DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Centers for Medicare & Medicaid Services 

42 CFR Part 413 

[CMS-1351-F] 

RIN 0938-AQ29 

Medicare Program; Prospective Payment System and 

Consolidated Billing for Skilled Nursing Facilities for FY 

2012 

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

HHS.

ACTION: Final rule. 

SUMMARY: This final rule updates the payment rates used 

under the prospective payment system for skilled nursing 

facilities (SNFs) for fiscal year 2012. In addition, it 

recalibrates the case-mix indexes so that they more 

accurately reflect parity in expenditures between RUG-IV 

and the previous case-mix classification system. It also 

includes a discussion of a Non-Therapy Ancillary component 

currently under development within CMS. In addition, this 

final rule discusses the impact of certain provisions of 

the Affordable Care Act, and reduces the SNF market basket 

percentage by the multi-factor productivity adjustment. 

This rule also implements certain changes relating to the 
CMS-1351-F 2 

payment of group therapy services and implements new 

resident assessment policies. Finally, this rule announces 

that the proposed provisions regarding the ownership 

disclosure requirements set forth in section 6101 of the 

Affordable Care Act will be finalized at a later date.

EFFECTIVE DATE: This final rule is effective on 

October 1, 2011. 

FOR FURTHER INFORMATION CONTACT: 

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

clinical issues). 

John Kane, (410) 786-0557 (for information related to the 

development of the payment rates and case-mix indexes). 

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

wage index). 

Bill Ullman, (410) 786-5667 (for information related to 

level of care determinations, consolidated billing, and 

general information). 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Current System for Payment of SNF Services Under 

Part A of the Medicare Program 
CMS-1351-F 3 

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. Summary of the Provisions of the FY 2012 Proposed Rule 

III. Analysis of and Responses to Public Comments on the FY 

2012 Proposed Rule 

A. General Comments on the FY 2012 Proposed Rule 

B. FY 2012 Annual Update of Payment Rates under the 

Prospective Payment System for Skilled Nursing 

Facilities 

1. Federal Prospective Payment System 
CMS-1351-F 4 

a. Costs and Services Covered by the Federal Rates 

b. Methodology Used for the Calculation of the 

Federal Rates 

2. Case-Mix Adjustments 

a. Background 

b. Development of Case-Mix Indexes 

3. Wage Index Adjustment to Federal Rates 

4. Updates to Federal Rates 

5. Relationship of RUG-IV Case-Mix Classification 

System to Existing Skilled Nursing Facility Level-ofCare Criteria 

6. Example of Computation of Adjusted PPS Rates and 

SNF Payment 

C. Resource Utilization Groups, Version 4 (RUG-IV) 

1. Prospective Payment for SNF Non-therapy Ancillary 

Costs 

D. Ongoing Initiatives under the Affordable Care Act 

1. Value-Based Purchasing (Section 3006) 

2. Payment Adjustment for Hospital-Acquired 

Conditions (Section 3008) 

3. Nursing Home Transparency and Improvement 

(Section 6104) 

E. Other Issues 
CMS-1351-F 5 

1. Required Disclosure of Ownership and Additional 

Disclosable Parties Information (Section 6101) 

2. Therapy Student Supervision 

3. Group Therapy and Therapy Documentation 

4. Proposed Changes to the MDS 3.0 Assessment 

Schedule and Other Medicare-Required Assessments 

5. Discussion of Possible Future Initiatives 

F. The Skilled Nursing Facility Market Basket Index 

1. Use of the Skilled Nursing Facility Market Basket 

Percentage 

2. Market Basket Forecast Error Adjustment 

3. Multifactor Productivity Adjustment 

a. Incorporating the Multifactor Productivity 

Adjustment into the Market Basket Update 

b. Federal Rate Update Factor 

G. Consolidated Billing 

H. Application of the SNF PPS to SNF Services 

Furnished by Swing-Bed Hospitals 

IV. Analysis of and Responses to Public Comments on the FY 

2011 Update Notice with Comment 

V. Provisions of the Final Rule 

VI. Collection of Information Requirements 

VII. Economic Analyses 
CMS-1351-F 6 

A. Regulatory Impact Analysis 

1. Introduction 

2. Statement of Need 

3. Overall Impacts 

4. Detailed Economic Analysis 

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) 

Acronyms 

 In addition, because of the many terms to which we 

refer by acronym in this final rule, we are listing these 

acronyms 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 
CMS-1351-F 7 

BBA Balanced Budget Act of 1997, Pub. L. 105-33 

BBRA Medicare, Medicaid, and SCHIP Balanced Budget 

Refinement Act of 1999, Pub. L. 106-113 

BIMS Brief Interview for Mental Status 

BIPA Medicare, Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 2000, 

Pub. L. 106-554 

CAH Critical Access Hospital 

CBSA Core-Based Statistical Area 

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 
CMS-1351-F 8 

HIPAA Health Insurance Portability and Accountability 

Act of 1996 

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, Pub. L. 110-275 

MMA Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003, Pub. L. 108-173 

MMSEA Medicare, Medicaid, and SCHIP Extension Act of 

2007, Pub. L. 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 
CMS-1351-F 9 

PPS Prospective Payment System 

QIES Quality Improvement and Evaluation System 

RAI Resident Assessment Instrument 

RAVEN Resident Assessment Validation Entry 

RFA Regulatory Flexibility Act, Pub. L. 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 Case-Mix Classification 

System 

SCHIP State Children's Health Insurance Program 

SCPA Significant Correction of a Prior Assessment 

SCSA Significant Change in Status Assessment 

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, Pub. L. 104-4 

I. Background 
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 In the May 6, 2011 Federal Register, we published a 

proposed rule (76 FR 26364) (hereafter referred to as the 

FY 2012 proposed rule), setting forth potential updates to 

the payment rates used under the prospective payment system 

(PPS) for skilled nursing facilities (SNFs), for fiscal 

year (FY) 2012. Annual updates to the PPS rates for (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 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) for those payment rate updates. We 

respond to public comments which relate to the FY 2011 

update notice, along with those relating to the FY 2012 

proposed rule, in this 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 
CMS-1351-F 11 

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 final rule, we are updating the 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 

final 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 final 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 
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required resident assessments using version 3.0 of the 

Minimum Data Set (MDS 3.0). (The information collection 

burden associated with the resident assessment is approved 

under OMB Control Number 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 facility-specific rate 

(reflecting the individual facility’s historical cost 

experience) with the Federal case-mix adjusted rate. The 

transition extended through the facility’s first three cost 

reporting periods under the PPS, up to and including the 

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

operating under the transition, as all facilities have been 

paid at the full Federal rate effective with cost reporting 

periods beginning in FY 2002. As we now base payments 

entirely on the adjusted Federal per diem rates, we no 

longer include adjustment factors related to 

facility-specific rates for the coming fiscal year. 

● Coverage. The establishment of the SNF PPS did not 

change Medicare's fundamental requirements for SNF 
CMS-1351-F 13 

coverage. However, because the case-mix classification is 

based, in part, on the beneficiary’s need for skilled 

nursing care and therapy, we have attempted, where 

possible, to coordinate claims review procedures with the 

existing resident assessment process and case-mix 

classification system. As further discussed in 

section III.B.5. of this final rule, this approach includes 

an administrative presumption that utilizes a beneficiary’s 

initial classification in one of the upper 52 RUGs of the 

66-group RUG-IV case-mix classification system to assist in 

making certain SNF level of care determinations. In 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 III.B.5. of this final 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 
CMS-1351-F 14 

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 speech-language 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 III.G of this final 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 
CMS-1351-F 15 

July 1, 2002. A more detailed discussion of this provision 

appears in section III.H. of this final 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 

for these services during the upcoming FY. 

(3) The factors to be applied in making the area wage 

adjustment for these services. 

Along with other revisions discussed later in this 

preamble, this final rule provides 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 
CMS-1351-F 16 

(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 final 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 III.G. of this 

final 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 
CMS-1351-F 17 

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 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 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 

www.cms.gov/SNFPPS/Downloads/RC_2006_PC-PPSSNF.pdf. 
CMS-1351-F 18 

● 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 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 speech-language 

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 final 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 final rule. (As 

noted previously, in accordance with section 101(c)(2) of 
CMS-1351-F 19 

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 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 
CMS-1351-F 20 

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 

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 add-on, 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 
CMS-1351-F 21 

“HC2” would have a case-mix adjusted payment of $401.48 

(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 

$915.37. 

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 

III.G. of this final rule.) 

F. The Affordable Care Act

 On March 23, 2010, the Patient Protection and 

Affordable Care Act, Pub. L. 111-148, was enacted. 

Following the enactment of Pub. L. 111-148, the Health Care 

and Education Reconciliation Act of 2010 (Pub. L. 111-152, 

enacted on March 30, 2010) amended certain provisions of 

Pub. L. 111-148 and certain sections of the Social Security 

Act and, in certain instances, included “freestanding” 

provisions (Pub. L. 111-148 and Pub. L. 111-152 are 

collectively referred to in this final rule as “the 

Affordable Care Act”). Section 10325 of the Affordable 

Care Act included a provision involving the SNF PPS. 
CMS-1351-F 22 

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 Notice with Comment Period (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 Notice with Comment Period (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 
CMS-1351-F 23 

reflecting the Affordable Care Act configuration, once we 

had developed a revised grouper that could accommodate it. 

In that Notice with Comment period, we also invited public 

comment specifically on our plans for implementing section 

10325 of the Affordable Care Act in this manner. 

However, section 202 of the Medicare and Medicaid 

Extenders Act of 2010 (Pub. L. 111-309, enacted December 

15, 2010) repealed section 10325 of the Affordable Care 

Act. Therefore, we leave in place 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 

eliminates the need for a subsequent transition to the HRIII system, this 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_NHQIMDS30Trai

ningMaterials.asp. 
CMS-1351-F 24 

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, 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), in the FY 2011 Notice with Comment 

Period (75 FR 42892-42893), and in the FY 2012 proposed 

rule (76 FR 26370 through 26377). 

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 III.D. of this final rule, we 

discuss certain ongoing Affordable Care Act initiatives 

that relate to SNFs, and in section III.E.1, we discuss 

proposed revisions involving section 6101 of the Affordable 

Care Act, regarding required disclosure of ownership and 

additional disclosable parties information. 
CMS-1351-F 25 

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 
CMS-1351-F 26 

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 
CMS-1351-F 27 

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 case-mix, 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 RUGIV 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 
CMS-1351-F 28 

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 final rule reflect an update to the rates 

that we published in the notice with comment period 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 III.F. of 

this final 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, 
CMS-1351-F 29 

August 3, 2007), we revised and rebased the market basket, 

which included updating the base year from FY 1997 to FY 

2004. The FY 2012 market basket increase is 2.7 percent, 

which is based on IHS Global Insight, Inc. (IGI) second 

quarter 2011 forecast with historical data through first 

quarter 2011. 

In addition, as explained in the final rule for 

FY 2004 (66 FR 46058, August 4, 2003) and in section 

III.F.2. of this final 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 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 
CMS-1351-F 30 

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 second quarter 2011 IHS Global Insight forecast, with historical data through the first 

quarter 2011 (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 multi-factor productivity (as 

projected by the Secretary for the 10-year period ending 

with the applicable fiscal year, year, cost-reporting 
CMS-1351-F 31 

period or other annual period)” (the MFP adjustment). As 

discussed in greater detail in section III.F.3 of this 

final rule, the MFP adjustment for FY 2012 is 1.0 percent. 

II. Summary of the Provisions of the FY 2012 Proposed Rule 

 In the FY 2012 proposed rule (76 FR 26364), we 

presented 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, 

we examined recent changes in provider behavior relating to 

the implementation of the Resource Utilization Groups, 

version 4 (RUG-IV) case-mix classification system and 

considered a possible recalibration of the case-mix indexes 

so that they more accurately reflect parity in expenditures 

between RUG-IV and the previous case-mix classification 

system. We also included a discussion of a Non-Therapy 

Ancillary component and outlier research currently under 

development within CMS. In addition, the proposed rule 

discussed the impact of certain provisions of the 

Affordable Care Act. We proposed 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. We also proposed to require 

Medicare SNFs and Medicaid nursing facilities to disclose 
CMS-1351-F 32 

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, we proposed 

certain changes relating to the payment of group therapy 

services and proposed new resident assessment policies. 

III. Analysis of and Responses to Public Comments on the FY 

2012 Proposed Rule 

 In response to the publication of the FY 2012 proposed 

rule, we received over 170 timely public comments from 

individual providers, corporations, government agencies, 

private citizens, trade associations, and major 

organizations. The following are brief summaries of each 

proposed provision, a summary of the public comments that 

we received related to that proposal, and our responses to 

the comments. 

A. General Comments on the FY 2012 Proposed Rule

In addition to the comments we received on the 

proposed rule’s discussion of specific aspects of the SNF 

PPS (which we address later in this final rule), commenters 

also submitted the following, more general observations on 

the payment system. We received many comments expressing 
CMS-1351-F 33 

concern about the SNF PPS system as a whole and the MDS 3.0 

and RUG-IV system. 

Comment: We received a number of comments raising 

concerns about the complexity of the MDS 3.0 that included 

several new assessment types, the need to clarify the RAI 

manual, and the time required to become trained on the new 

MDS 3.0 requirements. 

Response: We appreciate these concerns and we 

recognize that the transition to the MDS 3.0 was complex 

and labor-intensive. We provided extensive training and 

opportunities to assist with questions about the MDS 3.0 

and RUG-IV models both prior to and after its October 1, 

2010 implementation on audio conferences, at national 

training conferences, in the form of the RAI Manual and 

subsequent clarification updates, and postings to the MDS 

3.0 and SNF PPS web sites. We have also provided support 

in response to oral and written inquiries, and issued 

clarification during Open Door Forums, RAI Manual updates, 

and through online and telephone technical assistance. We 

are committed to continuing training on both the MDS 3.0 

and RUG-IV systems. In fact, we are developing training 

programs to assist providers to adapt to any new policy 

changes introduced on and after October 1, 2011. 
CMS-1351-F 34 

Additionally, as we receive provider input through these 

efforts, we will continue to update and clarify the RAI 

manual to ensure that it continues to provide accurate 

information and guidance on CMS policies. 

Comment: One commenter recommended that we address 

the need for stricter requirements for training and 

certification of food services directors and staff. The 

commenter states that stricter guidelines will improve 

patient health and safety. 

Response: We appreciate this comment, but note that 

the specific issues the commenter raised about the 

requirements for food services staff relate to the 

certification standards for long-term care facilities and, 

therefore, are beyond the scope of this final rule. We 

have, however, shared these comments with CMS survey and 

certification staff so that they can consider these 

suggestions as part of their ongoing review and refinement 

of our policies. 

B. FY 2012 Annual Update of Payment Rates under the 

Prospective Payment System for Skilled Nursing Facilities

1. Federal Prospective Payment System 

This final rule sets forth a schedule of Federal 

prospective payment rates applicable to Medicare Part A SNF 
CMS-1351-F 35 

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. 

a. 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 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)). 

b. Methodology Used for the Calculation of the Federal 

Rates 
CMS-1351-F 36 

The FY 2012 rates reflect an update using the full 

amount of 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 

final rule, is reduced by a 1.0 percent MFP adjustment, 

resulting in an MFP-adjusted market basket percentage 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. We note that 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 (and discussed previously in section 

I.E of this final rule), remains in effect. 

We used the SNF update factor 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 

(FY 2011), and the midpoint of the Federal FY beginning 

October 1, 2011, and ending September 30, 2012 (FY 2012), 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 2012 by a factor equal to the full market 
CMS-1351-F 37 

basket index percentage increase. As further explained in 

sections I.G.2 and III.F.2 of this final 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 III.F.3 of this final 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. 

TABLE 2: FY 2012 Unadjusted Federal Rate Per Diem

Urban

Rate Component Nursing - Case-Mix

Therapy - CaseMix Therapy - NonCase-mix Non-Case-Mix 

Per Diem Amount $160.62 $120.99 $15.94 $81.97 

TABLE 3: FY 2012 Unadjusted Federal Rate Per Diem

Rural

Rate Component Nursing - Case-Mix

Therapy - CaseMix Therapy - NonCase-mix Non-Case-Mix 

Per Diem Amount $153.46 $139.51 $17.02 $83.49 

2. Case-Mix Adjustments 
CMS-1351-F 38 

a. 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, payment levels under the PPS vary based on the 

patient’s anticipated care needs and resource utilization. 

One of the elements affecting the SNF PPS per diem rates is 

the case-mix adjustment derived from a classification 
CMS-1351-F 39 

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 case-mix group to each patient record that is then 

used to calculate a per diem payment under the SNF PPS. 

Because the MDS is used as the basis for 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 
CMS-1351-F 40 

22208, May 12, 2009), we subsequently conducted a multiyear 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 case-mix classification system reflected 

the data collected in 2006-2007 during the STRIVE project, 

and was finalized in the FY 2010 SNF PPS final rule (74 FR 

40288, 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 final 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. 

b. Development of Case-Mix Indexes 

In the FY 2012 proposed rule (76 FR 26370 through 

36377), we discussed the implementation of the RUG-IV 

classification system, effective October 1, 2010. We also 

discussed the accompanying parity adjustment that was 
CMS-1351-F 41 

intended to ensure that estimated total payments under the 

RUG-IV model would be equal to those payments that would 

have been made under the 53-group RUG-III model that it 

replaced. We then explained that actual utilization 

patterns under the refined case-mix system differed 

significantly from the initial projections, and as a 

consequence, rather than achieving parity as intended, 

this adjustment to the new RUG-IV system triggered a 

significant increase in overall payment levels under the 

RUG-IV model, representing substantial overpayments to 

SNFs. 

Accordingly, the FY 2012 proposed rule included a 

discussion of two options for updating the rates for FY 

2012. The first option was to recalibrate the parity 

adjustment (using the methodology discussed in the FY 2012 

proposed rule) to ensure that the adjustment actually 

achieves its intended purpose, to make the transition from 

RUG-53 to RUG-IV in a budget neutral manner, as discussed 

further below. Under the second option, CMS reserved the 

option not to implement a recalibration of the parity 

adjustment in FY 2012 if, as additional FY 2011 claims data 

became available, they indicated that utilization patterns 

are more consistent with our projections and expenditures 
CMS-1351-F 42 

are more in parity with those under the RUG-53 model. 

Under this second option, we stated we would simply update 

the payment rates for FY 2012 by the FY 2012 market basket 

adjustment of 2.7 percent, reduced by the MFP adjustment of 

1.0 percent, for a net market basket increase factor of 1.7 

percent. 

As discussed in the FY 2012 proposed rule, the 

recalibration of the FY 2011 parity adjustment, which 

formed the basis of the first option discussed above, was 

initially determined through an analysis of utilization 

data from the first quarter of FY 2011. The methodology 

for determining the parity adjustment necessary given 

utilization patterns observed in the first quarter of FY 

2011 is described in the FY 2012 proposed rule (76 FR 26370 

through 26377) and follows the same basic methodology 

described in the FY 2006 SNF PPS proposed rule (70 FR 29077 

through 29079), the FY 2009 SNF PPS proposed rule (73 FR 

25923) and the FY 2009 SNF PPS final rule (73 FR 46421-23). 

In the FY 2012 proposed rule, we stated that this 

adjustment was based on a set of data derived from first 

quarter FY 2011 claims and MDS assessments. We further 

stated that we would continue to monitor claims data and 

utilization patterns in FY 2011 to confirm our preliminary 
CMS-1351-F 43 

assessment of the recalibration that would be necessary to 

achieve parity between the RUG-53 and RUG-IV models, and 

would update the parity adjustment accordingly. For this 

final rule, as further discussed below, we have been able 

to update the recalibration of the FY 2011 parity 

adjustment with a data set which includes claims and MDS 

3.0 assessments for the first 8 months of FY 2011. 

Using the same methodology for determining the 

recalibration discussed in the FY 2012 proposed rule and 

approximately 2.2 million claims matched to the MDS 3.0 

assessment, representing 8 months (or nearly 3 full 

quarters) of FY 2011 (from October 1, 2011 through May 31, 

2011), we determined that the utilization patterns 

identified in our analysis of the first quarter FY 2011 

data continued throughout the entire 8-month period (these 

data are available at 

http://www.cms.gov/SNFPPS/02_Spotlight.asp). We then 

repeated our recalibration calculation using the full 8-

month data set, which is available at 

http://www.cms.gov/SNFPPS/02_Spotlight.asp. We found that, 

while retaining the original 61 percent adjustment to the 

CMIs assigned to each of the RUG-IV non-therapy groups, the 

necessary adjustment to the nursing CMIs of the RUG-IV 
CMS-1351-F 44 

therapy groups would be 19.84 percent, a difference of only 

.03 percent from the 19.81 percent adjustment discussed in 

the proposed rule. We believe that this updated analysis 

confirms our preliminary analysis, and demonstrates 

effectively that the utilization patterns observed in the 

first quarter of FY 2011 were not temporary aberrations or 

the result of a learning curve with respect to the RUG-IV 

and MDS 3.0 transition, but instead represent a new pattern 

of provider behavior that differs significantly from 

expected utilization patterns that were the basis for the 

original parity adjustment, and which resulted in 

significant increases in overall payment levels under RUGIV. 

In addition, the increased expenditure levels due to 

the implementation of the RUG-IV system have been validated 

by the Office of the Inspector General (OIG) in a separate 

review of SNF payments during the first 6 months of FY 

2011. According to a preliminary analysis by OIG, the 

utilization trends related to the shifts in the modes of 

therapy and the classification of high percentages of SNF 

beneficiaries into the highest-paying RUG-IV groups were 

even more pronounced in the FY 2011 second quarter (January 

through April 2011) than in the first quarter (October 
CMS-1351-F 45 

through December 2010) that was used for the analyses 

included in the FY 2012 proposed rule (This OIG report is 

available at http://oig.hhs.gov/oei/reports/oei-02-09-

00204.asp.) 

As we stated in the proposed rule (76 FR 26371), 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 nursing CMIs, it is 

more appropriate to maintain the 61 percent adjustment to 

the nursing CMIS for the RUG-IV non-therapy groups, and 

reduce the 61 percent parity adjustment as it applied to 

the nursing CMIs for the RUG-IV therapy groups. 

In the proposed rule, we invited comments on the two 

options discussed above. A discussion of these comments, 

including our responses, appears below. 

Comment: We received a variety of comments regarding 

the two options presented in the proposed rule for updating 

the payment rates for FY 2012. Most commenters were 

opposed to the option to recalibrate the FY 2011 parity 

adjustment. Many of these commenters expressed their 

belief that the recalibration considered in the proposed 

rule will have a significantly negative impact on 
CMS-1351-F 46 

facilities and beneficiaries. These commenters believed 

that the recalibration discussed in the proposed rule 

should be either withdrawn or significantly reduced. 

 Response: In light of the previous recalibration of 

the SNF PPS case-mix indexes in FY 2010, which addressed 

excess payments associated with the RUG-53 implementation 

in FY 2006 but only after those excess payments had 

persisted for several years, we believe it is imperative 

that we act in a well-considered but expedient manner once 

excess payments such as those in FY 2011 are identified. 

Allowing these significant anomalies to persist and failing 

to take timely action to correct the situation creates 

instability under the RUG-IV system, in the SNF PPS, and 

the Medicare program generally, which ultimately affects 

Medicare beneficiary access and quality of care. As we 

explained in the FY 2012 proposed rule (76 FR 26370-26373), 

in recalibrating the CMIs under the RUG-IV model, we expect 

to restore payments to their appropriate level by 

correcting an inadvertent increase in overall payments. 

Because the recalibration is removing an unintended excess 

payment rather than decreasing an otherwise appropriate 

payment amount, we do not believe that the recalibration 
CMS-1351-F 47 

should negatively affect facilities, beneficiaries, or 

quality of care, or create an undue hardship on providers. 

Further, in its March 2011 report to the Congress 

(available at 

http://www.medpac.gov/documents/Mar11_EntireReport.pdf), 

MedPAC reports that average Medicare margins have increased 

for freestanding SNFs since 2005. In 2009, the aggregate 

Medicare margin for freestanding SNFs, which represent more 

than 90 percent of all SNF facilities, was 18.1 percent, up 

from 16.6 percent in 2008 and representing the ninth 

consecutive year where the aggregate Medicare margin for 

freestanding SNFs was greater than 10 percent. For these 

reasons, we believe that the parity adjustment should not 

be withdrawn or reduced. 

Comment: Several commenters asserted that the higher 

payments observed in FY 2011 were, at least partially, the 

result of real acuity changes which should be accounted for 

in the calculation of the parity adjustment. These 

commenters stated that, as an alternative approach, CMS 

should consider comparing data from FY 2010 and FY 2011 

when calculating the recalibration factor, to account for 

changes in patient acuity. 
CMS-1351-F 48 

Response: We disagree with this comment on the basis 

that, as described in the FY 2012 proposed rule (76 FR 

26371), the same FY 2011 claims and MDS information were 

used to determine both RUG-III payments and RUG-IV 

payments. Using the same population for the same timeframe 

serves to control for acuity level changes, as well as 

other factors, such as patient volume, across the RUG-III 

and RUG-IV systems and provide an appropriate comparison 

for our financial analysis. 

 We would also note, as discussed further below, that 

we did a comparison of data from all of FY 2010 and from 

the first eight months of FY 2011 that did not control for 

changes in patient acuity, and found that it did not result 

in a significant difference in the recalibration factor 

necessary to equalize RUG-IV payments and RUG-III payments. 

In testing this alternative methodology, we did control for 

volume by calculating the percentage of FY 2010 days of 

service for each of the RUG-III groups, broken down by 

urban and rural days, and then multiplied each percentage 

by the total number of urban or rural FY 2011 days of 

service, as appropriate, to determine the number of days of 

service for each RUG-III group, relative to the total 

volume for the first eight months of FY 2011. Therefore, 
CMS-1351-F 49 

even though the recalibration methodology discussed in the 

proposed rule (76 FR 26370-73) controls for changes in 

patient acuity, we note that the alternative approach above 

which was suggested by commenters would not change the 

recalibration factor. 

 Comment: Some commenters asserted that CMS failed to 

provide sufficient information for a third party to 

reproduce CMS's conclusions with regard to the parity 

adjustment. A few commenters stated that the lack of 

access to data, or the timeframe for when certain data were 

released, limited the ability of stakeholders to develop 

substantive comments on the recalibration considered in the 

proposed rule. Additionally, a few commenters referred to 

specific requests that were made by a few of the major 

nursing home trade associations for access to claims and 

MDS data for the fourth quarter of FY 2010 and the first 

quarter of FY 2011. They noted that we had declined to 

fulfill those data requests, due to certain data disclosure 

requirements in the privacy regulations that were 

promulgated under the Health Insurance Portability and 

Accountability Act of 1996 (Pub. L. 104-191, enacted on 

August 21, 1996) (HIPAA). These commenters asserted that 
CMS-1351-F 50 

CMS should reconsider its data security policies in light 

of the use of more “real–time” data. 

Response: We do not agree with assertions that CMS 

provided inadequate data to evaluate and comment upon the 

proposals described in our proposed rule. The methodology 

used to establish the case-mix adjustments is the same as 

that described in detail in the FY 2006 SNF PPS proposed 

rule (70 FR 29077 through 29079), the FY 2009 SNF PPS 

proposed rule (73 FR 25923), and the FY 2009 SNF PPS final 

rule (73 FR 46421 through 46422), as updated in the FY 2012 

proposed rule (76 FR 26370 through 26377). In addition, 

the data used to calculate the adjustments are publicly 

available on the CMS web site, as explained below. We 

tested the ability to reproduce the parity adjustment 

calculation using only information available on the CMS web 

site as of May 3, 2011, and in the proposed rule and were 

able to do so. We used the first quarter FY 2011 days of 

service for the RUG-IV system and a distribution of what 

those days would have looked like under RUG-III (available 

in the Downloads section of our Web site at 

http://www.cms.gov/SNFPPS/02_Spotlight.asp). We multiplied 

the RUG-IV and RUG-III days of service by the FY 2012 

unadjusted Federal per diem payment rate components, 
CMS-1351-F 51 

multiplied by the unadjusted case-mix indexes (the 

unadjusted RUG-IV case-mix indexes can be calculated by 

dividing the adjusted case-mix indexes, provided in the 

proposed rule in Tables 5A or 6A, by the adjustment factor 

of 1.1981) to establish expenditures under the RUG-III and 

RUG-IV systems. The parity adjustment was determined as 

the percentage increase necessary for the nursing CMIs of 

the RUG-IV therapy groups to generate estimated expenditure 

levels under the RUG-IV system that were equal to estimated 

expenditure levels under the RUG-III system. 

While this data alone would have been sufficient for a 

third party to reproduce our results, in an effort to 

respond to data requests from stakeholders and give the 

public as much information as possible to evaluate the two 

parity adjustment options considered in the proposed rule, 

we also made available on our website, as of June 16, 2011, 

a distribution of paid days by provider number and by month 

for the fourth quarter of FY 2010 under RUG-III and the 

first quarter of FY 2011 under RUG-III and RUG-IV. This 

data could be used to allow stakeholders to analyze acuity 

trends and further evaluate the adequacy of the data used 

to determine the appropriate recalibration. Finally, we 

posted on our web site a detailed memo which outlined how 
CMS-1351-F 52 

stakeholders could use MDS 3.0 data to determine the 

appropriate RUG-III group for a given RUG-IV patient, even 

though this information was also already available to 

facilities on their final validation reports. Thus, we 

provided stakeholders and their trade associations with 

extensive data described earlier, so that they had multiple 

avenues for analyzing the underlying data and verifying 

CMS’s results. We believe the additional information 

provided was beyond the information necessary to replicate 

our calculation. In this way, we provided even greater 

transparency of our methods and data analysis while 

fulfilling our data security responsibilities under HIPAA. 

Furthermore, with regard to the ability of 

stakeholders to provide substantive comments, we do not 

agree with the commenter's statement that the necessary 

data were released too late to allow for analyses that 

would generate substantive comment on the proposed rule. 

As illustrated above, the data provided on the CMS website 

and in the proposed rule were more than sufficient for 

stakeholders to reproduce, evaluate, and critique the 

recalibration methodology and results. This is evident in 

the notable breadth and detail of the commenters’ critiques 

of our supporting data, methodology, and results, which we 
CMS-1351-F 53 

view as at least in part a reflection of the extensive 

amount of data that we have made available to the public 

throughout this process, and of the ability of commenters 

to provide both timely and substantive comments on the 

proposed rule. Even after the issuance of the FY 2012 

proposed rule, we continued to respond to requests for 

technical assistance and posted additional technical 

materials on our web site so that all stakeholders could 

have access to the responses to the technical questions 

that we received. 

Certain data, such as specific MDS and claims data 

requested by certain trade associations, could not be made 

available upon the request of stakeholders. CMS’ data 

security policy, which derives from our responsibilities 

under HIPAA, does not allow CMS to release patient 

identifiable data when such data are not necessary to 

accomplish the purpose of the disclosure (here, analyzing 

our proposals). As noted above, these data were not 

necessary to provide substantive and timely comments on the 

proposals contained in the proposed rule, as evidenced by 

the ability of internal staff to replicate and verify the 

results of our calculation using data available on our 

website well before the end of the comment period. 
CMS-1351-F 54 

Accordingly, as the non-patient identifiable information 

was itself adequate for purposes of assessing our 

proposals, we were not able to release the requested 

patient identifiable information. 

That said, CMS does make certain information available 

from the claims and MDS files. CMS has an established 

timeline for the release of such information, which 

normally allows for up to a year after the data have been 

finalized in order to screen and cleanse the data properly 

of anything that would permit patient identification. Any 

attempt to speed up this process would result in the 

assumption of unacceptable risks that patient-identifiable 

information would be released by mistake, which would 

threaten the basic privacy protections that beneficiaries 

must be afforded. Finally, as discussed above, some 

commenters suggested that, given our increased use of more 

real-time data (that is, data from the current fiscal year 

as opposed to claims data from a prior year) for our 

recalibration analyses, we should consider updates to our 

data security policies to ensure that stakeholders have 

adequate access to data and that the rulemaking process is 

as transparent as possible. We agree that the process 

should remain transparent, but we also note that the data 
CMS-1351-F 55 

security policies that cover the patient-level claims and 

MDS data used as the basis of the parity adjustment 

recalibration implemented in this final rule are required 

by the HIPAA privacy regulations and exist first and 

foremost to protect Medicare beneficiaries. While 

commenters requested certain claims and MDS data in order 

to evaluate our recalibration results, assumptions, and 

methodology, as discussed above, the data requested were 

not necessary to provide substantive and timely comments on 

the proposals contained in the proposed rule so we were 

unable to provide such data under the HIPAA privacy rule’s 

“minimum necessary” provisions. As we stated above, we 

believe the data we provided on the CMS website and in the 

proposed rule were more than sufficient for stakeholders to 

reproduce, evaluate, and critique the recalibration 

methodology and results. We will continue to make data 

available to stakeholders within the limits of the law. 

Finally, we have updated the data on our web site to 

reflect the use of the eight months of data used to 

finalize this rule. 

Comment: Many commenters raised general concerns over 

the data used to determine the appropriate recalibration of 

the FY 2011 parity adjustment. Many of these commenters 
CMS-1351-F 56 

believed that one fiscal quarter of data was insufficient 

to justify a recalibration of the magnitude discussed in 

the proposed rule and that CMS should wait until it has a 

greater set of data from which to draw conclusions about 

utilization patterns in FY 2011. Several commenters were 

concerned that, given the increased burden associated with 

transitioning both to RUG-IV and MDS 3.0 simultaneously, it 

is possible that the first quarter of FY 2011 may represent 

facilities working to transition properly rather than 

accurately representing evolving provider behavior. One 

commenter specifically stated that using one quarter of 

data would not adequately control for the possibility of 

“seasonality” in SNF PPS claims submission, payments, and 

acuity levels, and provided a detailed analysis of previous 

fiscal quarters to demonstrate the possibility of a 

difference between the first fiscal quarter of a given year 

and the remainder of that year. One commenter also raised 

concerns related to the provider-level data that CMS made 

available to stakeholders upon their request, specifically 

that the data provided for a certain set of providers did 

not match the data that this commenter acquired 

independently for this provider. A few commenters 

highlighted potential calculation errors in the analysis 
CMS-1351-F 57 

and data presented in the proposed rule, with one commenter 

specifically highlighting an error in the calculation of 

the nursing CMI for a certain non-therapy RUG-IV group. 

 Response: We acknowledge the commenters’ concerns 

about relying solely on one fiscal quarter of data to 

finalize a recalibration of the magnitude discussed here. 

However, as noted in the proposed rule, the first quarter 

of data served only as the basis for our preliminary 

analysis of FY 2011 utilization. In the proposed rule, we 

committed to monitoring FY 2011 utilization data 

continually to confirm the results of our preliminary 

analysis regarding the need to recalibrate the parity 

adjustment. The stated purpose of the discussion of this 

first quarter FY 2011 data in the proposed rule was to 

“provide the public with information on the potential scope 

and impact of the recalibration” we considered in the 

proposed rule (76 FR 26371). Given that we have updated 

the data file with claims and MDS assessments ranging over 

8 months of FY 2011 and for the reasons outlined below, we 

believe that the utilization patterns observed as part of 

our preliminary analysis do, in fact, represent an accurate 

reflection of utilization for the whole of FY 2011. 
CMS-1351-F 58 

 Additionally, as stated above, we have now updated the 

recalibration based on 8 months of FY 2011 data, and 

utilization patterns are virtually identical to FY 2011 

first quarter findings (Data available at 

http://www.cms.gov/SNFPPS/02_Spotlight.asp). Therefore, we 

believe that observed utilization patterns are more likely 

the result of evolving provider behavior rather than errors 

and adjustments made during the early transition period to 

RUG-IV and MDS 3.0. Moreover, since facilities were given 

more than one year to prepare for the implementation of 

both RUG-IV and MDS 3.0, we believe that facilities were 

given ample time for education and preparation for the 

transition and that any confusion or mistakes due to 

transition issues would have been addressed prior to, or in 

the very early stages of, the RUG-IV and MDS transition. 

 With regard to commenters’ claims related to 

“seasonality” of the first quarter FY 2011 data, our own 

analysis of FY 2010 claims data demonstrated that the first 

quarter of a given fiscal year does appear to provide a 

reasonable approximation of patient acuity levels and 

payments for the whole of that fiscal year. We reviewed 

the FY 2010 claims by RUG classification and by month for 

each month of FY 2010. Ultimately, we found that the 
CMS-1351-F 59 

distribution of RUG groups remained stable over the year 

and no particular quarter, or even month, stood out as 

demonstrating a different RUG distribution from the rest of 

that year (these data are available at 

http://www.cms.gov/SNFPPS/02_Spotlight.asp). In fact, the 

only real difference in SNF payment levels occurs in the 

transition between one fiscal year and another, where this 

difference is attributable to the annual payment update and 

market basket adjustment rather than to any “seasonality” 

existing between the fourth quarter of a given fiscal year 

and the first quarter of the following fiscal year. 

 Finally, with regard to the comment related to the 

provider-level data, we were unable to verify this 

commenter’s claim as we were not provided with any details 

as to the location or type of provider in question. After 

a review of the data used to support the recalibration, we 

found the underlying data to be accurate, and sufficient to 

perform the proper calculation of the recalibration. We 

did identify one RUG category (LB2) where we incorrectly 

stated the nursing CMI as 1.46 in the proposed rule, when 

it should be 1.45. This correction, while it would have a 

very small effect on the per diem payment for that RUG 

group, did not have any impact on our calculation of the 
CMS-1351-F 60 

parity adjustment. This error has since been corrected and 

tables 5 and 6 in this final rule reflect the correct 

nursing CMI for LB2. 

Comment: Many commenters expressed concern over the 

possibility of a reduction to Medicare payment rates in 

light of other reductions in areas such as Medicaid. Some 

commenters stated that Medicare should maintain SNF payment 

levels to cross-subsidize what they characterized as 

inadequate payment rates for nursing facilities under the 

Medicaid program. Other commenters urged CMS to reconsider 

the recalibration in light of the potential impact on the 

weak national economy. A few commenters discussed the 

importance of the health care industry, specifically SNFs, 

as representing a significant sector of job growth during 

the recent economic recession. Finally, a few commenters 

asserted that the recalibration would drive providers into 

bankruptcy, as they assert happened when the SNF PPS was 

initially implemented in the late 1990s. 

