26252 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 409, 410, 411, 413, 424,

483, and 489

[HCFA–1913–IFC]

RIN 0938–AI47

Medicare Program; Prospective

Payment System and Consolidated

Billing for Skilled Nursing Facilities

AGENCY: Health Care Financing

Administration (HCFA), HHS.

ACTION: Interim final rule with comment

period.

SUMMARY: This interim final rule

implements provisions in section 4432

of the Balanced Budget Act of 1997

related to Medicare payment for skilled

nursing facility services. These include

the implementation of a Medicare

prospective payment system for skilled

nursing facilities, consolidated billing,

and a number of related changes. The

prospective payment system described

in this rule replaces the retrospective

reasonable cost-based system currently

utilized by Medicare for payment of

skilled nursing facility services under

Part A of the program.

DATES: These regulations are effective

July 1, 1998.

Comments will be considered if we

receive them at the appropriate address,

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

on July 13, 1998.

ADDRESSES: Mail an original and 3

copies of written comments to the

following address:

Health Care Financing Administration,

Department of Health and Human

Services, Attention: HCFA–1913–IFC,

P.O. Box 26688, Baltimore, MD

21207–0488

If you prefer, you may deliver an

original and 3 copies of your written

comments to one of the following

addresses:

Room 309–G, Hubert H. Humphrey

Building, 200 Independence Avenue,

SW., Washington, D.C. 20201,

or

Room C5–09–26, 7500 Security

Boulevard, Baltimore, Maryland

21244–1850.

Because of staffing and resource

limitations, we cannot accept comments

by facsimile (FAX) transmission. In

commenting, please refer to file code

HCFA–1913–IFC. Comments received

timely will be available for public

inspection as they are received,

generally beginning approximately 3

weeks after publication of a document,

in Room 309–G of the Department’s

offices at 200 Independence Avenue,

SW., Washington, D.C., on Monday

through Friday of each week from 8:30

a.m. to 5 p.m. (phone: (202) 690–7890).

Copies: To order copies of the Federal

Register containing this document, send

your request to: New Orders,

Superintendent of Documents, P.O. Box

371954, Pittsburgh, PA 15250–7954.

Specify the date of the issue requested

and enclose a check or money order

payable to the Superintendent of

Documents, or enclose your Visa or

Master Card number and expiration

date. Credit card orders can also be

placed by calling the order desk at (202)

512–1800 or by faxing to (202) 512–

2250. The cost for each copy is $8. As

an alternative, you can view and

photocopy the Federal Register

document at most libraries designated

as Federal Depository Libraries and at

many other public and academic

libraries throughout the country that

receive the Federal Register.

This Federal Register document is

also available from the Federal Register

online database through GPO Access, a

service of the U.S. Government Printing

Office. Free public access is available on

a Wide Area Information Server (WAIS)

through the Internet and via

asynchronous dial-in. Internet users can

access the database by using the World

Wide Web; the Superintendent of

Documents home page address is http:/

/www.access.gpo.gov/suldocs/, by

using local WAIS client software, or by

telnet to swais.access.gpo.gov, then

login as guest (no password required).

Dial-in users should use

communications software and modem

to call (202) 512–1661; type swais, then

login as guest (no password required).

FOR FURTHER INFORMATION CONTACT:

Laurence Wilson, (410) 786–4603 (for

general information). John Davis,

(410) 786–0008 (for information

related to the Federal rates).

Dana Burley, (410) 786–4547 (for

information related to the case-mix

classification methodology).

Steve Raitzyk, (410) 786–4599 (for

information related to the facilityspecific transition payment rates).

Bill Ullman, (410) 786–5667 (for

information related to consolidated

billing and related provisions).

SUPPLEMENTARY INFORMATION: To assist

readers in referencing sections

contained in this document, we are

providing the following table of

contents.

Table of Contents

I. Background

A. Current System for Payment of Skilled

Nursing Facility Services Under Part A

of the Medicare Program

B. Requirement of the Balanced Budget Act

of 1997 for a Prospective Payment

System for Skilled Nursing Facilities

C. Summary of the Development of the

Medicare Prospective Payment System

for Skilled Nursing Facilities

D. Skilled Nursing Facility Prospective

Payment System—General Overview

1. Payment Provisions—Federal Rate

2. Payment Provisions—Transition Period

3. Payment Provisions—Facility-Specific

Rate

4. Implementation of the Prospective

Payment System (PPS)

E. Consolidated Billing for Skilled Nursing

Facilities

II. Prospective Payment System for Skilled

Nursing Facilities

A. Federal Payment Rates

1. Cost and Services Covered by the

Federal Rates

2. Data Sources Utilized for the

Development of the Federal Rates

a. Cost Report Data

b. Estimate of Part B Payments

c. Hospital Wage Index

d. Case-Mix Indices

e. MEDPAR Case-Mix Analog

(1) Rehabilitation Category

(2) Non-Rehabilitation Categories

(3) Case-Mix Using the Analog

f. Skilled Nursing Facility Market Basket

Index

3. Methodology Used for the Calculation of

the Federal Rates

a. Per Diem Costs

b. Updating the Data

c. Standardization of Cost Data

d. Computation of National Standardized

Payment Rates

B. Design and Methodology for Case-Mix

Adjustment of Federal Rates

1. Background on the Resource Utilization

Groups (RUGs) Patient Classification

System

2. The RUG–III Classification System

3. Use of RUG–III ‘‘Grouper’’ Software

4. Determining the Case-Mix Indices

5. Application of the RUG–III System

6. Use of the Resident Assessment

Instrument—Minimum Data Set (MDS

2.0)

7. Required Schedule for Completing the

MDS

8. The Relationship Between Payment and

the MDS

9. Assessments and the Transition to the

Prospective Payment System

a. Medicare Beneficiaries Receiving Part A

Benefits Admitted Within the Past 30

Days

b. Medicare Beneficiaries Receiving Part A

Benefits Admitted Over 30 Days Prior

c. Medicare Part A Beneficiaries With Less

Than 14 Days of Medicare Eligibility

Remaining

10. Late Assessments

11. The Default Rate
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26253

12. Case-Mix Adjusted Federal Payment

Rates

C. Wage Index Adjustment to Federal Rates

D. Updates to the Federal Rates

E. Relationship of RUG–III Classification

System to Existing Skilled Nursing

Facility Level of Care Criteria

III. Three-Year Transition Period

A. Determination of Facility-Specific Per

Diem Rates

1. Part A Cost Determination

a. Freestanding Skilled Nursing Facilities

(1) Skilled Nursing Facilities Without an

Exception for Medical and Paramedical

Education (§ 413.30(f)(4)) or a New

Provider Exemption in the Base Year

(2) Skilled Nursing Facilities With an

Exception for Medical and Paramedical

Education in the Base Year

(3) Skilled Nursing Facilities With New

Provider Exemptions From the Cost

Limits in the Base Year

b. Hospital-Based Skilled Nursing

Facilities

(1) Skilled Nursing Facilities Without an

Exception for Medical and Paramedical

Education or a New Provider Exemption

(2) Skilled Nursing Facilities With an

Exception for Medical and Paramedical

Education in the Base Year

(3) Skilled Nursing Facilities With

Exemptions From the Cost Limits in the

Base Year

c. Medicare Low Volume Skilled Nursing

Facilities Electing Prospectively

Determined Payment Rate (Fewer Than

1500 Medicare Days)

(1) Providers Filing HCFA–2540-S–87

(2) Providers Filing HCFA–2540 or HCFA–

2552

d. Providers Participating in the Multistate

Nursing Home Case-Mix and Quality

Demonstration—Calculation of the

Prospective Payment System Rate

e. Base Period Cost Reports That Are

Adjusted for Exception Amounts or

Other Post Settlement Adjustments

B. Determination of the Part B Estimate

C. Calculation of the Facility-Specific Per

Diem Rate

D. Computation of the Skilled Nursing

Facility Prospective Payment System

Rate During the Transition

IV. The Skilled Nursing Facility Market

Basket Index

A. Rebasing and Revising of the Skilled

Nursing Facility Market Basket

1. Background

2. Rebasing and Revising of the Skilled

Nursing Facility Market Basket

B. Use of the Skilled Nursing Facility Market

Basket Percentage

1. Facility-Specific Rate Update Factor

a. Short Period in Base Year

b. Short Period in Initial Period

c. Short Period Between Base Year and

Initial Period

2. Federal Rate Update Factor

V. Consolidated Billing

A. Background of the Skilled Nursing Facility

Consolidated Billing Provision

B. Skilled Nursing Facility Consolidated

Billing Legislation

1. Specific Provisions of the Legislation

2. Types of Services That Are Subject to

the Provision

3. Facilities That Are Subject to the

Provision

4. Skilled Nursing Facility ‘‘Resident’’

Status for Purposes of This Provision

5. Effects of This Provision

C. Effective Date for Consolidated Billing

VI. Changes in the Regulations

VII. Response to Comments

VIII. Waiver of Proposed Rulemaking

IX. Regulatory Impact Statement

A. Background

B. Impact of This Interim Final Rule

1. Budgetary Impact

2. Impact on Providers and Suppliers

C. Rural Hospital Impact Statement

X. Collection of Information Requirements

Regulations Text

Appendix A—Technical Features of the 1992

Skilled Nursing Facility Total Cost Market

Basket Index

I. Synopsis of Structural Changes Adopted in

the Revised and Rebased 1992 Skilled

Nursing Facility Total Cost Market

Basket

II. Methodology for Developing the Cost

Category Weights

III. Price Proxies Used To Measure Cost

Category Growth

In addition, because of the many terms to

which we refer by acronym in this rule, we

are listing these acronyms and their

corresponding terms in alphabetical order

below:

ADLs Activities of daily living

AHEs Average Hourly Earnings

BBA 1997 Balanced Budget Act of 1997

BEA [U.S.] Bureau of Economic Analysis

BLS [U.S.] Bureau of Labor Statistics

CAH Critical access hospital

CFR Code of Federal Regulations

CPI Consumer Price Index

CPI-U Consumer Price Index for All Urban

Consumers

CPT [Physicians’] Current Procedural

Terminology

ECI Employment Cost Index

FI Fiscal intermediary

HCFA Health Care Financing

Administration

HCPCS HCFA Common Procedure Coding

System

ICD–9–CM International Classification of

Diseases, Ninth Edition, Clinical

Modification

MDS Minimum Data Set

MEDPAR Medicare provider analysis and

review file

MSA Metropolitan Statistical Area

NECMA New England County Metropolitan

Area

PCE Personal Care Expenditures

PPI Producer Price Index

PPS Prospective payment system

RAI Resident Assessment Instrument

RAPs Resident Assessment Protocol

Guidelines

RUG Resource Utilization Group

SNF Skilled nursing facility

STM Staff time measure

I. Background

A. Current System for Payment of

Skilled Nursing Facility Services Under

Part A of the Medicare Program

Under the present payment system,

Medicare skilled nursing facility (SNF)

services are paid according to a

retrospective, reasonable cost-based

system. Under Medicare payment

principles set forth in section 1861 of

the Social Security Act (the Act) and

part 413 of the Code of Federal

Regulations (CFR), SNFs receive

payment for three major categories of

costs: routine costs, ancillary costs, and

capital-related costs.

In general, routine costs are the costs

of those services included by the

provider in a daily service charge.

Routine service costs include regular

room, dietary, nursing services, minor

medical supplies, medical social

services, psychiatric social services, and

the use of certain facilities and

equipment for which a separate charge

is not made. Ancillary costs are costs for

specialized services, such as therapy,

drugs, and laboratory services, that are

directly identifiable to individual

patients. Capital-related costs include

the costs of land, building, equipment,

and the interest incurred in financing

the acquisition of such items.

Under Medicare rules, the reasonable

costs of ancillary services and capitalrelated expenses are paid in full.

Routine operating costs are also paid on

a reasonable cost basis, subject to per

diem limits. Sections 1861(v)(1) and

1888 of the Act authorize the Secretary

to set limits on the allowable routine

costs incurred by an SNF.

In addition, section 1888(d) of the Act

gives low Medicare volume SNFs the

option of receiving a single

prospectively determined payment rate

for routine operating and capital-related

costs in lieu of the normal reasonable

cost reimbursement method. A SNF may

elect this payment method only if it had

fewer than 1,500 Medicare covered

inpatient days in its immediately

preceding cost reporting period. An

SNF’s prospective payment rate under

section 1888(d) of the Act, excluding

capital-related costs, cannot exceed its

routine service cost limits. Under this

payment method, ancillary costs are still

a pass-through cost.

B. Requirement of the Balanced Budget

Act of 1997 for a Prospective Payment

System for Skilled Nursing Facilities

Section 4432(a) of the Balanced

Budget Act of 1997 (BBA 1997) (Public

Law 105–33), enacted on August 5,

1997, amended section 1888 of the Act

by adding subsection (e). This
26254 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

subsection requires implementation of a

Medicare SNF prospective payment

system (PPS) for all SNFs for cost

reporting periods beginning on or after

July 1, 1998. Under the PPS, SNFs will

be paid under a PPS applicable to all

covered SNF services. These payment

rates will encompass all costs of

furnishing covered skilled nursing

services (that is, routine, ancillary, and

capital-related costs) other than costs

associated with operating approved

educational activities. Covered SNF

services include posthospital SNF

services for which benefits are provided

under Part A (the hospital insurance

program) and all items and services

(other than services excluded by statute)

for which, prior to July 1, 1998,

payment may be made under Part B (the

supplementary medical insurance

program) and which are furnished to

SNF residents during a Part A covered

stay.

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

the basis for the establishment of the per

diem Federal payment rates applied

under the PPS. It sets forth the formula

for establishing the rates as well as the

data on which they are based. In

addition, this section requires

adjustments to such rates based on

geographic variation and case-mix and

prescribes the methodology for updating

the rates in future years.

Section 1888(e)(2) sets forth a

requirement applicable to most

providers for a transition phase covering

the first three cost reporting periods

under the PPS. During this transition

phase, SNFs will receive a payment rate

comprised of a blend between the

Federal rate and a facility-specific rate

based on historical costs. Section

1888(e)(3) prescribes the methodology

for computing the facility-specific rates.

In addition to the payment

methodology, section 4432(a) of the

BBA 1997 added several other

provisions to the Act related to the

implementation and administration of

the PPS.

Section 1888(e)(8) prohibits judicial

or administrative review on matters

relating to the establishment of the

Federal rates. This includes the

methodology used in the computation of

the Federal rates, the case-mix

methodology, and the development and

application of the wage index. This

limitation on judicial and

administrative review also extends to

the establishment of the facility-specific

rates, except the determinations of

reasonable cost in the fiscal year 1995

cost reporting period used as the basis

for these rates.

In addition, section 1888(e)(7)

requires the application of the PPS to

extended care services furnished in

hospital swing bed units. However, this

requirement is to be implemented no

earlier than cost reporting periods

beginning on July 1, 1999 and no later

than for cost reporting periods

beginning in the 12-month period

starting on July 1, 2001. Accordingly,

we are not revising the payment

regulations for swing-bed hospitals (42

CFR 413.114) at this time, but will do

so at a later date.

Finally, section 4432(c) of the BBA

1997 requires the Secretary to establish

a medical review process to examine the

impact of the PPS, consolidated billing,

and other related changes set forth in

this rule on the quality of SNF services

provided to Medicare beneficiaries. This

medical review process will place a

particular emphasis on the quality of

non-routine covered ancillary and

physician services.

C. Summary of the Development of the

Medicare Prospective Payment System

for Skilled Nursing Facilities

The prospective payment system

described in the following sections is

the culmination of substantial research

efforts beginning as early as the 1970s,

focusing on the areas of nursing home

payment and quality. In addition, it is

based on a foundation of knowledge and

work by a number of States that have

developed and implemented similar

payment methodologies for their

Medicaid nursing home payment

systems. Over the last 20 years,

approximately 25 nursing home casemix payment systems have been

implemented by such States as New

York, Ohio, West Virginia, and Texas.

Building on earlier research, the

Health Care Financing Administration

(HCFA) funded the development of the

Multistate Nursing Home Case-Mix and

Quality Demonstration in 1989. The

purpose of this project was to design,

implement, and evaluate a Medicare

nursing home prospective payment and

quality monitoring system across several

States. These States were Kansas,

Maine, Mississippi, New York, South

Dakota, and Texas. The 3-year

demonstration was implemented in

1995.

The current focus in the development

of State and Federal payment systems

for nursing home care rests on explicit

recognition of the differences among

residents, particularly in the utilization

of resources. Recognition of these

differences ensures that payment levels

are adequate to support quality and

access to care, especially for more costly

resource intensive patients. In a casemix adjusted payment system, the

amount of payment given to the nursing

home for care of a resident is tied to the

intensity of resource use (for example,

hours of nursing or therapy time needed

per day) and/or other relevant factors

(for example, requirement for a

ventilator). The focus of the

demonstration was on the development

and testing of such a case-mix PPS.

A case-mix system measures the

intensity of care and services required

for each resident and then translates it

into a payment level. As discussed

above, a number of States do have casemix prospective payment systems for

their Medicaid nursing home benefits.

However, most of these payment

systems were not readily transferrable to

Medicare due to the relative differences

in the resident populations served by

each program. While naturally there is

overlap, Medicare generally serves a

more postacute resident population

while Medicaid generally serves a

longer-term custodial care population.

As a result of these differences, the

development phase of the Multistate

demonstration was devoted to

developing a case-mix classification

system appropriate for the Medicare

population. The demonstration, like the

national PPS set forth in this rule,

utilized information from the Minimum

Data Set (MDS) resident assessment

instrument to classify residents into

resource utilization groups (RUGs),

which account for the relative resource

use of different patient types. This

classification system and its

relationship to the MDS and the PPS are

described in detail elsewhere in this

rule.

D. Skilled Nursing Facility Prospective

Payment—General Overview

As described above, the BBA 1997

requires implementation of a Medicare

SNF PPS for cost reporting periods

beginning on or after July 1, 1998.

Under the PPS, SNFs are no longer paid

in accordance with the present

reasonable cost-based system but rather

through per diem prospective case-mix

adjusted payment rates applicable to all

covered SNF services. These payment

rates cover all the costs of furnishing

covered skilled nursing services (that is,

routine, ancillary, and capital-related

costs) other than costs associated with

operating approved educational

activities. Covered SNF services include

posthospital SNF services for which

benefits are provided under Part A and

all items and services for which, prior

to July 1, 1998, payment had been made

under Part B (other than physician and

certain other services specifically

excluded under the BBA 1997) but

furnished to SNF residents during a Part

A covered stay.
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26255

1. Payment Provisions—Federal Rate

The PPS utilizes per diem Federal

payment rates based on mean SNF costs

in a base year updated for inflation to

the first effective period of the system.

We develop the Federal payment rates

using allowable costs from hospitalbased and freestanding SNF cost reports

for reporting periods beginning in fiscal

year 1995. The data used in developing

the Federal rates also incorporate an

estimate of the amounts payable under

Part B for covered SNF services

furnished during fiscal year 1995 to

individuals who were residents of a

facility and receiving Part A covered

services. In developing the rates, we

update costs to the first effective year of

the PPS (15-month period beginning

July 1, 1998) using a SNF market basket

index, and standardize for facility

differences in case-mix and for

geographic variations in wages.

Providers that received ‘‘new provider’’

exemptions from the routine cost limits

are excluded from the data base used to

compute the Federal payment rates. In

addition, costs related to payments for

exceptions to the routine cost limits are

excluded from the data base used to

compute the Federal payment rates. In

accordance with the formula prescribed

in the BBA 1997, we set the Federal

rates at a level equal to a weighted mean

of freestanding costs plus 50 percent of

the difference between the freestanding

mean and a weighted mean of all SNF

costs (hospital-based and freestanding)

combined. We compute and apply

separately payment rates for facilities

located in urban and rural areas.

The Federal rate also incorporates

adjustments to account for facility casemix using a resident classification

system that accounts for the relative

resource utilization of different patient

types. This classification system,

Version III of the Resource Utilization

Groups (RUGs-III), utilizes resident

assessment data (from the Minimum

Data Set or MDS) completed by SNFs to

assign residents into one of 44 groups.

SNFs complete these assessments

according to an assessment schedule

specifically designed for Medicare

payment (that is, on the 5th, 14th, 30th,

60th, and 90th days after admission to

the SNF). For Medicare billing

purposes, there are revenue codes

associated with each of the 44 RUG–III

groups, and each assessment applies to

specific days within a resident’s SNF

stay. SNFs that fail to perform

assessments timely are paid a default

payment for the days of a patient’s care

for which they are not in compliance

with this schedule. In addition, we

adjust the portion of the Federal rate

attributable to wage-related costs by a

wage index.

For the initial period of the PPS,

beginning on July 1, 1998 and ending on

September 30, 1999, the payment rates

are contained in this interim final rule.

For each succeeding fiscal year, we will

publish the rates in the Federal Register

before August 1 of the year preceding

the affected Federal fiscal year. For

fiscal years 2000 through 2002, we will

increase the rates by a factor equal to the

SNF market basket index amount minus

1 percentage point. For subsequent

fiscal years, we will increase the rates

by the applicable SNF market basket

index amount.

2. Payment Provisions—Transition

Period

Beginning with a provider’s first cost

reporting period beginning on or after

July 1, 1998, there is a transition period

covering three cost reporting periods.

During this transition phase, SNFs

receive a payment rate comprised of a

blend between the Federal rate and a

facility-specific rate based on each

facility’s fiscal year 1995 cost report. We

exclude SNFs that received their first

payment from Medicare on or after

October 1, 1995, from the transition

period, and we make payment according

to the Federal rates only.

For SNFs that qualify for the

transition, the composition of the

blended rate varies depending on the

year of the transition. For the first cost

reporting period beginning on or after

July 1, 1998, we make payment based on

75 percent of the facility-specific rate

and 25 percent of the Federal rate. In the

next cost reporting period, the rate

consists of 50 percent of the facilityspecific rate and 50 percent of the

Federal rate. In the following cost

reporting period, the rate consists of 25

percent of the facility-specific rate and

75 percent of the Federal rate. For all

subsequent cost reporting periods, we

base payment entirely on the Federal

rate.

3. Payment Provisions—FacilitySpecific Rate

We compute the facility-specific

payment rate utilized for the transition

using the allowable costs of SNF

services for cost reporting periods

beginning in fiscal year 1995 (cost

reporting periods beginning on or after

October 1, 1994 and before October 1,

1995). Included in the facility-specific

per diem rate is an estimate of the

amount payable under Part B for

covered SNF services furnished during

fiscal year 1995 to individuals who were

residents of the facility and receiving

Part A covered services. In contrast to

the Federal rates, the facility-specific

rate includes amounts paid to SNFs for

exceptions to the routine cost limits. In

addition, we also take into account

‘‘new provider’’ exemptions from the

routine cost limits but only to the extent

that routine costs do not exceed 150

percent of the routine cost limit.

We update the facility-specific rate for

each cost reporting period after fiscal

year 1995 to the first cost reporting

period beginning on or after July 1, 1998

(the initial period of the PPS) by a factor

equal to the SNF market basket

percentage increase minus 1 percentage

point. For the fiscal years 1998 and

1999, we update this rate by a factor

equal to the SNF market basket index

amount minus 1 percentage point, and,

for each subsequent year, we update it

by the applicable SNF market basket

index amount.

4. Implementation of the Prospective

Payment System (PPS)

As discussed above, the PPS is

effective for cost reporting periods

beginning on or after July 1, 1998. This

is in contrast to the consolidated billing

provision, which is effective for items

and services furnished on or after July

1, 1998. Accordingly, we will require a

number of SNFs to implement

consolidated billing prior to migrating

to the PPS.

E. Consolidated Billing for Skilled

Nursing Facilities

Section 4432(b) of the BBA 1997 sets

forth a consolidated billing requirement

applicable to all SNFs providing

Medicare services. SNF Consolidated

Billing is a comprehensive billing

requirement (similar to the one that has

been in effect for inpatient hospital

services for well over a decade), under

which the SNF itself is responsible for

billing Medicare for virtually all of the

services that its residents receive. As

with hospital bundling, the SNF

consolidated billing requirement does

not apply to the services of physicians

and certain other types of medical

practitioners. In a related provision,

section 4432(b)(3) of the BBA 1997

requires the use of fee schedules and

uniform coding specified by the

Secretary for SNF Part B bills. These

provisions are effective for services

furnished on or after July 1, 1998.

II. Prospective Payment System for

Skilled Nursing Facilities

A. Federal Payment Rates

This interim final rule with comment

period sets forth a schedule of Federal

prospective payment rates applicable to

Medicare Part A SNF services for cost
26256 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

reporting periods beginning on or after

July 1, 1998. This schedule incorporates

per diem Federal rates designed to

provide payment for all the costs of

services furnished to a Medicare

resident of an SNF. This section

describes the components of the Federal

rates and the methodology and data

used to compute them.

1. Cost and Services Covered by the

Federal Rates

The Federal rates apply to all costs

(that is, routine, ancillary, and capitalrelated costs) of covered skilled nursing

services other than costs associated with

operating approved educational

activities as defined in 42 CFR 413.85.

Under section 1888(e)(2) of the Act,

covered SNF services include

posthospital SNF services for which

benefits are provided under Part A (the

hospital insurance program) and all

items and services (other than services

excluded by statute) for which, prior to

July 1, 1998, payment may be made

under Part B (the supplementary

medical insurance program) and which

are furnished to SNF residents during a

Part A covered stay. (These excluded

service categories are discussed in

greater detail in section V.B.2., in the

context of the SNF Consolidated Billing

provision.)

2. Data Sources Utilized for the

Development of the Federal Rates

The methodology utilized by HCFA in

developing the Federal rates combines a

number of data sources. These sources

include cost report data, claims data,

case-mix indices, a wage index, and a

market basket inflation index. This

section describes each of these data

sources while the following section

describes the methodology that

combines them to produce the Federal

rates.

a. Cost report data. In accordance

with sections 1888(e)(3)(A)(i) and (e)(4)

of the Act, the primary data source for

developing the cost basis of the Federal

rates was the cost reports for hospitalbased and freestanding SNFs for

reporting periods beginning in fiscal

year 1995 (that is, beginning on or after

October 1, 1994 through September 30,

1995). Only those cost reports for

periods of at least 10 months but not

more than 13 months were included in

the data base. We excluded shorter and

longer periods on the basis that such

data may not be reflective of a normal

cost reporting period and, therefore,

may distort the rate computation.

In accordance with section

1888(e)(4)(A) of the Act, providers that

were exempted from the limits in the

base year under § 413.30(e)(2) were

excluded from the data base to compute

the Federal rates; in addition, allowable

costs related to exceptions payments

were excluded. Finally, costs related to

approved educational activities were

excluded from the data base.

In calculating the Federal rates, we

utilized fiscal year 1995 cost report data,

including both settled and as-submitted

cost reports. In accordance with section

1888(e)(4)(A) of the Act, adjustment

factors were applied separately to

routine and ancillary costs from assubmitted cost reports to make the data

reflect the average adjustments that

would result from the cost report

settlement process. Routine costs were

adjusted downward by 1.31 percent,

and ancillary costs were adjusted

downward by 3.26 percent.

These adjustment factors were

developed through comparisons of cost

data from as-submitted and settled cost

reports for providers contained in the

data base from 1995. The factors

represent the percent change of cost

elements used in the PPS rate setting

methodology between submission and

settlement of the cost reports. These

factors were validated by examining the

relationship between as-submitted and

settled cost reports for SNF cost reports

beginning in the three preceding Federal

fiscal years (that is, 1992, 1993, and

1994) as well. This comparison showed

an overall consistency in the

relationship between as-submitted and

settled cost reports for the SNF cost

elements utilized in the PPS rate

development methodology.

b. Estimate of Part B payments.

Section 1888(e)(4)(A)(ii) of the Act, as

added by the BBA 1997, requires that in

developing the Federal rates, the

Secretary estimate the amounts that

would be payable under Part B for

covered SNF services furnished to SNF

residents. Accordingly, it was necessary

to examine the Part B allowable charges

(including coinsurance) associated with

the SNFs contained in the cost report

data base. To estimate the Part B

allowable charges, we matched 100

percent of the Medicare Part B SNF

claims associated with Part A covered

SNF stays to the SNF cost reports

described above. The matched Part B

allowable charges were incorporated at

a facility level by the appropriate cost

report cost center (for example,

laboratory services, medical supplies)

with the cost report data.

c. Hospital wage index. Section

1888(e)(4) requires that we both

standardize the Federal rates and

provide for appropriate adjustments to

account for area wage differences ‘‘using

an appropriate wage index as

determined by the Secretary.’’ We

cannot use a wage index based on SNF

wage data because the industry-specific

data necessary to compute a wage index

for SNFs are not yet available. However,

under section 106 of the Social Security

Act Amendments of 1994 (Public Law

103–432), HCFA was required to begin

collecting data no later than October 31,

1995, on employee compensation and

paid hours of employment in SNFs for

the purpose of constructing an SNF

wage index adjustment. Until this data

collection effort is completed and the

data are analyzed, we believe that the

hospital wage data provide the best

available measure of comparable wages

that would also be paid by SNFs. We

believe that the use of the hospital wage

data results in an appropriate

adjustment to the labor portion of the

costs based on an appropriate wage

index as required under section 1888(e)

of the Act.

