA of $33.84, we estimate that 

the additional annual cost across all 

SNFs would be approximately $32.34 

million, or $2,267.02 per facility. 

Further, we note that the completion of 

an EOT–R OMRA, as proposed in 

section V.D, would be entirely voluntary 

on the part of the facility and, thus, 

would not represent the imposition of a 

mandatory burden. 

If you comment on these information 

collection and recordkeeping 

requirements, please do either of the 

following: Submit your comments 

electronically as specified in the 

ADDRESSES section of this proposed rule; 

or Mail copies to the address specified 

in the ADDRESSES section of this 

proposed rule and to the Office of 

Information and Regulatory Affairs, 

Room 10235, New Executive Office 

Building, Washington, DC 20503. 

ATTN: CMS Desk Officer (CMS– 

1351–P). 

Fax: (202) 395–6974. 

XI. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

XII. Economic Analyses 

A. Regulatory Impact Analysis 

1. Introduction 

We have examined the impacts of this 

proposed rule as required by Executive 

Order 12866 on Regulatory Planning 

and Review (September 30, 1993), 

Executive Order 13563 on Improving 

Regulation and Regulatory Review 

(January 18, 2011), the Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–354), section 1102(b) of 

the Act, section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA, 

March 22, 1995; Pub. L. 104–4), 

Executive Order 13132 on Federalism 

(August 4, 1999), and the Congressional 

Review Act (5 U.S.C. 804(2)). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. This rule 

has been designated an economically 

significant rule, under section 3(f)(1) of 

Executive Order 12866. Accordingly, we 

have prepared a regulatory impact 

analysis (RIA) as further discussed 

below. Also, the rule has been reviewed 

by the Office of Management and 

Budget. 

2. Statement of Need 

This proposed rule would update the 

SNF prospective payment rates for fiscal 

year 2012 as required under section 

1888(e)(4)(E) of the Act. It also responds 

to section 1888(e)(4)(H) of the Act, 

which requires the Secretary to ‘‘provide 

for publication in the Federal Register’’ 

before the August 1 that precedes the 

start of each fiscal year, the unadjusted 

Federal per diem rates, the case-mix 

classification system, and the wage 

index values used in computing the 

prospective payment rates for that fiscal 

year. As these statutory provisions 

prescribe a detailed methodology for 

calculating and disseminating payment 

rates under the SNF PPS, we do not 

have the discretion to adopt an 

alternative approach. 

3. Overall Impacts 

If we implement the recalibration 

option in FY 2012, as described above 

in section II.B.2, we estimate the 

aggregate impact would be a net 

decrease of $3.94 billion in payments to 

SNFs, resulting from a $530 million 

increase from the update to the payment 

rates and a $4.47 billion reduction from 

the recalibration of the case-mix 

adjustment. However, if we implement 

the option of applying the standard 

update without a recalibration for FY 

2012, as described above in section 

II.B.2, we estimate the aggregate impact 

would be a net increase of $530 million 

in payments to SNFs, resulting from the 

update to the payment rates. 

Accordingly, we have prepared a RIA 

that, to the best of our ability, presents 

the costs and benefits of the rulemaking, 

with respect to the two options 

presented in section II.B.2. of this 

proposed rule 

The update set forth in this proposed 

rule applies to payments in FY 2012. 

Accordingly, the analysis that follows 


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only describes the impact of this single 

year. In accordance with the 

requirements of the Act, we will publish 

a notice for each subsequent FY that 

will provide for an update to the 

payment rates and include an associated 

impact analysis. 

The two options being considered 

regarding the recalibration of the casemix indexes are presented in section 

II.B.2. A detailed economic impact 

analysis of these two options appears 

below. 

4. Detailed Economic Analysis 

This proposed rule sets forth updates 

of the SNF PPS rates contained in the 

update notice for FY 2011 (75 FR 42886, 

July 22, 2010) and the associated 

correction notice (75 FR 55801, 

September 14, 2010). Based on the 

above, if we implement the recalibration 

option for FY 2012, we estimate that the 

aggregate impact would be a net 

decrease of $3.94 billion in payments to 

SNFs, resulting from a $530 million 

increase from the update to the payment 

rates and a $4.47 billion reduction from 

the recalibration of the case-mix 

adjustment. If we do not recalibrate the 

CMIs for FY 2012, as discussed in 

section II.B.2, we estimate that the 

aggregate impact would be a net 

increase of $530 million in payments to 

SNFs, resulting primarily from the 

update to the payment rates. The impact 

analysis of this proposed rule represents 

the projected effects of the changes in 

the SNF PPS from FY 2011 to FY 2012 

for each of these two possible options. 

We assess the effects by estimating 

payments under each of the two options 

while holding all other payment-related 

variables constant. Although the best 

data available are utilized, there is no 

attempt to predict behavioral responses 

to these changes, or to make 

adjustments for future changes in such 

variables as days or case-mix. 

Certain events may occur to limit the 

scope or accuracy of our impact 

analysis, as this analysis is futureoriented and, thus, very susceptible to 

forecasting errors due to certain events 

that may occur within the assessed 

impact time period. Some examples of 

possible events may include newly 

legislated general Medicare program 

funding changes by the Congress, or 

changes specifically related to SNFs. In 

addition, changes to the Medicare 

program may continue to be made as a 

result of previously enacted legislation, 

or new statutory provisions. Although 

these changes may not be specific to the 

SNF PPS, the nature of the Medicare 

program is that the changes may interact 

and, thus, the complexity of the 

interaction of these changes could make 

it difficult to predict accurately the full 

scope of the impact upon SNFs. 