Response: We wish to clarify that it is not the 

appropriate role of the Medicare SNF benefit to crosssubsidize nursing home payments made under the Medicaid 

program. As noted by several commenters, the primary 

purpose of the Medicare SNF benefit is to provide accurate 
CMS-1351-F 61 

payment for Medicare Part A services provided in a SNF 

setting. Further, we note that MedPAC has also indicated 

that it is inappropriate for the Medicare program’s SNF 

payments to be used to account for Medicaid shortfalls. 

Specifically, on page 159 of its March 2011 Report to 

Congress on Medicare Payment Policy (which is available 

online at 

http://www.medpac.gov/documents/Mar11_EntireReport.pdf), 

MedPAC stated: 

. . . the Commission believes such crosssubsidization is not advisable for several 

reasons. First, on average, Medicare payments 

account for less than a quarter of revenues to 

freestanding skilled nursing facilities. A 

cross-subsidization policy would use a minority 

share of Medicare payments to underwrite a 

majority share of states’ Medicaid payments. 

Second, raising Medicare rates to supplement low 

Medicaid payments would result in poorly targeted 

subsidies. Facilities with high shares of 

Medicare payments — presumably the facilities 

that need revenues the least — would receive the 

most in subsidies from the higher Medicare 
CMS-1351-F 62 

payments, while facilities with low Medicare 

shares — presumably the facilities with the 

greatest need — would receive the smallest 

subsidies. Third, increased Medicare payment 

rates could encourage states to further reduce 

their Medicaid payments and, in turn, create 

pressure to raise Medicare rates. In addition, a 

Medicare subsidy would have an uneven impact on 

payments, given the variation across states in 

the level and method of paying for nursing home 

care. In States where Medicaid payments were 

adequate, the subsidy would add to excessive 

payments. Last, higher Medicare payments could 

further encourage providers to select patients 

based on payer source or to rehospitalize dualeligible patients to qualify them for a Medicarecovered, higher payment stay. 

 We agree with MedPAC, and therefore, do not agree with 

the commenters that cited cross-subsidizing Medicaid as a 

justification for maintaining Medicare SNF payments at any 

specific level. 

 We are also aware of the concerns that reductions in 

payment levels can have a negative impact on SNFs and the 
CMS-1351-F 63 

quality of care furnished to nursing home patients across 

the country. However, in this particular case, the 

recalibration discussed in the proposed rule and finalized 

in this final rule corrects, on a prospective basis only, 

the unintended excess payment that we observed for FY 2011. 

In addition, even with the recalibration, FY 2012 rates 

will still be 3.4 percent higher than FY 2010 rates, the 

period immediately preceding the introduction of RUG-IV and 

the unintended spike in payments. Also, FY 2010 

expenditures increased by 4.8 percent over FY 2009, a 

period where both MedPAC and CMS have calculated margins 

for free-standing SNFs to average 18.1 percent. Moreover, 

we have not proposed any action to recoup retroactively the 

excess expenditures already made to SNFs during FY 2011. 

Instead, we are limiting the scope of the recalibration to 

restoring the intended SNF PPS payment levels on a 

prospective basis only effective October 1, 2011. 

 We have also considered the concerns raised by 

commenters that restoring the intended payment levels will 

result in job losses and add significant burden to health 

care workers and States. CMS cost report and Online Survey 

Certification and Reporting System (OSCAR) data show that, 

for the majority of freestanding SNFs and SNFs that operate 
CMS-1351-F 64 

as part of chains, there has been little change in staffing 

with the implementation of RUG-IV. Therefore, as data do 

not indicate that facilities increased staffing with the 

implementation of RUG-IV and aggregate payments will return 

to a level commensurate with those made under RUG-III, we 

do not believe that restoring payments to their intended 

and appropriate levels should necessarily result in job 

losses or add significant burden to health care workers or 

States. 

 As regards the comment that CMS should reconsider the 

recalibration in light of the potential impact on a weak 

economy, we do not believe that potential economic effects 

justify perpetuating observed and acknowledged excessive 

and inaccurate payments. Again, we note that MedPAC found 

in 2009 that the aggregate Medicare margin for freestanding 

SNFs, which represent more than 90 percent of all SNF 

facilities, was 18.1 percent, up from 16.6 percent in 2008 

and representing the ninth consecutive year where the 

aggregate Medicare margin for freestanding SNFs was greater 

than 10 percent. 

 Finally, with regard to those comments which asserted 

that the recalibration would trigger bankruptcies similar 

to those that they attributed to the implementation of the 
CMS-1351-F 65 

SNF PPS in the late 1990s, studies have indicated multiple 

factors for nursing home closures during that time, such as 

chain membership, investment decisions in an uncertain 

market, and market competition. A more detailed analysis 

of the research in this area appears in the FY 2010 final 

rule (74 FR 40297 through 40298). Ultimately, the existing 

body of research fails to indicate that case-mix 

reimbursement is a significant contributor to nursing home 

bankruptcy, particularly considering the small percentage 

of facility revenues which derive from Medicare payments. 

Thus, we do not agree with those commenters who asserted 

that the recalibration, in and of itself, could lead to the 

bankruptcy of SNF providers or that it could create the 

degree of fiscal pressure that could impact negatively on 

facility staffing or the quality of care in SNFs. 

Comment: Many commenters, while conceding that 

overpayments in FY 2011 do exist, questioned the magnitude 

of the recalibration deemed appropriate by CMS. Several 

commenters expressed concern with the distribution of RUGIII payment days used by CMS to calculate the parity 

adjustment. These commenters stated that the RUG-III 

distribution of days posted by CMS appeared to show 

incorrectly a decline in patient acuity (particularly in 
CMS-1351-F 66 

the case of Rehabilitation plus Extensive Services RUG 

groups) and that this apparent decline in patient acuity 

may have been due to flaws in the crosswalk methodology. 

These commenters believed that this led to an 

underestimation of RUG-III payments, thereby causing an 

overestimation of the necessary parity adjustment. A few 

commenters identified the methodology used by CMS to 

crosswalk between MDS 3.0 data and RUG-III group 

classification as potentially introducing certain biases 

and errors into the parity adjustment calculation. One 

commenter specifically referred to a potential inaccuracy 

in the crosswalk methodology as it related to ADL 

conversions, the depression scale used under MDS 2.0 and 

MDS 3.0, and certain MDS items (such as IV medications) 

which required facilities to “look-back” to services 

received during the patient’s qualifying hospital stay. 

Response: As stated above, several commenters 

suggested that the distribution of RUG-III payment days 

(which were derived from MDS 3.0 assessments submitted in 

FY 2011 or through review of final validation reports 

available to stakeholders) which appeared to reflect an 

apparent drop in patient acuity between FY 2010 and FY 

2011, actually reflected a flaw in the crosswalk 
CMS-1351-F 67 

methodology used by CMS. In response to this comment and 

in response to the comments suggesting a potential 

inaccuracy in the RUG-III crosswalk, we conducted a 

detailed analysis of this potential issue. We first 

confirmed that the physical programming for the crosswalk 

file was correct and found no errors in the programming. 

We then turned our attention to policy and assessment 

differences between the RUG-III and RUG-IV systems that 

could be affected by the simultaneous transition to MDS 

3.0. 

 We identified a few areas where using the MDS 3.0 

could possibly affect the determination of a patient’s 

case-mix classification under RUG-III or RUG-IV. The first 

area was a difference on the depression scale used under 

MDS 2.0 and MDS 3.0 where we found, through an analysis of 

MDS data from July 2010 through April 2011, that the number 

of depression cases triggered under MDS 2.0 was greater 

than the number of depression cases triggered under MDS 3.0 

by approximately 6.6 percent. However, since depression 

plays a small role in the determination of a patient’s RUG 

classification (using either the MDS 2.0 FY 2010 data or 

the MDS 3.0 FY 2011 data, approximately 2 percent of all 

Medicare beneficiaries classified into RUG-III groups where 
CMS-1351-F 68 

depression was a qualifying factor), this difference would 

not have a significant impact on the RUG-III distribution 

or parity adjustment recalibration. We also examined the 

ADL scale used under MDS 2.0 and MDS 3.0 for the same 

period described above and found that the mean ADL scale 

score between the two assessments was virtually identical; 

that is, patients classified into the same ADL categories 

under both models. Therefore, the ADL scale could not be a 

source of differences in classification due to using the 

crosswalk. 

 Next, we examined the use of OMRAs, particularly the 

End of Therapy (EOT) OMRA and its accompanying policies. 

Specifically, under MDS 2.0, facilities could be paid at a 

therapy rate for 8 to 10 days after the discontinuation of 

all therapies before the EOT OMRA would be necessary. 

Under MDS 3.0, the ARD for the EOT OMRA must be set for 1 

to 3 days after the discontinuation of all therapies, and 

the relevant non-therapy RUG rate is paid from the date 

that therapy was discontinued. We agree that the program 

used to estimate RUG-III payments did not adjust for the 

change in the EOT policy. Instead, any change from a 

therapy RUG group to a non-therapy RUG group that would 

normally result from the completion of an EOT OMRA, 
CMS-1351-F 69 

specifically under MDS 2.0, would only be picked up on the 

next scheduled MDS 2.0 assessment. As a result, the 

crosswalk in this case may have led to an overestimation of 

RUG-III payments, which would mean that we actually could 

have underestimated the parity adjustment necessary to 

bring RUG-IV payments in line with RUG-III payments. 

Finally, one commenter specifically referred to a 

potential issue with the RUG-III crosswalk related to 

capturing IV services provided to SNF residents during the 

resident’s qualifying hospital stay. The commenter stated 

that the crosswalk did not accurately account for these 

services, leading to an underestimation of RUG-III 

payments. Based on comments we received, we reviewed MDS 

assessment data related to the coding of IV medications 

received by the patient prior to admission to the SNF. 

After a review of MDS data from July 2010 through April 

2011, we did find a significant drop in coding for IV 

services received prior to the resident’s admission to the 

SNF between FY 2010 and FY 2011. However, given the lack 

of data, it would be very difficult to ascertain if this 

drop is the result of facilities admitting a lower volume 

of beneficiaries who had an IV while in the qualifying 

hospital stay or, as one commenter suggested, that it 
CMS-1351-F 70 

stemmed from the elimination of a payment incentive for 

collecting data from the prior hospital stay and failure to 

report this item accurately on the MDS 3.0. While this 

item would not affect the patient’s RUG-IV classification, 

it would be necessary to provide an accurate classification 

of that patient into a RUG-III category, which is an 

essential aspect of the recalibration calculation. We note 

that many commenters believed that patient acuity likely 

did not drop from FY 2010 to FY 2011. Thus, it is possible 

that, as one commenter posited, some facilities failed to 

report accurately on the MDS 3.0 if the patient had 

received an IV prior to admission to the SNF, due to the 

elimination of the payment incentive for reporting this 

item. However, we do not have the data to confirm the 

basis for the drop in coding IV services. 

We considered the potential impact of inaccurate 

reporting of IVs and other potential crosswalk issues, as 

described above. However, as stated above, it is 

impossible to ascertain the cause and extent of any 

observed reporting differences or to quantify the impact of 

the reporting change on aggregate expenditure levels. 

However, in order to approximate the impact of these coding 

changes, we compared the actual RUG-IV payments from first 
CMS-1351-F 71 

quarter FY 2011 with a data set from the fourth quarter of 

FY 2010 that included payments that were actually 

calculated under the RUG-III system. We found that the 

necessary recalibration using this much less precise 

methodology was remarkably similar to the recalibration 

results discussed in section III.B.2 of this final rule. In 

fact, these results were within 1.5 percent of the 

recalibration calculation performed using the FY 2011 data. 

It should be noted that by using different data sets for 

the comparisons, we could not control for acuity changes or 

any other factors, such as patient volume, but the 

difference in the final result was very minor. Therefore, 

we believe that any actual issues with the RUG-III 

crosswalk would have a negligible effect on the 

recalibration calculation. Moreover, because we cannot 

determine reliably whether the difference in observed 

versus historically predicted use of IVs during a patient’s 

qualifying hospital stay reflects actual provider behavior 

and patient acuity changes, or merely a failure on the part 

of facilities to complete certain items on the MDS, we 

believe that an adjustment for any such potential factors 

would be inappropriate given its limited impact. We expect 

that facilities will report all necessary items on the MDS 
CMS-1351-F 72 

to capture accurately the patient’s clinical and medical 

needs, rather than only coding those items relevant to the 

patient’s payment level. Finally, we note that, as we 

discussed previously, we believe using FY 2011 data to 

determine the necessary recalibration factor controls for 

patient acuity, as the recalibration of the parity 

adjustment compares payments under the two case-mix systems 

using data from the same time period (FY 2011). 

Comment: Many commenters questioned the 

appropriateness of the recalibration based on the potential 

impact of other proposed changes discussed in the proposed 

rule, such as the allocation of group therapy and other 

changes to the MDS 3.0. These commenters stated that 

reducing payments through a recalibration of the CMIs 

without accounting for the potential impact of other 

changes to the MDS will constitute a “double hit” on 

facilities. Some commenters requested that the 

recalibration be withdrawn until the impact of these other 

changes proposed for FY 2012 is better known. 

 Response: As illustrated by OACT baseline expenditure 

data from 2006 through 2011 (which can be ascertained by 

dividing the aggregate dollar impact of a rule for a given 

year by the aggregate percent impact listed in the impact 
CMS-1351-F 73 

table for the same rule), the SNF baseline has increased by 

over 40 percent between 2006 and 2011. Additionally, for 3 

of the past 6 years, specifically in FY 2006, FY 2010, and 

FY 2011, we have attempted to restore budget neutrality in 

the transition to a new case-mix classification system by 

applying a parity adjustment. In both case-mix transitions 

(from RUG-44 to RUG-53 and from RUG-53 to RUG-IV), we found 

that, rather than achieving budget neutrality, application 

of the parity adjustment to the new case-mix system 

resulted in excess payments to providers, because actual 

utilization patterns under the new case-mix system were 

different than we originally projected, thus necessitating 

a recalibration of the adjustment. After reviewing the 

effect of the FY 2011 RUG-IV policies, we have found that 

despite the adoption of clinical policies and coding 

changes, utilization patterns (as evidenced by the 

distribution of RUG groups) have not changed significantly 

in response to these policy revisions in ways that could be 

expected based on past operational and reporting practices. 

For example, while we anticipated certain changes in the 

case-mix distribution in response to the implementation of 

RUG-IV and the allocation of concurrent therapy along with 

several other policy and reporting changes, the percentage 
CMS-1351-F 74 

of residents classified into a rehab category between FY 

2010 and FY 2011 remained stable at approximately 92 

percent; moreover, the percentage of patients classified 

into the highest paying rehabilitation RUG category, Ultra 

High Rehabilitation, actually increased from 43 percent to 

45 percent over the same period. 

This analysis revealed that it can be difficult to 

predict provider behavior in response to any given policy 

changes. As a result, given the ability of facilities and 

stakeholders to adapt quickly to the changes in the SNF 

system in ways that maintain payments and consistent 

utilization patterns, from a practical and policy 

perspective, we do not believe it would be appropriate to 

attempt to consider the potential impact of other policy 

changes for FY 2012 as part of the FY 2011 recalibration 

calculation. Accordingly, given that it is unclear whether 

the FY 2012 changes to the MDS will have an effect on 

utilization patterns and the extent of any such effect, we 

do not agree that recalibrating the CMIs without accounting 

for such changes would necessarily result in a “double 

hit.” 

Further, consistent with past practice during a major 

case-mix system transition (that is, the transition from 
CMS-1351-F 75 

RUG-44 to RUG-53 in FY 2006 and the transition from RUG-53 

to RUG-IV in FY 2011), aggregate payments under the new 

system have been adjusted to ensure parity with payments 

under the previous system. In the case of the transition 

from RUG-44 to RUG-53, the data used to recalibrate the 

parity adjustment were based on data from CY 2006 (the year 

the transition was first implemented), even though the 

recalibration was not made until FY 2010. As such, major 

changes in the SNF PPS case-mix classification system have 

been historically accompanied by a parity adjustment 

recalibration which uses data from the year in which the 

transition took place. In this case, consistent with past 

practice, the most appropriate data for recalibrating the 

FY 2011 parity adjustment are data from FY 2011, the year 

in which RUG-IV was implemented. If we were to use data 

from other years (including projected data for a future 

year such as FY 2012), this could skew the results due to 

changes in patient acuity, volume, or provider behavior, or 

other changes in SNF PPS policy. 

Accordingly, because the policy refinements contained 

in this final rule (such as those related to the MDS 3.0) 

would apply starting in FY 2012, we believe that these 

changes should not be factored into the FY 2011 
CMS-1351-F 76 

recalibration. As discussed above, we believe that it 

would be inappropriate to try to manipulate the FY 2011 

recalibration to account for potential and unpredictable 

changes in payments resulting from policies to be 

implemented in FY 2012. As in prior years, policy 

refinements that do not constitute changes to the case-mix 

classification system as a whole are not necessarily made 

in a budget-neutral manner. Consistent with our past 

practice when implementing new policies, we will monitor 

utilization patterns and provider behaviors in response to 

the changes discussed in this final rule. 

Comment: Several commenters suggested that CMS 

consider the possibility of phasing-in a recalibration over 

the course of several years. A few commenters further 

suggested that such a phase-in should also take into 

account the effects of any finalized FY 2012 policies. 

Response: As discussed in section XII.A.5 of the 

proposed rule, we considered how the recalibration might be 

implemented so as to mitigate the economic impact of the 

recalibration on facilities. Specifically, we considered 

mitigating the impact of the recalibration by phasing in 

the negative adjustments prospectively over multiple years 

until parity was achieved. However, as noted in the 
CMS-1351-F 77 

proposed rule (76 FR 26404), phasing-in the recalibration 

would continue to reimburse facilities at levels that 

significantly exceed intended SNF payments. Further, as 

discussed in response to a preceding comment and elsewhere 

in this preamble, MedPAC found in 2009 that the aggregate 

Medicare margin for freestanding SNFs, which represent more 

than 90 percent of all SNF facilities, was 18.1 percent, up 

from 16.6 percent in 2008. Given these high Medicare 

margins, we do not believe that a phase-in approach is 

justified. It is also important to note that this 

recalibration would serve to remove an unintended spike in 

payments rather than decreasing an otherwise appropriate 

payment amount. Thus, , we do not believe that the 

recalibration should negatively affect facilities, 

beneficiaries, or quality of care, or create an undue 

hardship on providers. In fact, notwithstanding the 

recalibration, the FY 2012 payment rates will actually be 

higher than the rates established for FY 2010, the period 

immediately preceding the unintended spike in payment 

levels. We continue to believe that in implementing RUGIV, it is essential that we stabilize the baseline as 

quickly as possible without creating a significant adverse 

effect on the industry or to beneficiaries. 
CMS-1351-F 78 

Furthermore, in response to the comment suggesting 

that a phase-in should take into account the effects of 

other policies finalized in FY 2012, as discussed in 

response to the previous comment, we do not believe it 

would be appropriate to take into account in the 

recalibration calculation, potential and unpredictable 

changes in payments resulting from policies to be 

implemented in FY 2012. 

 Comment: Several commenters stated that a shift in 

patients from Inpatient Rehabilitation Facilities (IRFs) to 

SNFs results in savings to the Medicare Trust Fund and that 

the current SNF spending levels are needed to treat higheracuity patients that are now being treated in SNFs rather 

than in IRFs. Also, several commenters claimed that that 

providing increased levels of therapy has led to shorter 

lengths of stay for SNF residents, decreased the rate of 

hospital readmissions and increased discharges to the 

community, thereby creating significant savings for the 

Medicare program. 

 Response: We note that, in the absence of supporting 

evidence, and given the significant excess payments 

identified in FY 2011 and the Medicare profit margins for 

facilities identified by various sources, such as MedPAC, 
CMS-1351-F 79 

it is difficult to see how evolving utilization patterns 

have created savings for the Medicare program. In fact, 

MedPAC’s analysis of recent quality measure data related to 

rehospitalizations, for example, which appears in their 

March 2011 Report to Congress (available at 

http://www.medpac.gov/documents/Mar11_EntireReport.pdf), 

suggests that quality of care within SNFs has not been 

improving. On the topic of rehospitalizations, in its 

March 2011 report, MedPAC states: 

“The quality of care furnished to patients during 

a Medicare-covered SNF stay continued to show 

mixed results...Since 2000, one outcome 

measure...(the risk-adjusted rate of 

rehospitalization for any of five care-sensitive 

conditions) exhibited almost no change.” 

 Moreover, a basic principle of the SNF PPS is to pay 

appropriately for the services provided. CMS data are 

consistent with the commenters’ statements that some 

patients formerly treated within IRFs are now being treated 

in SNFs. In fact, our data show that a portion of patients 

needing rehabilitation have always been treated at SNFs and 

other non-IRF post-acute care settings. The FY 2011 

utilization data used to recalibrate the case-mix 
CMS-1351-F 80 

adjustments reflect an increase in rehabilitation patients, 

and likely includes patients who alternatively might have 

been admitted to IRFs prior to CMS enforcement of the IRF 

coverage criteria and more intensive medical review of IRF 

claims. However, we do not agree with the commenters’ 

statement that these patients represent a higher level of 

acuity than the type of patients historically treated in 

SNFs. For some time, utilization data have demonstrated 

that nearly 90 percent of all SNF payment days are for 

rehabilitation services, with over 40 percent of those days 

falling into the Ultra High Rehabilitation category. For 

the former IRF patients who are appropriate for SNF care, 

we must pay the appropriate rate for the SNF services 

provided and cannot use a reduction in IRF payments as a 

reason to increase payments to SNFs arbitrarily. It is 

important to note that, as discussed above, recalibrating 

the case-mix system does not change the basic SNF PPS 

structure which provides higher payments for patients using 

more staff resources and services. 

 Finally, as one commenter highlighted, shifting IRF 

patients toward SNF care does not necessarily improve the 

quality of care provided to the beneficiaries. A March 

2005 report in the Archives of Physical Medicine and 
CMS-1351-F 81 

Rehabilitation (available at http://www.archivespmr.org/article/PIIS0003999304012493/abstract) found that 

81.1 percent of IRF patients were discharged to home, 

compared to 45.5 percent of SNF residents. Additionally, 

IRF patients appeared to have shorter lengths of stay, 

averaging approximately a 13-day stay, compared to the 

average 36-day stay for a SNF resident. Finally, when 

patients discharged from each setting were reviewed 24 

weeks after discharge, IRF patients had consistently better 

outcomes and displayed a faster rate of recovery. Given 

these findings, we do not agree with those commenters who 

would assume that shifting patients from the IRF setting to 

a SNF setting is necessarily more beneficial to the patient 

or the Medicare Trust Fund. We do, however, intend to 

conduct additional research to update these findings with 

more recent data. Any changes in utilization patterns, 

length of stay, and/or care outcomes will be addressed 

during future rule-making. 

Comment: We received a number of comments related to 

our decision to apply the parity adjustment to only the 

nursing CMIs for therapy RUG-IV groups. Some commenters 

focused on reasons the parity adjustment should be applied 

to both the nursing and therapy indexes, while other 
CMS-1351-F 82 

suggested that the adjustment should be applied to the 

nursing CMIs for all RUG groups, as it has been applied in 

the past. 

Response: We considered a variety of alternative 

applications of the parity adjustment, such as applying the 

adjustment to both the nursing and therapy CMIs, to all the 

nursing CMIs, or to the therapy CMIs only. However, we 

still believe it is most appropriate to apply the 

adjustment to the nursing CMIs within the therapy groups 

only. Even for RUG-IV therapy groups, the nursing 

component is a much larger portion of the associated per 

diem payment. When we tested adjusting only the therapy 

CMIs, we found that the reduction necessary to achieve 

parity was so significant as to reduce some of the 

recalibrated therapy CMIs to nearly a zero index, while 

reducing the relative differences between therapy groups 

significantly. To maintain the appropriate relative 

difference between each therapy group CMI, we found it best 

to apply the adjustment to the nursing CMIs for those 

therapy groups. Additionally, as the original parity 

adjustment discussed in the FY 2011 notice with comment 

period (75 FR 42886) was applied to the nursing CMIs, we 

considered it most appropriate to apply a recalibration of 
CMS-1351-F 83 

that adjustment to the nursing CMIs, albeit of select RUGIV groups, rather than to apply the recalibration to the 

therapy CMIs or some combination of the nursing and therapy 

CMIs. 

As discussed in the FY 2012 proposed rule (76 FR 

26371), given that the most notable differences between 

expected and actual utilization patterns occurred within 

the therapy RUG categories, we believe it most appropriate 

to recalibrate the parity adjustment only as it applied to 

the RUG-IV therapy groups. As discussed in the proposed 

rule (76 FR 26372), we did evaluate the impact of applying 

a recalibration to all of the nursing CMIs, but found that 

rates for the complex medical groups were 

disproportionately affected negatively, in comparison to 

the therapy groups that represent 90 percent of SNF payment 

days. Since the vast majority of SNF residents are 

classified into a RUG-IV therapy group, and because the 

greatest differences between expected and actual 

utilization patterns could be found among the RUG-IV 

therapy groups, we believe that the most appropriate method 

for applying the recalibration is to apply it only to the 

RUG-IV therapy groups. 
CMS-1351-F 84 

Comment: A few commenters discussed alternative 

parity adjustment methodologies, and recommended that 

instead of applying a fixed percentage increase to the 

nursing CMI (as is done in the case of the parity 

adjustment discussed in this final rule), we should apply a 

fixed percentage increase, or decrease presumably, to the 

final payment rates for each RUG group under the new 

classification system. CMS would then recalculate the 

appropriate nursing CMI necessary to reach the new total 

RUG payment. According to these commenters, this 

methodology would ensure that the relative difference in 

payments for each RUG group would remain the same. 

Response: We agree that such a methodology would 

maintain the relative difference in the payments for each 

RUG category. However, the basic principle of the SNF PPS 

is to pay accurately for services based on the relative 

differences in resource and staff costs. The data 

underlying the RUG-IV CMIs, primarily the STRIVE study, are 

used to determine the relative difference between RUG 

groups with regard to their resource use. By applying the 

parity adjustment to the nursing CMIs, we are able to 

maintain the relative difference in resource use among the 

RUG-IV groups, rather than focusing on differences in 
CMS-1351-F 85 

payment. Ultimately, the prospective nature of the program 

demands that we focus more on predicting costs through 

relative utilization of resources, which are represented in 

the CMIs, rather than focusing solely on maintaining 

relative differences in the total payments for each RUG 

group. 

Comment: A few commenters recommended that in lieu of 

or in addition to pursuing a recalibration, CMS should 

consider greater fraud and abuse monitoring, with one 

commenter suggesting that CMS consider medical review and 

audits of FY 2011 claims and MDS data. One commenter 

pointed to the lack of program monitoring activities as an 

indication that there are no problems with the current 

parity adjustment. 

Response: We appreciate these commenters’ suggestions 

regarding the need for greater fraud and abuse monitoring 

and the need for audits of SNF records. We have increased 

our fraud and abuse monitoring efforts for SNFs and for the 

Medicare program in general. In fact, the Office of the 

Inspector General (OIG) has started a review of the 

increased frequency with which patients are assigned to the 

highest therapy groups. As discussed previously, OIG’s 

initial research results also corroborate changes in SNF 
CMS-1351-F 86 

patterns of care that may have resulted in an inappropriate 

number of beneficiaries being classified into the highestpaying therapy groups. We will continue to work with OIG 

and with CMS contractors to provide greater monitoring of 

SNF utilization and reporting trends. (This research is 

available at http://oig.hhs.gov/oei/reports/oei-02-09-

00204.asp.) Nevertheless, while we believe this monitoring 

activity is necessary, we also believe that it is necessary 

to implement the recalibration of the parity adjustment in 

FY 2012 to prevent continued reimbursement in amounts that 

significantly exceed our intended policy. 

 Accordingly, for the reasons specified in the FY 2012 

proposed rule (76 FR 26370 through 26377) and the reasons 

discussed in this final rule, we are implementing the 

option discussed in the proposed rule to recalibrate the 

parity adjustment to the RUG-IV case-mix indexes to restore 

the intended parity in overall payments between the RUG-53 

model and the RUG-IV model, using the methodology discussed 

in the proposed rule. As discussed previously, the parity 

adjustment finalized in this final rule is based on 8 

months of FY 2011 claims and MDS 3.0 data. Thus, for FY 

2012, the aggregate impact of this recalibration would be 

the difference between payments calculated using the 
CMS-1351-F 87 

original FY 2011 total nursing CMI increase for all RUG-IV 

groups of 61 percent, and payments calculated using the 

recalibrated total nursing CMI increase for all therapy 

RUG-IV groups of 19.84 percent, while maintaining the 

original 61 percent total nursing CMI increase for all nontherapy RUG-IV groups. The total difference is a decrease 

in payments of $4.47 billion (on an incurred basis) for FY 

2012. We also note that the $4.47 billion reduction would 

be partly offset by the FY 2012 MFP-adjusted market basket 

update of 1.7 percent, or $600 million, with a net result 

of a 11.1 percent reduction, or $3.87 billion, in overall 

payments for FY 2012. As discussed previously, we are 

implementing the recalibration on a prospective basis 

beginning October 1, 2011, to restore payments to their 

intended levels and to end the current outflow of excess 

dollars. While the original FY 2011 system calibration had 

to be based on estimated data, this recalibration uses 

actual FY 2011 RUG-IV claims data, which we believe provide 

the best picture of the actual resources used under RUG-IV 

and result in more accurate payment. Consistent with past 

policy, we will continue to monitor utilization for the 

rest of FY 2011, but we do not anticipate that the 

remaining four months of FY 2011 will present a 
CMS-1351-F 88 

significantly different picture of SNF utilization patterns 

than using the first 8 months of data. 

 We list the case-mix adjusted payment rates separately 

for urban and rural SNFs in Tables 4 and 5, with the 

corresponding case-mix values. 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, such as wage 

and case-mix. 

TABLE 4: RUG-IV Case-Mix Adjusted Federal Rates and 

Associated Indexes--URBAN 

RUG-IV 

Category 

Nursing 

Index 

Therapy 

Index 

Nursing 

Component 

Therapy 

Component 

Non-Case 

Mix Therapy 

Component 

Non-case 

Mix 

Component Total Rate 

RUX 2.67 1.87 $428.86 $226.25 $81.97 $737.08 

RUL 2.57 1.87 $412.79 $226.25 $81.97 $721.01 

RVX 2.61 1.28 $419.22 $154.87 $81.97 $656.06 

RVL 2.19 1.28 $351.76 $154.87 $81.97 $588.60 

RHX 2.55 0.85 $409.58 $102.84 $81.97 $594.39 

RHL 2.15 0.85 $345.33 $102.84 $81.97 $530.14 

RMX 2.47 0.55 $396.73 $66.54 $81.97 $545.24 

RML 2.19 0.55 $351.76 $66.54 $81.97 $500.27 

RLX 2.26 0.28 $363.00 $33.88 $81.97 $478.85 

RUC 1.56 1.87 $250.57 $226.25 $81.97 $558.79 

RUB 1.56 1.87 $250.57 $226.25 $81.97 $558.79 

RUA 0.99 1.87 $159.01 $226.25 $81.97 $467.23 

RVC 1.51 1.28 $242.54 $154.87 $81.97 $479.38 

RVB 1.11 1.28 $178.29 $154.87 $81.97 $415.13 

RVA 1.10 1.28 $176.68 $154.87 $81.97 $413.52 

RHC 1.45 0.85 $232.90 $102.84 $81.97 $417.71 

RHB 1.19 0.85 $191.14 $102.84 $81.97 $375.95 

RHA 0.91 0.85 $146.16 $102.84 $81.97 $330.97 

RMC 1.36 0.55 $218.44 $66.54 $81.97 $366.95 

RMB 1.22 0.55 $195.96 $66.54 $81.97 $344.47 

RMA 0.84 0.55 $134.92 $66.54 $81.97 $283.43 

RLB 1.50 0.28 $240.93 $33.88 $81.97 $356.78 

RLA 0.71 0.28 $114.04 $33.88 $81.97 $229.89 
CMS-1351-F 89 

RUG-IV 

Category 

Nursing 

Index 

Therapy 

Index 

Nursing 

Component 

Therapy 

Component 

Non-Case 

Mix Therapy 

Component 

Non-case 

Mix 

Component Total Rate 

ES3 3.58 $575.02 $15.94 $81.97 $672.93 

ES2 2.67 $428.86 $15.94 $81.97 $526.77 

ES1 2.32 $372.64 $15.94 $81.97 $470.55 

HE2 2.22 $356.58 $15.94 $81.97 $454.49 

HE1 1.74 $279.48 $15.94 $81.97 $377.39 

HD2 2.04 $327.66 $15.94 $81.97 $425.57 

HD1 1.60 $256.99 $15.94 $81.97 $354.90 

HC2 1.89 $303.57 $15.94 $81.97 $401.48 

HC1 1.48 $237.72 $15.94 $81.97 $335.63 

HB2 1.86 $298.75 $15.94 $81.97 $396.66 

HB1 1.46 $234.51 $15.94 $81.97 $332.42 

LE2 1.96 $314.82 $15.94 $81.97 $412.73 

LE1 1.54 $247.35 $15.94 $81.97 $345.26 

LD2 1.86 $298.75 $15.94 $81.97 $396.66 

LD1 1.46 $234.51 $15.94 $81.97 $332.42 

LC2 1.56 $250.57 $15.94 $81.97 $348.48 

LC1 1.22 $195.96 $15.94 $81.97 $293.87 

LB2 1.45 $232.90 $15.94 $81.97 $330.81 

LB1 1.14 $183.11 $15.94 $81.97 $281.02 

CE2 1.68 $269.84 $15.94 $81.97 $367.75 

CE1 1.50 $240.93 $15.94 $81.97 $338.84 

CD2 1.56 $250.57 $15.94 $81.97 $348.48 

CD1 1.38 $221.66 $15.94 $81.97 $319.57 

CC2 1.29 $207.20 $15.94 $81.97 $305.11 

CC1 1.15 $184.71 $15.94 $81.97 $282.62 

CB2 1.15 $184.71 $15.94 $81.97 $282.62 

CB1 1.02 $163.83 $15.94 $81.97 $261.74 

CA2 0.88 $141.35 $15.94 $81.97 $239.26 

CA1 0.78 $125.28 $15.94 $81.97 $223.19 

BB2 0.97 $155.80 $15.94 $81.97 $253.71 

BB1 0.90 $144.56 $15.94 $81.97 $242.47 

BA2 0.70 $112.43 $15.94 $81.97 $210.34 

BA1 0.64 $102.80 $15.94 $81.97 $200.71 

PE2 1.50 $240.93 $15.94 $81.97 $338.84 

PE1 1.40 $224.87 $15.94 $81.97 $322.78 

PD2 1.38 $221.66 $15.94 $81.97 $319.57 

PD1 1.28 $205.59 $15.94 $81.97 $303.50 

PC2 1.10 $176.68 $15.94 $81.97 $274.59 

PC1 1.02 $163.83 $15.94 $81.97 $261.74 

PB2 0.84 $134.92 $15.94 $81.97 $232.83 

PB1 0.78 $125.28 $15.94 $81.97 $223.19 

PA2 0.59 $94.77 $15.94 $81.97 $192.68 
CMS-1351-F 90 

RUG-IV 

Category 

Nursing 

Index 

Therapy 

Index 

Nursing 

Component 

Therapy 

Component 

Non-Case 

Mix Therapy 

Component 

Non-case 

Mix 

Component Total Rate 

PA1 0.54 $86.73 $15.94 $81.97 $184.64 

TABLE 5: RUG-IV Case-Mix Adjusted Federal Rates and 

Associated Indexes--RURAL 

RUG-IV 

Category 

Nursing 

Index 

Therapy 

Index 

Nursing 

Component 

Therapy 

Component 

Non-Case 

Mix Therapy 

Component 

Non-case 

Mix 

Component Total Rate 

RUX 2.67 1.87 $409.74 $260.88 $83.49 $754.11 

RUL 2.57 1.87 $394.39 $260.88 $83.49 $738.76 

RVX 2.61 1.28 $400.53 $178.57 $83.49 $662.59 

RVL 2.19 1.28 $336.08 $178.57 $83.49 $598.14 

RHX 2.55 0.85 $391.32 $118.58 $83.49 $593.39 

RHL 2.15 0.85 $329.94 $118.58 $83.49 $532.01 

RMX 2.47 0.55 $379.05 $76.73 $83.49 $539.27 

RML 2.19 0.55 $336.08 $76.73 $83.49 $496.30 

RLX 2.26 0.28 $346.82 $39.06 $83.49 $469.37 

RUC 1.56 1.87 $239.40 $260.88 $83.49 $583.77 

RUB 1.56 1.87 $239.40 $260.88 $83.49 $583.77 

RUA 0.99 1.87 $151.93 $260.88 $83.49 $496.30 

RVC 1.51 1.28 $231.72 $178.57 $83.49 $493.78 

RVB 1.11 1.28 $170.34 $178.57 $83.49 $432.40 

RVA 1.10 1.28 $168.81 $178.57 $83.49 $430.87 

RHC 1.45 0.85 $222.52 $118.58 $83.49 $424.59 

RHB 1.19 0.85 $182.62 $118.58 $83.49 $384.69 

RHA 0.91 0.85 $139.65 $118.58 $83.49 $341.72 

RMC 1.36 0.55 $208.71 $76.73 $83.49 $368.93 

RMB 1.22 0.55 $187.22 $76.73 $83.49 $347.44 

RMA 0.84 0.55 $128.91 $76.73 $83.49 $289.13 

RLB 1.50 0.28 $230.19 $39.06 $83.49 $352.74 

RLA 0.71 0.28 $108.96 $39.06 $83.49 $231.51 

ES3 3.58 $549.39 $17.02 $83.49 $649.90 

ES2 2.67 $409.74 $17.02 $83.49 $510.25 

ES1 2.32 $356.03 $17.02 $83.49 $456.54 

HE2 2.22 $340.68 $17.02 $83.49 $441.19 

HE1 1.74 $267.02 $17.02 $83.49 $367.53 

HD2 2.04 $313.06 $17.02 $83.49 $413.57 

HD1 1.60 $245.54 $17.02 $83.49 $346.05 

HC2 1.89 $290.04 $17.02 $83.49 $390.55 

HC1 1.48 $227.12 $17.02 $83.49 $327.63 

HB2 1.86 $285.44 $17.02 $83.49 $385.95 

HB1 1.46 $224.05 $17.02 $83.49 $324.56 

LE2 1.96 $300.78 $17.02 $83.49 $401.29 
CMS-1351-F 91 

RUG-IV 

Category 

Nursing 

Index 

Therapy 

Index 

Nursing 

Component 

Therapy 

Component 

Non-Case 

Mix Therapy 

Component 

Non-case 

Mix 

Component Total Rate 

LE1 1.54 $236.33 $17.02 $83.49 $336.84 

LD2 1.86 $285.44 $17.02 $83.49 $385.95 

LD1 1.46 $224.05 $17.02 $83.49 $324.56 

LC2 1.56 $239.40 $17.02 $83.49 $339.91 

LC1 1.22 $187.22 $17.02 $83.49 $287.73 

LB2 1.45 $222.52 $17.02 $83.49 $323.03 

LB1 1.14 $174.94 $17.02 $83.49 $275.45 

CE2 1.68 $257.81 $17.02 $83.49 $358.32 

CE1 1.50 $230.19 $17.02 $83.49 $330.70 

CD2 1.56 $239.40 $17.02 $83.49 $339.91 

CD1 1.38 $211.77 $17.02 $83.49 $312.28 

CC2 1.29 $197.96 $17.02 $83.49 $298.47 

CC1 1.15 $176.48 $17.02 $83.49 $276.99 

CB2 1.15 $176.48 $17.02 $83.49 $276.99 

CB1 1.02 $156.53 $17.02 $83.49 $257.04 

CA2 0.88 $135.04 $17.02 $83.49 $235.55 

CA1 0.78 $119.70 $17.02 $83.49 $220.21 

BB2 0.97 $148.86 $17.02 $83.49 $249.37 

BB1 0.90 $138.11 $17.02 $83.49 $238.62 

BA2 0.70 $107.42 $17.02 $83.49 $207.93 

BA1 0.64 $98.21 $17.02 $83.49 $198.72 

PE2 1.50 $230.19 $17.02 $83.49 $330.70 

PE1 1.40 $214.84 $17.02 $83.49 $315.35 

PD2 1.38 $211.77 $17.02 $83.49 $312.28 

PD1 1.28 $196.43 $17.02 $83.49 $296.94 

PC2 1.10 $168.81 $17.02 $83.49 $269.32 

PC1 1.02 $156.53 $17.02 $83.49 $257.04 

PB2 0.84 $128.91 $17.02 $83.49 $229.42 

PB1 0.78 $119.70 $17.02 $83.49 $220.21 

PA2 0.59 $90.54 $17.02 $83.49 $191.05 

PA1 0.54 $82.87 $17.02 $83.49 $183.38 

3. 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 
CMS-1351-F 92 

hospital wage data in developing a wage index to be applied 

to SNFs. 