For the rates effective with this rule,

we are using wage index values that are

based on hospital wage data from cost

reporting periods beginning in fiscal

year 1994—the most recent hospital

wage data in effect before the effective

date of this rule (see Table 2.I).

Accordingly, the wage index values

used in this rule are based on the same

wage data as used to compute the FY

1998 wage index values for the hospital

PPS.

d. Case-mix indices. As discussed in

section I, section 1888(e)(4) of the Act

requires us to make adjustments to the

Federal rates to account for the relative

resource use of different patient types

(that is, case-mix). In addition, the law

requires us to standardize the cost data

used in developing the Federal rates for

case-mix.

The goal of a case-mix payment

system is to measure the intensity of

care and services required for each

patient and translate it into an

appropriate payment level. Accordingly,

in making this adjustment, the Federal

rates will incorporate a patient

classification system based on intensity

of resource use with corresponding

payment weights.

As discussed previously, the patient

classification system utilized under this

PPS is RUG–III. RUG–III, a 44-group

patient classification system, provides

the basis for the case-mix payment

indices used both for standardization of

the Federal rates and subsequently to

establish the case-mix adjustments to

the rates for patients with different

service use. These indices reflect the

weight or value of each of the 44 RUG–

III groups relative to all the groups. A

full discussion of the design and

structure of RUG–III is presented later in

this section. These payment indices are
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26257

based on staff time measure (STM)

studies conducted in 1995 and 1997 that

measured the nursing and therapy staff

time required to care for groups of

residents. The STM is based on a 24-

hour period for nursing and therapy

services. Accordingly, there are separate

case-mix payment indices for nursing

and related services and for therapy

services.

The STM studies were conducted in

12 States across 154 SNFs and 2,900

residents. These States were Kansas,

Maine, Mississippi, South Dakota,

Texas, California, Colorado, Maryland,

Florida, Ohio, Washington, and New

York. The study utilized a stratified

sample of SNFs, including both

freestanding and hospital-based SNFs

and those with different care delivery

models. The resulting indices were

adjusted to account for the relative

salary differences between different

types of nursing staff (registered nurses,

licensed practical nurses, and aides) and

the different therapy disciplines

(occupational therapy, physical therapy,

and speech pathology). The adjustment

to the nursing index for relative salary

differences in nursing staff was based on

data from the American Health Care

Association’s 1995 study of national

nursing home salaries. The adjustment

to the therapy index for relative salary

differences among disciplines was based

on data from several different sources.

These sources were surveys from the

American Health Care Association, the

National Association for the Support of

Long-Term Care, the Bureau of Labor

Statistics, the American Rehabilitation

Association, the University of Texas,

Mutual of Omaha, and the Maryland

Health Cost Review Commission. They

were used in HCFA’s ‘‘best estimate’’

approach in the development of

rehabilitation therapy salary

equivalency guidelines. The schedule

detailing the national case-mix payment

indices is presented later in this section

(see Tables 2.E and 2.F).

e. MEDPAR case-mix analog. Section

1888(e)(4)(C) requires that the data used

in developing the Federal payment rates

be standardized to remove the effects of

geographic variation in case-mix.

Standardization ensures that the

aggregate impact of the case-mix

adjustments on the Federal rates does

not alter the aggregate payments that

would occur in the absence of such an

adjustment. In order to fulfill this

requirement, it is necessary to have data

on the average case-mix of each SNF in

our data base for its cost reporting

period beginning in fiscal year 1995.

Because a national source of MDS

derived case-mix data does not exist for

this period, it was necessary to utilize

existing data sources. Accordingly, to

provide national case-mix data on SNFs

in our data base, we constructed a

crosswalk between the RUG–III

categories and the data from all

Medicare claims in our Medicare

Provider Analysis and Review file

(MEDPAR).

The MEDPAR file is an analytical file

created from Part A Medicare hospital

and SNF claims and maintained by

HCFA. These claims are the basis of the

interim payments made by fiscal

intermediaries and contain information

on SNF stays paid for by Medicare Part

A nationwide. Although Medicare

claims information does not include all

the data elements necessary to classify

SNF patients exactly as they are in

RUG–III, it does contain sufficient

information to assign Medicare SNF

patients to RUG–III categories at a

general level. Classification into a RUG–

III category is based on detailed clinical

information from the patient assessment

performed in the SNF. The claims in the

MEDPAR file do not have the level of

clinical detail required for classification

into the RUG–III categories but do have

basic clinical information that has been

required on the claim for payment in the

cost-based Medicare payment system.

By using the clinical information in the

MEDPAR file to crosswalk to the RUG–

III grouping specifications, we were able

to model how the national Medicare

SNF population will classify into RUG–

III categories. The model is referred to

as the ‘‘MEDPAR analog.’’ The value of

the MEDPAR analog is that it provides

a means to use available data to examine

the case-mix of Medicare SNF patients

nationally.

In order to examine case-mix based on

the MEDPAR file data, it was necessary

to recognize certain limitations of this

file, identify where crosswalks could be

made between the data contained in the

MEDPAR file and that needed to assign

an SNF patient to a RUG–III group, and

establish proxy criteria where feasible to

make more case classifications possible.

One limitation of the analog results

from the Medicare coverage rules for

physical, occupational, and speech

rehabilitation therapy services.

Rehabilitation therapy provided in the

SNF is covered under Part A (and

thereby will have claims data in

MEDPAR), unless the services are

provided by an independent agency, in

which case they may be billed under

Part B (although our analysis of Part B

supplier bills indicated relatively few

rehabilitation therapy services being

billed in this way). In addition, a small

number of facilities do not detail

rehabilitation therapy charges in their

claims. For these reasons, the MEDPAR

proxy may not be a complete record of

all the services a patient in the SNF may

receive during the course of a

beneficiary’s stay.

In spite of these limitations, MEDPAR

is a reasonable tool to use in

approximating the RUG–III categories

related to Medicare SNF claims and

appropriate for use in rate

standardization. The file contains ICD–

9–CM (International Classification of

Diseases, Ninth Edition, Clinical

Modification) diagnosis and procedure

codes that provide a partial clinical

profile of the patient supplemented by

lengths of stay, revenue codes that

represent types of services provided

during each nursing home stay, and

limited admission and discharge

information. In addition, some of the

facilities report rehabilitation charge

information, making it possible for us to

approximate frequency and duration of

rehabilitation therapies, as well as to

directly reproduce which discipline

provided services.

The analog was first created in 1993,

using the 1990 MEDPAR SNF file and

an earlier version of the Minimum Data

Set (MDS), the MDS+. We updated that

work for the national implementation

analyses, using instead the 1997

MEDPAR SNF file and the MDS 2.0. As

stated above, the MDS 2.0 collects

extensive patient information that

includes demographic information,

diagnoses, medication use, nursing

rehabilitation services, activities of daily

living (ADL) capabilities, and minutes

per day of rehabilitative services

provided. This information is the basis

for assignment to a particular RUG–III

group. Thus, in the creation of the

MEDPAR analog, MDS+ (and now, MDS

2.0) definitions formed the key against

which MEDPAR diagnosis and revenue

service codes were matched.

The RUG–III classification system is a

hierarchy of major patient types,

organized into seven major categories.

The categories are Rehabilitation,

Extensive Services, Special Care,

Clinically Complex, Impaired Cognition,

Behavior Problems, and Reduced

Physical Function. Each of these

categories is further differentiated to

yield the 44 specific patient groups used

for payment.

The categories and groups within

them are based on the research findings

of staff time measurement studies

performed in 1990, 1995, and 1997,

described in detail below. Through

analyses of the patient characteristics

recorded on the MDS and the staff time

associated with caring for patients in

nursing homes, clinical criteria were

identified that were predictive of

resource use, and categories were
26258 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

formed that would group patients

according to resource use. The criteria

for each category were derived from the

actual staff time measurement study

data.

The information contained in the

MEDPAR file is not adequate to enable

differentiation to the 44 groups,

however. Therefore, the analog classifies

patients only to the category level.

There are seven RUG–III categories:

Rehabilitation, Extensive Services,

Special Services, Clinically Complex,

Impaired Cognition, Behavior, and

Physical. The Rehabilitation category

has five sub-categories, based on the

number of minutes therapy is provided

and the number of disciplines providing

service. The sub-categories are: Ultra

High, Very High, High, Medium, and

Low. Using the crosswalk model, we

were able to classify the claims in the

MEDPAR file into the five rehabilitation

therapy sub-categories and four of the

remaining six categories: Extensive

Services, Special Services, Clinically

Complex, and Impaired Cognition.

There were no available data elements

in the MEDPAR to crosswalk for

classification into the Behavior or

Physical categories.

(1) Rehabilitation category. This is the

most complex RUG–III category to

crosswalk using the MEDPAR data base.

A patient classifies into the

Rehabilitation category based on the

minutes per week of rehabilitation

therapy services received. We also

considered whether more than one of

the rehabilitation disciplines provided

services. MEDPAR data do not include

minutes of service, but do reflect types

of service provided. We, therefore, used

charges as a proxy for minutes in

approximating the amounts of service

each beneficiary received. Since service

patterns had to be approximated using

ranges of rehabilitation therapy charges,

great attention was paid to developing

decision rules that would yield the most

accurate description possible using

Medicare claims. In addition, there are

five levels of intensity within the

Rehabilitation category. Using research

study findings (Marsteller, Jill A. and

Korbin Liu, ‘‘High End Therapy

Patients: How Many and How Much?’’

Washington, DC, The Urban Institute,

May 1994) and consultation with

rehabilitation professionals, upper and

lower charge limits were set to create

groupings like each of the five RUG–III

Rehabilitation categories.

As previously mentioned, nursing

home case-mix is not a direct function

of diagnosis. Diagnosis obviously has a

role in determining what services a

patient receives, but it is the services

themselves, with the staff time required

to provide them, that determine casemix in nursing homes. Thus, for the

Rehabilitation categories, the RUG–III

system uses measures of staff time and

service frequency, variety, and duration

to classify patients. The criteria are in

the form of minimum numbers of

minutes of therapy per day or per week,

minimum frequencies of therapy

sessions over a week, and minimum

numbers of therapy disciplines used per

patient. While the MEDPAR analog can

directly reproduce the variety of therapy

given, frequency and duration can only

be approximated using Part A covered

charges for skilled therapy thought to be

commensurate with certain patterns of

service.

The five Rehabilitation sub-categories

for the MEDPAR analog were

determined using ranges of covered

charges per day to approximate the

RUG–III criteria. The ranges of covered

charges used to classify the MEDPAR

cases were based on an average charge

of $300 per day for rehabilitation

services. This amount is based on the

covered charges for rehabilitation

therapy in the MEDPAR file. To group

cases using the MEDPAR file, the

following ranges of covered charges

were used: the Low Rehabilitation subcategory ranges from $150 per day and

below in any combination of types of

skilled therapy; the Medium

Rehabilitation sub-category ranges from

$150 to $199 per day in any

combination of therapies; the High

Rehabilitation sub-category ranges from

$200 to $299 per day in any

combination of therapies; the Very High

Rehabilitation sub-category ranges from

$300 to $399 per day in any

combination of therapies (or $400 per

day and above if only one therapy); and

the Ultra High Rehabilitation subcategory range encompasses any case

with covered charges higher than $400

per day in at least two of the three

therapies. Refer to Table 2.C for

comparison of these charge ranges to the

number of minutes per day and per

week required by the RUG–III system.

We set a threshold at $1,000 of

covered charges for rehabilitation

therapy services as a minimum for

classification into any of the

rehabilitation sub-categories. We based

this on our finding, based on claims in

the National Claims History file, that

$400 is a common charge for an initial

evaluation and $250 is a common

charge for treatment by licensed

therapists. Thus, we determined this

threshold amount as representative of

patients who received an evaluation by

a professional rehabilitative therapist

but no substantial course of

rehabilitative therapy. That is, claims

for patients with total therapy charges

less than $1,000 were identified as

having received an initial evaluation to

determine the need for therapy but

generally received no more than 1 week

of rehabilitative therapy services.

Using the MEDPAR file, there was no

way to approximate the nursing

rehabilitation component of the RUG–III

Low Rehabilitation sub-category. It was

possible, however, to model

rehabilitative therapy (of less than 5

days per week) using therapy charges

that parallel such a pattern of treatment.

The Ultra High Rehabilitation subcategory is intended to apply only to the

most complex cases requiring

rehabilitative therapy well above the

average amount of service time. This

translates into higher charges for

therapy services, both because treatment

is more frequent and complex, and

because length of stay is longer than for

other skilled rehabilitation groups. In

line with the intended complexity of

this classification group, the lowest

charge that the Ultra High sub-category

includes is $400 per day in at least two

of the three therapies.

The RUG–III criteria for Ultra High

Rehabilitation are:

• Two of the three rehabilitation

therapy disciplines are represented.

• At least 720 minutes of treatment

per week across the three disciplines.

• One discipline providing services at

least 5 days per week.

The remaining three sub-categories,

Very High, High, and Medium

Rehabilitation are not driven by a

specific number of disciplines

represented. All three require at least 5

days per week of skilled rehabilitative

therapy, but they are split according to

weekly treatment time. The Very High

cases must be receiving 500 minutes per

week and must be receiving at least one

of the disciplines all 5 days; any

additional disciplines will count toward

the total time, but no other disciplines

are required for assignment to this subcategory. Similarly, those in the High

sub-category must be receiving a

minimum of 325 minutes per week and

this time must include one of the

rehabilitation disciplines being

provided daily (at least 5 days per

week). Cases in the Medium subcategory must be receiving at least 150

minutes of skilled rehabilitation in any

combination of disciplines over the

minimum 5 days (or five 30-minute

sessions).

(2) Non-rehabilitation categories. As

stated above, MEDPAR contains ICD–9–

CM codes as the variables describing

patient diagnoses and procedures. This

numerical coding system is used by

hospitals to report patient information,
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26259

and nursing homes use these codes on

a more limited basis for reporting. The

MDS 2.0 has many of the most prevalent

diagnoses found in this patient

population listed for check-off by the

nurse performing the assessment, with a

section elsewhere on the form available

to write in any relevant additional ICD–

9–CM codes. The analog for the nonrehabilitation categories was created by

matching the ICD–9–CM codes in the

MEDPAR file to as much of the specific

clinical criteria on the MDS 2.0 used to

classify residents into the Extensive

Services, Special Care, Clinically

Complex, and Impaired Cognition

categories.

Certain RUG–III criteria could not be

satisfactorily coded by an ICD–9–CM

code. Although we could capture the

clinical characteristics of the patients,

many of the items used to assign

patients to specific RUG–III groups are

not included in the ICD–9–CM coding

scheme. In the Clinically Complex

category, for example, the number of

physician visits or order changes is a

qualifying factor that cannot be captured

by an ICD–9–CM code, and will not be

reported in the MEDPAR file. Similarly,

we could not capture the patient’s ADL

capabilities.

For the lower categories, Impaired

Cognition, Behavior Only, and Physical

Function Reduced, our ability to match

the MDS 2.0 items to those likely to be

reported on the MEDPAR was greatly

diminished. We were able to identify a

few codes with which to group some of

the cases that would fall into the

Cognitively Impaired category, but there

were no ICD–9–CM codes that describe

the patients who meet the criteria for

the remaining two categories. Therefore,

the analog only groups patients into the

top five categories, leaving all other

cases as unclassified.

(3) Case-mix using the analog. As

explained above, in the RUG–III system,

the case-mix index is a function of the

distribution of residents in each of the

categories, further detailed across the

ADL index, and then by service counts,

depression, or nursing rehabilitation

services. ADLs, nursing rehabilitation,

depression, and service counts could

not be modeled using MEDPAR. For the

analog, the nursing and nursing/therapy

weights could not be applied to the

second and third levels of the RUG–III

system. In the Rehabilitation category,

weights for the five sub-categories were

combined.

f. Skilled Nursing Facility market

basket index. Section 1888(e)(4) of the

Act requires the Secretary to establish

an 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. The

SNF market basket index is used to

develop the Federal rates and also to

update the Federal rates on an annual

basis beginning in fiscal year 2000. We

have developed an SNF market basket

index that consists of the most

commonly used cost categories for SNF

routine services, ancillary services, and

capital-related expenses. A complete

discussion concerning the design and

application of the SNF market basket

index and the factors used in

developing the payment rates is

presented in section IV of this rule.

3. Methodology Used for the Calculation

of the Federal Rates

The methodology used to compute the

per diem standardized Federal rates was

a multi-step process combining each of

the data sources described above. This

section details each of these steps. The

schedule of Federal rates (Tables 2.G

and 2.H) that results from this

methodology is presented later in this

section.

a. Per diem costs. In developing the

per diem costs of SNFs, the cost data

(including the estimate of Part B costs)

for each facility are separated in

components based on their relationship

to the case-mix indices described above.

This facilitates both the standardization

of costs for case-mix and, similarly, the

application of appropriate case-mix

adjustment to the Federal rates. Costs

related to nursing (excluding nurse

management) and social services

salaries (including benefits) and total

costs (after allocation) of non-therapy

ancillary services are grouped in the

component related to the nursing index.

Our analysis of patient level charges for

these non-therapy ancillary services

indicates a correlation between the

RUG–III classification system and these

services.

Occupational, physical, and speech

therapy costs (after allocation) are

grouped in the component related to the

therapy index. The majority of SNF

therapy costs are included in this

therapy component of the per diem rate.

As can be seen in the schedule of rates

presented in Tables 2.E and 2.F, the

therapy component of the per diem rates

is only applicable to the 14 RUG–III

therapy groups. However, through our

analysis of Medicare claims and other

data, we observed a low level of therapy

services being utilized by patients that

would not be classified into a RUG–III

therapy group. These therapy services

would include evaluations for

rehabilitation in one or more of the

therapy disciplines. Therefore, in order

to provide more appropriate payment

levels in the non-therapy RUG–III

groups, we estimated therapy costs in

our data base associated with nontherapy RUG–III groups. These costs

were grouped into the non-case-mix

component of costs but, as can be seen

in the rate schedule, are only applicable

to the non-therapy RUG III groups.

This estimate was determined using

the percentage of therapy charges by

discipline for each facility in our data

base associated with the non-therapy

RUG–III RUG categories as determined

by the MEDPAR Analog. This

percentage was applied by discipline to

the therapy costs in each facility’s cost

report data. The results of this

calculation are presented in Tables 2.A

and 2.B. All other costs are grouped in

the non-case-mix related component.

For each facility in the data base,

components are converted to a per diem

by dividing the costs by Medicare days.

For the therapy component, costs are

divided by the number of Medicare days

related to patients receiving therapy. For

the remaining components, costs are

divided by total Medicare days. For

each component of cost, an outlier

elimination process is performed to

eliminate aberrant values. Facilities

with per diem amounts greater than

three standard deviations from the

geometric mean are determined to be

outliers and are eliminated from the

calculation of the per diem cost for that

component.

As required by section 1888(e)(4)(E)(i)

of the Act, all costs are updated from the

base year to the initial period of the PPS

(that is, the 15-month period beginning

July 1, 1998 and ending September 30,

1999) using the SNF market basket

index described in section IV of this

rule (see Tables 4.D. and 4.E). As

required by the statute, this update is

determined using the annual SNF

market basket percentage minus 1

percentage point.

b. Updating the data. The SNF market

basket index is used to adjust each per

diem amount forward to reflect cost

increases occurring between the

midpoint of the cost reporting period

represented in the data and the

midpoint of the initial period (beginning

July 1, 1998 and ending September 30,

1999) to which the payment rates apply.

In accordance with section 1888(e)(4)(B)

of the Act, the cost data are updated for

each year between the cost reporting

period and the initial period by a factor

equivalent to the annual market basket

index percentage minus 1 percentage

point.

c. Standardization of cost data.

Section 1888(e)(4)(C) of the Act requires

that the Secretary standardize the

updated cost data for each facility for

the effects of case-mix and geographic
26260 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

differences in wage levels. In order to

standardize for wage differences, the

proportion of labor related and nonlabor related components of SNF costs

must be identified. These proportions

are based on the relative importance of

the different components of the SNF

market basket index (see Table 4.C).

Accordingly, the labor-related portion of

costs is 75.888 percent of costs while

the non-labor portion is 24.112 percent.

Costs are standardized for geographic

differences in wage levels using the

hospital wage index (described earlier

in this section).

To standardize the cost data for the

effects of case-mix, we used the

MEDPAR Analog on claims data

applicable to the fiscal year 1995 cost

reporting periods in the data base. This

allowed us to classify each SNF’s

residents into one of 10 RUG–III

categories produced by the analog. By

applying the case mix indices

applicable to the RUG–III categories

assigned by the analog, we were able to

develop average case-mix index values

(nursing and therapy) for each facility.

As described below, these index values

were used in standardizing SNF costs

for case-mix.

As discussed earlier in this rule, a

MEDPAR Analog is used to standardize

for case-mix because actual MDS data

are not available on a national level.

However, in order to correct for

systematic differences between the casemix estimates produced by the analog

method and the method that will be

used under this PPS (that is, based on

MDS data), a sensitivity analysis of the

analog was performed. This analysis

involved a comparison of case-mix

values (based on the application of the

case-mix indices) generated by the

analog and corresponding values

generated from actual MDS resident

assessments for a sample of SNFs and

patients. While the availability of such

comparative data is limited, we were

able to draw a sample from the States

participating in the Multistate Nursing

Home Demonstration that included

patients from approximately 100 SNFs

in five States. The sample contained

13,354 Medicare claims covering

139,766 days of care. On average, casemix values based on MDS data are 3

percent higher than analog-based values

for the nursing index and 28 percent

higher for the therapy index. This

variance produced by the analog in the

assignment of case-mix values is

factored into the standardization

methodology to ensure the rates are set

at the appropriate level.

Each urban and rural component of

per diem cost is standardized for

differences in wage levels and case-mix

by dividing total unstandardized cost by

a standardization factor that reflects

each facility’s wage level and case-mix.

This factor is based in part on each

facility’s wage adjustment (.7588 times

its wage index plus .2412) multiplied by

the appropriate case-mix value and

number of days of care. These facility

values are summed to obtain the

standardization factor. The standardized

cost is divided by the appropriate total

days to obtain the standardized per

diem cost.

This process equates per diem

standardized cost (per diem cost

adjusted for individual facility wage and

case-mix differences) to per diem

unstandardized cost. In this manner,

standardization accounts for the

application of individual facility wage

index and case-mix adjustments to the

per diem payment rates without altering

the aggregates of the per diem cost data

used to construct the per diem payment

rates.

d. Computation of national

standardized payment rates. Section

1888(e)(4)(D)(iii) of the Act authorizes

the Secretary to compute separate

payment rates for SNFs in urban and

rural areas as defined in section

1886(d)(2)(D). Under the statute, urban

areas are those defined by the Office of

Management and Budget as

metropolitan statistical areas (MSAs) or

New England County Metropolitan

Areas (NECMAs). All other areas are

considered rural areas. Table 2.I

showing the wage index indicates all

areas considered urban for purposes of

establishing these rates.

Using the data described above and

the formula prescribed in section

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

the national average per diem

standardized payment rates separately

for urban and rural SNFs using the

following steps. The unadjusted Federal

rates resulting from this calculation are

presented in Tables 2.A and 2.B below.

(1) As required by section

1888(e)(4)(D)(ii) of the Act, for each of

the four components of cost, we

computed the mean based on data from

freestanding SNFs only. This mean was

weighted by the total number of

Medicare days of the facility.

(2) As required by section

1888(e)(4)(D)(i) of the Act, for each of

the four components of cost, we

computed the mean based on data from

both hospital-based and freestanding

SNFs. Again, this mean was weighted

by the total number of Medicare days of

the facility.

(3) As required by section

1888(e)(4)(E)(i) of the Act, for each of

the four components of cost, we

calculated arithmetic mean of the

amounts determined under steps (1) and

(2) above.

(4) The unadjusted Federal rate for the

initial period is calculated differently

depending on the RUG–III case-mix

grouping. For the 14 RUG–III therapy

groups, the unadjusted Federal rate is

the sum of the nursing case-mix, noncase-mix and therapy case-mix

components. For other RUG–III groups,

the unadjusted Federal rate is the sum

of the nursing case-mix, non-case-mix

and therapy non-case-mix components.

TABLE 2.A.—UNADJUSTED FEDERAL RATE PER DIEM

[Urban]

Rate component Nursing—

case mix

Therapy—

case mix

Therapy—

non-case

mix

Non-case

mix

Per Diem Amount ............................................................................................................. $109.48 $82.67 $10.91 $55.88

TABLE 2.B.—UNADJUSTED FEDERAL RATE PER DIEM

[Rural]

Rate Component Nursing—

case mix

Therapy—

case mix

Therapy—

non-case

mix

Non-case

mix

Per Diem Amount ............................................................................................................. $104.88 $95.51 $11.66 $56.95
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26261

B. Design and Methodology for Case-Mix

Adjustment of Federal Rates

As indicated earlier, section

1888(e)(4)(G) of the Act requires that the

Federal rates be adjusted for case-mix

(the relative resource utilization of

patients). The RUG-III classification is a

patient classification system that

accounts for the relative resource

utilization of different patient types. To

adjust for case-mix, care provided

directly to, or for, a patient is

represented by an index score (case-mix

index) that is based on the amount of

staff time, weighted by salary levels,

associated with each group. That is,

each RUG-III group is assigned an index

score that represents the amount of

nursing time and rehabilitation

treatment time associated with caring

for the patients who qualify for the

group. The nursing weight includes

both patient-specific time spent daily on

behalf of each patient type by registered

nurses, licensed practical nurses, and

aides, as well as patient non-specific

time spent by these staff members on

other necessary functions such as staff

education, administrative duties, and

other tasks associated with maintenance

of the care giving environment.

The case-mix indices are applied to

the unadjusted rates presented above

resulting in 44 separate rates, each

corresponding with one of the 44 RUG–

III classification groups. To determine

the appropriate payment rate, SNFs are

required to classify patients into a RUG–

III group based on assessment data from

the MDS 2.0. The design and structure

of RUG–III and the methodology and

Federal policy associated with the

classification of patients into RUG–III

groups, including the completion of

assessments (MDS 2.0) for Medicare

patients, under this PPS, are described

in the following pages.

1. Background on the Resource

Utilization Groups (RUGs) Patient

Classification System

As part of the Nursing Home CaseMix and Quality demonstration project,

Version III of the Resource Utilization

Groups (RUG–III) case-mix classification

system was developed to capture

resource use of nursing home patients

and to provide an improved method of

tracking the quality of their care.

RUG–III is a 44-group model for

classifying nursing home patients into

homogeneous groups according to the

amount and type of resources they use.

The RUG–III groups are the basis for the

payment indices used to establish

equitable prospective payment levels for

patients with different service use. Care

provided directly to, or for, a patient is

represented by an index score that is

based on the amount of staff time,

weighted by salary levels, associated

with each group. That is, each RUG–III

group is assigned an index score that

represents the amount of nursing time

and rehabilitation treatment time

associated with caring for the patients

who qualify for the group. The nursing

weight includes both patient-specific

time spent daily on behalf of each

patient type by registered nurses,

licensed practical nurses, and aides, as

well as patient non-specific time spent

by these staff members on other

necessary functions such as staff

education, administrative duties, and

other tasks associated with maintenance

of the care giving environment.

The principal goal of case-mix

measurement is to identify patient

characteristics associated with

measured resource use. In nursing

homes, no adequate models have been

found for using length of stay or episode

cost to explain resource use. Thus, the

RUG–III nursing home case-mix system

explains patient resource use on a daily

basis.

The classification system was

designed using resident characteristic

information and measures of wageweighted staff time. Information

regarding a patient’s characteristics and

care needs is derived from the MDS, a

set of core screening and assessment

items and item definitions. The MDS is

part of a standardized, comprehensive

patient assessment instrument (the

Resident Assessment Instrument or RAI)

that all long term care facilities that are

certified to participate in Medicare or

Medicaid are required to use to develop

individualized plans of care for each

individual in the facility. The staff time

measure (STM) study captured the

amount of nursing staff time required to

care for groups of residents over a 24-

hour period and over the span of a week

for therapy services.

