DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 488

CMS-1605-F

RIN 0938-AS07

Medicare Program; Prospective Payment System and Consolidated Billing for Skilled 

Nursing Facilities for FY 2015

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

ACTION: Final rule.

SUMMARY: This final rule updates the payment rates used under the prospective payment 

system (PPS) for skilled nursing facilities (SNFs) for fiscal year (FY) 2015. In addition, it 

adopts the most recent Office of Management and Budget (OMB) statistical area delineations to 

identify a facility’s urban or rural status for the purpose of determining which set of rate tables 

will apply to the facility, and to determine the SNF PPS wage index including a 1-year transition 

with a blended wage index for all providers for FY 2015. This final rule also contains a revision 

to policies related to the Change of Therapy (COT) Other Medicare Required Assessment

(OMRA). This final rule includes a discussion of a provision related to the Affordable Care Act

involving Civil Money Penalties. Finally, this final rule discusses the SNF therapy payment 

research currently underway within CMS, observed trends related to therapy utilization among 

SNF providers, and the agency’s commitment to accelerating health information exchange in 

SNFs.

EFFECTIVE DATE: This final rule is effective on October 1, 2014.

FOR FURTHER INFORMATION CONTACT:

Penny Gershman, (410) 786-6643, for information related to clinical issues.
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John Kane, (410) 786-0557, for information related to the development of the payment rates and 

case-mix indexes.

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

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

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

consolidated billing, and general information.

SUPPLEMENTARY INFORMATION: 

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

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

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

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

the SNF PPS proposed and final rules or, when applicable, the current update notice). However, 

as finalized in the FY 2014 SNF PPS final rule (78 FR 47936, 47964), beginning in FY 2015, 

these wage index tables are no longer published in the Federal Register. Instead, these tables 

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

available exclusively through the Internet on the CMS website at

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

Readers who experience any problems accessing any of the tables that are posted on the 

CMS website identified above should contact Kia Sidbury at (410) 786-7816.

To assist readers in referencing sections contained in this document, we are providing the 

following Table of Contents.

Table of Contents

I. Executive Summary

A. Purpose
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B. Summary of Major Provisions

C. Summary of Impacts

II. Background

A. Statutory Basis and Scope

B. Initial Transition

C. Required Annual Rate Updates

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

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

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

B. SNF PPS Rate Setting Methodology and FY 2015 Update

1. Federal Base Rates

2. SNF Market Basket Update

a. SNF Market Basket Index

b. Use of the SNF Market Basket Percentage

c. Forecast Error Adjustment

d. Multifactor Productivity Adjustment

i. Incorporating the Multifactor Productivity Adjustment into the Market Basket Update

e. Market Basket Update Factor for FY 2015

3. Case-Mix Adjustment

4. Wage Index Adjustment

5. Adjusted Rate Computation Example

C. Additional Aspects of the SNF PPS

1. SNF Level of Care--Administrative Presumption

2. Consolidated Billing
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3. Payment for SNF-Level Swing-Bed Services

D. Other Issues

1. Changes to the SNF PPS Wage Index

a. Labor-Related Share

2. SNF Therapy Research Project 

3. Revisions to Policies Related to the Change of Therapy (COT) Other Medicare Required 

Assessment (OMRA)

4. Civil Money Penalties (section 6111 of the Affordable Care Act)

5. Observations on Therapy Utilization Trends

6. Accelerating Health Information Exchange in the SNF PPS

7. SNF Value Based Purchasing

V. Provisions of the Final Rule; Regulations Text

VI. Collection of Information Requirements

VII. Economic Analyses

Regulations Text

Acronyms

In addition, because of the many terms to which we refer by acronym in this final rule, 

we are listing these abbreviations and their corresponding terms in alphabetical order below:

AIDS Acquired Immune Deficiency Syndrome

ARD Assessment reference date

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

BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999, Pub. 

L. 106-113
5

BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 

2000, Pub. L. 106-554

CAH Critical access hospital

CBSA Core-based statistical area

CFR Code of Federal Regulations

CMI Case-mix index

CMS Centers for Medicare & Medicaid Services

COT Change of therapy

EHR Electronic health record

EOT End of therapy

FQHC Federally qualified health center

FR Federal Register

FY Fiscal year

GAO Government Accountability Office

HCPCS Healthcare Common Procedure Coding System

HIE Health information exchange

HOMER Home office Medicare records

ICR Information Collection Requirements

IGI IHS (Information Handling Services) Global Insight, Inc. 

IPPS Inpatient Prospective Payment System

MDS Minimum data set

MFP Multifactor productivity 

MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. 

L. 108-173
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MSA Metropolitan statistical area

NAICS North American Industrial Classification System

NF Nursing facility

OMB Office of Management and Budget

OMRA Other Medicare Required Assessment

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

PPS Prospective Payment System

RAI Resident assessment instrument

RAVEN Resident assessment validation entry

RFA Regulatory Flexibility Act, Pub. L. 96-354

RHC Rural health clinic

RIA Regulatory impact analysis

RUG-III Resource Utilization Groups, Version 3

RUG-IV Resource Utilization Groups, Version 4

RUG-53 Refined 53-Group RUG-III Case-Mix Classification System

SCHIP State Children's Health Insurance Program

SNF Skilled nursing facility

STM Staff time measurement

STRIVE Staff time and resource intensity verification

UMRA Unfunded Mandates Reform Act, Pub. L. 104-4

I. Executive Summary

A. Purpose

This final rule updates the SNF prospective payment rates for FY 2015 as required under 

section 1888(e)(4)(E) of the Act. It also responds to section 1888(e)(4)(H) of the Act, which 
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requires the Secretary to “provide for publication in the Federal Register” before the August 1 

that precedes the start of each fiscal year, certain specified information relating to the payment 

update (see section II.C.).

B. Summary of Major Provisions

In accordance with sections 1888(e)(4)(E)(ii)(IV) and 1888(e)(5) of the Act, the federal 

rates in this final rule reflect an update to the rates that we published in the SNF PPS final rule

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

error correction, if applicable, and the multifactor productivity adjustment for FY 2015.

C. Summary of Impacts

Provision Description Total Transfers

FY 2015 SNF PPS payment 

rate update.

The overall economic impact of this final rule is an 

estimated increase of $750 million in aggregate 

payments to SNFs during FY 2015. 

II. Background

A. Statutory Basis and Scope

As amended by section 4432 of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-33, 

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

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

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

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

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

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

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

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

excluded services, such as physician services) for which payment may otherwise be made under 
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Part B and which are furnished to Medicare beneficiaries who are residents in a SNF during a 

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

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

legislative history of the SNF PPS is available online at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/SNFPPS/Downloads/Legislative_History_07302013.pdf.

As noted in section I.F. of that legislative history, on March 23, 2010, the Patient 

Protection and Affordable Care Act (Pub. L. 111-148) was enacted. Then, the Health Care and 

Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted on March 30, 2010) amended 

certain provisions of Pub. L. 111-148 and certain sections of the Social Security Act and, in 

certain instances, included “freestanding” provisions. In this final rule, Pub. L. 111-148 and Pub. 

L. 111-152 are collectively referred to as the “Affordable Care Act.” In section IV.D.4 of this 

final rule, we discuss one specific provision related to the Affordable Care Act involving Civil 

Money Penalties.

B. Initial Transition

Under sections 1888(e)(1)(A) and 1888(e)(11) of the Act, the SNF PPS included an 

initial, three-phase transition that blended a facility-specific rate (reflecting the individual 

facility’s historical cost experience) with the federal case-mix adjusted rate. The transition 

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

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

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

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

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

facility-specific rates for the upcoming FY.
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C. Required Annual Rate Updates

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

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

SNF PPS payment rates for FY 2014 (78 FR 47936, August 6, 2013). We subsequently 

published two correction notices (78 FR 61202, October 3, 2013, and 79 FR 63, January 2, 2014) 

with respect to that final rule, as well as a notice that made corrections to the January 2, 2014 

correction notice (79 FR 1742, January 10, 2014). 

Section 1888(e)(4)(H) of the Act specifies that we provide for publication annually in the 

Federal Register of the following:

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

furnished during the upcoming FY.

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

upcoming FY.

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

Along with other revisions discussed later in this preamble, this final rule provides the 

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

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

In the FY 2014 SNF PPS proposed rule (79 FR 25767), we proposed an update to the 

payment rates used under the PPS for SNFs for FY 2015. In addition, we proposed to adopt the 

most recent OMB statistical area delineations to identify a facility’s urban or rural status for the 

purpose of determining which set of rate tables would apply to the facility, and to determine the 

SNF PPS wage index including a proposed 1-year transition with a blended wage index for all 

providers for FY 2015. It also included a discussion of the SNF therapy payment research 

currently underway within CMS. The proposed rule also proposed a revision to policies related 
10

to the COT OMRA. The proposed rule included a discussion of a provision related to the 

Affordable Care Act involving Civil Money Penalties. Finally, the proposed rule included a 

discussion of observed trends related to therapy utilization among SNF providers and a 

discussion of accelerating health information exchange in SNFs.

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

Rule

In response to the publication of the FY 2015 SNF PPS proposed rule, we received 26 

timely public comments from individuals, providers, corporations, government agencies, private 

citizens, trade associations, and major organizations. The following are brief summaries of each 

proposed provision, a summary of the public comments that we received related to that proposal, 

and our responses to the comments.

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

In addition to the comments we received on the proposed rule’s discussion of specific 

aspects of the SNF PPS (which we address later in this final rule), commenters also submitted 

the following, more general observations on the payment system. A discussion of these 

comments, along with our responses, appears below.

Comment: We received a few comments about the operational aspects of updating the 

subregulatory guidance contained in the MDS RAI manual, including the frequency of updates 

and process for announcing revisions. These commenters stated that CMS has made major 

revisions to the RAI manual with little or no notice to providers and without meaningful 

consultation with stakeholders. These commenters further stated that CMS should utilize a more 

formal process for announcing revisions and reinterpretations of the RAI manual. 

Response: We appreciate the commenters’ suggestions and we recognize that the MDS 

3.0 is a complex assessment tool. We have provided education, clarification and training 
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associated with the MDS 3.0, as well as discussion of potential revisions and updates to the RAI 

manual, at national training conferences, and postings to the MDS 3.0 and SNF PPS website.

We also provide support to and consult with stakeholders through oral and written inquiries and, 

most notably, through our regular and special Open Door Forums. We are committed to 

continuing training on the MDS 3.0 and to ensuring that the update process is predictable for 

providers and gives providers sufficient notice of and time to discuss, incorporate and train on

any revisions to the manual which may occur. We will take the commenters’ suggestions into 

consideration for future operational enhancements. 

Comment: Several commenters raised concerns regarding the compensation for NonTherapy Ancillaries (NTAs), specifically for hospital-based SNFs within the SNF PPS. These 

commenters urged CMS to expedite the research necessary to develop a new model for NTA 

payment and to implement such a model shortly thereafter.

Response: We appreciate the comments on this topic and the broad support for our 

research efforts on the development of a new NTA payment model. Furthermore, the comments 

we received provided a number of interesting and creative ideas for future consideration. We 

look forward to working with providers and stakeholders in the future as we continue to research 

possible refinements to address concerns with the SNF PPS, such as the SNF therapy research 

work discussed in section IV.D.2 of this final rule.

Comment: One commenter recommended that we address the need for CMS to broaden 

the categories of healthcare professionals who may order patient diets. The commenter stated

that such a change will improve patient health and allows SNFs to respond more quickly to 

resident nutritional needs.

Response: We appreciate this comment, but note that the specific issues the commenter 

raised about who, within a SNF, may prescribe resident diets relate to the certification standards 
12

for long-term care facilities, and therefore, are beyond the scope of this final rule. We have, 

however, shared this comment with CMS’s survey and certification staff so that they can 

consider these suggestions as part of their ongoing review and refinement of our policies.

Comment: One commenter supported CMS’s proposal to include several new outcomes 

measures as part of the FY 2017 Hospital Value-Based Purchasing program.

Response: We appreciate this comment, but note that this comment does not relate to the 

SNF PPS and involves a program that does not apply to SNFs. We have, however, shared this 

comment with CMS staff who work more closely with the Hospital Value-Based Purchasing 

program to consider as part of their ongoing review and refinement of their proposed policies.

B. SNF PPS Rate Setting Methodology and FY 2015 Update

In the FY 2015 SNF PPS proposed rule (79 FR 25770 through 25779), we outlined the 

basic methodology used to set the rates for the SNF PPS. We also discussed a proposal

associated with our rate setting methodology, specifically a proposal to adopt the most recent 

Office of Management and Budget (OMB) statistical area delineations to identify a facility’s 

urban or rural status for the purpose of determining which set of rate tables would apply to the 

facility. Our discussion of the rate setting methodology, our proposed changes associated with 

this methodology, and the comments, along with our responses, on these proposals appear below.

1. Federal Base Rates

Under section 1888(e)(4) of the Act, the SNF PPS uses per diem federal payment rates 

based on mean SNF costs in a base year (FY 1995) updated for inflation to the first effective 

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

used in developing the federal rates also incorporated a “Part B add-on,” which is an estimate of 
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the amounts that, prior to the SNF PPS, would have been payable under Part B for covered SNF 

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

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

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

then standardized for geographic variations in wages and for the costs of facility differences in 

case mix. In compiling the database used to compute the federal payment rates, we excluded 

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

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

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

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

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

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

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

wages.

2. SNF Market Basket Update

a. SNF Market Basket Index

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

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

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

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

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

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

rule for FY 2014 (78 FR 47939 through 47946), we revised and rebased the market basket, 

which included updating the base year from FY 2004 to FY 2010.
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For the FY 2015 final rule, the FY 2010-based SNF market basket growth rate is 

estimated to be 2.5 percent, which is based on the IHS Global Insight, Inc. (IGI) second quarter 

2014 forecast with historical data through first quarter 2014. In section IV.B.2.e. of this final

rule, we discuss the specific application of this adjustment to the forthcoming annual update of 

the SNF PPS payment rates.

b. Use of the SNF Market Basket Percentage

Section 1888(e)(5)(B) of the Act defines the SNF market basket percentage as the 

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

midpoint of the current FY. For the federal rates set forth in this final rule, we use the 

percentage change in the SNF market basket index to compute the update factor for FY 2015. 

This is based on the IGI second quarter 2014 forecast (with historical data through the first

quarter 2014) of the FY 2015 percentage increase in the FY 2010-based SNF market basket 

index for routine, ancillary, and capital-related expenses, which is used to compute the update 

factor in this final rule. As discussed in sections IV.B.2.c. and IV.B.2.d. of this final rule, this 

market basket percentage change would be reduced by the forecast error correction (as described 

in §413.337(d)(2)) if applicable, and by the multifactor productivity adjustment as required by 

section 1888(e)(5)(B)(ii) of the Act. Finally, as discussed in section II.B. of this final rule, we no 

longer compute update factors to adjust a facility-specific portion of the SNF PPS rates, because 

the initial three-phase transition period from facility-specific to full federal rates that started with 

cost reporting periods beginning in July 1998 has expired.

c. Forecast Error Adjustment

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

finalized in the August 4, 2003, final rule (68 FR 46057 through 46059), the regulations at 

§413.337(d)(2) provide for an adjustment to account for market basket forecast error. The initial 
15

adjustment for market basket forecast error applied to the update of the FY 2003 rate for 

FY 2004, and took into account the cumulative forecast error for the period from FY 2000 

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

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

available FY for which there is final data, and apply the difference between the forecasted and 

actual change in the market basket when the difference exceeds a specified threshold. We 

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

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

0.5 percentage point threshold effective for FY 2008 and subsequent fiscal years. As we stated 

in the final rule for FY 2004 that first issued the market basket forecast error adjustment 

(68 FR 46058, August 4, 2003), the adjustment will “. . . reflect both upward and downward 

adjustments, as appropriate.” 

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

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

2013 was 2.2 percentage points, resulting in the actual increase being 0.3 percentage point lower 

than the estimated increase. Accordingly, as the difference between the estimated and actual 

amount of change in the market basket index does not exceed the 0.5 percentage point threshold, 

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

forecasted and actual market basket amounts for FY 2013.

TABLE 1: Difference Between the Forecasted and Actual Market Basket Increases for FY 

2013

Index Forecasted

FY 2013 Increase*

Actual 

FY 2013

Increase**

FY 2013

Difference

SNF 2.5 2.2 -0.3

*Published in Federal Register; based on second quarter 2012 IGI forecast (2004-based index).

**Based on the second quarter 2014 IHS Global Insight forecast, with historical data through the first quarter 2014

(2004-based index).
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d. Multifactor Productivity Adjustment

Section 3401(b) of the Affordable Care Act requires that, in FY 2012 (and in subsequent 

FYs), the market basket percentage under the SNF payment system as described in section 

1888(e)(5)(B)(i) of the Act is to be reduced annually by the productivity adjustment described in 

section 1886(b)(3)(B)(xi)(II) of the Act. Section 1886(b)(3)(B)(xi)(II) of the Act, added by 

section 3401(a) of the Affordable Care Act, sets forth the definition of this productivity 

adjustment. The statute defines the productivity adjustment to be equal to “the 10-year moving 

average of changes in annual economy-wide private nonfarm business multi-factor productivity 

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

cost-reporting period, or other annual period)” (the MFP adjustment). The Bureau of Labor 

Statistics (BLS) is the agency that publishes the official measure of private nonfarm business 

multifactor productivity (MFP). Please see http://www.bls.gov/mfp to obtain the BLS historical 

published MFP data.

The projection of MFP is currently produced by IGI, an economic forecasting firm. To

generate a forecast of MFP, IGI replicated the MFP measure calculated by the BLS, using a 

series of proxy variables derived from IGI’s U.S. macroeconomic models. This process is 

described in greater detail in section III.F.3. of the FY 2012 SNF PPS final rule (76 FR 48527 

through 48529). 

i. Incorporating the Multifactor Productivity Adjustment into the Market Basket Update

According to section 1888(e)(5)(A) of the Act, the Secretary “shall establish a skilled 

nursing facility market basket index that reflects changes over time in the prices of an 

appropriate mix of goods and services included in covered skilled nursing facility services.” 

Section 1888(e)(5)(B)(ii) of the Act, added by section 3401(b) of the Affordable Care Act,

requires that for FY 2012 and each subsequent FY, after determining the market basket 
17

percentage described in section 1888(e)(5)(B)(i) of the Act, “the Secretary shall reduce such 

percentage by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II)” (which we 

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

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

basket percentage being less than zero for a FY, and may result in payment rates under section 

1888(e) of the Act for a FY being less than such payment rates for the preceding FY. Thus, if 

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

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

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

1888(e)(4)(E)(ii) of the Act would be negative, and such rates would decrease relative to the 

prior FY.