In the FY 2012 proposed rule, we proposed to continue 

that practice 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. 

In the FY 2012 proposed rule, we also proposed to 

continue using 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, 
CMS-1351-F 93 

lack hospital wage data on which to base an area wage 

adjustment, we proposed to use the average wage index from 

all contiguous CBSAs as a reasonable proxy. This 

methodology was used to construct the wage index for rural 

Massachusetts for FY 2011. However, as indicated in the FY 

2012 proposed rule (76 FR 26378), 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. Furthermore, we indicated that we would not 

apply this methodology to rural Puerto Rico due to the 

distinct economic circumstances that exist there, but 

instead would continue using the most recent wage index 

previously available for that area. For urban areas 

without specific hospital wage index data, we proposed to 

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. At the time of the proposed 

rule, both CBSA 49700, Yuba City, CA, and CBSA 25980, 

Hinesville-Fort Stewart, GA, did not have wage index data. 

However, for this final rule, Yuba City, CA now has wage 

index data. Therefore, the only urban area without wage 
CMS-1351-F 94 

index data available is CBSA 25980, Hinesville-Fort 

Stewart, GA. 

The comments that we received on the wage index 

adjustment to the Federal rates, and our responses to those 

comments, appear below. 

Comment: A commenter recommended that CMS improve its 

area wage index methodology, and recommended that any 

design, development, or implementation of a revised 

hospital wage index must consider other post-acute care 

settings. The commenter noted research by the Medicare 

Payment Advisory Commission (MedPAC) and Acumen, LLC 

(Acumen) to support its concern regarding areas such as 

reclassification, SNF-specific wage index, the use of U.S. 

Bureau of Labor Statistics (BLS), and commuting patterns of 

health care workers employed by SNFs. 

Response: As several commenters noted, we have 

research currently under way to examine alternatives to the 

wage index methodology, including the issues the commenters 

mentioned about ensuring that the wage index minimizes 

fluctuations, matches the costs of labor in the market, and 

provides for a single wage index policy. Section 3137 of 

the Affordable Care Act provides that the Secretary of 

Health and Human Services shall submit a report to Congress 
CMS-1351-F 95 

by December 31, 2011, that includes a plan to reform the 

hospital wage index system. Section 3137 of the Affordable 

Care Act further instructs the Secretary to take into 

account MedPAC’s recommendations on the Medicare wage index 

classification system, and to include one or more proposals 

to revise the wage index adjustment applied under section 

1886(d)(3)(E) of the Act for purposes of the IPPS. The 

proposal(s) are to consider each of the following: 

● The use of Bureau of Labor Statistics data or other 

data or methodologies to calculate relative wages for each 

geographic area. 

● Minimizing variations in wage index adjustments 

between and within MSAs and statewide rural areas. 

● Methods to minimize the volatility of wage index 

adjustments while maintaining the principle of budget 

neutrality. 

● The effect that the implementation of the proposal 

would have on health care providers in each region of the 

country. 

● Issues relating to occupational mix, such as 

staffing practices and any evidence on quality of care and 

patient safety, including any recommendations for 

alternative calculations to the occupational mix. 
CMS-1351-F 96 

● Provide for a transition. 

To assist us in meeting the requirements of section 

106(b)(2) of the Tax Relief and Health Care Act of 2006

(Pub. L. 109-432, enacted on December 20, 2006) (TRHCA), in 

February 2008, we awarded a Task Order under our Expedited 

Research and Demonstration Contract to Acumen, LLC. 

Acumen, LLC conducted a study of both the current 

methodology used to construct the Medicare wage index and 

the recommendations reported to Congress by MedPAC. Parts 

1 and 2 of Acumen’s final report, which analyzes the 

strengths and weaknesses of the data sources used to 

construct the CMS and MedPAC indexes, is available online 

at http://www.acumenllc.com/reports/cms. 

MedPAC’s recommendations were presented in the FY 2009 

IPPS final rule (available online at 

http://edocket.access.gpo.gov/2008/pdf/E8-17914.pdf). We 

plan to monitor these efforts closely, and to determine 

what impact or influence they may have on the SNF PPS wage 

index. At this time, we will continue to use the wage 

index policies and methodologies described in this final 

rule to adjust the SNF PPS Federal rates for differences in 

area wage levels. However, we will continue to monitor 

MedPAC and Acumen’s progress on any revisions to the IPPS 
CMS-1351-F 97 

wage index to identify any policy changes that may be 

appropriate for SNFs and potential changes may be presented 

in a future proposed rule. We discuss the Federal rates by 

labor-related and non-labor related components for FY 2012 

below. 

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 68.693 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 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 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. 
CMS-1351-F 98 

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, labor-intensive 

services, and a portion of capital-related expenses) to 

produce the FY 2012 labor-related relative importance. 

Tables 6 and 7 show the case-mix adjusted RUG-IV Federal 

rates by labor-related and non-labor-related components. 

TABLE 6: RUG-IV Case-Mix Adjusted Federal Rates for Urban 

SNFs by Labor and Non-Labor Component 

RUG-IV 

Category 

Total 

Rate 

Labor 

Portion 

Non-Labor 

Portion 

RUX 737.08 $506.32 $230.76 

RUL 721.01 $495.28 $225.73 

RVX 656.06 $450.67 $205.39 

RVL 588.60 $404.33 $184.27 

RHX 594.39 $408.30 $186.09 

RHL 530.14 $364.17 $165.97 

RMX 545.24 $374.54 $170.70 

RML 500.27 $343.65 $156.62 
CMS-1351-F 99 

RUG-IV 

Category 

Total 

Rate 

Labor 

Portion 

Non-Labor 

Portion 

RLX 478.85 $328.94 $149.91 

RUC 558.79 $383.85 $174.94 

RUB 558.79 $383.85 $174.94 

RUA 467.23 $320.95 $146.28 

RVC 479.38 $329.30 $150.08 

RVB 415.13 $285.17 $129.96 

RVA 413.52 $284.06 $129.46 

RHC 417.71 $286.94 $130.77 

RHB 375.95 $258.25 $117.70 

RHA 330.97 $227.35 $103.62 

RMC 366.95 $252.07 $114.88 

RMB 344.47 $236.63 $107.84 

RMA 283.43 $194.70 $88.73 

RLB 356.78 $245.08 $111.70 

RLA 229.89 $157.92 $71.97 

ES3 672.93 $462.26 $210.67 

ES2 526.77 $361.85 $164.92 

ES1 470.55 $323.23 $147.32 

HE2 454.49 $312.20 $142.29 

HE1 377.39 $259.24 $118.15 

HD2 425.57 $292.34 $133.23 

HD1 354.90 $243.79 $111.11 

HC2 401.48 $275.79 $125.69 

HC1 335.63 $230.55 $105.08 

HB2 396.66 $272.48 $124.18 

HB1 332.42 $228.35 $104.07 

LE2 412.73 $283.52 $129.21 

LE1 345.26 $237.17 $108.09 

LD2 396.66 $272.48 $124.18 

LD1 332.42 $228.35 $104.07 

LC2 348.48 $239.38 $109.10 

LC1 293.87 $201.87 $92.00 

LB2 330.81 $227.24 $103.57 

LB1 281.02 $193.04 $87.98 

CE2 367.75 $252.62 $115.13 

CE1 338.84 $232.76 $106.08 

CD2 348.48 $239.38 $109.10 

CD1 319.57 $219.52 $100.05 

CC2 305.11 $209.59 $95.52 

CC1 282.62 $194.14 $88.48 

CB2 282.62 $194.14 $88.48 

CB1 261.74 $179.80 $81.94 

CA2 239.26 $164.35 $74.91 

CA1 223.19 $153.32 $69.87 
CMS-1351-F 100 

RUG-IV 

Category 

Total 

Rate 

Labor 

Portion 

Non-Labor 

Portion 

BB2 253.71 $174.28 $79.43 

BB1 242.47 $166.56 $75.91 

BA2 210.34 $144.49 $65.85 

BA1 200.71 $137.87 $62.84 

PE2 338.84 $232.76 $106.08 

PE1 322.78 $221.73 $101.05 

PD2 319.57 $219.52 $100.05 

PD1 303.50 $208.48 $95.02 

PC2 274.59 $188.62 $85.97 

PC1 261.74 $179.80 $81.94 

PB2 232.83 $159.94 $72.89 

PB1 223.19 $153.32 $69.87 

PA2 192.68 $132.36 $60.32 

PA1 184.64 $126.83 $57.81 

TABLE 7: RUG-IV Case-Mix Adjusted Federal Rates for Rural 

SNFs by Labor and Non-Labor Component 

RUG-IV 

Category 

Total 

Rate 

Labor 

Portion 

Non-Labor 

Portion 

RUX 754.11 $518.02 $236.09 

RUL 738.76 $507.48 $231.28 

RVX 662.59 $455.15 $207.44 

RVL 598.14 $410.88 $187.26 

RHX 593.39 $407.62 $185.77 

RHL 532.01 $365.45 $166.56 

RMX 539.27 $370.44 $168.83 

RML 496.30 $340.92 $155.38 

RLX 469.37 $322.42 $146.95 

RUC 583.77 $401.01 $182.76 

RUB 583.77 $401.01 $182.76 

RUA 496.30 $340.92 $155.38 

RVC 493.78 $339.19 $154.59 

RVB 432.40 $297.03 $135.37 

RVA 430.87 $295.98 $134.89 

RHC 424.59 $291.66 $132.93 

RHB 384.69 $264.26 $120.43 

RHA 341.72 $234.74 $106.98 

RMC 368.93 $253.43 $115.50 

RMB 347.44 $238.67 $108.77 

RMA 289.13 $198.61 $90.52 

RLB 352.74 $242.31 $110.43 
CMS-1351-F 101 

RUG-IV 

Category 

Total 

Rate 

Labor 

Portion 

Non-Labor 

Portion 

RLA 231.51 $159.03 $72.48 

ES3 649.90 $446.44 $203.46 

ES2 510.25 $350.51 $159.74 

ES1 456.54 $313.61 $142.93 

HE2 441.19 $303.07 $138.12 

HE1 367.53 $252.47 $115.06 

HD2 413.57 $284.09 $129.48 

HD1 346.05 $237.71 $108.34 

HC2 390.55 $268.28 $122.27 

HC1 327.63 $225.06 $102.57 

HB2 385.95 $265.12 $120.83 

HB1 324.56 $222.95 $101.61 

LE2 401.29 $275.66 $125.63 

LE1 336.84 $231.39 $105.45 

LD2 385.95 $265.12 $120.83 

LD1 324.56 $222.95 $101.61 

LC2 339.91 $233.49 $106.42 

LC1 287.73 $197.65 $90.08 

LB2 323.03 $221.90 $101.13 

LB1 275.45 $189.21 $86.24 

CE2 358.32 $246.14 $112.18 

CE1 330.70 $227.17 $103.53 

CD2 339.91 $233.49 $106.42 

CD1 312.28 $214.51 $97.77 

CC2 298.47 $205.03 $93.44 

CC1 276.99 $190.27 $86.72 

CB2 276.99 $190.27 $86.72 

CB1 257.04 $176.57 $80.47 

CA2 235.55 $161.81 $73.74 

CA1 220.21 $151.27 $68.94 

BB2 249.37 $171.30 $78.07 

BB1 238.62 $163.92 $74.70 

BA2 207.93 $142.83 $65.10 

BA1 198.72 $136.51 $62.21 

PE2 330.70 $227.17 $103.53 

PE1 315.35 $216.62 $98.73 

PD2 312.28 $214.51 $97.77 

PD1 296.94 $203.98 $92.96 

PC2 269.32 $185.00 $84.32 

PC1 257.04 $176.57 $80.47 

PB2 229.42 $157.60 $71.82 

PB1 220.21 $151.27 $68.94 

PA2 191.05 $131.24 $59.81 

PA1 183.38 $125.97 $57.41 
CMS-1351-F 102 

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 1.0007. The wage index applicable to FY 2012 is 

set forth in Tables A and B, which appear in the Addendum 

of this final rule, and is also available on the CMS web 

site at http://www.cms.gov/SNFPPS/04_WageIndex.asp. 
CMS-1351-F 103 

Comment: One commenter estimated SNF reimbursements 

using both the FY 2012 SNF wage index in the proposed rule 

and in the absence of a wage index using simulation. The 

commenter found that SNF reimbursement was about $400 

million lower with the wage index adjustment than without 

it. The commenter believes that CMS is incorrectly 

adjusting for the wage index and that payments during the 

2002 to 2011 timeframe are nearly $3 billion too low. 

Response: As previously stated in the final rule for 

FY 2010 (74 FR 40303), the intent of the wage index budget 

neutrality factor is to make sure that aggregate payments 

using the updated wage index are not greater or less than 

aggregate payments would be using the previous year‘s wage 

index. Because the wage index is based on the pre-floor, 

pre-reclassified, no occupational mix hospital wage index, 

the weighted average wage index would be equal to 1.0000 

for hospitals. However, there are often multiple SNFs 

within a wage area with varying utilization levels. The 

weighted average wage index across all SNF providers may 

not be equal to 1.0000 for any given fiscal year, so 

payments could go up or down as a result of their 

application. Estimation of payments relies on the 

combination of the geographic wage index value for 
CMS-1351-F 104 

providers along with their distribution of service days. 

The change in the wage index values along with the 

utilization within each urban or rural area determines the 

change in aggregate payments related to the previous year, 

and therefore, the budget neutrality factor. The 

application of the budget neutrality factor ensures that 

aggregate payments will not increase or decrease due to the 

year-to-year change in the wage index. Therefore, we do 

not agree with the methodology used by the commenter, and 

believe that the 1.0007 budget neutrality factor will 

ensure equal payments after updating to the FY 2012 SNF PPS 

wage index, prior to any other policy changes. 

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 

www.whitehouse.gov/omb/bulletins_b03-04, 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 
CMS-1351-F 105 

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 CBSAbased wage index values, as now presented in Tables A and B 

in the Addendum of this final rule. 

4. Updates to 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 
CMS-1351-F 106 

the Affordable Care Act, the payment rates in this final 

rule reflect an update equal to the full market basket, 

estimated at 2.7 percentage points, reduced by the MFP 

adjustment. As discussed in sections I.G.2 and VI.C of the 

FY 2012 proposed rule (76 FR 26368 through 26369 and 26394 

through 26396), the annual update includes a reduction to 

account for the MFP adjustment described in the latter 

section. As discussed in section III.F.3 of this final 

rule, the final MFP adjustment is 1.0 percent, for a net 

update of 1.7 percent for FY 2012. 

5. Relationship of RUG-IV 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 

notice with comment period (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 
CMS-1351-F 107 

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 final rule, we are continuing the designation 

of 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; 
CMS-1351-F 108 

● 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 
CMS-1351-F 109 

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, 

after which the administrative presumption no longer 

applies. 

Comment: One commenter stated that certain 

instructions contained in version 3.0 of the Long-Term Care 

Facility Resident Assessment Instrument (RAI) User’s Manual 

(available online at 

https://www.cms.gov/NursingHomeQualityInits/45_NHQIMDS30Tra

iningMaterials.asp) are inconsistent with the SNF level of 

care presumption. Specifically, the commenter cited 

instructions in Chapter 3 (“Overview to the Item-by-Item 

Guide to the MDS 3.0”), Section O (“Special Treatments, 

Procedures, and Programs (V1.05)”), which provide that 

tracheostomy care may be coded on the assessment when 

performed by residents themselves. Similarly, these 

instructions provide for coding oxygen therapy when a 

resident places or removes his or her own oxygen 

mask/cannula, as well as when a resident performs his or 
CMS-1351-F 110 

her own dialysis. The commenter stated that allowing these 

items to be coded under such circumstances compromises not 

only the definition of “skilled services” but the entire 

RUG-IV case-mix classification system. 

 Response: We believe that the commenter errs in 

assuming that all of the “special procedures” described in 

this section of the manual necessarily equate directly to 

skilled services. For example, even though dialysis is a 

critically important, life-sustaining procedure, its 

various component tasks simply do not generally require the 

involvement of skilled personnel--as evidenced by the many 

instances in which beneficiaries can be successfully 

trained to self-dialyze (or where a friend or family member 

with no prior caregiving experience or training can readily 

be taught to perform the dialysis for them). Moreover, 

while it is true that dialysis is one of the discrete 

indicators for assignment to a RUG within the Special Care 

Low category--a category to which the level of care 

presumption applies for a short period of time at the start 

of a SNF stay--it is the totality of items and services 

included within a given RUG, not any one specific coded 

service, that actually serves to justify the presumption. 

As explained in the FY 2000 SNF PPS final rule (64 FR 
CMS-1351-F 111 

41667, July 30, 1999), it is this entire cluster of 

services, when combined with the “tendency . . . for the 

initial portion of an SNF stay to be the most intensive and 

unstable” that provides the basis for making the level of 

care presumption, as triggered by a resident’s assignment 

to one of the designated upper RUGs on the initial 5-day, 

Medicare-required assessment. 

6. Example of Computation of Adjusted PPS Rates and SNF 

Payment 

Using the hypothetical SNF XYZ described in Table 8, 

the following shows the adjustments made to the Federal per 

diem rate to compute the provider’s actual per diem PPS 

payment. SNF XYZ’s 12-month cost reporting period begins 

October 1, 2011. As illustrated in Table 8, SNF XYZ’s 

total PPS payment would equal $40,053.06. We derive the 

Labor and Non-labor columns from Table 6 of this final 

rule. 

TABLE 8: RUG-IV 

SNF XYZ: Located in Cedar Rapids, IA (Urban CBSA 16300) 

Wage Index: 0.8831 

RUG-IV 

Group Labor 

Wage 

Index 

Adjusted 

Labor 

NonLabor Adjusted 

Rate 

Percent 

Adjustment 

Medicare 

Days Payment 

RVX $450.67 0.8831 $397.99 $205.39 $603.38 $603.38 14 $8,447.32 

ES2 $361.85 0.8831 $319.55 $164.92 $484.47 $484.47 30 $14,534.10 

RHA $227.35 0.8831 $200.77 $103.62 $304.39 $304.39 16 $4,870.24 

CC2* $209.59 0.8831 $185.09 $95.52 $280.61 $639.79 10 $6,397.90 

BA2 $144.49 0.8831 $127.60 $65.85 $193.45 $193.45 30 $5,803.50 

 100 $40,053.06 
CMS-1351-F 112 

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

C. Resource Utilization Groups, Version 4 (RUG-IV)

1. Prospective Payment for SNF Non-therapy Ancillary 

Costs 

The FY 2012 proposed rule discussed the issue of 

payment for NTA costs under the SNF PPS (76 FR 26381 

through 26384). This discussion described the previous 

research that has been conducted in this area, as well as 

current policy and analysis. Specifically, this discussion 

referenced the ongoing development of a two-part NTA 

component payment, as well as the conceptual analysis for 

the types of conditions and MDS-driven variables which may 

be used to predict and pay for patient NTA costs 

accurately. Finally, this discussion included reference to 

the impact of an NTA component payment as it relates to the 

temporary AIDS add-on payment established by section 511 of 

the MMA (as discussed in section I.E of this final rule). 

The comments that we received on this topic both this year 

and in response to the FY 2011 notice with comment period, 

and our responses, appear below.

Comment: All of the comments we received in response 

to this discussion supported CMS’s broad objective to 
CMS-1351-F 113 

develop a new method for paying for NTAs received in the 

SNF, as well as the basic structure described in the 

proposed rule for a potential NTA rate component. The 

commenters also expressed their interest in working with 

CMS to develop an appropriate NTA rate component that is 

properly tailored to capture facility NTA costs accurately. 

Similarly, in response to the FY 2011 notice with comment 

period, several commenters also expressed their support for 

development of a separate NTA component in line with CMS’s 

current research. 

Response: We appreciate the broad support that we 

received for the objective and overall model for designing 

a separate NTA rate component. The comments we received 

provided a number of interesting and creative ideas which 

will be considered during the research and development 

process. We look forward to working with providers and 

stakeholders in the future as we continue to develop this 

refinement to the SNF PPS. 

Comment: A few commenters stated that the NTA rate 

component research should be updated to reflect data 

gathered on the MDS 3.0. One commenter asked that CMS 

consider the potential interplay between an NTA component 

and those drugs and services which may be subject to, or 
CMS-1351-F 114 

excluded from, consolidated billing. Several commenters 

also said that, given CMS’s discussion related to 

reallocating some portion of the nursing component to fund 

the NTA component, CMS should ensure that the nursing 

component still reflects resource cost and utilization 

after the carve-out is done. Finally, one commenter, in 

response to the FY 2011 notice with comment period, 

requested that CMS pay special attention to NTA costs 

associated with providing ventilator services within the 

SNF. 

Response: We agree with the commenters that our 

research must be aligned with continuous improvements made 

to the SNF PPS, particularly the MDS 3.0. We expect that, 

as more MDS 3.0 data become available, our NTA researchers 

will be able to incorporate these data into our analysis. 

Similarly, we are cognizant of the potential relationship 

between the NTA research and services and drugs which fall 

under consolidated billing. As we continue our analysis, 

we expect that such relationships will be considered in 

determining the appropriateness of the NTA component. 

With regard to ensuring the adequacy of the nursing 

component after carving out a separate NTA component, we 

intend to ensure that the introduction of a new rate 
CMS-1351-F 115 

component for NTAs does not undermine the adequacy of 

payments for nursing services, and we will continue to 

monitor the adequacy of payments after any new rate 

component is implemented. It should be noted that any new 

carved-out NTA component would, in effect, remove from the 

nursing component only the costs of the NTA services 

themselves, which we would then adjust separately from 

nursing costs based on information that may better predict 

NTA costs. 

Finally, as discussed in the FY 2010 final rule (74 FR 

40341), ventilator patients are addressed to some extent 

within the RUG-IV system (through payments under the 

Extensive Services group), and we are continuing to monitor 

the adequacy of payments for this subset of SNF residents. 

Currently, payments for these services are still integrated 

into the nursing costs paid for the relevant case-mix 

group, but in our NTA research, we are considering a 

variety of special NTA subsets, including ventilator use, 

which might deserve special attention as part of the 

highest-tiered payment within the non-routine NTA tier 

system. 

Comment: One commenter believed that the Post Acute 

Care Payment Reform Demonstration (PAC-PRD) and data 
CMS-1351-F 116 

collected as part of the research on the CARE tool would 

not serve as an appropriate source of data for the NTA 

research we are conducting. This commenter stated that it 

would be premature for CMS to make use of such data before 

it has been subject to both agency and Congressional 

review. 

Response: We appreciate the commenter’s concern 

regarding the use of these data and will certainly consider 

it as the research moves forward. We would note that data 

sources, such as the PAC-PRD, are being considered for 

their potential utility as part of developing an NTA 

component which would more accurately reimburse facilities 

for incurred NTA costs, though no final decision has been 

made as to what are the most appropriate sources. In the 

end, we will ensure that all data sources have been 

thoroughly reviewed for their accuracy and applicability 

within the SNF setting. 

Comment: Several commenters discussed the possibility 

of including a cost pass-through for high-cost drugs and 

services as part of the outlier development. 

Response: While we appreciate comments on the 

development of an SNF outlier policy, we would note that we 
CMS-1351-F 117 

do not have statutory authority to implement an outlier 

payment for certain NTA services. 

D. Ongoing Initiatives under the Affordable Care Act

1. Value-Based Purchasing (Section 3006) 

In the FY 2012 proposed rule (76 FR 26384), we noted 

that section 3006(a) of the Affordable Care Act directs the 

Secretary to develop a plan to implement a value-based 

purchasing (VBP) program for SNFs, and submit a Report to 

Congress by October 1, 2011. As stated in the proposed 

rule, VBP is designed 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 also stated that, in accordance 

with section 3006(a) of the Affordable Care Act, we would 

consult with stakeholders in developing the implementation 

plan, and consider the outcomes of any recent demonstration 

projects related to VBP which we believe might be relevant 

to the SNF setting. The comments we received on this 

topic, along with our responses, appear below. 

Comment: We received some comments in response to our 

description of the requirements of section 3006(a) of the 

Affordable Care Act to develop a plan to implement a VBP 

program for SNFs, and to submit to Congress a report by 
CMS-1351-F 118 

October 1, 2011. Commenters supported our efforts to 

consider a VBP program for SNFs, and made suggestions for 

the content and timing of the Report to Congress. 

 Response: Between December 2010 and January 2011, we 

held discussions with key stakeholders representing 

consumers, providers, and research organizations about the 

development of a plan to implement a VBP program for SNFs 

and the Report to Congress. We also held an Open Door 

Forum on March 10, 2011, in which more than 700 

stakeholders participated in the call. A number of 

organizations submitted follow-up written comments, which 

we will share with the VBP project team. 

We are in the process of developing the SNF VBP plan 

to address areas required by the statute. As required by 

the statute, in developing the plan, we will consider, 

among other things, measures of quality and efficiency in 

SNFs, reporting, collection, and validation of quality 

data, the structure of VBP adjustments, including the 

determination of thresholds or improvements in quality that 

would substantiate a payment adjustment, the size of such 

payments, and the sources of funding for bonus payments. 

We plan to submit the Report to Congress by the statutory 

deadline of October 1, 2011. 
CMS-1351-F 119 

2. Payment Adjustment for Hospital-Acquired Conditions 

(Section 3008) 

One of the ongoing Affordable Care Act initiatives 

that we discussed in the FY 2012 SNF PPS proposed rule (76 

FR 26384) is the payment adjustment added by section 

3008(a) of the Affordable Care Act, which is intended to 

provide an incentive to reduce the occurrence of certain 

preventable hospital-acquired conditions. While this 

hospital provision is itself beyond the scope of the SNF 

PPS, in the proposed rule, we additionally mentioned a 

study required under section 3008(b) of the Affordable Care 

Act, which directs the Secretary to evaluate possibly 

expanding the HAC policy from acute care hospitals to a 

variety of other settings, including SNFs, and to submit a 

report to Congress containing the results of the study by 

January 1, 2012. 

Comment: We received a number of comments regarding 

the study referenced in the proposed rule that is required 

by section 3008(b) of the Affordable Care Act, which 

directs the Secretary to undertake a study and send a 

Report to Congress considering the feasibility of extending 

the Hospital Acquired Conditions-Present on Admission (HACPOA) program to the other types of facilities. The 
CMS-1351-F 120 

commenters urged CMS to evaluate carefully the types of 

facility-acquired conditions that would be relevant to 

SNFs, and to avoid simply applying all of the hospitalacquired conditions to the postacute setting. 

Response: We appreciate the comments we received on 

the issues that we should consider in the study and Report 

to Congress required by section 3008(b) of the Affordable 

Care Act. We are considering a broad range of issues 

related to extending the HAC-POA program to the other types 

of facilities specified in the Affordable Care Act. The 

required study and Report to Congress are currently in 

progress, and we intend to issue the report by the 

statutory deadline. 

3. Nursing Home Transparency and Improvement (Section 

6104) 

 In the FY 2011 proposed rule (76 FR 26385), we 

discussed section 6104 of the Affordable Care Act, which 

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 enactment, and also requires the Secretary to perform 

certain related activities. We received no comments on 

this provision. 
CMS-1351-F 121 

E. Other Issues

1. Required Disclosure of Ownership and Additional 

Disclosable Parties Information (Section 6101) 

In the SNF PPS proposed rule for FY 2012 (76 FR 

26364), we proposed 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 accordance with section 6101 of the 

Affordable Care Act. 

In certain regulations that apply to Medicare SNFs and 

Medicaid nursing facilities, we proposed to add a 

definition for “additional disclosable party” and 

“organizational structure” and to revise the definition for 

“managing employee.” These proposed definitions were 

consistent with the requirements set forth in section 6101 

of Affordable Care Act. Given the arguably broad nature of 

the term “additional disclosable parties,” we solicited 

comments on how best to narrow the scope of the definition 

for this term. We also proposed to revise §424.516 to 

implement certain new disclosure requirements that pertain 

to Medicare SNFs and to amend §455.104 to implement certain 

new disclosure requirements that pertain to Medicaid 

nursing facilities. Furthermore, we requested comments on 
CMS-1351-F 122 

a potential alternative approach in which we would collect 

certain information from Medicare SNFs 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. Section 424.515(d), however, provides for 

off-cycle revalidations. We received a number of comments 

on this potential alternative approach. 

To respond properly to all of the comments received 

related to the disclosure of information requirements, we 

will publish a separate final rule specifically addressing 

these provisions at a later date. In accordance with the 

statutory requirements of section 6101 of the Affordable 

Care Act, we intend to publish that final rule early in CY 

2012. Accordingly, we are not implementing these 

provisions in this SNF PPS final rule. 

2. Therapy Student Supervision 

 In the FY 2012 proposed rule (76 FR 26385 through 

26386), we proposed to revise a policy that had appeared 

previously in the preamble to the FY 2000 final rule, which 

had specified that a therapy student in the SNF setting 

must “. . . be under the ‘line-of-sight’ level of 

supervision of the professional therapist” (64 FR 41661, 
CMS-1351-F 123 

July 30, 1999). We proposed that line-of-sight supervision 

should no longer be required in the SNF setting. We 

proposed that, instead, each SNF would determine for itself 

the appropriate manner of supervision of therapy students 

consistent with applicable State and local laws and 

practice standards. We advanced this proposal in the 

interest of promoting greater conformity with the other 

inpatient settings under Part A (for example, acute care 

hospitals and IRFs), which already permit each provider to 

determine for itself the most appropriate manner of 

supervision in this context, consistent with applicable 

State and local laws and practice standards. The comments 

we received on this topic, along with our responses, may be 

found below. 

Comment: The great majority of commenters were 

supportive of this revision, with some criticizing the 

existing policy as creating difficulty in securing therapy 

students in the SNF setting. One commenter expressed the 

belief that supervising therapists will now be able to 

offer an increased quality of care in the SNF setting, and 

that students will experience an elevated quality of 

learning that will prepare future clinicians to work in the 

SNF setting. Many commenters were concerned with how the 
CMS-1351-F 124 

time spent by therapy students with SNF patients could be 

billed, if at all. Several of the therapy trade 

associations offered detailed guidelines on therapy student 

supervision, with some of those also indicating that once a 

supervising therapist deems the student capable of treating 

a patient without line-of-sight supervision, the student’s 

time should then be separately counted as skilled therapy 

minutes, over and above the therapist’s own time. By 

contrast, another commenter stressed the importance of 

making clear that only the line-of-sight supervision 

requirement itself is being changed, to avoid triggering an 

inordinate increase in therapy student minutes that would 

create another distortion in the payment system. Several 

commenters suggested that CMS publish specific criteria 

that facilities should use to determine whether a student 

is capable to treat patients without line-of-sight 

supervision. Others suggested that beyond the specific 

criteria, CMS should specifically state that the 

supervising therapist, rather than the facility, should be 

the only entity to determine whether a student is capable 

of treating patients without line-of-sight supervision. 

However, two commenters were completely opposed to 

rescinding the line-of-sight requirement: one stated that 
CMS-1351-F 125 

eliminating this requirement would be inconsistent with 

existing Part B therapy instructions appearing in §230 of 

the Medicare Benefit Policy Manual (MBPM), Chapter 15, 

while the other expressed concern that it could result in 

SNFs inappropriately misclassifying therapy time to 

increase reimbursement. 

 Response: Regarding the Part B instructions that one 

of the commenters cited in the MBPM, we note that these 

particular instructions do not actually mandate line-ofsight supervision for therapy students, but merely specify 

that the services “. . . performed by a student are not 

reimbursed even if provided under ‘line of sight’ 

supervision of the therapist” (emphasis added). Further, 

with regard to the concerns over potential distortions in 

reimbursement, we wish to clarify that the change we have 

proposed would solely address the specific manner of 

supervision for a therapy student in this setting, but 

would in no way alter that individual’s basic status as a 

student operating under the therapist’s supervision. Thus, 

this policy change would not change the manner in which 

therapy minutes currently are recorded on the MDS or cause 

the student’s time to become separately reimbursable. 
CMS-1351-F 126 

In response to those commenters concerned with how to 

bill therapy student time spent with SNF patients, 

consistent with our existing policy as set forth in the RAI 

Manual, Chapter 3, Section O (pages O-20 through O-22), as 

the therapy student is under the direction of the 

supervising therapist (even if no longer required to be 

under line-of-sight supervision), the time the student 

spends with a patient will continue to be billed as if it 

were the supervising therapist alone providing the therapy. 

In other words, the therapy student, for the purpose of 

billing, is treated as simply an extension of the 

supervising therapist rather than being counted as an 

additional practitioner. It should be noted that all 

policies and definitions related to the type of therapy 

provided (individual, concurrent, and group) apply to the 

supervising therapist and therapy student as set forth in 

the RAI manual, Chapter 3, Section O (pages O-20 through O22) even if the student is no longer required to be under 

line-of-sight supervision. 

Finally, we agree that students who treat SNF 

residents without line-of-sight supervision should be 

qualified based on specific guidelines. As we stated in 

the proposed rule, “. . . each SNF would determine for 
CMS-1351-F 127 

itself the appropriate manner of supervision of therapy 

students, consistent with applicable State and local laws 

and practice standards” (76 FR 26835). We expect that 

professional associations, State and local licensing 

boards, and facilities should have very specific guidelines 

related to student clinicians’ level of education and 

experience. Additionally, we expect that every student 

clinician should meet these standards and guidelines and 

that once met, the supervising therapist should have 

ultimate authority to determine whether a student clinician 

is adequately prepared to treat patients without line-ofsight supervision. In this context, we appreciate the 

detailed supervision guidelines that several of the trade 

associations have developed, which we recognize as playing 

a significant role in helping to define the applicable 

standards of practice on which providers rely in this 

context. However, we believe that the question of counting 

the student’s time is actually a separate issue apart from 

providing guidance on appropriate supervisory practices 

themselves. As noted previously, a therapy student’s time 

was not separately reimbursable prior to the elimination of 

the requirement for line-of-sight supervision, nor does it 

become so now as a result of this change. 
CMS-1351-F 128 

Therefore, for the reasons outlined in this final rule 

and in the FY 2012 proposed rule (76 FR 26385 through 

26386), we are finalizing our proposed revision to the 

line-of-sight supervision requirements as they pertain to 

students in a SNF setting. Accordingly, in this final 

rule, we are hereby discontinuing the policy announced in 

the FY 2000 final rule’s preamble requiring line-of-sight 

supervision of therapy students in SNFs, as set forth in 

the FY 2012 proposed rule. Instead, effective October 1, 

2011, as with other inpatient settings, each SNF will 

determine for itself the appropriate manner of supervision 

of therapy students consistent with State and local laws 

and practice standards. We will be monitoring student 

participation in SNFs and expect that facilities will 

ensure that students, though no longer required to be under 

line-of-sight supervision, will still be properly 

supervised for both the student's and patient's benefit. 

3. Group Therapy and Therapy Documentation 

Under our current policy, group therapy is the 

practice of one professional therapist treating multiple 

patients (up to a maximum of four) at the same time while 

the patients are performing either the same or similar 

activities, consistent with the policies first set forth in 
CMS-1351-F 129 

the FY 2000 SNF PPS final rule (64 FR 41662). In the FY 

2012 proposed rule (76 FR 26386 through 26388), we proposed 

to make certain changes relating to the definition of group 

therapy and payment of group therapy services. 

We noted that, using our STRIVE data as a baseline, we 

identified two 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, the minutes for which are divided between the two 

concurrent therapy participants when determining the 

patient’s appropriate RUG classification. At the same 

time, we found a significant increase in the amount of 

group therapy services, which are currently not subject to 

the allocation requirement. Given this increase in group 

therapy services, we expressed concern that the current 

method for reporting group therapy on the MDS creates an 

inappropriate payment incentive to perform the group 

therapy in place of individual therapy, because the current 

method of reporting group therapy time does not require 

allocation among patients, as noted by several commenters. 

In addition, the allocation of concurrent therapy minutes 

effective FY 2011 may have created an incentive to perform 
CMS-1351-F 130 

group therapy in place of concurrent therapy in situations 

where concurrent therapy otherwise may have been 

appropriate. In the proposed rule, we proposed to change 

our policies relating to group therapy as further discussed 

below. 