Patient assessment and staff time data

used to develop the initial version of the

RUG–III classification system were

collected from March to December 1990

for 7,648 patients in 202 nursing

facilities in Kansas, Maine, Mississippi,

South Dakota, Nebraska, Texas, and

New York. Since then, two more staff

time data collections have been

performed on 154 Medicare certified

units of hospital and freestanding

facilities in 12 States (California,

Colorado, Florida, Kansas, Maine,

Maryland, Mississippi, New York, Ohio,

South Dakota, Texas, and Washington).

Only units that were judged to be

providing adequate care were

considered for participation in the

study. Of these, States were asked to

select facilities that included 35 percent

Medicare certified units, 25 percent

hospital units, and two Alzheimer’s

units. ‘‘Unit’’ was defined as a nursing

center such as a corridor or a floor,

controlled from one nursing station. The

remainder of the sample was selected by

the State’s demonstration project staff to

represent the characteristics of the

State’s nursing homes.

The sample was purposefully targeted

toward residents needing complex care

and/or with cognitive impairments. This

assured that sufficient numbers of

patients with rare types of complex care

needs were included in the sample.

Facilities with special care units (for

example, Alzheimer’s or Rehabilitation

units) that participated in the study

were also asked to provide data from a

non-specialized unit.

During the data collection, personnel

on the study units electronically

recorded all of the time in their work

days: time providing services directly to

patients; in activities related to specific

patients, such as charting or

consultation with family members or

other members of the patient care team;

as well as time that is not attributable

to any particular patient, like that spent

in meetings, in training, on breaks, etc.

The time was allocated according to

whether or not it was directly related to

a particular patient, and was categorized

as either patient specific time or nonpatient specific time.

Those data have been used to modify

the classification system to create the

current RUG–III and establish updated

average staff times to be salaryweighted. Analyses of the staff time data

in conjunction with the patient MDS

information identified three main

predictors of a patient’s resource

utilization: (1) clinical characteristics;

(2) limitations in the activities of daily

living (ADLs); and (3) skilled services

received. The RUG–III classification

system uses these three types of

variables to describe SNF patients for

the purposes of determining the relative

cost of caring for different types of

patients (case-mix).

Analysis of the data indicated that

patients with serious clinical conditions

such as dehydration and respiratory

infections, as well as patients who were

very dependent in ADLs, require more

nursing time than patients without

complicating conditions. The RUG–III

classification system resulting from the

analyses is hierarchical. The clinical

characteristics of patients, as identified

by the MDS, that were associated with

the greatest utilization of nursing time

and rehabilitative therapy time, were

used to categorize patients into the

highest case-mix classification groups.
26262 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

Similarly, the clinical characteristics

associated with the lowest utilization of

nursing time were used to categorize

patients into the lowest case-mix

classification group. Not all clinical

characteristics are recognized separately

by the classification system. Only those

characteristics that were predictive of

resource use and that would not

introduce incentives that are considered

to be negative, or not compatible with

high quality patient care, are used to

classify patients into RUG–III groups.

Table 2.C shows the mutually

exclusive, layered categories of the

RUG–III classification system. The table

describes which patient clinical

characteristics, levels of assistance used

in performing ADLs, and services are

used to assign the patient to a RUGs

group. Clinical characteristics include

the patient diagnoses, conditions, and

comorbidities. ADLs include bed

mobility, toilet use, transfer from bed to

chair, and eating. Patients receive a

single RUG–III ADL score that measures

the patient’s ability to perform these

activities (scores range from 4–18;

higher scores represent greater

functional dependence and a need for

more assistance). Finally, treatments

and services include respiratory

therapy, amount of rehabilitation

received, and treatments such as

suctioning and intravenous medication

administration.

TABLE 2.C.—CROSSWALK OF MDS 2.0 ITEMS AND RUG III GROUPS

Category ADL index End splits MDS RUG

III codes

REHABILITATION

ULTRA HIGH ...................................................................................................... 16–18 Not Used ............................................. RUC

Rx 720 minutes/week minimum ......................................................................... 9–15 Not Used ............................................. RUB

At least 2 disciplines, one at least 5 days/week ................................................ 4–8 Not Used ............................................. RUA

VERY HIGH ........................................................................................................ 16–18 Not Used ............................................. RVC

Rx 500 mins. a wk. minimum ............................................................................. 9–15 Not Used ............................................. RVB

At least 1 discipline—5 days .............................................................................. 4–8 Not Used ............................................. RVA

HIGH ................................................................................................................... 13–18 Not Used ............................................. RHC

Rx 325 mins. a wk. minimum ............................................................................. 8–12 Not Used ............................................. RHB

1 discipline 5 days a week ................................................................................. 4–7 Not Used ............................................. RHA

MEDIUM ............................................................................................................. 15–18 Not Used ............................................. RMC

Rx 150 mins. a wk. minimum ............................................................................. 8–14 Not Used ............................................. RMB

5 days across 3 disciplines ................................................................................ 4–7 Not Used ............................................. RMA

LOW—Rx 45 minutes/week over at least 3 days .............................................. 14–18 Not Used ............................................. RLB

Nursing rehabilitation 6 days/week, 2 activities ................................................. 4–13 Not Used ............................................. RLA

EXTENSIVE SERVICES—(Adlsum <7 Special)

IV Feeding in last 7 days ............................................................................ 7–18 count of other categories code ........... SE3

In last 14 days, IV medications, suctioning ................................................ 7–18 into plus IV .......................................... SE2

Tracheostomy care, ventilator/respirator .................................................... 7–18 Meds +Feed ........................................ SE1

SPECIAL CARE—(ADLSUM <7 Clin. Complex)

MS, Quad, or CP with ADLsum >=10, Resp. Ther.=7 days ...................... 17–18 Not Used ............................................. SSC

Tube fed and aphasic; Radiation tx; Rec’g tx for surgical wnds/lesions or

ulcers (2=sites, any stg; 1 site stg 3 or 4).

15–16 Not Used ............................................. SSB

Fever with Dehy., Pneu., Vomit., Weight Loss, or Tube Fed ..................... 7–14 Not Used .............................................

(Extensive <7 ADL) .............................

SSA

CLINICALLY COMPLEX—Burns, Coma, Septicemia, Pneumonia, Footwnds,

Internal Bld, Dehyd, Tube fed (minimum.

17–18D Signs of depression ............................ CC2

501 ml. fl, 26% cals), Oxygen, Transfusions ..................................................... 17–18 .............................................................. CC1

Hemiplegia with ADL sum >=10, Chemotherapy, Dialysis ................................ 12–16D Signs of depression ............................ CB2

No. of Days in last 14—Phys. Visits/makes order changes: ............................. 12–16 .............................................................. CB1

visits>=1 and chng.>=4; or visits>=2 and chng.>=2 ................................... 4–11D Signs of depression ............................ CA2

Diabetes with injection 7 days/wk and order chng.>=2 days ............................ 4–11 (Special <7 ADL) ................................. CA1

IMPAIRED COGNITION:

Score on MDS2.0 Cognitive ....................................................................... 6–10 Nursing rehabilitation not receiving ..... IB2

Performance Scale >=3 .............................................................................. 6–10 .............................................................. IB1

(Score of ‘‘6’’ will be Clin. Comp. or PE2–PD1) ......................................... 4–5 Nursing rehabilitation not receiving ..... IA2

IA1

BEHAVIOR ONLY:

Code on MDS 2.0 items ............................................................................. 6–10 Nursing rehabilitation not receiving ..... BB2

4+ days a week ........................................................................................... 6–10 .............................................................. BB1

wandering, physical or verbal abuse .......................................................... 4–5 .............................................................. BB2

inappropriate behavior or resists care ........................................................ 4–5 .............................................................. BA1

or hallucinations, or delusions .................................................................... 4–5 .............................................................. BA1

PHYSICAL FUNCTION REDUCED:

No clinical variables used ........................................................................... 16–18

16–18

11–15

Nursing rehabilitation not receiving ..... PE2

PE1

Nursing Rehab. Activities >=2, at least 6 days a wk .................................. 11–15 Nursing rehabilitation not receiving ..... PD2

PD1

Passive or Active ROM, amputation care, splint care ................................ 9–10 Nursing rehabilitation .......................... PC2

Training in dressing or grooming, eating or swallowing ............................. 9–10 not receiving ........................................ PC1

transfer, bed mobility or walking, communication, scheduled toileting program or bladder retraining.6–8

6–8

4–5

4–5

Nursing rehabilitation not receiving .....

Nursing rehabilitation not receiving .....

PB2

PB1

PA2

PA1
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26263

TABLE 2.C.—CROSSWALK OF MDS 2.0 ITEMS AND RUG III GROUPS—Continued

Category ADL index End splits MDS RUG

III codes

Default

Source: Analysis of the 1995 Medicare Units Staff Time.

Study: Update of RUG III Classification MDS.

2. The RUG–III Classification System

In the RUG–III classification system,

patient characteristic and health status

information from the MDS, such as

‘‘diagnoses,’’ ‘‘ability to perform ADLs,’’

and ‘‘treatments received,’’ will be used

to assign the patient to a resource group

for payment. The RUG–III system is a

hierarchy of major patient types. RUG–

III consists of seven major categories

that are the first level of patient

classification. The major categories, in

hierarchical order, are Rehabilitation,

Extensive Services, Special Care,

Clinically Complex, Impaired Cognition,

Behavior Problems, and Reduced

Physical Function. These major

categories are further differentiated into

44 more specific patient groupings.

Except for Rehabilitation and Extensive

Services, these categories are first

subdivided into groups based on the

patient’s ADL score. The next level of

subdivision is based on nursing

rehabilitation services and signs of

depression.

The initial subdivision of the

Rehabilitation category is based on

minutes per week of rehabilitative

therapy services. The second level of

subdivision uses ADL score. The

Extensive Services category does not use

ADL limitations except as a threshold

for assignment into the category. Rather,

services that require more technical

clinical knowledge and skill are the

variables used for assignment of patients

into this category. Examples of these

services are intravenous feeding or

medications and tracheostomy care.

For example, the Special Care

category includes patients with

quadriplegia, multiple sclerosis, surgical

wound(s), open lesions, fever with

vomiting, dehydration, pneumonia, tube

feedings, or weight loss, those who are

aphasic and need to be tube fed, those

receiving treatment for 2 or more skin

ulcers, and patients who are receiving

radiation therapy. Any patient with one

or more of these conditions, who is not

receiving rehabilitation services, will be

assigned to this category. The patient’s

assignment to one of the three groups

within this category is dependent on the

patient’s ADL score.

The Rehabilitation category is

organized differently than the clinical

categories that follow in the hierarchy.

Within this category, there are five subcategories (Ultra High, Very High, High,

Medium, and Low) that are then further

split into the individual groups for

payment. The sub-categories are defined

by minutes per week of rehabilitation

received by the patient, number of

rehabilitation disciplines providing

service, and the number of days per

week on which rehabilitation services

were provided. Assignment into a

specific payment group is based on the

patient’s ability to perform certain of the

activities of daily living as represented

by his ADL score. As stated elsewhere,

the patient is assessed on his ability to

perform independently all of the

activities of daily living and is assigned

an ADL sum score that represents

performance of the four ‘‘late loss’’

ADLs. The ‘‘late loss’’ ADLs used in the

MDS ADL sum score are: eating;

toileting; bed mobility; and transferring.

A brief description of the respective

RUG–III categories follows.

Rehabilitation: This category includes

patients who, if they were not receiving

rehabilitation therapy, would qualify for

one of the other RUG–III skilled care

categories. This category is divided into

subcategories based on the number of

minutes of rehabilitative services

received in a week, combinations of

rehabilitation disciplines providing

services, receipt of nursing

rehabilitative services, and the patient

ADL scores. The range of rehabilitation

therapy minutes per day represented in

the Rehabilitation category varies from a

low of 45 minutes per week to a high

of more than 720 minutes per week.

Patients who qualify for assignment to

the Ultra High Rehabilitation subcategory receive at least 720 minutes per

week of rehabilitation therapies. At least

two disciplines must be providing

services: one of the disciplines must

provide services 5 days each week, and

the other must provide services at least

3 days each week. In contrast, patients

assigned to the lowest rehabilitation

sub-category, Low Rehabilitation, must

receive at least 45 minutes of

rehabilitative therapy services across at

least 3 days each week, in addition to

6 days per week of nursing

rehabilitation in two activities.

Extensive Services: To qualify for this

category, patients must have, in the past

14 days, received intravenous

medications, tracheostomy care,

required a ventilator/respirator, required

suctioning, or must have, in the past 7

days, received intravenous feeding. In

addition, the patients assigned to this

category will have an ADL score that is

at least 7.

Each patient in the extensive services

category is assigned a score of 0–5 based

on five criteria. The score is used to

classify the patient to one of the three

RUG–III groups in this category—0 or 1

will classify into the SE1 group, those

with scores of 2 or 3 will go to SE2, and

those with 4 or 5 will group to SE3.

For the following five criteria, the

patient receives one point for each

criterion that applies to him or her. The

first three criteria are presence of a

clinical condition that qualifies the

patient for classification to the Special

Care category, Clinically Complex

category, or the Cognitively Impaired

category. The fourth and fifth criteria

are whether the patient is receiving

intravenous feeding or whether the

patient is receiving intravenous

medication.

For example, a person who qualifies

for both the Cognitively Impaired and

Special Care categories will be assigned

a score of 2 and will be classified into

the SE2 group. Similarly, a patient who

is ventilator dependent and requires

suctioning will be assigned a score of 0

and will be classified into SE1.

Special Care: Patients who are

assigned to this category have at least

one of the following: multiple sclerosis,

cerebral palsy, quadriplegia with an

ADL score of 10 or more, or receive

respiratory therapy 7 days per week;

have, and receive treatment for, pressure

or stasis ulcers on 2 or more body sites;

have a surgical wound(s) or open

lesions; be tube fed with at least 26

percent of daily calorie requirements

and at least 501 ml of fluid through the

tube per day, and aphasic; receive

radiation therapy; or have a fever in

combination with dehydration,

pneumonia, vomiting, weight loss, or

tube feedings.

Clinically Complex: Patients qualify

for this category if they are comatose,

have burns, septicemia, pneumonia,

internal bleeding, dehydration, dialysis,

hemiplegia in combination with an ADL
26264 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

score of 10 or more, receive

chemotherapy, tube feedings that

comprise at least 26 percent of daily

calorie requirements and at least 501 ml

of fluid through the tube per day,

treatments for foot wounds, or

transfusions. Also included in this

category are diabetics who receive

injections 7 days per week and who

have two or more physician order

changes in the past 14 days as well as

patients who have received oxygen

therapy in the past 14 days. In order to

assure inclusion of patients with

unstable conditions, we also use a

combination of physician visits and

order changes as qualifying criteria for

this category. This is a proxy measure

for the amounts of skilled nursing

observation, care planning, and

monitoring usually required by this type

of patient. The qualifying combinations

of physician visit/order changes that

must occur within the 14-day

observation period to qualify for this

category are: one or more visits with at

least four order changes, or two or more

visits with two or more order changes.

Impaired Cognition: Patients in this

category and the following two

categories frequently will not qualify for

Medicare coverage although some may,

due to specific circumstances. The

patients in this category will have scores

on the MDS 2.0 Cognition Performance

Scale of 3, 4, or 5, and for two of the

groups in this category will be receiving

nursing rehabilitation services 6 days

per week. Some patients with

Alzheimer’s disease or other types of

dementia who have been acutely ill will

classify to this category for Medicare.

Under the SNF coverage guidelines,

these patients could qualify based on

the need for skilled nursing

rehabilitation.

Behavior Only: These are patients

who, in 4 of the last 7 days, exhibited

behaviors that include resisting care,

being combative, being physically and/

or verbally abusive, wandering, and

who have hallucinations or delusions.

Physical Function Reduced: The

patients in this category are those who

do not have any of the conditions or

characteristics identified above.

However, some have been documented

as receiving ‘‘skilled nursing’’ and have

been covered by Medicare in the past.

With proper documentation and

justification regarding the need for

skilled care, Medicare may continue to

cover SNF services.

3. Use of RUG–III ‘‘Grouper’’ Software

As discussed at the beginning of this

section, all data necessary to classify a

patient to one of the RUG–III categories

is contained on the MDS 2.0. Under this

PPS, SNFs are required to use the MDS

2.0 as the data source for classification

of patients for case-mix. The software

programs that use the MDS 2.0 to assign

patients to the appropriate groups,

called groupers, are available from many

software vendors. The version we use is

available at no cost from our web site at:

http://www.hcfa.gov/medicare/ hsqb/

mds20.

The logic used in the groupers is

based on the hierarchical nature of the

RUG–III system. This means that the

patient is first assigned to the highest

category for which the patient qualifies,

and then, using relevant additional

criteria, as explained above (ADL score,

nursing rehabilitation, etc.), the patient

is assigned to one of the groups within

that category.

The grouper assigns patients to the

highest-weighted group rather than to

the highest group in the hierarchy. This

is important because there may be rare

instances in which a case would qualify

for a group that, although higher in the

hierarchy, has a lower payment index

than a group that is lower in the

hierarchy.

4. Determining the Case-Mix Indices

Care provided directly to, or for, a

patient is represented by an index score

that is based on the amount of staff time,

weighted by salary levels, associated

with each group. That is, each RUG–III

group is assigned an index score that

represents the amount of nursing time

and rehabilitation treatment time

associated with caring for the patients

who qualify for the group. The nursing

weight includes both patient-specific

time spent daily on behalf of each

patient type by registered nurses,

licensed practical nurses, and aides, as

well as patient non-specific time spent

by these staff members on other

necessary functions such as staff

education, administrative duties, and

other tasks associated with maintenance

of the care giving environment.

As explained above (in section II.B.1),

measures of the staff time required to

care for nursing home patients were

collected and used to identify specific

clinical characteristics that are

predictive of patient resource use. In

order to do this, characteristics of the

patients in the STM study and the time

it took to care for them were combined

and analyzed. In addition, the ratio of

salaries for nursing staff and

rehabilitative therapy staff were

computed in order to calculate nursing

and therapy weights for each RUG–III

category. These analyses were then used

to identify the patient characteristics

that best explain weighted patient

specific time. From this, the 44 groups

and an index for each was calculated.

The basic calculation performed for

each group was to take the minutes

spent providing patient care and

multiply them by the weight that

represents the staff person’s salary.

Thus, the registered nurse’s minutes

were multiplied by 1.41, whereas those

of the aide were multiplied by 0.59. The

therapy weights include physical

therapist (1.32), occupational therapist

(1.23), and speech pathologist (1.16)

time plus licensed physical therapy

assistant (0.87), licensed occupational

therapy assistant (0.81), and therapy

aide (0.61) time, on a weekly basis. The

nursing and therapy weights are

multiplied by the number of patients in

each group to yield an array of 44

nursing case-mix index scores and 5

therapy case-mix index scores. These

indices are shown later in this section

(see Tables 2.E and 2.F).

5. Application of the RUG–III System

Following are some illustrative case

studies to illustrate how the RUG–III

classification system would compare

patients with similar descriptions but

disparate classifications.

Example 1. Ms. A was recently

hospitalized with a stroke. She has

several comorbidities that include

cardiac dysrhythmia, hypertension, and

diabetes mellitus, and experienced a

urinary tract infection within the last 30

days. In addition, she has lost voluntary

movement in her left arm and leg, and

has an unsteady gait, pain almost daily,

and some localized edema, but is

continent when toileted at regular

intervals. She can see, hear, understand,

and make herself understood. She tires

easily and carries out ADLs slowly. Her

mood is frequently tearful, and she

expresses sadness about the loss of past

life roles. She is concerned about her

health and views herself, and is viewed

by staff, as having potential for

rehabilitation.

Her memory is good, although she

does have some difficulty making

decisions in new situations. She is

involved in the daily life of the nursing

home, interacts well with others, and is

able to set her own goals. She spends

some time in her own room in selfinitiated activities.

Ms. A requires the assistance of one

person to accomplish her personal

hygiene, dressing, toileting (RUG–III

ADL index score=4), bed mobility and

transferring (ADL scores=4 each), and

locomotion and eating (ADL score=2).

She uses pressure-relieving chair and

bed pads and receives special attention

for her skin. She undergoes physical

therapy and occupational therapy for 1

hour each, 5 days per week. Ms. A
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26265

receives daily restorative/rehabilitative

follow-up nursing care and skill training

for eating, active and passive range of

motion, transferring, dressing,

grooming, and locomotion, and

participates in a bowel and bladder

retraining program. Discharge from the

facility is planned within the next 3

months.

As a stroke patient receiving two

therapies five times a week, Ms. A is

classified in the Very High

Rehabilitation category. She has an ADL

index score of 14 (4+4+4+2) and will

therefore be classified into the RVB

group. In case-mix calculations, her case

receives a nursing weight of 1.04 and a

therapy weight of 1.41.

Example 2, a non-rehabilitation

patient. Ms. B has multiple sclerosis. At

the present time she is recovering from

a bout of pneumonia. She also had a

urinary tract infection within the last 30

days. She has lost some voluntary

movement in her extremities and cannot

balance herself well in a standing

position. She is not bedfast, however,

and is in a wheelchair during the day.

She has a history of pressure sores, but

none are present at this time. There is

stiffness in her hips, hands, feet, and

shoulders. She complains of

constipation and is sometimes

incontinent of the bladder. She is able

to see, hear, fully understand what is

said, and is understood.

Her memory is good, and she is

independent in her decision making.

Her mood, however, is tearful, and she

expresses distress. She grieves for her

past life as a professional musician, and

she is often withdrawn and has been

verbally abusive to her roommate during

the past week.

Ms. B uses extensive assistance with

transferring (RUG–III ADL index

score=4), locomotion, and toileting

(ADL score=4), and limited assistance

with bed mobility (ADL score=3),

personal hygiene, and dressing. As she

has had a history of pressure sores, she

uses bed and chair pressure prevention

pads and receives special skin care,

positioning, and turning regularly over

the day. Her intake and output are

monitored, and the nursing staff

provides passive and active range of

motion and skill training for transferring

with a trapeze while encouraging active

range of motion where possible. She

also began a bowel and bladder

retraining program last week. Any

discharge plan for Ms. B is uncertain at

this time.

With multiple sclerosis and a high

level of ADL dependency, Ms. B is

classified into the Special Care category.

Her ADL score is at least 12 (4+3+4+1).

Service counts and mental state are not

used in the Special Care category, so her

depressed mood does not factor into her

assignment into a RUG group, although

it influences her plan of care. She will

be classified to the SSA group in the

Special Care category. In RUG–III casemix calculations, Ms. B is assigned a

nursing weight of 1.01 and a therapy

weight of 0 since she did not receive

occupational, physical, or speech

therapy in the last 7 days. Note that

these weights are lower than those

assigned to Ms. A in example 1, despite

the similarities in their clinical

descriptions.

6. Use of the Resident Assessment

Instrument—Minimum Data Set (MDS

2.0)

The requirements for patient

assessment found at § 483.20 apply to

all patients in a Medicare or Medicaid

certified long term care facility,

regardless of the patient’s age,

diagnoses, length of stay, or payer

source. Certified facilities are required

to use the RAI specified by the State to

assess patients. Each State’s RAI

consists of HCFA’s MDS at a minimum.

The RUG–III classification system and,

subsequently, the Medicare SNF

prospective payment, are based on the

Minimum Data Set (MDS). The MDS

contains a core set of screening, clinical,

and functional status elements,

including common definitions and

coding categories, that form the basis of

a comprehensive assessment.

In order to receive Medicare payment

under PPS, in addition to completion of

the uniform MDS as set forth at

§ 483.20, the facility will be required to

complete two additional sections of the

MDS: Sections T and U. Section U is

currently an optional section of the

MDS used to collect information on

medication. However, completion of

this section is required for States

participating in HCFA’s Nursing Home

Case-Mix and Quality (NHCMQ)

demonstration and several other States

as well. Although collection of

medication information on Section U

will be required for Medicare patients

under this PPS, we will not require

completion and transmission of this

information until October 1, 1999. In the

interim, we will examine the potential

for refining Section U in a way that

would streamline data collection,

reduce opportunities for error, and

thereby maximize the accuracy and

usefulness of the data.

Section T provides information on

special treatments and therapies not

reported elsewhere in the patient

assessment. In section T, the facility

must record the rehabilitative therapy

services (physical therapy, occupational

therapy, and speech therapy) that have

been ordered and are scheduled to occur

during the early days of the patient’s

SNF stay. As rehabilitation services

often are not initiated until after the first

MDS assessment’s observation period

ends, we believe that allowing the

patient time for transition is

appropriate. Section T provides an

overall picture of the amount of

rehabilitation that a patient will likely

receive through the 15th day from

admission. This information on the

MDS will make possible an accurate

classification of the patient for whom

rehabilitation is planned into the

appropriate RUG–III group. SNFs must

complete this section for services

furnished on or after July 1, 1998.

Section T also provides information

needed to evaluate a patient’s response

to therapy. For example, by assessing a

patient’s ability to walk at his most selfsufficient level, small increments of

improvement can be measured. This

level of detail is not contained in other

areas of the MDS in contrast with the

information recorded elsewhere in the

MDS, regarding the patient’s walking

ability most of the time. Assessment of

the patient’s ‘‘most self sufficient’’ can

be used to evaluate the effectiveness of

physical therapy and nursing

rehabilitation, the continued need for

therapy and nursing rehabilitation, and

maintenance of walking ability

immediately after therapy is

discontinued.

7. Required Schedule for Completing

the MDS

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

SNFs must ‘‘provide the Secretary, in a

manner and within the timeframes

prescribed by the Secretary, the resident

assessment data necessary to develop

and implement the rates under this

subsection.’’ We are requiring that SNFs

perform patient assessments by the 5th

day (although there is a grace period

that allows performance by the 8th day)

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

by the 30th day, and every 30 days

thereafter as long as the patient is in a

Medicare Part A stay. A full MDS must

be submitted by facilities at each of

these timeframes during a patient’s

Medicare Part A stay. Each Medicare

patient is classified in a RUG–III group

for each assessment period for which he

is in a Part A SNF stay. The group to

which the patient classifies is based on

the information about his clinical

resource needs as recorded on the MDS

assessment.

Facilities will send each patient’s

MDS assessments to the State and

claims for Medicare payment to the

fiscal intermediary on a 30-day cycle.
26266 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

Payment will be made according to the

RUG–III group(s) recorded on the claim

sent to the fiscal intermediary. For the

first 30 days in an SNF, a Medicare

patient will be assessed three times (at

5 days, 14 days, and 30 days) and

perhaps more often, if the patient’s

needs change requiring additional MDS

assessments and care plan

modifications. Any of the assessments

performed may result in a RUG–III

classification change.

Each patient is to be assessed using

full or comprehensive assessments

according to the stated schedule. The

State’s RAI constitutes a

‘‘comprehensive’’ assessment, which is

required at various timeframes

according to Federal regulations found

at § 483.20. In the following schedule,

‘‘full’’ assessment refers to completion

of the entire MDS, and

‘‘comprehensive’’ refers to completion

of the Resident Assessment Protocols

(RAPs) in addition to the entire MDS.

The SNF provider should adhere to the

following assessment schedule for

newly admitted and readmitted

beneficiaries whose stays are expected

to be covered by Medicare during the

first 30 days of admission/readmission

to the SNF.

Day 0 Represents the period prior to

admission

Day 1 Patient admission day and

notification of ‘‘Non-coverage’’

Day 5 Last day for Assessment Reference

Date for the Medicare 5 Day Assessment

Day 14 Last day for Assessment Reference

Date for the Medicare 14 day Assessment

(In accordance with Federal

requirements at § 483.20, RAPS must be

completed with the 5 day or the 14 day

assessment)

Day 29 Last day for Assessment Reference

Date for the Medicare 30 day assessment

(RAPs not required for Medicare unless

a Significant Change in Status has

occurred)

Day 59 Last day for Assessment Reference

Date for the Medicare 60 day assessment

(RAPs not required for Medicare unless

a Significant Change in Status has

occurred)

Day 89 Last day for Assessment Reference

Date for Medicare 90 day assessment

(RAPs not required for Medicare unless

a Significant Change in Status has

occurred)

Day 100 Last possible day of Medicare

coverage. Staff should return to the Staterequired MDS assessment schedule.

This schedule applies to Medicare

beneficiaries during Part A Medicare

nursing home stays.

Note that historically, instructions for

completing the RAI, as in the Long Term

Care Resident Assessment Instrument

User’s Manual, state that ‘‘when

calculating when the Resident

Assessment Instrument (RAI) is due, the

day of admission is counted as day

zero.’’ Counting the day of admission as

day zero has allowed the maximum

flexibility in terms of time to complete

the RAI. For case-mix reimbursement

purposes, however, States that

participated in HCFA’s Nursing Home

Case-Mix and Quality Demonstration

(NHCMQ) project have required that the

day of admission be counted as day one.