For the FY 2015 update, the MFP adjustment is calculated as the 10-year moving average 

of changes in MFP for the period ending September 30, 2015, which is 0.5 percent. Consistent

with section 1888(e)(5)(B)(i) of the Act and §413.337(d)(2) of the regulations, the market basket 

percentage for FY 2015 for the SNF PPS is based on IGI’s second quarter 2014 forecast of the 

SNF market basket update, and is estimated to be 2.5 percent. In accordance with section 

1888(e)(5)(B)(ii) of the Act (as added by section 3401(b) of the Affordable Care Act) and 

§413.337(d)(3), this market basket percentage is then reduced by the MFP adjustment (the 10-

year moving average of changes in MFP for the period ending September 30, 2015) of 0.5

percentage point, which is calculated as described above and based on IGI’ssecond quarter 2014

forecast. The resulting MFP-adjusted SNF market basket update is equal to 2.0 percent, or 2.5

percent less 0.5 percentage point.

e. Market Basket Update Factor for FY 2015

Sections 1888(e)(4)(E)(ii)(IV) and 1888(e)(5)(i) of the Act require that the update factor 
18

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

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

basket level for the period of October 1, 2013 through September 30, 2014 to the average market 

basket level for the period of October 1, 2014 through September 30, 2015. This process yields 

an update factor of 2.5 percent. As further explained in section IV.B.2.c. of this final rule, as 

applicable, we adjust the market basket update factor by the forecast error from the most recently 

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

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

0.5 percentage point threshold. For FY 2013 (the most recently available FY for which there is 

final data), the difference between the forecasted SNF market basket percentage change and the 

actual SNF market basket percentage change does not exceed 0.5 percentage point, so the FY 

2015 market basket of 2.5 percent would not be adjusted by the applicable difference. In 

addition, for FY 2015, section 1888(e)(5)(B)(ii) of the Act requires us to reduce the market 

basket percentage by the MFP adjustment (the 10-year moving average of changes in MFP for 

the period ending September 30, 2015) of 0.5 percentage point, as described in section IV.B.2.d. 

of this final rule. The resulting MFP-adjusted SNF market basket update is equal to 2.0 percent, 

or 2.5 percent less 0.5 percentage point. We used the SNF market basket, adjusted as described 

above, to adjust each per diem component of the federal rates forward to reflect the change in the 

average prices for FY 2015 from average prices for FY 2014. We would further adjust the rates 

by a wage index budget neutrality factor, described later in this section. Tables 2 and 3 reflect 

the updated components of the unadjusted federal rates for FY 2015, prior to adjustment for 

case-mix.

We proposed in the FY 2015 SNF PPS proposed rule (79 FR 25772) that while we would 

continue to compute and apply separate federal per diem rates for SNFs located in urban and 
19

rural areas as we have in the past, beginning on October 1, 2014 we would use the revised OMB 

statistical area delineations discussed in section IV.D.1 of this final rule to identify a facility’s 

urban or rural status for the purpose of determining which set of rate tables would apply to a 

facility. As noted in that discussion, we believe that the most current OMB delineations more 

accurately reflect the contemporary urban and rural nature of areas across the country, and that 

use of such delineations allows us to determine more accurately the appropriate rate tables to 

apply under the SNF PPS. Thus, we believe it is appropriate to use the most current OMB 

delineations for this purpose, in order to enhance the accuracy of payments under the SNF PPS. 

We did not receive any comments on this proposal. Therefore, for the reasons discussed above, 

we are finalizing our proposal to use the revised OMB delineations discussed in section IV.D.1

of this final rule to identify a facility’s urban or rural status for the purpose of determining which 

set of rate tables will apply to a facility beginning on October 1, 2014.

TABLE 2: FY 2015 Unadjusted Federal Rate Per Diem

Urban

Rate Component Nursing - Case-Mix

Therapy - CaseMixTherapy - NonCase-mix Non-Case-Mix

Per Diem Amount $169.28 $127.51 $16.79 $86.39 

TABLE 3: FY 2015 Unadjusted Federal Rate Per Diem

Rural

Rate Component Nursing - Case-Mix

Therapy - CaseMixTherapy - NonCase-mix Non-Case-Mix

Per Diem Amount $161.72 $147.02 $17.94 $87.99 

3. Case-Mix Adjustment

Under section 1888(e)(4)(G)(i) of the Act, the federal rate also incorporates an 

adjustment to account for facility case-mix, using a classification system that accounts for the 

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

to reflect both a resident classification system that the Secretary establishes to account for the 
20

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

classification under RUG-IV.

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

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

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

under the SNF PPS. As discussed in section IV.C.1. of this final rule, the clinical orientation of 

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

that considers a beneficiary’s initial case-mix classification to assist in making certain SNF level 

of care determinations. Further, because the MDS is used as a basis for payment, as well as a 
21

clinical assessment, we have provided extensive training on proper coding and the time frames 

for MDS completion in our Resident Assessment Instrument (RAI) Manual. For an MDS to be 

considered valid for use in determining payment, the MDS assessment must be completed in 

compliance with the instructions in the RAI Manual in effect at the time the assessment is 

completed. For payment and quality monitoring purposes, the RAI Manual consists of both the 

Manual instructions and the interpretive guidance and policy clarifications posted on the 

appropriate MDS website at http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/NursingHomeQualityInits/MDS30RAIManual.html.

In addition, we note that section 511 of the Medicare Prescription Drug, Improvement, 

and Modernization Act of 2003 (MMA, Pub. L. 108-173) amended section 1888(e)(12) of the 

Act to provide for a temporary increase of 128 percent in the PPS per diem payment for any SNF 

residents with Acquired Immune Deficiency Syndrome (AIDS), effective with services furnished 

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

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

to compensate for the increased costs associated with [such] residents . . . .” The add-on for SNF 

residents with AIDS is also discussed in Program Transmittal #160 (Change Request #3291), 

issued on April 30, 2004, which is available online at 

www.cms.gov/transmittals/downloads/r160cp.pdf. In the SNF PPS final rule for FY 2010 (74 

FR 40288), we did not address the certification of the add-on for SNF residents with AIDS in 

that final rule’s implementation of the case-mix refinements for RUG-IV, thus allowing the addon payment required by section 511 of the MMA to remain in effect. For the limited number of 

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

example, using FY 2012 data, we identified fewer than 4,355 SNF residents with a diagnosis 

code of 042 (Human Immunodeficiency Virus (HIV) Infection). For FY 2015, an urban facility 
22

with a resident with AIDS in RUG-IV group “HC2” would have a case-mix adjusted per diem 

payment of $423.12 (see Table 4) before the application of the MMA adjustment. After an 

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

of approximately $964.71.

Currently, we use the International Classification of Diseases, 9th revision, Clinical 

Modification (ICD-9-CM) code 042 to identify those residents for whom it is appropriate to 

apply the AIDS add-on established by section 511 of the MMA. In this context, we note that the 

Department published a final rule in the September 5, 2012 Federal Register (77 FR 54664) 

which requires us to stop using ICD-9-CM on September 30, 2014, and begin using the 

International Classification of Diseases, 10th revision, Clinical Modification (ICD-10-CM), on 

October 1, 2014. Regarding the above-referenced ICD-9-CM diagnosis code of 042, in the FY 

2014 SNF PPS proposed rule (78 FR 26444, May 6, 2013), we proposed to transition to the 

equivalent ICD-10-CM diagnosis code of B20 upon the overall conversion to ICD-10-CM on 

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

(78 FR 47951 through 47952). 

However, on April 1, 2014, the Protecting Access to Medicare Act of 2014 (PAMA) 

(Pub. L. No. 113-93) was enacted. Section 212 of PAMA, titled “Delay in Transition from ICD9 to ICD-10 Code Sets,” provides that “[t]he Secretary of Health and Human Services may not, 

prior to October 1, 2015, adopt ICD-10 code sets as the standard for code sets under section 

1173(c) of the Social Security Act (42 U.S.C. 1320d-2(c)) and section 162.1002 of title 45, Code 

of Federal Regulations.” In light of PAMA, in the FY 2015 SNF PPS proposed rule, we stated 

that the effective date of the change from ICD-9-CM code 042 to ICD-10-CM code B20 for 

purposes of applying the AIDS add-on would be the date when ICD-10-CM becomes the 

required medical data code set for use on Medicare SNF claims and that, until that time, we 
23

would continue to use ICD-9-CM code 042 for this purpose. On May 1, 2014, the Department 

announced that, in light of section 212 of PAMA, “the U.S. Department of Health and Human 

Services expects to release an interim final rule in the near future that will include a new 

compliance date that would require the use of ICD-10 beginning October 1, 2015. The rule will

also require HIPAA covered entities to continue to use ICD-9-CM through September 30, 2015.” 

The Department has not yet published the interim final rule, however, we are proceeding in 

accordance with the announcement. Therefore, the effective date of the change from ICD-9-CM 

code 042 to ICD-10-CM code B20 for purposes of applying the AIDS add-on is October 1, 2015. 

Until that time, we will continue to use ICD-9-CM code 042 for this purpose.

Under section 1888(e)(4)(H), each update of the payment rates must include the case-mix 

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

final rule reflect the use of the RUG-IV case-mix classification system from October 1, 2014, 

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

separately for urban and rural SNFs, in Tables 4 and 5 with corresponding case-mix values. As 

discussed above, we will use the revised OMB delineations in order to identify a facility’s urban 

or rural status for the purpose of determining which set of rate tables will apply to the facility

beginning on October 1, 2014. These tables do not reflect the add-on for SNF residents with 

AIDS enacted by section 511 of the MMA, which we apply only after making all other 

adjustments (such as wage index and case-mix). 

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

URBAN

RUG-IV

Category

Nursing 

Index 

Therapy 

Index 

Nursing

Component

Therapy

Component

Non-case 

Mix

Therapy 

Comp

Non-case 

Mix

Component

Total

Rate

RUX 2.67 1.87 $451.98 $238.44 $86.39 $776.81

RUL 2.57 1.87 $435.05 $238.44 $86.39 $759.88

RVX 2.61 1.28 $441.82 $163.21 $86.39 $691.42

RVL 2.19 1.28 $370.72 $163.21 $86.39 $620.32
24

RUG-IV

Category

Nursing 

Index 

Therapy 

Index 

Nursing

Component

Therapy

Component

Non-case 

Mix

Therapy 

Comp

Non-case 

Mix

Component

Total

Rate

RHX 2.55 0.85 $431.66 $108.38 $86.39 $626.43

RHL 2.15 0.85 $363.95 $108.38 $86.39 $558.72

RMX 2.47 0.55 $418.12 $70.13 $86.39 $574.64

RML 2.19 0.55 $370.72 $70.13 $86.39 $527.24

RLX 2.26 0.28 $382.57 $35.70 $86.39 $504.66

RUC 1.56 1.87 $264.08 $238.44 $86.39 $588.91

RUB 1.56 1.87 $264.08 $238.44 $86.39 $588.91

RUA 0.99 1.87 $167.59 $238.44 $86.39 $492.42

RVC 1.51 1.28 $255.61 $163.21 $86.39 $505.21

RVB 1.11 1.28 $187.90 $163.21 $86.39 $437.50

RVA 1.10 1.28 $186.21 $163.21 $86.39 $435.81

RHC 1.45 0.85 $245.46 $108.38 $86.39 $440.23

RHB 1.19 0.85 $201.44 $108.38 $86.39 $396.21

RHA 0.91 0.85 $154.04 $108.38 $86.39 $348.81

RMC 1.36 0.55 $230.22 $70.13 $86.39 $386.74

RMB 1.22 0.55 $206.52 $70.13 $86.39 $363.04

RMA 0.84 0.55 $142.20 $70.13 $86.39 $298.72

RLB 1.50 0.28 $253.92 $35.70 $86.39 $376.01

RLA 0.71 0.28 $120.19 $35.70 $86.39 $242.28

ES3 3.58 $606.02 $16.79 $86.39 $709.20

ES2 2.67 $451.98 $16.79 $86.39 $555.16

ES1 2.32 $392.73 $16.79 $86.39 $495.91

HE2 2.22 $375.80 $16.79 $86.39 $478.98

HE1 1.74 $294.55 $16.79 $86.39 $397.73

HD2 2.04 $345.33 $16.79 $86.39 $448.51

HD1 1.60 $270.85 $16.79 $86.39 $374.03

HC2 1.89 $319.94 $16.79 $86.39 $423.12

HC1 1.48 $250.53 $16.79 $86.39 $353.71

HB2 1.86 $314.86 $16.79 $86.39 $418.04

HB1 1.46 $247.15 $16.79 $86.39 $350.33

LE2 1.96 $331.79 $16.79 $86.39 $434.97

LE1 1.54 $260.69 $16.79 $86.39 $363.87

LD2 1.86 $314.86 $16.79 $86.39 $418.04

LD1 1.46 $247.15 $16.79 $86.39 $350.33

LC2 1.56 $264.08 $16.79 $86.39 $367.26

LC1 1.22 $206.52 $16.79 $86.39 $309.70

LB2 1.45 $245.46 $16.79 $86.39 $348.64

LB1 1.14 $192.98 $16.79 $86.39 $296.16

CE2 1.68 $284.39 $16.79 $86.39 $387.57

CE1 1.50 $253.92 $16.79 $86.39 $357.10

CD2 1.56 $264.08 $16.79 $86.39 $367.26

CD1 1.38 $233.61 $16.79 $86.39 $336.79

CC2 1.29 $218.37 $16.79 $86.39 $321.55

CC1 1.15 $194.67 $16.79 $86.39 $297.85

CB2 1.15 $194.67 $16.79 $86.39 $297.85
25

RUG-IV

Category

Nursing 

Index 

Therapy 

Index 

Nursing

Component

Therapy

Component

Non-case 

Mix

Therapy 

Comp

Non-case 

Mix

Component

Total

Rate

CB1 1.02 $172.67 $16.79 $86.39 $275.85

CA2 0.88 $148.97 $16.79 $86.39 $252.15

CA1 0.78 $132.04 $16.79 $86.39 $235.22

BB2 0.97 $164.20 $16.79 $86.39 $267.38

BB1 0.90 $152.35 $16.79 $86.39 $255.53

BA2 0.70 $118.50 $16.79 $86.39 $221.68

BA1 0.64 $108.34 $16.79 $86.39 $211.52

PE2 1.50 $253.92 $16.79 $86.39 $357.10

PE1 1.40 $236.99 $16.79 $86.39 $340.17

PD2 1.38 $233.61 $16.79 $86.39 $336.79

PD1 1.28 $216.68 $16.79 $86.39 $319.86

PC2 1.10 $186.21 $16.79 $86.39 $289.39

PC1 1.02 $172.67 $16.79 $86.39 $275.85

PB2 0.84 $142.20 $16.79 $86.39 $245.38

PB1 0.78 $132.04 $16.79 $86.39 $235.22

PA2 0.59 $99.88 $16.79 $86.39 $203.06

PA1 0.54 $91.41 $16.79 $86.39 $194.59

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

RURAL 

RUG-IV

Category

Nursing 

Index 

Therapy 

Index 

Nursing

Component

Therapy

Component

Non-case 

Mix

Therapy 

Comp

Non-case 

Mix

Component

Total

Rate

RUX 2.67 1.87 $431.79 $274.93 $87.99 $794.71

RUL 2.57 1.87 $415.62 $274.93 $87.99 $778.54

RVX 2.61 1.28 $422.09 $188.19 $87.99 $698.27

RVL 2.19 1.28 $354.17 $188.19 $87.99 $630.35

RHX 2.55 0.85 $412.39 $124.97 $87.99 $625.35

RHL 2.15 0.85 $347.70 $124.97 $87.99 $560.66

RMX 2.47 0.55 $399.45 $80.86 $87.99 $568.30

RML 2.19 0.55 $354.17 $80.86 $87.99 $523.02

RLX 2.26 0.28 $365.49 $41.17 $87.99 $494.65

RUC 1.56 1.87 $252.28 $274.93 $87.99 $615.20

RUB 1.56 1.87 $252.28 $274.93 $87.99 $615.20

RUA 0.99 1.87 $160.10 $274.93 $87.99 $523.02

RVC 1.51 1.28 $244.20 $188.19 $87.99 $520.38

RVB 1.11 1.28 $179.51 $188.19 $87.99 $455.69

RVA 1.10 1.28 $177.89 $188.19 $87.99 $454.07

RHC 1.45 0.85 $234.49 $124.97 $87.99 $447.45

RHB 1.19 0.85 $192.45 $124.97 $87.99 $405.41

RHA 0.91 0.85 $147.17 $124.97 $87.99 $360.13

RMC 1.36 0.55 $219.94 $80.86 $87.99 $388.79
26

RUG-IV

Category

Nursing 

Index 

Therapy 

Index 

Nursing

Component

Therapy

Component

Non-case 

Mix

Therapy 

Comp

Non-case 

Mix

Component

Total

Rate

RMB 1.22 0.55 $197.30 $80.86 $87.99 $366.15

RMA 0.84 0.55 $135.84 $80.86 $87.99 $304.69

RLB 1.50 0.28 $242.58 $41.17 $87.99 $371.74

RLA 0.71 0.28 $114.82 $41.17 $87.99 $243.98

ES3 3.58 $578.96 $17.94 $87.99 $684.89

ES2 2.67 $431.79 $17.94 $87.99 $537.72

ES1 2.32 $375.19 $17.94 $87.99 $481.12

HE2 2.22 $359.02 $17.94 $87.99 $464.95

HE1 1.74 $281.39 $17.94 $87.99 $387.32

HD2 2.04 $329.91 $17.94 $87.99 $435.84

HD1 1.60 $258.75 $17.94 $87.99 $364.68

HC2 1.89 $305.65 $17.94 $87.99 $411.58

HC1 1.48 $239.35 $17.94 $87.99 $345.28

HB2 1.86 $300.80 $17.94 $87.99 $406.73

HB1 1.46 $236.11 $17.94 $87.99 $342.04

LE2 1.96 $316.97 $17.94 $87.99 $422.90

LE1 1.54 $249.05 $17.94 $87.99 $354.98

LD2 1.86 $300.80 $17.94 $87.99 $406.73

LD1 1.46 $236.11 $17.94 $87.99 $342.04

LC2 1.56 $252.28 $17.94 $87.99 $358.21

LC1 1.22 $197.30 $17.94 $87.99 $303.23

LB2 1.45 $234.49 $17.94 $87.99 $340.42

LB1 1.14 $184.36 $17.94 $87.99 $290.29

CE2 1.68 $271.69 $17.94 $87.99 $377.62

CE1 1.50 $242.58 $17.94 $87.99 $348.51

CD2 1.56 $252.28 $17.94 $87.99 $358.21

CD1 1.38 $223.17 $17.94 $87.99 $329.10

CC2 1.29 $208.62 $17.94 $87.99 $314.55

CC1 1.15 $185.98 $17.94 $87.99 $291.91

CB2 1.15 $185.98 $17.94 $87.99 $291.91

CB1 1.02 $164.95 $17.94 $87.99 $270.88

CA2 0.88 $142.31 $17.94 $87.99 $248.24

CA1 0.78 $126.14 $17.94 $87.99 $232.07

BB2 0.97 $156.87 $17.94 $87.99 $262.80

BB1 0.90 $145.55 $17.94 $87.99 $251.48

BA2 0.70 $113.20 $17.94 $87.99 $219.13

BA1 0.64 $103.50 $17.94 $87.99 $209.43

PE2 1.50 $242.58 $17.94 $87.99 $348.51

PE1 1.40 $226.41 $17.94 $87.99 $332.34

PD2 1.38 $223.17 $17.94 $87.99 $329.10

PD1 1.28 $207.00 $17.94 $87.99 $312.93

PC2 1.10 $177.89 $17.94 $87.99 $283.82

PC1 1.02 $164.95 $17.94 $87.99 $270.88

PB2 0.84 $135.84 $17.94 $87.99 $241.77

PB1 0.78 $126.14 $17.94 $87.99 $232.07

PA2 0.59 $95.41 $17.94 $87.99 $201.34

PA1 0.54 $87.33 $17.94 $87.99 $193.26
27

4. Wage Index Adjustment

Section 1888(e)(4)(G)(ii) of the Act requires that we adjust the federal rates to account 

for differences in area wage levels, using a wage index that the Secretary determines appropriate. 