In accordance with section 

1888(e)(4)(E) and (e)(5) of the Act, we 

update the payment rates for FY 2011 by 

a factor equal to the market basket index 

percentage increase adjusted by the FY 

2010 forecast error adjustment (if 

applicable) and the MFP adjustment to 

determine the payment rates for FY 

2012. As discussed previously, for FY 

2012 and each subsequent FY, as 

required by section 1888(e)(5)(B) of the 

Act as amended by section 3401(b) of 

the Affordable Care Act, the market 

basket percentage is reduced by the 

MFP adjustment. The special AIDS addon established by section 511 of the 

MMA remains in effect until ‘‘* * * 

such date as the Secretary certifies that 

there is an appropriate adjustment in 

the case mix * * *.’’ We have not 

provided a separate impact analysis for 

the MMA provision. Our latest estimates 

indicate that there are less than 3,500 

beneficiaries who qualify for the AIDS 

add-on payment. The impact to 

Medicare is included in the ‘‘total’’ 

column of Tables 13A and 13B. In 

updating the rates for FY 2012, we made 

a number of standard annual revisions 

and clarifications mentioned elsewhere 

in this proposed rule (for example, the 

update to the wage and market basket 

indexes used for adjusting the Federal 

rates). 

We estimate that if we were to 

implement the recalibration option for 

FY 2012, the aggregate impact would be 

a net decrease of $3.94 billion in 

payments to SNFs, resulting from a $530 

million increase from the update to the 

payment rates and a $4.47 billion 

reduction from the recalibration of the 

case-mix adjustment. If we do not 

implement the recalibration option for 

FY 2012, we estimate that the aggregate 

impact would be a net increase of $530 

million in payments to SNFs, resulting 

from the update to the payment rates. 

The FY 2012 impacts that would result 

from implementing the recalibration 

option in FY 2012 are presented in 

Table 13A. The FY 2012 impacts that 

would result from not implementing the 

recalibration of the case-mix indexes in 

FY 2012 are presented in Table 13B. 

a. Impacts of Implementing the 

Recalibration Option for FY 2012 

The breakdown of the various 

categories of data in Table 13A is as 

follows. 

The first column shows the 

breakdown of all SNFs by urban or rural 

status, hospital-based or freestanding 

status, and census region. 

The ‘‘total’’ row shows the estimated 

effects of the various changes on all 

facilities. The next six rows show the 

effects on facilities split by hospitalbased, freestanding, urban, and rural 

categories. The urban and rural 

designations are based on the location of 

the facility under the CBSA designation. 

The next 19 rows show the effects on 

urban versus rural status by census 

region. The last 3 rows show the effects 

on ownership by government, profit and 

non-profit status. 

The second column in Table 13A 

shows the number of facilities in the 

impact database. 

The third column in Table 13A shows 

the effects of recalibrating the nursing 

CMIs of the RUG–IV therapy groups. As 

explained previously in section II.B.2 of 

this proposed rule, we are considering 

this recalibration so that the CMIs more 

accurately reflect parity in expenditures 

under the RUG–IV system introduced in 

FY 2011 relative to payments under the 

previous RUG–53 system, based on our 

review of initial FY 2011 claims data. 

The total impact of this change is a 

decrease of 12.6 percent. We note that 

some individual providers may 

experience larger decreases in payment 

than others due to case-mix utilization. 

The fourth column of Table 13A 

shows the effect of the annual update to 

the wage index. This represents the 

effect of using the most recent wage data 

available. The total impact of this 

change is zero percent; however, there 

are distributional effects of the change. 

The fifth column of Table 13A shows 

the effect of all of the changes on the FY 

2012 payments. The update of 1.5 

percent, consisting of the market basket 

increase of 2.7 percentage points, 

reduced by the 1.2 percentage point 

MFP adjustment is constant for all 

providers and, though not shown 

individually, is included in the total 

column. It is projected that aggregate 

payments will decrease by 11.3 percent, 

assuming that facilities do not change 

their care delivery and billing practices 

in response. 

As shown in Table 13A, the combined 

effects of all of the changes vary by 

specific types of providers and by 

location. 


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TABLE 13A—RUG–IV PROJECTED IMPACT TO THE SNF PPS FOR FY 2012 

[Includes recalibration of the case-mix indexes] 

Number of 

facilities 

FY 2012 

Revised CMIs 

(percent) 

Update wage 

data 

(percent) 

Total FY 

2012 change 

(percent) 

Group: 

Total .......................................................................................................... 14,266 ¥12.6 0.0 ¥11.3 

Urban ........................................................................................................ 10,049 ¥12.8 0.0 ¥11.5 

Rural ......................................................................................................... 4,217 ¥11.9 0.1 ¥10.5 

Hospital based urban ............................................................................... 421 ¥12.4 0.1 ¥11.1 

Freestanding urban .................................................................................. 9,628 ¥12.8 0.0 ¥11.5 

Hospital based rural ................................................................................. 310 ¥11.4 0.0 ¥10.2 

Freestanding rural .................................................................................... 3,907 ¥11.9 0.1 ¥10.5 

Urban by region: 

New England ............................................................................................ 792 ¥12.6 0.0 ¥11.3 

Middle Atlantic .......................................................................................... 1,391 ¥12.9 0.2 ¥11.5 

South Atlantic ........................................................................................... 1,682 ¥12.8 ¥0.3 ¥11.7 

East North Central .................................................................................... 1,962 ¥12.9 ¥0.4 ¥11.9 

East South Central ................................................................................... 482 ¥12.7 ¥0.4 ¥11.8 