First, we proposed to establish a standard that 

defines group therapy as therapy provided simultaneously to 

four patients who are performing the same or similar 

therapy activities (76 FR 26386 through 26387). As we 

stated in the proposed rule (76 FR 26386), because in group 

therapy patients are performing similar activities, 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 individual 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. 
CMS-1351-F 131 

Furthermore, we believe that groups of fewer than four 

participants do not maximize the group therapy benefit for 

the participants. As we stated in the FY 2012 proposed 

rule (76 FR 26386), 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 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 and in the 

FY 2012 proposed rule (76 FR 26386 through 26387), 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. Accordingly, we 
CMS-1351-F 132 

proposed to define group therapy as therapy provided 

simultaneously to four patients who are performing similar 

therapy activities (76 FR 26387). 

In addition, we proposed to allocate group therapy 

among the four group therapy participants. As we stated in 

the FY 2012 proposed rule (76 FR 26387), 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 would 

best capture the resource utilization and cost. 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). As we stated in the FY 2012 proposed rule (76 FR 

26387), as is currently the procedure, the SNF would report 

the total unallocated group therapy minutes on the MDS 3.0 

for each patient. In terms of RUG-IV classification, this 

total time would be allocated (that is, divided) among the 
CMS-1351-F 133 

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. We stated in the FY 2012 proposed rule that 

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. 

Additionally, we made a number of clarifications with 

regard to clinical documentation requirements related to a 

patient’s plan of care (76 FR 26387 through 26388). In the 

proposed rule, we discussed these requirements and 

clarified a number of regulatory provisions related to 

documentation within the SNF setting (see 76 FR 26387 

through 26388 for a full discussion). Specifically, we 

noted (76 FR 26387) that SNFs are currently required to 

follow a prescribed plan of care for the therapy provided 
CMS-1351-F 134 

to a SNF resident (§409.23) and that the plan must meet the 

requirements of the regulations in §409.17(b) through (d). 

We further clarified that supporting medical record 

documentation is needed so that SNFs can verify that the 

plan of care is being followed, and can identify when 

significant changes in a patient’s medical condition occur. 

In addition, we stated that such supporting medical record 

documentation has always been required so that contractors 

can verify medical necessity when they review SNF claims 

(76 FR 26387). One example of appropriate documentation 

would be to use time stamps to indicate the exact start and 

ending time of a therapy session. These time stamps could 

be tracked on a beneficiary’s record to determine what 

discipline and mode of therapy they received. If 

necessary, these time stamps could be compared with a 

therapist’s log in order to streamline the medical review 

process. We also clarified that providers should ensure 

that skilled therapy services are appropriate to the goals 

of a patient’s individualized plan of care, and that 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 progress toward the prescribed goals 
CMS-1351-F 135 

(76 FR 26388). We discussed the relationship between this 

documentation and the use of group therapy, clarifying that 

group therapy is not appropriate for every patient or for 

all conditions. Accordingly, SNFs should include 

justification for using group therapy as part of the 

patient’s plan of care, to permit verification of the 

medical necessity and the appropriateness of the prescribed 

therapy plan (76 FR 26388). Finally, we discussed the need 

to update the patient’s plan of care when changes occur 

that would affect the prescribed therapy plan or patient’s 

condition, and clarified that any such changes in the 

therapy plan must be justified by changes in the 

beneficiary’s underlying health condition, and that the 

provider is expected to describe in the plan of care the 

reasons for deviating from the original plan (76 FR 26388). 

We received a number of comments on these proposals and 

clarifications which, along with our responses, appear 

below. 

Comment: Several commenters expressed support for the 

proposed change to allocate the group therapy minutes. 

Many others had general concerns about the allocation of 

group therapy. One commenter believed that during a group 

therapy session, every patient benefits for the full time 
CMS-1351-F 136 

of the session, rather than only one quarter of the session 

as the allocation of group time would suggest. 

Additionally, several commenters have expressed that there 

are psychosocial and functional benefits of group therapy 

and are concerned that residents will be negatively 

affected by the allocation of group therapy. We have 

received multiple comments claiming that the allocation of 

group therapy minutes will disincentivize therapists from 

performing group therapy in cases where group therapy may 

be the preferred mode of treatment, since their payments 

will decrease if they continue to provide the same volume 

of group therapy. Several commenters stated that planning 

and implementing group therapy tasks is a very timeconsuming and challenging process, and that to allocate the 

group therapy minutes would mean that payment would not 

accurately reflect the time spent preparing for these 

therapy sessions and the additional costs of providing 

group therapy. One commenter stated it is more expensive 

to provide group therapy than individual or concurrent 

therapy. 

Response: As we noted in the proposed rule (76 FR 

26387), the allocation of group therapy time is based on 

accurately paying for the therapist's time, not the 
CMS-1351-F 137 

resident's time. During a one-hour group therapy session 

with four patients, while all four patients may receive a 

full hour of benefit from the therapy session, this still 

only constitutes one hour of the therapist's time. Given 

that the SNF PPS is based on resource utilization and cost, 

the payment for these services should reflect the amount of 

the therapist's time that was utilized as part of the 

therapy session. 

As stated in our proposal, we agree with the 

commenters that there are unique benefits to group therapy. 

We do not believe that the allocation of group therapy 

minutes should be considered a deterrent to having group 

therapy sessions or should negatively affect beneficiaries. 

Instead, allocation of group therapy brings Medicare 

payments in line with resource utilization and cost for 

these services and is intended to ensure that the 

therapist’s time is being appropriately counted and 

reimbursed. We would expect therapists to continue to 

provide the mode of therapy that is most clinically 

appropriate for each patient. 

Regarding the statement that the preparation for group 

therapy is a high-cost, time-consuming, and challenging 

process requiring careful evaluation of each patient, we 
CMS-1351-F 138 

agree that special care should be taken to plan for the 

most appropriate group therapy program for the designated 

patients. However, we expect that therapists will utilize 

high-quality standards of practice that require careful 

planning and documentation for all modes of therapy. 

Moreover, these costs were included in the 

establishment of the per diem base rate, and are already 

being reimbursed as part of the SNF PPS. Additionally, 

while some commenters did maintain that group therapy costs 

more to provide than individual or concurrent therapy, 

other commenters believed the opposite, with one commenter 

stating the following regarding the allocation policy, “The 

policy would undercut efficiency, while pushing patients 

into higher cost modes of care.” We note that in 

allocating group therapy minutes, we are not dictating the 

mode of therapy that a SNF should provide to its patients. 

Instead, as discussed above, this policy brings Medicare 

payments more in line with resource utilization and cost 

for these services. Determinations regarding the 

appropriate mode of therapy should be made by the therapist 

based on the clinical needs of each patient. 

Comment: Several commenters raised concerns regarding 

the strict allocation of group therapy minutes by four. 
CMS-1351-F 139 

The most common question we received from commenters was 

for clarification of why four was chosen to be the divisor, 

regardless of the number of participants in the group. 

Some commenters stated that using a hard divisor of four 

for group therapy minutes, rather than proposing to have 

facilities report the number of participants in the group 

and divide accordingly, contradicts CMS's reasoning that 

the allocation of group therapy is based on resource cost 

and utilization. These commenters also inquired as to how 

the facility should report the therapy time if four 

residents were scheduled for a group therapy session and 

one of the participants fell ill and was unable to 

participate. Several commenters asserted that we created a 

financial incentive to provide group therapy when we 

allocated concurrent therapy and did not address group 

therapy. 

One commenter stated that as a rural provider, it is 

very rare ever to have a 4-person group. Another commenter 

discussed the ability of therapists to transition patients 

from a concurrent therapy environment to a group 

environment, and indicated that dividing by four makes it 

more difficult for providers to transition patients 

properly between concurrent and group therapy. Several 
CMS-1351-F 140 

commenters encouraged CMS to consult with clinical experts 

and professional therapy associations to determine the most 

appropriate number of group therapy participants based on 

clinical standards. 

Response: Contrary to commenters’ assertions, we did 

not propose to divide group therapy minutes by four 

regardless of the number of participants in the group. We 

proposed to divide by four in allocating group therapy 

minutes because we had proposed a definition of group 

therapy which requires four participants. In the FY 2012 

proposed rule, we proposed to define group therapy as 

therapy provided simultaneously to four patients who are 

performing the same or similar activities. (76 FR 26387) 

Thus, based on our proposed definition of group therapy 

(which we are finalizing in this rule), we expect group 

therapy to be a structured, planned program with four 

participants for whom group therapy has been determined 

appropriate. As we stated in the proposed rule, we proposed 

“allocating group therapy minutes among the four group 

therapy participants” (76 FR 26387, emphasis added). Thus, 

given this definition of group therapy, dividing group 

therapy minutes by four captures resource utilization and 

cost associated with providing this mode of therapy, as 
CMS-1351-F 141 

under our proposed policy, groups would be required to have 

four participants. We note that, in situations where the 

definition of group therapy is not met, those minutes may 

not be coded on the MDS as group therapy. 

We recognize that in some situations, one or more of 

the scheduled group therapy participants may not be able to 

attend a group session due to illness or otherwise, or may 

be unable to finish participating in the entire group 

session. Based on our definition of group therapy as 

finalized in this rule, we expect group therapy to be a 

structured, planned program with four participants. 

However, if one or more of the four participants are 

unexpectedly absent from a session or cannot finish 

participating in the entire session, rather than 

discontinuing payment or requiring the session to be 

rescheduled, we will continue to deem the therapy session 

as meeting the definition of group therapy as long as the 

therapy program originally had been planned for four 

patients. In this situation, we will continue to assume 

that there are four patients and, therefore, will divide 

the therapy minutes by four in allocating group therapy 

minutes among the group therapy participants. As discussed 

above, we believe the most appropriate size for group 
CMS-1351-F 142 

therapy in a SNF setting is four participants and, thus, we 

believe dividing by four reflects the resource utilization 

and cost associated with group therapy as we have defined 

it in this rule and as we expect it to be structured based 

on this definition. 

Commenters have suggested that we recognize an 

alternative to allocating group therapy by four and, 

instead, divide the therapy minutes by the number of 

patients in the group. However, one commenter stated, 

“Such an approach does not recognize the additional burdens 

and costs associated with the provision of group services, 

however, nor the difficulty providers and therapists would 

have in tracking the number of people in a group at all 

times and accurately counting minutes when patients are 

dropping in and dropping out throughout the session.” As 

we stated above and in the FY 2012 proposed rule (76 FR 

26387), we believe that most appropriate group therapy size 

in a SNF setting is four participants and, thus, we have 

defined group therapy accordingly. Given this definition, 

we believe that it is appropriate to allocate group therapy 

minutes among the participants by dividing by four. We 

note that the apparent lack of structure and discontinuity 

of the group interventions, as noted by the commenter, 
CMS-1351-F 143 

suggests that facilities may need to reassess their methods 

of providing group therapy services. In addition, we agree 

with many commenters that the implementation of RUG-IV 

created a payment incentive to provide group therapy and 

that the increase in group therapy may have been due to 

payment rather than clinical considerations. We note that 

by allocating group therapy among the four group therapy 

participants, we are also equalizing the reimbursement 

incentive across the modes of therapy. We believe this 

will once again encourage clinicians to choose the mode of 

therapy based on clinical rather than financial reasons. 

Several commenters agreed with this concept and one stated 

that “Payments for different modalities of therapy 

(concurrent, group, and individual) should reflect the 

different costs to provide the services. Otherwise 

providers will have financial incentives to furnish one 

modality over another, regardless of whether the modality 

is the most clinically appropriate for the patient.” It is 

also important to keep in mind that every payment system 

has multiple incentives, both positive and negative. The 

management in each facility is faced with making 

cost/benefit choices on an almost daily basis. However, 

these choices must keep patient needs at the forefront of 
CMS-1351-F 144 

the decision-making process, and the existence of a payment 

incentive does not in itself justify the provision of a 

lower or less appropriate level of care merely in order to 

reduce facility costs. 

We continue to believe that the provision of group 

therapy should be initiated only after determining that 

group therapy services are appropriate for each patient who 

receives them and that the group therapy provided is 

appropriate to the individual plans of care. As we noted 

in the proposed rule (76 FR 26388), 

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 . . . 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 the beneficiary, SNFs should include 

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 
CMS-1351-F 145 

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. 

Therefore, we believe that to every extent possible, 

group therapy sessions should not fluctuate in size and 

membership. As we stated above, we believe the most 

appropriate group therapy size in a SNF setting is four 

participants, and thus we are defining group therapy 

accordingly. Thus, as we are defining group therapy as 

consisting of four participants, we believe that allocating 

the minutes among the four participants best captures 

resource utilization and cost. 

As discussed above, one commenter discussed the 

ability of therapists to transition patients from a 

concurrent therapy environment to a group environment, and 

indicated that dividing by four makes it more difficult for 

providers to transition patients properly between 

concurrent and group therapy. Historically, prior to the 

implementation of the RUG-IV system, SNFs reported a low 

utilization of group therapy. The limited use of group 

therapy programs may well be related to the logistical 

difficulties mentioned by this commenter, such as 

transitioning the patients properly between concurrent and 
CMS-1351-F 146 

group therapy. However, we do not see how allocating group 

therapy minutes would make it more difficult to transition 

patients from one therapy mode to another, as such 

transitions should be based on clinical determinations. 

The purpose of our allocation policy is to provide payment 

that better reflects resource utilization and cost, and we 

do not believe this policy should affect clinical 

determinations regarding the appropriate mode of therapy 

provided to a patient. We recognize the unique challenges 

that rural facilities face, but as we discussed above and 

in the FY 2012 proposed rule, we believe that the most 

appropriate group therapy size for a SNF setting is four. 

We believe that group therapy should be used to supplement 

individual therapy when suitable. In facilities where 

fewer than four patients are consistently being treated 

with the same or similar therapeutic interventions, group 

therapy programs may not always be appropriate. We expect 

all facilities to make the best clinical decisions when 

providing group therapy. 

For the reasons discussed above and in the FY 2012 

proposed rule (76 FR 26386 through 26388), as proposed, 

effective October 1, 2011, group therapy will be defined as 

therapy provided simultaneously to four patients who are 
CMS-1351-F 147 

performing the same or similar activities, and group 

therapy time will be divided by four in determining the 

reimbursable therapy minutes for each group therapy 

participant and, therefore, the appropriate RUG-IV group. 

As discussed above and in the FY 2012 proposed rule, 

we believe it is appropriate to define group therapy as 

consisting of four participants. However, we will continue 

to monitor group therapy utilization and will continue to 

consult with clinical experts, professional therapy 

associations, and other stakeholders on this issue. 

Comment: Many commenters questioned our choice of 

four as the most appropriate number of participants in a 

therapy group. Several commenters disagreed that the 

optimal number for patients in a group is four and stated 

that there is no research data to support this notion. 

Additionally, commenters stated that there are many 

instances when 2 or 3-person groups are more effective than 

4-person groups and that in some specific instances, a 4-

person group might pose serious patient risks. Many 

commenters stated that the choice of four as the optimal 

number for group therapy undermines the clinical judgment 

of therapists, and that CMS does not have the authority to 
CMS-1351-F 148 

dictate the practice of therapy and, therefore, cannot 

instruct therapists to allocate group therapy. 

Response: For the reasons discussed above and in the 

FY 2012 proposed rule (76 FR 26386 through 26387), we 

believe the most appropriate size for group therapy in a 

SNF setting is four participants, which we believe is the 

size that permits the therapy participants to derive the 

maximum benefit from the group therapy setting. Although

we conducted a literature search and were unable to find 

research data to support any prescribed number of 

participants in a therapy group, for the reasons stated 

above and in the FY 2012 proposed rule, we continue to 

believe it is appropriate to establish a standard that 

defines group therapy as therapy provided simultaneously to 

four participants performing the same or similar therapy 

activities. 

In defining group therapy as therapy provided to four 

patients simultaneously who are performing the same or 

similar activities, we are not attempting to dictate 

clinical practice. Each therapist should use his or her 

best clinical judgment in determining the mode and manner 

in which to provide therapy services to patients. We 

understand that at times the therapist may decide in his or 
CMS-1351-F 149 

her clinical judgment to treat 2 or 3 patients 

simultaneously, and we are not prohibiting therapists from 

making this clinical decision. However, for purposes of 

Medicare payment policy, for the reasons discussed above 

and in the FY 2012 proposed rule, we are defining group 

therapy as therapy provided simultaneously to four patients 

who are performing the same or similar therapy activities. 

Further, we are allocating group therapy minutes by 

dividing the total minutes by four, the number of 

participants in a group therapy session as defined above. 

Our goal in allocating group therapy is to pay 

appropriately based on resource utilization and cost, not 

to dictate the practice of therapy. 

Regarding the concept that groups of 4 may pose 

serious patient risks, we conducted a literature review and 

did not find any evidence that a group of 4 would pose any 

more of a patient risk than treating any other specific 

number of patients at a time. As discussed above, we 

expect therapists to use their best clinical judgment when 

choosing which mode of therapy to use. If they believe that 

a particular mode of therapy would pose an increased degree 

of risk to a patient, we would expect them not to use that 

mode of therapy. 
CMS-1351-F 150 

Comment: Several commenters stated that with the 

implementation of RUG-IV and its related policies, such as 

the allocation of concurrent therapy, we created a 

financial incentive for facilities to shift patients 

receiving concurrent therapy into group therapy, as long as 

the patient’s therapy needs were still being met. These 

commenters stated that CMS should have expected some shift 

in the modes of therapy services provided. Additionally, 

these commenters believed that the data we used were 

inconclusive, since no data were collected on the modality 

of therapy delivered under MDS 2.0 and RUG-III. Others 

have stated that CMS’ decision to use data from the STRIVE 

study is unsound because the STRIVE study was flawed. One 

commenter suggested that CMS should not allocate group 

therapy minutes until we have a full year’s worth of data 

under the RUG-IV and MDS 3.0 system. 

Response: We agree that the decision to allocate 

concurrent therapy inadvertently created an inappropriate 

financial incentive for facilities to emphasize more group 

therapy and that these incentives have resulted in excess 

Medicare expenditures. Accordingly, to fulfill our 

responsibilities to ensure appropriate payment based on 

resource utilization and cost, we proposed the allocation 
CMS-1351-F 151 

of group therapy minutes, which equalizes the reimbursement 

incentives across modes of therapy. 

The statement that no data were collected to address 

the modality of therapy delivered under MDS 2.0 and RUG-III 

is incorrect. STRIVE collected data from the MDS 2.0 and 

RUG-III to examine the different modes of therapy delivery. 

Regarding the statement that the STRIVE study was flawed, 

we addressed this general concern in the FY 2010 final rule 

(74 FR 40304). 

One commenter suggested that we defer allocating group 

therapy minutes until we have received more data. However, 

we believe we do not need a full year’s worth of data 

before making changes to allocate group therapy. 

Regardless of whether the initial trends for utilization of 

group therapy continue, we believe that the group therapy 

allocation policy finalized in this final rule will 

increase the accuracy of our payments by more closely 

basing payments on actual resource utilization and cost 

and, thus, we believe that it is appropriate to finalize 

our policy regarding allocation of group therapy minutes 

effective October 1, 2011, as proposed. 

Comment: Many commenters recognized the need to make 

changes to group therapy but suggested alternatives to the 
CMS-1351-F 152 

allocation of group therapy. Several commenters 

recommended that to reduce the incentive to overutilize 

group therapy, we should examine the current 25 percent cap 

on group therapy and make the necessary adjustments. One 

commenter suggested that we limit patients to one group 

therapy session per week. 

Response: We appreciate the suggested alternatives to 

our proposal. We should note that the 25 percent cap for 

group therapy was designed to ensure that group therapy is 

utilized as an adjunct to individual (and concurrent) 

therapy. Conversely, the allocation of therapy minutes 

will be used to pay accurately for the therapy provided in 

a group therapy session based on resource utilization and 

cost. We also appreciate the suggestion to limit patients 

to one group therapy session per week and may explore this 

alternative or similar alternatives in the future in 

assessing the amounts of group therapy that may be 

beneficial to SNF patients. 

Comment: Several commenters stated that the 

allocation of group therapy will cause operational 

inefficiencies in SNFs and will cause SNFs to need to hire 

more therapists in a field that currently has a significant 

shortage of professionals. 
CMS-1351-F 153 

Response: We do not believe that the allocation of 

group therapy would cause operational inefficiencies or 

cause SNFs to hire more therapists. We note that the 

personnel decisions of SNFs are essentially private 

business arrangements that are outside the scope of this 

rule. Moreover, the allocation of group therapy does not 

require a change in MDS reporting procedures. As we stated 

in the FY 2012 proposed rule (76 FR 26387), as is currently 

the procedure, the SNF would report the total unallocated 

group therapy minutes on the MDS 3.0 for each patient. 

Then this total time would be automatically divided among 

the four group therapy participants to determine the 

appropriate number of RTM, and thus the RUG-IV 

classification and payment level for each patient. Thus, 

the allocation of group therapy will not require extra work 

on the part of SNF staff. Accordingly, we do not believe 

that allocation of group therapy minutes will cause 

operational inefficiencies in SNFs. 

Comment: In the proposed rule, we solicited comments 

on types of patients for whom group therapy might be 

appropriate. We received several comments in response to 

this solicitation, which included different diagnoses (for 

example, aphasia) and treatment types (for example, a 
CMS-1351-F 154 

functional communication group). One commenter stated that 

while there are specific conditions that might prompt the 

consideration for group therapy, it is important for group 

therapy to be part of an integrated plan of care 

established under medical direction. Commenters noted that 

not all patients would benefit from group therapy, nor 

would all conditions be appropriate to incorporate into a 

group therapy program. 

Response: We appreciate the comments which suggested 

various diagnoses and treatment types that might benefit 

from group therapy. As we stated in the proposed rule (76 

FR 26387), group therapy is not appropriate for either all 

patients or all conditions and is primarily effective as a 

supplement to individual therapy. We agree with the 

comment noting that while there are specific conditions 

that might prompt the consideration of group therapy, it is 

important for group therapy to be part of an integrated 

plan of care established under medical direction. 

Additionally, we believe that diagnoses and treatment 

techniques (such as communication or feeding groups) should 

not be the sole basis for choosing to initiate group 

therapy. Therapists should determine for each resident, 

regardless of diagnosis or condition, whether the resident 
CMS-1351-F 155 

is a good candidate for group therapy based on functional 

level and treatment potential, and whether this particular 

form of treatment is in the patient’s best interest and 

within the goals of the overall plan of care. We will take 

the commenters’ suggestions under consideration in 

assessing the appropriate use of group therapy in SNFs and 

may address this further in future rulemaking. 

Comment: One commenter requested clarification of a 

sentence in the proposed rule, which stated that “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” (76 FR 

26387). The commenter believed that the number of group 

therapy minutes stated in the parentheses of the above 

sentence, given the scenario referred to in that sentence, 

should be 120. 

Response: After reviewing the sentence quoted above 

from the proposed rule (76 FR 26387), we agree with this 

commenter and wish to clarify that there is an error in 

this sentence. In the above-quoted sentence from the FY 

2012 proposed rule, the minutes referred to in the 

parentheses should read 120 minutes rather than 60 minutes, 

given the immediately preceding scenario to which it 
CMS-1351-F 156 

refers. Thus, this sentence should have stated, “As is 

currently the procedure, the SNFs would report the total 

unallocated group therapy minutes on the MDS 3.0 (120 

minutes in the scenario above) for each patient.”. 

Comment: One commenter suggested that an 

inconsistency of CMS’s definition of group therapy between 

the FY 2010 final rule (74 FR 40315) and the MDS RAI Manual 

(Chapter 3, Section O) may have led to the increase in 

group therapy utilization. The commenter specifically 

references the words “same” versus “similar” as regards to 

type of group therapy services/activities. This commenter 

recommended that CMS make the definitions of group therapy 

consistent between the regulations and the RAI Manual. 

Response: In the FY 2010 final rule (76 FR 40315), we 

stated that group therapy is therapy where a “therapist 

provides the same services to everyone in the group.” We 

note that later in the preamble of the FY 2010 final rule 

(74 FR 40317), we define group therapy as “consisting of 2 

to 4 patients (regardless of payer source) who are 

performing similar activities . . .” In the RAI Manual 

(Chapter 3, Section O)], group therapy is also defined as 

”the treatment of 2 to 4 residents, regardless of payer 

source, who are performing similar activities, . . . .” We 
CMS-1351-F 157 

do not believe that this inconsistency in the definition 

may have led to the increase in group therapy utilization 

as we are not aware of evidence to support this claim. 

Additionally, we provided extensive training to providers 

both prior to and after the implementation of MDS 3.0. At 

the time of training, we did not receive questions on this 

issue, suggesting that there was not a significant amount 

of confusion on this point. To clarify, from this point 

forward, the definition of group therapy will be consistent 

in regulation and in the RAI manual. For the purposes of 

coding group therapy for Medicare Part A SNF payment, the 

existing definition of group therapy has been: 2-4 

patients (regardless of payer source) who are 

simultaneously performing the same or similar activities 

and are supervised by a therapist (or assistant) who is not 

supervising any other individuals. However, as discussed 

in this final rule, beginning October 1, 2011, this 

definition will be: 4 patients (regardless of payer 

source) who are simultaneously performing the same or 

similar activities and are supervised by a therapist (or 

assistant) who is not supervising any other individuals. 

For purposes of coding concurrent therapy for Medicare Part 

A SNF payment, the definition of concurrent therapy will 
CMS-1351-F 158 

remain: therapy consisting of 2 patients who are not 

performing the same or similar activity (regardless of 

payer source), both of whom must be in line-of-sight of the 

treating therapist (or assistant). 

Comment: Several commenters supported the 

clarification of our expectations for documenting group 

therapy services. Some commenters stated that 

rehabilitation professionals need to support the work they 

do through documentation, and that the documentation should 

reflect the need for skilled care as well as demonstrate 

how the therapy provision will support patients’ needs and 

goals. Further, professional therapy associations commented 

on the documentation clarifications, stating that the 

requirement for adequate documentation to justify the use 

of each mode of therapy is necessary and that there should 

be no additional burden to provide this documentation, as 

it should be a standard part of any documentation. Others 

expressed concern that we proposed new and stricter 

guidelines for documenting group therapy. Some commenters 

stated that requiring a therapist to document why a 

specific mode of therapy was chosen for a patient would 

create an undue burden on the therapist. One commenter 

stated that requiring an additional, separate plan of care 
CMS-1351-F 159 

for group therapy would not improve the quality or efficacy 

of this mode of therapy delivery, and that it would be a 

disincentive for clinicians to perform group therapy due to 

the increased paperwork. 

Response: We would like to clarify that we did not 

propose new documentation requirements for group therapy 

provision. In fact, these documentation requirements have 

been in place all along, and the intent of the discussion 

in the proposed rule was to clarify our expectations. 

Contrary to the commenter’s statement, we are not requiring 

an additional, separate plan of care for group therapy. 

The regulations at §409.17(c) and §409.23(c) require that, 

in order for Medicare to pay for therapy in a SNF, a 

therapy plan of care must be in place and that it must 

include certain information. In the FY 2012 proposed rule 

(76 FR 26387 through 26388), and as discussed previously, 

we simply clarified what we expect to be included in the 

plan of care and supporting medical record documentation in 

cases where group therapy is provided. 

Therefore, as this discussion in the proposed rule 

simply clarified existing expectations, we do not agree 

that these documentation guidelines will increase or create 

undue burden on therapists, or that these guidelines create 
CMS-1351-F 160 

a disincentive for clinicians to perform group therapy due 

to increased paperwork. As the commenters above suggested, 

there should be no additional burden to provide this 

documentation, as it should be a standard part of any 

documentation. We agree with those commenters who stated 

that rehabilitation professionals need to support the work 

they do through documentation, and that the documentation 

should reflect the need for skilled care and the mode of 

therapy provided, as well as demonstrate how the therapy 

provision will support patients’ needs and goals. 

Comment: One commenter stated that the clarification 

of CMS coverage and documentation expectations included in 

the proposed rule inappropriately broadens the 

documentation requirements of group therapy by applying 

standards beyond those found in the current law and 

regulations for SNF care. Specifically, the commenter 

indicated that the clarification incorrectly applies 

hospital regulations and inaccurately characterizes 

guidelines set forth in program manuals as binding for 

SNFs. This commenter recommended that CMS clarify therapy 

documentation requirements using only SNF law and 

regulations. 
CMS-1351-F 161 

Response: We do not agree with the claim that the 

requirement to establish structured and well-documented 

group therapy programs applies to hospitals but not to 

SNFs. We would note that while it is the regulations 

themselves from which legal authority derives, the program 

manuals and other interpretive guidelines can serve to 

clarify or interpret the regulations set forth in the Code 

of Federal Regulations (CFR). The clarifications set forth 

in the FY 2012 proposed rule (76 FR 26387 through 26388) 

are based on regulations at §409.17 and §409.23, and 

interpretive guidance in the RAI Manual, all of which are 

applicable to SNFs. While the cited regulations in the 

proposed rule, specifically §409.17(b) through (d), fall 

within Part 409, Subpart B (Inpatient Hospital Services and 

Inpatient Critical Access Hospital Services), these 

particular regulations also apply to SNFs with regard to 

their patients’ plans of care and for guidance on specific 

documentation requirements. Specifically, §409.23, which 

is located in Part 409, Subpart C (Posthospital SNF Care), 

states that Medicare pays for SNF therapy services if they 

are furnished, among other things, in accordance with a 

plan of care that meets the requirements of §409.17(b) 

through (d), thereby making §409.17(b) through (d) 
CMS-1351-F 162 

applicable to SNFs. When we initially revised the SNF 

therapy regulations at §409.23(c) to incorporate these plan 

of care requirements in the Medicare Physician Fee Schedule 

final rule for Calendar Year (CY) 2008 (72 FR 66331, 

November 27, 2007), we noted our belief that “. . . therapy 

services should be provided according to the same standards 

and policies in all settings, to the extent possible and 

consistent with statute.” Moreover, in the Medicare 

Physician Fee Schedule final rule for CY 2011 (75 FR 73583, 

November 29, 2010), we revised the hospital regulations at 

§409.17(d) on therapy treatment plans--to which the 

corresponding SNF therapy regulations cross-refer--

specifically to clarify that those particular hospital 

regulations also apply to SNFs. Thus, our clarifications 

do not exceed the current law and regulations applicable to 

SNFs. 

Further, we do not agree with the commenter’s implicit 

assumption that program guidelines are not relevant to this 

process. We note that such guidelines are based on the 

provisions of the regulations, and are made available to 

each provider to advise it of those provisions as well as 

of CMS’s or the surveyor’s expectations. While these 

guidelines are disseminated to providers, all providers are 
CMS-1351-F 163 

nevertheless expected to comply fully with the regulations 

on which the guidelines are based. 

For the reasons discussed in section V.C of the FY 

2012 proposed rule (76 FR 26386 through 26388), and for the 

reasons discussed in this final rule above, we are 

finalizing our proposed policies related to group therapy 

effective October 1, 2011. First, we are defining group 

therapy as therapy provided simultaneously to four patients 

(regardless of payer source) who are performing the same or 

similar activities and are supervised by a therapist (or 

assistant) who is not supervising any other individuals (76 

FR 26386 through 26387). In addition, we are finalizing 

our proposed policies related to the reporting and 

allocation of group therapy minutes as discussed above and 

in the FY 2012 proposed rule (76 FR 26387). As is 

currently the procedure, the SNF will report the total 

unallocated group therapy minutes on the MDS 3.0. In terms 

of RUG-IV classification, this total time will 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. In addition, as 

discussed above, if one or more of the four group therapy 
CMS-1351-F 164 

participants are unexpectedly absent from a session or 

cannot finish participating in the entire group session, 

rather than discontinuing payment or requiring the session 

to be rescheduled, we will continue to deem the therapy 

session as meeting the definition of group therapy as long 

as the therapy program originally had been planned for four 

patients. In this situation, we will continue to assume 

that there are four patients, and therefore will divide the 

therapy minutes by four in allocating group therapy minutes 

among the group therapy participants. 

4. Proposed Changes to the MDS 3.0 Assessment Schedule 

and Other Medicare-Required Assessments 

In the FY 2012 proposed rule (76 FR 26388 through 

26393), we proposed to make certain modifications to the 

MDS assessment schedule and to the types of assessments to 

be completed. To receive proper payment for services 

provided during Part A Medicare SNF stays, SNFs must 

complete patient assessments in accordance with the 

assessment schedule established by CMS at §413.343(b) and 

in the RAI Manual, version 3.0, Chapter 2. As we explained 

in the FY 2012 proposed rule (76 FR 26388 through 26389), 

we proposed to modify the current Medicare-required 

assessment schedule to incorporate new assessment windows 
CMS-1351-F 165 

and grace days to capture more appropriately the changes in 

patients’ status and in services and treatments provided 

over the course of a stay, and to reduce the possibility 

that information from the same days of the patient’s stay 

may be used on different scheduled MDS assessments. The 

current MDS assessment schedule and the proposed MDS 

assessment schedule may be found in Tables 10A and 10B in 

the proposed rule (76 FR 26389). 

Additionally, regarding the completion of unscheduled 

PPS assessments, in the proposed rule (76 FR 26389 through 

26390), we clarified the End of Therapy (EOT) OMRA policy 

(which first appeared in the FY 2010 final rule (74 FR 

40347 through 40348)) by stating that the ARD for an EOTOMRA must be set for 1 to 3 days after the discontinuation 

of all therapies, regardless of the reason for the 

discontinuation. Further, in determining the ARD for the 

EOT OMRA, we clarified that, as finalized in the FY 2010 

final rule (74 FR 40348), currently days are counted 

differently for facilities that regularly provide therapy 

services 5 days per week as compared to facilities that 

regularly provide therapy services 7 days a week. 

Following the publication of the FY 2010 final rule, some 

SNFs expressed concern over the use of the phrase 
CMS-1351-F 166 

“discontinuation of therapy services,” as well as the 

distinction between 5- and 7-day-a-week facilities in 

determining the ARD for the EOT OMRA. In the FY 2012 

proposed rule (76 FR 26389), we clarified that the term 

“discontinuation of therapy services” referred to both 

temporary, unplanned and planned discontinuations of 

therapy services. Accordingly, in the FY 2012 proposed 

rule (76 FR 26389 through 26390), we clarified that 

providers must complete an EOT OMRA for a patient 

classified in a RUG-IV therapy group if the patient goes 3 

consecutive days without therapy, regardless of the reason 

for the discontinuation. Moreover, to mitigate confusion 

related to the distinction between 5-day and 7-day-a-week 

facilities, we proposed to eliminate the distinction 

altogether. We proposed that, effective October 1, 2011, 

an EOT OMRA would be required for a patient classified in a 

RUG-IV therapy group if that patient is not furnished any 

therapy services for 3 consecutive calendar days, 

regardless of whether the facility is a 5-day or 7-day 

facility. As we stated in the FY 2012 proposed rule (76 FR 

26390), we believe that this policy appropriately reflects 

that the frail and vulnerable populations within SNFs 

require consistent therapy without significant breaks in 
CMS-1351-F 167 

services, and is consistent with §409.34(b) (which states 

that a break of one or two days would not necessarily 

result in a provider having to complete an EOT OMRA). 

In addition, in the proposed rule (76 FR 26390 through 

26391), we addressed suggestions that the completion of an 

EOT OMRA and a subsequent Start-of-Therapy (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. Therefore, for the reasons 

discussed in the proposed rule (76 FR 26390 through 26391), 

we proposed 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 Endof-Therapy-Resumption (EOT-R) OMRA rather than an SOT OMRA, 

in cases where the resumption of therapy date is no more 

than 5 consecutive calendar days after the last day of 

therapy provided, and the therapy services have resumed at 

the same RUG-IV classification level that had been in 

effect prior to the EOT OMRA. In the FY 2012 proposed rule, 

we stated that in the situation where therapy services have 

resumed within such a short period of time at the same RUGIV classification level, we do not believe that a new 
CMS-1351-F 168 

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. 

In addition, as discussed in the proposed rule (76 FR 

26391), 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 believe 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 in the FY 2012 proposed rule (76 FR 26392), we 

believe that such 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). 

Accordingly, we proposed (76 FR 26392) that, effective for 
CMS-1351-F 169 

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 reimbursable 

therapy minutes, or 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 that 

resident’s most recent assessment used for Medicare 

payment. The COT OMRA would be a new type of required PPS 

assessment. The ARD of the COT OMRA would be set for Day 7 

of a COT observation period, which is a successive 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), and ending every 7 calendar days 

thereafter. We proposed 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 level of therapy. 

We received a number of comments on these proposals 

and clarifications which, along with our responses, appear 

below. 
CMS-1351-F 170 

Comment: Many commenters supported the changes to the 

MDS assessment schedule and agreed that the current 

assessment schedule does allow providers to use information 

from the same days of the patient’s stay on different 

scheduled MDS assessments intended to capture changes in 

the patient’s condition over time. 

Others suggested that CMS conduct a detailed analysis 

to determine the efficacy of the proposed changes prior to 

implementation. These commenters opposed changes to the 

assessment schedule based on their belief that the changes 

would not reduce the frequency with which information from 

the same days of the patient’s stay is used on different 

scheduled MDS assessments. Other commenters raised 

concerns that the proposed changes to the assessment 

schedule would limit flexibility in scheduling assessments 

and would be burdensome because the shorter window for 

providers to set the ARD for a scheduled PPS assessment 

would reduce the SNF staff’s ability to stagger MDS due 

dates among residents. 

One commenter stated that the proposed changes to the 

MDS schedule and assessments will take the clinical 

judgment away from licensed therapists. This commenter 

stated that the use of clinical judgment is crucial in 
CMS-1351-F 171 

ensuring that the patients receive needed services for 

which they qualify and that produce a positive clinical 

outcome. One commenter expressed concern that the proposed 

changes to the MDS assessments and schedules would impose 

an additional burden on software vendors, billing offices, 

and medical records personnel. Furthermore, the commenter 

stated that the proposed changes would affect MDS 

scheduling tools, calendars, billing effective dates, 

budget, and billing reports. 

 Response: We are pleased with the comments received 

in support of the proposed changes. Prior to proposing 

changes to the assessment schedule, we did conduct a 

detailed analysis on the likely effect of the updated 

policies. For this reason, we do not agree that the 

proposed changes to the MDS assessment schedule should be 

withdrawn until another study is completed. However, as 

with all new and revised policies, we will monitor the 

effects of the changes, and make any necessary 

modifications through future rulemaking. We recognize 

that, while the proposed changes eliminated most of the 

overlap in setting the observation periods for Medicarerequired scheduled assessments, it is impossible to 

eliminate totally the potential for information from the 
CMS-1351-F 172 

same days of the patient’s stay to be used on different 

scheduled MDS assessments, since changes in a beneficiary’s 

condition can also require completion of several different 

types of unscheduled assessments (such as OMRAs, discharge 

assessments, significant change assessments, etc.) within 

short periods of time. However, as discussed in the 

proposed rule (76 FR 26388 through 26389), we believe by 

making the proposed changes to the assessment schedule 

(that is, by narrowing the assessment and grace day 

windows), we reduce the amount of information from the same 

days of the patient’s stay that may be used on different 

scheduled MDS assessments while still allowing providers 

some flexibility in setting the ARD. 

