42886 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

[CMS–1338–NC] 

RIN 0938–AP87 

Medicare Program; Prospective 

Payment System and Consolidated 

Billing for Skilled Nursing Facilities for 

FY 2011 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Notice with comment period. 

SUMMARY: This notice with comment 

period sets forth an update to the 

payment rates used under the 

prospective payment system for skilled 

nursing facilities for fiscal year 2011, 

and implements section 10325 of the 

Patient Protection and Affordable Care 

Act. 

DATES: Effective Date: The rate updates 

in this notice with comment period are 

effective on October 1, 2010. 

Comment Date: To be assured 

consideration, comments must be 

received at one of the addresses 

provided below, no later than 5 p.m. on 

September 20, 2010. 

ADDRESSES: In commenting, please refer 

to file code CMS–1338–NC. 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–1338–NC, 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–1338–NC, 

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: 

Ellen Berry, (410) 786–4528 (for 

information related to clinical issues). 

Abby Ryan, (410) 786–4343 (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 Patient Protection and Affordable 

Care Act (ACA) 

G. Skilled Nursing Facility Prospective 

Payment—General Overview 

1. Payment Provisions—Federal Rate 

2. FY 2011 Rate Updates Using the Skilled 

Nursing Facility Market Basket Index 

II. FY 2011 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 

2. Methodology Used for the Calculation of 

the Federal Rates 

B. Case-Mix Adjustments 

1. Background 

2. Parity Adjustment 

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. The Skilled Nursing Facility Market 

Basket Index 

A. Use of the Skilled Nursing Facility 

Market Basket Percentage 

B. Market Basket Forecast Error 

Adjustment 

C. Federal Rate Update Factor 

IV. Consolidated Billing 

V. Application of the SNF PPS to SNF 

Services Furnished by Swing-Bed 

Hospitals 

VI. Collection of Information Requirements 

VII. Response to Comments 

VIII. Regulatory Impact Analysis 

A. Overall Impact 

B. Anticipated Effects 

C. Alternatives Considered 

D. Accounting Statement 

E. Conclusion 


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Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42887 

IX. Waiver of Proposed Rulemaking 

Addendum: 

FY 2011 CBSA-Based Wage Index Tables 

(Tables A & B) 

Abbreviations 

In addition, because of the many 

terms to which we refer by abbreviation 

in this notice, we are listing these 

abbreviations and their corresponding 

terms in alphabetical order below: 

ACA Patient Protection and Affordable Care 

Act, Public Law 111–148 

AIDS Acquired Immune Deficiency 

Syndrome 

ARD Assessment Reference Date 

BBA Balanced Budget Act of 1997, Public 

Law 105–33 

BBRA Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 1999, 

Public Law 106–113 

BIPA Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection Act 

of 2000, Public Law 106–554 

CAH Critical Access Hospital 

CBSA Core-Based Statistical Area 

CFR Code of Federal Regulations 

CMI Case-Mix Index 

CMS Centers for Medicare & Medicaid 

Services 

FQHC Federally Qualified Health Center 

FR Federal Register 

FY Fiscal Year 

GAO Government Accountability Office 

HCPCS Healthcare Common Procedure 

Coding System 

HR–III Hybrid Resource Utilization Groups, 

Version 3 

MDS Minimum Data Set 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003, Public Law 108–173 

MMSEA Medicare, Medicaid, and SCHIP 

Extension Act of 2007, Public Law 110–173 

MSA Metropolitan Statistical Area 

OMB Office of Management and Budget 

OMRA Other Medicare Required 

Assessment 

PPS Prospective Payment System 

RAI Resident Assessment Instrument 

RAVEN Resident Assessment Validation 

Entry 

RFA Regulatory Flexibility Act, Public Law 

96–354 

RHC Rural Health Clinic 

RIA Regulatory Impact Analysis 

RUG–III Resource Utilization Groups, 

Version 3 

RUG–IV Resource Utilization Groups, 

Version 4 

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

SCHIP State Children’s Health Insurance 

Program 

SNF Skilled Nursing Facility 

SOM State Operations Manual 

STM Staff Time Measurement 

STRIVE Staff Time and Resource Intensity 

Verification 

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, Pub. L. 105–33, enacted on 

August 5, 1997), and amended by the 

Medicare, Medicaid, and State 

Children’s Health Insurance Program 

(SCHIP) Balanced Budget Refinement 

Act of 1999 (BBRA, Pub. L. 106–113, 

enacted on November 29, 1999), the 

Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (BIPA, Pub. L. 106–554, 

enacted December 21, 2000), and the 

Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA, Pub. L. 108–173, enacted 

on December 8, 2003). Our most recent 

annual update occurred in a final rule 

(74 FR 40288, August 11, 2009) that set 

forth updates to the SNF PPS payment 

rates for fiscal year (FY) 2010. We 

subsequently published a correction 

notice (74 FR 48865, September 25, 

2009) with respect to those payment rate 

updates. 

A. Current System for Payment of 

Skilled Nursing Facility Services Under 

Part A of the Medicare Program 

Section 4432 of the BBA amended 

section 1888 of the Act to provide for 

the implementation of a per diem PPS 

for SNFs, covering all costs (routine, 

ancillary, and capital-related) of covered 

SNF services furnished to beneficiaries 

under Part A of the Medicare program, 

effective for cost reporting periods 

beginning on or after July 1, 1998. In 

this notice, we update the per diem 

payment rates for SNFs for FY 2011. 

Major elements of the SNF PPS include: 

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

of this notice, 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.F, for FY 2011 this adjustment 

will utilize a ‘‘hybrid’’ RUG–III system 

that incorporates the specific revisions 

relating to concurrent therapy and the 

look-back period that are components of 

the Resource Utilization Groups, version 

4 (RUG–IV) case-mix classification 

system, 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 in the final rule for FY 2006 (70 

FR 45028, August 4, 2005), the payment 

rates at various times have also reflected 

specific legislative provisions, including 

section 101 of the BBRA, sections 311, 

312, and 314 of the BIPA, and section 

511 of the MMA. 