West North Central ................................................................................... 819 ¥12.8 0.3 ¥11.2 

West South Central .................................................................................. 1,134 ¥12.7 0.5 ¥10.9 

Mountain ................................................................................................... 459 ¥12.8 0.2 ¥11.3 

Pacific ....................................................................................................... 1,325 ¥12.8 0.2 ¥11.3 

Outlying ..................................................................................................... 3 ¥3.7 1.1 ¥1.1 

Rural by region: 

New England ............................................................................................ 137 ¥11.7 1.1 ¥9.4 

Middle Atlantic .......................................................................................... 233 ¥12.4 ¥0.1 ¥11.1 

South Atlantic ........................................................................................... 546 ¥11.8 ¥0.1 ¥10.6 

East North Central .................................................................................... 867 ¥12.1 ¥0.1 ¥10.9 

East South Central ................................................................................... 455 ¥11.8 ¥0.5 ¥10.9 

West North Central ................................................................................... 984 ¥12.1 0.4 ¥10.4 

West South Central .................................................................................. 679 ¥11.7 0.9 ¥9.6 

Mountain ................................................................................................... 204 ¥11.8 0.4 ¥10.2 

Pacific ....................................................................................................... 112 ¥11.8 ¥0.5 ¥11.0 

Ownership: 

Government .............................................................................................. 710 ¥12.5 ¥0.1 ¥11.3 

Profit ......................................................................................................... 9,959 ¥12.6 0.0 ¥11.3 

Non-profit .................................................................................................. 3,597 ¥12.7 0.0 ¥11.4 

Note: The Total column includes the 2.7 percent market basket increase, reduced by the 1.2 percentage point MFP adjustment. Additionally, 

we found no SNFs in rural outlying areas. 

b. Impacts of Not Implementing the 

Recalibration Option for FY 2012 

The first column of Table 13B shows 

the breakdown of all SNFs by urban or 

rural status, hospital-based or 

freestanding status, and census region. The ‘‘total’’ row of Table 13B describes 

the estimated effects of the various 

changes on all facilities. The next six 

rows show the effects on facilities split 

by hospital-based, freestanding, urban, 

and rural categories. The urban and 

rural designations are based on the 

location of the facility under the CBSA 

designation. The next 19 rows show the 

effects on urban versus rural status by 

census region. The last 3 rows show the 

effects on ownership by government, 

profit and non-profit status. 

The second column in Table 13B 

shows the number of facilities in the 

impact database. 

The third column in Table 13B shows 

the effect of the annual update to the 

wage index. This represents the effect of 

using the most recent wage data 

available. The total impact of this 

change is zero percent; however, there 

are distributional effects of the change. 

The fourth column of Table 13B 

shows the effect of all of the changes on 

the FY 2012 payments. The update of 

1.5 percent, consisting of the market 

basket increase of 2.7 percentage points, 

reduced by the 1.2 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 1.5 percent, 

assuming that facilities do not change 

their care delivery and billing practices 

in response. 

As shown in Table 13B, the combined 

effects of all of the changes vary by 

specific types of providers and by 

location. 

TABLE 13B—RUG–IV PROJECTED IMPACT TO THE SNF PPS FOR FY 2012 

[Does not include recalibration of the case-mix indexes] 

Number of 

facilities 

Wage index 

(percent) 

Total impact 

(percent) 

Group: 

Total ...................................................................................................................................... 14,266 0.0 1.5 

Urban .................................................................................................................................... 10,049 0.0 1.5 

Rural ..................................................................................................................................... 4,217 0.1 1.6 

Hospital based urban ........................................................................................................... 421 0.1 1.6 

Freestanding urban .............................................................................................................. 9,628 0.0 1.5 

Hospital based rural ............................................................................................................. 310 0.0 1.5 


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TABLE 13B—RUG–IV PROJECTED IMPACT TO THE SNF PPS FOR FY 2012—Continued 

[Does not include recalibration of the case-mix indexes] 

Number of 

facilities 

Wage index 

(percent) 

Total impact 

(percent) 

Freestanding rural ................................................................................................................ 3,907 0.1 1.6 

Urban by region: 

New England ........................................................................................................................ 792 0.0 1.5 

Middle Atlantic ...................................................................................................................... 1,391 0.2 1.7 

South Atlantic ....................................................................................................................... 1,682 ¥0.3 1.2 

East North Central ................................................................................................................ 1,962 ¥0.4 1.1 

East South Central ............................................................................................................... 482 ¥0.4 1.1 

West North Central ............................................................................................................... 819 0.3 1.8 

West South Central .............................................................................................................. 1,134 0.5 2.1 

Mountain ............................................................................................................................... 459 0.2 1.7 

Pacific ................................................................................................................................... 1,325 0.2 1.7 

Outlying ................................................................................................................................. 3 1.1 2.7 

Rural by region: 

New England ........................................................................................................................ 137 1.1 2.6 

Middle Atlantic ...................................................................................................................... 233 ¥0.1 1.4 

South Atlantic ....................................................................................................................... 546 ¥0.1 1.4 

East North Central ................................................................................................................ 867 ¥0.1 1.4 

East South Central ............................................................................................................... 455 ¥0.5 1.0 

West North Central ............................................................................................................... 984 0.4 1.9 

West South Central .............................................................................................................. 679 0.9 2.4 

Mountain ............................................................................................................................... 204 0.4 1.9 

Pacific ................................................................................................................................... 112 ¥0.5 1.0 

Ownership: 

Government .......................................................................................................................... 710 ¥0.1 1.4 

Profit ..................................................................................................................................... 9,959 0.0 1.5 

Non-profit .............................................................................................................................. 3,597 0.0 1.5 

The proposed implementation of the 

disclosure of ownership requirements 

set forth in section 6101 of the 

Affordable Care Act (as discussed 

previously in section V.A. of this 

proposed rule) will affect all Medicaid 

nursing facilities and Medicare SNFs 

providing care to a Medicare and/or 

Medicaid beneficiary. Currently, these 

facilities are required to disclose 

information and maintain up-to-date 

information in PECOS and/or OSCAR. 