Since the inception of the SNF PPS, we have used hospital inpatient wage data in developing a 

wage index to be applied to SNFs. In the FY 2015 SNF PPS proposed rule (79 FR 25775), we 

proposed to continue this practice for FY 2015, as we continue to believe that in the absence of 

SNF-specific wage data, using the hospital inpatient wage index data is appropriate and 

reasonable for the SNF PPS. As explained in the update notice for FY 2005 (69 FR 45786), the 

SNF PPS does not use the hospital area wage index’s occupational mix adjustment, as this 

adjustment serves specifically to define the occupational categories more clearly in a hospital 

setting; moreover, the collection of the occupational wage data also excludes any wage data 

related to SNFs. Therefore, we believe that using the updated hospital inpatient wage data 

exclusive of the occupational mix adjustment continues to be appropriate for SNF payments. For 

FY 2015, the updated wage data are for hospital cost reporting periods beginning on or after 

October 1, 2010 and before October 1, 2011 (FY 2011 cost report data).

We note that section 315 of the Medicare, Medicaid, and SCHIP Benefits Improvement 

and Protection Act of 2000 (BIPA) (Pub. L. 106-554, enacted on December 21, 2000) authorized 

us to establish a geographic reclassification procedure that is specific to SNFs, but only after 

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

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

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

improve the quality of that data.

In the FY 2015 SNF PPS proposed rule (79 FR 25775 through 25776), we also proposed

to continue to use the same methodology discussed in the SNF PPS final rule for FY 2008 
28

(72 FR 43423) to address those geographic areas in which there are no hospitals, and thus, no 

hospital wage index data on which to base the calculation of the FY 2015 SNF PPS wage index. 

For rural geographic areas that do not have hospitals and, therefore, lack hospital wage data on 

which to base an area wage adjustment, we would use the average wage index from all 

contiguous Core-Based Statistical Areas (CBSAs) as a reasonable proxy. For FY 2015, there are 

no rural geographic areas without hospitals for which we would apply this policy. For rural 

Puerto Rico, we would not apply this methodology due to the distinct economic circumstances 

that exist there (for example, due to the close proximity to one another of almost all of Puerto 

Rico’s various urban and non-urban areas, this methodology would produce a wage index for 

rural Puerto Rico that is higher than that in half of its urban areas); instead, we would continue to 

use the most recent wage index previously available for that area. For urban areas without 

specific hospital wage index data, we would use the average wage indexes of all of the urban 

areas within the state to serve as a reasonable proxy for the wage index of that urban CBSA. For 

FY 2015, the only urban area without wage index data available is CBSA 25980, Hinesville-Fort 

Stewart, GA. We did not receive any comments on these proposals, and thus we will continue to 

use the same methodology discussed in the SNF PPS final rule for FY 2008 (72 FR 43423) to 

address those geographic areas in which there are no hospitals, and thus, no hospital wage index 

data on which to base the calculation of the FY 2015 SNF PPS wage index. 

A discussion of the general comments that we received on the wage index adjustment to 

the federal rates, and our responses to those comments, appears below. Comments on the 

specific proposal to use revised OMB delineations as part of the wage index are discussed in 

section IV.D.1. of this final rule.

Comment: Several commenters stated that hospital cost data may not be the most reliable 

resource when determining geographical differences in salary structure for skilled nursing 
29

facilities. These commenters also stated that, if CMS plans to continue using hospital cost data 

as the basis of SNF wage index adjustments, then CMS should consider adopting certain wage 

index policies in use under the IPPS, such as reclassification, because SNFs compete in a similar 

labor pool as acute care hospitals. Commenters stated that even if reclassification is not 

permissible, CMS should consider using the post-reclassification hospital wage data to influence 

SNF PPS wage index policy decisions. In addition, a few commenters recommended that CMS 

develop a SNF-specific wage index. Finally, a few commenters recommended that CMS attempt 

to smooth out the perceived volatility of annual wage index changes by implementing a floor and 

ceiling for annual changes to the wage index that are above or below a certain level. 

Response: Consistent with our previous responses to these recurring comments (most 

recently published in the FY 2014 SNF PPS final rule (78 FR 47952)), developing a wage index 

that utilizes data specific to SNFs would require us to engage in a resource-intensive audit 

process. Also, we note that section 315 of BIPA authorized us to establish a geographic 

reclassification procedure that is specific to SNFs, but only after collecting the data necessary to 

establish a SNF-specific wage index that is based on wage data from nursing homes. However, 

to date, this has proven to be unfeasible due to the volatility of existing SNF wage data and the 

significant amount of resources that would be required to improve the quality of that data.

Furthermore, we believe the collection of SNF-specific wage data would place a significant

amount of additional burden on SNFs. As discussed above, we continue to believe that in the 

absence of SNF-specific wage data, using the pre-reclassified hospital inpatient wage data

(without the occupational mix adjustment) is appropriate and reasonable for the SNF PPS. 

Additionally, we believe that using post-reclassification inpatient hospital wage data to influence 

SNF PPS wage index policy decisions, as suggested by commenters, would not be appropriate as 

such reclassification data are specific to those hospitals making that request, which may or may 
30

not apply to a given SNF in a given instance.

Furthermore, we do not believe it would be appropriate to establish a floor and ceiling for 

annual wage index changes which are above or below a given level. Any perceived volatility in 

the wage index would be based upon volatility in actual wages in that area, which is something 

outside of CMS’s control. As stated above, under section 1888(e)(4)(G)(ii) of the Act and 

§413.337(a)(1)(ii) of the regulations, we adjust the SNF PPS rates to account for differences in 

area wage levels. We believe that applying a ceiling or floor to annual wage index changes 

would make the area wage index less reflective of the area wage levels. Additionally, we note 

that establishing an artificial ceiling for annual changes in the wage index could not only result in 

a wage index that does not accurately reflect the wage levels in the area, but would also have an

adverse impact on those providers that would otherwise experience a larger increase in their 

wage index absent a ceiling.

After considering the comments received, for the reasons discussed above and in the FY 

2015 SNF PPS proposed rule (79 FR 25775), we are finalizing our proposal to continue to use 

the updated hospital inpatient wage data , exclusive of the occupational mix adjustment, to 

develop the SNF PPS wage index. For FY 2015, the updated wage data are for hospital cost 

reporting periods beginning on or after October 1, 2010 and before October 1, 2011 (FY 2011

cost report data).

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

federal rate, which is 69.180 percent of the total rate. This percentage reflects the labor-related 

relative importance for FY 2015, using the FY 2010-based SNF market basket. Each year, we 

calculate a revised labor-related share, based on the relative importance of labor-related cost 

categories (that is, those cost categories that are sensitive to local area wage costs) in the input 

price index. As discussed in section IV.B.2 of this final rule, for the FY 2014 SNF PPS update, 
31

we revised the labor-related share to reflect the relative importance of the revised FY 2010-based 

SNF market basket cost weights for the following cost categories: wages and salaries; employee 

benefits; the labor-related portion of nonmedical professional fees; administrative and facilities 

support services; all other: labor-related services (previously referred to in the FY 2004-based 

SNF market basket as labor-intensive); and a proportion of capital-related expenses.

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

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

projected price changes between the base year and FY 2015. The price proxies that move the 

different cost categories in the market basket do not necessarily change at the same rate, and the 

relative importance captures these changes. Accordingly, the relative importance figure more 

closely reflects the cost share weights for FY 2015 than the base year weights from the SNF 

market basket.

We calculate the labor-related relative importance for FY 2015 in four steps. First, we 

compute the FY 2015 price index level for the total market basket and each cost category of the 

market basket. Second, we calculate a ratio for each cost category by dividing the FY 2015 price 

index level for that cost category by the total market basket price index level. Third, we 

determine the FY 2015 relative importance for each cost category by multiplying this ratio by the 

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

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

non-medical professional fees, administrative and facilities support services, all other: laborrelated services, and a portion of capital-related expenses) to produce the FY 2015 labor-related 

relative importance. Tables 6 and 7 show the RUG-IV case-mix adjusted federal rates by laborrelated and non-labor-related components. As discussed previously, the new OMB delineations

will be used to identify a facility’s urban or rural status for the purpose of determining which set 
32

of rate tables will apply to them beginning on October 1, 2014. Table 12 in section IV.D.1.c

provides the FY 2015 labor-related share components based on the SNF market basket.

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

By Labor and Non-Labor Component 

RUG-IV

Category

Total

Rate

Labor

Portion

Non-Labor

Portion

RUX 776.81 $537.40 $239.41 

RUL 759.88 $525.68 $234.20 

RVX 691.42 $478.32 $213.10 

RVL 620.32 $429.14 $191.18 

RHX 626.43 $433.36 $193.07 

RHL 558.72 $386.52 $172.20 

RMX 574.64 $397.54 $177.10 

RML 527.24 $364.74 $162.50 

RLX 504.66 $349.12 $155.54 

RUC 588.91 $407.41 $181.50 

RUB 588.91 $407.41 $181.50 

RUA 492.42 $340.66 $151.76 

RVC 505.21 $349.50 $155.71 

RVB 437.50 $302.66 $134.84 

RVA 435.81 $301.49 $134.32 

RHC 440.23 $304.55 $135.68 

RHB 396.21 $274.10 $122.11 

RHA 348.81 $241.31 $107.50 

RMC 386.74 $267.55 $119.19 

RMB 363.04 $251.15 $111.89 

RMA 298.72 $206.65 $92.07 

RLB 376.01 $260.12 $115.89 

RLA 242.28 $167.61 $74.67 

ES3 709.20 $490.62 $218.58 

ES2 555.16 $384.06 $171.10 

ES1 495.91 $343.07 $152.84 

HE2 478.98 $331.36 $147.62 

HE1 397.73 $275.15 $122.58 

HD2 448.51 $310.28 $138.23 

HD1 374.03 $258.75 $115.28 

HC2 423.12 $292.71 $130.41 

HC1 353.71 $244.70 $109.01 

HB2 418.04 $289.20 $128.84 

HB1 350.33 $242.36 $107.97 

LE2 434.97 $300.91 $134.06 

LE1 363.87 $251.73 $112.14 

LD2 418.04 $289.20 $128.84 

LD1 350.33 $242.36 $107.97 

LC2 367.26 $254.07 $113.19 

LC1 309.70 $214.25 $95.45 

LB2 348.64 $241.19 $107.45 

LB1 296.16 $204.88 $91.28 
33

RUG-IV

Category

Total

Rate

Labor

Portion

Non-Labor

Portion

CE2 387.57 $268.12 $119.45 

CE1 357.10 $247.04 $110.06 

CD2 367.26 $254.07 $113.19 

CD1 336.79 $232.99 $103.80 

CC2 321.55 $222.45 $99.10 

CC1 297.85 $206.05 $91.80 

CB2 297.85 $206.05 $91.80 

CB1 275.85 $190.83 $85.02 

CA2 252.15 $174.44 $77.71 

CA1 235.22 $162.73 $72.49 

BB2 267.38 $184.97 $82.41 

BB1 255.53 $176.78 $78.75 

BA2 221.68 $153.36 $68.32 

BA1 211.52 $146.33 $65.19 

PE2 357.10 $247.04 $110.06 

PE1 340.17 $235.33 $104.84 

PD2 336.79 $232.99 $103.80 

PD1 319.86 $221.28 $98.58 

PC2 289.39 $200.20 $89.19 

PC1 275.85 $190.83 $85.02 

PB2 245.38 $169.75 $75.63 

PB1 235.22 $162.73 $72.49 

PA2 203.06 $140.48 $62.58 

PA1 194.59 $134.62 $59.97 

TABLE 7: RUG-IV Case-Mix Adjusted Federal Rates for Rural SNFs by Labor and NonLabor Component

RUG-IV

Category

Total

Rate

Labor

Portion

Non-Labor

Portion

RUX 794.71 $549.78 $244.93 

RUL 778.54 $538.59 $239.95 

RVX 698.27 $483.06 $215.21 

RVL 630.35 $436.08 $194.27 

RHX 625.35 $432.62 $192.73 

RHL 560.66 $387.86 $172.80 

RMX 568.30 $393.15 $175.15 

RML 523.02 $361.83 $161.19 

RLX 494.65 $342.20 $152.45 

RUC 615.20 $425.60 $189.60 

RUB 615.20 $425.60 $189.60 

RUA 523.02 $361.83 $161.19 

RVC 520.38 $360.00 $160.38 

RVB 455.69 $315.25 $140.44 

RVA 454.07 $314.13 $139.94 

RHC 447.45 $309.55 $137.90 

RHB 405.41 $280.46 $124.95 
34

RUG-IV

Category

Total

Rate

Labor

Portion

Non-Labor

Portion

RHA 360.13 $249.14 $110.99 

RMC 388.79 $268.96 $119.83 

RMB 366.15 $253.30 $112.85 

RMA 304.69 $210.78 $93.91 

RLB 371.74 $257.17 $114.57 

RLA 243.98 $168.79 $75.19 

ES3 684.89 $473.81 $211.08 

ES2 537.72 $371.99 $165.73 

ES1 481.12 $332.84 $148.28 

HE2 464.95 $321.65 $143.30 

HE1 387.32 $267.95 $119.37 

HD2 435.84 $301.51 $134.33 

HD1 364.68 $252.29 $112.39 

HC2 411.58 $284.73 $126.85 

HC1 345.28 $238.86 $106.42 

HB2 406.73 $281.38 $125.35 

HB1 342.04 $236.62 $105.42 

LE2 422.90 $292.56 $130.34 

LE1 354.98 $245.58 $109.40 

LD2 406.73 $281.38 $125.35 

LD1 342.04 $236.62 $105.42 

LC2 358.21 $247.81 $110.40 

LC1 303.23 $209.77 $93.46 

LB2 340.42 $235.50 $104.92 

LB1 290.29 $200.82 $89.47 

CE2 377.62 $261.24 $116.38 

CE1 348.51 $241.10 $107.41 

CD2 358.21 $247.81 $110.40 

CD1 329.10 $227.67 $101.43 

CC2 314.55 $217.61 $96.94 

CC1 291.91 $201.94 $89.97 

CB2 291.91 $201.94 $89.97 

CB1 270.88 $187.39 $83.49 

CA2 248.24 $171.73 $76.51 

CA1 232.07 $160.55 $71.52 

BB2 262.80 $181.81 $80.99 

BB1 251.48 $173.97 $77.51 

BA2 219.13 $151.59 $67.54 

BA1 209.43 $144.88 $64.55 

PE2 348.51 $241.10 $107.41 

PE1 332.34 $229.91 $102.43 

PD2 329.10 $227.67 $101.43 

PD1 312.93 $216.48 $96.45 

PC2 283.82 $196.35 $87.47 

PC1 270.88 $187.39 $83.49 

PB2 241.77 $167.26 $74.51 

PB1 232.07 $160.55 $71.52 

PA2 201.34 $139.29 $62.05 
35

RUG-IV

Category

Total

Rate

Labor

Portion

Non-Labor

Portion

PA1 193.26 $133.70 $59.56 

Section 1888(e)(4)(G)(ii) of the Act also requires that we apply this wage index in a 

manner that does not result in aggregate payments under the SNF PPS that are greater or less 

than what would otherwise be made if the wage adjustment had not been made. For FY 2015

(federal rates effective October 1, 2014), we apply an adjustment to fulfill the budget neutrality 

requirement. We meet this requirement by multiplying each of the components of the unadjusted 

federal rates by a budget neutrality factor equal to the ratio of the weighted average wage 

adjustment factor for FY 2014 to the weighted average wage adjustment factor for FY 2015, 

based on the blended wage index for FY 2015 as discussed later in this final rule. For this 

calculation, we use the same FY 2013 claims utilization data for both the numerator and 

denominator of this ratio. We define the wage adjustment factor used in this calculation as the 

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

rate component. The budget neutrality factor for FY 2015 is 1.0009.

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

changes discussed in the OMB Bulletin No. 03-04 (June 6, 2003), available online at 

www.whitehouse.gov/omb/bulletins/b03-04.html, which announced revised definitions for 

MSAs, and the creation of micropolitan statistical areas and combined statistical areas. 

In adopting the CBSA geographic designations, we provided for a 1-year transition in FY 

2006 with a blended wage index for all providers. For FY 2006, the wage index for each 

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

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

referred to the blended wage index as the FY 2006 SNF PPS transition wage index. As 
36

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

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

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

the delineation of MSAs, Micropolitan Statistical Areas, and Combined Statistical Areas, and 

guidance on uses of the delineation of these areas. A copy of this bulletin is available online at 

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

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

Divisions, Micropolitan Statistical Areas, Combined Statistical Areas, and New England City 

and Town Areas in the United States and Puerto Rico based on the standards published on June 

28, 2010, in the Federal Register (75 FR 37246 - 37252) and Census Bureau data.”

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

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

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

CBSAs, urban counties that become rural, rural counties that become urban, and existing CBSAs 

that are being split apart.

As discussed in the SNF PPS proposed rule for FY 2014 (78 FR 26448), the changes 

made by the bulletin and their ramifications required extensive review by CMS before using 

them for the SNF PPS wage index. Having completed our assessment, in the FY 2015 SNF PPS 

proposed rule (79 FR 25779 through 25786), we proposed changes to the SNF PPS wage index 

based on the newest OMB delineations, as described in OMB Bulletin No. 13-01, beginning in

FY 2015, including a proposed 1-year transition with a blended wage index for FY 2015. These

changes, and associated comments, are discussed further in section IV.D.1. of this final rule.

The wage index applicable to FY 2015 is set forth in Table A available on the CMS website at 

http://cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html. Table 
37

A provides a crosswalk between the FY 2015 wage index for a provider using the current OMB 

delineations in effect in FY 2014 and the FY 2015 wage index using the revised OMB 

delineations, as well as the transition wage index values that will be in effect in FY 2015.

5. Adjusted Rate Computation Example

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

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

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

on the transition wage index, which may be found in Table A as referenced above. As illustrated 

in Table 8, SNF XYZ’s total PPS payment would equal $42,299.26.