• Transition. Under sections 

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

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

facility’s historical cost experience) with 

the Federal case-mix adjusted rate. The 

transition extended through the 

facility’s first three cost reporting 

periods under the PPS, up to and 

including the one that began in FY 

2001. Thus, the SNF PPS is no longer 

operating under the transition, as all 

facilities have been paid at the full 

Federal rate effective with cost reporting 

periods beginning in FY 2002. As we 

now base payments entirely on the 

adjusted Federal per diem rates, we no 

longer include adjustment factors 

related to facility-specific rates for the 

coming FY. 

• Coverage. The establishment of the 

SNF PPS did not change Medicare’s 

fundamental requirements for SNF 

coverage. However, because the 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, in FY 

2011, under the hybrid RUG–III system, 

this approach includes an 

administrative presumption that utilizes 

a beneficiary’s initial classification in 

one of the upper 35 RUGs of the 53- 

group RUG–III case-mix classification 

system (RUG–53) 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 notice 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 


emcdonald on DSK2BSOYB1PROD with NOTICES3
42888 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 

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 IV. 

of this notice. 

• 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 V. of this notice. 

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 notice 

provides these required annual updates 

to the Federal rates. 

C. The Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 

1999 (BBRA) 

There were several provisions in the 

BBRA that resulted in adjustments to 

the SNF PPS. We described these 

provisions in detail in the SNF PPS final 

rule for FY 2001 (65 FR 46770, July 31, 

2000). In particular, section 101(a) of the 

BBRA provided for a temporary 20 

percent increase in the per diem 

adjusted payment rates for 15 specified 

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 notice). We included further 

information on BBRA provisions that 

affected the SNF PPS in Program 

Memorandums A–99–53 and A–99–61 

(December 1999). 

Also, section 103 of the BBRA 

designated certain additional services 

for exclusion from the consolidated 

billing requirement, as discussed in 

section IV. of this notice. Further, for 

swing-bed hospitals with more than 49 

(but less than 100) beds, section 408 of 

the BBRA provided for the repeal of 

certain statutory restrictions on length 

of stay and aggregate payment for 

patient days, effective with the end of 

the SNF PPS transition period described 

in section 1888(e)(2)(E) of the Act. In the 

final rule for FY 2002 (66 FR 39562, July 

31, 2001), we made conforming changes 

to the regulations at § 413.114(d), 

effective for services furnished in cost 

reporting periods beginning on or after 

July 1, 2002, to reflect section 408 of the 

BBRA. 

D. The Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (BIPA) 

The BIPA also included several 

provisions that resulted in adjustments 

to the SNF PPS. We described these 

provisions in detail in the final rule for 

FY 2002 (66 FR 39562, July 31, 2001). 

In particular: 

• Section 203 of the BIPA exempted 

CAH swing beds from the SNF PPS. We 

included further information on this 

provision in Program Memorandum A– 

01–09 (Change Request #1509), issued 

January 16, 2001, which is available 

online at http://www.cms.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_PC– 

PPSSNF.pdf. 

• Section 312 of the BIPA provided 

for a temporary increase of 16.66 

percent in the nursing component of the 

case-mix adjusted Federal rate for 

services furnished on or after April 1, 

2001, and before October 1, 2002; 

accordingly, this add-on is no longer in 

effect. This section also directed the 

Government Accountability Office 

(GAO) to conduct an audit of SNF 

nursing staff ratios and submit a report 

to the Congress on whether the 

temporary increase in the nursing 

component should be continued. The 

report (GAO–03–176), which GAO 

issued in November 2002, is available 

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

new.items/d03176.pdf. 

• Section 313 of the BIPA repealed 

the consolidated billing requirement for 

services (other than physical 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 IV. of this notice.) 

• 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 notice. (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 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 


emcdonald on DSK2BSOYB1PROD with NOTICES3
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42889 

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 2008 

data, we identified less than 3,300 SNF 

residents with a diagnosis code of 042 

(Human Immunodeficiency Virus (HIV) 

Infection). For FY 2011, an urban 

facility with a resident with AIDS in 

hybrid RUG–III (HR–III) group ‘‘SSB’’ 

would have a case-mix adjusted 

payment of $318.73 (see Table 4B) 

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 $726.70. Similarly, an 

urban facility with a resident with AIDS 

in RUG–IV group ‘‘HC2’’ would have a 

case-mix adjusted payment of $394.48 

(see Table 4A) 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 $899.41. 

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 IV. of this 

notice.) 

F. The Patient Protection and Affordable 

Care Act (ACA) 

Section 10325 of the ACA (Pub. L. 

111–148, enacted on March 23, 2010) 

includes a self-implementing provision 

involving the SNF PPS. Section 10325 

postpones 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 

specifies that the Secretary is required 

to 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). 

Because these changes were already 

subject to notice and public comment 

and finalized in the FY 2010 SNF PPS 

final rule, we believe that this ACA 

requirement is largely selfimplementing and requires no 

substantive exercise of discretion by the 

Secretary. In addition, section 10325 of 

the ACA specifies that version 3.0 of the 

Minimum Data Set (MDS 3.0) shall 

proceed as planned, with an 

implementation date of October 1, 2010 

(see 74 FR 40342–43). The MDS is 

approved under OMB# 0938–0872. The 

MDS 3.0 RAI Manual and MDS 3.0 Item 

Set are scheduled to be published on the 

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

October 2010. 

The statutory mandate to adopt RUG– 

IV’s concurrent therapy and look-back 

revisions (along with MDS 3.0) prior to 

implementing the overall RUG–IV 

system itself will necessitate 

implementing those particular revisions 

within the framework of the existing 

RUG–53 case-mix classification system. 