Thus, these new requirements are an 

extension of requirements to which the 

facility should already be accustomed to 

maintain compliance. Also, the 

proposed new disclosure requirements 

do not appear to impose any labor- or 

system-intensive burden on the 

facilities. 

We solicit comment on the economic 

impact analysis of the two options 

presented in section II.B.2 (that is, 

recalibration and no recalibration for FY 

2012). 

5. Alternatives Considered 

As described above, if we implement 

the recalibration option for FY 2012, the 

aggregate impact would be a net 

decrease of $3.94 billion in payments to 

SNFs, resulting from a $530 million 

increase from the update to the payment 

rates and a $4.47 billion reduction from 

the recalibration of the case-mix 

adjustment. If we move forward with 

the option of applying the standard 

update without a recalibration for FY 

2012, we estimate that the aggregate 

impact would be a net increase of $530 

million in payments to SNFs, resulting 

from the update to the payment rates. In 

view of the potential economic impact, 

we considered the alternatives 

described below. 

Section 1888(e) of the Act establishes 

the SNF PPS for the payment of 

Medicare SNF services for cost reporting 

periods beginning on or after July 1, 

1998. This section of the statute 

prescribes a detailed formula for 

calculating payment rates under the 

SNF PPS, and does not provide for the 

use of any alternative methodology. It 

specifies that the base year cost data to 

be used for computing the SNF PPS 

payment rates must be from FY 1995 

(October 1, 1994, through September 30, 

1995). In accordance with the statute, 

we also incorporated a number of 

elements into the SNF PPS (for example, 

case-mix classification methodology, the 

MDS assessment schedule, a market 

basket index, a wage index, and the 

urban and rural distinction used in the 

development or adjustment of the 

Federal rates). 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. 

Using our authority to establish an 

appropriate adjustment for case mix 

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

this proposed rule considers a 

recalibration of the adjustment to the 

nursing case-mix indexes based on 

actual FY 2011 data. In the FY 2010 

SNF PPS final rule (74 FR 40339), we 

committed to monitoring the accuracy 

and effectiveness of the parity 

adjustment to maintain budget 

neutrality. We believe that using actual 

FY 2011 claims data to perform the 

recalibration analysis may result in 

case-mix weights that better reflect the 

resources used, produce more accurate 

payment, and represent an appropriate 

case-mix adjustment. Using FY 2011 

data would be consistent with our intent 

to make the change from the RUG–53 

model to the RUG–IV model in a budget 

neutral manner, as described in the SNF 

PPS final rule for FY 2010 (74 FR 

40339). 

In reviewing our initial projections, 

we found that the disparity which 

formed the basis for our considering a 

recalibration of the nursing case-mix 

indexes was at least partially the result 

of a shift in the mode of therapy 

provided to beneficiaries in a Part A 

stay under RUG–IV. The amount of 

concurrent therapy decreased 

significantly from historical levels, with 

a portion of the SNFs reporting 0 


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minutes of concurrent therapy for all 

MDS 3.0s submitted during the FY 2011 

sampling period. Many of these 

facilities reported large increases in the 

amount of group therapy provided 

during the same time period. During the 

period before we publish the final rule 

for FY 2012, we plan to continue to 

collect and analyze MDS 3.0 and SNF 

PPS claims data to confirm our 

preliminary assessment of the parity 

adjustment considered in this rule. 

Then, in the final rule, we would use 

the expanded FY 2011 MDS 3.0 data 

and SNF PPS claims data to decide 

whether or not to pursue the considered 

FY 2012 recalibration of the SNF PPS 

rates. 

We considered various alternatives for 

implementing a recalibrated case-mix 

adjustment. Most notably, as described 

previously in section II.B.2 of this 

proposed rule, we considered applying 

a recalibration to all nursing CMIs, 

irrespective of RUG category. However, 

we found that such a recalibration most 

drastically affected non-therapy RUG 

groups, which seemed incongruent with 

the perceived reasons for differences 

between expected and actual utilization 

patterns, as noted in Table 4. We will 

continue to monitor utilization trends in 

case such a methodology might become 

more viable in the future. 

In addition, we considered 

implementing partial adjustments to the 

case-mix indexes over multiple years 

until parity was achieved. However, we 

believe that this alternative would 

continue to reimburse in amounts that 

significantly exceed our intended 

policy. Moreover, as we move forward 

with programs designed to enhance and 

restructure our post-acute care payment 

systems, we believe that payments 

under the SNF PPS should be 

established at their intended and most 

appropriate levels. Stabilizing the 

baseline is a necessary first step toward 

properly implementing and maintaining 

the integrity of the RUG–IV 

classification methodology and the SNF 

PPS as a whole. Therefore, for FY 2012, 

we are considering only the two options 

described in section II.B.2 above. We 

solicit comment on the alternatives 

considered in this analysis. 