In terms of regular scheduled PPS assessments, the 5-

day and 14-day scheduled Medicare assessments are used to 

determine payment for the first 30 days of a SNF stay. 

Under the current policy, it is possible that the clinical 

characteristics of a resident on days 5 through 8 of the 

resident’s stay could be used on both the 5-day and 14-day 

assessments. In such a case, this effectively reduces the 

number of days that clinical information is collected and 

used to observe changes in the patient’s condition over 

time. In cases where this overlap is used, payment is 
CMS-1351-F 173 

established for the first 30 days of the patient’s stay 

based on only 10 days of service, with 4 days overlapping 

between observation windows, rather than the intended 14 

days of service with little to no overlap between 

observation periods. We are confident that the proposed 

changes allow sufficient time to perform all required 

assessments, allow for flexibility in scheduling the 

assessments, and provide a more accurate method for 

determining payment across the entire 30-day period. As 

discussed above, we believe that these changes are 

necessary to reduce the possibility that information from 

the same days of the patient’s stay may be used on 

different scheduled MDS assessments and to allow us to 

capture more appropriately the changes to patients’ status 

and in services and treatments provided over the course of 

a SNF stay and, as such, these changes will allow us to 

reimburse more accurately for SNF services. 

Additionally, we do not agree that our proposed 

changes to the MDS schedule and assessments would take away 

clinical judgment from therapists. 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 
CMS-1351-F 174 

under the SNF PPS and the manner in which those services 

will be reported and paid” (74 FR 40316). It is true that 

our proposed changes to the MDS assessments and schedules 

will affect the reporting and reimbursement of SNF 

services, including therapy services; however, we have not 

mandated the manner of providing these services. We agree 

that the licensed therapists are to use their clinical 

judgment to treat the patients in the most appropriate 

manner, and to maintain professional standards while 

providing all necessary services. 

With regard to commenters’ concern related to the 

burden arising from changes in the MDS assessment schedule 

and assessments, we would note that we gave draft 

specifications to vendors as soon as possible after we 

published the proposed rule. We acknowledge that the 

proposed changes to the MDS schedule and assessments may 

affect items listed by the commenter (scheduling tools, 

calendars, billing effective dates, budget, and billing 

reports), but believe that, for the reasons outlined here 

and in the proposed rule, such changes are nevertheless 

necessary to provide appropriate payment for services 

provided to residents, to enhance the reliability of the 

MDS, and to ensure the stability of the SNF PPS. 
CMS-1351-F 175 

Comment: One commenter stated that in practice, by 

reducing the length of the assessment windows, we have 

minimized the usefulness of grace days to providers, and 

suggested that we officially eliminate the concept of grace 

days. Other commenters requested that we remove the grace 

days from the assessment schedule completely, and combine 

them with the ARD days. On the other hand, several 

commenters recommended expanding the assessment window to 

allow providers more flexibility in using grace days when 

determining the observation period. These commenters were 

concerned that, as CMS has stated that grace days should be 

used sparingly, any claim which makes use of an assessment 

where grace days are used might be considered as 

potentially inappropriate and subject to medical audit. 

Response: Grace days are a longstanding part of the 

SNF PPS in order to allow clinical flexibility when setting 

the ARD dates of scheduled PPS assessments. We agree that 

in practice, there is no difference between regular ARD 

windows and grace days and we encourage the use of grace 

days if their use will allow a facility more clinical 

flexibility or will more accurately capture therapy and 

other treatments. Thus, we do not intend to penalize any 

facility that chooses to use the grace days for assessment 
CMS-1351-F 176 

scheduling or to audit facilities based solely on their 

regular use of grace days. We may explore the option of 

incorporating the grace days into the regular ARD window in 

the future; nevertheless, we will retain them as part of 

the assessment schedule at the present time consistent with 

the current policy and the new assessment schedule proposed 

in the proposed rule. 

Comment: Many commenters supported the proposed 

change to consider all facilities 7-day facilities for 

purposes of setting the ARD for the EOT OMRA and the 

clarification that facilities are required to complete an 

EOT OMRA to classify residents into non-therapy RUG 

categories when therapy has been missed for 3 consecutive 

days. Others believed that an EOT OMRA should only be 

required if three scheduled days of therapy are missed, 

rather than unscheduled days, since it may be possible for 

a patient to receive the required amount of weekly therapy 

while still not being provided with any therapy for 3 

consecutive days. Many commenters stated that it would not 

be unusual for patients to have 3-day lapses in therapy, 

especially if a weekend were involved. The commenters 

explained that it is common for patients in the SNF 

population to have brief episodes of illness or refusals, 
CMS-1351-F 177 

doctor appointments, or religious holidays that may cause a 

missed therapy day on a Friday or Monday, and that 

requiring an EOT OMRA following 3 consecutive calendar days 

of missed therapy is not logical, as it will entail a 

provider burden of additional paperwork. 

Response: We are pleased that some commenters 

supported the proposal to eliminate the distinction between 

5–day and 7-day facilities and to apply a uniform policy in 

setting the ARD for the EOT OMRA. However, we do not agree 

with comments that an EOT OMRA should only be required if 3 

scheduled days of therapy are missed, rather than any three 

consecutive day periods. As stated in §409.31(b)(1), to 

meet the skilled level of care requirement for coverage of 

post-hospital SNF care, “the beneficiary must require 

skilled nursing or skilled rehabilitation services, or 

both, on a daily basis.” Additionally, the criteria for 

“daily basis” under §409.34(a)(2) state, “ As an exception, 

if skilled rehabilitation services are not available 7 days 

a week those services must be needed and provided at least 

5 days a week.” Therefore, according to these regulations, 

while a facility may determine that it does not have 

adequate resources to provide therapy 7 days a week, the 

facility is still required to ensure that therapy is 
CMS-1351-F 178 

provided for at least five days a week. In addition, the 

policy requiring an EOT OMRA to be completed when therapy 

has been discontinued for 3 consecutive calendar days is 

consistent with our discussion of §409.34(b) in the FY 2010 

final rule (74 FR 40348), in which we stated that a break 

of 1 or 2 days would not necessarily result in a provider 

having to complete an EOT OMRA. As we stated in the FY 

2012 proposed rule (76 FR 26390), we believe that the 

policy of requiring all SNFs to set the ARD for the EOT 

OMRA by the third consecutive calendar day after the last 

day of therapy was provided appropriately reflects that the 

frail and vulnerable populations within SNFs require 

consistent therapy without significant breaks in service. 

Accordingly, we believe that regardless of whether the 

missed therapy day was scheduled, and no matter what the 

reason was for the missed therapy, if the resident missed 3 

consecutive calendar days of therapy, we believe an EOT 

OMRA should be completed. 

Commenters cited several specific examples of 

situations that would cause a resident to miss therapy. We 

realize that there may be a variety of reasons that therapy 

would be missed, whether the reason for the missed therapy 

was planned or unplanned. At the same time, it is the 
CMS-1351-F 179 

facility’s responsibility to ensure that patients receive 

ongoing, rather than sporadic, care to promote each patient 

reaching his or her full potential. Thus, we emphasize 

that the EOT OMRA should be completed if therapy was missed 

for 3 consecutive calendar days for any reason, planned or 

unplanned. Additionally, the idea that a resident can 

receive the required amount of weekly therapy while still 

not being provided therapy for 3 consecutive days, as 

suggested by the commenter, assumes that there is a 

prescribed “Medicare therapy week”. It should be noted, 

however, that there is no prescribed “Medicare therapy 

week” that spans across any specific days. Therapy 

utilization is measured across a rolling 7-day period as 

reported on the MDS assessments. Thus, for the reasons 

discussed above, the EOT OMRA should always be completed 

when a resident misses 3 consecutive calendar days of 

therapy. 

Comment: One commenter recommended that CMS 

recalibrate the therapy thresholds, specifically in the 

Ultra High and Very High Rehabilitation RUG categories to 

distribute minutes more accurately and to establish more 

realistic sub-categories. 
CMS-1351-F 180 

Response: We appreciate the commenter’s 

recommendation. We intend to monitor these policies as 

well as provider behavior and we may consider such 

approaches in the future. 

Comment: Several commenters requested additional 

guidance and clarification on the requirements for 

providing a SNF Advance Beneficiary Notice of Noncoverage 

(SNF ABN) or an expedited determination notice, also known 

as the Notice of Medicare Non-Coverage (NOMNC) when a 

beneficiary misses 3 consecutive days of skilled therapy 

and will enter into a noncovered stay because they will no 

longer be receiving skilled services. One commenter thought 

that CMS required a SNF ABN to be issued 48 hours prior to 

the delivery of noncovered care. The commenter was 

concerned that this 48-hour SNF ABN delivery “requirement” 

could not be met when a beneficiary receives no therapy on 

a weekend and refuses therapy on Monday. 

Response: The SNF ABN is issued prior to delivering 

services for which Medicare might not pay because they are 

not medically reasonable and necessary and/or constitute 

custodial care, and the beneficiary is expected to receive 

these services and possibly incur financial liability. The 
CMS-1351-F 181 

policy for issuance of the SNF ABN has not changed in light 

of the policies being finalized in this rule. Please see 

the current manual instructions for the SNF ABN in the 

Medicare Claims Processing Manual, IOM 100-04, Chapter 30, 

Section 70, which can be accessed via this link: 

http://www.cms.gov/Manuals/IOM/list.asp. 

There is no “48-hour notice” requirement associated 

with the SNF ABN. However, the SNF ABN should be given in 

a timely manner to provide the beneficiary or the 

representative sufficient time to make an informed decision 

about whether to receive care that may not be covered by 

Medicare, and/or make other arrangements for care. SNF 

providers should issue the SNF ABN as soon as it is clear 

that the beneficiary may enter into a non-covered stay. 

We appreciate the commenters’ concerns regarding 

understanding the requirements for the issuance of the SNF 

ABN in light of this rule; however, as noted previously, 

our policies related to issuance of the SNF ABN remain 

unchanged. Specifically, the timing of SNF ABN delivery 

remains unchanged, and as per current policy and as 

discussed above, it should be given prior to delivery of 

care for which Medicare might not pay, allowing the 

beneficiary or the representative a reasonable amount of 
CMS-1351-F 182 

time to make an informed decision about whether to receive 

the care and/or make other arrangements for care. Finally, 

we note that where the beneficiary misses 3 consecutive 

days of skilled therapy and will enter into a noncovered 

stay, either because therapy is not offered on those days 

or the beneficiary refuses or declines therapy, or any 

combination of the preceding, it is unlikely that a 

provider will need to issue the NOMNC. The NOMNC is a 

notice issued prior to the termination of Medicare-covered 

services, when the provider determines that such services 

are no longer covered based on Medicare coverage policies 

(see 42 CFR §§405.1200 and 405.1202). The NOMNC informs 

the beneficiary of the right to appeal the discontinuation 

of covered services. Our policies regarding issuance of an 

NOMNC have not changed in light of this rule. Consistent 

with current policy, if SNF covered services end solely 

because a beneficiary fails to meet the consecutive days of 

therapy requirement for the reasons set forth above, the 

NOMNC would not be issued. The NOMNC is a provider notice 

of termination of services and is not issued when a 

beneficiary initiates the end of care. The NOMNC is also 

not issued when care ends for provider business reasons, 

such as when a SNF does not offer therapy on certain days. 
CMS-1351-F 183 

We intend to publish guidance on NOMNC delivery in the 

Medicare Claims Processing Manual in the near future. We 

will also include further clarification on NOMNC delivery 

in other vehicles, such as CMS Open Door Forums, as deemed 

necessary. 

Comment: Several commenters have stated that the 

requirement of the EOT OMRA after discontinuation of 

therapy for 3 consecutive days inhibits facilities from 

gradually reducing therapy services as residents approach 

the end of their SNF stay. The commenters explained that 

it is common to reduce the frequency and intensity of 

treatment prior to facility discharge to assure the 

resident will maintain their current level of function 

without the need for daily therapy. 

Response: We do not agree that the requirements to 

complete an EOT OMRA following discontinuation of therapy 

for three consecutive calendar days discourages facilities 

from gradually reducing therapy services prior to 

discharge. The EOT OMRA would only need to be completed if 

3 consecutive calendar days of all three therapy 

disciplines were missed. We believe that it is likely to 

be inconsistent with good clinical judgment for 

practitioners to purposely not provide any rehabilitation 
CMS-1351-F 184 

services in a 3-day period prior to an imminent discharge, 

especially given the frail and vulnerable nature of SNF 

populations. 

Comment: Several commenters remarked that the 

requirement to complete an EOT OMRA after 3 consecutive 

days of missed therapy will negatively affect residents who 

are classified into Low Rehabilitation RUG groups. They 

stated that facilities might be required to complete an EOT 

OMRA on a weekly basis if these residents do not receive 

therapy on a Monday or Friday. 

Response: Residents who fall into the Rehabilitation 

Low RUG groups continue to benefit from skilled therapy. 

Even though their conditions indicate that they only need 

to receive therapy for a minimum of 45 minutes per week 

over at least 3 days to be classified into these RUG 

groups, we believe that a significant break in therapy 

services may still be detrimental to their therapy goals 

and recovery. For example, if a facility treats one of 

these residents on a Monday, Tuesday, and Wednesday and 

they do not have another treatment session until the 

following Monday or Tuesday, this resident will go for 4 or 

5 consecutive calendar days without therapy services. We 

believe that this significant break in therapy may cause 
CMS-1351-F 185 

this resident to regress from functional gains made during 

therapy thus far. For this reason, we require that an EOT 

OMRA also be completed for residents who are in the 

Rehabilitation Low RUG groups, when therapy services have 

been discontinued for 3 consecutive calendar days. 

Comment: We have received numerous comments stating 

that providing 7-day-a-week therapy for rural facilities is 

very difficult. The commenters stated that it is quite 

possible that the EOT OMRA would be triggered frequently by 

3 missed days of therapy over the weekend plus the 

adjoining days. The commenters suggested that the policy 

that requires an EOT OMRA in the event of 3 missed days of 

therapy should be revised to at least 4 missed days. 

Response: We recognize the concern of the rural 

facilities. However, our primary concern is that the SNF 

residents receive daily skilled rehabilitation as required 

under §§409.31 and 409.34. We expect that rural facilities 

and SNFs that cannot meet the “daily basis” requirement 

under §409.34 will revisit their hiring and staffing 

practices as well as recruitment and retention options to 

assure they have the appropriate amount of staff to ensure 

that daily skilled care can be provided. Additionally, if 

facilities are having difficulty meeting the daily skilled 
CMS-1351-F 186 

needs of the residents in their care, they should also 

revisit their admissions policies and determine if they are 

accepting patients for whom they have the resources to 

provide the necessary daily skilled therapy services. 

We do not agree with the suggestion to allow SNFs to 

discontinue therapy for 4 consecutive days prior to 

completing the EOT OMRA. As stated above, §409.34 requires 

skilled nursing and/or rehabilitation services on a daily 

basis. We have made limited allowances for facilities that 

are unable to provide therapy services 7 days a week based 

on logistical constraints; however, we still expect SNFs to 

provide an adequate amount of skilled rehabilitation 

services to meet the patient’s clinical needs. Allowing 4 

missed days of therapy prior to completion of the EOT OMRA 

would undermine this concept. As we stated previously, 

the EOT OMRA policy we proposed and are finalizing in this 

final rule reflects that the frail and vulnerable 

populations in SNFs require consistent therapy without 

significant breaks in service. 

Comment: One commenter asked if it is possible for 

computer software to calculate the appropriate RUG when 

therapy ends without another MDS being completed. 
CMS-1351-F 187 

Response: The information needed to calculate a nontherapy RUG-IV group when therapy is discontinued is only 

reported on the MDS. The only option for automating the 

recalculation of the RUG-IV group would be to use a 

previously-submitted MDS. Since that assessment would 

reflect the beneficiary’s condition in a prior period 

rather than the patient’s condition when therapy ended, 

there would be no way to determine the most appropriate 

non-therapy RUG category for the patient from that 

assessment. 

Comment: Many commenters stated that the proposed COT 

OMRA could accommodate for the missed 3-day treatment 

scenarios that necessitate EOT OMRA completion. 

Response: We do not agree that the COT OMRA could 

address both changes in therapy provision and missed 

therapy days. The intent of the EOT OMRA is to pay SNFs 

the per diem medical RUG rate for the consecutive days that 

the resident did not receive therapy services. The COT 

OMRA addresses changes in minutes of therapy provided, not 

missed days. 

Comment: Several commenters asked us to define the 

term “treatment day” for purposes of the EOT OMRA. These 

commenters asked us if a resident received less than 15 
CMS-1351-F 188 

minutes of therapy a day, whether this time could still 

count toward the definition of a “treatment day” rather 

than as a missed therapy day. 

Response: For purposes of determining when an EOT 

OMRA must be completed, a treatment day is defined exactly 

the same way as in the RAI Manual in Chapter 3, Section O, 

page O-16: 15 minutes of therapy a day. If a resident 

receives less than 15 minutes of therapy in a day, it is 

not coded on the MDS and it cannot be considered a day of 

therapy. 

Comment: Several commenters expressed confusion about 

the process of re-starting therapy after an EOT OMRA was 

completed. Some were unsure about when to complete an SOT 

OMRA or an EOT-R OMRA. Others asked whether a new therapy 

evaluation is necessary in all cases of resumption. 

Additionally, although many commenters supported the 

proposal to implement the optional EOT-R OMRA, and approved 

of this option to lessen the burden of SNFs when the need 

to complete the EOT OMRA arose, many others expressed 

confusion and/or requested clarification as to whether the 

EOT-R OMRA is a new assessment type or a modification of an 

old assessment. 
CMS-1351-F 189 

Response: As explained in the proposed rule (76 FR 

26389 through 26390), the ARD for the EOT OMRA must be set 

1 to 3 consecutive calendar days following the last day of 

therapy. Under current policy, if the patient was 

discharged from therapy with no expectation for it to 

continue or restart, then the EOT OMRA would classify the 

resident into a non-therapy RUG group which would be the 

basis of payment until the next PPS assessment. However, 

even if the resident was not discharged from therapy 

services and missed 3 or more consecutive days of therapy, 

an EOT OMRA still would have to be completed to classify 

the resident into a non-therapy RUG group for those days of 

missed therapy. 

As explained in the FY 2012 proposed rule (76 FR 26390 

through 26391), we recognize that the completion of an EOT 

OMRA and subsequent SOT OMRA may not be necessary for all 

patients. This may be the case where therapy was 

discontinued (for example, due to non-clinical reasons such 

as scheduling conflicts), and resumes shortly thereafter at 

the same RUG classification level. Therefore, we proposed 

the option to complete an EOT with Resumption or an EOT-R 

OMRA, rather than an SOT OMRA, in cases where the therapy 

resumption date is no more than 5 consecutive calendar days 
CMS-1351-F 190 

following the last day of therapy provided and the therapy 

services have resumed at the same RUG-IV classification 

level that had been in effect prior to the discontinuation 

of therapy services. As we stated in the FY 2012 proposed 

rule (76 FR 26390), 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. We appreciate the 

support for the proposal of the EOT-R OMRA. 

We would like to clarify that the EOT-R OMRA is not a 

new assessment type. As explained in the FY 2012 proposed 

rule (76 FR 26390), it is an EOT OMRA with two additional 

items (O0450A and O0450B) to indicate whether therapy is 

expected to resume and the date of resumption of therapy. 

As stated above, an EOT-R OMRA may be used when therapy has 

been missed for at least 3 consecutive calendar days and is 

expected to resume (and actually does resume) within 5 

calendar days following the last day of therapy. For 

example: Mr. A. received therapy every day Monday through 
CMS-1351-F 191 

Friday. He missed therapy on Saturday and Sunday because 

the SNF he was in did not provide therapy during the 

weekend. On Monday, Mr. A.’s family came to visit and he 

refused therapy. At this point, Mr. A. missed three days of 

therapy and an EOT OMRA would be required. He also missed 

therapy on Tuesday, due to a scheduled doctor’s 

appointment. The interdisciplinary team made the 

determination that Mr. A.’s missed therapy did not result 

in a change in clinical condition that would make him 

tolerate less therapy and change his RUG-IV classification. 

Therefore, the facility completed an EOT OMRA on Monday 

indicating that therapy had not occurred for at least three 

days. Then, on Wednesday, the EOT is modified into an EOT-R 

by reporting the actual date of resumption, which was 

Wednesday. In this case, a new therapy evaluation was not 

required and Mr. A resumed therapy on Wednesday at the same 

RUG-IV classification level. 

If the reason for missed therapy was clinical in 

nature (meaning there was a possibility that the resident’s 

clinical therapy status was affected by the missed 

therapy), it may not be appropriate for the facility to 

complete an EOT-R OMRA. In cases where the patient resumes 

therapy more than 5 consecutive calendar days after 
CMS-1351-F 192 

discontinuation of therapy services or where the patient 

resumes therapy at a different RUG classification level 

(even if it is no more than 5 consecutive calendar days 

after the date the last therapy service was furnished), an 

EOT-R OMRA cannot be used. In this case, the facility 

could either complete an optional SOT-OMRA and new therapy 

evaluation if therapy resumes, or wait until the completion 

of the next scheduled PPS assessment to classify the 

resident into a RUG-IV group. If the facility chooses not 

to complete an SOT OMRA and if the next scheduled PPS 

assessment is used to classify the patient into a therapy 

RUG group, a new therapy evaluation would also be required. 

Thus, in situations where an EOT OMRA was completed and 

therapy subsequently resumes, a new therapy evaluation is 

required when either an SOT OMRA or a scheduled PPS 

assessment is used to classify the resident into a RUG-IV 

therapy group. For example: Mr. B. received therapy every 

day Wednesday through Monday. On Tuesday, he felt ill and 

missed therapy that day and Wednesday. He then went to 

dialysis on Thursday and missed therapy that day as well. 

He missed a total of 3 days of therapy. Due to his illness 

and dialysis, he could not immediately resume therapy at 

the same level he was receiving prior to the three missed 
CMS-1351-F 193 

days. However, on Friday he felt well enough to start 

therapy again. The facility completed an EOT OMRA on 

Thursday to classify Mr. B. into a non-rehabilitation RUG 

group and to get paid the non-rehabilitation RUG rate for 

Tuesday, Wednesday, and Thursday. As Mr. B. could not 

resume therapy at the same RUG-IV classification level, a 

new therapy evaluation was completed by each discipline 

(physical therapy, occupational therapy, and/or speech 

therapy) treating Mr. B. and then an SOT OMRA was 

completed, and he was placed back into a rehabilitation RUG 

group. The facility was paid at the rehabilitation RUG rate 

from the day therapy restarted until the next PPS 

assessment was completed. 

Comment: One commenter highlighted a potential error 

in an example we provided on page 26392 of the proposed 

rule, where we stated that “. . . 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) . . .” (76 FR 

26392). According to this commenter, the phrase “30-day 

assessment” should be replaced by “EOT OMRA” because the 

non-therapy RUG on the EOT OMRA is used to establish the 
CMS-1351-F 194 

payment for services during the period where no therapy 

services are provided. 

Response: After careful review of the example in the 

proposed rule cited by the commenter, we agree with the 

commenter that we misstated the relevant assessment that 

would determine payment for Days 36 through 39 in the 

example provided. The text quoted above on page 26392 of 

the proposed rule should read “. . . paid for Days 36 

through 39 at the corresponding non-therapy rate, based on 

the patient’s clinical condition reported on the EOT OMRA 

(because therapy services were discontinued on Day 36 and 

an EOT OMRA was completed). . . ”, as this accurately 

reflects how the payment for this resident would be 

calculated. We have reviewed the remainder of the example 

and found no additional errors. 

Comment: Several commenters questioned whether 

therapy service changes outside of the MDS observation 

window are a significant issue. One commenter requested 

evidence that there is a widespread instance of 

misreporting therapy services. One commenter suggested 

that if this were such a major threat to the Medicare 

program, they would assume CMS would have involved the 

Recovery Audit Contractors (RACs), the Medicare 
CMS-1351-F 195 

Administrative Contractors (MACs), and CMS surveyors in the 

medical review process to address this issue. 

Response: As we stated in the FY 2012 proposed rule 

(76 FR 26391), 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 SNF 

resident outside the observation window for the most recent 

assessment. While in some of these cases, a patient’s 

clinical status may have changed outside of the observation 

window requiring an adjustment to the intensity of therapy 

during that time, we have also been presented with a 

multitude of anecdotal evidence claiming the misreporting 

of therapy services. In addition, the Office of the 

Inspector General (OIG) of the Department of Health and 

Human Services conducted an independent study into 

questionable billing practices in SNFs. Report No: OEI-02-

09-00204 (available online at 

http://oig.hhs.gov/oei/reports/oei-02-09-00204.asp) 

demonstrates that the OIG concurs with our statements in 

the FY 2012 proposed rule and supports the changes we have 

proposed to curb these practices. As cited in the OIG 

Report (page 11), “Lastly, the data highlight the need for 

further changes to make RUGs and Medicare payments more 
CMS-1351-F 196 

consistent with beneficiaries’ care and resource needs. 

These changes could include requiring SNFs to recalculate a 

beneficiary’s RUG whenever his or her level of therapy 

changes substantially, as well as reducing the overlap that 

occurs in assessment periods.” We agree with the commenter 

that we should utilize all of our available tools to 

identify and correct abusive practices. These issues have 

been referred to the appropriate entities for more 

intensive monitoring. 

Comment: We received several comments supporting the 

addition of the COT OMRA. These commenters agreed that the 

COT OMRA would improve the accuracy of reimbursement for 

therapy services and quality of care to SNF patients. The 

commenters also believed that the implementation of the COT 

OMRA would help ensure that Medicare payments more 

accurately reflect the differences in resources utilized 

for patient care. However, many commenters stated that the 

COT OMRA would create an undue burden for facilities. 

Several commenters stated that the COT OMRA would increase 

supply costs associated with completing the actual form and 

that the additional paperwork required would affect the 

“green” efforts of many facilities. Some commenters stated 

that the additional assessments would reduce actual patient 
CMS-1351-F 197 

care due to the amount of time spent regulating and 

monitoring these assessments during the SNF stay. Some 

commenters expressed concern that the COT OMRA would 

require facilities to add new evaluation processes to 

monitor RTM. One commenter stated that the COT OMRA would 

increase confusion about the MDS process. One comment 

expressed concern that when the COT OMRA causes a resident 

to classify into a lower RUG category, this would cause 

facility workloads to increase without an increase in 

personnel reimbursement. 

Response: We would like to stress that SNFs would be 

required to complete a COT OMRA only if the intensity of 

therapy changes to such an extent that the patient's RUG 

classification, based on their last PPS assessment, is no 

longer an accurate representation of the patient’s current 

clinical condition. Regarding the need for a new 

evaluation process to monitor and count RTM, we believe 

that facilities currently have processes in place that 

monitor the total amount of therapy minutes provided over 

any given period of time. Therefore, we do not agree that 

the process of evaluating RTM will add a significant time 

burden to facilities or reduce actual patient care. We 

would like to stress that if facilities tailor treatment 
CMS-1351-F 198 

time to the needs of each individual patient and continue 

to provide that therapy outside of the assessment window, 

facilities will be less likely to be required to complete 

as many COT OMRAs. 

We cannot assess the accuracy of the statement that 

the COT OMRA will increase supply costs for form completion 

and affect the green efforts of facilities, as it depends 

on the facility management and environmental efforts of 

each specific facility. Nevertheless, we believe the COT 

OMRA is an appropriate measure to enhance the accuracy of 

payments and patient care. As we stated in the proposed 

rule (76 FR 26392), we believe the COT OMRA will allow us 

to track changes in the patient’s condition and in the 

provision of therapy services more accurately, allowing 

reimbursement to reflect resource use more accurately, 

thereby improving the accuracy of reimbursement. Also, we 

believe that the ability to track changes in the patient’s 

condition and in the provision of service more accurately 

will enhance a SNF’s ability to provide quality care to 

residents. 

We do not believe that the COT OMRA will increase 

confusion about the MDS process. As we have done in the 

past, we will update the RAI Manual to incorporate the 
CMS-1351-F 199 

changes and instructions for assessments and we will 

provide training opportunities prior to the October 1, 2011 

implementation. Finally, we do not agree with the 

commenter who stated that when a COT OMRA causes a resident 

to classify into a lower RUG category, this will cause 

facility workload to increase without an increase in 

personnel reimbursement. We note that RUG-IV classification 

is based on resource utilization and cost. If a patient is 

classified into a lower therapy RUG category based on a 

change to the therapy delivered during the COT observation 

period, then the SNF would appropriately be paid the lower 

rate associated with that RUG category. The SNF PPS rates 

are designed to cover the costs of providing care, 

including related administrative costs. 

Comment: Several commenters have asked whether the 

COT OMRA should be completed in cases of an increase in RTM 

to classify a resident into a higher RUG category in 

addition to cases where the resident would be classified 

into a lower RUG category based on the provision of RTM in 

the COT look-back period. One commenter asked if a COT 

OMRA would be required if there were a scheduled decrease 

in therapy provision (such as one that was caused by the 

discontinuation of one therapy discipline) or if the COT 
CMS-1351-F 200 

OMRA would be required for any reason that would cause a 

decrease in therapy. Additionally, commenters have 

questioned whether a resident’s ADL score should be taken 

into account when determining whether a COT OMRA is 

required. One commenter asked whether COT OMRA 

requirements, including the COT observation period 

requirement, would apply if a resident was receiving 

therapy but was classified into a nursing RUG because of 

index maximization. 

Response: As we stated in the FY 2012 proposed rule 

(76 FR 26392), a COT OMRA would be completed for a patient 

in a therapy RUG, if a patient's RTM has changed during the 

COT observation period to such a degree that the patient’s 

current RUG classification, based on their last PPS 

assessment, is no longer an accurate representation of the 

patient’s clinical condition (and the patient should be 

placed in a different RUG category). This applies whether 

the change in RTM is a scheduled change or an unscheduled 

or unplanned change, and whether the different RUG category 

is higher or lower than the RUG category in which the 

resident is currently placed. In addition, in response to 

the comment regarding whether other therapy changes such as 

the discontinuation of a particular therapy discipline would 
CMS-1351-F 201 

be sufficient to require a COT OMRA, upon further 

consideration, we believe that a COT OMRA should be required 

in any case where there is a change in the provision of 

therapy such that the patient’s current RUG classification 

based on their last PPS assessment, is no longer an accurate 

representation of the patient’s clinical condition and the 

patient should be placed in a different RUG-IV category. As 

we stated in the proposed rule (76 FR 26392) and in this 

final rule above, the purpose of the COT OMRA is to track 

changes in a patient’s condition and in the provision of 

therapy services more accurately to ensure that the patient 

is placed in the appropriate RUG category, thereby improving 

the accuracy of reimbursement. Based on comments received 

in response to the proposed rule, we will require that the 

COT OMRA be completed where the provision of therapy 

services has changed in any manner as observed during the 

COT observation period such that the patient should be 

placed in a different RUG category (not just in cases where 

the RTM has changed). Therefore, if a therapy discipline 

is discontinued and this results in a patient no longer 

meeting the required number of therapy disciplines for the 

patient’s current RUG category then a COT OMRA would be 

required. In addition, if a patient fails to receive the 

requisite number of days of therapy required for 

classification into the RUG category, then a COT OMRA would 
CMS-1351-F 202 

be required to change the patients’ RUG category as 

appropriate. As discussed previously, the purpose of the 

COT OMRA is to ensure that the patient is placed in the 

appropriate therapy RUG category based on therapy services 

needed and received and to ensure more accurate payment. 

For example, a facility is evaluating whether a COT OMRA is 

required for a resident who was placed in a Very-High 

Rehabilitation RUG group after the last PPS assessment. 

Upon informal evaluation at the end of the COT observation 

period, the facility determines that the resident has had 

720 minutes of therapy during the COT look-back period and 

meets all of the other criteria for classification in an 

Ultra-High Rehabilitation RUG group. A COT OMRA would be 

completed to place that resident into an Ultra High 

Rehabilitation RUG group. In response to the commenter’s 

question regarding whether a resident’s ADL score should be 

taken into account when determining whether a COT OMRA is 

required, ADL scores are not considered when deciding 

whether a COT OMRA needs to be completed as they are a 

refined grouping within the RUG category. However, when 

the COT OMRA is completed, the ADL score will be used in 

determining the appropriate RUG group in the grouper. 
CMS-1351-F 203 

Additionally, one commenter asked whether a SNF would 

be required to comply with the COT OMRA requirements, 

including the COT observation period requirement, in cases 

where a resident is receiving therapy but is classified 

into a nursing RUG because of index maximization. Upon 

consideration of this comment, we believe that the COT OMRA 

requirements, including the COT observation period 

requirement, should also apply in cases where a resident is 

receiving therapy but is classified into a nursing RUG 

because of index maximization. While this type of index 

maximization will affect only a small subset of 

beneficiaries receiving therapy, because such patients are 

receiving therapy services sufficient for classification 

into a therapy RUG and would be classified into a therapy 

RUG if index maximization had not been applied, we believe 

that it is appropriate to apply the COT OMRA policy as 

finalized in this rule to these patients as well, so that 

any changes in the intensity of therapy services delivered 

to the patient may be captured. For example, the evaluation 

performed at the end of the COT observation period for such 

a patient may indicate an increase in RTM delivered, which 

may necessitate placing the patient into a rehabilitation 

RUG category. Therefore, the COT OMRA policy, as finalized 
CMS-1351-F 204 

in this rule, will also apply to patients who are receiving 

a level of therapy sufficient for classification into a 

therapy RUG category, but are classified into a nursing RUG 

because of index maximization. 

Comment: Many comments requested clarification about 

the COT OMRA. Specifically, several commenters asked 

whether the COT OMRA could replace or be combined with 

other scheduled PPS assessments. Also, one commenter asked 

us to clarify whether, if the ARD for the COT OMRA were not 

set for Day 7, a missed or late assessment penalty would be 

applied. 

Response: As specified in Chapter 6, Section 30.3 of 

the Medicare Claims Processing Manual (CMS Pub. 100-04, 

which is available online at 

www.cms.gov/manuals/downloads/clm104c06.pdf), special 

billing requirements apply when there are multiple 

assessments within one Medicare-required assessment window. 

Consistent with our current policy, if an unscheduled PPS 

assessment (OMRA, Significant Change in Status Assessment 

(SCSA), or Significant Correction of a Prior Assessment 

(SCPA)) is required while in the assessment window of a 

scheduled PPS assessment that has not yet been completed, 

then facilities must combine the scheduled and unscheduled 
CMS-1351-F 205 

assessments by setting the ARD of the scheduled assessment 

for the same day that the unscheduled assessment is 

required. In such cases, facilities should provide the 

proper response to A0310 items to indicate which 

assessments are being combined, as completion of the 

combined assessment will be taken to fulfill the 

requirements for both the scheduled and unscheduled 

assessments. The purpose of this policy is to minimize the 

number of assessments required for SNF PPS payment purposes 

and to ensure that the assessments used for payment provide 

the most accurate picture of the patient’s clinical 

condition and service needs. In practice, in cases where 

the COT OMRA is combined with a regularly scheduled 

assessment, the facility would complete the scheduled 

assessment, rather than the COT OMRA, since the COT OMRA 

only includes a subset of the required MDS data. This 

single full MDS assessment is then used to determine 

payment for both the COT OMRA observation period and the 

regular payment window for the scheduled assessment. Thus, 

for example, in cases where Day 7 of the COT observation 

period falls within the ARD window of the 30-day PPS 

assessment, a provider would set the ARD for the 30-day 

assessment on day 7 of the COT OMRA observation period, and 
CMS-1351-F 206 

code the reasons for assessment as both the 30-day and the 

COT OMRA assessment (MDS items A0310(B) and A0310(C)). 

Consistent with the COT OMRA policy we proposed in the FY 

2012 proposed rule (76 FR 26392), the HIPPS code derived 

from the combined COT OMRA and scheduled PPS assessment 

would be effective starting the first day of the COT 

observation period (for example, for the first COT 

observation period after the previous assessment used for 

Medicare payment, the first day of the COT observation 

period is the day after the ARD of the previous assessment 

used for Medicare payment) and would remain in effect until 

the end of the payment window for the 30-day assessment 

(that is, day 60) or until a new unscheduled assessment (an 

OMRA, SCSA, or SCPA) is completed. 

The ARD for the COT OMRA is Day 7 following the last 

scheduled or unscheduled PPS assessment or Day 7 following 

the end of the last COT observation period (in cases where 

therapy had not changed sufficiently to require a COT OMRA 

assessment to be performed for the previous COT observation 

period). If a COT OMRA is required but is completed late, 

the facility is still required to submit the late COT OMRA 

to CMS. The facility will be paid at the default rate for 

any days not in compliance with the ARD requirement. The 
CMS-1351-F 207 

ARD of the late COT OMRA restarts the 7-day review period 

for the next COT OMRA. Since SNFs are only permitted to 

bill after the appropriate assessment has been accepted 

into the CMS data base, failure to submit a required 

assessment while continuing to bill for services that would 

be covered by the assessment, would subject the claim to 

denial. 

Comment: Many commenters offered suggestions and 

alternatives to the COT OMRA. Several commenters offered 

the general suggestion that CMS should seek alternate, less 

burdensome options to address the issue of therapy service 

level changes outside of the MDS observation windows. More 

specifically, commenters recommended that if we move 

forward with this proposal, we should allow flexibility in 

the choice of the ARD of the COT OMRA. One commenter 

suggested that we do this by allowing for grace days either 

at the beginning or end of the 7-day window for the COT 

observation period. Similarly, one commenter suggested 

that we incorporate the concept of “grace minutes” to offer 

facilities the flexibility to allow for an unexpected 

decrease in therapy minutes outside of the assessment 

window. Additionally, we received suggestions that the COT 
CMS-1351-F 208 

OMRA should be required only after the first 30 days of a 

patient’s SNF stay. 