The use of the day of admission as day

one is continued under the PPS rules for

reimbursement scheduling. In support

of this scheduling, in the future, HCFA

will provide instructions for RAI

completion counting the day of

admission as day one.

In order to be in compliance with the

requirements of Medicare and Medicaid

certification, facilities must complete an

Initial Admission assessment, including

RAPs, within 14 days of a patient’s

admission to the facility. Within

approximately the same time, the

requirements for PPS specify that

facilities must complete two

assessments for each patient in a

Medicare-covered Part A stay. These

include a Medicare 5-day and a

Medicare 14-day assessment. According

to the rules for PPS, the RAPs must be

completed with either the 5-day or the

14-day assessment, and the facility may

choose with which of these assessments

to complete the RAPs.

In order to minimize burden on

facility staff, in some instances, the

same assessment that is completed and

electronically submitted to the State to

meet the clinical requirements at

§ 483.20 may also be used to meet the

PPS requirements. For example, the

facility may use either the Medicare 5-

day or the Medicare 14-day assessment

(whichever one included the RAPs) to

meet both the requirements for PPS, as

well as the clinical requirements for

completing and transmitting an Initial

Admission assessment. In this case, the

‘‘Reason for Assessment’’ item on the

MDS would be coded both as an Initial

Admission assessment and as a

Medicare 5-day or 14-day assessment.

There is no grace period for the Initial

Admission assessment to correspond

with the grace period that the PPS rules

allow for the Medicare 14-day

assessment. Therefore, if a facility is

using the Medicare 14-day assessment

to also meet the requirement for the

Initial Admission assessment, the

assessment must be completed by day

14, and the grace period does not apply.

In order to be in compliance with the

requirements for Medicare and

Medicaid certification, facilities must

perform the HCFA Standard Quarterly

Review assessment for each resident in

the facility at least every 92 days. The

requirements for PPS specify that a

Medicare 90-day assessment be

completed for each patient whose stay

is still covered under Medicare. To

minimize burden on facility staff, the

Medicare 90-day assessment that is

completed to meet PPS requirements

may also be used to meet the clinical

requirements at § 483.20 for completion

of a Quarterly Review assessment. In

this case, the ‘‘Reason for Assessment’’

item on the assessment would be coded

both as a ‘‘Quarterly Review’’

assessment, and as a Medicare 90-day

assessment. Although the PPS rules

allow a 5-day grace period in

completing the Medicare 90-day

assessment, the Quarterly Review

assessment must be completed within

92 days of completion of the last

assessment. Therefore, if a facility is

using the Medicare 90-day assessment

to also meet the requirement for the

Quarterly Review assessment, the

assessment must be completed within

92 days of completion of the prior

assessment, and only 2 days of the 5-day

grace period could apply.

Facilities must also adhere to Federal

regulations that require a

comprehensive reassessment if the

patient experiences a significant change

in status. A significant change is a major

change in a patient’s status that is not

self-limiting, affects more than one area

of his health status, and requires

interdisciplinary review. Accordingly, a

patient must be reassessed whenever

significant improvement or decline is

consistently noted by facility staff. The

current guidelines for determining a

significant change in the patient’s status

are listed in the Long Term Care

Resident Assessment Instrument User’s

Manual. These include, for example, a

change in the patient’s decision-making

abilities from 0 or 1 to 2 or 3 on item

B4 of the MDS 2.0. As a complement to

these standard guidelines, we are

requiring under PPS, that a

comprehensive assessment be

performed when a patient’s

rehabilitation service is discontinued

unless the patient is physically

discharged from the facility. For those

rare instances in which a Significant

Change in Status assessment is not

clinically warranted, but rehabilitative

services are discontinued, we are

requiring a comprehensive assessment

to be coded as ‘‘Other Medicare

Required Assessment.’’

The assessment reference date for this

assessment may be no earlier than 8

days after the conclusion of all

rehabilitative therapies and no later

than 10 days after the conclusion of

such services. If the patient expires or

is discharged from the facility, no
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26267

assessment is required. This assessment

will result in a new case-mix

classification for the patient and a new

rate of payment. The new classification

and payment rate will be effective as of

the assessment reference date of this

comprehensive assessment. If the

resulting new classification is below

those groups deemed covered by

Medicare in the RUG–III hierarchy and

the patient would not be covered by the

existing administrative criteria for

making SNF level of care

determinations, a ‘‘continued stay’’

denial notice should be issued.

A Significant Change in Status

assessment or Other Medicare Required

Assessment that falls during the

assessment window of a Medicare

mandated assessment may take the

place of one of the regularly scheduled

assessments. If the assessment reference

date of an Other Medicare Required

Assessment or a Significant Change in

Status assessment coincides with the

range of days allowable for use as the

assessment reference date for a regularly

scheduled Medicare assessment, a

single assessment may be coded as both

a Significant Change in Status or Other

Medicare Required Assessment and as a

regularly scheduled Medicare

assessment. For example, a Significant

Change in Status assessment completed

on day 28 of the patient’s nursing home

stay would replace the 30-day

scheduled assessment. However, a

significant change that occurs on day 40

would not replace any scheduled

assessment. Table 2.D below presents

the schedule for MDS completion

related to days covered and payment.

TABLE 2.D.—MEDICARE ASSESSMENT SCHEDULE

Medicare MDS assessment type

Reason for assessment

(AA8b code)

Assessment reference date

Number of

days

authorized

for coverage

and payment

Applicable

medicare

payment days

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

14 day ............................................. 7 Days 11–14** ................................. 16 15 through 30.

30 day ............................................. 2 Days 21–29 .................................... 30 31 through 60.

60 day ............................................. 3 Days 50–59 .................................... 30 61 through 90.

90 day ............................................. 4 Days 80–89 .................................... 10 91 through 100.

*If a patient expires or transfers to another facility before day 8, the facility will still need to prepare an MDS as completely as possible for the

RUG–III classification and Medicare payment purposes. Otherwise the days will be paid at the default rate.

**–RAPs follow Federal rules; RAPs must be performed with either the 5-day or 14-day assessment.

SNFs must submit the RAPs with

either the 5-day or 14-day assessment.

As noted above, RAPs must be

completed as part of any Significant

Change in Status assessments and Other

Medicare Required Assessments that are

appropriate. SNFs should consult the

current version of the Long Term Care

Resident Assessment Instrument User’s

Manual for more specific information

regarding the RAPs.

The first MDS assessment for

Medicare eligible beneficiaries should

be completed by day 5 of the patient’s

SNF stay. The admission day counts as

day 1. The Assessment Reference Date

for the 5-day assessment may be any day

between days 1 and 5 (although there is

a 3-day grace period to day 8).

As stated in the note following Table

2.D, if a patient expires or transfers to

another facility before day 8, the facility

will still need to prepare an MDS as

completely as possible for RUG–III

classification and Medicare payment

purposes. Otherwise, the days will be

paid at the default group rate.

Subsequent to the 5-day assessment,

the SNF must complete assessments for

each coverage period in accordance

with the Medicare assessment schedule.

The staff must use the time periods as

specified in the current Long Term Care

Resident Assessment Instrument User’s

Manual and must include the

assessment reference date/last day of the

observation period to judge the patient’s

condition except for the change items

found at the end of particular MDS

sections. The change items in Sections

B, C, E, G, and H are assessed by

referring back to the reference day of the

last MDS completed.

The nurse coordinating the care of a

Medicare Part A covered patient has

considerable leeway in determining the

reference date for all assessments after

the initial MDS. This should be helpful

in making the assessment schedule

required for Medicare coincide with

Significant Change in Status, and Other

Medicare Required Assessments that

may be necessary, or in avoiding

scheduling or service delivery problems

during holiday periods. The following is

an example: Ms. Smith was admitted on

March 21, 1997. The assessment

reference date for Ms. Smith’s 14-day

assessment was April 2, 1997. The nurse

coordinator has selected April 16, 1997

as the assessment reference date for her

30-day assessment. In this case, the

instructions for the change items should

be interpreted as the period between the

assessment reference date of April 2,

1997 (the 14-day assessment) and the

assessment reference date of April 16,

1997 (the 30-day assessment).

8. The Relationship Between Payment

and the MDS

As explained above, each Medicare

patient is classified in a RUG–III group

for each assessment period for which he

is in a Part A SNF stay. The group to

which the patient classifies is based on

the information about his clinical

resource needs as recorded on the MDS

assessment.

Facilities will send each patient’s

MDS assessments to the State and

claims for Medicare payment to the

fiscal intermediary on a 30-day cycle.

Payment will be made according to the

RUG–III group(s) recorded on the claim

sent to the fiscal intermediary. For the

first 30 days in an SNF, a Medicare

patient will be assessed three times (at

5 days, 14 days, and 30 days) and

perhaps more often, if the patient’s

needs change requiring additional MDS

assessments and care plan

modifications. Any of the assessments

performed may result in a RUG–III

classification change.

For example, a facility may have a

patient whose first (5-day) MDS results

in assignment to a Special Care group,

but whose second assessment (14-day)

indicates an assignment to a High

Rehabilitation group. The facility must

record these groups on its claim and

will receive payment at the Special Care

group rate for 14 days and then at the

High Rehabilitation group rate for the
26268 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

15th through 30th days. If a third MDS

is performed during that 30 days

indicating a change in the patient’s

condition that results in assignment to

yet a third RUG–III group, the facility

must record three groups on its claim to

the fiscal intermediary and will receive

payment accordingly for the days in the

third RUG–III group. Table 2.D shows

the relationship of the billing cycle to

the MDS submissions.

9. Assessments and the Transition to the

Prospective Payment System

For Medicare patients already in the

nursing home during the facility’s

transition into the PPS, we are

providing several alternative assessment

schedule options from which to choose.

a. Medicare beneficiaries receiving

Part A benefits admitted within the past

30 days. For a Medicare patient in a Part

A covered stay, admitted in the 30 days

before the SNF became subject to PPS,

who has had an MDS completed during

those 30 days, facility staff may choose

to use the most recent full MDS

assessment completed (within the past

30 days) for RUG–III classification. This

classification would be effective on the

first day the SNF joins PPS and

determines the payment the SNF

receives for the patient for the first 14

days the facility is in the new system.

The next assessment must be completed

by the 14th calendar day of the month

the facility entered the PPS.

Another option is for the facility staff

to choose to treat the beneficiary as a

‘‘new’’ admission on the first day of the

facility’s billing period. In this instance,

a Medicare 5-day assessment must be

performed as if the day the facility

enters the PPS is day 1 of the patient’s

Part A nursing home stay, and then the

assessment schedule followed as it

would be for a new admission, as

detailed above. There is no change in

the patient’s Medicare eligibility or

coverage. Further, no additional days

are added to Medicare’s 100-day limit.

b. Medicare beneficiaries receiving

Part A benefits admitted over 30 days

prior. If a Medicare beneficiary was

receiving Medicare Part A benefits for

the past 30 days and has not had a full

MDS assessment completed within the

past 30 days, the beneficiary is

considered a new admission to the PPS

and follows the assessment schedule

presented above (paragraph (a)). The

new admission status is only for

Medicare MDS assessment scheduling.

There is no change in the patient’s

Medicare eligibility or coverage.

Further, no additional days are added to

Medicare’s 100-day limit.

c. Medicare Part A beneficiaries with

less than 14 days of Medicare eligibility

remaining. If the patient has less than 14

days of Medicare eligibility remaining

when the SNF becomes subject to PPS,

the facility has the option of completing

an Other Medicare Required assessment

or using the most recent assessment to

classify the resident.

These guidelines are intended to

maximize the beneficiary’s opportunity

to receive Medicare Part A benefits

during the facility’s transition from one

payment system to another, provided

that the Medicare Part A eligibility rules

and coverage guidelines are met.

Facility staff are able to utilize the RUG–

III clinical categories to determine

coverage for this group of beneficiaries.

10. Late Assessments

We recognize that the effect on

revenue for missing an assessment can

be great. To allow facilities flexibility

and to minimize their revenue loss, we

will permit an assessment to be

completed as quickly as possible. Once

a late assessment is conducted, the

facility should return to the regular

Medicare assessment schedule.

Frequent late assessments may result

in an on-site review of assessment

scheduling practices for the facility.

Also, facilities need to be aware that

assessments not completed within

Federal timeframes established at

§ 483.20 may be cited as evidence of

regulatory noncompliance.

Late 5-day assessments. As discussed

above, the assessment reference date for

a 5-day assessment may be set as early

as day 1 or as late as day 5 of the

patient’s stay. However, in the event of

a late 5-day assessment, a facility will be

allowed to use up to and including day

8 as the assessment reference date with

no financial penalty. This means that

the facility may set an assessment

reference date that is up to 3 days

beyond the regular schedule and still

receive the RUG–III rate calculated from

the late assessment for the entire 14-day

period of service covered by the 5-day

assessment.

A 5-day assessment with an

assessment reference date of day 9 or

later will be paid at the RUG–III default

rate for all 8 or more days of service

provided before the assessment

reference date of the late or missed

assessment. The RUG–III rate calculated

from the late assessment will be paid

starting on the assessment reference

date entered on the late assessment

through day 14.

Late 14-day assessments. In order for

an SNF to be in compliance with the

requirements for Medicare or Medicaid

certification, a comprehensive

assessment must be performed for each

patient in the facility by day 14.

Therefore, unless the 5-day assessment

included the RAPs, the 14-day

assessment must include RAPs and

must be completed by day 14. If the

RAPs were completed with the 5-day

assessment, then this assessment counts

as the admission assessment and should

be coded as both a Medicare 5-day

assessment and as the admission

assessment. When the 5-day assessment

is the admission assessment (that is, it

includes the RAPs), then no RAPs are

required with the 14-day assessment,

and the 14-day assessment may have an

assessment reference date through day

19, and a 5-day grace period like that

allowed for the 30- and 60-day

assessments.

Late 30-day, 60-day, or 90-day

assessments. A 5-day grace period is

permitted for late 30- or 60-day

assessments with no financial penalty.

This means that the facility may set an

assessment reference date that is up to

5 days beyond the regular schedule and

still receive the RUG–III rate calculated

from the late assessment for the entire

period of service covered by the

assessment.

To be in compliance with the

requirements for Medicare and

Medicaid certification, facilities must

perform assessments quarterly. For this

reason, the 90-day assessment grace

period is only 2 days, in agreement with

that allowed by the certification

requirement. The latest that the first

quarterly assessment may be completed

is on day 92. The 90-day assessment

should be coded both as a Medicare 90-

day assessment and a quarterly review

assessment.

Assessments that have an assessment

reference date that is 6 or more days

beyond the regular schedule will result

in a payment at the RUG–III default rate

for those 5 or more days of service

without a current assessment. The

RUG–III rate calculated from the late

assessment will be paid starting on the

day of the assessment reference date

entered on the late assessment.

In the case of an error on an MDS that

has been locked (in accordance with the

requirements set forth at § 483.20(f)), the

facility must follow the normal MDS

correction procedures. These

procedures may require that the facility

perform a Significant Change in Status

assessment or a ‘‘significant correction’’

assessment. If appropriate, the facility

must perform a new assessment with a

new assessment reference period and

then submit this new assessment.

Payment will be based on the new

assessment reference date if appropriate.
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26269

11. The Default Rate

As described above, assessments are

completed by SNFs according to an

assessment schedule specifically

designed for Medicare payment, and

each assessment applies to specific days

within a resident’s SNF stay for

purposes of making that payment.

Compliance with this assessment

schedule is critical to ensure that the

appropriate level of payment is made by

Medicare and the quality of Medicare

SNF services is maintained under the

PPS. Accordingly, SNFs that fail to

perform assessments timely are to be

paid a RUG–III default rate for the days

of a patient’s care for which they are not

in compliance with this schedule

(assuming that they submit sufficient

documentation in lieu of a completed

assessment to enable the fiscal

intermediary to establish coverage

under the existing administrative

criteria used for this purpose, as

discussed in section II.D of this rule).

The RUG-III default rate takes the place

of the otherwise applicable Federal rate

(it does not supersede the facilityspecific portion of the blended rate used

for the transition period—see section III

of this rule).

The RUG–III default rate may be

lower than the Federal rate that would

have been paid for a patient had an SNF

submitted an assessment in accordance

with the prescribed assessment

schedule. For the initial period of the

PPS, the RUG–III default rate is $117.15

per day for urban SNFs and $116.85 per

day for rural SNFs. This rate equals the

lowest Federal rate category (PA1) listed

in Tables 2.G and 2.H. and is subject to

the wage index adjustment.

12. Case-Mix Adjusted Federal Payment

Rates

Application of the case-mix indices to

the per diem Federal rates presented in

Tables 2.A and 2.B result in 44 separate

case-mix adjusted payment rates

corresponding to the 44 separate RUG–

III classification groups described above

(see Tables 2.E and 2.F). The case-mix

adjusted payment rates are listed

separately for urban and rural SNFs (44

each) in Tables 2.E and 2.F below along

with the corresponding case-mix index

values. The rates are listed in total and

by component. The application of the

wage index, described later in this

section, is the final adjustment applied

to the Federal rates.

BILLING CODE 4120–01–P
26270 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations
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26272 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations
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BILLING CODE 4120–01–C
26274 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

C. Wage Index Adjustment to Federal

Rates

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

requires that we provide for adjustments

to the Federal rates to account for

differences in area wage levels using

‘‘an appropriate wage index as

determined by the Secretary.’’ As

discussed elsewhere in this rule, for the

rates effective with this rule, we are

using wage index values that are based

on hospital wage data from cost

reporting periods beginning in fiscal

year 1994—the most recent hospital

wage data in effect before the effective

date of this rule. Accordingly, the wage

values used in this rule are based on the

same wage data as used to compute the

wage index values for the hospital

prospective payment system for

discharges occurring in fiscal year 1998.

To compute the SNF wage index values,

HCFA groups wage data from all

hospitals by urban (MSA) and rural

area. Total wages and hours are summed

for all hospitals in each area. An average

hourly wage is computed for each area

by dividing the total wages by the total

hours. Wage index values are computed

for each area by comparing the area

specific average hourly wage to the

national average hourly wage (computed

in a similar manner). (A detailed

description of the methodology used to

compute the hospital prospective

payment wage index is set forth in the

final rule published in the Federal

Register on August 29, 1997 (62 FR

45966).)

The SNF wage index values are based

on the Metropolitan Statistical Area

(MSA) designations in effect prior to

publication of this rule. For purposes of

computing SNF wage index values, we

are not taking into account changes in

geographic classification for certain

rural hospitals required under section

1886(d)(8)(B) of the Act or geographic

reclassifications based on decisions of

the Medicare Geographic Classification

Review Board or the Secretary under

section 1886(d)(10) of the Act. For SNF

routine cost limits established under

section 1888(a) of the Act and in effect

for cost reporting periods beginning

prior to July 1, 1998, HCFA has always

applied a hospital wage index that does

not reflect geographic reclassifications.

Changing the basis of the wage index

now would likely have a distributional

impact on payments. In consideration of

this and the fact that HCFA may be

changing to a SNF wage index in the

near future (which could also have

distributional effects), we find it

appropriate to employ a hospital wage

index that does not reflect these

reclassifications. Accordingly, we

continue to believe that the MSA (or

non-MSA) designation provides the best

method for determining the wage index

values used for SNF payments and the

physical location of hospitals is the

appropriate basis upon which to

construct the wage index.

Table 2.I at the end of this section

presents the wage indices applicable to

urban and rural areas for use in making

geographic adjustments to the Federal

rates. Similar to the methodology

described earlier relating to the

standardization of the cost data for

geographic differences in wage levels,

the wage index adjustment is applied to

the labor-related portion of the Federal

rate, which is 75.888 percent of the total

rate. The schedule of Federal rates

below shows the Federal rates by laborrelated and non-labor related

components. Instructions and an

example related to the application of the

wage index to the case-mix adjusted

rates are provided following the table.

In addition, section 1888(e)(4)(G) of

the Act requires that the wage index

adjustment to the Federal rates be made

in a manner that does not result in

aggregate payments that are greater or

less than those that would otherwise be

made if the rates were not adjusted by

the wage index. In the initial year of the

PPS, this requirement is addressed

through the standardization

methodology, described earlier, which

ensures that the application of the wage

index has no effect on the level of

aggregate payments (that is, any effects

are purely distributional). In future

years, HCFA must make wage index

budget neutrality adjustment in

updating the payment rates.

TABLE 2.G.—CASE MIX ADJUSTED FEDERAL RATES FOR URBAN SNFS BY LABOR AND NON-LABOR COMPONENT

RUGs III category Laborrelated

Non-labor

related

Total

Federal

rate

RUC .......................................................................................................................................................... $291.57 $92.64 $384.21

RUB .......................................................................................................................................................... 262.50 83.40 345.90

RUA .......................................................................................................................................................... 248.37 78.91 327.28

RVC .......................................................................................................................................................... 224.74 71.41 296.15

RVB .......................................................................................................................................................... 217.27 69.03 286.30

RVA .......................................................................................................................................................... 198.16 62.96 261.12

RHC .......................................................................................................................................................... 206.06 65.47 271.53

RHB .......................................................................................................................................................... 189.45 60.19 249.64

RHA .......................................................................................................................................................... 173.66 55.18 228.84

RMC ......................................................................................................................................................... 202.88 64.46 267.34

RMB .......................................................................................................................................................... 181.27 57.60 238.87

RMA .......................................................................................................................................................... 170.47 54.17 224.64

RLB ........................................................................................................................................................... 161.60 51.35 212.95

RLA ........................................................................................................................................................... 135.85 43.16 179.01

SE3 ........................................................................................................................................................... 191.93 60.98 252.91

SE2 ........................................................................................................................................................... 166.17 52.80 218.97

SE1 ........................................................................................................................................................... 147.89 46.99 194.88

SSC .......................................................................................................................................................... 144.57 45.93 190.50

SSB .......................................................................................................................................................... 137.92 43.82 181.74

SSA .......................................................................................................................................................... 134.59 42.77 177.36

CC2 .......................................................................................................................................................... 143.74 45.67 189.41

CC1 .......................................................................................................................................................... 132.94 42.24 175.18

CB2 ........................................................................................................................................................... 126.29 40.13 166.42

CB1 ........................................................................................................................................................... 120.47 38.28 158.75

CA2 ........................................................................................................................................................... 119.65 38.01 157.66

CA1 ........................................................................................................................................................... 113.00 35.90 148.90

IB2 ............................................................................................................................................................ 108.01 34.32 142.33
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26275

TABLE 2.G.—CASE MIX ADJUSTED FEDERAL RATES FOR URBAN SNFS BY LABOR AND NON-LABOR COMPONENT—

Continued

RUGs III category Laborrelated

Non-labor

related

Total

Federal

rate

IB1 ............................................................................................................................................................ 106.35 33.79 140.14

IA2 ............................................................................................................................................................ 98.04 31.15 129.19

IA1 ............................................................................................................................................................ 94.72 30.09 124.81

BB2 ........................................................................................................................................................... 107.18 34.06 141.24

BB1 ........................................................................................................................................................... 104.69 33.26 137.95

BA2 ........................................................................................................................................................... 97.21 30.89 128.10

BA1 ........................................................................................................................................................... 90.56 28.78 119.34

PE2 ........................................................................................................................................................... 116.32 36.96 153.28

PE1 ........................................................................................................................................................... 114.66 36.43 151.09

PD2 ........................................................................................................................................................... 110.51 35.11 145.62

PD1 ........................................................................................................................................................... 108.85 34.58 143.43

PC2 ........................................................................................................................................................... 104.69 33.26 137.95

PC1 ........................................................................................................................................................... 103.86 33.00 136.86

PB2 ........................................................................................................................................................... 93.05 29.57 122.62

PB1 ........................................................................................................................................................... 92.23 29.30 121.53

PA2 ........................................................................................................................................................... 91.40 29.04 120.44

PA1 ........................................................................................................................................................... 88.90 28.25 117.15

TABLE 2.H.—CASE MIX ADJUSTED FEDERAL RATES FOR RURAL SNFS BY LABOR AND NON-LABOR COMPONENT

RUGs III category Labor-related

Non-labor

related

Total Federal rate

RUC .......................................................................................................................................................... $309.77 $98.42 $408.19

RUB .......................................................................................................................................................... 281.92 89.57 371.49

RUA .......................................................................................................................................................... 268.39 85.27 353.66

RVC .......................................................................................................................................................... 235.35 74.78 310.13

RVB .......................................................................................................................................................... 228.20 72.50 300.70

RVA .......................................................................................................................................................... 209.88 66.69 276.57

RHC .......................................................................................................................................................... 211.64 67.24 278.88

RHB .......................................................................................................................................................... 195.72 62.18 257.90

RHA .......................................................................................................................................................... 180.60 57.38 237.98

RMC ......................................................................................................................................................... 206.48 65.60 272.08

RMB .......................................................................................................................................................... 186.78 59.03 244.81

RMA .......................................................................................................................................................... 175.43 55.74 231.17

RLB ........................................................................................................................................................... 162.73 51.71 214.44

RLA ........................................................................................................................................................... 138.06 43.86 181.92

SE3 ........................................................................................................................................................... 187.38 59.53 246.91

SE2 ........................................................................................................................................................... 162.70 51.69 214.39

SE1 ........................................................................................................................................................... 145.19 46.13 191.32

SSC .......................................................................................................................................................... 142.00 45.12 187.12

SSB .......................................................................................................................................................... 135.63 43.10 178.73

SSA .......................................................................................................................................................... 132.45 42.09 174.54

CC2 .......................................................................................................................................................... 141.21 44.87 186.08

CC1 .......................................................................................................................................................... 130.86 41.58 172.44

CB2 ........................................................................................................................................................... 124.49 39.56 164.05

CB1 ........................................................................................................................................................... 118.92 37.79 156.71

CA2 ........................................................................................................................................................... 118.13 37.53 155.66

CA1 ........................................................................................................................................................... 111.76 35.51 147.27

IB2 ............................................................................................................................................................ 106.99 33.99 140.98

IB1 ............................................................................................................................................................ 105.39 33.49 138.88

IA2 ............................................................................................................................................................ 97.43 30.96 128.39

IA1 ............................................................................................................................................................ 94.25 29.95 124.20

BB2 ........................................................................................................................................................... 106.19 33.74 139.93

BB1 ........................................................................................................................................................... 103.80 32.98 136.78

BA2 ........................................................................................................................................................... 96.64 30.70 127.34

BA1 ........................................................................................................................................................... 90.27 28.68 118.95

PE2 ........................................................................................................................................................... 114.95 36.52 151.47

PE1 ........................................................................................................................................................... 113.35 36.02 149.37

PD2 ........................................................................................................................................................... 109.37 34.75 144.12

PD1 ........................................................................................................................................................... 107.78 34.25 142.03

PC2 ........................................................................................................................................................... 103.80 32.98 136.78

PC1 ........................................................................................................................................................... 103.00 32.73 135.73

PB2 ........................................................................................................................................................... 92.66 29.44 122.10

PB1 ........................................................................................................................................................... 91.86 29.19 121.05

PA2 ........................................................................................................................................................... 91.07 28.93 120.00

PA1 ........................................................................................................................................................... 88.68 28.17 116.85
26276 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

For any RUG–III group, to compute a

wage adjusted Federal payment rate

applicable to the initial period of the

PPS, the labor related portion of the

payment rate is multiplied by the SNF’s

appropriate wage index factor listed in

Table 2.I. The product of that

calculation is added to the

corresponding non-labor related

component. The resulting amount is the

Federal rate applicable to a patient in

that RUG–III group for that SNF. See the

example below.

ABC SNF is located in State College,

Pennsylvania. The per diem Federal rate

applicable to an Ultra High

Rehabilitation ‘A’ patient (RUA) is

calculated using the rates listed in Table

2.G and the wage index factor found in

Table 2.I. Accordingly, the computation

of the adjusted per diem rate is made as

follows: (248.37×.9635)+78.91=$318.21

per diem.

This Federal rate will be applicable to

all patients in the RUA category for

Happy Valley SNF for the initial period

of the PPS (July 1, 1998 through

September 30, 1999).

D. Updates to the Federal Rates

For the initial period of the PPS

beginning on July 1, 1998 and ending on

September 30, 1999, the payment rates

are those contained in this interim final

rule. In accordance with section

1888(e)(4)(H) of the Act, for each

succeeding fiscal year, we will publish

the rates in the Federal Register before

August 1 of the year preceding the

affected Federal fiscal year.