TABLE 8: Adjusted Rate Computation Example

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

Wage Index: 0.8850

(See Transition Wage Index in Table A)1

RUG-IV 

Group Labor

Wage 

Index

Adjusted 

Labor

NonLaborAdjusted 

Rate

Percent 

Adjustment

Medicare 

Days Payment

RVX $478.32 0.885 $423.31 $213.10 $636.41 $636.41 14 $8,909.74

ES2 $384.06 0.885 $339.89 $171.10 $510.99 $510.99 30 $15,329.70

RHA $241.31 0.885 $213.56 $107.50 $321.06 $321.06 16 $5,136.96

CC2* $222.45 0.885 $196.87 $99.10 $295.97 $674.81 10 $6,748.10

BA2 $153.36 0.885 $135.72 $68.32 $204.04 $204.04 30 $6,121.20

100 $42,245.70

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

1 Available on the CMS website at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/SNFPPS/WageIndex.html. 

C. Additional Aspects of the SNF PPS

1. SNF Level of Care--Administrative Presumption

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

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

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

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

classification system discussed in section IV.B.3 of this final rule. This approach includes an 
38

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

52 RUGs of the 66-group RUG-IV case-mix classification system to assist in making certain 

SNF level of care determinations. 

In accordance with section 1888(e)(4)(H)(ii) of the Act and the regulations at §413.345, 

we include in each update of the federal payment rates in the Federal Register the designation 

of those specific RUGs under the classification system that represent the required SNF level of 

care, as provided in §409.30. As set forth in the FY 2010 SNF PPS final rule (74 FR 40341), this 

designation reflects an administrative presumption under the 66-group RUG-IV system that 

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

five-day, Medicare-required assessment are automatically classified as meeting the SNF level of 

care definition up to and including the assessment reference date on the five-day Medicarerequired assessment.

A beneficiary assigned to any of the lower 14 RUG-IV groups is not automatically 

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

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

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

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

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

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

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

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

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

encompassed by the following RUG-IV categories:

 Rehabilitation plus Extensive Services;
39

 Ultra High Rehabilitation;

 Very High Rehabilitation;

 High Rehabilitation;

 Medium Rehabilitation;

 Low Rehabilitation;

 Extensive Services;

 Special Care High;

 Special Care Low; and, 

 Clinically Complex.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

reference date of the 5-day assessment.
40

2. Consolidated Billing

Sections 1842(b)(6)(E) and 1862(a)(18) of the Act (as added by section 4432(b) of the 

BBA) require a SNF to submit consolidated Medicare bills to its Medicare Administrative 

Contractor for almost all of the services that its residents receive during the course of a covered 

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

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

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

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

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

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

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

through 26297). 

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

available on the SNF PPS website at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/SNFPPS/Downloads/Legislative_History_07302013.pdf. In particular, section 103 of 

the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 

106-113, enacted on November 29, 1999) amended section 1888(e)(2)(A) of the Act by further 

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

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

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

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

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

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

as well as in Program Memorandum AB-00-18 (Change Request #1070), issued March 2000, 
41

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

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

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

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

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

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

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

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

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

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

exceed the payment [SNFs] receive under the prospective payment system . . . .” According to

the conferees, section 103(a) of the BBRA “is an attempt to exclude from the PPS certain 

services and costly items that are provided infrequently in SNFs . . . .” By contrast, we noted 

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

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

they are relatively inexpensive and are furnished routinely in SNFs.

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

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

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

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

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

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

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

service codes for exclusion “. . . as essentially affording the flexibility to revise the list of 
42

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

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

practice)” (65 FR 46791), and since that time, we have periodically invited the public to submit 

comments identifying codes that might meet the criteria for exclusion. In the FY 2015 SNF PPS 

proposed rule (79 FR 25779), we specifically invited public comments identifying HCPCS codes 

in any of these four service categories (chemotherapy items, chemotherapy administration 

services, radioisotope services, and customized prosthetic devices) representing recent medical 

advances that might meet our criteria for exclusion from SNF consolidated billing, and we 

requested commenters to identify in their comments the specific HCPCS code that is associated 

with the service in question, as well as their rationale for requesting that the identified HCPCS 

code(s) be excluded. A discussion of the public comments received on this topic, along with our 

responses, appears below.

Comment: One commenter recommended four particular chemotherapy drugs for 

exclusion. As described by Healthcare Common Procedure Coding System (HCPCS) code 

J8562, the first drug (fludarabine phosphate, 10 mg) is administered orally, but this same drug is 

already excluded under code J9185 when administered in a 50 mg dosage via intravenous 

injection. The commenter incorrectly characterized the second recommended drug, Revlimid 

(lenalidomide), as being assigned to code J3590 (whose descriptor is actually “unclassified 

biologic”); in fact, that drug, along with the commenter’s third recommended drug, Zytiga 

(Abiraterone acetate), is not assigned a specific code of its own, but instead comes under the 

heading of one of the broader, “not otherwise specified” (NOS) codes, J8999 (“Prescription drug, 

oral, chemotherapeutic, NOS”). The fourth chemotherapy drug that the commenter 

recommended for exclusion was code J9219 (Leuprolide acetate implant, 65 mg).

Response: Regarding the first drug that the commenter cited (code J8562), the only oral 
43

fludarabine product is Oforta®, which was withdrawn from the market in September 2011. In 

addition, Oforta®is marked as discontinued on the drugs@FDA website (see 

http://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Set_Current

_Drug&ApplNo=022273&DrugName=OFORTA&ActiveIngred=FLUDARABINE%20PHOSP

HATE&SponsorApplicant=SANOFI%20AVENTIS%20US&ProductMktStatus=3&goto=Search

.DrugDetails), and there are no generics listed for the oral form. 

Regarding the comment involving two chemotherapy drugs that have not been assigned 

their own specific HCPCS codes, we note that the assignment of such a code has been an 

essential element of identifying certain chemotherapy drugs for exclusion ever since the BBRA 

first created the statutory exclusion list in 1999, as reflected in the drafting of the statutory 

provision itself as well as in our periodic solicitation of “codes” that might meet the criteria for 

exclusion. When the Congress previously enacted the original consolidated billing legislation in 

section 4432(b) of the BBA, chemotherapy drugs did not appear in the initial set of exclusions 

from this provision. Accordingly, all chemotherapy drugs were originally subject to 

consolidated billing, and none were separately billable under Part B when furnished to an SNF’s 

Part A resident. Then, in section 103 of the BBRA, the Congress excluded certain items and 

services involving chemotherapy and its administration from the SNF consolidated billing 

requirement, effective with items and services furnished on or after April 1, 2000. However, this 

legislation did not categorically exclude all chemotherapy drugs from SNF consolidated billing; 

rather, as explained in the BBRA’s Conference Report, it specifically targeted those “high-cost, 

low probability” drugs that “. . . are not typically administered in a SNF, or are exceptionally 

expensive, or are given as infusions, thus requiring special staff expertise to administer” (H.R. 

Conf. Rep. No. 106-479 at 854). By contrast, other types of chemotherapy drugs that “. . . are 

relatively inexpensive and are administered routinely in SNFs” were to remain subject to SNF 
44

consolidated billing. The approach that the Congress adopted to identify the individual 

chemotherapy drugs being designated for exclusion consisted of listing them by HCPCS code in 

the statute itself. Thus, a chemotherapy drug’s assignment to its own specific code has always 

served as the mechanism of designating that drug for exclusion, as well as the means by which 

the claims processing system is able to recognize that exclusion. This means that an NOS code 

such as J8999, which is broadly comprised of miscellaneous chemotherapy drugs “not otherwise 

specified” in the coding system, would be unsuitable for this function, as such a code would not 

allow for distinguishing the particular chemotherapy drug that is intended for exclusion from the 

various other, non-excluded chemotherapy drugs also encompassed by that same code. 

Regarding code J9219 (Leuprolide acetate implant, 65 mg), we have noted previously in 

the FY 2008 SNF PPS final rule (72 FR 43431, August 3, 2007) that this drug

. . . is a hormonal agent which is clinically analogous to other existing codes that have not 

been designated for exclusion; moreover, as this drug is used in treating the commonlyoccurring condition of prostate cancer, we believe that it is unlikely to meet the criterion 

of “low probability” specified in the BBRA.

Comment: One commenter reiterated recommendations that commenters had repeatedly 

urged us to adopt in previous years, by expanding the existing chemotherapy exclusion to 

encompass related drugs that are commonly administered in conjunction with chemotherapy to 

ameliorate the side effects of the chemotherapy drugs, and by excluding certain additional 

categories of services beyond those specified in the BBRA, such as the antibiotic drug, 

Vancomycin. Another commenter cited previously-expressed objections from numerous prior 

public comment periods regarding the limited scope of the existing administrative exclusion for 

certain specified types of high-intensity outpatient services (which applies only when such 

services are furnished in the outpatient hospital setting and not when furnished in other, 
45

freestanding settings), and stated that this exclusion should focus on the nature of the excluded 

service itself rather than on the location in which the service is furnished.

Response: Regarding the exclusion of chemotherapy-related drugs, we have noted 

repeatedly in this and previous final rules--such as the FY 2014 SNF PPS final rule (78 FR 

47958-59, August 6, 2013)--that the BBRA authorizes us to identify additional service codes for 

exclusion only within those particular service categories (chemotherapy items; chemotherapy 

administration services; radioisotope services; and, customized prosthetic devices) that it has 

designated for this purpose, and does not give us the authority to exclude additional services 

which, though they may be related to one of the categories designated for exclusion, fall outside 

of the specified service categories themselves. Thus, while such drugs as anti-emetics (antinausea drugs) and drugs that stimulate the body’s production of blood cells to replace those 

destroyed by chemotherapy are commonly administered in conjunction with chemotherapy, they 

are not inherently chemotherapeutic in nature (that is, they do not actively destroy cancer cells) 

and, consequently, do not fall within the excluded chemotherapy category designated in the 

BBRA. Regarding the exclusion of the antibiotic drug Vancomycin, we noted in the FY 2012 

SNF PPS final rule that “. . . we decline to add to the exclusion list those services submitted by 

commenters that have already been considered and not excluded in previous years based on their 

being outside the particular service categories that the statute authorizes for exclusion” (76 FR 

48531, August 8, 2011). Such services would include antibiotics, as discussed previously in the 

FY 2004 SNF PPS final rule (68 FR 46060, August 4, 2003). The statute does not provide the 

Secretary the authority to create additional categories of excluded services beyond those 

specified in the law. Finally, we note that the administrative exclusion for certain designated 

types of outpatient services does indeed consider the exceptionally intensive nature of the 

excluded services themselves, and in fact, as we have explained on numerous occasions 
46

(including, most recently, in the FY 2014 SNF PPS final rule (78 FR 47957-58, August 6, 

2013)), this is precisely the reason for limiting this exclusion to the outpatient hospital setting:

. . . as we initially noted in the FY 2009 SNF PPS final rule (73 FR 46436, August 8, 

2008) and then reiterated in a number of subsequent final rules, the repeated calls to 

expand the administrative exclusion for high-intensity outpatient services in this manner 

would appear to reflect. . . a continued misunderstanding of the underlying purpose of 

this provision. As we have consistently noted in response to comments on this issue in 

previous years . . . and as also explained in MLN Matters article SE0432 . . . the 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 Medicareparticipating hospital or critical access hospital . . .’ (emphasis added). (See the House Ways and 

Means Committee Report (H. Rep. No. 108-178, Part 2 at 209), and the Conference Report (H. 

Conf. Rep. No. 108-391 at 641)). Therefore, these services are excluded from SNF consolidated 

billing only when furnished in the outpatient hospital or CAH setting, and not when furnished in 

other, freestanding (non-hospital or non-CAH) settings.

Comment: One commenter reiterated the recurring objections to excluding certain highintensity outpatient services only when furnished in the hospital setting, specifically in the 

context of radiation therapy. However, in addition to restating the same positions on this point 

that had already been advanced and addressed repeatedly in prior rules--most recently, in the FY 
47

2014 SNF PPS final rule (78 FR 47957-58, August 6, 2013)--the commenter also presented a 

new line of reasoning, stating that radiation therapy is, in fact, already encompassed by the 

existing exclusion for radioisotope services at section 1888(e)(2)(A)(iii)(IV) of the Act (which, 

as a statutory exclusion, is not restricted to only those services furnished in the outpatient 

hospital setting). The commenter explained that, of the three types of radiation treatment, two 

can involve the use of radioisotopes: systemic radioisotopes administered through infusion or 

oral ingestion (which are already addressed in the 79000-series codes currently set forth in the 

statutory exclusion) and brachytherapy (sealed source radiation placed precisely in the area under 

treatment, as identified in a number of 77000-series codes). (The commenter noted in passing 

that the third type, external beam radiation therapy, at one time also utilized a radioisotope 

(Cobalt 60) as well, but added that this particular application is now “very rarely used,” as it “. . 

. poses increased radiation risk, decreased accuracy, and unfavorable treatment beam 

characteristics”). In addition to the relatively narrow range of 79000-series codes that the statute 

currently excludes as radioisotope services, the commenter recommended excluding a 

substantially broader range of radiation oncology codes (primarily in the 77000 series), including 

a number of supplemental clinical treatment and planning codes that can be furnished not only in 

connection with a radioisotope procedure, but also more generally with various other forms of 

radiation treatment as well. In this context, the commenter cited our own characterization of the 

BBRA legislation as conferring on the Secretary “. . . the authority to designate additional, 

individual services for exclusion within each of the specified service categories” (emphasis 

added), and stated that the particular “specified service category” at issue here is actually the Part 

B benefit category at section 1861(s)(4) of the Act, which encompasses “X-ray, radium, and 

radioactive isotope therapy, including materials and services of technicians.” As a consequence, 

the commenter asserted that the existing statutory exclusion of “radioisotope services” should be 
48

considered to encompass every type of radiation treatment described in section 1861(s)(4) of the 

Act, even in those instances where no actual use of radioisotopes is involved.

Response: We note that two of the specific codes (79300 and 79403) that the commenter 

recommended adding to the list of excluded radioisotope services already appear as such in 

Major Category III.C (“Radioisotopes and their Administration”) of the online exclusion list, 

which is available in the 2014 Part A MAC Update at 

http://www.cms.gov/Medicare/Billing/SNFConsolidatedBilling/2014-Part-A-MAC-Update.html. 

Beyond that, we agree that the statutory exclusion of radioisotope services at section 

1888(e)(2)(A)(iii)(IV) of the Act is not confined to the fairly narrow range of 79000-series codes 

specified in the law itself (identifying systemic radioisotopes administered through infusion or 

oral ingestion), but rather, is intended to encompass all of the “high-cost, low probability” forms 

of radiation treatment that actually involve the use of radioisotope services (which can include 

brachytherapy as well). Accordingly, we will make appropriate revisions in Major Category 

III.C to reflect this, by adding the brachytherapy-related code 77014 (computed tomography 

guidance for placement of radiation therapy fields for brachytherapy), as well as the clinical 

brachytherapy code range of 77750 to 77799. However, we are not adding external beam 

radiation therapy to this category of the exclusion list (even when it involves the use of the 

radioisotope Cobalt 60) in view of the commenter’s characterization of this particular 

radioisotope application in terms that would raise questions about whether it continues to be used

as well as inherent questions about its safety and efficacy in this context. In our discussion of the 

statutory exclusion for chemotherapy services in the FY 2014 SNF PPS final rule, we noted that 

“. . . when an otherwise excluded chemotherapy drug is prescribed for a use that does not involve 

treating cancer, the drug would not qualify as an excluded ‘chemotherapy’ drug in that instance” 

(78 FR 47958). Similarly, we note that to the extent any of the additional brachytherapy codes 
49

we now specify for exclusion as “radioisotope services” under section 1888(e)(2)(A)(iii)(IV) of 

the Act could serve to identify non-radioisotope, as well as radioisotope procedures, the 

radioisotope exclusion under Major Category III.C would apply only in those particular instances 

that actually involve the use of radioisotopes. (Of course, even when associated with a nonradioisotope procedure, a particular code that also appears in Major Category I.D (“Radiation 

Therapy”) of the online exclusion list could still qualify for exclusion on that basis when 

furnished in the outpatient hospital setting.)

We are also not adopting the commenter’s recommendation to exclude a number of 

supplemental but more generic clinical treatment and planning codes beyond those that 

specifically identify the actual performance of the radioisotope procedure itself. We decline to 

exclude such codes, not because these supplemental activities would never occur in connection 

with a radioisotope procedure (as this is indeed possible in certain instances), but rather, because 

they are unlikely in themselves to meet the “high-cost, low probability” threshold which 

determines those specific radioisotope services that qualify for exclusion under this provision. 

We believe that for treatments involving the use of radioisotope services, it is the actual 

performance of the radioisotope procedure itself (rather than any associated preparatory and 

planning activities) that would account for the preponderance of the cost, so that those separate, 

supplemental codes would be unlikely in themselves to meet the “high-cost” threshold for 

exclusion. Similarly, we do not believe that these supplemental codes would meet the “low 

probability” criterion, as they are associated not just with radioisotope procedures alone, but also 

more generally with various other, more commonly used forms of radiation treatment. 

Moreover, we do not share the commenter’s view that the “specified service category” at 

issue here is the Part B benefit category at section 1861(s)(4) of the Act, which provides for 

broader coverage of radiation treatment beyond just that involving the use of radioisotope 
50

services. We note that the statutory exclusion for “radioisotope services” at section 

1888(e)(2)(A)(iii)(IV) of the Act stands in marked contrast, for example, to the ones for dialysis 

and erythropoietin (EPO) at section 1888(e)(2)(A)(ii) of the Act, which consist of--and, in fact, 

are defined by--explicit cross-references to the corresponding Part B benefit categories appearing 

in sections 1861(s)(2)(F) and 1861(s)(2)(O) of the Act, respectively. Conversely, the statutory 

exclusion at section 1888(e)(2)(A)(iii)(IV) of the Act does not contain such a cross-reference to 

the Part B benefit category at section 1861(s)(4) of the Act for general coverage of radiation 

treatments, and thus, applies specifically to “radioisotope services” alone. 

3. Payment for SNF-Level Swing-Bed Services

Section 1883 of the Act permits certain small, rural hospitals to enter into a Medicare 

swing-bed agreement, under which the hospital can use its beds to provide either acute- or SNFlevel care, as needed. For critical access hospitals (CAHs), Part A pays on a reasonable cost

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

with section 1888(e)(7) of the Act, these services furnished by non-CAH rural hospitals are paid 

under the SNF PPS, effective with cost reporting periods beginning on or after July 1, 2002. As 

explained in the FY 2002 final rule (66 FR 39562), this effective date is consistent with the 

statutory provision to integrate swing-bed rural hospitals into the SNF PPS by the end of the 

transition period, June 30, 2002.

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

Therefore, all rates and wage indexes outlined in this final rule for the SNF PPS also apply to all 

non-CAH swing-bed rural hospitals. A complete discussion of assessment schedules, the MDS,

and the transmission software (RAVEN-SB for Swing Beds) appears in the FY 2002 final rule 

(66 FR 39562) and in the FY 2010 final rule (74 FR 40288). As finalized in the FY 2010 SNF 

PPS final rule (74 FR 40356 through 40357), effective October 1, 2010, non-CAH swing-bed
51

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 website at

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

received no comments on this aspect of the proposed rule.