While there is currently an existing 

grouper (the software program that uses 

assessment data to assign each SNF 

resident to the appropriate RUG) that 

utilizes RUG–53 and the MDS 2.0, as 

well as a revised grouper that utilizes 

RUG–IV and the MDS 3.0, no grouper 

currently exists that incorporates the 

particular combination of features 

mandated by the statute: The use of the 

new RUG–IV revisions on concurrent 

therapy and the look-back period as 

well as the MDS 3.0, but within the 

overall context of the existing RUG–53 

system. Moreover, attempting to 

develop and implement such a modified 

grouper within the short timeframe 

available before the ACA provision’s 

October 1, 2010 effective date would 

potentially cause significant disruption 

to providers, suppliers, and State 

agencies. 

Accordingly, as we continue to build 

the payment infrastructure needed to 

incorporate the combination of features 

mandated by section 10325 of the ACA 

for FY 2011, we will apply, effective 

October 1, 2010, interim payment rates 

that reflect not only the use of MDS 3.0 

but also the new RUG–IV system in its 

entirety as finalized in the FY 2010 SNF 

PPS final rule (74 FR 40288, August 11, 

2009). As discussed above, the only 

grouper that currently exists that 

utilizes MDS 3.0 is the RUG–IV grouper. 

Once the necessary infrastructure is in 

place, we will then retroactively adjust 

claims to reflect a hybrid RUG–III (HR– 

III) system which incorporates RUG– 

IV’s specific revisions on concurrent 

therapy and the look-back period within 

the framework of the existing RUG–53 

system, along with the use of MDS 3.0. 

Tables 4 and 5 set forth both the RUG– 

IV rates that will be used on an interim 

basis effective October 1, 2010 and the 

HR–III rates that will apply once we 

build the infrastructure necessary to 

support this system. The FY 2011 rates 

will be based on the rates that were 

finalized for FY 2010, as modified to 

reflect the market basket adjustment, the 

forecast error adjustment, the applicable 

case-mix adjustment, and the parity 

adjustment (as discussed below). 

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 

40338–39, August 11, 2009). Consistent 

with our policy set forth in the FY 2006 

SNF PPS final rule (70 FR 45031) when 

we transitioned from the RUG–III 44 

group model to the RUG–53 model, and 

in the FY 2010 SNF PPS final rule (74 

FR 40338–39) when we finalized the 

transition from RUG–53 to RUG–IV, in 

calculating the rates under the HR–III 

model, we will apply a parity 

adjustment to the nursing case-mix 

weights under the HR–III system to 

ensure parity between overall payments 

under the RUG–53 model currently in 

effect and anticipated payments under 

the HR–III system required by the ACA. 

As discussed in section II.B.2 of this 

notice, we are calculating and applying 

this parity adjustment using the same 

methodology finalized in both the FY 

2006 SNF PPS final rule and the FY 

2010 SNF PPS final rule. 

Accordingly, as discussed above, 

effective October 1, 2010, on an interim 

basis, we will implement and pay 

claims under the RUG–IV system that 

was finalized in the FY 2010 SNF PPS 

final rule, until we build the payment 

infrastructure necessary to support the 

HR–III system required by the ACA. 

Once that infrastructure is in place, we 

will then retroactively adjust claims 

back to October 1, 2010 as necessary to 

implement the rates effective under HR– 

III. In this notice, we also invite public 

comment on our implementation of 

section 10325 of the ACA. 


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As discussed above, we will 

implement the MDS 3.0 (including the 

MDS 3.0 swing bed assessment (see 74 

FR 40356–57)) effective October 1, 2010 

as specified in the FY 2010 SNF PPS 

final rule. We will also implement 

effective October 1, 2010, all other nonRUG–IV changes finalized in the FY 

2010 SNF PPS final rule for 

implementation effective FY 2011, 

including without limitation revisions 

to certain therapy reporting and 

assessment procedures effective with 

the MDS 3.0 (74 FR 40346–49) (that is, 

updated reporting procedures for shortstay patients, implementation of an 

optional, abbreviated start-of-therapy 

OMRA, a revised Assessment Reference 

Date (ARD) requirement for the end-oftherapy OMRA, and an abbreviated endof-therapy OMRA). 

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 an 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 an 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 an 

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 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 section 

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

Federal rates in this notice reflect an 

update to the rates that we published in 

the final rule for FY 2010 (74 FR 40288, 

August 11, 2009) and the associated 

correction notice (74 FR 48865, 

September 25, 2009), equal to the full 

change in the SNF market basket index, 

adjusted by the forecast error correction. 

A more detailed discussion of the SNF 

market basket index and related issues 

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

notice. 

2. FY 2011 Rate Updates Using the 

Skilled Nursing Facility Market Basket 

Index 

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

us to establish a SNF market basket 

index that reflects changes over time in 

the prices of an appropriate mix of 

goods and services included in covered 

SNF services. We use the SNF market 

basket index to update the Federal rates 

on an annual basis. In the SNF PPS final 

rule for FY 2008 (72 FR 43425 through 

43430, August 3, 2007), we revised and 

rebased the market basket, which 

included updating the base year from 

FY 1997 to FY 2004. The proposed FY 

2011 market basket increase is 2.3 

percent, which is based on IHS Global 

Insight, Inc. second quarter 2010 

forecast with historical data through 

first quarter 2010. 

In addition, as explained in the final 

rule for FY 2004 (66 FR 46058, August 

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

notice, the annual update of the 

payment rates includes, as appropriate, 

an adjustment to account for market 

basket forecast error. As described in the 

final rule for FY 2008, the threshold 

percentage that serves to trigger an 

adjustment to account for market basket 

forecast error is 0.5 percentage point 

effective for FY 2008 and subsequent 

years. This adjustment takes into 

account the forecast error from the most 

recently available FY for which there is 

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 2009 (the most 

recently available FY for which there is 

final data), the estimated increase in the 

market basket index was 3.4 percentage 

points, while the actual increase was 2.8 

percentage points, resulting in the 

actual increase being 0.6 percentage 

point lower than the estimated increase. 