Response: We appreciate the suggestions and 

alternatives offered. However, we believe that allowing 

flexibility in the choice of ARD by adding grace days and 

by allowing grace minutes, as suggested by the commenter, 

would defeat the purpose and intent of the COT OMRA, which 

is to determine whether the therapy provided during a 

successive 7-day window of therapy following the ARD of a 

scheduled or unscheduled PPS assessment (the COT 

observation period) corresponds to the resident’s RUG-IV 

classification as reflected on the most recent PPS 

assessment. Adding grace days would allow facilities to 

provide a count of therapy minutes that may not be an 

accurate reflection of the actual therapy minutes provided 

during the successive 7-day period discussed above, 

contrary to the intent of the COT OMRA. Furthermore, we 

believe that allowing grace minutes would allow the 

facility to provide less therapy than anticipated with the 

expectation that CMS will reimburse the facility at a 

higher rate than appropriate. Additionally, the concept of 

“grace minutes” would indicate that providers are targeting 

a minimum threshold of minutes to qualify for a specific 
CMS-1351-F 209 

RUG category. We stress that there are not “minimum 

minutes” that should be met when determining how much 

therapy a resident will receive. We expect that facilities 

are determining the therapy minutes provided based on the 

needs of each individual resident. Furthermore, we do not 

agree that we should require the COT OMRA only after the 

first 30 days of the SNF stay; instead, accurate payment 

should occur throughout the SNF stay. The majority of 

Medicare A Part stays are an average of 30 days in length, 

and thus, a COT OMRA that was only completed after day 30 

would not adequately monitor for changes in therapy 

services during the Medicare Part A stay, which is the 

purpose of the COT OMRA. 

Comment: Several commenters stated that the 

implementation of the COT OMRA implies that SNF payment is 

no longer prospective in nature. One commenter suggested 

that the retrospective nature of the COT OMRA undermines 

the principles of risk sharing inherent in a prospective 

payment system. One commenter suggested that rather than 

changing the nature of the PPS, we should modify the casemix indexes (CMIs) and payment rates associated with the 

Rehabilitation RUG categories. 
CMS-1351-F 210 

Response: As noted previously, we believe that the 

SNF PPS payments should reflect, as accurately as possible, 

resource utilization and cost. Classification of patients 

into therapy RUGs and payment for therapy services have 

always been based on the therapy services provided and 

reported on the MDS, and we do not view the COT OMRA as 

changing this. In implementing the COT OMRA, we are 

attempting to ensure that the therapy reported on the MDS 

and the therapy regimen chosen for the patient are a better 

reflection of the therapy needs of the patient, thereby 

ensuring more accurate payment. We appreciate the 

suggestion regarding modifying the CMIs and payment rates 

associated with the Rehabilitation RUG categories, and may 

consider this in the future to the extent appropriate. As 

stated in the proposed rule, CMS is 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. A discussion of 

these possible future initiatives is included in section 

III.E.5 below. 

Comment: Several commenters raised concerns regarding 

the inability of the COT OMRA to account for the natural 

progression in a patient’s therapy regimen. One commenter 
CMS-1351-F 211 

stated that as patients approach the end of their skilled 

therapy program, it is common practice to taper therapy 

down to prepare for discharge. Another commenter alleged 

that the requirement for the ARD of the COT OMRA to be set 

on Day 7 is arbitrary and that during any given payment 

period, clinical changes occur daily, especially at the 

beginning and end of the SNF stay. Other commenters were 

concerned that adhering to a strict 7-day evaluation 

schedule could prompt a patient’s RUG category to change 

for as little as one lost minute of therapy. 

Response: We believe that the COT OMRA, while based 

on changes in a therapy regimen, is primarily intended to 

capture the patient’s appropriate RUG classification and, 

therefore, the payment level. Therapists should exercise 

their professional discretion with regard to the 

appropriate amount and modality of the therapy provided to 

a resident during a given SNF stay. We acknowledge the 

natural progression of a patient’s therapy needs throughout 

a stay, and do not believe that the COT OMRA precludes 

therapists from having the freedom to tailor their 

provision of therapy services to the individual patient. 

We do not agree that setting the ARD of the COT OMRA 

on Day 7 following the last PPS assessment or Day 7 of any 
CMS-1351-F 212 

succeeding COT observation period is arbitrary. The 

resident is placed in a Rehabilitation or Rehabilitation 

Plus Extensive Services RUG category partially based the 

amount of therapy that was received during a 7-day lookback period. One of the basic principles underlying the 

SNF PPS is that an assessment completed in one time period 

can be used in accurately calculating reimbursement for a 

future period. While we realize that there will be changes 

based on individual needs, it is expected that, on average, 

residents will receive approximately the same amount of 

therapy within the next 7-day period after a PPS 

assessment. The COT OMRA is an instrument that will better 

align payment with the amount of therapy that a resident 

actually needs and receives. Our analysis of therapy 

utilization across Medicare Part A stays indicates that 

patients tend to remain in the same therapy groups for the 

first 30 days of care; that is, as reported on the 5-day 

and 14-day assessments. Since the average length of stay 

is approximately 30 days, facilities that maintain a stable 

therapy schedule should not see a large volume of COT 

OMRAs. While it is more common to see changes in therapy 

and RUG-IV groups during longer stays, the volume of 
CMS-1351-F 213 

patients receiving Medicare Part A SNF care for stays 

exceeding 30 days is much lower. 

In response to the comment that a strict 7-day 

evaluation schedule could prompt a patient’s RUG category 

to change for as little as one lost minute of therapy, this 

is theoretically possible if the plan of care is designed 

to provide only the minimum number of minutes that qualify 

the patient for a specific therapy category. As noted 

above, the purpose of the COT OMRA is to determine whether 

the therapy provided during the 7 days of therapy following 

the ARD of a scheduled or unscheduled PPS assessment (and 

any succeeding COT observation period) correspond to the 

resident’s RUG-IV classification, as reflected on the most 

recent PPS assessment. Slight variations during the 7-day 

period are expected, and it is up to the therapist to 

ensure that the patient receives the amount of therapy 

appropriate to his/her condition. 

Accordingly, for the reasons discussed in this final 

rule and in the FY 2012 proposed rule (76 FR 26388 through 

26393), we are finalizing our proposed policies related to 

the MDS Assessment Schedule, the EOT-OMRA, the EOT-R OMRA, 

and the COT OMRA. Specifically, effective October 1, 2011, 

as discussed in the proposed rule and in the final rule 
CMS-1351-F 214 

above, we are revising the Medicare-required assessment 

schedule in the manner set forth in Table 10B of the 

proposed rule (76 FR 26389); removing the distinction 

between 5-day and 7-day facilities for purposes of setting 

the ARD for the EOT OMRA, and requiring all facilities to 

set the ARD for the EOT ORMA by the third consecutive 

calendar day after a patient’s therapy services have been 

discontinued (76 FR 26390); and permitting providers the 

option to complete an EOT-R OMRA rather than the optional 

SOT OMRA, in cases where the therapy resumption date is no 

more than 5 consecutive calendar days following the last 

day of therapy provided, and therapy services have resumed 

at the same RUG-IV classification level that had been in 

effect prior to the EOT OMRA (76 FR 26390 through 26391). 

In addition, effective October 1, 2011, we are requiring 

facilities to complete a COT OMRA for patients classified 

into a RUG-IV therapy category, whenever the intensity of 

therapy (that is, the total RTM delivered or other therapy 

category qualifiers, such as the number of days the patient 

received therapy during the week or the number of therapy 

disciplines) changes to such a degree that it would no 

longer reflect the RUG-IV classification and payment 

assigned for a given SNF resident based on the most recent 
CMS-1351-F 215 

assessment used for Medicare payment (as proposed, the need 

for a COT OMRA will be based on therapy services delivered 

during the COT observation period) (76 FR 26391 through 

26393). In addition, as proposed, 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. Finally, as discussed above, the 

COT OMRA policy, as finalized in this rule, will also apply 

to patients who are receiving a level of therapy sufficient 

for classification into a therapy RUG, but are classified 

into a nursing RUG because of index maximization. 

5. Discussion of Possible Future Initiatives 

In the FY 2012 proposed rule (76 FR 26393), we 

discussed some 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. 

Specifically, we discussed three possible future 

initiatives. First, we discussed the possibility of 

evolving the manner in which we pay for therapy services 

toward a model that has previously been advocated by 

MedPAC, which would base payments for therapy services on 
CMS-1351-F 216 

the patient’s characteristics. Similarly, we discussed the 

possibility of making partial prospective payments for 

therapy services, based on patient characteristics, and 

then reconciling payments after the services have been 

verified. Lastly, we discussed the possibility of annual 

recalibrations of the CMIs to account for fluctuations in 

provider practices, and MedPAC’s analysis regarding the 

possibility of rebasing the system. As we stated in the FY 

2012 proposed rule, we were not proposing any new Medicare 

policy in this discussion, as we recognized that depending 

on how such modifications are ultimately formulated, their 

implementation may require new statutory authority. 

The comments we received related to this discussion, 

along with our responses, appear below. 

Comment: We received a few general comments related 

to this discussion, the majority of which stated their 

support for working with CMS in the future on any future 

initiatives. We did not receive any comments about any 

specific initiatives discussed. 

Response: We appreciate the support we received from 

commenters for considering these future initiatives and 

will continue to work with stakeholders on developing 
CMS-1351-F 217 

policies and programs that we consider necessary and 

appropriate to improve the SNF PPS. 

F. 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. In the FY 2012 proposed rule, we stated that the 

proposed rule incorporates the latest available projections 

of the SNF market basket. In this final rule, we are 

updating projections based on the latest available 

projections of the SNF market basket index at the time of 

publication. 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 summarizes 

the updated labor-related share for FY 2012. 

TABLE 9: Labor-related Relative Importance, 

FY 2011 and FY 2012 
CMS-1351-F 218 

Relative importance, 

labor-related, 

FY 2011 

10:2 forecast* 

Relative importance, 

labor-related, 

FY 2012 

11:2 forecast** 

Wages and salaries 50.654 50.129 

Employee benefits 11.511 11.502 

Nonmedical professional 

fees 

1.32 1.31 

Labor-intensive services 3.427 3.394 

Capital-related (.391) 2.399 2.358 

Total 69.311 68.693 

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

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

quarter 2011. 

1. 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 final 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) second quarter 2011 forecast (with 

historical data through the first quarter 2011) of the 

FY 2012 percentage increase in the FY 2004-based SNF market 

basket index for routine, ancillary, and capital-related 

expenses, which is used to compute the update factor in 

this final rule. As discussed in section III.F.3 of this 
CMS-1351-F 219 

final 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 final rule, we no longer compute update 

factors to adjust a facility-specific portion of the SNF 

PPS rates, because the initial three-phase transition 

period from facility-specific to full Federal rates that 

started with cost reporting periods beginning in July 1998 

has expired. 

2. 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 
CMS-1351-F 220 

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 final 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. 

 Comment: Several commenters suggested that CMS apply 

a cumulative forecast error adjustment to account for all 

of the variations in the market basket forecasts since FY 

2004. These commenters stated that while the industry has 

accepted the adjustment process, the lack of any cumulative 

adjustment in recent years violates the precedent set by 

CMS in 2003 when the last cumulative adjustment was made 

and that the cumulative adjustment in 2003 demonstrated 

recognition by CMS of the cumulatively erosive effect of 

multi-year forecasting errors. The commenters recommended 

that CMS adopt a policy which recognizes the cumulative 
CMS-1351-F 221 

effect of multi-year market basket forecast errors and that 

adjustment be made to account for the cumulative errors, 

estimated at 0.7 percent, thus far. 

 Response: For FY 2004, we applied a one-time, 

cumulative forecast error correction of 3.26 percent (68 FR 

46036, 46058). Since that time, the forecast errors have 

been relatively small and clustered near zero. As we 

stated in the FY 2004 final rule, we believe the forecast 

error correction should be applied only when the degree of 

forecast error in any given year is such that the SNF base 

payment rate does not adequately reflect the historical 

price changes faced by SNFs. Accordingly, we continue to 

believe that the forecast error adjustment mechanism should 

appropriately be reserved for the type of major, unexpected 

change that initially gave rise to this policy, rather than 

the minor variances that are a routine and inherent aspect 

of this type of statistical measurement. Further, we note 

that all of the Medicare prospective systems use an annual 

market basket adjustment factor to update rates to reflect 

inflation in the prices of goods and services used by 

providers. 

3. Multifactor Productivity Adjustment 
CMS-1351-F 222 

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 care 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 
CMS-1351-F 223 

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. 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 10, 

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 10: Multifactor Productivity Component Series 

Employed by the Bureau of Labor Statistics and IHS Global 

Insight 

BLS series IGI series 
CMS-1351-F 224 

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 final rule, the BLS has published 

a historical time series of private nonfarm business MFP 

for 1987 through 2010, with 2010 being a preliminary value. 

Using this historical MFP series and the IGI forecasted 

series, IGI developed a forecast of MFP for 2011 through 

2021, as described below. 
CMS-1351-F 225 

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 2011 to 

2021) are used to “grow” the levels of the “real valueadded 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 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, 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 
CMS-1351-F 226 

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. 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 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 
CMS-1351-F 227 

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. 

a. Incorporating the Multifactor Productivity Adjustment 

into the Market Basket Update 

According to section 1888(e)(5)(A) of the Act, the 

Secretary “shall establish a skilled nursing facility 

market basket index that reflects changes over time in the 

prices of an appropriate mix of goods and services included 

in covered skilled nursing facility services.” As 

described in section I.G.2 of this final rule, we estimate 

the SNF PPS market basket percentage for FY 2012 under 
CMS-1351-F 228 

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. 
CMS-1351-F 229 

We received the following comment on the incorporation 

of the MFP adjustment into the SNF market basket which, 

along with our response, appears below. 

Comment: One commenter proposed to remove the 

statutory language requiring a multi-factor productivity 

adjustment to the SNF market basket increase and 

recommended an alternative approach to measuring 

productivity. The commenter recommended that CMS achieve 

productivity gains by implementing a mechanism that 

recognizes that the average length of stay in SNFs can be 

reduced, potentially resulting in aggregate savings. 

Response: The commenter’s proposal would require a 

change to the existing statute governing the SNF PPS and, 

therefore, the request is outside the scope of rulemaking. 

As stated previously, section 3401(b) of the Affordable 

Care Act requires that, in FY 2012 (and in subsequent FYs), 

the market basket percentage under the SNF payment system 

as described in section 1888(e)(5)(B)(i) of the Act is to 

be reduced annually by the productivity adjustment 

described in section 1886(b)(3)(B)(xi)(II) of the Act. 

Accordingly, we are finalizing the methodology for 

calculating the MFP adjustment, and the incorporation of 

the MFP adjustment into the SNF market basket as discussed 
CMS-1351-F 230 

in this section of the final rule, and in section VI.C of 

the FY 2012 proposed rule (76 FR 26394 through 26396). 

To calculate the MFP-adjusted update for the SNF PPS, 

we subtract the MFP percentage adjustment from the FY 2012 

market basket percentage calculated using the FY 2004-based 

SNF market basket. In the FY 2012 proposed rule (76 FR 

26395), we proposed that the end of the 10-year moving 

average of changes in the MFP would 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 is calculated as the 10-year moving average of 

changes in MFP for the period ending September 30, 2012. 

We 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 
CMS-1351-F 231 

round the number up; if the number we are rounding is 

followed by 0, 1, 2, 3, or 4, we 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 2nd 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 

is then reduced by the MFP adjustment (the 10-year moving 

average of changes in MFP for the period ending September 

30, 2012) of 1.0 percent, which is calculated as described 

above and based on IGI’s 2nd quarter 2011 forecast. The 

resulting MFP-adjusted market basket increase factor is 

equal to 1.7 percent, or 2.7 percent less 1.0 percentage 

points. 

Furthermore, we proposed that 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 
CMS-1351-F 232 

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 will apply the forecast error adjustment (when 

applicable) to the market basket percentage prior to 

applying the MFP adjustment, to determine the update to the 

unadjusted Federal per diem rates for a fiscal year. 

As discussed in the FY 2012 proposed rule (76 FR 

26396), we proposed to revise §413.337 to reflect the 

policies discussed above and to conform the regulations to 

the corresponding statutory requirements at section 

1888(e)(4)(E) of the Act. As we did not receive any 

comments on our proposed changes to §413.337, we are 

finalizing these changes as proposed in the FY 2012 

proposed rule, subject to the technical correction noted 
CMS-1351-F 233 

below. Accordingly, as we proposed in the FY 2012 proposed 

rule, we are revising §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), as we proposed, we are further 

revising §413.337(d)(3) to state that the reduction of the 

market basket index percentage change by the MFP adjustment 

may result in the market basket index 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. We note that we have made a technical correction to 

the language we proposed for §413.337(d)(3). In the last 

sentence, we are replacing the term “market basket 

percentage change” with “market basket index percentage 

change” to be consistent with the terminology used in the 

first sentence of §413.337(d)(3) and in §413.337(d)(1). 
CMS-1351-F 234 

In addition, as we proposed, we are revising existing 

paragraphs (d)(1) and (d)(2) of §413.337, as discussed 

below. First, we are revising §413.337(d)(1) so that the 

text more accurately tracks the corresponding statutory 

requirements at section 1888(e)(4)(E) of the Act. As we 

stated in the FY 2012 proposed rule (76 FR 26396), 

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 final 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 inadvertently failed to update the regulation 

text to conform with the BIPA requirements. Therefore, we 

are now revising §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, as we proposed, we are 

revising §413.337(d)(2) to specify the existing thresholds 

we employ in determining whether a forecast error 

adjustment is applicable. 

b. Federal Rate Update Factor 

Section 1888(e)(4)(E)(ii)(IV) of the Act requires that 

the update factor used to establish the FY 2012 unadjusted 
CMS-1351-F 235 

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 

is 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 1.0 

percent as described in section III.F.3. The resulting 

MFP-adjusted market basket increase factor is equal to 1.7 

percent, or 2.7 percent less 1.0 percentage point. We used 

this MFP-adjusted market basket update factor to compute 

the SNF PPS rate shown in Tables 2 and 3. 

G. 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 
CMS-1351-F 236 

as being excluded from this provision. As noted previously 

in section I. of this final 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 

www.cms.hhs.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, 

occupational, and speech-language therapy remain subject to 
CMS-1351-F 237 

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 45818-45819, July 30, 2004), as 

well as in Medicare Learning Network (MLN) Matters article 

MM3575, issued December 10, 2004, which is available online 

atwww.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, 

enacted July 15, 2008). Specifically, section 149 of MIPPA 

amended section 1834(m)(4)(C)(ii) of the Act to create a new 

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 
CMS-1351-F 238 

at which an eligible individual can receive, through the 

use of a telecommunications system, services furnished by 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 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 
CMS-1351-F 239 

CY 2009 PFS final rule, 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-to-face 

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 
CMS-1351-F 240 

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 §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.hhs.gov/transmittals/downloads/R1635CP.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), 
CMS-1351-F 241 

but also gave the Secretary ". . . the authority to 

designate additional, individual services for exclusion 

within each of the specified service categories." In the 

proposed rule for FY 2001, we also noted that the BBRA 

Conference Report (H.R. Rep. No. 106-479 at 854 (1999) 

(Conf. Rep.)) characterizes the individual services that 

this legislation targets for exclusion as ". . . high-cost, 

low probability events that could have devastating 

financial impacts because their costs far exceed the 

payment [SNFs] receive under the prospective payment 

system. . .". According to the conferees, section 103(a) 

"is an attempt to exclude from the PPS certain services and 

costly items that are provided infrequently in SNFs. For 

example . . . specific chemotherapy drugs . . . not 

typically administered in a SNF, or . . . requiring special 

staff expertise to administer . . . ." By contrast, the 

remaining services within those four categories are not 

excluded (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 
CMS-1351-F 242 

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 the FY 2012 proposed rule, we 

specifically invited 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 (76 FR 26397). The 

comments that we received on this subject, and our 

responses, appear below. 
CMS-1351-F 243 

Comment: A review of the particular codes that 

commenters submitted in response to the proposed rule’s 

solicitation for comment revealed that a significant number 

were identical to codes that had already been submitted for 

consideration during the public comment period on the FY 

2010 SNF PPS proposed rule or in earlier years, and which 

we had already decided previously not to exclude. These 

included items such as hyperbaric oxygen treatments, total 

parenteral nutrition, wound care devices, blood products, 

and “chemotherapy” drugs that are actually used in treating 

diseases other than cancer. Other codes that commenters 

submitted did fall within the particular service categories 

that the BBRA authorizes for exclusion; however, these were 

codes that were already in existence as of the BBRA’s 

enactment, but did not fall within the specific statutory 

code ranges that the BBRA designated for exclusion. 

Examples would include customized prosthetic device codes 

L5010 (“partial foot, molded socket, ankle height, with toe 

filler”), L5020 (“partial foot, molded socket, tibial 

tubercle height, with toe filler”), and L5987 (“all lower 

extremity prosthesis, shank foot system with vertical 

loading pylon”). 
CMS-1351-F 244 

Response: As discussed in the applicable prior final 

rules, we decline to add to the exclusion list those 

services submitted by commenters that have already been 

considered and not excluded in previous years based on 

their being outside the particular service categories that 

the statute authorizes for exclusion. These services 

include hyperbaric oxygen treatments as discussed 

previously in the SNF PPS final rules for FY 2001 (65 FR 

46790-91, July 31, 2000), FY 2002 (66 FR 39588, July 31, 

2001), FY 2004 (68 FR 46060-62, August 4, 2003), FY 2006 

(70 FR 45048-50, August 4, 2005), FY 2008 (72 FR 43430-32, 

August 3, 2007), FY 2009 (73 FR 46435-37, August 8, 2008), 

and FY 2010 (74 FR 40353-56, August 11, 2009); total 

parenteral nutrition as discussed previously in the SNF PPS 

final rules for FY 2002, FY 2004, and FY 2006; and wound 

care devices as discussed previously in the SNF PPS final 

rules for FY 2004 and FY 2006. For the same reason--that 

is, being outside the particular service categories that 

the statute authorizes for exclusion--we decline to adopt 

the suggestion to exclude certain blood products, 

hemophilia clotting factor and intravenous infusion of 

immunoglobulin (IVIG). With respect to the reiteration of 

previous requests to exclude as chemotherapy drugs certain 
CMS-1351-F 245 

medications that are actually used to treat diseases other 

than cancer, we note that as indicated previously in the FY 

2010 SNF PPS final rule (74 FR 40354, August 11, 2009), 

such medications do not fall within the scope of 

“chemotherapy” drugs for purposes of this exclusion. In 

addition, regarding those particular codes (such as the 

three L codes specified above) that were already in 

existence as of the BBRA’s enactment, we explained 

previously in the FY 2010 SNF PPS final rule (74 FR 40354, 

August 11, 2009) that our position has always been that the 

BBRA’s discretionary authority to exclude codes within 

certain designated service categories applies solely to 

codes that were created subsequent to the BBRA’s enactment, 

and not to those codes that were already in existence as of 

July 1, 1999 (the date that the legislation itself uses as 

the reference point for identifying the codes that it 

designates for exclusion). As we explained in the FY 2010 

final rule (74 FR 40354), this position reflects the 

assumption that if a particular code was already in 

existence as of that date but not designated for exclusion, 

this meant that it was intended to remain within the SNF 

PPS bundle, subject to the BBRA Conference Report’s 

provision for a GAO review of the code set that was 
CMS-1351-F 246 

conducted the following year (H.R. Rep. No. 106-479 at 854 

(1999) (Conf. Rep.)). Accordingly, we decline to add these 

codes to the exclusion list. 

Comment: One commenter requested us to consider a 

particular chemotherapy drug, TREANDA® (HCPCS code J9033), 

that the commenter recommended as meeting the BBRA’s “highcost, low probability” criteria for exclusion. 

Response: We note that in one respect, this drug 

would appear to be similar to the three L codes discussed 

in the preceding comment, in that it falls within one of 

the particular service categories (that is, chemotherapy 

items) that the BBRA authorizes for exclusion, but the 

excluded code ranges specified in the BBRA skip over the 

particular code number to which it was assigned. However, 

in contrast to those L codes, code J9033 was not in use at 

the time of the BBRA’s enactment; in fact, this drug did 

not actually come into existence until almost a decade 

later. Accordingly, as there is no basis for assuming at 

the outset that this particular code’s omission from the 

excluded ranges indicated an intent for it to remain 

bundled, it then becomes appropriate for us to consider the 

possibility of excluding the drug from consolidated 

billing. We have determined that this drug does, in fact, 
CMS-1351-F 247 

qualify for exclusion in that its cost is comparable to 

other excluded chemotherapy drugs and it is rarely 

administered to SNF inpatients. Thus, it meets the “highcost, low probability” standard in the SNF setting, as 

discussed in the BBRA Conference Report. Accordingly, this 

new exclusion will appear in a forthcoming consolidated 

billing update, with an effective date of October 1, 2011. 

Comment: Some commenters suggested that we consider 

the exclusion of PROVENGE® (Sipuleucel-T, HCPCS code Q2043), 

which is used in treating certain cases of metastatic 

prostate cancer. PROVENGE®

 is made by selectively removing 

leukocytes (white blood cells) from the patient’s blood and 

sending them to a factory, which adds a protein commonly 

found in prostate cancer and an immune stimulating agent to 

the leukocytes. All three are mixed with lactated ringers 

and then sent back to the physician to administer to the 

patient. The commenters cited this drug as meeting the 

applicable standards for exclusion of high cost and low 

probability. 

Response: We note that in accordance with the 

National Coverage Determination that was released on June 

30, 2011 (available online at www.cms.gov/medicarecoverage-database/details/nca-decision-
CMS-1351-F 248 

memo.aspx?NCAId=247&fromdb=true), PROVENGE®

 is not 

classified as a drug for purposes of this particular 

coverage, but rather, as a service that is furnished as an 

incident to the physician’s professional services. As 

such, it remains subject to SNF consolidated billing, 

consistent with the longstanding policy that we first 

enunciated in the May 12, 1998 interim final rule (63 FR 

26297): 

. . . while the SNF Consolidated Billing provision 

does not apply to the professional services that a 

physician or other exempt practitioner performs 

personally, it does apply to those services that are 

furnished to an SNF resident by someone other than the 

practitioner, as an incident to the practitioner's 

professional service. This position is consistent 

with the approach that has long been taken under the 

hospital bundling requirement, as well as with section 

1888(e)(2)(A)(ii) of the Act, which specifically 

identifies "physicians' services" themselves as the 

service category that is excluded from SNF 

Consolidated Billing. Physicians' services, in turn, 

are covered by Part B under section 1861(s)(1) of the 

Act and are defined in section 1861(q) as being 
CMS-1351-F 249 

performed by a physician, while "incident to" services 

are covered under a separate statutory authority 

(section 1861(s)(2)(A) of the Act) and are, by 

definition, not performed by a physician . . . We 

believe that to do otherwise with regard to these 

“incident to” services would effectively create a 

loophole through which a potentially broad and diverse 

array of services could be unbundled, merely by virtue 

of being furnished under the general auspices of such 

practitioners. This, in turn, would ultimately defeat 

the very purpose of the SNF Consolidated Billing 

provision—that is, to make the SNF itself responsible 

for billing Medicare for essentially all of its 

residents' services, other than those identified in a 

small number of narrow and specifically delimited 

exclusions. Further, as noted above, both the 

Consolidated Billing and SNF PPS provisions employ the 

same statutory list of excluded services. Thus, the 

approach we are adopting with regard to the limited 

range of services that qualify for exclusion is 

essential not only to safeguard the integrity of the 

Consolidated Billing requirement, but also that of the 

SNF PPS itself. 
CMS-1351-F 250 

Comment: Some commenters reiterated previous 

suggestions on expanding the existing chemotherapy 

exclusion to encompass related drugs that are commonly 

administered in conjunction with chemotherapy to ameliorate 

the side effects of the chemotherapy drugs, such as antiemetics (anti-nausea drugs). 

Response: As we have noted previously in this final 

rule and in response to comments on this issue in the past 

(most recently, in the August 11, 2009 SNF PPS final rule 

for FY 2010 (74 FR 40354)), the BBRA authorizes us to 

identify additional service codes for exclusion only within 

those particular service categories-- chemotherapy items; 

chemotherapy administration services; radioisotope 

services; and, customized prosthetic devices--that it has 

designated for this purpose, and does not give us the 

authority to exclude other services which, though they may 

be related, fall outside of the specified service 

categories themselves. Thus, while anti-emetics, for 

example, are commonly administered in conjunction with 

chemotherapy, they are not inherently chemotherapeutic in 

nature (that is, they are not themselves oncolytic drugs 

that actively destroy cancer cells) and, consequently, do 
CMS-1351-F 251 

not fall within the excluded chemotherapy category 

designated in the BBRA. 

 Comment: One commenter repeated calls from previous 

years to expand the existing exclusion for certain highintensity outpatient hospital services to encompass 

services furnished in other, nonhospital settings, stating 

that such nonhospital services may be cheaper and more 

accessible in certain localities (such as rural settings) 

than those furnished by hospitals. In urging us to expand 

the administrative exclusion in this manner, the commenter 

also advanced the view that the test of service intensity 

under this exclusion was intended to be applied 

independently, regardless of whether the service in 

question is actually being furnished in the hospital 

setting. 

Response: We have included in a number of previous 

rules an explanation of the setting-specific nature of the 

exclusion for certain high-intensity outpatient hospital 

services--most recently, in the FY 2010 SNF PPS final rule 

(74 FR 40355, August 11, 2009): 

We believe the comments that reflect previous 

suggestions for expanding this administrative 

exclusion to encompass services furnished in non-
CMS-1351-F 252 

hospital settings indicate a continued 

misunderstanding of the underlying purpose of this 

provision. As we have consistently noted in response 

to comments on this issue in previous years . . . and 

as also explained in Medicare Learning Network (MLN) 

Matters article SE0432 (available online at 

www.cms.hhs.gov/MLNMattersArticles/downloads/SE0432.pd

f), the rationale for establishing this exclusion was 

to address those types of services that are so far 

beyond the normal scope of SNF care that they require 

the intensity of the hospital setting in order to be 

furnished safely and effectively. 

 Moreover, we note that when the Congress enacted 

the consolidated billing exclusion for certain RHC and 

FQHC services in section 410 of the MMA, the 

accompanying legislative history’s description of 

present law acknowledged that the existing exclusions 

for exceptionally intensive outpatient services are 

specifically limited to “. . . certain outpatient 

services from a Medicare-participating hospital or 

critical access hospital . . .” (emphasis added). 

(See the House Ways and Means Committee Report (H. 

Rep. No. 108-178, Part 2 at 209), and the Conference 
CMS-1351-F 253 

Report (H. Conf. Rep. No. 108-391 at 641).) 

Therefore, these services are excluded from SNF 

consolidated billing only when furnished in the 

outpatient hospital or CAH setting, and not when 

furnished in other, freestanding (non-hospital or nonCAH) settings. 

Further, the authority for us to establish a categorical 

exclusion for these services that would apply irrespective 

of the setting in which they are furnished does not exist 

in current law. 

Finally, we do not agree with the commenter’s analysis 

regarding the applicable standard for determining service 

intensity under this exclusion. Contrary to that 

commenter’s statement, when we originally established the 

administrative exclusion for certain designated categories 

of high-intensity outpatient services, we did not envision 

creating a separate standard of service intensity that 

would exist independently from the service’s performance in 

the hospital setting. In fact, the applicable discussion 

in the May 12, 1998 interim final rule (63 FR 26298) 

clearly indicates that this exclusion was created within 

the specific context of the concurrent development of a new 

PPS specifically for outpatient hospital services, 
CMS-1351-F 254 

reflecting the need “. . . to delineate the respective 

areas of responsibility for the SNF under the Consolidated 

Billing provision, and for the hospital under the 

outpatient bundling provision, with regard to these 

services” (emphasis added). This point was further 

reinforced in the subsequent SNF PPS final rule for FY 2000 

(64 FR 41676, July 30, 1999), where we noted that 

. . . a key concern underlying the development of the 

consolidated billing exclusion of certain outpatient 

hospital services specifically involves the need to 

distinguish those services that comprise the SNF 

bundle from those that will become part of the 

outpatient hospital bundle that is currently being 

developed in connection with the outpatient hospital 

PPS. Accordingly, we are not extending the outpatient 

hospital exclusion from consolidated billing to 

encompass any other, freestanding settings. 

 Comment: One commenter noted that the administrative 

exclusion from consolidated billing for certain designated, 

highly intensive outpatient hospital services (such as 

emergency services) also serves to encompass an associated, 

medically necessary ambulance roundtrip from the SNF. The 

commenter requested clarification on whether this exclusion 
CMS-1351-F 255 

would still apply to an ambulance trip returning to the SNF 

following the receipt of emergency services, even though 

the emergency condition itself would have already been 

stabilized by that point. 

 Response: The return ambulance trip would still be 

excluded from consolidated billing in this scenario. As 

explained on page 3 of Medicare Learning Network (MLN) 

Matters Special Edition article #SE0433 (available online 

at www.cms.gov/MLNMattersArticles/downloads/SE0433.pdf), 

Since a beneficiary’s departure from the SNF to 

receive one of these excluded types of outpatient 

hospital services is considered to end the 

beneficiary’s status as an SNF resident for CB 

[consolidated billing] purposes with respect to those 

services, any associated ambulance trips are, 

themselves, excluded from CB as well. Therefore, an 

ambulance trip from the SNF to the hospital for the 

receipt of such services should be billed separately 

under Part B by the outside supplier. Moreover, once 

the beneficiary’s SNF resident status has ended in 

this situation, it does not resume until the point at 

which the beneficiary actually arrives back at the 

SNF; accordingly, the return ambulance trip from the 
CMS-1351-F 256 

hospital to the SNF would also be excluded from CB

(emphasis added). 

Comment: One commenter requested that all 

chemotherapy drugs and customized prosthetic devices be 

excluded from consolidated billing, as well as 

transportation relating to the receipt of excluded 

radiation therapy services. 

Response: As indicated previously in this final rule, 

in creating a statutory carve-out for several designated 

types of services, the BBRA did not categorically exclude 

all such services from SNF consolidated billing. Instead, 

the legislation specifically identified individual excluded 

services within designated categories, by Healthcare Common 

Procedure Coding System (HCPCS) code. The BBRA’s 

Conference Report explained that this legislation 

specifically targeted those “high-cost, low probability” 

items and services that “ . . . are not typically 

administered in a SNF, or are exceptionally expensive, or 

are given as infusions, thus requiring special staff 

expertise to administer” (H.R. Conf. Rep. No. 106-479 at 

854). By contrast, other types of services within those 

categories that “. . . are relatively inexpensive and are 
CMS-1351-F 257 

administered routinely in SNFs” remain subject to SNF 

consolidated billing under this legislation. 

 Regarding the comment concerning transports related to 

radiation therapy, we note that radiation therapy is one of 

the administratively excluded categories of high-intensity 

outpatient hospital services. As indicated in the 

preceding comment, this exclusion already encompasses not 

only the service itself, but also any associated, medically 

necessary ambulance transportation between the SNF and the 

hospital. 

H. 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 
CMS-1351-F 258 

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 final rule for the SNF PPS also apply to 

all non-CAH swing-bed rural hospitals. A complete 

discussion of assessment schedules, the MDS and the 

transmission software (RAVEN-SB for Swing Beds) appears in 

the 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, www.cms.gov/snfpps. We 

received no comments on this aspect of the proposed rule. 

IV. Analysis of and Responses to Public Comments on the FY 

2011 Update Notice with Comment 

 In addition to responding to comments received on the 

FY 2012 proposed rule, we are also taking the opportunity 
CMS-1351-F 259 

to respond in this section to those comments not addressed 

elsewhere in this final rule that were received on the FY 

2011 notice with comment period, as discussed in the FY 

2012 proposed rule (76 FR 26368). 

Comment: We received a number of comments related to 

the delayed implementation of RUG-IV, the implementation of 

HR-III, and the transition from RUG-IV to HR-III. Many 

commenters asked for details on how the transition would be 

done and how claims would be reprocessed upon successful 

implementation of HR-III. One commenter requested further 

detail on educational materials that would be made 

available to providers to ease the system transition once 

the HR-III grouper has been developed. Some commenters 

asked that CMS be as transparent as possible in its 

management of the transition to HR-III. 

Response: As discussed in section I.F of this final 

rule, section 202 of the “Medicare and Medicaid Extenders 

Act of 2010” (Pub. L. 111-309), enacted December 15, 2010, 

repealed section 10325 of the Affordable Care Act, 

effectively leaving in place the RUG-IV system as 

implemented on October 1, 2010. Therefore, HR-III is no 

longer necessary and there will be no reprocessing of 

claims related to HR-III. Moreover, as we also noted 
CMS-1351-F 260 

previously in the FY 2012 SNF PPS proposed rule (76 FR 

26368), the repeal of this provision “. . . effectively 

renders moot any further discussion of public comments that 

we had invited on our planned implementation” of the 

transition to the HR-III system. 

V. Provisions of the Final Rule 

In this final rule, in addition to accomplishing the 

required annual update of the SNF PPS payment rates, we are 

also finalizing the following revisions to the regulation 

text: 

As discussed previously in section III.F.3.a of this 

final rule, we are implementing section 3401(b) of the 

Affordable Care Act by revising §413.337. We are adding a 

new paragraph (d)(3) to that section to require that, for 

FY 2012 and each subsequent FY, 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. In addition, consistent with section 

1888(e)(5)(B)(ii) of the Act (as added by section 3401(b) 

of the Affordable Care Act), revised §413.337(d)(3) also 

states that the reduction of the market basket index 
CMS-1351-F 261 

percentage change by the MFP adjustment may result in the 

market basket index 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 III.F.3, we are also 

revising 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 

that we apply in determining whether a forecast error 

adjustment is appropriate (§413.337(d)(2)). 

VI. Collection of Information Requirements 

 Under the Paperwork Reduction Act of 1995 (PRA), we 

are required to provide 30-day notice in the Federal 

Register and solicit public comment before a collection of 

information requirement is submitted to the OMB for review 

and approval. In order to fairly evaluate whether an 

information collection should be approved by OMB, section 

3506(c)(2)(A) of the PRA requires that we solicit comment 

on the following issues: 
CMS-1351-F 262 

● 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 final rule with regard to resident assessment 

information used to determine facility payments are 

currently approved under OMB control number (OCN): 0938-

0739, which relates to the Medicare PPS Assessment Form 

(MPAF) information collection, and OCN: 0938-0872, which 

relates to the Minimum Data Set for Swing-Bed Hospitals. 

We note that this final rule will not affect the burden 

associated with either of those collections. 

Section III.E.4 of this final rule 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. 
CMS-1351-F 263 

As discussed previously in section III.E.4 of this 

final rule, we are making certain modifications in the 

existing requirements for completing OMRAs. We introduced 

a new COT OMRA, to be completed whenever the intensity of 

therapy 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. 