For fiscal years 2000 through 2002,

section 1888(e)(4)(E)(ii) of the Act

requires that the rates be increased by a

factor equal to the SNF market basket

index change minus 1 percentage point.

In addition, for subsequent fiscal years,

this section requires the rates to be

increased by the applicable SNF market

basket index change.

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

provides that the Secretary ‘‘may’’

adjust the unadjusted Federal per diem

rates if the Secretary ‘‘determines that

the adjustments under subparagraph

(G)(i) for a previous fiscal year (or

estimates that such adjustments for a

future fiscal year) did (or are likely to)

result in a change in aggregate

payments’’ during the fiscal year

because of changes in the aggregate

case-mix of the Medicare patient

population that are not related to actual

patient condition (that is, ‘‘case-mix

creep’’). HCFA is currently developing a

methodology to implement this

adjustment.

In addition, since enactment of the

BBA 1997, various suggestions have

been made relating to adjustments to the

rates promulgated in this interim final

regulation. Some have suggested that

the rates should be increased to reflect

such factors as additional nursing care,

the future growth of subacute care

practices, specific services, and other

items that may not be accurately

reflected in the rates, etc. Other

suggestions have related to downward

adjustments to the rates to reflect the

presence of inappropriate care or

payments in the 1995 cost data used to

establish the rates promulgated in this

rule. For example, concerns have been

raised regarding whether these data are

inflated, reflecting medically

unnecessary care and/or improper

payments related to therapies and other

ancillary services and that the inclusion

of such costs results in inappropriately

high payments to SNFs under the PPS.

Studies by the Office of the Inspector

General (OIG) and HCFA program

integrity activities have found that

incorrect payments have been made to

SNFs in the past. One way to remove

such costs from the data is the

application of adjustments to the 1995

data base and recomputing the payment

rates. However, the magnitude of these

incorrect payments is not definitively

known at this time. Therefore, the OIG,

in conjunction with HCFA, is proposing

to examine the extent to which the base

period costs reflect costs that were

inappropriately allowed. If this

examination reveals excessive

inappropriate costs, we would address

this issue in a future proposed rule, or

perhaps seek legislation to adjust future

payment rates downward.

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS

Urban Area

(Constituent counties or county

equivalents)