Accordingly, as the difference between 

the estimated and actual amount of 

change exceeds the 0.5 percentage point 

threshold, the payment rates for FY 

2011 include a negative 0.6 percentage 

point 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 2009. 


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II. FY 2011 Annual Update of Payment 

Rates Under the Prospective Payment 

System for Skilled Nursing Facilities 

A. Federal Prospective Payment System 

This notice sets forth a schedule of 

Federal prospective payment rates 

applicable to Medicare Part A SNF 

services beginning October 1, 2010. The 

schedule incorporates per diem Federal 

rates that provide Part A payment for 

almost all costs of services furnished to 

a beneficiary in a SNF during a 

Medicare-covered stay. 

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 2011 rates reflect an update 

using the latest market basket index, 

and adjusting for the FY 2009 forecast 

error correction. The FY 2011 market 

basket increase factor is 2.3 percent 

which, when combined with a negative 

0.6 percentage point forecast error 

adjustment for FY 2009, results in a net 

FY 2011 update of 1.7 percent. A 

complete description of the multi-step 

process used to calculate Federal rates 

initially appeared in the May 12, 1998 

interim final rule (63 FR 26252), as 

further revised in subsequent rules. As 

explained above in section I.C of this 

notice, 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, 2009, and ending September 

30, 2010, and the midpoint of the 

Federal FY beginning October 1, 2010, 

and ending September 30, 2011, to 

which the payment rates apply. In 

accordance with section 

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

update the payment rates for FY 2011 by 

a factor equal to the full market basket 

index percentage increase. As explained 

in section I.G.2 of this notice, 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. 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 

2011, prior to adjustment for case-mix. 


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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. 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.F of this notice, 

the payment rates set forth herein reflect 

the use of the HR–III case-mix 

classification system from October 1, 

2010 through September 30, 2011. 

However, due to time constraints in 

preparing the HR–III grouper, the 66- 

group RUG–IV case-mix classification 

system that we discussed in detail in the 

proposed and final rules for FY 2010 

will be used beginning October 1, 2010. 

Once the HR–III Grouper is ready for 

implementation, payments will be 

retroactively adjusted to the October 1, 

2010 date. 

2. Parity Adjustment 

Consistent with the policy finalized in 

the FY 2010 SNF PPS final rule (74 FR 

40338–39), the updated RUG–IV rates 

set forth in Tables 4A and 5A reflect an 

upward adjustment to the nursing CMIs 

to achieve parity in overall payments 

between the existing RUG—53 model 

and the RUG–IV model. As explained in 

the FY 2010 SNF PPS final rule, we 

applied an upward adjustment of 59.4 

percent to the RUG–IV nursing CMIs to 

achieve parity between the RUG–53 and 

RUG–IV models, based on an analysis 

using FY 2008 claims data. However, 

after the FY 2010 SNF PPS final rule 

was published, final FY 2009 claims 

data became available. As we stated in 

the FY 2010 SNF PPS final rule (74 FR 

40339), in the absence of actual RUG– 

IV utilization data, we believe the most 

recent final claims data are the best 

source available to estimate RUG–IV 

utilization for FY 2011, as they are 

closest to the FY 2011 timeframe. Thus, 

we updated our analysis described in 

the FY 2010 SNF PPS proposed and 

final rules using final FY 2009 claims 

data to enhance the accuracy of our 

calculation of the adjustment necessary 

to achieve parity between the RUG–53 

model and the RUG–IV model. Using 

the methodology finalized in the FY 

2010 SNF PPS final rule with updated 

FY 2009 claims data, the adjustment to 

the RUG–IV nursing CMIs necessary to 

achieve parity is an upward adjustment 

of 61 percent. 

Consistent with this policy, and using 

the same methodology finalized in the 

FY 2006 SNF PPS final rule and the FY 

2010 SNF PPS final rule, we have 

calculated and applied a parity 

adjustment to the HR–III nursing CMIs 

so that overall payments under the 

HR–III case-mix classification system 

maintain parity with overall payments 

under the existing RUG–53 model. We 

used FY 2009 claims data, the most 

recent final claims data available, to 

compare the distribution of payment 

days by RUG category in the RUG–53 

model with anticipated payments by 

RUG category in the new HR–III model. 

Our projections of future utilization 

patterns under the HR–III system 

indicated that the HR–III system would 


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produce lower overall payments than 

under the RUG–53 model. Therefore, 

consistent with our policy in place 

when we transitioned to the RUG–53 

model in FY 2006, and our policy in FY 

2010 when we finalized the transition 

from the RUG–53 model to the RUG–IV 

model, we are providing for an 

adjustment to the nursing CMIs under 

the HR–III system that would achieve 

‘‘parity’’ between the RUG–53 and the 

HR–III models (that is, would not cause 

any change in overall payment levels). 

Based on our analysis of the FY 2009 

claims data, the adjustment to the 

nursing CMIs under the HR–III model 

necessary to achieve ‘‘parity’’ is an 

upward adjustment of 34.2 percent. Our 

calculation of the parity adjustment uses 

the most recent data available to 

estimate HR–III utilization for FY 2011. 

In the absence of actual HR–III 

utilization data, we believe the most 

recent data are the best source available, 

as they are closest to the FY 2011 

timeframe. As actual HR–III utilization 

becomes available, we intend to assess 

the effectiveness of the parity 

adjustment in maintaining budget 

neutrality and, if necessary, to 

recalibrate the adjustment in the future. 

We list the case-mix adjusted RUG–IV 

payment rates separately for urban and 

rural SNFs in Tables 4A and 5A, with 

the corresponding case-mix values 

which reflect the parity adjustment 

discussed above. Similarly, the HR–III 

case-mix adjusted payment rates 

(reflecting the parity adjustment) are 

listed on Tables 4B and 5B. 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). 

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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 2011, 

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 2011 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 is used to construct the 

wage index for rural Massachusetts. 

However, we do not apply this 

methodology to rural Puerto Rico 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 


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within the State to serve as a reasonable 

proxy for the wage index of that urban 

CBSA. The only urban area without 

wage index data available is CBSA 

25980, Hinesville-Fort Stewart, GA. 