D. Other Issues

1. Proposed Changes to the SNF PPS Wage Index

a. Background

Section 1888(e)(4)(G)(ii) of the Act requires that we adjust the federal rates to account 

for differences in area wage levels, using a wage index that the Secretary determines appropriate. 

Since the inception of the SNF PPS, we have used hospital inpatient wage data, exclusive of the 

occupational mix adjustment, in developing a wage index to be applied to SNFs. As noted 

previously in section IV.B.4. of this final rule, we will continue that practice for FY 2015. The 

wage index used for the SNF PPS is calculated using the Inpatient Prospective Payment System 

(IPPS) wage index data on the basis of the labor market area in which the acute care hospital is 

located, but without taking into account geographic reclassifications under section 1886(d)(8) 

and (d)(10) of the Act, and without applying the IPPS rural floor under section 4410 of the BBA,

the IPPS imputed rural floor under 42 CFR 412.64(h), the frontier state floor under section 

1886(d)(3)(E)(iii) of the Act, and the outmigration adjustment under section 1886(d)(13) (see the 

FY 2006 SNF PPS proposed rule (70 FR 29090 through 29095)). The applicable SNF wage 

index value is assigned to a SNF on the basis of the labor market area in which the SNF is 

geographically located. Under section 1888(e)(4)(G)(ii) of the Act, beginning with FY 2006, we 

delineate labor market areas based on the Core-Based Statistical Areas (CBSAs) established by 

the Office of Management and Budget (OMB). The current statistical areas used in FY 2014 are 
52

based on OMB standards published on December 27, 2000 (65 FR 82228) and Census 2000 data 

and Census Bureau population estimates for 2007 and 2008 (OMB Bulletin No. 10-02). For a 

discussion of OMB’s delineations of CBSAs and our implementation of the CBSA definitions, 

we refer readers to the preambles of the FY 2006 SNF PPS proposed rule (70 FR 29090 through 

29096) and final rule (70 FR 45040 through 45041). As stated in the FY 2014 SNF PPS 

proposed rule (78 FR 26448) and final rule (78 FR 47952), on February 28, 2013, OMB issued 

OMB Bulletin No. 13-01, which established revised delineations for Metropolitan Statistical 

Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guidance on 

the use of the delineations of these statistical areas. A copy of this bulletin may be obtained at 

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

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

Metropolitan Divisions, Micropolitan Statistical Areas, Combined Statistical Areas, and New 

England City and Town Areas in the United States and Puerto Rico based on the standards 

published on June 28, 2010, in the Federal Register (75 FR 37246 - 37252) and Census Bureau 

data.”

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

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

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

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

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

February 28, 2013, with supporting data not available until later, and because the changes made 

by the bulletin and their ramifications needed to be extensively reviewed and verified, we were 

unable to undertake such a lengthy process before publication of the FY 2014 SNF PPS proposed 

rule and, thus, did not implement changes to the wage index for FY 2014 based on these new 
53

OMB delineations. In the FY 2014 SNF PPS final rule (78 FR 47952), we stated that we 

intended to propose changes to the wage index based on the most current OMB delineations in 

the FY 2015 SNF PPS proposed rule. As discussed in the FY 2015 SNF PPS proposed rule (79 

FR 25779 through 25786), we proposed to implement the new OMB delineations as described in 

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

2015, because we believe it is important for the SNF PPS to use the latest OMB delineations 

available in order to maintain a more accurate and up-to-date payment system that reflects the 

reality of population shifts and labor market conditions. While CMS and other stakeholders have 

explored potential alternatives to the current CBSA-based labor market system (we refer readers 

to the CMS website at www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Wage-Index-Reform.html), no consensus has been achieved 

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

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

market areas, we believe they do represent a useful proxy for this purpose.” We further believe 

that using the most current OMB delineations would increase the integrity of the SNF PPS wage 

index by creating a more accurate representation of geographic variation in wage levels. As 

noted in the FY 2015 SNF PPS proposed rule, we have reviewed our findings and impacts 

relating to the new OMB delineations, and have concluded that there is no compelling reason to 

further delay implementation (79 FR 25780). Because we believe that we have broad authority 

under section 1888(e)(4)(G)(ii) to determine the labor market areas used for the SNF PPS wage 

index, and because we also believe that the most current OMB delineations accurately reflect the 

local economies and wage levels of the areas in which hospitals are currently located, we 

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

Bulletin No. 13-01, for the SNF PPS wage index beginning in FY 2015. Further, we proposed a 
54

transition period of 1 year, during which a 50/50 blended wage index would be used for all 

providers in FY 2015, in order to mitigate the resulting short-term instability and negative 

impacts on certain providers and to provide time for providers to adjust to their new labor market 

delineations. Under this proposal, providers would receive 50 percent of their FY 2015 wage 

index based on the new OMB delineations and 50 percent of their FY 2015 wage index based on 

the labor market delineations for FY 2014 (both using FY 2011 hospital wage data). In addition, 

we proposed to continue to treat Micropolitan Statistical Areas (referred to here as Micropolitan 

Areas) as rural and to include such areas in the calculation of the state’s rural wage index. As we 

explained in the FY 2015 SNF PPS proposed rule (79 FR 25780), because Micropolitan Areas 

tend to encompass smaller population centers and contain fewer hospitals than MSAs, if 

Micropolitan Areas were to be treated as separate labor market areas, the SNF PPS wage index 

would include significantly more single-provider labor market areas. We further explained that 

recognizing Micropolitan Areas as independent labor markets would generally increase the 

potential for dramatic shifts in year-to-year wage index values because a single hospital (or 

group of hospitals) could have a disproportionate effect on the wage index of an area. Dramatic 

shifts in an area’s wage index from year to year are problematic and create instability in the 

payment levels from year to year, which could make fiscal planning for SNFs difficult if we 

adopted this approach. For a full discussion of our proposals and associated rationale related to 

the implementation of the new OMB delineations, we refer readers to the FY 2015 SNF PPS 

proposed rule (79 FR 25779 through 25786). The comments we received on the proposed 

changes to the wage index, including those comments on our proposed transition methodology, 

as well as responses to these comments, appear below.

Comment: We received a few comments on the proposed implementation of the new 

OMB delineations for the SNF PPS wage index, primarily focused on how such changes would 
55

be implemented. Specifically, one commenter requested a 2-year phase-in (rather than our 

proposed 1-year transition) for the proposed wage index changes. Other commenters stated that 

CMS should utilize similar implementation policies for the SNF wage index changes as were 

proposed for hospital providers in the FY 2015 Inpatient Prospective Payment System (IPPS)

proposed rule (79 FR 27978). More specifically, these commenters urged CMS to establish a 

three-year transition policy (similar to that proposed under IPPS) for urban SNFs that would 

become rural under the new OMB delineations.

Response: As noted in the FY 2015 SNF PPS proposed rule (79 FR 25785), we 

considered proposing a multi-year transition approach, whether it be 2, 3, or some other number 

of years, in order minimize the impact of the proposed wage index changes in a given year. 

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

payments possible based on the most current geographic delineations, which supports the use of

a shorter transition to the revised OMB delineations. As discussed in the FY 2015 SNF PPS 

proposed rule (79 FR 25785), we believe that using the most current OMB delineations would 

increase the integrity of the SNF PPS wage index by creating a more accurate representation of 

geographic variation in wage levels. As such, we believe that utilizing a 1-year (rather than a 

multiple-year) transition with a blended wage index in FY 2015 would strike the best balance.

It should also be noted that the implementation of the revised OMB delineations, which 

we are finalizing in this rule, sets SNF payments at a level that more accurately reflects the costs 

of labor in a SNF’s geographic area. Accordingly, under this policy, SNFs will experience a 

decrease from their current wage index value only to the extent that their current wage index 

value actually exceeds what the latest area wage data warrants using the revised OMB 

delineations, and they will experience an increase from their current wage index value to the 

extent that their current wage index value is less than what the latest area wage data warrants
56

using the revised OMB delineations. We believe that pursuing a longer transition period would 

advantage the former group by delaying implementation of the full decrease in their wage index 

values under the new OMB delineations, at the further expense of the latter group which would 

experience an extended delay in implementation of the full increase in their wage index values. 

We believe that utilizing a 1-year (rather than a multiple-year) transition with a blended wage 

index in FY 2015 strikes an appropriate balance between the interests of these two groups of 

providers.

Commenters also suggested that CMS consider a 3-year transition methodology similar 

to that proposed in the FY 2015 IPPS proposed rule. In the FY 2015 IPPS proposed rule, CMS 

proposed a 3-year transition for those hospitals that are currently in urban areas that would 

become rural under the new OMB delineations, under which such hospitals would receive the 

urban wage index of the CBSA in which they are currently located for FY 2014 for a period of 

three fiscal years (see the FY 2015 IPPS proposed rule, 79 FR 28060). However, there are 

important differences between the IPPS and SNF PPS which give rise to different 

implementation and impact considerations. Most notably, IPPS hospital providers are subject to 

the rural floor, which requires that the wage index applicable to any hospital located in an urban 

area of a state not be less than the rural wage index of the state (see the FY 2015 IPPS proposed 

rule, 79 FR 28068). This guarantees that the wage index for rural hospitals is not greater than the 

wage index of any urban hospitals in the same state. As a result, hospitals moving from urban to 

rural status under the new OMB delineations are more likely to experience a decrease in their 

wage index, while hospitals moving from rural to urban status under the new OMB delineations 

are more likely to experience an increase in their wage index. This is not the case in the SNF 

PPS, where the rural floor is not applied and such differential impacts on urban and rural 

providers do not exist. Under the SNF PPS, the subsets of providers that will experience 
57

increases and decreases in wage index due to implementation of the new OMB delineations are 

quite varied. For example, 22 SNFs changing from urban to rural status under the new OMB 

delineations will have a higher wage index than they had in their urban CBSA. This would be 

less likely to occur if the rural floor were applied under the SNF PPS. Given the impacts 

discussed above, we believe that the 3-year transition policy proposed in the FY 2015 IPPS 

proposed rule and discussed above is not necessary or appropriate to address the impacts on SNF 

providers. By contrast, under the IPPS, hospitals currently located in urban areas that would 

become rural under the revised OMB delineations are more likely to experience a wage index 

decrease as discussed above, raising concerns over the potential adverse impact of the new OMB 

delineations on those hospitals that are specific to the IPPS. Therefore, we do not agree with the 

commenter that a 3-year transition policy, similar to that proposed under the IPPS, should be 

applied to those SNFs changing from urban to rural status under the new OMB delineations.

To further address commenters’ general suggestion that we utilize similar implementation 

policies as were proposed for hospital providers in the FY 2015 IPPS proposed rule, we also 

considered whether it would appropriate to apply a variation of the 3-year transition discussed 

above, pursuant to which SNFs that would experience a decrease in their wage index under the 

new OMB delineations would receive the wage index of the CBSA in which they are currently 

located for FY 2014 for a period of three fiscal years. This would involve applying a different 

transition policy for this subset of SNFs (allowing them to maintain the wage index of the CBSA 

in which they are currently located for three fiscal years) than would be applied to other SNFs. 

However, because revisions in the SNF PPS wage index must be made in a budget neutral 

manner, as required by section 1888(e)(4)(G)(ii) of the Act, if such a 3-year transition policy 

were to be applied to this subset of providers, the resulting budget neutrality adjustment would 

reduce the base payment rates for all SNFs in FY 2015, as well as potentially reduce base rates 
58

for each of the two additional years during which this transition policy would be in effect. In 

terms of the overall impact on SNFs, pursuing this type of transition policy would, in effect, aid 

the 21 percent of SNFs experiencing a decrease in their wage index due to the new OMB 

delineations (who would nevertheless also experience a decrease in their base rates under this 

alternative) at the expense the remaining 79 percent of SNFs, all of which would experience a 

decrease in their base rates due to the budget neutrality adjustment (including those SNFs 

experiencing either no change or an increase in their wage index under the new OMB 

delineations). As we stated in the FY 2015 SNF PPS proposed rule (79 FR 25785), we looked for 

a transition approach that would provide relief to the largest percentage of adversely affected 

SNFs with the least impact to the rest of facilities. As discussed in the FY 2015 SNF PPS 

proposed rule (79 FR 25785-25786), we believe that the application of a one-year transition 

blended wage index for all providers best achieves this goal, as it mitigates the negative payment 

impacts of the new OMB delineations for adversely affected SNFs, without reducing the base 

rates for all providers. Furthermore, as discussed above, we do not believe a multi-year 

transition approach would be appropriate, given the need to ensure the most accurate payments 

possible based on the most current geographic delineations.

While we understand the concern raised by these commenters regarding the potential 

impact on the subset of SNFs that would experience a decrease in their wage index, we believe 

this must be weighed against the interests of and impact on all SNFs. As discussed above, and in 

the SNF PPS proposed rule (79 FR 25785), we believe that our proposed 1-year transition policy 

with a 50/50 blended wage index for all SNFs appropriately mitigates the negative payment 

impacts on SNFs that will experience a wage index decrease due to implementation of the new 

OMB delineations, while having the least impact on the rest of the facilities. 

Accordingly, for the reasons specified in this final rule and in the FY 2015 SNF PPS 
59

proposed rule (79 FR 25779 through 25786), we are finalizing, without modification, our 

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

Bulletin No. 13-01, for the SNF PPS wage index beginning in FY 2015. Under this policy, as 

proposed, we will continue to treat Micropolitan Areas as rural and to include such areas in the 

calculation of the state’s rural wage index. Further, as proposed in the FY 2015 SNF PPS 

proposed rule, we are finalizing a transition period of 1 year, during which a 50/50 blended wage 

index will be used for all providers in FY 2015. In FY 2015, SNFs will receive 50 percent of 

their FY 2015 wage index based on the new OMB delineations and 50 percent of their FY 2015 

wage index based on the OMB delineations in effect for FY 2014 (both using FY 2011 hospital 

wage data). Beginning October 1, 2015, the wage index for all SNFs will be fully based on the 

new OMB delineations.

The wage index applicable to FY 2015 is set forth in Table A available on the CMS 

website at http://cms.gov/Medicare/Medicare-Fee-for-ServicePayment/SNFPPS/WageIndex.html. Table A provides a crosswalk between the FY 2015 wage 

index for a provider using the current OMB delineations in effect in FY 2014 and the FY 2015 

wage index using the revised OMB delineations, as well as the transition wage index values that 

will be in effect in FY 2015.

a. Labor-Related Share

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

labor-related cost categories in the SNF market basket as discussed in section IV.B.4 of this final

rule. Table 12 summarizes the updated labor-related share for FY 2015, compared to the laborrelated share that was used for the FY 2014 SNF PPS final rule.
60

TABLE 12: Labor-related Relative Importance, FY 2014 and FY 2015

Relative importance,

labor-related,

FY 2014

13:2 forecast1

Relative importance,

labor-related,

FY 2015

14:2 forecast2

Wages and salaries 49.118 48.816

Employee benefits 11.423 11.365

Nonmedical Professional 

fees: labor-related

3.446

3.450

Administrative and facilities 

support services

0.499

0.502

All Other: Labor-related

services

2.287

2.276

Capital-related (.391) 2.772 2.771

Total 69.545 69.180

1

Published in the Federal Register; based on second quarter 2013 IGI forecast

2 Based on second quarter 2014 IGI forecast, with historical data through first quarter 2014.

2. SNF Therapy Research Project

As discussed in the FY 2014 SNF PPS proposed rule (78 FR 26466, May 6, 2013), CMS 

contracted with Acumen, LLC and the Brookings Institution to identify potential alternatives to 

the existing methodology used to pay for therapy services received under the SNF PPS. Under 

the current payment model, the therapy payment rate component of the SNF PPS is based solely 

on the amount of therapy provided to a patient during the 7-day look-back period, regardless of 

the specific patient characteristics. The amount of therapy a patient receives is used to classify 

the resident into a RUG category, which then determines the per diem payment for that resident. 

In the FY 2014 SNF PPS proposed rule (78 FR 26466, May 6, 2013), we invited public comment 

on this project. In the FY 2014 SNF PPS final rule (78 FR 47963, August 6, 2013), we discussed 

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

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

community.
61

In the FY 2015 SNF PPS proposed rule (79 FR 25786), we provided an update on the 

current state of this project and invited public comments on this project. The comments we 

received on this topic, with their responses, appear below.

Comment: All of the comments we received on this work supported CMS’s research 

effort in developing a new methodology for paying for therapy services received in the SNF. 

Most commenters urged CMS to expedite the research necessary to develop a new therapy 

payment model, with one commenter expressing disappointment that CMS has not implemented 

a model to date. A few commenters stated that CMS should seek input from stakeholders on 

how best to revise the current therapy payment model.

Response: We appreciate the broad support for this research initiative and understand the 

importance of completing this work in both a timely and efficient manner. We also recognize 

the importance of seeking input from stakeholders on how best to revise the current therapy 

payment model, which is why one of our central focuses in leading this research effort has been 

to solicit stakeholder feedback through listening sessions and through the creation of a SNF 

therapy research email box at SNFTherapyPayments@cms.hhs.gov. Stakeholders can send input 

on a revised therapy payment model to this email box at any time, and every email is read and 

considered by both CMS staff and contractors. We also plan to solicit feedback through more

formal avenues such as a technical expert panel in the near future.

Currently, we are closely examining all of the models that have been suggested for 

improving SNF therapy payment, including but not limited to models developed by MedPAC 

and the Urban Institute. We will carefully consider suggested models such as these by using 

their best attributes, combined with all of the stakeholder feedback and ideas we are receiving, 

and intend to develop a payment model that will pay accurately and appropriately for SNF 

therapy services, while also incentivizing the most appropriate treatment for the individual 
62

patient's care needs. Additional considerations for a revised SNF therapy payment approach go 

beyond existing research and will also need to include implementation strategies for the revised 

therapy payment methodology, along with the incorporation of the revised therapy payment

approach into a single payment system that also includes payment for nursing services. 

In terms of the timeframe for completing this work and implementing a new payment 

model, we believe it would be premature at this time to speculate on when a new model will be 

ready to be implemented. As many of the comments on this issue indicate, it is very important to 

ensure that any change to the current therapy payment model addresses any concerns with the 

existing model, provides the proper incentives to treat patients in the most appropriate and 

efficient way, and provides sufficient time for providers to understand and prepare for 

implementation of such a model.

Comments on this topic may still be provided outside the rulemaking process, and these 

comments should be sent via email to SNFTherapyPayments@cms.hhs.gov. Information 

regarding this project can be found on the project website at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/SNFPPS/therapyresearch.html.

3. Proposed Revisions to Policies Related to the Change of Therapy (COT) Other Medicare 

Required Assessment (OMRA) 

In the FY 2015 SNF PPS proposed rule (79 FR 25786 through 25788), we discussed 

proposed changes to the existing COT OMRA policy which would permit providers to complete 

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

receiving a level of therapy sufficient for classification into a RUG-IV therapy group, but only in 

those rare cases where the resident had qualified for a RUG-IV therapy group on a prior 

assessment during the resident’s current Medicare Part A stay, and had no discontinuation of 
63

therapy services between Day 1 of the COT observation period for the COT OMRA that 

classified the resident into his/her current non-therapy RUG-IV group and the ARD of the COT 

OMRA that reclassified the patient into a RUG-IV therapy group. The comments we received 

on this proposal, along with our responses, appear below.