Wage

index

0040 Abilene, TX .......................... 0.8287

Taylor, TX

0060 Aguadilla, PR ...................... 0.4188

Aguada, PR

Aguadilla, PR

Moca, PR

0080 Akron, OH ........................... 0.9772

Portage, OH

Summit, OH

0120 Albany, GA .......................... 0.7914

Dougherty, GA

Lee, GA

0160 Albany-Schenectady-Troy,

NY ............................................... 0.8480

Albany, NY

Montgomery, NY

Rensselaer, NY

Saratoga, NY

Schenectady, NY

Schoharie, NY

0200 Albuquerque, NM ................ 0.9309

Bernalillo, NM

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

Sandoval, NM

Valencia, NM

0220 Alexandria, LA ..................... 0.8162

Rapides, LA

0240 Allentown-Bethlehem-Easton, PA ........................................ 1.0086

Carbon, PA

Lehigh, PA

Northampton, PA

0280 Altoona, PA ......................... 0.9137

Blair, PA

0320 Amarillo, TX ......................... 0.9425

Potter, TX

Randall, TX

0380 Anchorage, AK .................... 1.2842

Anchorage, AK

0440 Ann Arbor, MI ...................... 1.1785

Lenawee, MI

Livingston, MI

Washtenaw, MI

0450 Anniston, AL ........................ 0.8266

Calhoun, AL

0460 Appleton-Oshkosh-Neenah,

WI ................................................ 0.8996

Calumet, WI

Outagamie, WI

Winnebago, WI

0470 Arecibo, PR ......................... 0.4218

Arecibo, PR

Camuy, PR

Hatillo, PR

0480 Asheville, NC ....................... 0.9072

Buncombe, NC

Madison, NC

0500 Athens, GA .......................... 0.9087

Clarke, GA

Madison, GA

Oconee, GA

0520 Atlanta, GA .......................... 0.9823

Barrow, GA

Bartow, GA

Carroll, GA

Cherokee, GA

Clayton, GA

Cobb, GA

Coweta, GA

De Kalb, GA

Douglas, GA

Fayette, GA

Forsyth, GA

Fulton, GA

Gwinnett, GA

Henry, GA

Newton, GA

Paulding, GA

Pickens, GA

Rockdale, GA

Spalding, GA

Walton, GA

0560 Atlantic City-Cape May, NJ 1.1155

Atlantic City, NJ

Cape May, NJ

0600 Augusta-Aiken, GA–SC ....... 0.9333

Columbia, GA

McDuffie, GA

Richmond, GA

Aiken, SC

Edgefield, SC

0640 Austin-San Marcos, TX ....... 0.9133
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26277

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

Bastrop, TX

Caldwell, TX

Hays, TX

Travis, TX

Williamson, TX

0680 Bakersfield, CA ................... 1.0014

Kern, CA

0720 Baltimore, MD ..................... 0.9689

Anne Arundel, MD

Baltimore, MD

Baltimore City, MD

Carroll, MD

Harford, MD

Howard, MD

Queen Annes, MD

0733 Bangor, ME ......................... 0.9478

Penobscot, ME

0743 Barnstable-Yarmouth, MA ... 1.4291

Barnstable, MA

0760 Baton Rouge, LA ................. 0.8382

Ascension, LA

East Baton Rouge, LA

Livingston, LA

West Baton Rouge, LA

0840 Beaumont-Port Arthur, TX .. 0.8593

Hardin, TX

Jefferson, TX

Orange, TX

0860 Bellingham, WA ................... 1.1221

Whatcom, WA

0870 Benton Harbor, MI ............... 0.8634

Berrien, MI

0875 Bergen-Passaic, NJ ............ 1.2156

Bergen, NJ

Passaic, NJ

0880 Billings, MT .......................... 0.9783

Yellowstone, MT

0920 Biloxi-Gulfport-Pascagoula,

MS ............................................... 0.8415

Hancock, MS

Harrison, MS

Jackson, MS

0960 Binghamton, NY .................. 0.8914

Broome, NY

Tioga, NY

1000 Birmingham, AL ................... 0.9005

Blount, AL

Jefferson, AL

St Clair, AL

Shelby, AL

1010 Bismarck, ND ...................... 0.7695

Burleigh, ND

Morton, ND

1020 Bloomington, IN ................... 0.9128

Monroe, IN

1040 Bloomington-Normal, IL ...... 0.8733

McLean, IL

1080 Boise City, ID ...................... 0.8856

Ada, ID

Canyon, ID

1123 Boston-Worcester-Lawrence-Lowell-Brockton, MA–NH .. 1.1506

Bristol, MA

Essex, MA

Middlesex, MA

Norfolk, MA

Plymouth, MA

Suffolk, MA

Worcester, MA

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

Hillsborough, NH

Merrimack, NH

Rockingham, NH

Strafford, NH

1125 Boulder-Longmont, CO ....... 1.0015

Boulder, CO

1145 Brazoria, TX ........................ 0.9341

Brazoria, TX

1150 Bremerton, WA .................... 1.0999

Kitsap, WA

1240 Brownsville-Harlingen-San

Benito, TX ................................... 0.8740

Cameron, TX

1260 Bryan-College Station, TX .. 0.8571

Brazos, TX

1280 Buffalo-Niagara Falls, NY ... 0.9272

Erie, NY

Niagara, NY

1303 Burlington, VT ..................... 1.0142

Chittenden, VT

Franklin, VT

Grand Isle, VT

1310 Caguas, PR ......................... 0.4459

Caguas, PR

Cayey, PR

Cidra, PR

Gurabo, PR

San Lorenzo, PR

1320 Canton-Massillon, OH ......... 0.8961

Carroll, OH

Stark, OH

1350 Casper, WY ......................... 0.9013

Natrona, WY

1360 Cedar Rapids, IA ................. 0.8529

Linn, IA

1400 Champaign-Urbana, IL ........ 0.8824

Champaign, IL

1440 Charleston-North Charleston, SC ........................................ 0.8807

Berkeley, SC

Charleston, SC

Dorchester, SC

1480 Charleston, WV ................... 0.9142

Kanawha, WV

Putnam, WV

1520 Charlotte-Gastonia-Rock

Hill, NC–SC ................................. 0.9710

Cabarrus, NC

Gaston, NC

Lincoln, NC

Mecklenburg, NC

Rowan, NC

Stanly, NC

Union, NC

York, SC

1540 Charlottesville, VA ............... 0.9051

Albemarle, VA

Charlottesville City, VA

Fluvanna, VA

Greene, VA

1560 Chattanooga, TN–GA .......... 0.8658

Catoosa, GA

Dade, GA

Walker, GA

Hamilton, TN

Marion, TN

1580 Cheyenne, WY .................... 0.7555

Laramie, WY

1600 Chicago, IL .......................... 1.0860

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

Cook, IL

De Kalb, IL

Du Page, IL

Grundy, IL

Kane, IL

Kendall, IL

Lake, IL

McHenry, IL

Will, IL

1620 Chico-Paradise, CA ............. 1.0429

Butte, CA

1640 Cincinnati, OH–KY–IN ......... 0.9474

Dearborn, IN

Ohio, IN

Boone, KY

Campbell, KY

Gallatin, KY

Grant, KY

Kenton, KY

Pendleton, KY

Brown, OH

Clermont, OH

Hamilton, OH

Warren, OH

1660 Clarksville-Hopkinsville, TN–

KY ................................................ 0.7852

Christian, KY

Montgomery, TN

1680 Cleveland-Lorain-Elyria, OH 0.9804

Ashtabula, OH

Cuyahoga, OH

Geauga, OH

Lake, OH

Lorain, OH

Medina, OH

1720 Colorado Springs, CO ......... 0.9316

El Paso, CO

1740 Columbia, MO ..................... 0.9001

Boone, MO

1760 Columbia, SC ...................... 0.9192

Lexington, SC

Richland, SC

1800 Columbus, GA–AL .............. 0.8288

Russell, AL

Chattanoochee, GA

Harris, GA

Muscogee, GA

1840 Columbus, OH ..................... 0.9793

Delaware, OH

Fairfield, OH

Franklin, OH

Licking, OH

Madison, OH

Pickaway, OH

1880 Corpus Christi, TX ............... 0.8945

Nueces, TX

San Patricio, TX

1900 Cumberland, MD–WV ......... 0.8822

Allegany, MD

Mineral, WV

1920 Dallas, TX ............................ 0.9703

Collin, TX

Dallas, TX

Denton, TX

Ellis, TX

Henderson, TX

Hunt, TX

Kaufman, TX

Rockwall, TX
26278 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

1950 Danville, VA ......................... 0.8146

Danville City, VA

Pittsylvania, VA

1960 Davenport-Moline-Rock Island, IA–IL ................................... 0.8405

Scott, IA

Henry, IL

Rock Island, IL

2000 Dayton-Springfield, OH ....... 0.9584

Clark, OH

Greene, OH

Miami, OH

Montgomery, OH

2020 Daytona Beach, FL ............. 0.8375

Flagler, FL

Volusia, FL

2030 Decatur, AL ......................... 0.8286

Lawrence, AL

Morgan, AL

2040 Decatur, IL ........................... 0.7915

Macon, IL

2080 Denver, CO ......................... 1.0386

Adams, CO

Arapahoe, CO

Denver, CO

Douglas, CO

Jefferson, CO

2120 Des Moines, IA .................... 0.8837

Dallas, IA

Polk, IA

Warren, IA

2160 Detroit, MI ............................ 1.0825

Lapeer, MI

Macomb, MI

Monroe, MI

Oakland, MI

St Clair, MI

Wayne, MI

2180 Dothan, AL .......................... 0.8070

Dale, AL

Houston, AL

2190 Dover, DE ............................ 0.9303

Kent, DE

2200 Dubuque, IA ........................ 0.8088

Dubuque, IA

2240 Duluth-Superior, MN–WI ..... 0.9779

St Louis, MN

Douglas, WI

2281 Dutchess County, NY .......... 1.0632

Dutchess, NY

2290 Eau Claire, WI ..................... 0.8764

Chippewa, WI

Eau Claire, WI

2320 El Paso, TX ......................... 1.0123

El Paso, TX

2330 Elkhart-Goshen, IN .............. 0.9081

Elkhart, IN

2335 Elmira, NY ........................... 0.8247

Chemung, NY

2340 Enid, OK .............................. 0.7962

Garfield, OK

2360 Erie, PA ............................... 0.8862

Erie, PA

2400 Eugene-Springfield, OR ...... 1.1435

Lane, OR

2440 Evansville-Henderson, IN–

KY ................................................ 0.8641

Posey, IN

Vanderburgh, IN

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

Warrick, IN

Henderson, KY

2520 Fargo-Moorhead, ND–MN ... 0.8837

Clay, MN

Cass, ND

2560 Fayetteville, NC ................... 0.8734

Cumberland, NC

2580 Fayetteville-Springdale-Rogers, AR ........................................ 0.7461

Benton, AR

Washington, AR

2620 Flagstaff, AZ–UT ................. 0.9115

Coconino, AZ

Kane, UT

2640 Flint, MI ............................... 1.1171

Genesee, MI

2650 Florence, AL ........................ 0.7551

Colbert, AL

Lauderdale, AL

2655 Florence, SC ....................... 0.8711

Florence, SC

2670 Fort Collins-Loveland, CO ... 1.0248

Larimer, CO

2680 Ft Lauderdale, FL ................ 1.0448

Broward, FL

2700 Fort Myers-Cape Coral, FL 0.8788

Lee, FL

2710 Fort Pierce-Port St. Lucie,

FL ................................................ 1.0257

Martin, FL

St. Lucie, FL

2720 Fort Smith, AR–OK ............. 0.7769

Crawford, AR

Sebastian, AR

Sequoyah, OK

2750 Fort Walton Beach, FL ........ 0.8765

Okaloosa, FL

2760 Fort Wayne, IN .................... 0.8901

Adams, IN

Allen, IN

De Kalb, IN

Huntington, IN

Wells, IN

Whitley, IN

2800 Forth Worth-Arlington, TX ... 0.9979

Hood, TX

Johnson, TX

Parker, TX

Tarrant, TX

2840 Fresno, CA .......................... 1.0607

Fresno, CA

Madera, CA

2880 Gadsden, AL ....................... 0.8815

Etowah, AL

2900 Gainesville, FL .................... 0.9616

Alachua, FL

2920 Galveston-Texas City, TX ... 1.0564

Galveston, TX

2960 Gary, IN ............................... 0.9633

Lake, IN

Porter, IN

2975 Glens Falls, NY ................... 0.8386

Warren, NY

Washington, NY

2980 Goldsboro, NC .................... 0.8443

Wayne, NC

2985 Grand Forks, ND–MN ......... 0.8745

Polk, MN

Grand Forks, ND

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

2995 Grand Junction, CO ............... 0.9090

Mesa, CO

3000 Grand Rapids-MuskegonHolland, MI .................................. 1.0147

Allegan, MI

Kent, MI

Muskegon, MI

Ottawa, MI

3040 Great Falls, MT ................... 0.8803

Cascade, MT

3060 Greeley, CO ........................ 1.0097

Weld, CO

3080 Green Bay, WI .................... 0.9097

Brown, WI

3120 Greensboro-Winston-SalemHigh Point, NC ............................ 0.9351

Alamance, NC

Davidson, NC

Davie, NC

Forsyth, NC

Guilford, NC

Randolph, NC

Stokes, NC

Yadkin, NC

3150 Greenville, NC ..................... 0.9064

Pitt, NC

3160 Greenville-Spartanburg-Anderson, SC .................................. 0.9059

Anderson, SC

Cherokee, SC

Greenville, SC

Pickens, SC

Spartanburg, SC

3180 Hagerstown, MD ................. 0.9681

Washington, MD

3200 Hamilton-Middletown, OH ... 0.8767

Butler, OH

3240 Harrisburg-Lebanon-Carlisle, PA ....................................... 1.0187

Cumberland, PA

Dauphin, PA

Lebanon, PA

Perry, PA

3283 Hartford, CT ........................ 1.2562

Hartford, CT

Litchfield, CT

Middlesex, CT

Tolland, CT

3285 Hattiesburg, MS .................. 0.7192

Forrest, MS

Lamar, MS

3290 Hickory-Morganton-Lenoir,

NC ............................................... 0.8686

Alexander, NC

Burke, NC

Caldwell, NC

Catawba, NC

3320 Honolulu, HI ........................ 1.1816

Honolulu, HI

3350 Houma, LA .......................... 0.7854

Lafourche, LA

Terrebonne, LA

3360 Houston, TX ........................ 0.9855

Chambers, TX

Fort Bend, TX

Harris, TX

Liberty, TX

Montgomery, TX

Waller, TX
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26279

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

3400 Huntington-Ashland, WV–

KY–OH ........................................ 0.9160

Boyd, KY

Carter, KY

Greenup, KY

Lawrence, OH

Cabell, WV

Wayne, WV

3440 Huntsville, AL ...................... 0.8485

Limestone, AL

Madison, AL

3480 Indianapolis, IN ................... 0.9848

Boone, IN

Hamilton, IN

Hancock, IN

Hendricks, IN

Johnson, IN

Madison, IN

Marion, IN

Morgan, IN

Shelby, IN

3500 Iowa City, IA ........................ 0.9413

Johnson, IA

3520 Jackson, MI ......................... 0.9052

Jackson, MI

3560 Jackson, MS ........................ 0.7760

Hinds, MS

Madison, MS

Rankin, MS

3580 Jackson, TN ........................ 0.8522

Chester, TN

Madison, TN

3600 Jacksonville, FL ................... 0.8969

Clay, FL

Duval, FL

Nassau, FL

St Johns, FL

3605 Jacksonville, NC .................. 0.6973

Onslow, NC

3610 Jamestown, NY ................... 0.7552

Chautaqua, NY

3620 Janesville-Beloit, WI ............ 0.8824

Rock, WI

3640 Jersey City, NJ .................... 1.1412

Hudson, NJ

3660 Johnson City-Kingsport-Bristol, TN–VA ................................... 0.9114

Carter, TN

Hawkins, TN

Sullivan, TN

Unicoi, TN

Washington, TN

Bristol City, VA

Scott, VA

Washington, VA

3680 Johnstown, PA .................... 0.8378

Cambria, PA

Somerset, PA

3700 Jonesboro, AR ....................... 0.7443

Craighead, AR

3710 Joplin, MO ........................... 0.7510

Jasper, MO

Newton, MO

3720 Kalamazoo-Battlecreek, MI 1.0668

Calhoun, MI

Kalamazoo, MI

Van Buren, MI

3740 Kankakee, IL ....................... 0.8653

Kankakee, IL

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

3760 Kansas City, KS–MO .......... 0.9564

Johnson, KS

Leavenworth, KS

Miami, KS

Wyandotte, KS

Cass, MO

Clay, MO

Clinton, MO

Jackson, MO

Lafayette, MO

Platte, MO

Ray, MO

3800 Kenosha, WI ........................ 0.9196

Kenosha, WI

3810 Killeen-Temple, TX .............. 1.0252

Bell, TX

Coryell, TX

3840 Knoxville, TN ....................... 0.8831

Anderson, TN

Blount, TN

Knox, TN

Loudon, TN

Sevier, TN

Union, TN

3850 Kokomo, IN ......................... 0.8416

Howard, IN

Tipton, IN

3870 La Crosse, WI–MN .............. 0.8749

Houston, MN

La Crosse, WI

3880 Lafayette, LA ....................... 0.8206

Acadia, LA

Lafayette, LA

St. Landry, LA

St. Martin, LA

3920 Lafayette, IN ........................ 0.9174

Clinton, IN

Tippecanoe, IN

3960 Lake Charles, LA ................ 0.7776

Calcasieu, LA

3980 Lakeland-Winter Haven, FL 0.8806

Polk, FL

4000 Lancaster, PA ...................... 0.9481

Lancaster, PA

4040 Lansing-East Lansing, MI ... 1.0088

Clinton, MI

Eaton, MI

Ingham, MI

4080 Laredo, TX .......................... 0.7325

Webb, TX

4100 Las Cruces, NM .................. 0.8646

Dona Ana, NM

4120 Las Vegas, NV–AZ ............. 1.0592

Mohave, AZ

Clark, NV

Nye, NV

4150 Lawrence, KS ...................... 0.8608

Douglas, KS

4200 Lawton, OK ......................... 0.9045

Comanche, OK

4243 Lewiston-Auburn, ME .......... 0.9536

Androscoggin, ME

4280 Lexington, KY ...................... 0.8390

Bourbon, KY

Clark, KY

Fayette, KY

Jessamine, KY

Madison, KY

Scott, KY

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

Woodford, KY

4320 Lima, OH ............................. 0.9185

Allen, OH

Auglaize, OH

4360 Lincoln, NE .......................... 0.9231

Lancaster, NE

4400 Little Rock-North Little

Rock, AR ..................................... 0.8490

Faulkner, AR

Lonoke, AR

Pulaski, AR

Saline, AR

4420 Longview-Marshall, TX ........ 0.8613

Gregg, TX

Harrison, TX

Upshur, TX

4480 Los Angeles-Long Beach,

CA ............................................... 1.2232

Los Angeles, CA

4520 Louisville, KY–IN ................. 0.9507

Clark, IN

Floyd, IN

Harrison, IN

Scott, IN

Bullitt, KY

Jefferson, KY

Oldham, KY

4600 Lubbock, TX ........................ 0.8400

Lubbock, TX

4640 Lynchburg, VA ..................... 0.8228

Amherst, VA

Bedford City, VA

Bedford, VA

Campbell, VA

Lynchburg City, VA

4680 Macon, GA .......................... 0.9227

Bibb, GA

Houston, GA

Jones, GA

Peach, GA

Twiggs, GA

4720 Madison, WI ........................ 1.0055

Dane, WI

4800 Mansfield, OH ..................... 0.8639

Crawford, OH

Richland, OH

4840 Mayaguez, PR ..................... 0.4475

Anasco, PR

Cabo Rojo, PR

Hormigueros, PR

Mayaguez, PR

Sabana Grande, PR

San German, PR

4880 McAllen-Edinburg-Mission,

TX ................................................ 0.8371

Hidalgo, TX

4890 Medford-Ashland, OR ............ 1.0354

Jackson, OR

4900 Melbourne-Titusville-Palm

Bay, FL ........................................ 0.8819

Brevard, FL

4920 Memphis, TN–AR–MS ........ 0.8589

Crittenden, AR

De Soto, MS

Fayette, TN

Shelby, TN

Tipton, TN

4940 Merced, CA ......................... 1.0947

Merced, CA
26280 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

5000 Miami, FL ............................ 0.9859

Dade, FL

5015 Middlesex-SomersetHunterdon, NJ ............................. 1.1059

Hunterdon, NJ

Middlesex, NJ

Somerset, NJ

5080 Milwaukee-Waukesha, WI ... 0.9819

Milwaukee, WI

Ozaukee, WI

Washington, WI

Waukesha, WI

5120 Minneapolis-St Paul, MN–

WI ................................................ 1.0733

Anoka, MN

Carver, MN

Chisago, MN

Dakota, MN

Hennepin, MN

Isanti, MN

Ramsey, MN

Scott, MN

Sherburne, MN

Washington, MN

Wright, MN

Pierce, WI

St Croix, WI

5160 Mobile, AL ........................... 0.8455

Baldwin, AL

Mobile, AL

5170 Modesto, CA ....................... 1.0794

Stanislaus, CA

5190 Monmouth-Ocean, NJ ......... 1.0934

Monmouth, NJ

Ocean, NJ

5200 Monroe, LA .......................... 0.8414

Ouachita, LA

5240 Montgomery, AL .................. 0.7671

Autauga, AL

Elmore, AL

Montgomery, AL

5280 Muncie, IN ........................... 0.9173

Delaware, IN

5330 Myrtle Beach, SC ................ 0.8072

Horry, SC

5345 Naples, FL ........................... 1.0109

Collier, FL

5360 Nashville, TN ....................... 0.9182

Cheatham, TN

Davidson, TN

Dickson, TN

Robertson, TN

Rutherford TN

Sumner, TN

Williamson, TN

Wilson, TN

5380 Nassau-Suffolk, NY ............. 1.3807

Nassau, NY

Suffolk, NY

5483 New Haven-BridgeportStamford-Waterbury-Danbury,

CT ................................................ 1.2618

Fairfield, CT

New Haven, CT

5523 New London-Norwich, CT ... 1.2013

New London, CT

5560 New Orleans, LA ................. 0.9566

Jefferson, LA

Orleans, LA

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

Plaquemines, LA

St Bernard, LA

St Charles, LA

St James, LA

St John The Baptist, LA

St Tammany, LA

5600 New York, NY ..................... 1.4449

Bronx, NY

Kings, NY

New York, NY

Putnam, NY

Queens, NY

Richmond, NY

Rockland, NY

Westchester, NY

5640 Newark, NJ .......................... 1.1980

Essex, NJ

Morris, NJ

Sussex, NJ

Union, NJ

Warren, NJ

5660 Newburgh, NY–PA .............. 1.1283

Orange, NY

Pike, PA

5720 Norfolk-Virginia Beach-Newport News, VA–NC ...................... 0.8316

Currituck, NC

Chesapeake City, VA

Gloucester, VA

Hampton City, VA

Isle of Wight, VA

James City, VA

Mathews, VA

Newport News City, VA

Norfolk City, VA

Poquoson City, VA

Portsmouth City, VA

Suffolk City, VA

Virginia Beach City VA

Williamsburg City, VA

York, VA

5775 Oakland, CA ........................ 1.5068

Alameda, CA

Contra Costa, CA

5790 Ocala, FL ............................. 0.9032

Marion, FL

5800 Odessa-Midland, TX ........... 0.8660

Ector, TX

Midland, TX

5880 Oklahoma City, OK ............. 0.8481

Canadian, OK

Cleveland, OK

Logan, OK

McClain, OK

Oklahoma, OK

Pottawatomie, OK

5910 Olympia, WA ....................... 1.0901

Thurston, WA

5920 Omaha, NE–IA .................... 0.9421

Pottawattamie, IA

Cass, NE

Douglas, NE

Sarpy, NE

Washington, NE

5945 Orange County, CA ............. 1.1605

Orange, CA

5960 Orlando, FL ......................... 0.9397

Lake, FL

Orange, FL

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

Osceola, FL

Seminole, FL

5990 Owensboro, KY ................... 0.7480

Daviess, KY

6015 Panama City, FL ................. 0.8337

Bay, FL

6020 Parkersburg-Marietta, WV–

OH ............................................... 0.8046

Washington, OH

Wood, WV

6080 Pensacola, FL ..................... 0.8193

Escambia, FL

Santa Rosa, FL

6120 Peoria-Pekin, IL ................... 0.8571

Peoria, IL

Tazewell, IL

Woodford, IL

6160 Philadelphia, PA–NJ ........... 1.1398

Burlington, NJ

Camden, NJ

Gloucester, NJ

Salem, NJ

Bucks, PA

Chester, PA

Delaware, PA

Montgomery, PA

Philadelphia, PA

6200 Phoenix-Mesa, AZ ............... 0.9606

Maricopa, AZ

Pinal, AZ

6240 Pine Bluff, AR ...................... 0.7826

Jefferson, AR

6280 Pittsburgh, PA ..................... 0.9725

Allegheny, PA

Beaver, PA

Butler, PA

Fayette, PA

Washington, PA

Westmoreland, PA

6323 Pittsfield, MA ....................... 1.0960

Berkshire, MA

6340 Pocatello, ID .......................... 0.9586

Bannock, ID

6360 Ponce, PR ........................... 0.4589

Guayanilla, PR

Juana Diaz, PR

Penuelas, PR

Ponce, PR

Villalba, PR

Yauco, PR

6403 Portland, ME ....................... 0.9627

Cumberland, ME

Sagadahoc, ME

York, ME

6440 Portland-Vancouver, OR–

WA ............................................... 1.1344

Clackamas, OR

Columbia, OR

Multnomah, OR

Washington, OR

Yamhill, OR

Clark, WA

6483 Providence-Warwick-Pawtucket, RI ..................................... 1.1049

Bristol, RI

Kent, RI

Newport, RI

Providence, RI

Washington, RI
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26281

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

6520 Provo-Orem, UT .................. 1.0073

Utah, UT

6560 Pueblo, CO .......................... 0.8450

Pueblo, CO

6580 Punta Gorda, FL ................. 0.8725

Charlotte, FL

6600 Racine, WI ........................... 0.8934

Racine, WI

6640 Raleigh-Durham-Chapel Hill,

NC ............................................... 0.9818

Chatham, NC

Durham, NC

Franklin, NC

Johnston, NC

Orange, NC

Wake, NC

6660 Rapid City, SD .................... 0.8345

Pennington, SD

6680 Reading, PA ........................ 0.9516

Berks, PA

6690 Redding, CA ........................ 1.1790

Shasta, CA

6720 Reno, NV ............................. 1.0768

Washoe, NV

6740 Richland-Kennewick-Pasco,

WA ............................................... 0.9918

Benton, WA

Franklin, WA

6760 Richmond-Petersburg, VA .. 0.9152

Charles City County, VA

Chesterfield, VA

Colonial Heights City, VA

Dinwiddie, VA

Goochland, VA

Hanover, VA

Henrico, VA

Hopewell City, VA

New Kent, VA

Petersburg City, VA

Powhatan, VA

Prince George, VA

Richmond City, VA

6780 Riverside-San Bernardino,

CA ............................................... 1.1307

Riverside, CA

San Bernardino, CA

6800 Roanoke, VA ....................... 0.8402

Botetourt, VA

Roanoke, VA

Roanoke City, VA

Salem City, VA

6820 Rochester, MN .................... 1.0502

Olmsted, MN

6840 Rochester, NY ..................... 0.9524

Genesee, NY

Livingston, NY

Monroe, NY

Ontario, NY

Orleans, NY

Wayne, NY

6880 Rockford, IL ......................... 0.9081

Boone, IL

Ogle, IL

Winnebago, IL

6895 Rocky Mount, NC ................ 0.9029

Edgecombe, NC

Nash, NC

6920 Sacramento, CA .................. 1.2202

El Dorado, CA

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

Placer, CA

Sacramento, CA

6960 Saginaw-Bay City-Midland,

MI ................................................ 0.9564

Bay, MI

Midland, MI

Saginaw, MI

6980 St Cloud, MN ....................... 0.9544

Benton, MN

Stearns, MN

7000 St Joseph, MO .................... 0.8366

Andrews, MO

Buchanan, MO

7040 St Louis, MO–IL .................. 0.9130

Clinton, IL

Jersey, IL

Madison, IL

Monroe, IL

St Clair, IL

Franklin, MO

Jefferson, MO

Lincoln, MO

St Charles, MO

St Louis, MO

St Louis City, MO

Warren, MO

Sullivan City, MO

7080 Salem, OR ........................... 0.9935

Marion, OR

Polk, OR

7120 Salinas, CA ......................... 1.4513

Monterey, CA

7160 Salt Lake City-Ogden, UT ... 0.9857

Davis, UT

Salt Lake, UT

Weber, UT

7200 San Angelo, TX ................... 0.7780

Tom Green, TX

7240 San Antonio, TX .................. 0.8499

Bexar, TX

Comal, TX

Guadalupe, TX

Wilson, TX

7320 San Diego, CA .................... 1.2193

San Diego, CA

7360 San Francisco, CA .............. 1.4180

Marin, CA

San Francisco, CA

San Mateo, CA

7400 San Jose, CA ...................... 1.4332

Santa Clara, CA

7440 San Juan-Bayamon, PR ..... 0.4625

Aguas Buenas, PR

Barceloneta, PR

Bayamon, PR

Canovanas, PR

Carolina, PR

Catano, PR

Ceiba, PR

Comerio, PR

Corozal, PR

Dorado, PR

Fajardo, PR

Florida, PR

Guaynabo, PR

Humacao, PR

Juncos, PR

Los Piedras, PR

Loiza, PR

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

Luguillo, PR

Manati, PR

Morovis, PR

Naguabo, PR

Naranjito, PR

Rio Grande, PR

San Juan, PR

Toa Alta, PR

Toa Baja, PR

Trujillo Alto, PR

Vega Alta, PR

Vega Baja, PR

Yabucoa, PR

7460 San Luis ObispoAtascadero-Paso Robles, CA ..... 1.1374

San Luis Obispo, CA

7480 Santa Barbara-Santa MariaLompoc, CA ................................ 1.0688

Santa Barbara, CA

7485 Santa Cruz-Watsonville, CA 1.4187

Santa Cruz, CA

7490 Santa Fe, NM ...................... 1.0332

Los Alamos, NM

Santa Fe, NM

7500 Santa Rosa, CA .................. 1.2815

Sonoma, CA

7510 Sarasota-Bradenton, FL ...... 0.9757

Manatee, FL

Sarasota, FL

7520 Savannah, GA ..................... 0.8638

Bryan, GA

Chatham, GA

Effingham, GA

7560 Scranton—Wilkes-Barre—

Hazleton, PA ............................... 0.8539

Columbia, PA

Lackawanna, PA

Luzerne, PA

Wyoming, PA

7600 Seattle-Bellevue-Everett,

WA ............................................... 1.1339

Island, WA

King, WA

Snohomish, WA

7610 Sharon, PA .......................... 0.8783

Mercer, PA

7620 Sheboygan, WI .................... 0.7862

Sheboygan, WI

7640 Sherman-Denison, TX ......... 0.8499

Grayson, TX

7680 Shreveport-Bossier City, LA 0.9381

Bossier, LA

Caddo, LA

Webster, LA

7720 Sioux City, IA–NE ............... 0.8031

Woodbury, IA

Dakota, NE

7760 Sioux Falls, SD ................... 0.8712

Lincoln, SD

Minnehaha, SD

7800 South Bend, IN .................... 0.9868

St Joseph, IN

7840 Spokane, WA ...................... 1.0486

Spokane, WA

7880 Springfield, IL ...................... 0.8713

Menard, IL

Sangamon, IL

7920 Springfield, MO ................... 0.7989

Christian, MO
26282 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

Greene, MO

Webster, MO

8003 Springfield, MA .................... 1.0740

Hampden, MA

Hampshire, MA

8050 State College, PA ................ 0.9635

Centre, PA

8080 Steubenville-Weirton, OH–

WV ............................................... 0.8645

Jefferson, OH

Brooke, WV

Hancock, WV

8120 Stockton-Lodi, CA ............... 1.1496

San Joaquin, CA

8140 Sumter, SC .......................... 0.7842

Sumter, SC

8160 Syracuse, NY ...................... 0.9464

Cayuga, NY

Madison, NY

Onondaga, NY

Oswego, NY

8200 Tacoma, WA ....................... 1.1016

Pierce, WA

8240 Tallahassee, FL ................... 0.8332

Gadsden, FL

Leon, FL

8280 Tampa-St Petersburg-Clearwater, FL ..................................... 0.9103

Hernando, FL

Hillsborough, FL

Pasco, FL

Pinellas, FL

8320 Terre Haute, IN ................... 0.8614

Clay, IN

Vermillion, IN

Vigo, IN

8360 Texarkana, AR-Texarkana,

TX ................................................ 0.8664

Miller, AR

Bowie, TX

8400 Toledo, OH .......................... 1.0390

Fulton, OH

Lucas, OH

Wood, OH

8440 Topeka, KS ......................... 0.9438

Shawnee, KS

8480 Trenton, NJ ......................... 1.0380

Mercer, NJ

8520 Tucson, AZ .......................... 0.9180

Pima, AZ

8560 Tulsa, OK ............................ 0.8074

Creek, OK

Osage, OK

Rogers, OK

Tulsa, OK

Wagoner, OK

8600 Tuscaloosa, AL ................... 0.8187

Tuscaloosa, AL

8640 Tyler, TX .............................. 0.9567

Smith, TX

8680 Utica-Rome, NY .................. 0.8398

Herkimer, NY

Oneida, NY

8720 Vallejo-Fairfield-Napa, CA ... 1.3754

Napa, CA

Solano, CA

8735 Ventura, CA ......................... 1.0946

Ventura, CA

8750 Victoria, TX .......................... 0.8474

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

Victoria, TX

8760 Vineland-Millville-Bridgeton,

NJ ................................................ 1.0110

Cumberland, NJ

8780 Visalia-Tulare-Porterville,

CA ............................................... 0.9924

Tulare, CA

8800 Waco, TX ............................ 0.7696

McLennan, TX

8840 Washington, DC–MD–VA–

WV ............................................... 1.0911

District of Columbia, DC

Calvert, MD

Charles, MD

Frederick, MD

Montgomery, MD

Prince Georges, MD

Alexandria City, VA

Arlington, VA

Clarke, VA

Culpepper, VA

Fairfax, VA

Fairfax City, VA

Falls Church City, VA

Fauquier, VA

Fredericksburg City, VA

King George, VA

Loudoun, VA

Manassas City, VA

Manassas Park City, VA

Prince William, VA

Spotsylvania, VA

Stafford, VA

Warren, VA

Berkeley, WV

Jefferson, WV

8920 Waterloo-Cedar Falls, IA ..... 0.8640

Black Hawk, IA

8940 Wausau, WI ......................... 1.0545

Marathon, WI

8960 West Palm Beach-Boca

Raton, FL .................................... 1.0372

Palm Beach, FL

9000 Wheeling, OH–WV .............. 0.7707

Belmont, OH

Marshall, WV

Ohio, WV

9040 Wichita, KS .......................... 0.9403

Butler, KS

Harvey, KS

Sedgwick, KS

9080 Wichita Falls, TX ................. 0.7646

Archer, TX

Wichita, TX

9140 Williamsport, PA .................. 0.8548

Lycoming, PA

9160 Wilmington-Newark, DE–MD 1.1538

New Castle, DE

Cecil, MD

9200 Wilmington, NC ................... 0.9322

New Hanover, NC

Brunswick, NC

9260 Yakima, WA ........................ 1.0102

Yakima, WA

9270 Yolo, CA .............................. 1.1431

Yolo, CA

9280 York, PA .............................. 0.9415

York, PA

9320 Youngstown-Warren, OH .... 0.9937

TABLE 2.I.—WAGE INDEX FOR URBAN

AREAS—Continued

Urban Area

(Constituent counties or county

equivalents)

Wage

index

Columbiana, OH

Mahoning, OH

Trumbull, OH

9340 Yuba City, CA ..................... 1.0324

Sutter, CA

Yuba, CA

9360 Yuma, AZ ............................ 0.9732

Yuma, AZ

TABLE 2.I.—WAGE INDEX FOR RURAL

AREAS

Nonurban area Wage

index

Alabama .......................................... 0.7260

Alaska ............................................. 1.2302

Arizona ............................................ 0.7989

Arkansas ......................................... 0.6995

California ......................................... 0.9977

Colorado ......................................... 0.8129

Connecticut ..................................... 1.2617

Delaware ......................................... 0.8925

Florida ............................................. 0.8838

Georgia ........................................... 0.7761

Hawaii ............................................. 1.0229

Idaho ............................................... 0.8221

Illinois .............................................. 0.7644

Indiana ............................................ 0.8161

Iowa ................................................ 0.7391

Kansas ............................................ 0.7203

Kentucky ......................................... 0.7772

Louisiana ......................................... 0.7383

Maine .............................................. 0.8468

Maryland ......................................... 0.8617

Massachusetts ................................ 1.0718

Michigan .......................................... 0.8923

Minnesota ....................................... 0.8179

Mississippi ....................................... 0.6911

Missouri ........................................... 0.7205

Montana .......................................... 0.8302

Nebraska ......................................... 0.7401

Nevada ............................................ 0.8914

New Hampshire .............................. 0.9717

New Jersey 1 ................................... ..............

New Mexico .................................... 0.8070

New York ........................................ 0.8401

North Carolina ................................. 0.7937

North Dakota ................................... 0.7360

Ohio ................................................ 0.8434

Oklahoma ........................................ 0.7072

Oregon ............................................ 0.9975

Pennsylvania ................................... 0.8421

Puerto Rico ..................................... 0.3939

Rhode Island 1 ................................ ..............

South Carolina ................................ 0.7921

South Dakota .................................. 0.6983

Tennessee ...................................... 0.7353

Texas .............................................. 0.7404

Utah ................................................ 0.8926

Vermont .......................................... 0.9314

Virginia ............................................ 0.7782

Washington ..................................... 1.0221

West Virginia ................................... 0.7938

Wisconsin ........................................ 0.8471

Wyoming ......................................... 0.8247

1All counties within the State are classified

urban.
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26283

E. Relationship of RUG–III Classification

System to Existing Skilled Nursing

Facility Level of Care Criteria

Section 1814(a)(2)(B) of the Act

provides that, in order for Part A to

make payment under the extended care

benefit, a physician, nurse practitioner,

or clinical nurse specialist must initially

certify (and periodically recertify) that

the beneficiary needs a specific level of

care, specifically, skilled nursing or

rehabilitation services on a daily basis

which, as a practical matter, can only be

provided in an SNF on an inpatient

basis. Longstanding administrative

criteria for determining whether a

beneficiary meets this statutory SNF

level of care definition appear in

regulations at §§ 409.31 through 409.35

and manual instructions in the

Medicare Intermediary Manual, Part 3

(MIM–3), §§ 3132ff and the Skilled

Nursing Facility Manual §§ 214ff. These

criteria entail a retrospective review that

focuses primarily on a beneficiary’s

need for and receipt of specific,

individual skilled services as indicators

of the need for a covered SNF level of

care. (The certification/recertification

procedure itself is implemented in

regulations at § 424.20.)

In this context, the RUG–III system

serves three distinct but related

purposes:

• Streamlining and simplifying the

process for determining that a

beneficiary meets the statutory criteria

for an SNF level of care (which is a

prerequisite for making program

payment under the extended care

benefit), by automatically classifying

those beneficiaries assigned to any of

the highest 26 of the 44 RUG–III groups

as meeting the definition. (For those

beneficiaries assigned to the lowest 18

groups, level of care determinations are

performed on an individual basis, using

the existing administrative criteria

established for this purpose.)

• Determining the level of the Part A

per diem payment under the SNF PPS,

which varies with the resource intensity

of the particular RUG–III group to which

an individual beneficiary is assigned. In

addition to developing a per diem

payment rate for each of the RUG–III

groups, we are also creating a default

payment rate (as discussed previously

in section II.B.11.) to address situations

such as those in which the facility’s

failure to submit a completed

assessment in a timely manner prevents

the beneficiary from being assigned to a

particular RUG–III group. In order to

receive payment at the default rate in

the absence of completing an

assessment timely, the SNF would have

to submit sufficient information to its

Medicare fiscal intermediary (FI) to

enable the FI to establish coverage

under the existing administrative

criteria.

• Providing an additional basis for

making an administrative presumption

(under regulations at § 409.60(c)(2)) that

an SNF resident who has exhausted Part

A benefits continues to meet the skilled

level of care definition in the SNF, since

a resident assigned to any of the upper

26 RUG–III groups is automatically

classified as meeting this definition.

Such a resident continues to be

considered an ‘‘inpatient’’ of the SNF

for purposes of prolonging his or her

current benefit period under section

1861(a)(2) of the Act and § 409.60(b)(2)

of the regulations.

As discussed below, we believe that

certain specific modifications are

appropriate in the existing

administrative criteria that are used for

making SNF level of care

determinations, in order to achieve

greater consistency between them and

the RUG–III classification system. Under

the demonstration, those beneficiaries

assigned to any of the highest 26 of the

44 RUG–III groups have been defined as

meeting the SNF level of care specified

in the statute. Thus, the RUG–III

classification system used under the

demonstration and the existing

administrative level of care criteria

essentially represent two different

approaches toward achieving the same

objective—identifying those

beneficiaries who meet the SNF level of

care definition in section 1814(a)(2)(B)

of the Act. Under the demonstration,

RUG–III has been used as a means of

qualifying beneficiaries for coverage, not

disqualifying them. That is, those

beneficiaries assigned to any of the

upper 26 groups are automatically

classified as meeting the SNF level of

care definition while those beneficiaries

assigned to any of the lower 18 groups

are not automatically classified as either

meeting or not meeting the definition,

but instead receive an individual level

of care determination using the existing

administrative criteria. This procedure

will continue under the new SNF PPS.

Thus, a beneficiary who is assigned to

one of the upper 26 RUG–III groups is

automatically designated as meeting the

SNF level of care definition, and the

required initial certification under

§ 424.20(a) regarding such a

beneficiary’s general need for an SNF

level of care would, in effect, simply

serve to confirm the correctness of this

designation. Accordingly, we are

amending the regulations at § 424.20(a)

to provide that, at the option of the

individual completing it, the initial

certification for a beneficiary who is

assigned to one of the upper 26 RUG–

III groups can either consist of the

existing content described in that

provision or, alternatively, can state

simply that the beneficiary’s assignment

to that particular RUG–III group is

correct.

Under this type of framework, it is not

essential for the RUG–III system to

conform exactly to the existing

administrative criteria, since any

beneficiary who does not initially meet

the criteria for coverage under the

former will then receive an individual

level of care determination under the

latter. Nevertheless, it is desirable from

a programmatic standpoint to reconcile,

whenever possible, any specific

inconsistencies that may exist between

these two approaches in their treatment

of particular conditions and

circumstances. Further, for the reasons

discussed below, we believe that

resolving these inconsistencies in favor

of the approach taken under RUG–III

would also help bring the existing

administrative criteria more into line

with the current state of clinical

practice. We note that these changes in

the existing administrative criteria will

become effective with the introduction

of the Part A SNF PPS and its RUG–III

classification system (that is, for cost

reporting periods beginning on or after

July 1, 1998), and will be implemented

on a prospective basis only.

Accordingly, we will advise Medicare

contractors that any beneficiary who,

upon the effective date of these changes,

is currently in a covered SNF stay will

not have his or her coverage terminated

on the basis of these revisions for the

duration of that covered stay.

The existing administrative criteria

for making SNF level of care

determinations focus primarily on the

use of specific, individual skilled

services as indicators of a beneficiary’s

need for a covered level of care. The

particular services identified in these

criteria date back to the Senate Finance

Committee Report language (S. Rep. No.

92–1230, pp. 282–285) that

accompanied the Social Security

Amendments of 1972 (Public Law 92–

603). However, in the 25 years since that

legislation was enacted, the state of

clinical practice for the nursing home

population has advanced dramatically,

to the point where some of the specific

types of services cited in the Committee

Report either have fallen largely into

disuse or have now become routinely

available in less intensive settings.

Accordingly, with the passage of time,

some of the individual services

identified as skilled in the existing

administrative criteria no longer, in

themselves, represent valid indicators of
26284 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

the need for a covered SNF level of care.

Consequently, while such services

might still be considered ‘‘skilled’’ in a

technical sense (in that they may

arguably require rendition by skilled

personnel in order to be furnished safely

and effectively), we believe that they are

no longer appropriate for inclusion in

the SNF level of care criteria.

For example, we believe that from a

clinical as well as programmatic

standpoint, it is no longer necessary or

appropriate to include

‘‘hypodermoclysis’’ (injection of fluids

into the subcutaneous tissues to supply

the body with liquids quickly) in the list

of examples of skilled nursing services

at § 409.33(b). Medically, this service is

equivalent to giving fluids in an

intravenous infusion. As more SNFs

have become proficient in the

administration of intravenous

medications and fluids, the number of

cases in which this service would be

appropriate becomes extremely small.

Although there may be a very small

number of beneficiaries who cannot be

hydrated with intravenous fluids, it is

likely that they would be sufficiently

medically complex as to be classified

into one of the top 26 RUG–III

categories, regardless of the use of

hypodermoclysis.

We also believe that the ordering of

subcutaneous injections can no longer

be considered sufficient in itself to

justify the designation of a covered SNF

level of care. We note that the most

frequently administered type of

subcutaneous medication is insulin,

which has long been defined as a

nonskilled service with respect to any

beneficiary who is capable of selfadministration. Further, with the

evolving state of clinical practice over

time, the administration of a

subcutaneous injection has now become

commonly accepted as a nonskilled

service even in less intensive settings

such as physician offices and home

health agencies, making its continued

categorization as a skilled service in the

SNF context increasingly anomalous. In

the RUG–III classifications, an insulindependent diabetic beneficiary who is

clinically unstable enough to have had

two physician order changes within the

preceding 7 days would be assigned to

one of the top 26 groups and, thus,

would automatically be classified as

meeting the standard for a covered level

of care. By contrast, a beneficiary who

has stabilized and continues to receive

subcutaneous injections on a chronic

basis will, in all likelihood, have

already exhausted the 100 days of

available SNF coverage per benefit

period at that point. In this situation,

categorizing the injections as a

nonskilled service would actually work

to the beneficiary’s advantage, as it

would enable such a beneficiary to end

that benefit period in the SNF under

regulations at § 409.60(b)(2).

The vast majority of urinary catheters

are placed in the urethra, but a few are

suprapubic. The current administrative

criteria also identify the insertion into

the urethra and sterile irrigation of

urinary catheters as a skilled nursing

service. However, RUG–III does not

consider any of these catheters in

assigning patients to a RUG–III category.

Further, we believe that it may well be

inherently undesirable to specify the

use of urinary catheters as a criterion

that effectively governs SNF coverage

determinations, because of the risk that

this creates of providing an unwarranted

incentive for the inappropriate use of

urinary catheters. It is widely

recognized that there is a significant

amount of unnecessary use of catheters

for the convenience of care givers, with

the potential to place beneficiaries at

increased risk of infection. Nevertheless,

we also recognize that a catheter can be

medically necessary, especially in those

particular situations where obstruction

is present. Accordingly, we are not

deleting this particular procedure from

the administrative criteria at this time.

We invite comments on whether the

care of suprapubic catheters should be

considered skilled.

The RUG–III groups recognize enteral

feeding as a criterion for patient

classification only if it is providing the

patient with more 26 percent of his or

her calories and at least 501 milliliters

of hydration daily. Historically, the

administrative criteria have only

required the mere presence of a ‘‘Levin

tube’’ (now referred to as a nasogastric

tube) or a gastrostomy tube for enteral

feeding. We note that, in recent years,

gastrostomy tube feedings have become

the more commonly used procedure, as

the chronic use of nasogastric tubes has

been replaced because of the increased

risk of pneumonia from aspirating fluid

into the lungs. The demonstration took

a more specifically defined approach

because a few beneficiaries in all the

demonstration states were found to have

had feeding tubes retained even though

they were no longer used (or even

usable), with the only apparent purpose

being to maintain the beneficiary’s

‘‘skilled’’ status. Because we believe that

it is clearly inappropriate for such a

practice to serve as an indicator of the

need for a covered level of care, we are

revising the administrative criteria to

adopt the RUG–III system’s more

specific approach. That approach

incorporates specific criteria (that is,

comprising at least 26 per cent of daily

calorie requirements and providing at

least 501 milliliters of fluid per day) that

effectively limit the recognition of

enteral feeding as a skilled service

(regardless of whether administered by

nasogastric, gastrostomy, or gastrojejunostomy tube) to those instances in

which it currently is clinically relevant

to the beneficiary. We note that this

particular change would not result in

removing enteral feeding altogether

from the list of skilled nursing services

in § 409.33(b), but merely would

provide more specific, objective criteria

for ensuring that coverage

determinations take this particular

procedure into account only in those

instances where its use is, in fact,

reasonable and necessary in accordance

with section 1862(a)(1) of the Act.

Under the existing administrative

criteria, ‘‘management and evaluation of

a care plan,’’ ‘‘observation and

assessment,’’ and ‘‘patient education’’

needed to teach a patient selfmaintenance during the initial stages of

treatment would be sufficient in

themselves to justify the need for skilled

nursing services. The RUG–III system

uses nursing rehabilitation frequency of

physician visits and number of days on

which physician orders change as

criteria to assign patients. ‘‘Nursing

rehabilitation’’ is defined in the Long

Term Care Resident Assessment

Manual. The services considered to be

nursing rehabilitation in the PPS system

include, but are not limited to, teaching

self-care for diabetic management, selfadministration of medications, and

ostomy care.

It is our experience in the

demonstration that these criteria

effectively serve as proxies to the

existing categories of ‘‘management and

evaluation of a care plan,’’ ‘‘observation

and assessment,’’ and ‘‘patient

education’’ (see the preceding

discussion on the RUG–III Clinically

Complex category). Observation and

assessment (§ 409.33(a)(2)) involves a

medically fragile beneficiary who

(although not presently receiving any

specific skilled services) could

potentially undergo a sudden and rapid

decline at any time and, consequently,

may require skilled expertise on the part

of facility staff in order to recognize and

respond quickly to the earliest signs of

an impending change in condition.

Because the category of observation

and assessment is, by definition, limited

to a beneficiary whose condition is

potentially unstable, the RUG–III

criteria for frequency of physician visits

and number of order changes clearly

represent appropriate proxies in this

situation. They similarly serve as

appropriate proxies for the category of
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26285

skilled management and evaluation

(§ 403.33(a)(1)) of an aggregate of

nonskilled services (which is generally

invoked only during the first few days

of a beneficiary’s SNF stay, until more

specific skilled care needs can be

identified through the completion of the

resident assessment) and of patient

education (§ 409.33(a)(3), which

involves teaching self-maintenance

during the initial stages of treatment),

since these categories are generally

confined to the initial portion of the

SNF stay, typically before the

beneficiary’s condition has stabilized.

Accordingly, because we anticipate that

essentially all patients falling into these

categories will be assigned to one of the

highest 26 RUG–III groups, we believe

that it is no longer necessary to retain

these particular categories in the

administrative criteria.

As noted above, the dramatic

advances in the state of medical and

nursing practice that have occurred over

the past 25 years have necessitated a

reevaluation of some of the specific

elements in the existing SNF level of

care criteria. These advances in clinical

practice have also been accompanied by

a significant improvement in the ability

to collect and utilize clinical data for

program purposes, as exemplified by the

MDS and RUG–III. Therefore, we

believe it may be appropriate to

consider the feasibility of ultimately

moving beyond the limited, incremental

adjustments in the existing SNF level of

care criteria discussed above, in favor of

a more fundamental change in the

overall process of performing SNF level

of care determinations themselves.

Specifically, it may be possible to

eliminate the use of the existing

administrative criteria altogether, by

utilizing RUG–III as the exclusive means

for making these determinations rather

than as a mere adjunct to the

administrative criteria.

We believe that the RUG–III system’s

basic approach, which provides for an

ongoing evaluation of an entire cluster

of patient indicators, may well represent

a more predictable and reliable way of

making accurate SNF level of care

determinations than the existing

administrative criteria’s primary focus

on reviewing claims information

retrospectively for the presence or

absence of individual skilled services.

Besides being a far simpler procedure

from an administrative standpoint, we

believe that basing SNF level of care

determinations exclusively on the RUG–

III system would represent a significant

improvement over certain aspects of the

existing criteria:

• Greater reliability in predicting in

advance whether a particular

beneficiary will qualify for coverage.

Under the current process of

determining Medicare coverage with the

existing administrative criteria based on

a retrospective claims review, it can be

difficult to predict with certainty

whether a particular beneficiary’s SNF

care will be covered. One early attempt

to address the resulting problem of

retroactive coverage denials was the

enactment of the ‘‘presumed coverage’’

provision in section 228(a) of Public

Law 92–603, which was designed to

grant periods of SNF coverage

prospectively on the basis of a

beneficiary’s diagnosis. However, in

section 941 of the Omnibus

Reconciliation Act of 1980 (Public Law

96–499), the Congress ultimately

repealed this provision as unworkable.

Thus, while the subsequently-enacted

hospital PPS was able to use diagnosis

successfully as a predictor of resource

intensity for acute care, the long-term

care setting required the development of

indicators that were more sensitive to

the particular characteristics of patients

in this setting. We believe that in the

RUG–III classification system, we have

now developed such an instrument,

with the potential to bring greater

reliability and predictability to the SNF

coverage determination process.

• Increased consistency and

uniformity among different contractors

in making level of care determinations.

The process of retrospective claims

review conducted under the existing

administrative criteria inherently relies

upon the medical judgment of the

individual reviewer. Thus, it would be

possible for two claims with essentially

identical sets of facts to be adjudicated

differently by different contractors. By

contrast, RUG–III utilizes a unified set

of specific clinical criteria that is more

coherent and objective, thus

diminishing the potential for variation

based on differences in individual

judgment.

It is worth noting that even the

existing criteria implicitly acknowledge

the limitations of an approach that looks

solely at the presence or absence of

individual skilled services. As

mentioned previously, the existing

criteria have historically recognized

situations that may require skilled

overall management and evaluation of

the care plan of a beneficiary who

receives only an aggregate of unskilled

services, or that may require skilled

observation and assessment of changes

in the condition of an extremely

unstable and medically fragile

beneficiary, even though the beneficiary

does not presently receive any specific

skilled services. Further, RUG–III’s

approach of evaluating a broad cluster

of services and other patient indicators

is consistent with the recent Medicare

trend of grouping individual services

into increasingly larger bundles for

program purposes, as exemplified by the

SNF PPS and Consolidated Billing

provisions.