6. Accounting Statement 

As required by OMB Circular A–4 

(available online at http:// 

www.whitehouse.gov/sites/default/files/ 

omb/assets/regulatory_matters_pdf/ 

a-4.pdf), in Table 14, we have prepared 

an accounting statement showing the 

classification of the expenditures 

associated with the provisions of this 

proposed rule, based on whether or not 

we implement the recalibration of the 

case-mix indexes. Tables 14A and 14B 

provide our best estimate of the possible 

changes in Medicare payments under 

the SNF PPS as a result of the policies 

in this proposed rule, based on the data 

for 14,266 SNFs in our database. All 

expenditures are classified as transfers 

to Medicare providers (that is, SNFs). 

TABLE 14A—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM THE

2011 SNF PPS FISCAL YEAR TO

THE 2012 SNF PPS FISCAL YEAR

[Including recalibration of case-mix indexes] 

Category Transfers 

Annualized Monetized 

Transfers.

¥$3.94 billion.* 

From Whom To 

Whom? 

Federal Government 

to SNF Medicare 

Providers. 

* The net decrease of $3.94 billion in transfer payments is a result of the decrease of 

$4.47 billion due to the proposed recalibration 

of the case mix adjustment, together with the 

proposed market basket increase of $530 

million. 

TABLE 14B—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM THE

2011 SNF PPS FISCAL YEAR TO

THE 2012 SNF PPS FISCAL YEAR

[Without recalibration of case-mix indexes] 

Category Transfers 

Annualized Monetized 

Transfers.

$530 million. * 

From Whom To 

Whom? 

Federal Government 

to SNF Medicare 

Providers. 

* The net increase of $530 million in transfer 

payments is a result of the proposed market 

basket increase of 1.5 percent. 

7. Conclusion 

If we implement the recalibration of 

the case-mix indexes, the overall 

estimated payments for SNFs in FY 

2012 are projected to decrease by $3.94 

billion, or 11.3 percent, compared with 

those in FY 2011. With this option, we 

estimate that under RUG–IV, SNFs in 

urban and rural areas would experience, 

on average, an 11.5 and 10.5 percent 

decrease, respectively, in estimated 

payments compared with FY 2011. 

Providers in the urban East North 

Central region would experience the 

largest estimated decrease in payments 

of approximately 11.9 percent. If we do 

not implement the recalibration of the 

case-mix indexes for FY 2012, the 

overall estimated payments for SNFs in 

FY 2012 are projected to increase by 

$530 million, or 1.5 percent, compared 

with FY 2011. We estimate that under 

this option, SNFs in urban and rural 

areas would experience, on average, a 

1.5 and 1.6 percent increase, 

respectively, in estimated RUG–IV 

payments compared with FY 2011. 

Outlying urban providers and providers 

in the rural New England region would 

experience the largest estimated 

increase in payments of 2.7 and 2.6 

percent, respectively. 

The disclosure of ownership 

requirements in section 6101 of the 

Affordable Care Act that we now 

propose to implement involve necessary 

information that would provide the 

public with a greater assurance that 

there is transparency and, thus, 

improved oversight. We believe it was 

the intent of Congress to complement 

that information which is already being 

supplied by the facility. With that in 

mind, we propose specific disclosure 

information that would identify the 

unique business and operating 

structures of Medicare SNFs and 

Medicaid nursing facilities. By 

providing PECOS and OSCAR with this 

more detailed facility ownership 

information, this proposed revision 

would help ensure that program 

expenditures are made in the most 

efficient and appropriate manner. 

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 nonprofit status or by having revenues of 

$13.5 million or less in any 1 year. For 

purposes of the RFA, approximately 91 

percent of SNFs are considered small 

businesses according to the Small 

Business Administration’s latest size 

standards, with total revenues of $13.5 

million or less in any 1 year. (For 

details, see the Small Business 

Administration’s Web site at http://ecfr.

gpoaccess.gov/cgi/t/text/text-idx?c=ecfr

&sid=2465b064ba6965cc1fbd2eae

60854b11&rgn=div8&view

=text&node=13:1.0.1.1.16.1.266.9

&idno=13). Individuals and States are 

not included in the definition of a small 

entity. In addition, approximately 21 

percent of SNFs classified as small 

entities are non-profit organizations. 

Finally, the estimated number of small 

business entities does not distinguish 

provider establishments that are within 

a single firm and, therefore, the number 

of SNFs classified as small entities may 


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be higher than the estimate above. We 

expect that the disclosure requirements 

discussed in section V.A of this 

proposed rule will aid us in determining 

which providers may be appropriately 

classified as small entities. 

This proposed rule updates the SNF 

PPS rates published in the update notice 

for FY 2011 (75 FR 42886, July 22, 2010) 

and the associated correction notice (75 

FR 55801, September 14, 2010). We 

estimate that implementing the 

recalibration option considered under 

section II.B.2 above would result in a 

net decrease of $3.94 billion in 

payments to SNFs for FY 2012. This 

would reflect a $530 million increase 

from the update to the payment rates 

and a $4.47 billion reduction from the 

recalibration of the case-mix 

adjustment. As indicated in Table 13A, 

the estimated effect of this recalibration 

option on facilities for FY 2012 would 

be an aggregate negative impact of 11.3 

percent. While it is projected in Table 

13A that all providers would experience 

a net decrease in payments, we note that 

some individual providers may 

experience larger decreases in payments 

than others due to the distributional 

impact of the FY 2012 wage indexes and 

the degree of Medicare utilization. 

Alternatively, we estimate that not 

implementing the recalibration option 

considered under section II.B.2 above 

would result in a net increase of $530 

million in payments to SNFs for FY 

2012, reflecting the standard update to 

the payment rates. As indicated in Table 

13B, the estimated effect of this option 

on facilities for FY 2012 would be an 

aggregate positive impact of 1.5 percent. 