Comment: All of the comments we received on this topic supported the proposed 

revision to the existing COT OMRA policies. One commenter stated that this proposal is not 

necessary, stating that the current COT OMRA policy already allows for providers to complete a 

COT OMRA in the circumstances proposed in the FY 2015 SNF PPS proposed rule.

Response: We appreciate the broad support we received on this proposal. With regard to 

the comment that this proposal is not necessary, we would note that the FY 2012 SNF PPS final 

rule (78 FR 48525 through 48526) and section 2.9 of the MDS RAI manual (available at 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/NursingHomeQualityInits/MDS30RAIManual.html) clearly state that the COT 

OMRA is to be used in those cases where the patient is classified into a RUG-IV therapy 

category, or where the patient is receiving a level of therapy sufficient for classification into a 

therapy RUG (but is classified into a nursing RUG because of index maximization). That 

providers may have misinterpreted the rules and are currently using the COT OMRA in a manner 

that is inconsistent with these guidelines does not affect how the policy was finalized and 

implemented. We would encourage providers to examine their current COT OMRA completion 

protocols to ensure they are aligned with existing COT OMRA guidelines, as provided in the 

aforementioned references, and immediately address any assessments that were completed 

inappropriately.

Comment: Several commenters highlighted an issue in the second example that begins 

on page 25787 of the FY 2015 SNF PPS proposed rule. Specifically, these commenters pointed 
64

out that because the resident is no longer in a RUG-IV therapy group, an End of Therapy (EOT) 

OMRA would not be completed on this resident when the discontinuation of therapy occurs as 

this would violate the rules associated with the EOT OMRA, which require that the resident be 

in a RUG-IV therapy group for this assessment to be completed. These commenters requested 

that an additional example be added here to clarify this second example and the scope of this 

proposed revision. Finally, a few commenters requested that CMS provide as much detail as 

possible in this final rule regarding how this policy will be implemented and how this revision to 

the COT OMRA policy may affect other OMRAs.

Response: We agree with the commenters that the reference to completing an EOT 

OMRA in the second example on page 25787 of the FY 2015 SNF PPS proposed rule is 

incorrect. To address this issue, below we provide a new example that is intended to clarify the 

scope of this proposed revision to the COT OMRA policy. 

Assume Mr. A is classified into the RUG group RUA on his 30-day assessment with an 

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

provided to Mr. A and finds that while Mr. A did receive the requisite number of therapy

minutes to qualify for this RUG category, he only received therapy on 4 distinct calendar days, 

which would make it impossible for him to qualify for an Ultra-High Rehabilitation RUG group. 

Moreover, due to the lack of 5 distinct calendar days of therapy and the lack of any restorative 

nursing services, Mr. A does not qualify for any therapy RUG group. As a result, the facility 

must complete a COT OMRA for Mr. A, on which he may only classify for a non-therapy RUG 

group. However, as opposed to the first example found on page 25787 of the FY 2015 SNF PPS 

proposed rule, where the resident’s therapy continued during the week following the COT 

OMRA, let us assume the facility decides to discontinue his therapy services, with Day 39 

representing the last day that Mr. A is provided therapy. The facility subsequently decides to 
65

provide Mr. A with therapy services due to observing Mr. A’s deteriorating condition, with the 

first day of new therapy services being Day 48. On Day 54 (7 days following the day therapy 

began on Day 48, including Day 48) the facility reviews the therapy services provided to Mr. A 

during the prior week and finds that Mr. A would qualify for the RUG group RUA.

As intended in the second example in the FY 2015 SNF PPS proposed rule (79 FR 

25787), this example represents a scenario where, under both the current and proposed COT 

OMRA policies, a COT OMRA may not be completed. This is because a discontinuation of 

therapy services occurred. To clarify our example and the scope of the proposed revision to the 

COT OMRA policy, we note that “discontinuation of therapy services” is defined in a manner 

consistent with how this phrase is described in the FY 2010 SNF PPS final rule (76 FR 40346 

through 40349), the FY 2012 SNF PPS final rule (78 FR 48517 through 48522), and Chapter 2,

Section 2.9, of the MDS RAI manual. Consistent with what constitutes a discontinuation of 

therapy more globally within the SNF PPS, a “discontinuation of therapy” here refers to the 

planned or unplanned discontinuation of all rehabilitation therapies for 3 or more consecutive 

days. This was the actual intent of the erroneous reference to the EOT OMRA in the FY 2015 

SNF PPS proposed rule, as noted by these commenters. In essence, the same criteria used to 

determine the need for an EOT OMRA (which is that the resident does not receive therapy 

services for 3 consecutive calendar days) will be used under our revised COT OMRA policy to 

determine whether there has been a discontinuation of therapy services and thus whether a COT 

OMRA may be completed for a given resident. In the above example, since the resident did not 

receive therapy services for 8 days, this would represent a discontinuation of therapy services as 

defined above and the COT OMRA that was planned with an ARD of Day 54 would not be 

permissible, both under our current policy and under our proposed revised COT OMRA policy.

With regard to comments on how this revision would affect other OMRAs, the answer is 
66

that it does not have any impact on the other OMRAs within the SNF PPS. The rules and 

policies associated with all other assessment types remain the same. We also plan to provide 

additional details on the operation of this revised policy in a forthcoming MDS RAI manual 

revision, which would be effective October 1, 2014.

Accordingly, for the reasons specified in this final rule and in the FY 2015 SNF PPS 

proposed rule (79 FR 25786 through 25788), we are finalizing our proposal to permit providers, 

in certain circumstances (discussed below), to complete a COT OMRA for a resident who is not 

currently classified into a RUG-IV therapy group, or receiving a level of therapy sufficient for 

classification into a RUG-IV therapy group. As discussed above, this would be allowed only in 

those rare cases where the resident had qualified for a RUG-IV therapy group on a prior 

assessment during the resident’s current Medicare Part A stay, and had no discontinuation of 

therapy services between Day 1 of the COT observation period for the COT OMRA that 

classified the resident into his/her current non-therapy RUG-IV group and the ARD of the COT 

OMRA that reclassified the patient into a RUG-IV therapy group. This change in policy will be 

effective October 1, 2014, with further details on how this policy will be implemented to be 

provided in a forthcoming MDS RAI manual revision and other guidance, consistent with the 

way we have provided implementation details for other MDS RAI policy revisions (for example, 

see Transition for Implementation of FY 2014 SNF PPS MDS 3.0 Policy Changes, available at 

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

4. Civil Money Penalties (section 6111 of the Affordable Care Act)

In the FY 2015 SNF PPS proposed rule (79 FR 25788 through 25789), we discussed 

clarifications related to statutory requirements as specified in section 6111 of the Affordable Care 

Act regarding the approval and use of civil money penalties imposed by CMS. Further, we 

proposed changes to the CMS enforcement regulations at §488.433 to clarify and strengthen 
67

these provisions to provide more specific instructions to states regarding the use of civil money 

penalties and the approval process, and to permit an opportunity for greater transparency and 

accountability of civil money penalty monies utilized by states. Finally, we invited public 

comment on our proposed changes as well as on CMS’s proposed methods to ensure compliance 

with these requirements. The comments received on this topic, along with our responses, appear 

below.

Comment: A few commenters requested that we specify the requirements and CMS’s 

expectations for soliciting civil money penalty funds and tracking approved civil money penalty 

projects. One commenter suggested that we establish a formula to determine how much is 

appropriate for a state to keep in reserve each year. Several commenters suggested that CMS 

should specify how information should be made public by the state, including the availability of 

grants, approved projects funded to date and the outcomes of previously funded projects. One 

commenter states that the proposed rule lacks clarity regarding what constitutes an “acceptable” 

state plan and how CMS would make such a determination. 

Response: Specific operational details regarding our expectations for the state are not 

appropriate for inclusion in regulation. We plan to issue subsequent guidance regarding these 

operational details and publish this guidance in the State Operations manual. 

Comment: One commenter asked if states will be required to share their acceptable plan 

for the effective use of civil money penalty funds with CMS. One commenter recommends 

formal CMS approval of all plans and public disclosure once the plan is approved. One 

commenter asked if CMS will require the acceptable plan be posted on some website. 

Response: We will require states to submit their plans to their respective CMS Regional 

Offices for formal approval. We have revised §488.433(e) to specify that the plan must be 

approved by CMS. Public reporting of particular information related to survey and certification 
68

information is addressed specifically in Sections 1819(g)(5) and 1819(i) of the Act (as amended 

by section 6103 of the Affordable Care Act) and directs CMS to publish relevant enforcement 

information. 

Comment: One commenter asked if CMS has any plans to publicly report the amount of 

civil money penalty funds collected and returned to the states. Another commenter stated that 

CMS should publish a link to information on state’s civil money penalty account balances on 

Nursing Home Compare. One commenter asked if the solicitation, acceptance and monitoring 

information of approved projects utilizing civil money penalty funds would be required to be 

posted on some website for transparency purposes. Several commenters suggested that CMS 

require information regarding state’s use of civil money penalties to be posted online and 

updated annually. One commenter recommended that we include in the regulatory language at 

§488.433(e)(2) that the information be publicly available at all times and updated, at least 

annually. One commenter requested that a link to information on state’s use of civil money 

penalties be included on the Nursing Home Compare website. One commenter asked CMS to 

specify what the reporting timeframe would be. This commenter also asked if State Medicaid 

websites would be an acceptable place to post civil money penalty information on, what the 

duration of the posting would be, and finally, if states would be required to post previously 

approved civil money penalty projects prior to the effective date of this ruling. 

Response: We will make key information publicly available regarding approved projects, 

CMP grant awards, and CMP funds disbursed to states. We will explore appropriate methods to 

present information in a manner that will be accessible and meaningful to the public. Currently, 

all projects that a state is recommending for approval are submitted to the CMS Regional Office 

for final approval. The CMS Regional Office is tracking all approved projects and submits this 

information to the CMS Central Office at least annually. Additionally, we will prepare an annual 
69

transparency report on approved civil money penalty projects. We will be posting this annual 

report on the CMS website. We expect the states to provide information in their plans for 

utilizing CMP funds to CMS on an annual basis to permit CMS to make a national report 

available on an annual basis; preferably aligning with the current civil money penalty uses 

transparency report which is compiled on a calendar year basis. The additional information

required as a result of this rule would apply to all projects approved after the rule’s effective date. 

In response to these comments, we will consider issuing guidance to states regarding 

making the information about their state plans for civil money penalties as well as approved civil 

money penalty projects publicly available, as required in this final rule, by posting on a state 

website and making sure that this information is updated on an annual basis. As to the length of 

time of the posting, we would anticipate that states would post a new report about the use of 

penalty funds on an annual basis that would include currently funded projects as well as 

information, or links to the information, for projects funded after this regulation even if the 

projects have ended. 

Comment: One commenter asked us to clarify what the terms “results of projects” and 

“other key information” would involve when we proposed that states “make information about 

the use of civil money penalty funds publicly available, including about the dollar amount 

awarded for approved projects, the grantee or contract recipients, the results of projects, and 

other key information.” 

Response: We expect that states track the results of approved projects. Projects funded 

with civil money penalty monies should have clear goals and methodologies to achieve those 

goals. States will be required to make information available about the outcome or results of 

completed projects. These results should include the grant recipient, amount and duration of the 

grant, purpose and goals of the project, results of the project (for example, whether or not the 
70

project was successful), lessons learned, and similar key information, such as whether 

improvements have been institutionalized as a result of the project. Most importantly, we hope 

that the publicly-shared information would help others to gain insight into the methodologies to 

achieve important quality of care or quality of life goals, even if the project was not successful in 

achieving such goals within the time period of the civil money penalty grant.

Comment: One state asked that if there is a year when a state does not receive civil 

money penalty proposals that meet the CMS criteria, what would be the required next steps for a 

state to take. 

Response: If there is a year that a state has actively solicited for proposals and still 

receives no proposals that meet the CMS criteria for approval, then we would work with the state 

to explore opportunities to fund worthwhile projects that would benefit nursing home residents. 

We would do this by looking at the state’s solicitation process, using successful projects that 

have been funded by other states as a model, and offering any guidance necessary to ensure that 

civil money penalty funds are being utilized for their intended purpose. 

Comment: We received several comments regarding the language at §488.433(b)(4), 

specifically on the potential that civil money penalty funds could be used for technical assistance 

for facilities implementing quality assurance and performance improvement (QAPI) programs. 

Commenters stated that quality assurance and performance improvement is a facility’s 

responsibility and it will also soon be a requirement of participation. They stressed that civil 

money penalty funds should not be given to facilities to perform activities that they are already 

required and paid to perform under federal law. They noted that while language at §6111 of the 

Affordable Care Act authorizes the use of civil money penalties for “technical assistance for 

facilities implementing quality assurance programs;” general language about quality assurance

should not be interpreted to include QAPI. 
71

Response: We agree that civil money penalty funds should not be used to pay for 

activities, functions, or products that nursing homes are required to provide. At the same time, 

we believe there is a tremendous need for knowledge and sharing of important ways to provide 

care and achieve results that may transcend the basic requirements in our regulations. Because 

there is a challenge to providing technical assistance while avoiding any supplanting of nursing 

home responsibilities, we require that proposed projects be approved by CMS and publicly 

reported. We expect, over time, that we will learn more about the projects that achieve the 

appropriate balance between providing effective technical assistance that advances the quality of 

care and quality of life for residents without supplanting what nursing homes are already required 

to do. At the present time we have already identified in CMS published guidance a variety of 

uses that are prohibited, and believe that the identified prohibitions are sufficient for now. With 

regard to QAPI in particular, section 1128I(c) of the Act directs CMS to provide technical 

assistance to facilities on the development of best practices in order to meet CMS’ established 

QAPI standards. We expect most of the technical assistance will be done by the Quality 

Improvement Organizations (QIOs), but do not rule out the use of CMP funds for very targeted 

purposes that the QIOs are not able to accomplish, especially for nursing homes that have a high 

reliance on Medicaid funding or are among the lowest-performing facilities. Further, at the 

present time there is no federal requirement for nursing homes to have a QAPI system, so there is 

little potential for supplanting facility compliance with a current expectation. Under section 

1128I(c), following promulgation of regulations, all facilities will be required to develop and 

implement a QAPI program in the future, and we plan to administer the CMP funds in a manner 

that avoids supplanting of facility responsibilities when those rules become effective. 

Comment: While the proposed language at §488.433(b)(5) addresses and expands the 

appropriate use of civil money penalties for the infrastructure of the temporary management 
72

remedy, one commenter does not feel this provision will help as facilities cannot afford the 

temporary manager salary. This commenter urges CMS to allow facilities to use civil money 

penalties to pay the salaries of temporary managers when the alternative is decertification of the 

facility. 

Response: At §488.433(b)(5), we proposed to clarify in a new paragraph that in 

extraordinary situations involving closure of a facility, civil money penalty funds may be used to 

pay the salary of a temporary manager. Such a circumstance is very narrowly construed to 

situations where CMS concludes that it is otherwise infeasible to ensure timely payment for such 

a manager by the facility and CMS determines that extraordinary action is necessary in order to 

protect the residents until relocation efforts are successful. However, as specified in §488.415(c), 

in all other circumstances a temporary manager’s salary must be paid by the facility. We do not 

propose to change this basic responsibility of a nursing home to pay the salary of the temporary 

manager.

Comment: One commenter stated that they did not support the use of civil money penalty 

funds for the joint training of facility staff and surveyors and suggested that this use be a low 

level priority, be limited, and include other interested parties, such as consumers, ombudsman 

and advocates. This commenter also urged CMS to restore the language at the end of proposed 

§488.433(b)(4) which is included in current regulations, “...when such facilities have been cited 

by CMS for deficiencies in the applicable requirements.”

Response: We believe that there are benefits for joint training between State survey 

agencies and nursing home providers to improve understanding of federal requirements and to 

communicate specific policies and procedures. In fact, we have sponsored such joint trainings on 

a national basis dating back to the implementation of the nursing home reform provisions of 

Omnibus Budget Reconciliation Act of 1987 (OBRA ’87) to train both states and providers in the 
73

new health and safety requirements and enforcement rules. To provide optimum flexibility of 

such training, we do not propose to limit or to require other stakeholders in joint trainings nor do 

we propose to limit the facilities that may utilize civil money penalty funds for joint training to 

only those facilities that have been cited by CMS for deficiencies under the applicable 

requirements. However, we do agree that this is a lower-priority use of CMP funds and ought to 

be limited to special situations. We will further address this issue in CMS guidance.

Comment: One commenter suggested that CMS should not limit itself to only

withholding future civil money penalty disbursements in cases where states routinely failed to 

comply with the acceptable use of civil money penalty funds. They suggested referral to the 

Office of the Inspector General, or the recoupment of such funds. Another commenter 

recommended that we require states that failed to comply to submit an acceptable plan of 

correction within 30 days. They further suggested that, until an acceptable plan of correction had 

been submitted and approved by CMS, that CMS continue to award these civil money penalty 

funds to entities whose applications for use of such funds met CMS criteria. It was also 

suggested that a statement that CMS is withholding funds due to a state’s non-compliance be 

posted clearly and visibly on the state survey agency’s website. Additionally, it was urged that 

CMS monitor a withheld state’s civil money penalty activity on a quarterly basis for at least one 

year after funds are once again distributed.

Response: Specific operational details regarding the withholding of future civil money 

penalty disbursements to a state are not appropriate for inclusion in regulation. We plan to issue 

subsequent guidance regarding these operational details and publish this guidance in the State 

Operations Manual. While we appreciate the suggestions offered for further enforcement action 

when states are not complying with the acceptable uses of civil money penalty funds as specified 

in §488.433, we are optimistic that the possibility of funds being withheld will be incentive 
74

enough for states to comply with this regulation. While we do not rule out the idea of posting 

public information about a state that has had funds withheld, we expect that any withholding 

would be short-lived. We will take under advisement the additional suggestions offered by 

commenters for future consideration.

Comment: Several commenters suggested that CMS develop a standardized application 

for use of civil money penalty funds. This application should clearly articulate how the proposed 

use is not duplicative of statutorily mandated services, including those related to quality of care 

or quality of life, and how residents, families, long term care ombudsman and consumer 

representatives were included in the development of the proposed use and how they will be 

engaged in the project activities. 

Response: We agree, and will develop a standardized application that states may make 

available to any entities seeking to submit proposals for projects to be funded with civil money 

penalties. We expect that such a template should be completed by early CY 2015. 

Comment: One commenter suggested that CMS allow states more autonomy to award 

civil money penalty funds to applicants consistent with CMS-prescribed guidelines. They further 

noted that because states vary in their specific needs, they are more knowledgeable about how to 

best meet their needs in order to best serve the beneficiaries and residents/patients of nursing 

centers within the state. 