To calculate the SNF PPS wage index 

adjustment, we apply the wage index 

adjustment to the labor-related portion 

of the Federal rate, which is 69.311 

percent of the total rate. This percentage 

reflects the labor-related relative 

importance for FY 2011, using the 

revised and rebased FY 2004-based 

market basket. The labor-related relative 

importance for FY 2010 was 69.840, as 

shown in Table 9. 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 

2011. 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 2011 than the base year weights 

from the SNF market basket. 

We calculate the labor-related relative 

importance for FY 2011 in four steps. 

First, we compute the FY 2011 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 

2011 price index level for that cost 

category by the total market basket price 

index level. Third, we determine the FY 

2011 relative importance for each cost 

category by multiplying this ratio by the 

base year (FY 2004) weight. Finally, we 

add the FY 2011 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 2011 labor-related relative 

importance. Tables 6A and 7A below 

show the Federal rates for RUG–IV by 

labor-related and non-labor-related 

components. Similarly, Tables 6B and 

7B show the Federal rates for HR–III. 

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BILLING CODE 4120–01–C 

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 2011 (Federal rates effective October 

1, 2010), 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 2010 to the weighted 

average wage adjustment factor for FY 

2011. For this calculation, we use the 

same 2009 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 0.9997. The wage 

index applicable to FY 2011 is set forth 

in Tables A and B, which appear in the 

Addendum of this notice. 

In the SNF PPS final rule for FY 2006 

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

adopted the changes discussed in the 

Office of Management and Budget 

(OMB) Bulletin No. 03–04 (June 6, 

2003), available online at http:// 

www.whitehouse.gov/omb/bulletins/ 

b03-04.html, which announced revised 

definitions for Metropolitan Statistical 

Areas (MSAs), and the creation of 

Micropolitan Statistical Areas and 

Combined Statistical Areas. In addition, 

OMB published subsequent bulletins 

regarding CBSA changes, including 

changes in CBSA numbers and titles. As 

indicated in the FY 2008 SNF PPS final 

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

and all subsequent SNF PPS rules and 

notices are considered to incorporate 

the CBSA changes published in the 

most recent OMB bulletin that applies 

to the hospital wage data used to 

determine the current SNF PPS wage 

index. The OMB bulletins may be 

accessed online at http:// 

www.whitehouse.gov/omb/bulletins/ 

index.html. 

In adopting the OMB Core-Based 

Statistical Area (CBSA) geographic 

designations, we provided for a 1-year 

transition with a blended wage index for 

all providers. For FY 2006, the wage 

index for each provider consisted of a 

blend of 50 percent of the FY 2006 

MSA-based wage index and 50 percent 

of the FY 2006 CBSA-based wage index 

(both using FY 2002 hospital data). We 

referred to the blended wage index as 

the FY 2006 SNF PPS transition wage 

index. As discussed in the SNF PPS 

final rule for FY 2006 (70 FR 45041), 

subsequent to the expiration of this 1- 

year transition on September 30, 2006, 

we used the full CBSA-based wage 

index values, as now presented in 

Tables A and B in the Addendum of this 

notice. 

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, the payment 

rates in this notice reflect an update 

equal to the full SNF market basket, 

estimated at 2.3 percentage points. In 

addition, as discussed in sections I.G.2 


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and III. of this notice, the annual update 

includes a negative 0.6 percentage point 

adjustment to account for market basket 

forecast error, for a net update of 1.7 

percent for FY 2011. 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 RUG–IV and HR–III 

Classification System to Existing Skilled 

Nursing Facility Level-of-Care Criteria 

As discussed in § 413.345, we include 

in each update of the Federal payment 

rates in the Federal Register the 

designation of those specific RUGs 

under the classification system that 

represent the required SNF level of care, 

as provided in § 409.30. As set forth in 

the FY 2010 SNF PPS final rule (74 FR 

40341, August 11, 2009), 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 notice, we 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. 

By contrast, under the HR–III system 

discussed in section I.F of this notice, 

we will revert to the 53-group 

classification structure of the previous, 

RUG–53 case-mix classification system. 

Under that structure, as discussed in 

section III.B.5 of the FY 2010 SNF PPS 

final rule (74 FR 40304, August 11, 

2009), the administrative level-of-care 

presumption applies to the upper 35 

groups (as encompassed by the 

Rehabilitation plus Extensive Services, 

Ultra High Rehabilitation, Very High 

Rehabilitation, High Rehabilitation, 

Medium Rehabilitation, Low 

Rehabilitation, Extensive Services, 

Special Care, and Clinically Complex 

categories), while it does not apply to 

the lower 18 groups. 

F. Example of Computation of Adjusted 

PPS Rates and SNF Payment 

Using the hypothetical SNF XYZ 

described in Tables 8A and 8B below, 

the following shows the adjustments 

made to the Federal per diem rate to 

compute the provider’s actual per diem 

PPS payment, for RUG–IV and HR–III, 

respectively. SNF XYZ’s 12-month cost 

reporting period begins October 1, 2010. 

SNF XYZ’s total PPS payment would 

equal $41,979 for RUG–IV and $36,517 

for HR–III, respectively. We derive the 

Labor and Non-labor columns from 

Table 6A for RUG–IV and Table 6B for 

HR–III. 


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III. 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 

notice incorporates the latest available 

projections of the SNF market basket 

index. Accordingly, we have developed 

a SNF market basket index that 

encompasses the most commonly used 

cost categories for SNF routine services, 

ancillary services, and capital-related 

expenses. 

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 9 below summarizes the updated 

labor-related share for FY 2011. 