While it is projected in Table 13B that 

all providers would experience a net 

increase in payments, we note that some 

individual providers may experience 

larger increases in payments than others 

due to the distributional impact of the 

FY 2012 wage indexes and the degree of 

Medicare utilization. 

Guidance issued by the Department of 

Health and Human Services on the 

proper assessment of the impact on 

small entities in rulemakings, utilizes a 

cost or revenue impact of 3 to 5 percent 

as a significance threshold under the 

RFA. According to MedPAC, Medicare 

covers approximately 12 percent of total 

patient days in freestanding facilities 

and 23 percent of facility revenue 

(March 2011). However, it is worth 

noting that the distribution of days and 

payments is highly variable. That is, the 

majority of SNFs have significantly 

lower Medicare utilization. As a result, 

for most facilities, when all payers are 

included in the revenue stream, the 

overall impact effect to total revenues 

should be substantially less than those 

presented in Table 13A, which reflects 

the impacts of implementing the 

recalibration of the case-mix indexes. 

However, not implementing the 

recalibration of the case-mix indexes, as 

presented in Table 13B, yields an 

aggregate positive net impact of 1.5 

percent on all SNF providers, with 

outlying urban providers and providers 

in the rural New England region 

experiencing the largest estimated 

increase in payments of 2.7 and 2.6 

percent, respectively. Therefore, the 

Secretary has determined that this 

proposed rule may have a significant 

impact on a substantial number of small 

entities, depending on the option 

considered (that is, recalibration of the 

parity adjustment for FY 2012 or 

application of the standard update 

without recalibration for FY 2012). 

We offer an analysis of the 

alternatives considered in section 

XII.A.5 of this proposed rule. The 

analysis above, together with the 

remainder of this preamble, constitutes 

the initial regulatory flexibility analysis. 

We solicit comment on the RFA 

analysis. 

In addition, section 1102(b) of the 

Social Security Act requires us to 

prepare a regulatory impact analysis if 

a rule may have a significant impact on 

the operations of a substantial number 

of small rural hospitals. This analysis 

must conform to the provisions of 

section 603 of the RFA. For purposes of 

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

small rural hospital as a hospital that is 

located outside of a Metropolitan 

Statistical Area and has fewer than 100 

beds. The proposed rule would affect 

small rural hospitals that (a) furnish 

SNF services under a swing-bed 

agreement or (b) have a hospital-based 

SNF. We anticipate that the impact on 

small rural hospitals would be similar to 

the impact on SNF providers overall. 

Therefore, the Secretary has determined 

that this proposed rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals, depending on the option 

considered, as discussed above (that is, 

recalibration of the parity adjustment for 

FY 2012 or application of the standard 

update without recalibration for FY 

2012). 

C. Unfunded Mandates Reform Act 

Analysis 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year of $100 

million in 1995 dollars, updated 

annually for inflation. In 2011, that 

threshold is approximately $136 

million. This proposed rule would not 

impose spending costs on State, local, or 

Tribal governments in the aggregate, or 

by the private sector, of $136 million. 

D. Federalism Analysis 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that impose substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

This proposed rule would have no 

substantial direct effect on State and 

local governments, preempt State law, 

or otherwise have Federalism 

implications. 

List of Subjects 

42 CFR Part 413 

Health facilities, Kidney diseases, 

Medicare, Reporting and recordkeeping 

requirements. 

42 CFR Part 424 

Emergency medical services, Health 

facilities, Health professions, Medicare, 

Reporting and recordkeeping 

requirements. 

42 CFR Part 455 

Fraud, Grant programs—health, 

Health facilities, Health professions, 

Investigations, Medicaid, Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR chapter IV as set forth below: 

PART 413—PRINCIPLES OF 

REASONABLE COST 

REIMBURSEMENT; PAYMENT FOR 

END-STAGE RENAL DISEASE 

SERVICES; OPTIONAL 

PROSPECTIVELY DETERMINED 

PAYMENT RATES FOR SKILLED 

NURSING FACILITIES 

1. The authority citation for part 413 

continues to read as follows: 

Authority: Secs. 1102, 1812(d), 1814(b), 

1815, 1833(a), (i), and (n), 1861(v), 1871, 

1881, 1883, and 1886 of the Social Security 

Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 

1395g, 1395l(a), (i), and (n), 1395x(v), 

1395hh, 1395rr, 1395tt, and 1395ww); and 

sec. 124 of Public Law 106–133 (113 Stat. 

1501A–332). 

Subpart J—Prospective Payment for 

Skilled Nursing Facilities 

2. Section 413.337 is amended by— 

A. Revising paragraphs (d)(1) and 

(d)(2). 

B. Adding paragraph (d)(3). 


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The revisions and addition read as 

follows: 

§ 413.337 Methodology for calculating the 

prospective payment rates. 

* * * * * 

(d) * * * 

(1) Update formula. The unadjusted 

Federal payment rate shall be updated 

as follows: 

(i) For the initial period beginning on 

July 1, 1998, and ending on September 

30, 1999, the unadjusted Federal 

payment rate is equal to the rate 

computed under paragraph (b)(5)(iii) of 

this section increased by a factor equal 

to the SNF market basket index 

percentage change for such period 

minus 1 percentage point. 

(ii) For fiscal year 2000, the 

unadjusted Federal payment rate is 

equal to the rate computed for the initial 

period described in paragraph (d)(1)(i) 

of this section increased by a factor 

equal to the SNF market basket index 

percentage change for that period minus 

1 percentage point. 