Response: We will consider ways in which states may gain more autonomy over time, as 

we learn more about projects that are successful, are able to fully implement the additional 

processes in this regulation, and work with stakeholders. We recognize the critical role that 

states play and wish to bolster state ability to use civil money penalty funds effectively. Under 

the arrangements already in place, proposals for projects utilizing civil money penalty funds are 

submitted directly to the state survey agency. The state conducts the initial review of all 
75

proposals and forwards those that meet CMS criteria and that they are recommending for final 

approval to the CMS regional office. We believe the regulations we are finalizing here will make 

the entire state civil money penalty program more coherent, more transparent, and more 

effective.

Comment: One commenter recommends that states be allowed to align their civil money 

penalty grant process with their fiscal year in order to coordinate existing state grant process 

timeframes. 

Response: We have no objections to states aligning their civil money penalty grant 

process with their fiscal year. 

5. Observations on Therapy Utilization Trends

In the FY 2015 SNF PPS proposed rule, we discussed recent observed trends related to 

therapy service provision under the SNF Part A benefit, specifically with regard to overall 

therapy case-mix distribution trending toward more residents classifying into the Ultra-High 

Rehabilitation groups, and therapy being reported on the MDS in amounts that are just enough to 

surpass the relevant therapy minute threshold for a given therapy RUG category. We also posted 

a memo on the SNF PPS website (available at http://www.cms.gov/Medicare/Medicare-Fee-forService-Payment/SNFPPS/Spotlight.html) which discussed these trends in greater depth. 

Finally, we invited comment on the data presented in the proposed rule (and associated memo)

and the discussion of observed trends. The comments we received on this topic, as well as our 

responses, appear below.

Comment: We received a number of comments on the discussion of observed therapy 

trends. All of the commenters supported CMS in monitoring these trends, with a few offering 

their own data analytics surrounding the same issues raised in the memo referenced above. A

few commenters highlighted the lack of current medical evidence related to how much therapy a 
76

given resident should receive. One commenter recommended that CMS ensure that access to 

specialty populations be accounted for in our monitoring efforts. Another commenter 

highlighted that the trends memo provides evidence of concerns and issues of which they have 

become aware related to therapy minute demands on practitioners, shortened evaluation times, 

and pressure to reduce services inappropriately. This commenter also noted that the minimum 

minutes for a RUG level are often perceived as maximum minutes and that some providers may 

implement internal rules that prohibit clinicians, against their own professional judgment from 

providing therapy above the RUG levels.

Response: We appreciate the support for our continued monitoring efforts. As always, 

we appreciate any assistance that stakeholders may wish to provide in terms of understanding 

existing trends and data. 

With regard to the comments which highlight the lack of existing medical evidence for 

how much therapy a given resident should receive, we would note that the trends memo was not 

intended to address such an issue. The memo was merely intended to highlight a trend indicating

that, the current state of medical evidence on this point notwithstanding, the number of therapy 

minutes provided to SNF residents within certain therapy RUG categories is, in fact, clustered 

around the minimum thresholds for a given therapy RUG category. However, given the 

comments highlighting the lack of medical evidence related to the appropriate amount of therapy 

in a given situation, it is all the more concerning that practice patterns would appear to be as 

homogenized as the data would suggest.

With regard to the comment on specialty populations, we agree with the commenter that 

access must be preserved for all categories of SNF residents, particularly those with complex 

medical and nursing needs. As appropriate, we will examine our current monitoring efforts to 

identify any revisions which may be necessary to account appropriately for these populations. 
77

With regard to the comment which highlighted potential explanatory factors for the 

observed trends, such as internal pressure within SNFs that would override clinical judgment, we 

find these potential explanatory factors troubling and entirely inconsistent with the intended use 

of the SNF benefit. Specifically, the minimum therapy minute thresholds for each therapy RUG 

category are certainly not intended as ceilings or targets for therapy provision. As discussed in 

Chapter 8, Section 30 of the Medicare Benefit Policy Manual (Pub. 100-02), to be covered, the 

services provided to a SNF resident must be “reasonable and necessary for the treatment of a 

patient’s illness or injury, that is, are consistent with the nature and severity of the individual’s 

illness or injury, the individual’s particular medical needs, and accepted standards of medical 

practice.” (emphasis added) Therefore, services which are not specifically tailored to meet the 

individualized needs and goals of the resident, based on the resident’s condition and the 

evaluation and judgment of the resident’s clinicians, may not meet this aspect of the definition 

for covered SNF care, and we believe that internal provider rules should not seek to circumvent 

the Medicare statute, regulations and policies, or the professional judgment of clinicians.

6. Accelerating Health Information Exchange in SNFs

In the FY 2015 SNF PPS proposed rule, we included a discussion of our commitment to 

accelerating Health Information Exchange (HIE) in SNFs. Specifically, we noted that the 

Department is committed to accelerating HIE through the use of electronic health records 

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

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

to encourage provider adoption and optimization of health information technology and HIE 

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

and certification requirements for interoperable health information technology; (3) support for 

privacy and security of patient information across all HIE-focused initiatives; and (4) governance 
78

of health information networks. A discussion of the comments received on this topic, with our 

response, appears below.

Comment: All of the comments received on this topic supported the overall agency goal 

to accelerate HIE within SNFs, and among post-acute care providers generally. A few 

commenters urged CMS to consider potential barriers to HIE for certain providers, such as those 

within mountainous or rural areas where connectivity may be an issue. Other commenters also 

asked that CMS continue to coordinate with the Office of the National Coordinator for Health 

Information Technology. One commenter asked CMS to consider providing a financial 

incentive for providers to adopt health information technology. 

Response: We appreciate the broad support for this initiative and the helpful suggestions 

provided by the commenters. We will share these comments with the appropriate CMS staff and 

other governmental agencies to ensure they are taken into account as we continue to encourage

adoption of health information technology.

7. SNF Value Based Purchasing

As noted above, on April 1, 2014, PAMA (Pub. L. No. 113-93) was enacted. Section 215 

of PAMA, titled “Skilled nursing facility value-based purchasing,” amended section 1888 of the 

Social Security Act (42 U.S.C. 1395yy) to create new subsections (g) and (h). The provisions of 

PAMA, including section 215, may be viewed at http://www.gpo.gov/fdsys/pkg/BILLS113hr4302enr/pdf/BILLS-113hr4302enr.pdf. We will engage in future rulemaking, as 

appropriate, to implement this section of PAMA.

V. Provisions of the Final Rule; Regulations Text

As discussed in section IV.B. of this final rule, we are updating the payment rates under 

the SNF PPS for FY 2015 as required by section 1888(e)(4)(E)(ii) of the Act. In addition, we 

will use the most current OMB delineations (discussed in section IV.D.1) to identify a facility’s 
79

urban or rural status for the purpose of determining which set of rate tables will apply to the 

facility. Also, effective October 1, 2015, we will use ICD-10-CM code B20 (in place of ICD-9-

CM code 042) to identify those residents for whom it is appropriate to apply the AIDS add-on. 

Further, as discussed in section IV.D.1 of this final rule, we are finalizing changes to the wage 

index based on the most current OMB delineations, including a 1-year transition with a blended 

wage index for all SNFs for FY 2015; revising the policy governing use of the COT OMRA

(section IV.D.3); and finalizing changes to the enforcement regulations related to civil money 

penalties utilized by states (section IV.D.4.).

With reference to the civil money penalty provisions discussed in section IV.D.4. of this 

final rule, as proposed we are modifying current CMS regulations to provide further clarification 

to states and the public regarding prior approval and appropriate use of these federally-imposed

civil money penalty funds. 

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

by CMS, we will amend the regulation to specify that civil money penalties may not be used for 

state management operations except for the reasonable costs that are consistent with managing 

the projects utilizing civil money penalty funds; specify that all activities utilizing civil money 

penalty funds must be approved in advance by CMS; outline specific requirements that must be 

included in proposals submitted for CMS approval; specify that CMP funds may not be used for 

projects that have not been approved by CMS; specify that states are responsible for soliciting, 

accepting, monitoring and tracking the results of all approved activities utilizing civil money 

penalties and making this information publicly available on at least an annual basis; specify that 

state plans must ensure that a core amount of civil money penalty funds will be held in reserve 

for emergencies, such as relocation of residents in the event of involuntary termination from 

Medicare and Medicaid; and, specify steps CMS will take if civil money penalty funds are being 
80

used for disapproved purposes or not being used at all, in other words, that CMS has authority to 

take appropriate steps to ensure that these funds are used for their intended purpose, such as 

withholding future disbursements of CMP amounts. 

The revised CMS regulations will explicitly clarify the intended use of these civil money 

penalty funds (including the processes for prior approval of all activities using civil money 

penalty funds by CMS) and how CMS will address a state’s use of civil money penalty funds for 

activities that have been disapproved by CMS or used by states for activities other than those 

explicitly specified in statute or regulations. 

At §488.433(a), we clarify that approved projects may work to improve residents’ quality 

of life and not just quality of care. We also clarify that while states may not use funds for survey 

and certification operations or state expenses, they may use a reasonable amount of civil money 

penalty funds for the actual administration of grant awards, including the tracking, monitoring, 

and evaluating of approved projects. Some states have maintained that effective use and 

management of the civil money penalty funds requires more state oversight and planning than 

they are able to provide currently, and that an allowance for such management would remove a 

barrier to the effective use of these funds. We did not propose a monetary or numeric limit on 

what might be considered reasonable, although one to three percent of available funds might be 

considered reasonable for an established fund. 

At §488.433(b)(5), we clarify in a new paragraph that in extraordinary situations involving 

closure of a facility, civil money penalty funds may be used to pay the salary of a temporary 

manager when CMS concludes that it is infeasible to ensure timely payment for such a manager 

by the facility. We have encountered situations, for example, in which a facility is in bankruptcy 

and the court has frozen all funds at the very time that residents are being relocated and closure is 

proceeding. In another situation involving involuntary termination from Medicare and 
81

impending closure of the facility, the facility was not making payments for staff or for its 

utilities, and residents were at risk due to the imminent departure of staff and the absence of a 

manager. While §489.55 permits Medicare and Medicaid payments to a facility to continue for 

up to 30 days after the effective date of a facility’s termination or possibly longer (or shorter) if a 

facility has submitted a notification of closure under §483.75(r) in order to promote the orderly 

and safe relocation of residents, if the continued Medicare and Medicaid payments are being 

used to pay for facility operations during the relocation period but are being diverted elsewhere 

by the facility, then residents may be placed at increased risk. The change at §488.433(b)(5) 

clarifies not only that CMS places a priority on resident protection and protection of the Trust 

Fund and allows such emergency use of civil money funds, but that CMS also intends to stop or 

suspend the payments to the facility under §489.55 when such a situation occurs.

At new §488.433(c), we specify the requirements for all civil money penalty fund 

proposals being submitted to CMS for approval. 

At new §488.433(d), we provide that civil money penalty funds may not be used for 

activities that have been disapproved by CMS. 

At new §488.433(e), we provide that states must maintain an acceptable plan (approved by 

CMS) for the effective use of civil money penalty funds, including a description of methods by 

which the state will solicit, accept, monitor, and track approved projects funded by civil money 

penalty amounts and make key information publicly available. Examples of information that 

must be publicly available would include information on the projects that have been approved by 

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

of the projects. We also clarify that these plans provide for a core amount of funds that will 

generally be held in reserve for emergencies such as unplanned relocation of residents pursuant 

to an involuntary termination from Medicare and Medicaid, unless the state’s plan demonstrates 
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the availability of other funds to cover emergency situations, and a reasonable aggregate amount 

of civil money penalty funds, beyond the emergency reserve amount, that the state expects to 

disburse each year for grants or contracts of projects that benefit residents and are consistent with 

the statute and CMS regulations. We appreciate that states may wish to develop a multi-year 

plan and provide an approximate range of total amount that the state plans to disburse. The 

intent is to ensure there is an acceptable plan, and that a state is prepared to respond to 

emergencies while at the same time is not maintaining a large unused amount of civil money 

penalty funds. 

In §488.433(f), we provide that CMS may withhold future disbursement of collected civil 

money penalty funds to a state if CMS finds that the state has not spent such funds in accordance 

with the statute and regulations, fails to make use of funds to benefit the quality of care or life of 

residents, or fails to maintain an acceptable plan approved by CMS.

VI. Collection of Information Requirements

In the May 6, 2014, proposed rule (79 FR 25767) we solicited public comment on that 

rule’s information collection requirements. While PRA-related comments were received, the 

proposed rule (and this final rule) does not contain any new or revised recordkeeping, reporting, 

or third-party disclosure requirements. Consequently, this rule does not require additional OMB 

review/approval under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 

seq.). A summary of the comments and our response can be found in section IV.D.4. of this 

preamble under, “Civil Money Penalties (section 6111 of the Affordable Care Act).”

VII. Economic Analyses

A. Regulatory Impact Analysis

1. Introduction

We have examined the impacts of this final rule as required by Executive Order 12866 on 
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Regulatory Planning and Review (September 30, 1993), Executive Order 13563 on Improving 

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

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

Mandates Reform Act of 1995 (UMRA, March 22, 1995; Pub. L. 104-4), Executive Order 13132 

on Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)).

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

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

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

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

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

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

section 3(f)(1) of Executive Order 12866 and a major rule under the Congressional Review Act. 

Accordingly, we have prepared a regulatory impact analysis (RIA) as further discussed below. 

Also, the rule has been reviewed by OMB. 

2. Statement of Need

This final rule updates the SNF prospective payment rates for FY 2015 as required under 

section 1888(e)(4)(E) of the Act. It also responds to section 1888(e)(4)(H) of the Act, which 

requires the Secretary to “provide for publication in the Federal Register” before the August 1 

that precedes the start of each fiscal year, the unadjusted federal per diem rates, the case-mix 

classification system, and the factors to be applied in making the area wage adjustment. As these 

statutory provisions prescribe a detailed methodology for calculating and disseminating payment 

rates under the SNF PPS, we do not have the discretion to adopt an alternative approach. In 

addition, this final rule clarifies statutory requirements and intent as specified in section 6111 of 
84

the Affordable Care Act regarding the approval and use of civil money penalties imposed by 

CMS.

3. Overall Impacts

This final rule sets forth updates of the SNF PPS rates contained in the SNF PPS final 

rule for FY 2014 (78 FR 47936). Based on the above, we estimate that the aggregate impact 

would be an increase of $750 million in payments to SNFs, resulting from the SNF market 

basket update to the payment rates, as adjusted by the MFP adjustment. The impact analysis of 

this final rule represents the projected effects of the changes in the SNF PPS from FY 2014 to 

FY 2015. Although the best data available are utilized, there is no attempt to predict behavioral 

responses to these changes, or to make adjustments for future changes in such variables as days 

or case-mix.

Certain events may occur to limit the scope or accuracy of our impact analysis, as this 

analysis is future-oriented and, thus, very susceptible to forecasting errors due to certain events 

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

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

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

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

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

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

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

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

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

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

the payment rates for FY 2015. As discussed previously, for FY 2012 and each subsequent FY, 
85

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

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

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

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

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

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

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

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

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

indexes used for adjusting the federal rates). 

The annual update set forth in this final rule applies to SNF PPS payments in FY 2015. 

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

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

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

impact analysis.

As discussed in section IV.D.4 of this final rule, we also clarify statutory requirements 

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

of civil money penalties imposed by CMS. There would be no impact to states unless they failed 

to follow the new regulations regarding the approval and use of civil money penalty funds. In 

FY 2011, the approximate total amount of civil money penalties returned to the states was $28 

million. In FY 2012, the approximate total amount of civil money penalties returned to the states 

was $32 million. In FY 2013, the approximate total amount of civil money penalties returned to 

the states was $35 million. The estimated amount that we expect to be returned to the states in 

FY2015, based on data from previous years, is approximately $33 million. These payments to 
86

the states would only be withheld in the event that states did not spend civil money penalty funds 

in accordance with the statute and this regulation, or failed to make use of funds to benefit the 

quality of care or life of residents, or failed to maintain an acceptable plan for the use of these 

funds. Even if civil money penalty funds are withheld from a state, we expect that the state 

would eventually come into compliance and that the state would later again be eligible to receive 

civil money penalty funds.

4. Detailed Economic Analysis

The FY 2015 impacts appear in Table 13. Using the most recently available data, in this 

case FY 2013, we apply the current FY 2014 wage index and labor-related share value to the 

number of payment days to simulate FY 2014 payments. Then, using the same FY 2013 data,

we apply the FY 2015 wage index, as discussed in section IV.D.1 of this final rule, and laborrelated share value to simulate FY 2015 payments. We tabulate the resulting payments 

according to the classifications in Table 13 (for example, facility type, geographic region, facility 

ownership), and compare the difference between current and proposed payments to determine 

the overall impact. The breakdown of the various categories of data in the table follows.

The first column shows the breakdown of all SNFs by urban or rural status, hospitalbased or freestanding status, census region, and ownership.

The first row of figures describes the estimated effects of the various changes on all 

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

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

facility under the new OMB delineations that we are implementing beginning in FY 2015. 

Facilities should use these OMB delineations to identify their urban or rural status for purposes 

of identifying what areas of the impact table would apply to them beginning on October 1, 2014. 

The next nineteen rows show the effects on facilities by urban versus rural status by census 
87

region. The last three rows show the effects on facilities by ownership (that is, government, 

profit, and non-profit status).

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

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

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

revised OMB delineations. That is, the impact represented in this column is solely that of 

updating from the FY 2014 wage index to the FY 2015 wage index without any changes to the 

OMB delineations. The total impact of this change is zero percent; however, there are 

distributional effects of the change.

The fourth column shows the effect of adopting the updated OMB delineations (as set 

forth in OMB Bulletin No. 13-01) for wage index purposes for FY 2015, independent of the 

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

represented in this column is that of using the revised OMB delineations, and utilizing the

blended wage index finalized in section IV.D.1.b.v above. The total impact of this change is 

zero percent; however, there are distributional effects of the change.

The fifth column shows the effect of all of the changes on the FY 2015 payments. The 

update of 2.0 percent (consisting of the market basket increase of 2.5 percentage points, reduced 

by the 0.5 percentage point MFP adjustment) is constant for all providers and, though not shown 

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

increase by 2.0 percent, assuming facilities do not change their care delivery and billing practices 

in response.