Another reason that it may now be

feasible to rely exclusively on the RUG–

III system in making level of care

determinations is that the upper 26

RUG–III categories and the existing

administrative criteria (as now

modified) should serve to identify

increasingly similar sets of patients as

meeting the SNF level of care definition.

We also note a steady decline over the

course of the demonstration in the

proportion of covered days for those

beneficiaries assigned to any of the

lower 18 RUG–III groups (which

initially represented approximately 15

percent of total covered days), to the

point where such beneficiaries

ultimately accounted for only about 5 to

8 percent of total covered days. Thus,

one possible approach might be simply

to establish that beneficiaries assigned

to the highest 26 groups meet the SNF

level of care definition, while those

assigned to the lowest 18 groups do not,

and we specifically solicit comments on

the feasibility of this approach.

However, we also solicit comments on

the possible extent and specific nature

of situations in which beneficiaries who

are assigned to one of the lower 18

RUG–III groups might nonetheless meet

the statutory standard for an SNF level

of care, including information on their

clinical profiles as well as the specific

basis on which they would qualify for

Medicare SNF coverage.

We are also creating a new, rebuttable

presumption of an SNF resident’s

continued ‘‘inpatient’’ status for benefit

period purposes, based on his or her

assignment to one of the upper 26 RUG–

III groups. We are adding this new

administrative presumption to

paragraph (c)(2) of § 409.60 rather than

to paragraph (c)(1) since, unlike the

presumptions included in paragraph

(c)(1), it is not limited to instances in

which a claim for Medicare SNF

benefits is actually filed. Thus, a benefit

period determination under this

presumption could be rebutted by

presenting evidence establishing that

the beneficiary should have been

assigned to one of the lower 18 RUG-III

groups which, in turn, would permit a

determination that the beneficiary was

not actually receiving a covered level of

care.

III. Three-Year Transition Period

Under sections 1888(e) (1) and (2) of

the Act, during a facility’s first three
26286 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

cost reporting periods that begin on or

after July 1, 1998 (transition period), the

facility’s PPS rate will be equal to the

sum of a percentage of an adjusted

facility-specific per diem rate and a

percentage of the adjusted Federal per

diem rate. After the transition period,

the PPS rate will equal the adjusted

Federal per diem rate. The transition

period payment method will not apply

to SNFs that first received Medicare

payments (interim or otherwise) on or

after October 1, 1995 under present or

previous ownership; these facilities will

be paid based on 100 percent of the

Federal rate.

The facility-specific per diem rate is

the sum of the facility’s total allowable

Part A Medicare costs and an estimate

of the amounts that would be payable

under Part B for covered SNF services

for cost reporting periods beginning in

fiscal year 1995 (base year). The base

year cost report used to compute the

facility-specific per diem rate in the

transition period must be the latest

available cost report. It may be settled

(either tentative or final) or as-submitted

for Medicare payment purposes. Under

section 1888(e)(3) of the Act, any

adjustments to the base year cost report

made as a result of settlement or other

action by the fiscal intermediary,

including cost limit exceptions/

exemptions, results of an appeal, etc.,

will result in a retroactive adjustment to

the facility-specific per diem rate. The

instructions below should be used to

calculate the facility-specific per diem

rate.

A. Determination of Facility-Specific Per

Diem Rates

1. Part A Cost Determination

The facility-specific per diem rate

reflects the total allowable Part A

Medicare cost (routine, ancillary, and

capital-related) incurred during a

facility’s cost reporting period beginning

in Federal fiscal year 1995 (base year).

The facility-specific per diem rate will

be adjusted to account for the amounts

of (1) exceptions granted to the inpatient

routine services cost limits under

§ 413.30(f), and (2) new provider

exemptions from the cost limits under

§ 413.30(e), only to the extent that

routine service costs do not exceed 150

percent of applicable unadjusted cost

limits.

Part A Medicare costs associated with

approved educational activities, as

defined in § 413.85, are not included in

the facility-specific per diem rate. A

facility’s actual reasonable costs of

approved educational activities will be

separately identified and apportioned to

the Medicare program for payment

purposes on the Medicare cost report

effective for cost reporting periods

beginning on or after July 1, 1998.

Under section 1888(e)(3)(B)(ii) of the

Act, for facilities participating in the

Nursing Home Case-Mix and Quality

Demonstration (RUG–III), the Part A

Medicare costs used to compute the

facility-specific per diem rate will be the

aggregate RUG–III payment received for

services furnished in the cost reporting

period beginning calendar year 1997

plus the routine capital costs and

ancillary costs (other than occupational

therapy, physical therapy, and speech

pathology costs) as reported on the

facility’s Medicare cost report that

begins in calendar year 1997.

For those low volume SNFs that

received a prospectively determined

payment rate for SNF routine services,

under section 1888(d) of the Act and

part 413, subpart I, the facility-specific

per diem rate will be the applicable

prospectively determined payment rate

plus Medicare ancillary cost per diem.

Calculations to determine Medicare

Part A costs are to be made as follows:

a. Freestanding Skilled Nursing

Facilities. (1) Skilled Nursing Facilities

Without an Exception for Medical and

Paramedical Education (§ 413.30(f)(4))

or a New Provider Exemption in the

Base Year.

i. Routine Costs

Step 1. Determine total program

routine service costs for comparison to

the cost limitation (HCFA–2540–92,

worksheet D–1, line 23 or HCFA–2540–

96, worksheet D–1, line 25).

Step 2. Determine Medicare Routine

medical education costs—worksheet B,

part I, line 16, column 14 divided by

total patient days (Worksheet S–3, line

1, column 7) then multiplied by total

Medicare days (Worksheet S–3, line 1,

column 4).

Step 3. Subtract amount in Step 2.

from amount in Step 1. above.

Step 4. Compare amount in Step 3.

above to the inpatient routine service

cost limitation, including exception

amounts other than Medical and

Paramedical Education: see (2) below

(HCFA–2540–92, worksheet D–1, line

24 or HCFA–2540–96, worksheet D–1,

line 27) and take the lesser of the two

amounts.

Step 5. Add the amount in Step 4. to

the program capital related cost (HCFA–

2540–92, worksheet D–1, line 20 or

HCFA–2540–96, worksheet D–1, line

22).

ii. Part A Ancillary Costs

Step 1. Determine total program

inpatient ancillary services (HCFA–

2540–92 or HCFA–2540–96, Worksheet

E, part I, line 1).

Step 2. Determine Medicare Ancillary

medical education costs—worksheet B,

part I, calculate separately each line 21–

33, dividing column 14 by column 18.

Multiply the resulting percentage by the

corresponding line (lines 21–33) on

worksheet D, column 4. Total the

resulting amounts calculated for lines

21–33.

Step 3. Subtract amount in Step 2.

from the amount in Step 1. above.

iii. Part A cost Equals the Amount in

i.Step 5. Plus the Amount in ii.Step 3.

Above

(2) Skilled Nursing Facilities With an

Exception for Medical and Paramedical

Education in the Base Year.

i. Routine Costs

Step 1. Determine total program

routine service costs for comparison to

the cost limitation (HCFA–2540–92,

worksheet D–1, line 23 or HCFA–2540–

96, worksheet D–1, line 25).

Step 2. Determine Medicare Routine

medical education costs—worksheet B,

part I, line 16, column 14 divided by

total patient days (Worksheet S–3, line

1, column 7) then multiplied by total

Medicare days (Worksheet S–3, line 1,

column 4).

Step 3. Subtract the amount in Step 2.

from the amount in Step 1. above

Step 4. From the inpatient routine

service cost limitation, including all

exception amounts granted, (HCFA–

2540–92, worksheet D–1, line 24 or

HCFA–2540–96, worksheet D–1, line

27) subtract the exception amount

granted for medical and paramedical

education costs.

Step 5. Compare amount in Step 3.

above with the amount in Step 4. above

and take the lesser of the two amounts.

Step 6. Add amount in Step 5. to the

program capital related cost (HCFA–

2540–92, worksheet D–1, line 20 or

HCFA–2540–96, worksheet D–1, line

22).

ii. Part A Ancillary Costs

Step 1. Determine total program

inpatient ancillary services (HCFA–

2540–92 or HCFA–2540–96, Worksheet

E, part I, line 1).

Step 2. Determine Medicare Ancillary

medical education costs—worksheet B,

part I, calculate separately each line 21–

33, dividing column 14 by column 18.

Multiply the resulting percentage by the

corresponding line (lines 21–33) on

worksheet D, column 4. Total the

amounts calculated for lines 21–33.

Step 3. Subtract amount in Step 2.

from the amount in Step 1. above.
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26287

iii. Part A cost Equals the Amount in

i.Step 6. Plus the Amount in ii.Step 3.

Above

(3) Skilled Nursing Facilities With

New Provider Exemptions From the

Cost Limits in the Base Year.

i. Routine Costs

Step 1. Determine total program

routine service costs for comparison to

the cost limitation (HCFA–2540–92,

worksheet D–1, line 23 or HCFA–2540–

96, worksheet D–1, line 25).

Step 2. Determine Medicare Routine

medical education costs—worksheet B,

part I, line 16, column 14 divided by

total patient days (Worksheet S–3, line

1, column 7) then multiplied by total

Medicare days (Worksheet S–3, line 1,

column 4).

Step 3. Subtract amount in Step 2.

from the amount in Step 1. above.

Step 4. Multiply the unadjusted

inpatient routine service cost limitation

(the cost limit amount had the SNF not

received an exemption, which is

normally reported on HCFA–2540–92,

worksheet D–1, line 24 or HCFA–2540–

96, worksheet D–1, line 27) by 1.5.

Step 5. Compare amount in Step 3.

above with the amount in Step 4. above

and take the lesser of the two amounts.

Step 6. Add to the amount in Step 5.

the program capital related cost (HCFA–

2540–92, worksheet D–1, line 20 or

HCFA–2540–96, worksheet D–1, line

22).

ii. Part A Ancillary Costs

Step 1. Determine total program

inpatient ancillary services (HCFA–

2540–92 or HCFA–2540–96, Worksheet

E, part I, line 1).

Step 2. Determine Medicare Ancillary

medical education costs—worksheet B,

part I, calculate separately each line 21–

33, dividing column 14 by column 18.

Multiply the resulting percentage by the

corresponding line (lines 21–33) on

worksheet D, column 4. Total the

amounts calculated for lines 21–33.

Step 3. Subtract amount in Step 2.

from the amount in Step 1. above.

iii. Part A Cost Equals the Amount in i.

Step 6. Plus the Amount in ii.Step 3.

Above

b. Hospital-based skilled nursing

facilities. (1) Skilled Nursing Facilities

Without an Exception for Medical and

Paramedical Education or a New

Provider Exemption.

i. Routine Costs

Step 1. Determine total program

routine service costs for comparison to

the cost limitation (HCFA–2552–92 or

HCFA–2552–96, worksheet D–1, part III,

line 76).

Step 2. Determine Medicare Routine

medical education costs—worksheet B

part I, line 34, sum of columns 21 and

24 (only amounts that are for approved

education programs), divided by total

patient days (worksheet S–3, part I, line

11 (HCFA–2552–92) or part I, line 15

(HCFA–2552–96) column 6) then

multiplied by total Medicare days

(worksheet S–3, part I, line 11 (HCFA–

2552–92) or part I, line 15 (HCFA–2552–

96), column 4).

Step 3. Subtract amount in Step 2.

from the amount in Step 1. above.

Step 4. Compare amount in Step 3.

above to the inpatient routine service

cost limitation, including exception

amounts other than Medical and

Paramedical education; see (2) below,

(HCFA–2552–92 or HCFA–2552–96,

worksheet D–1, part III, line 78) and

take the lesser of the two amounts.

Step 5. Add to amount in Step 4. The

program capital related cost (HCFA–

2552–92 or HCFA–2552–96, worksheet

D–1, part III, line 73).

ii. Part A Ancillary Costs

Step 1. Determine total program

inpatient ancillary services (HCFA–

2552–92 or HCFA–2552–96, worksheet

D–1, part III, line 80).

Step 2. Determine Medicare Ancillary

medical education costs—worksheet B,

part I, (calculate separately each line

37–59 ), dividing the sum of columns 21

and 24 (approved programs only) by

column 27. Multiply the resulting

percentage by the corresponding line

(lines 37–59) on worksheet D–4 (SNF),

column 3. Total the amounts calculated

for lines 37–59.

Step 3. Subtract amount in Step 2.

from the amount in Step 1. above.

iii. Part A Cost Equals the Amount in

i.Step 5. Plus the Amount in ii.Step 3.

Above

(2) Skilled Nursing Facilities With an

Exception for Medical and Paramedical

Education in the Base Year.

i. Routine Costs

Step 1. Determine total program

routine service costs for comparison to

the cost limitation (HCFA–2552–92 or

HCFA–2552–96, worksheet D–1, part III,

line 76).

Step 2. Determine Medicare Routine

medical education costs—worksheet B

part I, line 34, sum of columns 21 and

24 (only amounts that are for approved

education programs), divided by total

patient days (worksheet S–3, part I, line

11 (HCFA–2552–92) or part I, line 15

(HCFA–2552–96) column 6) then

multiplied by total Medicare days

(worksheet S–3, part I, line 11 (HCFA–

2552–92) or part I, line 15 (HCFA–2552–

96), column 4).

Step 3. Subtract amount in Step 2.

from the amount in Step 1. above.

Step 4. From the inpatient routine

service cost limitation, including all

exception amounts granted, (HCFA–

2552–92 or HCFA–2552–96, worksheet

D–1, part III, line 78) subtract the

exception amount granted for medical

and paramedical education costs.

Step 5. Compare amount in Step 3.

above with the amount in Step 4. above

and take the lesser of the two amounts.

Step 6. Add to the amount in Step 5.

the program capital related cost (HCFA–

2552–92 or HCFA–2552–96, worksheet

D–1, part III, line 73).

ii. Part A Ancillary Costs

Step 1. Determine total program

inpatient ancillary services (HCFA–

2552–92 or HCFA–2552–96, worksheet

D–1, part III, line 80).

Step 2. Determine Medicare Ancillary

medical education costs—worksheet B,

part I (calculate separately each line 37–

59), dividing the sum of columns 21 and

24 (approved programs only) by column

27. Multiply the resulting percentage by

the corresponding line (lines 37–59) on

worksheet D–4 (SNF), column 3. Total

the amounts calculated for lines 37–59.

Step 3. Subtract amount in Step 2.

from the amount in Step 1. above.

iii. Part A Cost Equals the Amount in

i.Step 6. plus the amount in ii.Step 3.

Above

(3) Skilled Nursing Facilities with

exemptions from the cost limits in the

base year.

i. Routine Costs

Step 1. Determine total program

routine service costs for comparison to

the cost limitation (HCFA–2552–92 or

HCFA–2552–96, worksheet D–1, part III,

line 76).

Step 2. Determine Medicare Routine

medical education costs—worksheet B,

part I, line 34, sum of columns 21 and

24 (only amounts that are for approved

education programs), divided by total

patient days (worksheet S–3, part I, line

11 (HCFA–2552–92) or part I, line 15

(HCFA–2552–96), column 6) then

multiplied by total Medicare days

(worksheet S–3, part I, line 11 (HCFA–

2552–92) or part I, line 15 (HCFA–2552–

96), column 4).

Step 3. Subtract amount in Step 2.

from the amount in Step 1. above.

Step 4. Multiply the unadjusted

inpatient routine service cost limitation

(the cost limit amount had the SNF not

received an exemption, which is

normally reported on HCFA–2552–92 or

HCFA–2552–96, worksheet D–1, part III,

line 78) by 1.5.
26288 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

Step 5. Compare amount in Step 3.

above with the amount in Step 4. above

and take the lesser of the two amounts.

Step 6. Add to the amount in Step 4.

the program capital related cost (HCFA–

2552–92 or HCFA–2552–96, worksheet

D–1, part III, line 73).

ii. Part A Ancillary Costs

Step 1. Determine total program

inpatient ancillary services (HCFA–

2552–92 or HCFA–2552–96, worksheet

D–1, part III, line 80).

Step 2. Determine Medicare Ancillary

medical education costs—worksheet B,

part I (calculate separately each line 37–

59), dividing the sum of columns 21 and

24 (approved programs only) by column

27. Multiply the resulting percentage by

the corresponding line (lines 37–59) on

worksheet D–4 (SNF), column 3. Total

the amounts calculated for lines 37–59.

Step 3. Subtract the amount in Step 2.

from the amount in Step 1. above.

iii. Part A Cost Equals the Amount in

i.Step 6. Plus the Amount in ii.Step 3.

Above

c. Medicare low volume Skilled

Nursing Facilities electing prospectively

determined payment rate (fewer than

1500 Medicare days).

(1) Providers Filing HCFA–2540–S–

87.

Step 1. Determine inpatient ancillary

services Part A (HCFA–2540–S–87,

worksheet E, part A, line 1).

Step 2. Determine inpatient routine

PPS amount (HCFA–2540–S–87,

worksheet E, part A, line 6).

Step 3. Part A cost equals the amount

in Step 1. plus the amount in Step 2.

above.

(2) Providers Filing HCFA–2540 or

HCFA–2552.

Step 1. Determine the prospective

payment amount is used as the routine

cost.

Step 2. Follow the steps under a.(1)(ii)

if you are a freestanding SNF or b.(1)(ii)

if you are a hospital-based SNF to

calculate the ancillary costs.

Step 3. Part A cost equals the amount

in Step 1. plus the amount in Step 2.

above.

d. Providers participating in the

multistate nursing home case-mix and

quality demonstration—calculation of

the prospective payment system rate.

For providers that received payment

under the RUGs–III demonstration

during a cost reporting period that

began in calendar year 1997, we will

determine their facility-specific per

diem rate using the methodology

described below. It is possible that some

providers participated in the

demonstration but did not have a cost

reporting period that began in calendar

year 1997. For those providers, we will

determine their facility-specific per

diem rate by using the calculations in

(a), (b), or (c) above. As with the facilityspecific per diem applicable to other

providers, the allowable costs will be

subject to change based on the

settlement of the cost report used to

determine the total payment under the

demonstration. In addition, we derive a

special market basket inflation factor to

adjust the 1997 costs to the midpoint of

the rate setting period (July 1, 1998 to

September 30, 1999).

Step 1. Determine the aggregate

payment during the cost reporting

period that began in calendar year

1997—RUGs–III payment plus routine

capital costs plus ancillary costs (other

than Occupational Therapy, Physical

Therapy, and Speech Pathology).

Step 2. Divide the amount in Step 1.

by the applicable total inpatient days for

the cost reporting period.

Step 3. Adjust the amount in Step 2.

by 1.031532 (inflation factor)—Do not

use Table 4.F.

The amount in Step 3 is the facilityspecific rate that is applicable for the

facility’s first cost reporting period

beginning after July 1, 1998. A separate

calculation for Part B services is not

required.

e. Base period cost reports that are

adjusted for exception amounts or other

post settlement adjustments.

Intermediaries will calculate a

provider’s Medicare Part A costs, as

described above, using the latest

available version of the cost report in

the settlement process. Adjustments

made in subsequent cost report

versions, through the settlement or

reopening process, will result in a

revision to the facility-specific rate.

Examples of these adjustments include

exception amounts or other postsettlement adjustments.

B. Determination of the Part B Estimate

HCFA will supply each intermediary

with the estimated Part B charges for

each provider that it serves. As

explained above, the BBA 1997 requires

that the facility-specific per diem rates

reflect items and services (other than

those specifically excluded) for which,

prior to July 1, 1998, payment had been

made under Part B but furnished to SNF

residents during a Part A covered stay.

Accordingly, it was necessary to

determine the Part B allowable charges

(including coinsurance) associated with

the SNFs contained in the cost report

data base. This was accomplished by

matching 100 percent of the Medicare

Part B SNF claims associated with Part

A covered SNF stays related to the SNF

cost reporting periods beginning in the

1995 base year. The matched Part B

allowable charges were computed at a

facility level by the appropriate cost

report cost center (for example,

laboratory services, supplies) with the

cost report data.

C. Calculation of the Facility-Specific

Per Diem Rate

The facility-specific per diem rate is

equal to the sum of Medicare Part A

costs as determined in section III.A

above and the Medicare Part B estimate

described in section III.B above.

Example: The rules as shown under

b.(2) above will be used in this example.

ABC SNF is a hospital-based SNF

which received an exception of $10,000

of which $5,000 was for Medical and

Paramedical Education costs in

accordance with the rules at

§ 413.30(f)(4) in its base year. ABC SNF

filed its cost report using HCFA–2552–

96. ABC’s facility-specific per diem rate

for its first cost reporting period

beginning in the transition period is

calculated as follows:

Step 1. ABC SNF reported program

routine service costs for comparison to

the cost limits on worksheet D–1, part

III, line 76 of $200,000.

Step 2. Total (all patients) routine

medical education costs (approved

programs) from worksheet B, part I, line

34, the sum of columns 21 and 24

totaled $25,000. Total patient days from

worksheet S–3, part I, line 15, column

6 were 5,000 and total Medicare days

(worksheet S–3, part I, line 15, column

4) were 1,000. Dividing the total costs of

$25,000 by the total days of 5,000 gives

you a cost per day of $5.00. Multiply the

cost per day by the Medicare days of

1,000, which results in the total

Medicare routine medical education

cost of $5,000.

Step 3. Subtract the amount in Step 2.

($5,000) from the amount in Step 1.

($200,000) or $195,000 ($195.00 per

Medicare day).

Step 4. ABC SNF’s inpatient routine

service cost limitation amount without

any exception amounts is $180,000, the

amount with all exception amounts

including the $5,000 exception amount

for medical and paramedical education

costs from worksheet D–1, part III, line

78 is $190,000 ($180,000 plus $10,000).

Subtract the exception amount for

medical and paramedical education of

$5,000 to equal $185,000.

Step 5. Determine the lesser amount

in Step 3. and Step 4. above—$185,000.

Step 6. Add the program capitalrelated cost of $20,000 from worksheet

D–1, part III, line 73 to the amount in

Step 5 above to equal $205,000.

Step 7. ABC SNF has total program

inpatient ancillary services costs on
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26289

worksheet D–1, part III, line 80 of

$350,000.

Step 8. Determine Medicare ancillary

medical education costs (approved

programs) from worksheet B, part I,

lines 37–59. Calculating each line

(separately calculate each line) by taking

the sum of columns 21 and 24 and

dividing by column 27 (approved

programs only). Multiply this

percentage by the corresponding line

(lines 37–59) on worksheet D–4 (SNF),

column 3. Totaling the amounts

calculated for lines 37–59 ABC SNF had

Medicare ancillary medical education

costs of $35,000.

Step 9. Subtract amount in Step 8

($35,000) from line 7 ($350,000) or

$315,000.

Step 10. Determine the estimated Part

B amount supplied by HCFA for ABC.

Assume, for this example, that this

amount is $50,000.

Step 11. Add amounts in Step 6

($205,000), Step 9 ($315,000), and Step

10 ($50,000) to determine the facilityspecific per diem rate of $570.00

($570,000 divided by 1,000 Medicare

days).

D. Computation of the Skilled Nursing

Facility Prospective Payment System

Rate During the Transition

For the first three cost reporting

periods beginning on or after July 1,

1998 (transition period), an SNF’s

payment under the PPS is the sum of a

percentage of the facility-specific per

diem rate and a percentage of the

Federal per diem rate. Under section

1888(e)(2)(C) of the Act, for the first cost

reporting period in the transition

period, the SNF payment will be the

sum of 75 percent of the facility-specific

per diem rate and 25 percent of the

Federal per diem rate. For the second

cost reporting period, the SNF payment

will be the sum of 50 percent of the

facility-specific per diem rate and 50

percent of the Federal per diem rate. For

the third cost reporting period, the SNF

payment will be the sum of 25 percent

of the facility-specific per diem rate and

75 percent of the Federal per diem rate.

For all subsequent cost reporting

periods beginning after the transition

period, the SNF payment will be equal

to 100 percent of the Federal per diem

rate. See the example below.

Example of computation of adjusted

PPS rates and SNF payment:

Using the ABC SNF described in this

section, the following shows the

adjustments made to the facility-specific

per diem rate and the Federal per diem

rate to compute the provider’s actual per

diem PPS payment in the transition

period. ABC’s 12-month cost reporting

period begins July 1, 1998.

Step 1.

Compute:

Facility-specific per diem

rate ..................................... $570.00

Market Basket Adjustment

(Table 4.F) ......................... × 1.05149

Adjusted facility-specific

rate ..................................... .... $599.35

Step 2.

Compute Federal per diem rate:

SNF ABC from above is located in

State College, PA with a wage index of

0.9635.

RUG group Labor

portion* Wage index Adjustedlabor

Nonlabor

portion*

Adjusted

rate

Medicare

days Payment

RVC ........................................................... $224.74 0.9635 $216.54 $71.41 $287.95 50 $14,398

RHC ........................................................... 206.06 .9635 198.54 65.47 264.01 100 26,401

Total ................................................ .................... .................... .................... .................... .................... 150 40,799

*From Table 2.G.

Step 3.

Apply transition period percentages:

Facility-specific per diem rate

$599.35×150 days= $89,903

Times transition percentage (75

percent) ..................................... ×.75

Actual facility-specific PPS payment .......................................... $67,427

Federal PPS payment .................. $40,799

Times transition percentage (25

percent) ..................................... ×.25

Actual Federal PPS payment ...... $10,200

Step 4.

Compute total PPS payment

ABC’s total PPS payment

($67,427+$10,200) .................... $77,627

IV. The Skilled Nursing Facility Market

Basket Index

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

requires the Secretary to establish an

SNF market basket index that reflects

changes over time in the prices of an

appropriate mix of goods and services

included in the SNF PPS. Accordingly,

as described below, we have developed

an SNF market basket index that

encompasses the most commonly used

cost categories for SNF routine services,

ancillary services, and capital-related

expenses.

A. Rebasing and Revising of the Skilled

Nursing Facility Market Basket

1. Background

Effective for cost reporting periods

beginning on or after October 1, 1979,

we developed and adopted a routine

SNF input price index, that is, the SNF

market basket using data from 1977 as

the base year.

Although ‘‘market basket’’ technically

describes the mix of goods and services

needed to produce SNF care, this term

is also commonly used to denote the

input price index that includes both

weights (mix of goods and services) and

price factors. Accordingly, the term

‘‘market basket’’ used in this rule refers

to the SNF input price index.

The 1977-based routine SNF market

basket was for routine costs (ancillary

services and capital-related costs were

excluded). The percentage change in the

1977-based routine market basket

reflects the average change in the price

of a fixed set of goods and services

purchased by SNFs to furnish routine

services. We first used the market basket

to adjust SNF cost limits to reflect the

average increase in the prices of the

goods and services used to furnish

routine reasonable costs for SNF care.

This approach linked the increase in the

cost limits to the efficient utilization of

resources. For background information,

see the August 31, 1979 Federal

Register (44 FR 51542).

For purposes of SNF PPS, the total

cost SNF market basket is a fixed-weight

(Laspeyres type) price index constructed

in three steps. First, a base period is

selected and total base period

expenditure for cost shares is estimated

for mutually exclusive and exhaustive

spending categories. Total costs for

routine services, ancillary costs, and

capital-related costs are used. These

proportions are called ‘‘cost’’ or

‘‘expenditure’’ weights. The second step

essential for developing an input price

index is to match each expenditure

category to a price/wage variable, called

a price proxy. These price proxy

variables are drawn from publicly
26290 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

available statistical series published on

a consistent schedule, preferably at least

quarterly. In the final step, the price

level for each spending category is

multiplied by the expenditure weight

for that category. The sum of these

products (that is, weights multiplied by

proxy index levels) for all cost

categories yields the composite index

level in the market basket for a given

quarter or year. Repeating the third step

for other quarters and years produces a

time series of market basket index

levels. Dividing one index level by an

earlier index level produces rates of

growth in the input price index.

The market basket is described as a

fixed-weight index because it answers

the question of how much more or less

it would cost, at a later time, to

purchase the same mix of goods and

services that was purchased in the base

period. The effects on total expenditures

resulting from changes in the quantity

or mix of goods and services purchased

subsequent or prior to the base period

are, by design, not considered.

To implement section 1888(e)(5)(A) of

the Act, it is necessary to revise and

rebase the routine cost market basket so

the cost weights and price proxies

reflect the mix of goods and services

that SNFs purchase for all costs

(routine, ancillary, and capital-related)

encompassed by SNF PPS. The current

SNF routine cost weights (excluding

ancillary costs and capital-related costs)

are from calendar year 1977. To the

extent feasible, the data used to revise

and rebase the SNF market basket are

from fiscal year 1992. If data from an

earlier period supplement fiscal year

1992 data, they have been aged forward

for price changes.

2. Rebasing and Revising the Skilled

Nursing Facility Market Basket

The terms ‘‘rebasing’’ and ‘‘revising,’’

while often used interchangeably,

actually denote different activities.