(iii) For fiscal year 2001, the 

unadjusted Federal payment rate is 

equal to the rate computed for the 

previous fiscal year increased by a factor 

equal to the SNF market basket index 

percentage change for the fiscal year. 

(iv) For fiscal years 2002 and 2003, 

the unadjusted Federal payment rate is 

equal to the rate computed for the 

previous fiscal year increased by a factor 

equal to the SNF market basket index 

percentage change for the fiscal year 

involved minus 0.5 percentage points. 

(v) For each subsequent fiscal year, 

the unadjusted Federal payment rate is 

equal to the rate computed for the 

previous fiscal year increased by a factor 

equal to the SNF market basket index 

percentage change for the fiscal year 

involved. 

(2) Forecast error adjustment. 

Beginning with fiscal year 2004, an 

adjustment to the annual update of the 

previous fiscal year’s rate will be 

computed to account for forecast error. 

The initial adjustment (in fiscal year 

2004) to the update of the previous 

fiscal year’s rate will take into account 

the cumulative forecast error between 

fiscal years 2000 and 2002. Subsequent 

adjustments in succeeding fiscal years 

will take into account the forecast error 

from the most recently available fiscal 

year for which there is final data. The 

forecast error adjustment applies 

whenever the difference between the 

forecasted and actual percentage change 

in the SNF market basket index exceeds 

the following threshold: 

(i) 0.25 percentage points for fiscal 

years 2004 through 2007; and 

(ii) 0.5 percentage points for fiscal 

year 2008 and subsequent fiscal years. 

(3) Multifactor productivity (MFP) 

adjustment. For fiscal year 2012 and 

each subsequent fiscal year, the SNF 

market basket index percentage change 

for the fiscal year (as modified by any 

applicable forecast error adjustment 

under paragraph (d)(2) of this section) 

shall be reduced by the MFP adjustment 

described in section 1886(b)(3)(B)(xi)(II) 

of the Act. The reduction of the market 

basket percentage change by the MFP 

adjustment may result in the market 

basket percentage change being less 

than zero for a fiscal year, and may 

result in the unadjusted Federal 

payment rates for a fiscal year being less 

than such payment rates for the 

preceding fiscal year. 

* * * * * 

PART 424—CONDITIONS FOR 

MEDICARE PAYMENT 

3. The authority citation for part 424 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh). 

Subpart P—Requirements for 

Establishing and Maintaining Medicare 

Billing Privileges 

4. Section 424.502 is amended by— 

A. Adding the definitions of 

‘‘Additional disclosable party’’ and 

‘‘Organizational structure’’ in 

alphabetical order. 

B. Revising the definition of 

‘‘Managing employee’’. 

The revision and additions read as 

follows: 

§ 424.502 Definitions. 

* * * * * 

Additional disclosable party means, 

with respect to a skilled nursing facility 

defined at section 1819(a) of the Act, 

any person or entity who— 

(1) Exercises operational, financial, or 

managerial control over the facility or a 

part thereof, or provides policies or 

procedures for any of the operations of 

the facility, or provides financial or cash 

management services to the facility; 

(2) Leases or subleases real property 

to the facility, or owns a whole or part 

interest equal to or exceeding 5 percent 

of the total value of such real property; 

or 

(3) Provides management or 

administrative services, management or 

clinical consulting services, or 

accounting or financial services to the 

facility. 

* * * * * 

Managing employee means a general 

manager, business manager, 

administrator, director, or other 

individual that exercises operational or 

managerial control over, or who directly 

or indirectly conducts, the day-to-day 

operation of the provider or supplier, 

either under contract or through some 

other arrangement, whether or not the 

individual is a W–2 employee of the 

provider or supplier. With respect to the 

additional requirements at § 424.516(e) 

of this chapter for a skilled nursing 

facility defined at section 1819(a) of the 

Act, a ‘‘managing employee’’ means an 

individual, including a general manager, 

business manager, administrator, 

director, or consultant, who directly or 

indirectly manages, advises, or 

supervises any element of the practices, 

finances, or operations of the facility. 

* * * * * 

Organizational structure means, with 

respect to a skilled nursing facility 

defined at section 1819(a) of the Act, in 

the case of-– 

(1) A corporation, the officers, 

directors, and shareholders of the 

corporation who have an ownership 

interest in the corporation which is 

equal to or exceeds 5 percent; 

(2) A limited liability company, the 

members and managers of the limited 

liability company including, as 

applicable, what percentage each 

member and manager has of the 

ownership interest in the limited 

liability company; 

(3) A general partnership, the partners 

of the general partnership; 

(4) A limited partnership, the general 

partners and any limited partners of the 

limited partnership who have an 

ownership interest in the limited 

partnership which is equal to or exceeds 

10 percent; 

(5) A trust, the trustees of the trust; 

and 

(6) An individual, contact information 

for the individual. 

* * * * * 

6. Section 424.516 is amended by 

adding paragraphs (e)(4) and (e)(5) to 

read as follows: 

§ 424.516 Additional provider and supplier 

requirements for enrolling and maintaining 

active enrollment status in the Medicare 

program. 

* * * * * 

(e) * * * 

(4) In addition, a skilled nursing 

facility (as defined by section 1819(a) of 

the Act) must report upon enrollment 

and within 30 days of any change to the 

following information: 

(i) The identity of and information on 

all of the following: 

(A) Each member of the governing 

body of the facility, including the name, 


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title, and period of service for each 

member. 

(B) Each person or entity who is an 

officer, director, member, partner, 

trustee, or managing employee (as 

defined in § 424.502) of the facility, 

including the name, title, and period of 

service of each such person or entity. 