As illustrated in Table 13, the combined effects of all of the changes vary by specific 

types of providers and by location. For example, due to changes in this rule, providers in the 

rural Pacific region would experience a 4.8 percent increase in FY 2015 total payments. 
88

TABLE 13: RUG-IV Projected Impact to the SNF PPS for FY 2015

Number 

of 

Facilities

FY 2015

Update 

Wage 

Data

Update OMB 

Delineations

Total 

Change

Group

Total 15,399 0.0% 0.0% 2.0%

Urban 10,862 0.0% 0.0% 2.0%

Rural 4,537 0.2% -0.2% 1.9%

Hospital based urban 574 0.1% 0.0% 2.1%

Freestanding urban 10,288 0.0% 0.0% 2.0%

Hospital based rural 640 0.2% -0.3% 1.9%

Freestanding rural 3,897 0.2% -0.2% 1.9%

Urban by region

New England 803 0.7% 0.0% 2.7%

Middle Atlantic 1,490 0.0% 0.2% 2.1%

South Atlantic 1,853 -0.3% 0.0% 1.7%

East North Central 2,054 0.0% 0.0% 2.0%

East South Central 544 -0.7% 0.1% 1.3%

West North Central 889 -0.1% 0.1% 2.0%

West South Central 1,293 -0.7% 0.0% 1.3%

Mountain 501 0.2% 0.0% 2.2%

Pacific 1,429 0.5% 0.0% 2.5%

Outlying 6 0.8% -0.1% 2.6%

Rural by region

New England 144 0.5% 0.1% 2.6%

Middle Atlantic 228 1.6% -1.6% 2.0%

South Atlantic 504 -0.2% -0.2% 1.6%

East North Central 925 -0.1% 0.0% 2.0%

East South Central 533 -0.3% -0.2% 1.5%

West North Central 1,093 0.2% -0.1% 2.1%

West South Central 770 0.2% -0.4% 1.8%

Mountain 235 -0.6% 0.0% 1.4%

Pacific 105 2.8% -0.1% 4.8%

Outlying 0 0.0% 0.0% 2.1%

Ownership

Government 852 0.1% -0.1% 2.0%

Profit 10,784 0.0% -0.1% 1.9%
89

Number 

of 

Facilities

FY 2015

Update 

Wage 

Data

Update OMB 

Delineations

Total 

Change

Non-profit 3,763 0.1% -0.1% 1.9%

Note: The Total column includes the 2.5 percent market basket increase, reduced by the 0.5 percentage 

point MFP adjustment. Additionally, we found no SNFs in rural outlying areas.

5. Alternatives Considered

As described above, we estimate that the aggregate impact for FY 2015 would be an 

increase of $750 million in payments to SNFs, resulting from the SNF market basket update to 

the payment rates, as adjusted by the MFP adjustment.

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

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

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

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

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

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

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

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

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

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

1 that precedes the start of the new FY. Accordingly, we are not pursuing alternatives with 

respect to the payment methodology as discussed above. 

With regard to our implementation of the revised OMB delineations discussed in section 

IV.D.1 above, we considered a number of potential alternatives in the FY 2015 SNF PPS 

proposed rule (79 FR 25793 through 25795), which we also address here.

We considered having no transition period and fully implementing the new OMB 
90

delineations beginning in FY 2015. This would mean that we would adopt the revised OMB 

delineations for all providers on October 1, 2014. However, this would not provide any time for 

providers to adapt to the new OMB delineations. As discussed above, more providers will

experience a decrease in wage index due to implementation of the new OMB delineations than 

will experience an increase. Thus, we believe that it is appropriate to provide for a transition 

period to mitigate the resulting short-term instability and negative impact on these providers, and 

to provide time for providers to adjust to their new labor market area delineations. Furthermore, 

in light of the comments received during the FY 2006 rulemaking cycle on our proposal in the 

FY 2006 SNF PPS proposed rule (70 FR 29094 through 29095) to adopt the new CBSA 

definitions without a transition period, we anticipated that providers would have similar concerns 

with not having a transition period for the new OMB delineations. Therefore, similar to the 

policy adopted in the FY 2006 SNF PPS final rule (70 FR 45041) when we first adopted OMB’s 

CBSA definitions for purposes of the SNF PPS wage index, we are implementing a 1-year

transition blended wage index for all SNFs to assist providers in adapting to the new OMB 

delineations. In determining an appropriate transition methodology, consistent with the 

objectives set forth in the FY 2006 SNF PPS final rule (70 FR 45041), we looked for approaches 

that would provide relief to the largest percentage of adversely-affected SNFs with the least 

impact to the rest of the facilities

First, we considered transitioning the wage index to the revised OMB delineations over a 

number of years in order minimize the impact of the wage index changes in a given year. 

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

payments possible, which supports the use of a shorter transition to the revised OMB 

delineations. As discussed above in section IV.D.1 of this final rule, we believe that using the 

most current OMB delineations will increase the integrity of the SNF PPS wage index by 
91

creating a more accurate representation of geographic variation in wage levels. As such, we 

believe that utilizing a 1-year (rather than a multiple year) transition with a blended wage index 

in FY 2015 strikes the best balance.

Second, we considered what type of blend would be appropriate for purposes of the

transition wage index. We proposed that providers would receive a 1-year blended wage index 

using 50 percent of their FY 2015 wage index based on the proposed new OMB delineations and 

50 percent of their FY 2015 wage index based on the FY 2014 OMB delineations. We believe 

that a 50/50 blend best mitigates the negative payment impacts associated with the 

implementation of the new OMB delineations. While we considered alternatives to the 50/50 

blend, we believe this type of split balances the increases and decreases in wage index values 

associated with the transition, as well as provides a readily understandable calculation for 

providers. 

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

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

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

delineations. As required in Section 1888(e)(4)(G)(ii) of the Act, the wage index adjustment 

must be implemented in a budget neutral manner. As such, as discussed in the FY 2015 SNF 

PPS proposed rule (79 FR 25785), if we were to apply the blended wage index only to those 

providers that would experience a decrease in their respective wage index values due to the 

implementation of the revised OMB delineations, the budget neutrality factor calculated based 

on this approach would reduce the base rates for all providers. Pursuing this type of transition 

policy would, in effect, aid the 21 percent of SNFs experiencing a decrease in their wage index 

due to the new OMB delineations (who would nevertheless also experience a decrease in their 

base rates under this alternative) at the expense the remaining 79 percent of SNFs, all of which 
92

would experience a decrease in their base rates due to the budget neutrality adjustment (including 

those SNFs experiencing either no change or an increase in their wage index under the new 

OMB delineations). However, as discussed in the FY 2015 SNF PPS proposed rule (79 FR 

25785), if we apply the blended wage index to all providers, the resulting budget neutrality factor 

would not reduce the base rates for any provider. As discussed in the FY 2015 SNF PPS 

proposed rule, our goal in implementing a transition is to provide relief to the largest percentage 

of adversely affected SNFs with the least impact to the rest of facilities. We believe that the 

application of a one-year transition blended wage index for all providers best achieves this goal, 

as it mitigates the negative payment impacts of the new OMB delineations for adversely affected 

SNFs, without reducing the base rates for all providers.

As discussed in section IV.D.1 above, some commenters also suggested that CMS 

consider a 3-year transition methodology similar to that proposed in the FY 2015 IPPS proposed 

rule. In the FY 2015 IPPS proposed rule, CMS proposed a 3-year transition for those hospitals 

that are currently in urban areas that would become rural under the new OMB delineations, under 

which such hospitals would receive the urban wage index of the CBSA in which they are 

currently located for FY 2014 for a period of three fiscal years (see the FY 2015 IPPS proposed 

rule, 79 FR 28060). However, there are important differences between the IPPS and SNF PPS 

which give rise to different implementation and impact considerations. Most notably, IPPS 

hospital providers are subject to the rural floor, which requires that the wage index applicable to 

any hospital located in an urban area of a state not be less than the rural wage index of the state 

(see the FY 2015 IPPS proposed rule, 79 FR 28068). This guarantees that the wage index for 

rural hospitals is not greater than the wage index of any urban hospitals in the same state. As a 

result, hospitals moving from urban to rural status under the new OMB delineations are more 

likely to experience a decrease in their wage index, while hospitals moving from rural to urban 
93

status under the new OMB delineations are more likely to experience an increase in their wage 

index. This is not the case in the SNF PPS, where the rural floor is not applied and such 

differential impacts on urban and rural providers do not exist. Under the SNF PPS, the subsets 

of providers that will experience increases and decreases in wage index due to implementation of 

the new OMB delineations are quite varied. For example, 22 SNFs changing from urban to rural 

status under the new OMB delineations will have a higher wage index than they had in their 

urban CBSA. This would be less likely to occur if the rural floor were applied under the SNF 

PPS. Given the impacts discussed above, we believe that the 3-year transition policy proposed in 

the FY 2015 IPPS proposed rule and discussed above is not necessary or appropriate to address 

the impacts on SNF providers. By contrast, under the IPPS, hospitals currently located in urban 

areas that would become rural under the revised OMB delineations are more likely to experience 

a wage index decrease as discussed above, raising concerns over the potential adverse impact of 

the new OMB delineations on those hospitals that are specific to the IPPS. Therefore, we do not 

agree with the commenter that a 3-year transition policy, similar to that proposed under the IPPS, 

should be applied to those SNFs changing from urban to rural status under the new OMB 

delineations.

To further address commenters’ general suggestion that we utilize similar implementation 

policies as were proposed for hospital providers in the FY 2015 IPPS proposed rule, we also 

considered whether it would appropriate to apply a variation of the 3-year transition discussed 

above, pursuant to which all SNFs that would experience a decrease in their wage index under 

the new OMB delineations would receive the wage index of the CBSA in which they are 

currently located for FY 2014 for a period of three fiscal years. This would involve applying a 

different transition policy for this subset of SNFs (allowing them to maintain the wage index of 

the CBSA in which they are currently located for three fiscal years) than would be applied to 
94

other SNFs. However, because revisions in the SNF PPS wage index must be made in a budget 

neutral manner, as required by section 1888(e)(4)(G)(ii) of the Act, if such a 3-year transition 

policy were to be applied to this subset of providers, the resulting budget neutrality adjustment 

would reduce the base payment rates for all SNFs in FY 2015, as well as potentially reduce base 

rates for each of the two additional years during which this transition policy would be in effect. 

In terms of the overall impact on SNFs, pursuing this type of transition policy would, in effect, 

aid the 21 percent of SNFs experiencing a decrease in their wage index due to the new OMB 

delineations (who would nevertheless also experience a decrease in their base rates under this 

alternative) at the expense the remaining 79 percent of SNFs, all of which would experience a 

decrease in their base rates due to the budget neutrality adjustment (including those SNFs 

experiencing either no change or an increase in their wage index under the new OMB 

delineations). As we stated in the FY 2015 SNF PPS proposed rule (79 FR 25785), we looked for 

a transition approach that would provide relief to the largest percentage of adversely affected 

SNFs with the least impact to the rest of facilities. As discussed above, we believe that the 

application of a one-year transition blended wage index for all providers best achieves this goal, 

as it mitigates the negative payment impacts of the new OMB delineations for adversely affected 

SNFs, without reducing the base rates for all providers. Furthermore, as discussed above, we do 

not believe a multi-year transition approach would be appropriate, given the need to ensure the 

most accurate payments possible based on the most current geographic delineations.

While we understand the concern raised by these commenters regarding the potential 

impact on the subset of SNFs that would experience a decrease in their wage index, we believe 

this must be weighed against the interests of and impact on all SNFs. As discussed above, and in 

the SNF PPS proposed rule (79 FR 25785), we believe that our proposed 1-year transition policy 

with a 50/50 blended wage index for all SNFs appropriately mitigates the negative payment 
95

impacts on SNFs that will experience a wage index decrease due to implementation of the new 

OMB delineations, while having the least impact on the rest of the facilities.

We received a comment on the potential impact of finalizing the proposals in the FY 

2015 SNF PPS proposed rule, which is not otherwise addressed in prior sections of this final 

rule. A discussion of this comment, and our response, appears below.

Comment: In their March 2014 report (available at: 

http://www.medpac.gov/documents/Mar14_entirereport.pdf), and in their comment on this 

proposed rule, MedPAC recommended that CMS eliminate the market basket update for SNFs 

and rebase payments for the SNF PPS, beginning with a 4 percent reduction in the base payment 

rates. 

Response: With regard to MedPAC’s proposals to eliminate the market basket update for 

SNFs and to implement a 4 percent reduction to the SNF PPS rates, we would note that CMS 

does not have the statutory authority to act on either one of these proposals at the current time.

6. Accounting Statement

As required by OMB Circular A-4 (available online at 

www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/a-4.pdf), in Table 14, 

we have prepared an accounting statement showing the classification of the expenditures 

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

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

rule, based on the data for 15,399 SNFs in our database. All expenditures are classified as 

transfers to Medicare providers (that is, SNFs). 

TABLE 14: Accounting Statement: Classification of Estimated Expenditures, from the 

2014 SNF PPS Fiscal Year to the 2015 SNF PPS Fiscal Year

Category Transfers

Annualized Monetized Transfers $750 million*

From Whom To Whom? Federal Government to SNF Medicare Providers
96

* The net increase of $750 million in transfer payments is a result of the MFP-adjusted market basket increase of 

$750 million.

7. Conclusion

This final rule sets forth updates of the SNF PPS rates contained in the SNF PPS final 

rule for FY 2014 (78 FR 47936). Based on the above, we estimate the overall estimated 

payments for SNFs in FY 2015 are projected to increase by $750 million, or 2.0 percent, 

compared with those in FY 2014. We estimate that in FY 2015 under RUG-IV, SNFs in urban 

and rural areas would experience, on average, a 2.0 and 1.9 percent increase, respectively, in 

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

experience the largest estimated increase in payments of approximately 4.8 percent. Providers in 

the urban East South Central and West South Central regions would experience the smallest 

increase in payments of 1.3 percent.

B. Regulatory Flexibility Act Analysis

The RFA requires agencies to analyze options for regulatory relief of small entities, if a 

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

small entities include small businesses, nonprofit organizations, and small governmental 

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

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

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

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

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

Small Business Administration's latest size standards (NAICS 623110), with total revenues of 

$25.5 million or less in any 1 year. (For details, see the Small Business Administration’s website 

at http://www.sba.gov/category/navigation-structure/contracting/contracting-officials/eligibilitysize-standards). In addition, approximately 25 percent of SNFs classified as small entities are 
97

non-profit organizations. Finally, individuals and states are not included in the definition of a 

small entity.

This final rule sets forth updates of the SNF PPS rates contained in the SNF PPS final 

rule for FY 2014 (78 FR 47936). Based on the above, we estimate that the aggregate impact 

would be an increase of $750 million in payments to SNFs, resulting from the SNF market 

basket update to the payment rates, as adjusted by the MFP adjustment. While it is projected in 

Table 13 that all providers would experience a net increase in payments, we note that some 

individual providers within the same region or group may experience different impacts on 

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

degree of Medicare utilization. 

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

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

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

approximately 11 percent of total patient days in freestanding facilities and 22 percent of facility 

revenue (Report to the Congress: Medicare Payment Policy, March 2014, available at

http://www.medpac.gov/documents/Mar14_EntireReport.pdf). However, it is worth noting that 

the distribution of days and payments is highly variable. That is, the majority of SNFs have 

significantly lower Medicare utilization (Report to the Congress: Medicare Payment Policy, 

March 2014, available at http://www.medpac.gov/documents/Mar14_EntireReport.pdf). As a 

result, for most facilities, when all payers are included in the revenue stream, the overall impact 

on total revenues should be substantially less than those impacts presented in Table 13. As 

indicated in Table 13, the effect on facilities is projected to be an aggregate positive impact of 

2.0 percent. As the overall impact on the industry as a whole, and thus on small entities 

specifically, is less than the 3 to 5 percent threshold discussed above, the Secretary has 
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determined that this final rule would not have a significant impact on a substantial number of 

small entities. 

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

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

hospitals. This analysis must conform to the provisions of section 604 of the RFA. For purposes 

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

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

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

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

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

recently the one for FY 2014 (78 FR 47968)), the category of small rural hospitals would be 

included within the analysis of the impact of this final rule on small entities in general. As 

indicated in Table 13, the effect on facilities is projected to be an aggregate positive impact of 

2.0 percent. As the overall impact on the industry as a whole is less than the 3 to 5 percent 

threshold discussed above, the Secretary has determined that this final rule would not have a 

significant impact on a substantial number of small rural hospitals. 

C. Unfunded Mandates Reform Act Analysis

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also requires that 

agencies assess anticipated costs and benefits before issuing any rule whose mandates require 

spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2014, 

that threshold is approximately $141 million. This final rule would not impose spending costs on 

state, local, or tribal governments in the aggregate, or by the private sector, of $141 million.

D. Federalism Analysis

Executive Order 13132 establishes certain requirements that an agency must meet when it 
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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.
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List of Subjects

42 CFR Part 488

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

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

amends 42 CFR chapter IV as set forth below:

PART 488—Survey, Certification and Enforcement Procedures

1. The authority citation for part 488 continues to read as follows: 

Authority: Secs. 1102, 1128I and 1871 of the Social Security Act, unless otherwise noted 

(42 U.S.C. 1302, 1320a-7j, and 1395hh); Pub. L. 110-149, 121 Stat. 1819.

2. Section 488.433 is revised to read as follows:

§488.433 Civil money penalties: Uses and approval of civil money penalties imposed by 

CMS.

(a) Ten percent of the collected civil money penalty funds that are required to be held in 

escrow pursuant to §488.431 and that remain after a final administrative decision will be 

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

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

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

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

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

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

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

(b) All activities and plans for utilizing civil money penalty funds, including any expense 

used to administer grants utilizing civil money penalty funds, must be approved in advance by 

CMS and may include, but are not limited to:

(1) Support and protection of residents of a facility that closes (voluntarily or 

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

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

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

(3) Projects that support resident and family councils and other consumer involvement in 

assuring quality care in facilities.

(4) Facility improvement initiatives, such as joint training of facility staff and surveyors 

or technical assistance for facilities implementing quality assurance and performance 

improvement programs. 

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

such as but not limited to, recruitment, training, retention or other system infrastructure 

expenses. However, as specified in §488.415(c), a temporary manager’s salary must be paid by 

the facility. In rare situations, if the facility is closing, CMS plans to stop or suspend continued 

payments to the facility under §489.55 of this chapter during the temporary manager’s duty 

period, and CMS determines that extraordinary action is necessary to protect the residents until 

relocation efforts are successful, civil money penalty funds may be used to pay the manager’s 

salary.

(c) At a minimum, proposed activities submitted to CMS for prior approval must include 

a description of the intended outcomes, deliverables, and sustainability; and a description of the 

methods by which the activity results will be assessed, including specific measures.

(d) Civil money penalty funds may not be used for activities that have been disapproved 

by CMS.

(e) The State must maintain an acceptable plan, approved by CMS, for the effective use 

of civil money funds, including a description of methods by which the State will: 
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(1) Solicit, accept, monitor, and track projects utilizing civil money penalty funds 

including any funds used for state administration.

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

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

recipients, the results of projects, and other key information.

(3) Ensure that:

(i) A core amount of civil money penalty funds will be held in reserve for emergencies, 

such as relocation of residents pursuant to an involuntary termination from Medicare and 

Medicaid.

(ii) A reasonable amount of funds, beyond those held in reserve under paragraph (e)(3)(i) 

of this section, will be awarded or contracted each year for the purposes specified in this section.

(f) If CMS finds that a State has not spent civil money penalty funds in accordance with 

this section, or fails to make use of funds to benefit the quality of care or life of residents, or fails 

to maintain an acceptable plan for the use of funds that is approved by CMS, then CMS may 

withhold future disbursements of civil money penalty funds to the State until the State has 

submitted an acceptable plan to comply with this section. 
Dated: July 24, 2014.

 ______________________________

Marilyn Tavenner,

Administrator, Centers for Medicare & Medicaid 

Services.

Approved: July 30, 2014

 __________________________________

Sylvia M. Burwell,

Secretary,

Department of Health and Human Services. 

BILLING CODE 4120-01-P