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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 notice, 

we use the percentage increase in the 

SNF market basket index to compute the 

update factor for FY 2011. This is based 

on the IHS Global Insight, Inc. (formerly 

DRI–WEFA) second quarter 2010 

forecast (with historical data through 

the first quarter 2010) of the FY 2011 

percentage increase in the FY 2004- 

based SNF market basket index for 

routine, ancillary, and capital-related 

expenses, to compute the update factor 

in this notice. Finally, as discussed in 

section I.A. of this notice, we no longer 

compute update factors to adjust a 

facility-specific portion of the SNF PPS 

rates, because the initial three-phase 

transition period from facility-specific 

to full Federal rates that started with 

cost reporting periods beginning in July 

1998 has expired. 

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 46057–59), 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 notice, as the difference between 

the estimated and actual amounts of 

increase in the market basket index for 

FY 2009 (the most recently available FY 

for which there is final data) exceeds the 

0.5 percentage point threshold, the 

payment rates for FY 2011 include a 

forecast error adjustment. 

C. 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 Federal rates be 

at a level equal to the full market basket 

percentage change. Accordingly, to 

establish the update factor, we 

determined the total growth from the 

average market basket level for the 

period of October 1, 2009 through 

September 30, 2010 to the average 

market basket level for the period of 

October 1, 2010 through September 30, 

2011. Using this process, the market 

basket update factor for FY 2011 SNF 

PPS Federal rates is 2.3 percent, 

adjusted by the negative 0.6 percentage 

point forecast error adjustment, for a net 

update of 1.7 percent for FY 2011. We 

used this update factor to compute the 

SNF PPS rate shown in Tables 2 and 3. 

IV. 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 notice, subsequent 

legislation enacted a number of 

modifications in the consolidated 

billing provision. 

Specifically, section 103 of the BBRA 

amended this provision by further 

excluding a number of individual ‘‘highcost, low-probability’’ services, 

identified by the Healthcare Common 

Procedure Coding System (HCPCS) 

codes, within several broader categories 

(chemotherapy and its administration, 

radioisotope services, and customized 

prosthetic devices) that otherwise 

remained subject to the provision. We 

discuss this BBRA amendment in 

greater detail in the proposed and final 

rules for FY 2001 (65 FR 19231 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, 


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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 Program Transmittal #390 (Change 

Request #3575), issued December 10, 

2004, which is available online at 

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

downloads/r390cp.pdf. 

Further, while not substantively 

revising the consolidated billing 

requirement itself, a related provision 

was enacted in the Medicare 

Improvements for Patients and 

Providers Act of 2008 (MIPPA, Pub. L. 

110–275). Specifically, section 149 of 

MIPPA amended section 

1834(m)(4)(C)(ii) of the Act to 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, via 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 

face-to-face encounter at that location. For 

example, we pay distant site physicians or 

practitioners for furnishing services via 

telehealth only if such services are not 

included in a bundled payment to the facility 

that serves as the originating site (73 FR 

69880). 

This means that in those situations 

where a SNF serves as the telehealth 

originating site, the distant site 

professional services would be 

separately payable under Part B only to 

the extent that they are not already 

included in the SNF PPS bundled per 

diem payment and subject to 

consolidated billing. Thus, for a type of 

practitioner whose services are not 

otherwise excluded from consolidated 

billing when furnished during a face-toface encounter, the use of a telehealth 

distant site would not serve to unbundle 

those services. In fact, consolidated 

billing does exclude the professional 

services of physicians, along with those 

of most of the other types of telehealth 

practitioners that the law specifies at 

section 1842(b)(18)(C) of the Act, that is, 

physician assistants, nurse practitioners, 

clinical nurse specialists, certified 

registered nurse anesthetists, certified 

nurse midwives, and clinical 

psychologists (see section 

1888(e)(2)(A)(ii) of the Act and 42 CFR 

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

clinical social workers, registered 

dietitians and nutrition professionals 

remain subject to consolidated billing 

when furnished to a SNF’s Part A 

resident and, thus, cannot qualify for 

separate Part B payment as telehealth 

distant site services in this situation. 

Additional information on this 

provision appears in Program 

Transmittal #1635 (Change Request 

#6215), issued November 14, 2008, 

which is available online at http:// 

www.cms.gov/transmittals/downloads/ 

R1635CP.pdf. To date, the Congress has 

enacted no further legislation affecting 

the consolidated billing provision. 

V. 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 CAHs on a 

reasonable cost basis for SNF services 

furnished under a swing-bed agreement. 

However, effective with cost reporting 

periods beginning on or after July 1, 

2002, the swing-bed services of nonCAH rural hospitals are paid under the 

SNF PPS. As explained in the final rule 

for FY 2002 (66 FR 39562, July 31, 

2001), we selected this effective date 

consistent with the statutory provision 

to integrate swing-bed rural hospitals 

into the SNF PPS by the end of the SNF 

transition period, June 30, 2002. 

Accordingly, all non-CAH swing-bed 

rural hospitals have come under the 

SNF PPS as of June 30, 2003. Therefore, 

all rates and wage indexes outlined in 

earlier sections of this notice 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 will be 

required to complete an MDS 3.0 swingbed 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, 

www.cms.gov/snfpps. 

VI. Collection of Information 

Requirements 

The information collection 

requirements referenced in this notice 

with comment period are approved 

under OMB#’s 0938–0739 and 0938– 

0872. 

VII. 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. 

VIII. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impacts of this 

notice as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), the 

Regulatory Flexibility Act (September 

19, 1980, RFA, Pub. L. 96–354), section 

1102(b) of the Social Security Act, 

section 202 of the Unfunded Mandates 

Reform Act of 1995 (UMRA, Pub. L. 

104–4), Executive Order 13132 on 

Federalism (August 4, 1999), and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Order 12866 directs 

agencies to assess all costs and benefits 

of available regulatory alternatives and, 

if regulation is necessary, to select 

regulatory approaches that maximize 


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net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). This notice is an 

economically significant rule under 

Executive Order 12866, because we 

estimate the FY 2011 impact of the 

standard update will be to increase 

payments to SNFs by approximately 

$542 million. As discussed in the final 

rule for FY 2010 (74 FR 40358, August 

11, 2009), we estimate that there will be 

no aggregate impact on payments as a 

result of the implementation of the 

RUG–IV model, which is introduced on 

a budget neutral basis. Similarly, there 

would be no impact with HR–III, as we 

are introducing this on a budget neutral 

basis. Furthermore, we are also 

considering this a major rule as defined 

in the Congressional Review Act (5 

U.S.C. 804(2)). 