SNFs are 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 therapy changes 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 
CMS-1351-F 264 

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 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 
CMS-1351-F 265 

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) of data operator time for transmission. This 

results in an average estimated cost per COT OMRA of 

$33.84. 

The number of stays for 2009 was approximately 2.26 

million. Based on a 30-day average length of stay for RUGIV, 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 the first eight 

months of FY 2011 data, we found that approximately 40 
CMS-1351-F 266 

percent of the claims resulted in assignment to a higherthan-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 will 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 
CMS-1351-F 267 

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 will also be used when 

providers find that the therapy provided a given resident 

warrants the resident being classified into a higher 

therapy RUG category. As stated above, providers currently 

are not required to report therapy changes that occur 

outside the observation window of a given PPS assessment; 

therefore, we do not have the relevant data to predict with 

certainty the number of COT OMRAs that may be required per 

year due to an increase in therapy. We have used the 

historical data available at this time to quantify 

situations where an increase in therapy occurs. 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 
CMS-1351-F 268 

first eight months of FY 2011 projected for the entire 

year, we estimate that the total COT OMRAs required due to 

an increase in therapy would be 71,330, or 5 times per 

facility per year. Therefore, the estimated total number 

of COT OMRAs per facility per year is 62. The total annual 

hour burden for completing COT OMRAs is estimated to be 

737,003 hours for reporting, 147,401 hours for coding, and 

29,480 hours for transmission, for a total burden of 

913,884 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 $29.93 million, or $2,097.87 per facility. 

Further, we note that the completion of an EOT-R OMRA, 

as discussed in section III.E.4, would be entirely 

voluntary on the part of the facility and, thus, would not 

represent the imposition of a mandatory burden. 

VII. Economic Analyses 

A. Regulatory Impact Analysis 

1. Introduction 

We have examined the impacts of this final rule as 

required by Executive Order 12866 on Regulatory Planning 

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

Improving Regulation and Regulatory Review (January 
CMS-1351-F 269 

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 final rule updates the SNF prospective payment 

rates for fiscal year 2012 as required under section 
CMS-1351-F 270 

1888(e)(4)(E) of the Act. It also responds to section 

1888(e)(4)(H) of the Act, which requires the Secretary to 

“provide for publication in the Federal Register” before 

the August 1 that precedes the start of each fiscal year, 

the unadjusted Federal per diem rates, the case-mix 

classification system, and the factors to be applied in 

making the area wage adjustment. As these statutory 

provisions prescribe a detailed methodology for calculating 

and disseminating payment rates under the SNF PPS, we do 

not have the discretion to adopt an alternative approach. 

3. Overall Impacts 

 We estimate the aggregate impact of the FY 2012 final 

rule would be a net decrease of $3.87 billion in payments 

to SNFs, resulting from a $600 million increase from the 

update to the payment rates and a $4.47 billion reduction 

from the recalibration of the case-mix adjustment. 

Accordingly, we have prepared a RIA that, to the best of 

our ability, presents the costs and benefits of the 

rulemaking. 

The update set forth in this final rule applies to 

payments in FY 2012. Accordingly, the analysis that 

follows only describes the impact of this single year. In 

accordance with the requirements of the Act, we will 
CMS-1351-F 271 

publish a notice for each subsequent FY that will provide 

for an update to the payment rates and include an 

associated impact analysis. 

4. Detailed Economic Analysis 

This final 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, we estimate that the FY 2012 aggregate impact would 

be a net decrease of $3.87 billion in payments to SNFs, 

resulting from a $600 million increase from the update to 

the payment rates and a $4.47 billion reduction from the 

recalibration of the case-mix adjustment. The impact 

analysis of this final rule represents the projected 

effects of the changes in the SNF PPS from FY 2011 to 

FY 2012. We assess the effects by estimating payments 

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 
CMS-1351-F 272 

future-oriented and, thus, very susceptible to forecasting 

errors due to certain events that may occur within the 

assessed impact time period. Some examples of possible 

events may include newly legislated general Medicare 

program funding changes by the Congress, or changes 

specifically related to SNFs. In addition, changes to the 

Medicare program may continue to be made as a result of 

previously enacted legislation, or new statutory 

provisions. Although these changes may not be specific to 

the SNF PPS, the nature of the Medicare program is 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 FY 2011 payment rates 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 add-on 
CMS-1351-F 273 

established by section 511 of the MMA remains in effect 

until “. . . such date as the Secretary certifies that 

there is an appropriate adjustment in the case mix . . . .” 

We have not provided a separate impact analysis for the MMA 

provision. Our latest estimates indicate that there are 

fewer than 3,500 beneficiaries who qualify for the AIDS 

add-on payment. The impact to Medicare is included in the 

“total” column of Table 11. In updating the rates for FY 

2012, we made a number of standard annual revisions and 

clarifications mentioned elsewhere in this final rule (for 

example, the update to the wage and market basket indexes 

used for adjusting the Federal rates). 

 We estimate that the aggregate impact for the FY 2012 

updates discussed in this final rule would be a net 

decrease of $3.87 billion in payments to SNFs, resulting 

from a $600 million increase from the update to the payment 

rates and a $4.47 billion reduction from the recalibration 

of the case-mix adjustment. The FY 2012 impacts are 

presented in Table 11. 

The breakdown of the various categories of data in 

Table 11 is as follows. 
CMS-1351-F 274 

 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 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 11 shows the number of 

facilities in the impact database. 

 The third column in Table 11 shows the effects of 

recalibrating the nursing CMIs of the RUG-IV therapy 

groups. As explained previously in section III.B.2 of this 

final rule, we are implementing the 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 the initial eight months of FY 2011 claims and 

MDS data. The total impact of this change is a decrease of 
CMS-1351-F 275 

12.6 percent. We note that some individual providers may 

experience larger or smaller decreases in payment than 

others due to case-mix utilization. 

The fourth column of Table 11 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 11 shows the effect of all 

of the changes on the FY 2012 payments. The update of 

1.7 percent, consisting of the market basket increase of 

2.7 percentage points, reduced by the 1.0 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 

11.1 percent, assuming that facilities do not change their 

care delivery and billing practices in response. 

As shown in Table 11, the combined effects of all of 

the changes vary by specific types of providers and by 

location. 

TABLE 11: RUG-IV Projected Impact to the SNF PPS for 

FY 2012 

Number of 

Facilities Revised CMIs

Update 

Wage Data

Total FY 

2012 Change
CMS-1351-F 276 

Number of 

Facilities Revised CMIs

Update 

Wage Data

Total FY 

2012 Change

Group 

Total 14,706 -12.6% 0.0% -11.1% 

Urban 10,321 -12.8% 0.0% -11.3% 

Rural 4,385 -11.9% 0.1% -10.3% 

Hospital based urban 454 -12.4% 0.1% -10.8% 

Freestanding urban 9,867 -12.8% 0.0% -11.3% 

Hospital based rural 341 -11.3% 0.0% -9.8% 

Freestanding rural 4,044 -11.9% 0.1% -10.3% 

 

Urban by region 

New England 807 -12.6% 0.0% -11.1% 

Middle Atlantic 1,436 -12.9% 0.1% -11.3% 

South Atlantic 1,714 -12.8% -0.1% -11.4% 

East North Central 2,001 -12.9% -0.5% -11.8% 

East South Central 493 -12.7% -0.4% -11.6% 

West North Central 848 -12.8% 0.2% -11.1% 

West South Central 1,167 -12.6% 0.5% -10.7% 

Mountain 472 -12.9% 0.1% -11.3% 

Pacific 1,378 -12.8% 0.3% -11.1% 

Outlying 5 -8.9% 1.2% -6.3% 

 

Rural by region 

New England 142 -11.7% 1.0% -9.3% 

Middle Atlantic 236 -12.3% -0.1% -10.9% 

South Atlantic 558 -11.8% -0.2% -10.4% 

East North Central 891 -12.1% -0.2% -10.7% 

East South Central 464 -11.7% -0.5% -10.7% 

West North Central 1,043 -12.0% 0.4% -10.1% 

West South Central 713 -11.7% 0.8% -9.5% 

Mountain 219 -11.8% 0.3% -10.0% 

Pacific 119 -11.8% 1.0% -9.4% 

 

Ownership 

Government 769 -12.4% -0.1% -11.0% 

Profit 10,172 -12.6% 0.0% -11.1% 

Non-profit 3,765 -12.7% 0.0% -11.2% 

Note: The Total column includes the 2.7 percent market basket increase, reduced by the 1.0 percentage 

point MFP adjustment. Additionally, we found no SNFs in rural outlying areas. 

5. Alternatives Considered 
CMS-1351-F 277 

As described above, the aggregate impact for FY 2012 

of the updates discussed in this final rule would be a net 

decrease of $3.87 billion in payments to SNFs, resulting 

from a $600 million increase from the update to the payment 

rates and a $4.47 billion reduction from the recalibration 

of the case-mix adjustment. 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, 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 
CMS-1351-F 278 

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 fiscal year. Accordingly, we 

are not pursuing alternatives for 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 final rule finalizes 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 results in 

case-mix weights that better reflect the resources used, 

produces more accurate payment, and represents an 

appropriate case-mix adjustment. Using FY 2011 data is 

consistent with our intent to make the change from the RUG53 model to the RUG-IV model in a budget neutral manner. 

In reviewing our initial projections, we found that 

the disparity between projected RUG-IV utilization for FY 

2011 and actual RUG-IV utilization in FY 2011, which formed 

the basis for our considering a recalibration of the 
CMS-1351-F 279 

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 significant portion of the SNFs reporting 0 minutes 

of concurrent therapy for all MDS 3.0 assessments submitted 

for FY 2011. Many of these facilities reported large 

increases in the amount of group therapy provided during 

the same time period. 

For the proposed rule, we used 3 months of data (first 

quarter FY 2011) to calculate the initial parity adjustment 

and stated that we would observe utilization trends for a 

greater period of FY 2011 to confirm our preliminary 

assessment. We have now used 8 months of FY 2011 data as 

the basis for the recalibration discussed in section 

III.B.2 above and the data have confirmed our preliminary 

assessment. Therefore, as discussed in section III.B.2 of 

this final rule, we are implementing a recalibration of the 

nursing CMIs of the RUG-IV therapy groups based on eight 

months of FY 2011 MDS and claims data. 

Both during development of the proposed rule (76 FR 

26372, 26404) and in response to comments we received on 

the proposed rule, as discussed in section III.B.2 above, 
CMS-1351-F 280 

we considered various alternatives for implementing a 

recalibrated case-mix adjustment. Most notably, as 

discussed in section III.B.2 of this final rule, we 

considered applying the recalibration to all of the nursing 

CMIs, rather than just the nursing CMIs for the RUG-IV 

therapy groups as we have finalized in this final rule. 

However, as noted in the proposed rule (76 FR 26372, 

26404), we found that an across-the-board recalibration of 

the nursing CMIs that included the complex medical groups 

(approximately 8 percent of the total SNF Part A 

population), would affect patients in these complex medical 

groups disproportionately and negatively. Moreover, we are 

concerned that reducing payment rates for both the therapy 

and the complex medical patients could inadvertently create 

an access problem for beneficiaries with complex medical 

care needs. The increasing volume of therapy patients 

during the past several years, in combination with the 

increasing SNF Medicare profit margins, suggests that the 

care needs for therapy patients may be more predictable and 

less costly than those for beneficiaries with severe 

medical conditions. In reviewing FY 2011 MDS assessment 

data, we found that approximately 30 percent of the SNF 

Part A patients did not have a medical need that would 
CMS-1351-F 281 

qualify them for coverage under the SNF PPS. Reducing the 

rates paid for beneficiaries with complex medical 

conditions at the same time therapy rates are being 

adjusted may create access problems for patients with 

complex medical and rehabilitation needs. Thus, while we 

considered an across-the-board recalibration of the nursing 

CMIs, we decided it would be more prudent to keep the 

payment levels for the low-volume complex medical services 

at their present levels for 2012. We plan to reassess the 

adequacy of the complex medical payment rates as part of 

the development of the NTA component discussed in section 

III.C.1 of this final rule. We believe that applying the 

recalibration to only the nursing CMIs of the RUG-IV 

therapy groups will restore the system to the intended 

budget neutrality and ensure adequate access to quality SNF 

care for the important subset of Medicare beneficiaries 

needing complex medical care. 

As described in section III.B.2 of this final rule and 

in sections XII.A.5 and II.B.2 of the proposed rule, we 

also considered how the recalibration might be implemented 

so as to mitigate the economic impact of the recalibration 

on facilities. Specifically, we considered mitigating the 

impact of the recalibration by phasing in the negative 
CMS-1351-F 282 

adjustments prospectively over multiple years until parity 

was achieved. However, as discussed elsewhere in this 

preamble, we believe that in implementing RUG-IV, it is 

essential that we stabilize the baseline as quickly as 

possible without creating a significant adverse effect on 

the industry or to beneficiaries. For the reasons 

discussed in section II.B.2 of this final rule, we do not 

believe that implementation of the full recalibration in FY 

2012 should negatively impact facilities, beneficiaries or 

quality of care. Moreover, implementing the recalibration 

over a multi-year period would continue the significant 

overpayments observed in FY 2011 and could further 

destabilize the SNF PPS. 

We received a number of comments on the impact 

analysis contained in the proposed rule which, along with 

our responses, appear below. 

Comment: Several commenters believed that CMS did not 

consider adequately possible alternative methodologies for 

applying or implementing the recalibration of the case-mix 

indexes. Specifically, commenters believed that CMS should 

consider a phase-in approach for the recalibration, if it 

were to be finalized. 
CMS-1351-F 283 

Response: We believe that the discussion of 

alternatives in this section above, in section III.B.2 

above, as well as in the FY 2012 proposed rule (76 FR 

26372, 26403 through 26404) provides sufficient 

consideration of alternatives as well as appropriate 

justification for our finalized changes. Regarding a 

phase-in approach, we noted in section III.B.2 above our 

belief that the 18.1 percent SNF profit margins for 

Medicare even before the FY 2011 overpayments occurred 

would justify a full recalibration in FY 2012. It is also 

important to note that this recalibration would serve to 

remove an unintended spike in payments rather than 

decreasing an otherwise appropriate payment amount; thus, 

we do not believe that the recalibration should negatively 

affect facilities, beneficiaries, or quality of care, or 

create an undue hardship on providers. In fact, 

notwithstanding the recalibration, the FY 2012 payment 

rates will actually be 3.4 percent higher than the rates 

established for FY 2010, the last period prior to the 

unintended spike in payment levels. We continue to believe 

that in implementing RUG-IV, it is essential that we 

stabilize the baseline as quickly as possible without 

creating a significant adverse effect on the industry or to 
CMS-1351-F 284 

beneficiaries. Utilizing a phase-in approach would only 

add to, rather than reduce, the cumulative excess payments. 

Comment: Several commenters expressed concern that the 

impact analysis presented in the proposed rule did not 

account adequately for the total economic impact of the 

policy changes discussed in the FY 2012 proposed rule. One 

commenter stated specifically that the implementation of 

the proposed changes could lead the U.S. economy back into 

a deep recession. 

Response: As indicated in Table 11 above, the changes 

due to the recalibration of the CMIs (which is arguably the 

only proposed change which would have a definitive negative 

impact on current facility payments) are expected to result 

in a decrease in Medicare payments to SNFs of 12.6 percent. 

We note that the recalibration is only intended to restore 

budget neutrality between the RUG-53 and RUG-IV case-mix 

systems, which effectively will align overall payments 

under RUG-IV in FY 2012 with those under RUG-III, not 

accounting for subsequent increases associated with the 

annual market basket increase. 

Based on a comparative analysis of the actual payment 

amounts reflected on claims paid in FY 2010 and in FY 2011, 

payments to facilities increased in FY 2011 by an average 
CMS-1351-F 285 

of approximately $66 per day per resident for all 

providers. Furthermore, as noted in section III.B.2 of this 

final rule, the aggregate Medicare margin for freestanding 

SNFs in FY 2009, prior to the implementation of the parity 

adjustment in FY 2011 and the resulting overpayments, was 

18.1 percent, up from 16.6 percent in 2008. Therefore, 

given these high Medicare margins coupled with the fact 

that Medicare payments represent a small percentage of 

aggregate facility revenues (considering all payers), we do 

not believe it can be concluded that a return to the 

intended payment levels after the FY 2011 short-term spike 

in payments will result in a direct and significant 

negative macroeconomic effect on the US economy. For these 

reasons, we believe that the regulatory impact analysis 

both in this final rule and in the proposed rule adequately 

assesses the economic impact of the changes to the RUG-IV 

system. 

6. Accounting Statement 

 As required by OMB Circular A-4 (available online at 

www.whitehouse.gov/sites/default/files/omb/assets/regulator

y_matters_pdf/a-4.pdf), in Table 12, we have prepared an 

accounting statement showing the classification of the 

expenditures associated with the provisions of this final 
CMS-1351-F 286 

rule. Tables 12 provides our best estimate of the possible 

changes in Medicare payments under the SNF PPS as a result 

of the policies in this final rule, based on the data for 

14,706 SNFs in our database. All expenditures are 

classified as transfers to Medicare providers (that is, 

SNFs). 

TABLE 12: Accounting Statement: Classification of 

Estimated Expenditures, from the 2011 SNF PPS Fiscal Year 

to the 2012 SNF PPS Fiscal Year

Category Transfers 

Annualized Monetized 

Transfers -$3.87 billion* 

From Whom To Whom? Federal Government to SNF Medicare 

Providers 

* The net decrease of $3.87 billion in transfer payments is a result of the decrease of $4.47 billion 

due to the recalibration of the case mix adjustment, together with the increase of $600 million due 

to the MFP-adjusted market basket update. 

7. Conclusion 

The overall estimated payments for SNFs in FY 2012 are 

projected to decrease by $3.87 billion, or 11.1 percent, 

compared with those in FY 2011. We estimate that under 

RUG-IV, SNFs in urban and rural areas would experience, on 

average, an 11.3 and 10.3 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 

11.8 percent. In order to have achieved parity between the 
CMS-1351-F 287 

RUG-53 and RUG-IV case-mix systems in FY 2011, aggregated 

payments would have had to have been 11.1 percent lower. 

It should also be noted that the FY 2012 payment rates, 

which remove the unanticipated excess payments resulting 

from the FY 2011 parity adjustment, are still 3.4 percent 

higher than the FY 2010 rates, the last fiscal year before 

the introduction of RUG-IV. 

B. Regulatory Flexibility Act Analysis

The Regulatory Flexibility Act (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, non-profit organizations, and 

small governmental jurisdictions. Most SNFs and most other 

providers and suppliers are small entities, either by their 

non-profit status or by having revenues of $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-
CMS-1351-F 288 

idx?c=ecfr&sid=2465b064ba6965cc1fbd2eae60854b11&rgn=div8&vi

ew=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 be higher than the 

estimate above. 

This final 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 discussed in section II.B.2 above would 

result in a net decrease of $3.87 billion in payments to 

SNFs for FY 2012. This reflects a $600 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 11, the estimated effect 

of the recalibration on facilities for FY 2012 would be an 

aggregate negative impact of 11.1 percent. While it is 

projected in Table 11 that all providers would experience a 
CMS-1351-F 289 

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. 

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 11. Therefore, the Secretary has determined that 

this final rule may have a significant impact on a 

substantial number of small entities. 

We offer an analysis of the alternatives considered in 

section VII.A.4 of this final rule. The analysis above, 
CMS-1351-F 290 

together with the remainder of this preamble, constitutes 

the final regulatory flexibility analysis. 

In addition, section 1102(b) of the Social Security 

Act requires us to prepare a regulatory impact analysis 

(RIA) if a rule may have a significant impact on the 

operations of a substantial number of small rural 

hospitals. This analysis must conform to the provisions of 

section 603 of the RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital as a hospital 

that is located outside of a Metropolitan Statistical Area 

and has fewer than 100 beds. This final rule 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 would 

be similar to the impact on SNF providers overall. 

Therefore, the Secretary has determined that this final 

rule may have a significant impact on the operations of a 

substantial number of small rural hospitals. 

Comment: One commenter believed that the RFA analysis 

and RIA discussed in the proposed rule did not sufficiently 

account for the impact of the proposed changes, 

specifically the recalibration of the case-mix indexes, on 

small entities. Also, the commenter pointed out that the 
CMS-1351-F 291 

portion of SNFs which may be characterized properly as 

small entities may, in fact, be higher than our estimates. 

The commenter asserted that in evaluating the effect of the 

proposed changes on small entities “as a whole,” the 

analysis must necessarily consider their effect on the 

entity’s overall margins. This commenter also asserted 

that CMS failed to provide sufficient discussion of 

possible alternatives. The commenter further suggested 

that the RIA cannot also serve to meet the requirements of 

the RFA. 

Response: We do not agree with the commenter’s 

assertion that the RFA or RIA discussions in the proposed 

rule were insufficient. First, we would note that, as 

discussed above, approximately 91 percent of all SNFs may 

be classified as small entities. As the commenter pointed 

out, the portion of SNFs which may be characterized 

properly as small entities may, in fact, be higher than our 

estimates. Therefore, any discussion of impacts throughout 

the proposed rule, as well as in this final rule, may be 

directly characterized as an analysis of the impact of the 

FY 2012 changes to the SNF PPS on small entities. Moreover, 

the focus on small entities in this instance (a category 

that would include the small rural hospitals that are the 
CMS-1351-F 292 

subject of a RIA) also means that the analyses required 

under the RIA and the RFA are, in fact, directly 

interlinked in this situation, as essentially the same 

factors are being examined in both contexts. Also, 

guidance issued by the Department of Health and Human 

Services on the proper assessment of the impact on small 

entities in rulemakings, utilizes a total cost or revenue 

impact of 3 to 5 percent as a significance threshold under 

the RFA analysis and not overall margins. As a result, the 

addition of other (non-Medicare) revenue streams 

effectively dilutes the impact of any Medicare changes, as 

we noted previously in this discussion as well as in the 

proposed rule: “. . . for most facilities, when all payers 

are included in the revenue stream, the overall impact 

effect [of the Medicare changes] to total revenues should 

be substantially less . . .” (76 FR 26405). 

Furthermore, we would note that we provided additional 

data on our website on therapy utilization trends for the 

different types of SNF providers (profit, non-profit, and 

government), which are available online at 

http://www.cms.gov/SNFPPS/02_Spotlight.asp. This additional 

data, as well as our impact analysis in the proposed rule, 

illustrated that all SNFs, including small entities and 
CMS-1351-F 293 

non-profits, have experienced a significant increase in 

payments in FY 2011. We do not believe that the 

recalibration constitutes a rate cut but instead represents 

a return to the appropriate level of SNF payments, which 

have been found to be more than adequate for SNFs and small 

entities within the SNF industry. This information, as 

well as the discussion of alternatives in section XII.A.5 

of the proposed rule, is sufficient to fulfill our 

obligations under the RFA. 

Finally, given our discussion of alternatives in 

section VIII.D of this final rule and elsewhere in this 

preamble, and our analysis of the potential impacts on the 

SNF industry as a whole, we believe that the requirements 

under the RFA for providing this final RFA analysis have 

been properly addressed. 

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 final rule 

would not impose spending costs on State, local, or tribal 
CMS-1351-F 294 

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 final rule would have no substantial 

direct effect on State and local governments, preempt State 

law, or otherwise have Federalism implications. 
CMS-1351-F 295 

List of Subjects in 42 CFR Part 413

 Health facilities, Kidney diseases, Medicare, 

Reporting and recordkeeping requirements. 
CMS-1351-F 296 

For the reasons set forth in the preamble, the Centers 

for Medicare & Medicaid Services amends 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). 

The revisions and addition read as follows: 

§413.337 Methodology for calculating the prospective 

payment rates.
CMS-1351-F 297 

* * * * * 

(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 1.0 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 1.0 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 
CMS-1351-F 298 

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 
CMS-1351-F 299 

(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 index percentage change by the MFP adjustment 

may result in the market basket index 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. 

* * * * * 
Authority: (Catalog of Federal Domestic Assistance Program 

No. 93.773, Medicare--Hospital Insurance; and Program 

No. 93.774, Medicare--Supplementary Medical Insurance 

Program) 

Dated: July 21, 2011

 

_______________________________

 Donald M. Berwick, 

Administrator,

Centers for Medicare & Medicaid 

Services.

Approved: July 27, 2011

 

__________________________________

_ 

 Kathleen Sebelius, 

Secretary, 

Department of Health and Human 

Services. 

BILLING CODE 4120-01-P 
CMS-1351-F 301 

[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 final rule. Tables A 

and B display the CBSA-based wage index values for urban and 

rural providers. 