(C) Each person or entity who is an 

additional disclosable party of the 

facility, as defined in § 424.502. 

(ii) The organizational structure (as 

defined in § 424.502 of this chapter) of 

each additional disclosable party of the 

facility and a description of the 

relationship of each such additional 

disclosable party to the facility and to 

one another. 

(5) A skilled nursing facility (as 

defined by section 1819(a) of the Act) 

must certify as a condition of 

participation and payment under the 

program under Title XVIII of the Act 

that the information reported by the 

facility in accordance with these 

regulations is, to the best of the facility’s 

knowledge, accurate and current. 

* * * * * 

PART 455—PROGRAM INTEGRITY: 

MEDICAID 

7. The authority citation for part 455 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302). 

Subpart B—Disclosure of Information 

by Providers and Fiscal Agents 

8. Section 455.101 is amended by— 

A. Adding the definitions of 

‘‘Additional disclosable party’’ and 

‘‘Organizational structure’’ in 

alphabetical order. 

B. Revising the definition of 

‘‘Managing employee’’. 

The revision and additions read as 

follows: 

§ 455.101 Definitions. 

Additional disclosable party means 

any person or entity who— 

(1) Exercises operational, financial, or 

managerial control over the facility or a 

part thereof, or provides policies or 

procedures for any of the operations of 

the facility, or provides financial or cash 

management services to the facility; 

(2) Leases or subleases real property 

to the facility, or owns a whole or part 

interest equal to or exceeding 5 percent 

of the total value of such real property; 

or 

(3) Provides management or 

administrative services, management or 

clinical consulting services, or 

accounting or financial services to the 

facility. 

* * * * * 

Managing employee means a general 

manager, business manager, 

administrator, director, or other 

individual who exercises operational or 

managerial control over, or who directly 

or indirectly controls the day-to-day 

operation of an institution, organization, 

or agency. With respect to nursing 

facilities defined by section 1919(a) of 

the Act, a ‘‘managing employee’’ means 

an individual, including a general 

manager, business manager, 

administrator, director, or consultant 

who directly or indirectly manages, 

advises, or supervises any element of 

the practices, finances, or operations of 

the facility. 

Organizational structure means, in 

the case of— 

(1) A corporation, the officers, 

directors, and shareholders of the 

corporation who have an ownership 

interest in the corporation which is 

equal to or exceeds 5 percent; 

(2) A limited liability company, the 

members and managers of the limited 

liability company including, as 

applicable, what percentage each 

member and manager has of the 

ownership interest in the limited 

liability company; 

(3) A general partnership, the partners 

of the general partnership; 

(4) A limited partnership, the general 

partners and any limited partners of the 

limited partnership who have an 

ownership interest in the limited 

partnership which is equal to or exceeds 

10 percent; 

(5) A trust, the trustees of the trust; 

and 

(6) An individual, contact information 

for the individual. 

* * * * * 

9. Section 455.104 is amended by— 

A. Redesignating paragraph (e) as 

paragraph (f). 

B. Adding a new paragraph (e). 

The addition reads as follows: 

§ 455.104 Disclosure by Medicaid 

providers and fiscal agents: Information on 

ownership and control. 

* * * * * 

(e) Disclosures from Medicaid nursing 

facilities. (1) What disclosures must be 

provided. Medicaid nursing facilities 

must provide all disclosures required 

for disclosing entities, above. In 

addition, Medicaid nursing facilities (as 

defined by section 1919(a) of the Act) 

must provide disclosures regarding 

additional disclosable parties, 

organizational structure, and managing 

employees of the Medicaid nursing 

facility, as defined in § 455.101 of this 

part. 

(i) These disclosures must include the 

identity of and information on all of the 

following: 

(A) Each member of the governing 

body of the facility, including the name, 

title, and period of service for each 

member. 

(B) Each person or entity who is an 

officer, director, member, partner, 

trustee, or managing employee (as 

defined in § 455.101) of the facility, 

including the name, title, and period of 

service of each such person or entity. 

(C) Each person or entity who is an 

additional disclosable party (as defined 

in § 455.101) of the facility. 

(ii) The organizational structure (as 

defined in § 455.101) of each additional 

disclosable party of the facility and a 

description of the relationship of each 

such additional disclosable party to the 

facility and to one another. 

(2) When the disclosures must be 

provided. Medicaid nursing facilities 

must provide all the disclosures to the 

State Medicaid agency upon enrollment; 

on an annual basis to be determined by 

the State Medicaid agency; and within 

30 days after any change to any of the 

above disclosures. 

(3) Medicaid nursing facility’s 

certification. Nursing facilities (as 

defined by section 1919(a) of the Act) 

must certify as a condition of 

participation and payment under the 

program under Title XIX of the Act that 

the information reported by the facility 

in accordance with these regulations is, 

to the best of the facility’s knowledge, 

accurate and current. 

* * * * * 

Authority: (Catalog of Federal Domestic 

Assistance Program No. 93.773, Medicare— 

Hospital Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program). 

Dated: March 24, 2011. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: April 26, 2011. 

Kathleen Sebelius, 

Secretary. 

[Note: The following Addendum will not 

appear in the Code of Federal Regulations] 

Addendum—FY 2012 CBSA Wage 

Index Tables 

In this addendum, we provide the 

wage index tables referred to in the 

preamble to this proposed rule. Tables 

A and B display the CBSA-based wage 

index values for urban and rural 

providers. 

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[FR Doc. 2011–10555 Filed 4–28–11; 4:15 pm] 

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