The update set forth in this notice 

applies to payments in FY 2011. 

Accordingly, the analysis that follows 

describes the impact of each system on 

an annual basis. 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 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 as that term is used in the RFA 

includes small businesses, nonprofit 

organizations, and small government 

jurisdictions. Most SNFs and most other 

providers and suppliers are small 

entities, either by their nonprofit status 

or by having revenues of $13.5 million 

or less in any 1 year. For purposes of the 

RFA, approximately 51 percent of SNFs 

are considered small businesses 

according to the Small Business 

Administration’s latest size standards, 

with total revenues of $13.5 million or 

less in any 1 year. (For details, see the 

Small Business Administration’s final 

rule that sets forth standards for health 

care industries, at 65 FR 69432, 

November 17, 2000). Individuals and 

States are not included in the definition 

of a small entity. In addition, 

approximately 29 percent of SNFs are 

nonprofit organizations. 

This notice updates the SNF PPS rates 

published in the final rule for FY 2010 

(74 FR 40288, August 11, 2009) and the 

associated correction notice (74 FR 

48865, September 25, 2009), thereby 

increasing net payments by an estimated 

$542 million. As indicated in Tables 

10A and 10B, the effect on facilities will 

be an aggregate positive impact of 1.7 

percent. We note that some individual 

providers may experience larger 

increases in payments than others due 

to the distributional impact of the FY 

2011 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 

revenue impact of 3 to 5 percent as a 

significance threshold under the RFA. 

While this notice is considered 

economically significant, its relative 

impact on SNFs overall is small because 

Medicare is a relatively minor payer 

source for nursing home care. We 

estimate that Medicare covers 

approximately 10 percent of service 

days, and approximately 20 percent of 

payments. However, the distribution of 

days and payments is highly variable, 

with the majority of SNFs having 

significantly lower Medicare utilization. 

As indicated in Tables 10A and 10B, the 

effect on facilities is projected to be an 

aggregate positive impact of 1.7 percent. 

As the overall impact is positive on the 

industry as a whole, and on small 

entities specifically, the Secretary has 

determined that this notice would not 

have a significant impact on a 

substantial number of small entities. 

Therefore, in view of the positive 

economic impact on small entities, it is 

not necessary to consider regulatory 

alternatives. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area and has 

fewer than 100 beds. The notice will 

affect small rural hospitals that (a) 

furnish SNF services under a swing-bed 

agreement or (b) have a hospital-based 

SNF. We anticipate that the impact on 

small rural hospitals will be similar to 

the impact on SNF providers overall. 

Therefore, the Secretary has determined 

that this notice will not have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. 

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 2010, that 

threshold is approximately $135 

million. This notice would not impose 

spending costs on State, local, or tribal 

governments in the aggregate, or by the 

private sector, of $135 million. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates 

regulations that impose substantial 

direct requirement costs on State and 

local governments, preempts State law, 

or otherwise has Federalism 

implications. This notice would have no 

substantial direct effect on State and 

local governments, preempt State law, 

or otherwise have Federalism 

implications. 

B. Anticipated Effects 

This notice sets forth updates of the 

SNF PPS rates contained in the final 

rule for FY 2010 (74 FR 40288, August 

11, 2009) and the associated correction 

notice (74 FR 48865, September 25, 

2009). Based on the above, we estimate 

the FY 2011 impact would be a net 

increase of $542 million on payments to 

SNFs. The impact analysis of this notice 

represents the projected effects of the 

changes in the SNF PPS from FY 2010 

to FY 2011. We assess the effects by 

estimating payments while holding all 

other payment-related variables 

constant. Although the best data 

available is utilized, there is no attempt 

to predict behavioral responses to these 

changes, or to make adjustments for 

future changes in such variables as days 

or case-mix. 

Certain events may occur to limit the 

scope or accuracy of our impact 

analysis, as this analysis is futureoriented and, thus, very susceptible to 

forecasting errors due to certain events 

that may occur within the assessed 

impact time period. Some examples of 

possible events may include newly 

legislated general Medicare program 

funding changes by the Congress, or 

changes specifically related to SNFs. In 

addition, changes to the Medicare 

program may continue to be made as a 

result of previously enacted legislation, 

or new statutory provisions. Although 

these changes may not be specific to the 

SNF PPS, the nature of the Medicare 

program is that the changes may interact 

and, thus, the complexity of the 

interaction of these changes could make 

it difficult to predict accurately the full 

scope of the impact upon SNFs. 

In accordance with section 

1888(e)(4)(E) of the Act, we update the 

payment rates for FY 2010 by a factor 

equal to the full market basket index 

percentage increase adjusted by the FY 

2009 forecast error adjustment to 


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determine the payment rates for FY 

2011. The special AIDS add-on 

established by section 511 of the MMA 

remains in effect until ‘‘ * * * such date 

as the Secretary certifies that there is an 

appropriate adjustment in the case mix 

*** ’’ We have not provided a separate 

impact analysis for the MMA provision. 

Our latest estimates indicate that there 

are less than 3,300 beneficiaries who 

qualify for the AIDS add-on payment. 

The impact to Medicare is included in 

the ‘‘total’’ column of Tables 10A and 

10B. In updating the rates for FY 2011, 

we made a number of standard annual 

revisions and clarifications mentioned 

elsewhere in this notice (for example, 

the update to the wage and market 

basket indexes used for adjusting the 

Federal rates). These revisions would 

increase payments to SNFs by 

approximately $542 million. 

The FY 2011 impacts appear in Tables 

10A and 10B. The breakdown of the 

various categories of data in the table 

follows. 