TABLE A: FY 2012 WAGE INDEX FOR URBAN AREAS BASED ON CBSA 

LABOR MARKET AREAS 

CBSA 

Code 

Urban Area 

(Constituent Counties) Wage 

Index 

10180 Abilene, TX 

Callahan County, TX 

Jones County, TX 

Taylor County, TX 0.8444

10380 Aguadilla-Isabela-San Sebastián, PR 

Aguada Municipio, PR 

Aguadilla Municipio, PR 

Añasco Municipio, PR 

Isabela Municipio, PR 

Lares Municipio, PR 

Moca Municipio, PR 

Rincón Municipio, PR 

San Sebastián Municipio, PR 0.3611

10420 Akron, OH 

Portage County, OH 

Summit County, OH 0.8814

10500 Albany, GA 

Baker County, GA 

Dougherty County, GA 

Lee County, GA 

Terrell County, GA 

Worth County, GA 0.8687
CMS-1351-F 302 

10580 Albany-Schenectady-Troy, NY 

Albany County, NY 

Rensselaer County, NY 

Saratoga County, NY 

Schenectady County, NY 

Schoharie County, NY 0.8680

10740 Albuquerque, NM 

Bernalillo County, NM 

Sandoval County, NM 

Torrance County, NM 

Valencia County, NM 0.9550

10780 Alexandria, LA 

Grant Parish, LA 

Rapides Parish, LA 0.8026

10900 Allentown-Bethlehem-Easton, PA-NJ 

Warren County, NJ 

Carbon County, PA 

Lehigh County, PA 

Northampton County, PA 0.9260

11020 Altoona, PA 

Blair County, PA 0.8917

11100 Amarillo, TX 

Armstrong County, TX 

Carson County, TX 

Potter County, TX 

Randall County, TX 0.8714

11180 Ames, IA 

Story County, IA 1.0009

11260 Anchorage, AK 

Anchorage Municipality, AK 

Matanuska-Susitna Borough, AK 1.2133

11300 Anderson, IN 

Madison County, IN 0.9266

11340 Anderson, SC 

Anderson County, SC 0.8524

11460 Ann Arbor, MI 

Washtenaw County, MI 1.0128

11500 Anniston-Oxford, AL 

Calhoun County, AL 0.7979
CMS-1351-F 303 

11540 Appleton, WI 

Calumet County, WI 

Outagamie County, WI 0.9226

11700 Asheville, NC 

Buncombe County, NC 

Haywood County, NC 

Henderson County, NC 

Madison County, NC 0.8918

12020 Athens-Clarke County, GA 

Clarke County, GA 

Madison County, GA 

Oconee County, GA 

Oglethorpe County, GA 0.9642

12060 Atlanta-Sandy Springs-Marietta, GA 

Barrow County, GA 

Bartow County, GA 

Butts County, GA 

Carroll County, GA 

Cherokee County, GA 

Clayton County, GA 

Cobb County, GA 

Coweta County, GA 

Dawson County, GA 

DeKalb County, GA 

Douglas County, GA 

Fayette County, GA 

Forsyth County, GA 

Fulton County, GA 

Gwinnett County, GA 

Haralson County, GA 

Heard County, GA 

Henry County, GA 

Jasper County, GA 

Lamar County, GA 

Meriwether County, GA 

Newton County, GA 

Paulding County, GA 

Pickens County, GA 

Pike County, GA 

Rockdale County, GA 

Spalding County, GA 

Walton County, GA 0.9575

12100 Atlantic City-Hammonton, NJ 

Atlantic County, NJ 1.1033
CMS-1351-F 304 

12220 Auburn-Opelika, AL 

Lee County, AL 0.7877

12260 Augusta-Richmond County, GA-SC 

Burke County, GA 

Columbia County, GA 

McDuffie County, GA 

Richmond County, GA 

Aiken County, SC 

Edgefield County, SC 0.9529

12420 Austin-Round Rock-San Marcos, TX 

Bastrop County, TX 

Caldwell County, TX 

Hays County, TX 

Travis County, TX 

Williamson County, TX 0.9535

12540 Bakersfield-Delano, CA 

Kern County, CA 1.1817

12580 Baltimore-Towson, MD 

Anne Arundel County, MD 

Baltimore County, MD 

Carroll County, MD 

Harford County, MD 

Howard County, MD 

Queen Anne's County, MD 

Baltimore City, MD 1.0151

12620 Bangor, ME 

Penobscot County, ME 0.9979

12700 Barnstable Town, MA 

Barnstable County, MA 1.2838

12940 Baton Rouge, LA 

Ascension Parish, LA 

East Baton Rouge Parish, LA 

East Feliciana Parish, LA 

Iberville Parish, LA 

Livingston Parish, LA 

Pointe Coupee Parish, LA 

St. Helena Parish, LA 

West Baton Rouge Parish, LA 

West Feliciana Parish, LA 0.8523

12980 Battle Creek, MI 

Calhoun County, MI 0.9935
CMS-1351-F 305 

13020 Bay City, MI 

Bay County, MI 0.8927

13140 Beaumont-Port Arthur, TX 

Hardin County, TX 

Jefferson County, TX 

Orange County, TX 0.8723

13380 Bellingham, WA 

Whatcom County, WA 1.1748

13460 Bend, OR 

Deschutes County, OR 1.1395

13644 Bethesda-Rockville-Frederick, MD 

Frederick County, MD 

Montgomery County, MD 1.0305

13740 Billings, MT 

Carbon County, MT 

Yellowstone County, MT 0.8576

13780 Binghamton, NY 

Broome County, NY 

Tioga County, NY 0.8731

13820 Birmingham-Hoover, AL 

Bibb County, AL 

Blount County, AL 

Chilton County, AL 

Jefferson County, AL 

St. Clair County, AL 

Shelby County, AL 

Walker County, AL 0.8436

13900 Bismarck, ND 

Burleigh County, ND 

Morton County, ND 0.7232

13980 Blacksburg-Christiansburg-Radford, VA 

Giles County, VA 

Montgomery County, VA 

Pulaski County, VA 

Radford City, VA 0.8281

14020 Bloomington, IN 

Greene County, IN 

Monroe County, IN 

Owen County, IN 0.8725

14060 Bloomington-Normal, IL 

McLean County, IL 0.9477
CMS-1351-F 306 

14260 Boise City-Nampa, ID 

Ada County, ID 

Boise County, ID 

Canyon County, ID 

Gem County, ID 

Owyhee County, ID 0.9279

14484 Boston-Quincy, MA 

Norfolk County, MA 

Plymouth County, MA 

Suffolk County, MA 1.2283

14500 Boulder, CO 

Boulder County, CO 1.0086

14540 Bowling Green, KY 

Edmonson County, KY 

Warren County, KY 0.8599

14740 Bremerton-Silverdale, WA 

Kitsap County, WA 1.1288

14860 Bridgeport-Stamford-Norwalk, CT 

Fairfield County, CT 1.2914

15180 Brownsville-Harlingen, TX 

Cameron County, TX 0.9183

15260 Brunswick, GA 

Brantley County, GA 

Glynn County, GA 

McIntosh County, GA 0.9068

15380 Buffalo-Niagara Falls, NY 

Erie County, NY 

Niagara County, NY 0.9750

15500 Burlington, NC 

Alamance County, NC 0.8665

15540 Burlington-South Burlington, VT 

Chittenden County, VT 

Franklin County, VT 

Grand Isle County, VT 1.0021

15764 Cambridge-Newton-Framingham, MA 

Middlesex County, MA 1.1210

15804 Camden, NJ 

Burlington County, NJ 

Camden County, NJ 

Gloucester County, NJ 1.0202
CMS-1351-F 307 

15940 Canton-Massillon, OH 

Carroll County, OH 

Stark County, OH 0.8939

15980 Cape Coral-Fort Myers, FL 

Lee County, FL 0.9341

16020 Cape Girardeau-Jackson, MO-IL 

Alexander County, IL 

Bollinger County, MO 

Cape Girardeau County, MO 0.8672

16180 Carson City, NV 

Carson City, NV 1.0597

16220 Casper, WY 

Natrona County, WY 1.0117

16300 Cedar Rapids, IA 

Benton County, IA 

Jones County, IA 

Linn County, IA 0.8831

16580 Champaign-Urbana, IL 

Champaign County, IL 

Ford County, IL 

Piatt County, IL 0.9890

16620 Charleston, WV 

Boone County, WV 

Clay County, WV 

Kanawha County, WV 

Lincoln County, WV 

Putnam County, WV 0.8144

16700 Charleston-North Charleston-Summerville, SC 

Berkeley County, SC 

Charleston County, SC 

Dorchester County, SC 0.9063

16740 Charlotte-Gastonia-Rock Hill, NC-SC 

Anson County, NC 

Cabarrus County, NC 

Gaston County, NC 

Mecklenburg County, NC 

Union County, NC 

York County, SC 0.9321
CMS-1351-F 308 

16820 Charlottesville, VA 

Albemarle County, VA 

Fluvanna County, VA 

Greene County, VA 

Nelson County, VA 

Charlottesville City, VA 0.9188

16860 Chattanooga, TN-GA 

Catoosa County, GA 

Dade County, GA 

Walker County, GA 

Hamilton County, TN 

Marion County, TN 

Sequatchie County, TN 0.8740

16940 Cheyenne, WY 

Laramie County, WY 0.9844

16974 Chicago-Joilet-Naperville, IL 

Cook County, IL 

DeKalb County, IL 

DuPage County, IL 

Grundy County, IL 

Kane County, IL 

Kendall County, IL 

McHenry County, IL 

Will County, IL 1.0600

17020 Chico, CA 

Butte County, CA 1.1094

17140 Cincinnati-Middletown, OH-KY-IN 

Dearborn County, IN 

Franklin County, IN 

Ohio County, IN 

Boone County, KY 

Bracken County, KY 

Campbell County, KY 

Gallatin County, KY 

Grant County, KY 

Kenton County, KY 

Pendleton County, KY 

Brown County, OH 

Butler County, OH 

Clermont County, OH 

Hamilton County, OH 

Warren County, OH 0.9430
CMS-1351-F 309 

17300 Clarksville, TN-KY 

Christian County, KY 

Trigg County, KY 

Montgomery County, TN 

Stewart County, TN 0.8193

17420 Cleveland, TN 

Bradley County, TN 

Polk County, TN 0.7674

17460 Cleveland-Elyria-Mentor, OH 

Cuyahoga County, OH 

Geauga County, OH 

Lake County, OH 

Lorain County, OH 

Medina County, OH 0.8941

17660 Coeur d'Alene, ID 

Kootenai County, ID 0.9367

17780 College Station-Bryan, TX 

Brazos County, TX 

Burleson County, TX 

Robertson County, TX 0.9690

17820 Colorado Springs, CO 

El Paso County, CO 

Teller County, CO 0.9846

17860 Columbia, MO 

Boone County, MO 

Howard County, MO 0.8105

17900 Columbia, SC 

Calhoun County, SC 

Fairfield County, SC 

Kershaw County, SC 

Lexington County, SC 

Richland County, SC 

Saluda County, SC 0.8758

17980 Columbus, GA-AL 

Russell County, AL 

Chattahoochee County, GA 

Harris County, GA 

Marion County, GA 

Muscogee County, GA 0.9040

18020 Columbus, IN 

Bartholomew County, IN 0.9723
CMS-1351-F 310 

18140 Columbus, OH 

Delaware County, OH 

Fairfield County, OH 

Franklin County, OH 

Licking County, OH 

Madison County, OH 

Morrow County, OH 

Pickaway County, OH 

Union County, OH 0.9994

18580 Corpus Christi, TX 

Aransas County, TX 

Nueces County, TX 

San Patricio County, TX 0.8677

18700 Corvallis, OR 

Benton County, OR 1.0898

18880 Crestview-Fort Walton Beach-Destin, FL 

Okaloosa County, FL 0.8961

19060 Cumberland, MD-WV 

Allegany County, MD 

Mineral County, WV 0.7825

19124 Dallas-Plano-Irving, TX 

Collin County, TX 

Dallas County, TX 

Delta County, TX 

Denton County, TX 

Ellis County, TX 

Hunt County, TX 

Kaufman County, TX 

Rockwall County, TX 0.9844

19140 Dalton, GA 

Murray County, GA 

Whitfield County, GA 0.8374

19180 Danville, IL 

Vermilion County, IL 0.9832

19260 Danville, VA 

Pittsylvania County, VA 

Danville City, VA 0.7896

19340 Davenport-Moline-Rock Island, IA-IL 

Henry County, IL 

Mercer County, IL 

Rock Island County, IL 

Scott County, IA 0.9056
CMS-1351-F 311 

19380 Dayton, OH 

Greene County, OH 

Miami County, OH 

Montgomery County, OH 

Preble County, OH 0.9281

19460 Decatur, AL 

Lawrence County, AL 

Morgan County, AL 0.7334

19500 Decatur, IL 

Macon County, IL 0.8008

19660 Deltona-Daytona Beach-Ormond Beach, FL 

Volusia County, FL 0.8865

19740 Denver-Aurora-Broomfield, CO 

Adams County, CO 

Arapahoe County, CO 

Broomfield County, CO 

Clear Creek County, CO 

Denver County, CO 

Douglas County, CO 

Elbert County, CO 

Gilpin County, CO 

Jefferson County, CO 

Park County, CO 1.0647

19780 Des Moines-West Des Moines, IA 

Dallas County, IA 

Guthrie County, IA 

Madison County, IA 

Polk County, IA 

Warren County, IA 0.9801

19804 Detroit-Livonia-Dearborn, MI 

Wayne County, MI 0.9511

20020 Dothan, AL 

Geneva County, AL 

Henry County, AL 

Houston County, AL 

 0.7130

20100 Dover, DE 

Kent County, DE 0.9909

20220 Dubuque, IA 

Dubuque County, IA 0.8698
CMS-1351-F 312 

20260 Duluth, MN-WI 

Carlton County, MN 

St. Louis County, MN 

Douglas County, WI 1.0335

20500 Durham-Chapel Hill, NC 

Chatham County, NC 

Durham County, NC 

Orange County, NC 

Person County, NC 0.9699

20740 Eau Claire, WI 

Chippewa County, WI 

Eau Claire County, WI 0.9597

20764 Edison-New Brunswick, NJ 

Middlesex County, NJ 

Monmouth County, NJ 

Ocean County, NJ 

Somerset County, NJ 1.0868

20940 El Centro, CA 

Imperial County, CA 0.9601

21060 Elizabethtown, KY 

Hardin County, KY 

Larue County, KY 0.8719

21140 Elkhart-Goshen, IN 

Elkhart County, IN 0.9405

21300 Elmira, NY 

Chemung County, NY 0.8522

21340 El Paso, TX 

El Paso County, TX 0.8515

21500 Erie, PA 

Erie County, PA 0.8147

21660 Eugene-Springfield, OR 

Lane County, OR 1.1587

21780 Evansville, IN-KY 

Gibson County, IN 

Posey County, IN 

Vanderburgh County, IN 

Warrick County, IN 

Henderson County, KY 

Webster County, KY 0.8679
CMS-1351-F 313 

21820 Fairbanks, AK 

Fairbanks North Star Borough, AK 1.1322

21940 Fajardo, PR 

Ceiba Municipio, PR 

Fajardo Municipio, PR 

Luquillo Municipio, PR 0.3823

22020 Fargo, ND-MN 

Cass County, ND 

Clay County, MN 0.8136

22140 Farmington, NM 

San Juan County, NM 0.9795

22180 Fayetteville, NC 

Cumberland County, NC 

Hoke County, NC 0.9213

22220 Fayetteville-Springdale-Rogers, AR-MO 

Benton County, AR 

Madison County, AR 

Washington County, AR 

McDonald County, MO 0.9263

22380 Flagstaff, AZ 

Coconino County, AZ 1.2427

22420 Flint, MI 

Genesee County, MI 1.1137

22500 Florence, SC 

Darlington County, SC 

Florence County, SC 

 0.8217

22520 Florence-Muscle Shoals, AL 

Colbert County, AL 

Lauderdale County, AL 0.7738

22540 Fond du Lac, WI 

Fond du Lac County, WI 0.9291

22660 Fort Collins-Loveland, CO 

Larimer County, CO 0.9876

22744 Fort Lauderdale-Pompano Beach-Deerfield, FL 

Broward County, FL 1.0160
CMS-1351-F 314 

22900 Fort Smith, AR-OK 

Crawford County, AR 

Franklin County, AR 

Sebastian County, AR 

Le Flore County, OK 

Sequoyah County, OK 0.7620

23060 Fort Wayne, IN 

Allen County, IN 

Wells County, IN 

Whitley County, IN 0.9368

23104 Fort Worth-Arlington, TX 

Johnson County, TX 

Parker County, TX 

Tarrant County, TX 

Wise County, TX 0.9525

23420 Fresno, CA 

Fresno County, CA 1.1281

23460 Gadsden, AL 

Etowah County, AL 0.7934

23540 Gainesville, FL 

Alachua County, FL 

Gilchrist County, FL 0.9375

23580 Gainesville, GA 

Hall County, GA 0.9010

23844 Gary, IN 

Jasper County, IN 

Lake County, IN 

Newton County, IN 

Porter County, IN 0.9193

24020 Glens Falls, NY 

Warren County, NY 

Washington County, NY 0.8504

24140 Goldsboro, NC 

Wayne County, NC 0.8690

24220 Grand Forks, ND-MN 

Polk County, MN 

Grand Forks County, ND 0.7573

24300 Grand Junction, CO 

Mesa County, CO 0.9394
CMS-1351-F 315 

24340 Grand Rapids-Wyoming, MI 

Barry County, MI 

Ionia County, MI 

Kent County, MI 

Newaygo County, MI 0.9145

24500 Great Falls, MT 

Cascade County, MT 0.8462

24540 Greeley, CO 

Weld County, CO 0.9553

24580 Green Bay, WI 

Brown County, WI 

Kewaunee County, WI 

Oconto County, WI 0.9824

24660 Greensboro-High Point, NC 

Guilford County, NC 

Randolph County, NC 

Rockingham County, NC 0.8798

24780 Greenville, NC 

Greene County, NC 

Pitt County, NC 0.9637

24860 Greenville-Mauldin-Easley, SC 

Greenville County, SC 

Laurens County, SC 

Pickens County, SC 0.9620

25020 Guayama, PR 

Arroyo Municipio, PR 

Guayama Municipio, PR 

Patillas Municipio, PR 0.3730

25060 Gulfport-Biloxi, MS 

Hancock County, MS 

Harrison County, MS 

Stone County, MS 0.8505

25180 Hagerstown-Martinsburg, MD-WV 

Washington County, MD 

Berkeley County, WV 

Morgan County, WV 0.9168

25260 Hanford-Corcoran, CA 

Kings County, CA 1.0700

25420 Harrisburg-Carlisle, PA 

Cumberland County, PA 

Dauphin County, PA 

Perry County, PA 0.9400
CMS-1351-F 316 

25500 Harrisonburg, VA 

Rockingham County, VA 

Harrisonburg City, VA 0.8773

25540 Hartford-West Hartford-East Hartford, CT 

Hartford County, CT 

Middlesex County, CT 

Tolland County, CT 1.0700

25620 Hattiesburg, MS 

Forrest County, MS 

Lamar County, MS 

Perry County, MS 0.7940

25860 Hickory-Lenoir-Morganton, NC 

Alexander County, NC 

Burke County, NC 

Caldwell County, NC 

Catawba County, NC 0.8859

25980 Hinesville-Fort Stewart, GA1

Liberty County, GA 

Long County, GA 0.8926

26100 Holland-Grand Haven, MI 

Ottawa County, MI 0.8523

26180 Honolulu, HI 

Honolulu County, HI 1.1698

26300 Hot Springs, AR 

Garland County, AR 0.9076

26380 Houma-Bayou Cane-Thibodaux, LA 

Lafourche Parish, LA 

Terrebonne Parish, LA 0.7841

26420 Houston-Sugar Land-Baytown, TX 

Austin County, TX 

Brazoria County, TX 

Chambers County, TX 

Fort Bend County, TX 

Galveston County, TX 

Harris County, TX 

Liberty County, TX 

Montgomery County, TX 

San Jacinto County, TX 

Waller County, TX 0.9945
CMS-1351-F 317 

26580 Huntington-Ashland, WV-KY-OH 

Boyd County, KY 

Greenup County, KY 

Lawrence County, OH 

Cabell County, WV 

Wayne County, WV 0.8893

26620 Huntsville, AL 

Limestone County, AL 

Madison County, AL 0.8996

26820 Idaho Falls, ID 

Bonneville County, ID 

Jefferson County, ID 0.9336

26900 Indianapolis-Carmel, IN 

Boone County, IN 

Brown County, IN 

Hamilton County, IN 

Hancock County, IN 

Hendricks County, IN 

Johnson County, IN 

Marion County, IN 

Morgan County, IN 

Putnam County, IN 

Shelby County, IN 0.9662

26980 Iowa City, IA 

Johnson County, IA 

Washington County, IA 1.0070

27060 Ithaca, NY 

Tompkins County, NY 0.8819

27100 Jackson, MI 

Jackson County, MI 0.8938

27140 Jackson, MS 

Copiah County, MS 

Hinds County, MS 

Madison County, MS 

Rankin County, MS 

Simpson County, MS 0.8172

27180 Jackson, TN 

Chester County, TN 

Madison County, TN 0.8149
CMS-1351-F 318 

27260 Jacksonville, FL 

Baker County, FL 

Clay County, FL 

Duval County, FL 

Nassau County, FL 

St. Johns County, FL 0.8882

27340 Jacksonville, NC 

Onslow County, NC 0.8074

27500 Janesville, WI 

Rock County, WI 0.9234

27620 Jefferson City, MO 

Callaway County, MO 

Cole County, MO 

Moniteau County, MO 

Osage County, MO 0.8222

27740 Johnson City, TN 

Carter County, TN 

Unicoi County, TN 

Washington County, TN 0.7796

27780 Johnstown, PA 

Cambria County, PA 0.8715

27860 Jonesboro, AR 

Craighead County, AR 

Poinsett County, AR 0.7718

27900 Joplin, MO 

Jasper County, MO 

Newton County, MO 0.8227

28020 Kalamazoo-Portage, MI 

Kalamazoo County, MI 

Van Buren County, MI 0.9939

28100 Kankakee-Bradley, IL 

Kankakee County, IL 0.9807
CMS-1351-F 319 

28140 Kansas City, MO-KS 

Franklin County, KS 

Johnson County, KS 

Leavenworth County, KS 

Linn County, KS 

Miami County, KS 

Wyandotte County, KS 

Bates County, MO 

Caldwell County, MO 

Cass County, MO 

Clay County, MO 

Clinton County, MO 

Jackson County, MO 

Lafayette County, MO 

Platte County, MO 

Ray County, MO 0.9637

28420 Kennewick-Pasco-Richland, WA 

Benton County, WA 

Franklin County, WA 0.9582

28660 Killeen-Temple-Fort Hood, TX 

Bell County, TX 

Coryell County, TX 

Lampasas County, TX 0.9501

28700 Kingsport-Bristol-Bristol, TN-VA 

Hawkins County, TN 

Sullivan County, TN 

Bristol City, VA 

Scott County, VA 

Washington County, VA 0.7399

28740 Kingston, NY 

Ulster County, NY 0.9170

28940 Knoxville, TN 

Anderson County, TN 

Blount County, TN 

Knox County, TN 

Loudon County, TN 

Union County, TN 0.7838

29020 Kokomo, IN 

Howard County, IN 

Tipton County, IN 0.9186

29100 La Crosse, WI-MN 

Houston County, MN 

La Crosse County, WI 0.9685
CMS-1351-F 320 

29140 Lafayette, IN 

Benton County, IN 

Carroll County, IN 

Tippecanoe County, IN 0.9507

29180 Lafayette, LA 

Lafayette Parish, LA 

St. Martin Parish, LA 0.8319

29340 Lake Charles, LA 

Calcasieu Parish, LA 

Cameron Parish, LA 0.7998

29404 Lake County-Kenosha County, IL-WI 

Lake County, IL 

Kenosha County, WI 1.0311

29420 Lake Havasu City-Kingman, AZ 

Mohave County, AZ 0.9967

29460 Lakeland-Winter Haven, FL 

Polk County, FL 0.8432

29540 Lancaster, PA 

Lancaster County, PA 0.9439

29620 Lansing-East Lansing, MI 

Clinton County, MI 

Eaton County, MI 

Ingham County, MI 1.0477

29700 Laredo, TX 

Webb County, TX 0.7730

29740 Las Cruces, NM 

Dona Ana County, NM 0.9106

29820 Las Vegas-Paradise, NV 

Clark County, NV 1.2050

29940 Lawrence, KS 

Douglas County, KS 0.8853

30020 Lawton, OK 

Comanche County, OK 0.8545

30140 Lebanon, PA 

Lebanon County, PA 0.8042

30300 Lewiston, ID-WA 

Nez Perce County, ID 

Asotin County, WA 0.9067
CMS-1351-F 321 

30340 Lewiston-Auburn, ME 

Androscoggin County, ME 0.9038

30460 Lexington-Fayette, KY 

Bourbon County, KY 

Clark County, KY 

Fayette County, KY 

Jessamine County, KY 

Scott County, KY 

Woodford County, KY 0.8833

30620 Lima, OH 

Allen County, OH 0.9371

30700 Lincoln, NE 

Lancaster County, NE 

Seward County, NE 0.9612

30780 Little Rock-North Little Rock-Conway, AR 

Faulkner County, AR 

Grant County, AR 

Lonoke County, AR 

Perry County, AR 

Pulaski County, AR 

Saline County, AR 0.8558

30860 Logan, UT-ID 

Franklin County, ID 

Cache County, UT 0.8592

30980 Longview, TX 

Gregg County, TX 

Rusk County, TX 

Upshur County, TX 0.8530

31020 Longview, WA 

Cowlitz County, WA 0.9989

31084 Los Angeles-Long Beach-Santa Ana, CA 

Los Angeles County, CA 1.2287
CMS-1351-F 322 

31140 Louisville-Jefferson County, KY-IN 

Clark County, IN 

Floyd County, IN 

Harrison County, IN 

Washington County, IN 

Bullitt County, KY 

Henry County, KY 

Meade County, KY 

Nelson County, KY 

Oldham County, KY 

Shelby County, KY 

Spencer County, KY 

Trimble County, KY 0.8900

31180 Lubbock, TX 

Crosby County, TX 

Lubbock County, TX 0.8794

31340 Lynchburg, VA 

Amherst County, VA 

Appomattox County, VA 

Bedford County, VA 

Campbell County, VA 

Bedford City, VA 

Lynchburg City, VA 0.8768

31420 Macon, GA 

Bibb County, GA 

Crawford County, GA 

Jones County, GA 

Monroe County, GA 

Twiggs County, GA 0.9122

31460 Madera-Chowchilla, CA 

Madera County, CA 0.8114

31540 Madison, WI 

Columbia County, WI 

Dane County, WI 

Iowa County, WI 1.1234

31700 Manchester-Nashua, NH 

Hillsborough County, NH 1.0083

31740 Manhattan, KS 

Geary County, KS 

Pottawatomie County, KS 

Riley County, KS 0.7912
CMS-1351-F 323 

31860 Mankato-North Mankato, MN 

Blue Earth County, MN 

Nicollet County, MN 0.9346

31900 Mansfield, OH 

Richland County, OH 0.9215

32420 Mayagüez, PR 

Hormigueros Municipio, PR 

Mayagüez Municipio, PR 0.3676

32580 McAllen-Edinburg-Mission, TX 

Hidalgo County, TX 0.8878

32780 Medford, OR 

Jackson County, OR 1.0318

32820 Memphis, TN-MS-AR 

Crittenden County, AR 

DeSoto County, MS 

Marshall County, MS 

Tate County, MS 

Tunica County, MS 

Fayette County, TN 

Shelby County, TN 

Tipton County, TN 0.9275

32900 Merced, CA 

Merced County, CA 1.2424

33124 Miami-Miami Beach-Kendall, FL 

Miami-Dade County, FL 1.0085

33140 Michigan City-La Porte, IN 

LaPorte County, IN 0.9358

33260 Midland, TX 

Midland County, TX 1.0514

33340 Milwaukee-Waukesha-West Allis, WI 

Milwaukee County, WI 

Ozaukee County, WI 

Washington County, WI 

Waukesha County, WI 0.9961
CMS-1351-F 324 

33460 Minneapolis-St. Paul-Bloomington, MN-WI 

Anoka County, MN 

Carver County, MN 

Chisago County, MN 

Dakota County, MN 

Hennepin County, MN 

Isanti County, MN 

Ramsey County, MN 

Scott County, MN 

Sherburne County, MN 

Washington County, MN 

Wright County, MN 

Pierce County, WI 

St. Croix County, WI 1.1105

33540 Missoula, MT 

Missoula County, MT 0.9154

33660 Mobile, AL 

Mobile County, AL 0.8002

33700 Modesto, CA 

Stanislaus County, CA 1.2670

33740 Monroe, LA 

Ouachita Parish, LA 

Union Parish, LA 0.7915

33780 Monroe, MI 

Monroe County, MI 0.8727

33860 Montgomery, AL 

Autauga County, AL 

Elmore County, AL 

Lowndes County, AL 

Montgomery County, AL 0.8103

34060 Morgantown, WV 

Monongalia County, WV 

Preston County, WV 0.8197

34100 Morristown, TN 

Grainger County, TN 

Hamblen County, TN 

Jefferson County, TN 0.7031

34580 Mount Vernon-Anacortes, WA 

Skagit County, WA 1.0235

34620 Muncie, IN 

Delaware County, IN 0.7817
CMS-1351-F 325 

34740 Muskegon-Norton Shores, MI 

Muskegon County, MI 0.9967

34820 Myrtle Beach-North Myrtle Beach-Conway, SC 

Horry County, SC 0.8653

34900 Napa, CA 

Napa County, CA 1.4511

34940 Naples-Marco Island, FL 

Collier County, FL 0.9740

34980 Nashville-Davidson-Murfreesboro-Franklin, TN 

Cannon County, TN 

Cheatham County, TN 

Davidson County, TN 

Dickson County, TN 

Hickman County, TN 

Macon County, TN 

Robertson County, TN 

Rutherford County, TN 

Smith County, TN 

Sumner County, TN 

Trousdale County, TN 

Williamson County, TN 

Wilson County, TN 0.9340

35004 Nassau-Suffolk, NY 

Nassau County, NY 

Suffolk County, NY 1.2416

35084 Newark-Union, NJ-PA 

Essex County, NJ 

Hunterdon County, NJ 

Morris County, NJ 

Sussex County, NJ 

Union County, NJ 

Pike County, PA 1.1322

35300 New Haven-Milford, CT 

New Haven County, CT 1.1556

35380 New Orleans-Metairie-Kenner, LA 

Jefferson Parish, LA 

Orleans Parish, LA 

Plaquemines Parish, LA 

St. Bernard Parish, LA 

St. Charles Parish, LA 

St. John the Baptist Parish, LA 

St. Tammany Parish, LA 0.9026
CMS-1351-F 326 

35644 New York-White Plains-Wayne, NY-NJ 

Bergen County, NJ 

Hudson County, NJ 

Passaic County, NJ 

Bronx County, NY 

Kings County, NY 

New York County, NY 

Putnam County, NY 

Queens County, NY 

Richmond County, NY 

Rockland County, NY 

Westchester County, NY 1.3052

35660 Niles-Benton Harbor, MI 

Berrien County, MI 0.8653

35840 North Port-Bradenton-Sarasota, FL 

Manatee County, FL 

Sarasota County, FL 0.9435

35980 Norwich-New London, CT 

New London County, CT 1.1227

36084 Oakland-Fremont-Hayward, CA 

Alameda County, CA 

Contra Costa County, CA 1.6080

36100 Ocala, FL 

Marion County, FL 0.8449

36140 Ocean City, NJ 

Cape May County, NJ 1.0641

36220 Odessa, TX 

Ector County, TX 0.9809

36260 Ogden-Clearfield, UT 

Davis County, UT 

Morgan County, UT 

Weber County, UT 0.9220

36420 Oklahoma City, OK 

Canadian County, OK 

Cleveland County, OK 

Grady County, OK 

Lincoln County, OK 

Logan County, OK 

McClain County, OK 

Oklahoma County, OK 0.8934
CMS-1351-F 327 

36500 Olympia, WA 

Thurston County, WA 1.1339

36540 Omaha-Council Bluffs, NE-IA 

Harrison County, IA 

Mills County, IA 

Pottawattamie County, IA 

Cass County, NE 

Douglas County, NE 

Sarpy County, NE 

Saunders County, NE 

Washington County, NE 0.9864

36740 Orlando-Kissimmee-Sanford, FL 

Lake County, FL 

Orange County, FL 

Osceola County, FL 

Seminole County, FL 0.9128

36780 Oshkosh-Neenah, WI 

Winnebago County, WI 0.9319

36980 Owensboro, KY 

Daviess County, KY 

Hancock County, KY 

McLean County, KY 0.8202

37100 Oxnard-Thousand Oaks-Ventura, CA 

Ventura County, CA 1.2830

37340 Palm Bay-Melbourne-Titusville, FL 

Brevard County, FL 0.9042

37380 Palm Coast, FL 

Flagler County, FL 0.9373

37460 Panama City-Lynn Haven-Panama City Beach, FL 

Bay County, FL 0.8388

37620 Parkersburg-Marietta-Vienna, WV-OH 

Washington County, OH 

Pleasants County, WV 

Wirt County, WV 

Wood County, WV 0.7647

37700 Pascagoula, MS 

George County, MS 

Jackson County, MS 0.7885

37764 Peabody, MA 

Essex County, MA 1.0698
CMS-1351-F 328 

37860 Pensacola-Ferry Pass-Brent, FL 

Escambia County, FL 

Santa Rosa County, FL 0.8013

37900 Peoria, IL 

Marshall County, IL 

Peoria County, IL 

Stark County, IL 

Tazewell County, IL 

Woodford County, IL 0.8830

37964 Philadelphia, PA 

Bucks County, PA 

Chester County, PA 

Delaware County, PA 

Montgomery County, PA 

Philadelphia County, PA 1.0760

38060 Phoenix-Mesa-Glendale, AZ 

Maricopa County, AZ 

Pinal County, AZ 1.0566

38220 Pine Bluff, AR 

Cleveland County, AR 

Jefferson County, AR 

Lincoln County, AR 0.7700

38300 Pittsburgh, PA 

Allegheny County, PA 

Armstrong County, PA 

Beaver County, PA 

Butler County, PA 

Fayette County, PA 

Washington County, PA 

Westmoreland County, PA 0.8669

38340 Pittsfield, MA 

Berkshire County, MA 1.0616

38540 Pocatello, ID 

Bannock County, ID 

Power County, ID 0.9426

38660 Ponce, PR 

Juana Díaz Municipio, PR 

Ponce Municipio, PR 

Villalba Municipio, PR 0.4185

38860 Portland-South Portland-Biddeford, ME 

Cumberland County, ME 

Sagadahoc County, ME 

York County, ME 0.9661
CMS-1351-F 329 

38900 Portland-Vancouver-Hillsboro, OR-WA 

Clackamas County, OR 

Columbia County, OR 

Multnomah County, OR 

Washington County, OR 

Yamhill County, OR 

Clark County, WA 

Skamania County, WA 1.1454

38940 Port St. Lucie, FL 

Martin County, FL 

St. Lucie County, FL 0.9784

39100 Poughkeepsie-Newburgh-Middletown, NY 

Dutchess County, NY 

Orange County, NY 1.1339

39140 Prescott, AZ 

Yavapai County, AZ 1.2261

39300 Providence-New Bedford-Fall River, RI-MA 

Bristol County, MA 

Bristol County, RI 

Kent County, RI 

Newport County, RI 

Providence County, RI 

Washington County, RI 1.0639

39340 Provo-Orem, UT 

Juab County, UT 

Utah County, UT 0.9404

39380 Pueblo, CO 

Pueblo County, CO 0.8668

39460 Punta Gorda, FL 

Charlotte County, FL 0.8801

39540 Racine, WI 

Racine County, WI 0.8630

39580 Raleigh-Cary, NC 

Franklin County, NC 

Johnston County, NC 

Wake County, NC 0.9648

39660 Rapid City, SD 

Meade County, SD 

Pennington County, SD 1.0203

39740 Reading, PA 

Berks County, PA 0.9212
CMS-1351-F 330 

39820 Redding, CA 

Shasta County, CA 1.5584

39900 Reno-Sparks, NV 

Storey County, NV 

Washoe County, NV 1.0596

40060 Richmond, VA 

Amelia County, VA 

Caroline County, VA 

Charles City County, VA 

Chesterfield County, VA 

Cumberland County, VA 

Dinwiddie County, VA 

Goochland County, VA 

Hanover County, VA 

Henrico County, VA 

King and Queen County, VA 

King William County, VA 

Louisa County, VA 

New Kent County, VA 

Powhatan County, VA 

Prince George County, VA 

Sussex County, VA 

Colonial Heights City, VA 

Hopewell City, VA 

Petersburg City, VA 

Richmond City, VA 0.9791

40140 Riverside-San Bernardino-Ontario, CA 

Riverside County, CA 

San Bernardino County, CA 1.1463

40220 Roanoke, VA 

Botetourt County, VA 

Craig County, VA 

Franklin County, VA 

Roanoke County, VA 

Roanoke City, VA 

Salem City, VA 0.9166

40340 Rochester, MN 

Dodge County, MN 

Olmsted County, MN 

Wabasha County, MN 1.0802
CMS-1351-F 331 

40380 Rochester, NY 

Livingston County, NY 

Monroe County, NY 

Ontario County, NY 

Orleans County, NY 

Wayne County, NY 0.8602

40420 Rockford, IL 

Boone County, IL 

Winnebago County, IL 0.9938

40484 Rockingham County-Strafford County, NH 

Rockingham County, NH 

Strafford County, NH 1.0185

40580 Rocky Mount, NC 

Edgecombe County, NC 

Nash County, NC 0.9018

40660 Rome, GA 

Floyd County, GA 0.8838

40900 Sacramento-Arden-Arcade-Roseville, CA 

El Dorado County, CA 

Placer County, CA 

Sacramento County, CA 

Yolo County, CA 1.3777

40980 Saginaw-Saginaw Township North, MI 

Saginaw County, MI 0.8512

41060 St. Cloud, MN 

Benton County, MN 

Stearns County, MN 1.0724

41100 St. George, UT 

Washington County, UT 0.9070

41140 St. Joseph, MO-KS 

Doniphan County, KS 

Andrew County, MO 

Buchanan County, MO 

DeKalb County, MO 1.0255
CMS-1351-F 332 

41180 St. Louis, MO-IL 

Bond County, IL 

Calhoun County, IL 

Clinton County, IL 

Jersey County, IL 

Macoupin County, IL 

Madison County, IL 

Monroe County, IL 

St. Clair County, IL 

Crawford County, MO 

Franklin County, MO 

Jefferson County, MO 

Lincoln County, MO 

St. Charles County, MO 

St. Louis County, MO 

Warren County, MO 

Washington County, MO 

St. Louis City, MO 0.9165

41420 Salem, OR 

Marion County, OR 

Polk County, OR 1.1224

41500 Salinas, CA 

Monterey County, CA 1.5604

41540 Salisbury, MD 

Somerset County, MD 

Wicomico County, MD 0.9227

41620 Salt Lake City, UT 

Salt Lake County, UT 

Summit County, UT 

Tooele County, UT 0.9415

41660 San Angelo, TX 

Irion County, TX 

Tom Green County, TX 0.8273

41700 San Antonio-New Braunfels, TX 

Atascosa County, TX 

Bandera County, TX 

Bexar County, TX 

Comal County, TX 

Guadalupe County, TX 

Kendall County, TX 

Medina County, TX 

Wilson County, TX 0.9006
CMS-1351-F 333 

41740 San Diego-Carlsbad-San Marcos, CA 

San Diego County, CA 1.1950

41780 Sandusky, OH 

Erie County, OH 0.8167

41884 San Francisco-San Mateo-Redwood City, CA 

Marin County, CA 

San Francisco County, CA 

San Mateo County, CA 1.5904

41900 San Germán-Cabo Rojo, PR 

Cabo Rojo Municipio, PR 

Lajas Municipio, PR 

Sabana Grande Municipio, PR 

San Germán Municipio, PR 0.4612

41940 San Jose-Sunnyvale-Santa Clara, CA 

San Benito County, CA 

Santa Clara County, CA 1.6878
CMS-1351-F 334 

41980 San Juan-Caguas-Guaynabo, PR 

Aguas Buenas Municipio, PR 

Aibonito Municipio, PR 

Arecibo Municipio, PR 

Barceloneta Municipio, PR 

Barranquitas Municipio, PR 

Bayamón Municipio, PR 

Caguas Municipio, PR 

Camuy Municipio, PR 

Canóvanas Municipio, PR 

Carolina Municipio, PR 

Cataño Municipio, PR 

Cayey Municipio, PR 

Ciales Municipio, PR 

Cidra Municipio, PR 

Comerío Municipio, PR 

Corozal Municipio, PR 

Dorado Municipio, PR 

Florida Municipio, PR 

Guaynabo Municipio, PR 

Gurabo Municipio, PR 

Hatillo Municipio, PR 

Humacao Municipio, PR 

Juncos Municipio, PR 

Las Piedras Municipio, PR 

Loíza Municipio, PR 

Manatí Municipio, PR 

Maunabo Municipio, PR 

Morovis Municipio, PR 

Naguabo Municipio, PR 

Naranjito Municipio, PR 

Orocovis Municipio, PR 

Quebradillas Municipio, PR 

Río Grande Municipio, PR 

San Juan Municipio, PR 

San Lorenzo Municipio, PR 

Toa Alta Municipio, PR 

Toa Baja Municipio, PR 

Trujillo Alto Municipio, PR 

Vega Alta Municipio, PR 

Vega Baja Municipio, PR 

Yabucoa Municipio, PR 0.4340

42020 San Luis Obispo-Paso Robles, CA 

San Luis Obispo County, CA 1.3072
CMS-1351-F 335 

42044 Santa Ana-Anaheim-Irvine, CA 

Orange County, CA 1.2042

42060 Santa Barbara-Santa Maria-Goleta, CA 

Santa Barbara County, CA 1.2246

42100 Santa Cruz-Watsonville, CA 

Santa Cruz County, CA 1.7111

42140 Santa Fe, NM 

Santa Fe County, NM 1.0660

42220 Santa Rosa-Petaluma, CA 

Sonoma County, CA 1.6102

42340 Savannah, GA 

Bryan County, GA 

Chatham County, GA 

Effingham County, GA 0.9095

42540 Scranton--Wilkes-Barre, PA 

Lackawanna County, PA 

Luzerne County, PA 

Wyoming County, PA 0.8328

42644 Seattle-Bellevue-Everett, WA 

King County, WA 

Snohomish County, WA 1.1541

42680 Sebastian-Vero Beach, FL 

Indian River County, FL 0.9032

43100 Sheboygan, WI 

Sheboygan County, WI 0.9303

43300 Sherman-Denison, TX 

Grayson County, TX 0.8011

43340 Shreveport-Bossier City, LA 

Bossier Parish, LA 

Caddo Parish, LA 

De Soto Parish, LA 0.8505

43580 Sioux City, IA-NE-SD 

Woodbury County, IA 

Dakota County, NE 

Dixon County, NE 

Union County, SD 0.9538
CMS-1351-F 336 

43620 Sioux Falls, SD 

Lincoln County, SD 

McCook County, SD 

Minnehaha County, SD 

Turner County, SD 0.9153

43780 South Bend-Mishawaka, IN-MI 

St. Joseph County, IN 

Cass County, MI 0.9426

43900 Spartanburg, SC 

Spartanburg County, SC 0.9325

44060 Spokane, WA 

Spokane County, WA 1.0504

44100 Springfield, IL 

Menard County, IL 

Sangamon County, IL 0.8958

44140 Springfield, MA 

Franklin County, MA 

Hampden County, MA 

Hampshire County, MA 1.0247

44180 Springfield, MO 

Christian County, MO 

Dallas County, MO 

Greene County, MO 

Polk County, MO 

Webster County, MO 0.8680

44220 Springfield, OH 

Clark County, OH 0.8981

44300 State College, PA 

Centre County, PA 0.9251

44600 Steubenville-Weirton, OH-WV 

Jefferson County, OH 

Brooke County, WV 

Hancock County, WV 0.7054

44700 Stockton, CA 

San Joaquin County, CA 1.3052

44940 Sumter, SC 

Sumter County, SC 0.7551

45060 Syracuse, NY 

Madison County, NY 

Onondaga County, NY 

Oswego County, NY 0.9776
CMS-1351-F 337 

45104 Tacoma, WA 

Pierce County, WA 1.1384

45220 Tallahassee, FL 

Gadsden County, FL 

Jefferson County, FL 

Leon County, FL 

Wakulla County, FL 0.8593

45300 Tampa-St. Petersburg-Clearwater, FL 

Hernando County, FL 

Hillsborough County, FL 

Pasco County, FL 

Pinellas County, FL 0.9072

45460 Terre Haute, IN 

Clay County, IN 

Sullivan County, IN 

Vermillion County, IN 

Vigo County, IN 0.9209

45500 Texarkana, TX-Texarkana, AR 

Miller County, AR 

Bowie County, TX 0.7937

45780 Toledo, OH 

Fulton County, OH 

Lucas County, OH 

Ottawa County, OH 

Wood County, OH 0.9148

45820 Topeka, KS 

Jackson County, KS 

Jefferson County, KS 

Osage County, KS 

Shawnee County, KS 

Wabaunsee County, KS 0.8818

45940 Trenton-Ewing, NJ 

Mercer County, NJ 1.0062

46060 Tucson, AZ 

Pima County, AZ 0.9318
CMS-1351-F 338 

46140 Tulsa, OK 

Creek County, OK 

Okmulgee County, OK 

Osage County, OK 

Pawnee County, OK 

Rogers County, OK 

Tulsa County, OK 

Wagoner County, OK 0.8362

46220 Tuscaloosa, AL 

Greene County, AL 

Hale County, AL 

Tuscaloosa County, AL 0.8664

46340 Tyler, TX 

Smith County, TX 0.8335

46540 Utica-Rome, NY 

Herkimer County, NY 

Oneida County, NY 0.8441

46660 Valdosta, GA 

Brooks County, GA 

Echols County, GA 

Lanier County, GA 

Lowndes County, GA 0.7997

46700 Vallejo-Fairfield, CA 

Solano County, CA 1.4636

47020 Victoria, TX 

Calhoun County, TX 

Goliad County, TX 

Victoria County, TX 0.8434

47220 Vineland-Millville-Bridgeton, NJ 

Cumberland County, NJ 1.0222
CMS-1351-F 339 

47260 Virginia Beach-Norfolk-Newport News, VA-NC 

Currituck County, NC 

Gloucester County, VA 

Isle of Wight County, VA 

James City County, VA 

Mathews County, VA 

Surry County, VA 

York County, VA 

Chesapeake City, VA 

Hampton City, VA 

Newport News City, VA 

Norfolk City, VA 

Poquoson City, VA 

Portsmouth City, VA 

Suffolk City, VA 

Virginia Beach City, VA 

Williamsburg City, VA 0.9001

47300 Visalia-Porterville, CA 

Tulare County, CA 1.0343

47380 Waco, TX 

McLennan County, TX 0.8559

47580 Warner Robins, GA 

Houston County, GA 0.8245

47644 Warren-Troy-Farmington Hills, MI 

Lapeer County, MI 

Livingston County, MI 

Macomb County, MI 

Oakland County, MI 

St. Clair County, MI 0.9625
CMS-1351-F 340 

47894 Washington-Arlington-Alexandria, DC-VA-MD-WV 

District of Columbia, DC 

Calvert County, MD 

Charles County, MD 

Prince George's County, MD 

Arlington County, VA 

Clarke County, VA 

Fairfax County, VA 

Fauquier County, VA 

Loudoun County, VA 

Prince William County, VA 

Spotsylvania County, VA 

Stafford County, VA 

Warren County, VA 

Alexandria City, VA 

Fairfax City, VA 

Falls Church City, VA 

Fredericksburg City, VA 

Manassas City, VA 

Manassas Park City, VA 

Jefferson County, WV 1.0807

47940 Waterloo-Cedar Falls, IA 

Black Hawk County, IA 

Bremer County, IA 

Grundy County, IA 0.8372

48140 Wausau, WI 

Marathon County, WI 0.8962

48300 Wenatchee-East Wenatchee, WA 

Chelan County, WA 

Douglas County, WA 1.0168

48424 West Palm Beach-Boca Raton-Boynton Beach, FL 

Palm Beach County, FL 0.9823

48540 Wheeling, WV-OH 

Belmont County, OH 

Marshall County, WV 

Ohio County, WV 0.6735

48620 Wichita, KS 

Butler County, KS 

Harvey County, KS 

Sedgwick County, KS 

Sumner County, KS 0.8696
CMS-1351-F 341 

48660 Wichita Falls, TX 

Archer County, TX 

Clay County, TX 

Wichita County, TX 1.0097

48700 Williamsport, PA 

Lycoming County, PA 0.8084

48864 Wilmington, DE-MD-NJ 

New Castle County, DE 

Cecil County, MD 

Salem County, NJ 1.0662

48900 Wilmington, NC 

Brunswick County, NC 

New Hanover County, NC 

Pender County, NC 0.9107

49020 Winchester, VA-WV 

Frederick County, VA 

Winchester City, VA 

Hampshire County, WV 0.9106

49180 Winston-Salem, NC 

Davie County, NC 

Forsyth County, NC 

Stokes County, NC 

Yadkin County, NC 0.8343

49340 Worcester, MA 

Worcester County, MA 1.1076

49420 Yakima, WA 

Yakima County, WA 1.0433

49500 Yauco, PR 

Guánica Municipio, PR 

Guayanilla Municipio, PR 

Peñuelas Municipio, PR 

Yauco Municipio, PR 0.3757

49620 York-Hanover, PA 

York County, PA 0.9675

49660 Youngstown-Warren-Boardman, OH-PA 

Mahoning County, OH 

Trumbull County, OH 

Mercer County, PA 0.8328

49700 Yuba City, CA

Sutter County, CA 

Yuba County, CA 1.1808
CMS-1351-F 342 

1 At this time, there are no hospitals located in this urban area on which to base a wage index. 

TABLE B: FY 2012 WAGE INDEX BASED ON CBSA LABOR MARKET 

AREAS FOR RURAL AREAS 

State Code Nonurban Area Wage 

Index

1 Alabama 0.7260

2 Alaska 1.2846

3 Arizona 0.8826

4 Arkansas 0.7194

5 California 1.2194

6 Colorado 1.0126

7 Connecticut 1.1287

8 Delaware 1.0008

10 Florida 0.8361

11 Georgia 0.7547

12 Hawaii 1.1200

13 Idaho 0.7531

14 Illinois 0.8426

15 Indiana 0.8551

16 Iowa 0.8618

17 Kansas 0.8041

18 Kentucky 0.7825

19 Louisiana 0.7769

20 Maine 0.8581

21 Maryland 0.9291

22 Massachusetts 1.3962

23 Michigan 0.8295

24 Minnesota 0.9107

25 Mississippi 0.7539

26 Missouri 0.7673

27 Montana 0.8615

49740 Yuma, AZ 

Yuma County, AZ 0.9350
CMS-1351-F 343 

State Code Nonurban Area Wage 

Index

28 Nebraska 0.8872

29 Nevada 0.9637

30 New Hampshire 1.0441

31 New Jersey1

-----

32 New Mexico 0.8878

33 New York 0.8152

34 North Carolina 0.8288

35 North Dakota 0.7295

36 Ohio 0.8455

37 Oklahoma 0.7848

38 Oregon 1.0337

39 Pennsylvania 0.8450

40 Puerto Rico1

0.4047

41 Rhode Island1

-----

42 South Carolina 0.8277

43 South Dakota 0.8300

44 Tennessee 0.7734

45 Texas 0.7934

46 Utah 0.8719

47 Vermont 0.9709

48 Virgin Islands 0.7505

49 Virginia 0.7817

50 Washington 1.0231

51 West Virginia 0.7371

52 Wisconsin 0.8977

53 Wyoming 0.9433

65 Guam 0.9611

1

 All counties within the State are classified as urban, with the exception of Puerto Rico. Puerto Rico has 

areas designated as rural; however, no short-term, acute care hospitals are located in the area(s) for FY 

2012. The Puerto Rico wage index is the same as FY 2011. 
CMS-1351-F 344 

[FR Doc. 2011-19544 Filed 07/29/2011 at 4:15 pm; 

Publication Date: 08/08/2011]