The first column shows the 

breakdown of all SNFs by urban or rural 

status, hospital-based or freestanding 

status, and census region. 

The first row of figures in the first 

column describes the estimated effects 

of the various changes on all facilities. 

The next six rows show the effects on 

facilities split by hospital-based, 

freestanding, urban, and rural 

categories. The urban and rural 

designations are based on the location of 

the facility under the CBSA designation. 

The next twenty-two rows show the 

effects on urban versus rural status by 

census region. 

The second column in the table shows 

the number of facilities in the impact 

database. 

The third column of the table shows 

the effect of the annual update to the 

wage index. This represents the effect of 

using the most recent wage data 

available. The total impact of this 

change is zero percent; however, there 

are distributional effects of the change. 

The fourth column shows the 

distributional effect due to the RUG–IV 

and HR–III classification systems. 

Though the aggregate impact shows no 

change in total payments, it is estimated 

that some facilities will experience 

payment increases while others 

experience payment decreases due to 

Medicare utilization under RUG–IV in 

Table 10A, and in HR–III in Table 10B. 

For example, in Table 10A under RUG– 

IV, providers in the urban Pacific region 

only show increases of 0.1 percent, 

while providers in the urban Mountain 

region show a decrease of 0.8 percent. 

Similarly, in Table 10B under HR–III, 

providers in the urban East South 

Central region only show increases of 

0.3 percent, while providers in the 

urban South Atlantic region show a 

decrease of 0.9 percent. 

The fifth column shows the effect of 

all of the changes on the FY 2011 

payments. The update of 1.7 percent, 

consisting of the market basket increase 

of 2.3 percentage points, adjusted by the 

negative 0.6 percentage point forecast 

error 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 1.7 percent, 

assuming facilities do not change their 

care delivery and billing practices in 

response. 

As can be seen from Tables 10A and 

10B, the combined effects of all of the 

changes vary by specific types of 

providers and by location. For example, 

nearly all facilities would experience 

payment increases in FY 2011 total 

payments under RUG–IV, ranging from 

5.2 percent in urban Outlying regions to 

0.5 percent in the rural Pacific region. 

Of those facilities showing decreases 

under RUG–IV, facilities in the rural 

South Atlantic area of the country show 

the smallest decrease of 0.1 percent and 

facilities in the rural East North Central 

area show the largest decrease of 0.4 

percent. 


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C. Alternatives Considered 

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. 

D. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 11 below, we 

have prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this update notice. This 

table provides our best estimate of the 

change in Medicare payments under the 

SNF PPS as a result of the policies in 

this update notice based on the data for 

15,307 SNFs in our database. All 

expenditures are classified as transfers 

to Medicare providers (that is, SNFs). 

E. Conclusion 

Overall estimated payments for SNFs 

in FY 2011 are projected to increase by 

$542 million, or 1.7 percent, compared 

with those in FY 2010. We estimate that 

under RUG–IV, SNFs in urban and rural 

areas would experience a 1.9 and 0.7 

percent increase, respectively, in 

estimated payments compared with FY 

2010. Providers in the urban New 

England region would show an increase 

in payments of 2.0 percent. We estimate 

that under HR–III, SNFs in urban and 

rural areas would experience a 1.8 and 

1.5 percent increase in estimated 

payments, respectively, compared with 

FY 2010. Providers in the rural Pacific 

region and the East South Central region 

would both show increases in payments 

of 1.5 percent. 

Finally, in accordance with the 

provisions of Executive Order 12866, 

this notice was reviewed by the Office 

of Management and Budget. 

IX. Waiver of Proposed Rulemaking 

We would ordinarily publish a notice 

of proposed rulemaking in the Federal 

Register to provide a period for public 

comment before the provisions of a 

notice such as this take effect. However, 


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we can waive this procedure if we find 

good cause that a notice and comment 

procedure is impracticable, 

unnecessary, or contrary to the public 

interest and incorporate a statement of 

the finding and its reasons in the notice 

issued. 

We believe it is unnecessary to 

undertake notice and comment 

rulemaking in this instance, as the 

statute requires annual updates to the 

SNF PPS rates, and the methodologies 

used to update the rates and the policies 

initiated in this notice have been 

previously subject to public comment 

and finalized. 

As discussed in section I.F, section 

10325 of the ACA requires that the 

Secretary postpone implementation of 

the RUG–IV case-mix classification 

system. Notwithstanding this 

postponement, section 10325 further 

specifies that the Secretary is required 

to implement certain components of 

RUG–IV effective October 1, 2010 (that 

is, the changes relating to concurrent 

therapy and the lookback period). 

Because the concurrent therapy and 

look back period changes were already 

subject to notice and public comment 

and finalized in the FY 2010 SNF PPS 

final rule (74 FR 40288, August 11, 

2009), we believe that these ACA 

requirements are largely selfimplementing and require no 

substantive exercise of discretion by the 

Secretary. In addition, section 10325 of 

the ACA specifies that the 

implementation of the MDS 3.0 shall 

proceed as planned (see 74 FR 40342 

through 40343), with an effective date of 

October 1, 2010. Similarly, we believe 

this provision is self-implementing and 

does not require the exercise of 

discretion. Thus, we find that notice 

and comment procedures are 

unnecessary. 

However, as discussed in section I.F, 

there are some operational issues that 

arise in connection with the 

implementation of section 10325 of the 

ACA in the context of the existing RUG– 

III case-mix classification system. Thus, 

we are providing a 60-day comment 

period for public comment. 

Authority: Catalog of Federal Domestic 

Assistance Program No. 93.773, Medicare— 

Hospital Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program. 

Dated: May 19, 2010. 

Marilyn Tavenner, 

Acting Administrator and Chief Operating 

Officer, Centers for Medicare & Medicaid 

Services. 

Approved: July 14, 2010. 

Kathleen Sebelius, 

Secretary. 

Note: The following Addendum will not 

appear in the Code of Federal Regulations. 

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[FR Doc. 2010–17628 Filed 7–16–10; 4:15 pm] 

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