Rebasing means moving the base year

for the structure of costs of an input

price index (for example, for this rule,

we have moved the base year cost

structure from calendar year 1977 to

fiscal year 1992). Revising means

changing data sources, cost categories,

and/or price proxies used in the input

price index.

To implement section 1888(e)(5)(A) of

the Act, we are rebasing and revising the

routine SNF market basket (excluding

ancillary and capital-related costs) to

reflect 1992 total cost data (routine,

ancillary, and capital-related), the latest

available relatively complete data on the

structure of SNF costs; and to modify

certain variables used as the price

proxies for some of the cost categories.

In developing the revised market

basket, we reviewed SNF expenditure

data for the market basket cost

categories. We reviewed Medicare Cost

Reports for PPS–9 for each freestanding

SNF that had Medicare expenses greater

than 1 percent of total expenses. PPS–

9 cost reports are those with cost

reporting periods beginning after

September 30, 1991 and before October

1, 1992. Data on SNF expenditures for

six major expense categories (wages and

salaries, employee benefits, contract

labor, pharmaceuticals, capital-related,

and a residual ‘‘all other’’) were edited

and tabulated. After totals for these

main cost categories were calculated, we

then determined the proportion of total

costs that each category represented.

The proportions represent the revised

and rebased major market basket

weights for total costs including routine,

ancillary, and capital-related costs.

Relative weights within the six

categories were derived using U.S.

Department of Commerce data for the

nursing home industry. Relative cost

shares from the Bureau of the Census’

1992 Asset and Expenditure Survey and

the Bureau of Economic Analysis’ (BEA)

1992 Input-Output Tables were used to

disaggregate and allocate costs within

the six categories from the 1992 SNF

Medicare Cost Reports. The BEA InputOutput database, which is updated at 5-

year intervals, was most recently

described in the Survey of Current

Business, ‘‘Benchmark Input-Output

Accounts for the U.S. Economy, 1992’’

(November 1997).

We developed the capital-related

portion of the rebased and revised SNF

PPS market basket using the same

overall methodology used to develop

the hospital PPS capital input price

index. The methodology for hospitals is

described in full detail in the May 31,

1996 (61 FR 27466) and the August 30,

1996 (61 FR 46196) Federal Register

publications. The strength of this HCFA

methodology is that it reflects the

vintage nature of capital, which is the

acquisition and use of capital over time.

Price levels are determined for capital

acquired in current and prior years and

vintage-weighted based on historical

capital acquisition patterns. These

vintage-weighted price changes reflect

the price changes associated with the

capital acquisition process.

Because there are fewer data on

capital-related costs for the SNF

industry than for the hospital industry,

we developed a methodology that makes

the maximum use of the existing SNF

data. We have developed a framework

that integrates existing SNF capital data

with related data sources and

assumptions. We determined that

reasonable changes in the capital-related

assumptions have little impact on the

overall SNF market basket (routine

costs, capital-related costs, and ancillary

costs). We also compared the price

changes from the capital-related

component of the SNF market basket to

the price changes in the hospital PPS

capital input price index and other price

indexes. The comparison showed that

the changes in the different indexes

were reasonable in relation to changes

with the SNF capital-related

component. A detailed explanation of

how both the cost category weights and

the vintage weights were determined,

which price proxies were chosen, the

effect of using different assumptions,

and a comparison of capital-related

components of the rebased SNF PPS

market basket to other price indexes is

given in the Appendix.

Our work resulted in 21 separate

categories for the rebased and revised

total market basket. The 1977-based

routine cost SNF market basket had 12

separate cost categories. Detailed

descriptions of each cost category and

respective price proxy in the 1992-based

market basket are provided in the

Appendix to this rule. The six major

categories for the revised and rebased

cost categories and weights derived

from SNF Medicare Cost Reports are

summarized in Table 4.A below.

TABLE 4.A—1992 SKILLED NURSING

FACILITY MARKET BASKET MAJOR

COST CATEGORIES AND WEIGHTS

FROM MEDICARE COST REPORTS

Cost categories

1992-based

skilled nursing

facility market

basket weights

(percent)

Wages and Salaries ............. 47.805

Employee Benefits ................ 10.023

Contract Labor ...................... 12.852

Pharmaceuticals ................... 2.531

Capital-related Costs ............ 9.777

All Other Costs ..................... 17.012

Total Costs ............................ 100.000

After the 21 cost weights for the

revised and rebased SNF market basket

were developed, we selected the most

appropriate wage and price proxies

currently available to monitor the rate of

increase for each expenditure category.

With three exceptions (all for the

Capital-Related Expenses cost category),

the wage and price proxies are based on

Bureau of Labor Statistics (BLS) data

and are grouped into one of the

following BLS categories:

• Employment Cost Indexes—

Employment Cost Indexes (ECIs)
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26291

measure the rate of change in employee

wage rates and employer costs for

employee benefits per hour worked.

These indexes are fixed-weight indexes

and strictly measure the change in wage

rates and employee benefits per hour.

They are not affected by shifts in

occupation or industry mix. ECIs were

not available when we developed the

calendar year 1977-based routine SNF

market basket. ECIs are superior to

Average Hourly Earnings (AHEs) as

price proxies for input price indexes for

two reasons: (1) they measure pure price

change, and (2) they are available by

occupational groups, not just by

industry.

• Consumer Price Indexes—

Consumer Price Indexes (CPIs) measure

change in the prices of final goods and

services bought by consumers. CPIs

were only used when the purchases

were similar to those of retail consumers

rather than purchases at the wholesale

level, or if no appropriate Producer

Price Index (PPI) were available.

• Producer Price Indexes—PPIs are

used to measure price changes for goods

sold in other than retail markets. For

example, a PPI for movable equipment

was used, rather than a CPI for

equipment.

The contract labor weight of 12.852

was reallocated to (1) wages and

salaries, (2) employee benefits, and (3)

the all other expenses cost category so

that the same price proxies that were

used for direct labor and nonlabor costs

could be applied to contract costs. The

rebased and revised cost categories,

weights, and price proxies for the 1992-

based SNF market basket are listed in

Table 4.B below.

TABLE 4.B—1992-BASED COST CATEGORIES, WEIGHTS, AND PRICE PROXIES

Cost category

1992-based

market basket

weight

Price proxy

Operating Expenses .................................................................... 90.223

Compensation ............................................................................. 67.059

Wages and Salaries .................................................................... 54.262 ECI for Wages and Salaries for Private Nursing Homes

Employee benefits ....................................................................... 12.797 ECI for Benefits for Private Nursing Homes

Nonmedical professional fees ..................................................... 1.916 ECI for Compensation for Private Professional, Technical and

Specialty workers

Utilities ......................................................................................... 2.500

Electricity .............................................................................. 1.626 PPI for Commercial Electric Power

Fuels, nonhighway ............................................................... 0.332 PPI for Commercial Natural Gas

Water and sewerage ............................................................ 0.542 CPI-U for Water and Sewerage

Other Expenses ........................................................................... 18.747

Other Products ............................................................................ 10.964

Pharmaceuticals ................................................................... 2.531 PPI for Prescription Drugs

Food ..................................................................................... 3.353

Food, wholesale purchase ............................................ 2.577 PPI for Processed Foods

Food, retail purchase .................................................... 0.776 CPI-U for Food Away From Home

Chemicals ............................................................................. 0.720 PPI for Industrial Chemicals

Rubber and plastics ............................................................. 1.529 PPI for Rubber and Plastic Products

Paper products ..................................................................... 1.005 PPI for Converted Paper and Paperboard

Miscellaneous products ........................................................ 1.826 PPI for Finished Goods

Other Services ............................................................................. 7.783

Telephone Services ............................................................. 0.385 CPI-U for Telephone Services

Labor-intensive Services ...................................................... 3.686 ECI for Compensation for Private Service Occupations

Non labor-intensive services ................................................ 3.713 CPI-U for All Items

Capital-related Expenses ............................................................ 9.777

Total Depreciation ....................................................................... 5.915

Building & Fixed Equipment ................................................. 4.118 Boeckh Institutional Construction Index

Movable Equipment ............................................................. 1.797 PPI for Machinery & Equipment

Total Interest ............................................................................... 3.189

Government & Nonprofit SNFs ............................................ 1.658 Average Yield Municipal Bonds (Bond Buyer Index-20 bonds)

For-Profit SNFs .................................................................... 1.531 Average Yield Moody’s AAA Bonds

Other Capital-related Expenses .................................................. 0.674 CPI-U for Residential Rent

Total .............................................................................. * 100.000

* may not add due to rounding

In the 1992-based total costs market

basket, the labor-related share is 75.888

percent, while the non-labor-related

share is 24.112 percent. The laborrelated share for the 1977-based routine

cost market basket (81.2 percent)

included wages and salaries, employee

benefits, health services, business

services, and miscellaneous costs, while

the labor-related share of the 1992 total

cost market basket (75.888 percent)

includes wages and salaries, employee

benefits, professional fees, laborintensive services, and a 33 percent

share of capital-related expenses as

shown on Table 4.C below. The share of

labor-related costs in 1992 reflects the

change from only routine costs to total

costs (routine, ancillary, and capitalrelated) and the changing mix of SNF

services between 1977 and 1992.

The labor-related share for capitalrelated expenses was determined to be

33 percent of capital-related expenses,

or 3.227 percent of the total PPS SNF

market basket. This share was estimated

from a statistical analysis of individual

SNF Medicare Cost Reports for 1993

since nearly all reports from this year

were settled. The statistical analysis was

necessary because the proportion of

capital-related expenses related to local

area wage costs cannot be directly

determined from the SNF capital-related

market basket as it can for operating and

ancillary costs.

We performed regression analysis

with capital-related costs per day in

SNFs as the dependent variable and

relevant explanatory variables for size,

complexity, efficiency, age of capital,

and local wage variation. To account for
26292 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

these factors, we used number of beds,

case-mix indexes, occupancy rate,

ownership, age of assets, length of stay,

FTEs per bed, and the wage index

values based on hospital wage index

(wages and employee benefits) as

independent variables. The regression

statistics showed each variable was

statistically significant and an adjusted

r-square that was acceptable given the

large number of observations. The

independent variable most relevant for

our purpose is the wage index values

based on hospital wage data, since this

index is being used to adjust payments

under SNF PPS for geographic variation

in local labor costs. The regressions use

log transformations for the dependent

and independent variables, hence the

coefficients can be interpreted as

elasticities. The coefficient for the wage

index value was 0.33 with a t-value of

4.3. The interpretation of this coefficient

as an elasticity is that a 10 percent

increase in the wage index value leads

to a 3.3 percent increase in capitalrelated costs per day. This coefficient is

equivalent to the portion of capitalrelated expenses in the SNF market

basket that are considered to be laborrelated. Multiplying the 0.33 by the

capital-related share of 9.777 yields a

labor-related share for capital of 3.227

percent of the total SNF market basket.

Conceptually it seems appropriate

that capital-related expenses would vary

less with local wages than would

operating expenses for SNFs. Operating

expenses for SNFs are determined in

large part from the labor inputs for

relatively low-skilled employees that are

tightly linked to local wage levels in

local labor markets. Wages, salaries, and

benefits constitute a majority of the

operating costs of providing SNF

services; the labor-related share of

operating expenses is 80.6 percent. For

capital-related expenses, however,

annual costs in the current year are for

capital purchased over time. Capitalrelated expenses are determined in

some proportion by local area costs

(such as construction worker wages and

building materials costs) that are

reflected in the price of the capital asset.

However, many other inputs that

determine capital costs are not related to

local area wage costs, such as

equipment prices and interest rates. We

found a similar lower share for capitalrelated expenses in hospitals.

We also conducted regression

analyses with operating and total costs

per day for SNFs as the dependent

variable. The findings of our analysis of

SNF operating and total costs per day

are consistent with the PPS SNF market

basket weights and structure. For

operating costs per day, the regression

analysis yielded a coefficient nearly the

same as the operating labor-related

share from the SNF market basket. The

regression of total costs per day yielded

a coefficient of 0.74 percent, nearly the

same as the total labor-related share

(operating and capital-related) from the

SNF market basket. We also conducted

a similar regression analysis on hospital

costs per case and determined the

results to be consistent with the PPS

hospital market basket.

Approaching the labor-related share

several different ways validated the

appropriateness of using regression

analysis. Therefore, we are using this

analysis in determining the labor-related

share for PPS SNF capital-related

expenses.

TABLE 4.C—1992-BASED LABORRELATED SHARE

Cost category

1992-based

market basket weight

Wages and Salaries ................. 54.262

Employee Benefits .................... 12.797

Nonmedical Professional Fees 1.916

Labor-intensive Services .......... 3.686

Capital-related ........................... 3.227

Total ................................... 75.888

All price proxies for the rebased SNF

market basket are listed in Table 4.B and

summarized in the Appendix to this

rule. A comparison of the yearly

historical percent changes from 1994

through 1996 for the current 1977-based

routine costs market basket and the

1992-based total cost market basket is

shown below in Table 4.D.

TABLE 4.D—COMPARISON OF THE

1977-BASED SKILLED NURSING FACILITY ROUTINE COSTS MARKET

BASKET AND THE 1992-BASED

SKILLED NURSING FACILITY TOTAL

COSTS MARKET BASKET, PERCENT

CHANGES, 1994–1996*

Fiscal years

beginning

October 1

Skilled

Nursing Facility Routine Market

Basket, CY

1977 base

Skilled nursing facility

total cost

market basket, FY

1992 base

Historical:

October

1993, FY

1994 ....... 3.6 3.2

October

1994, FY

1995 ....... 2.8 3.0

October

1995, FY

1996 ....... 2.6 2.7

TABLE 4.D—COMPARISON OF THE

1977-BASED SKILLED NURSING FACILITY ROUTINE COSTS MARKET

BASKET AND THE 1992-BASED

SKILLED NURSING FACILITY TOTAL

COSTS MARKET BASKET, PERCENT

CHANGES, 1994–1996*—Continued

Fiscal years

beginning

October 1

Skilled

Nursing Facility Routine Market

Basket, CY

1977 base

Skilled nursing facility

total cost

market basket, FY

1992 base

Historical Average: 1994–

1996 ............... 3.0 3.0

* Note: The 1992 total cost market basket is

measuring a different cost concept than the

1977 routine cost market basket. Differences

between the two indexes are expected.

Source: Standard & Poor’s DRI HCC, 4th

QTR, 1997; @USSIM/TREND25YR1197

@CISSIM/CONTROL974.

Released by HCFA, OACT, National Health

Statistics Group.

Note that the historical average rate of

growth for 1994 through 1996 for the

SNF 1992-based total cost market basket

is equal to that of the 1977-based

routine market basket. We believe that

the 1992-based SNF total cost market

basket provides a more current measure

of the annual increases in total cost care

than the 1977-based SNF market basket

because: (1) the cost structure includes

routine, ancillary, and capital-related

costs, not just routine cost, (2) the cost

structure reflects the structure of costs

for the most recent year for which there

are relatively complete data, and (3)

superior new wage-price variables have

been incorporated into the 1992-based

index. The forecasted rates of growth

used to compute the projected SNF

market basket percentages, described in

the next section, are shown below in

Table 4.E.

TABLE 4.E—SKILLED NURSING FACILITY TOTAL COST MARKET BASKET,

FORECASTED CHANGE, 1997–2000

Fiscal years beginning

October 1

Skilled

Nursing

facility total

cost market

basket

October 1996, FY 1997 ............ 2.4

October 1997, FY 1998 ............ 2.8

October 1998, FY 1999 ............ 3.0

October 1999, FY 2000 ............ 3.1

Forecasted Average: 1997–

2000 ...................................... 2.8

Source: Standard & Poor’s DRI HCC, 4th

QTR, 1997; @USSIM/TREND25YR1197

@CISSIM/CONTROL974.

Released by HCFA, OACT, National Health

Statistics Group.
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26293

We are considering a mechanism to

adjust future SNF PPS rates for forecast

errors. The forecasted SNF total cost

market basket changes shown in Table

4.E are based on historical trends and

relationships ascertainable at the time

the update factor is established for the

upcoming rate setting period. In any

given year, there may be unanticipated

price fluctuations that may result in

differences between the actual increases

in prices faced by SNFs and the forecast

used in calculating the update factors.

We are reviewing the analytical

framework for updating the standard

Federal rate under the hospital PPS to

account for forecast errors. If this

framework is chosen to update the SNF

PPS rate, an adjustment would be made

only if the forecasted market basket

percentage change for any year differs

from the actual percentage change by

0.25 percentage points or more. There

would be a 2-year lag between the

forecast and the measurement of the

forecast error. Thus, for example, we

would adjust for an error in forecasting

the 1997 market basket percentage used

to compute the PPS rates effective with

this interim final rule through an

adjustment to the fiscal year 1999

update to the SNF PPS rates.

B. Use of the Skilled Nursing Facility

Market Basket Percentage

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

defines the SNF market basket

percentage as the percentage change in

the SNF market basket index, described

in the previous section, from the

midpoint of the prior fiscal year (or

period) to the midpoint of the fiscal year

(or other period) involved. The facilityspecific portion and Federal portion of

the SNF PPS rates effective with this

rule are based on cost reporting periods

beginning in Federal fiscal year 1995

(base year). The percentage increases in

the SNF market basket index will be

used to compute the update factors to

reflect cost increases occurring between

the cost reporting periods represented in

the base year and the midpoint of the

fiscal year (or other period). We used

the Standard & Poor’s DRI CC, 4th

quarter 1997 historical and forecasted

percentage increases of the revised and

rebased SNF market basket index for

routine, ancillary, and capital-related

expenses, described in the previous

section, to compute the update factors.

The update factors, as described below,

will be used to adjust the base year costs

for computing the facility-specific

portion and Federal portion of the SNF

PPS rates.

1. Facility-Specific Rate Update Factor

Under section 1888(e)(3)(D)(i) of the

Act, for the facility-specific portion of

the SNF PPS rate, we will update a

facility’s base year costs up to the

facility’s first cost reporting period

beginning on or after July 1, 1998 and

before October 1, 1999 (initial period)

by the SNF market basket percentage,

reduced by one percentage point. We

took the following steps to develop the

12-month cost reporting period facilityspecific rate update factors shown in

Table 4.F.

Step 1. Determine the cumulative

growth from the average market basket

level for each 12-month cost report

period to the average market basket

level for its corresponding 12-month

period beginning on or after July 1,

1998.

Step 2. From the cumulative growth

in Step 1, determine the average annual

rate of growth for the period from each

beginning 12-month period’s average

market basket index level to its

corresponding 12-month period

beginning on or after July 1, 1998.

Step 3. Subtract 1.0 percentage point

from each average annual rate of growth

calculated in Step 2.

Step 4. Determine what the revised

cumulative growth for each 12-month’s

period average index level would have

been, using the revised average annual

rates of growth from Step 3. The

resulting update factors are shown in

Table 4.F.

TABLE 4.F—UPDATE FACTORS 1 FOR FACILITY-SPECIFIC PORTION OF THE SNF PPS RATES—ADJUST TO 12-MONTH

COST REPORTING PERIODS BEGINNING ON OR AFTER JULY 1, 1998 AND BEFORE OCTOBER 1, 1999 [(INITIAL PERIOD) FROM COST REPORTING PERIODS BEGINNING IN FY 1995 (BASE YEAR)]

If 12-month cost reporting period in initial period begins Adjust from 12-month cost reporting period in base year that

begins

Using update

factor of

July 1, 1998 ................................................................................ July 1, 1995 ................................................................................ 1.05149

August 1, 1998 ............................................................................ August 1, 1995 ........................................................................... 1.05197

September 1, 1998 ..................................................................... September 1, 1995 ..................................................................... 1.05253

October 1, 1998 .......................................................................... October 1, 1994 ......................................................................... 1.07116

November 1, 1998 ...................................................................... November 1, 1994 ...................................................................... 1.07125

December 1, 1998 ...................................................................... December 1, 1994 ...................................................................... 1.07126

January 1, 1999 .......................................................................... January 1, 1995 ......................................................................... 1.07143

February 1, 1999 ........................................................................ February 1, 1995 ........................................................................ 1.07176

March 1, 1999 ............................................................................. March 1, 1995 ............................................................................ 1.07226

April 1, 1999 ................................................................................ April 1,1995 ................................................................................ 1.07270

May 1, 1999 ................................................................................ May 1, 1995 ............................................................................... 1.07308

June 1, 1999 ............................................................................... June 1, 1995 .............................................................................. 1.07340

July 1, 1999 ................................................................................ July 1, 1995 ................................................................................ 1.07381

August 1, 1999 ............................................................................ August 1, 1995 ........................................................................... 1.07428

September 1, 1999 ..................................................................... September 1, 1995 ..................................................................... 1.07484

1Source: Standard & Poor’s DRI, 4th Qtr 1997;

@USSIM/TREND25YR1197@CISSIM/CONTROL974

A 12-month cost reporting period that

begins on July 1, August 1, or September

1 will have two cost reporting periods

within the initial period. Table 4.F

provides update factors for these three

beginning dates for 1998 and 1999. The

1998 cost reporting period is considered

the first cost reporting period for the

purposes of applying the facilityspecific percentage in the transition

period. The 1999 cost reporting period,

for the same provider, is considered the

second cost reporting period for the

purposes of applying the facilityspecific percentage in the transition

period. The transition period

percentages are presented elsewhere in

this rule.
26294 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

SNFs may have cost reporting periods

that are fewer than 12 months in

duration (short period). This may occur,

for example, when a provider enters the

Medicare program after its selected

fiscal year has already begun, or when

a provider experiences a change of

ownership before the end of the cost

reporting period. Since short periods

affect a small number of providers,

relative to the total number of SNFs, and

the facility-specific portion of the SNF

PPS rate is subject to a transition period,

we do not believe consideration of

computing a ‘‘short period specific’’

update factor is warranted. Accordingly,

we will apply the following rules to

short periods.

a. Short period in base year. First,

select the later short period in the base

year for the affected provider. Second, if

necessary, adjust the beginning or end

of the short period as follows. Short

periods may not necessarily begin on

the first of the month or end on the last

day of the month. In order to simplify

the process of determining the short

period update factor, if the short period

begins before the 16th of the month, it

will be adjusted to a beginning date of

the 1st of that month. If the short period

begins on or after the 16th of the month,

it will be adjusted to the beginning of

the next month. Also, if the short period

ends before the 16th of the month, it

will be adjusted to the end of the

preceding month, or, if the short period

ends on or after the 16th of the month,

it will be adjusted to the end of that

month. Third, determine the midpoint

of the short period. Fourth, use the

following midpoint guidelines to

determine which 12-month update

factor to use from Table 4.F.

If the midpoint of short period falls between Use factor for this 12-month period

March 16, 1995–April 15, 1995 ................................................................ October 1994–September 1995

April 16, 1995–May 15, 1995 ................................................................... November 1994–October 1995

May 16, 1995–June 15, 1995 ................................................................... December 1994–November 1995

June 16, 1995–July 15, 1995 ................................................................... January 1995–December 1995

July 16, 1995–August 15, 1995 ................................................................ February 1995–January 1996

August 16, 1995–September 15, 1995 .................................................... March 1995–February 1996

September 16, 1995–October 15, 1995 ................................................... April 1995–March 1996

October 16, 1995–November 15, 1995 .................................................... May 1995–April 1996

November 16, 1995–December 15, 1995 ................................................ June 1995–May 1996

December 16, 1995–January 15, 1996 .................................................... July 1995–June 1996

January 16, 1996–February 15, 1996 ...................................................... August 1995–July 1996

February 16, 1996–March 15, 1996 ......................................................... September 1995–August 1996

b. Short period in initial period.

Providers with short periods that begin

on or after July 1, 1998 and before

October 1, 1999 (initial period) should

use the instructions above to adjust the

beginning date of the short period and

then use the 12-month factor that

corresponds to the beginning date of the

‘‘adjusted to period’’ in Table 4.F. The

first short period in the initial period is

considered the first cost reporting

period for the purposes of applying the

facility-specific percentage in the

transition period. Each subsequent short

period, for the same provider, of any

duration is considered the second or

third cost reporting period for the

purposes of applying the facilityspecific percentage in the transition

period. The transition period

percentages are presented elsewhere in

this rule.

c. Short period between base year and

initial period. A provider may

experience a change of ownership or

may receive proper approval to change

its cost reporting period between the

base year cost reporting period and the

initial period. If this occurs, the base

year cost reporting period may begin on

a date that is different than that of the

initial period. In these instances, use the

beginning date of the initial period to

determine the 12-month factor that

corresponds to the beginning date of the

‘‘adjusted to period’’ in Table 4.F.

2. Federal Rate Update Factor

To develop the Federal rates, we

updated each facility’s base year costs

up to the midpoint of the initial period

by the SNF market basket percentages,

reduced by one percentage point. We

developed the Federal rate adjustment

factors using the following

methodology:

Step 1. Determine the cumulative

growth from the average market basket

level for each 12-month cost reporting

period to the average market basket

level for the 15-month common period.

Step 2. From the cumulative growth

in Step 1., determine the average annual

rate of growth for the period from each

beginning 12-month period’s average

market basket index level to the average

market basket index level of the ending

15-month common period.

Step 3. Subtract 1.0 percentage point

from each average annual rate of growth

calculated in Step 2.

Step 4. Determine what the revised

cumulative growth for each period’s

average index level would have been,

using the revised average annual rates of

growth from Step 3.

Step 5. Apply the revised cumulative

percentage growth to the average market

basket index level for the beginning cost

reporting period, which yields revised

15-month average index levels for the

common ending period.

Step 6. Using the revised 15-month

average index levels determined in Step

5, calculate the ratio of each revised

average index level to the original

average common period index level.

Step 7. To determine the revised

factors to apply to SNF cost reporting

periods beginning between October 1,

1994 and September 30, 1995, multiply

each factor for adjusting cost reports to

the common period by the ratios

determined in Step 6. This yields

revised factors that reflect an average

annual rate equal to the SNF market

basket percentage minus 1 percentage

point.

These revised update factors were

used to compute the Federal portion of

the SNF PPS rate shown in Tables 2.A

and 2.B.

V. Consolidated Billing

A. Background of the Skilled Nursing

Facility Consolidated Billing Provision

Section 4432(b) of the BBA 1997

amended the Social Security Act to

establish a requirement for SNF

Consolidated Billing, effective for items

and services furnished on or after July

1, 1998. SNF Consolidated Billing is a

comprehensive billing requirement

(similar to the one that has been in

effect for inpatient hospital services for

well over a decade), under which the

SNF itself is responsible for billing

Medicare for virtually all of the services

that its residents receive. SNF

Consolidated Billing is necessary for a

number of reasons.
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26295

Historically, an SNF could choose to

furnish services to its residents either

directly with its own resources, or

under an ‘‘arrangement’’ with an outside

source; in either instance, the SNF itself

was responsible for submitting the bill

for the service to its Medicare fiscal

intermediary (FI). However, the SNF has

also had the additional option of

‘‘unbundling’’ a service altogether; that

is, permitting an outside supplier to

furnish the service directly to an SNF

resident and to submit a bill

independently to the carrier under Part

B, in lieu of any actual involvement by

the SNF itself. The ability on the part of

suppliers to submit separate bills

directly to the carrier for these

unbundled services has been extremely

problematic in several ways.

First, it has created a potential for

duplicate billing. For example, an SNF

might include a particular service in its

bill to the FI under Part A at the same

time that an outside supplier is

improperly submitting a Part B claim to

the carrier for the identical service.

Unless the Medicare contractors detect

this inappropriate duplication in billing,

the program ultimately pays twice for

the same service.

Further, even in instances where only

the supplier bills for the service, the

practice of unbundling has resulted in

additional out-of-pocket liability for the

beneficiary. Under Part A, an SNF

resident’s only financial liability during

a covered stay is for the SNF

coinsurance that begins after the 20th

day of the stay. The SNF coinsurance

amount is set at a flat rate per day

(which, by law, represents 1⁄8 of the

current inpatient hospital deductible

amount), and this amount does not vary

with the number of services that the

resident actually receives from one day

to the next. This means that even if the

SNF furnishes some additional services

on a given day, the resident’s daily

coinsurance amount under Part A does

not increase. However, if the SNF

decides instead to unbundle those

services to an outside supplier which

then bills the carrier under Part B, this

causes the resident to incur an

additional out-of-pocket liability for any

unmet deductible under Part B, as well

as for Part B’s 20 percent coinsurance.

Finally, along with the potential for

duplicate billing and for subjecting the

beneficiary to needless expense,

unbundling has raised quality of care

and program integrity concerns for SNF

residents—including those who are not

in a covered Part A stay—by dispersing

the responsibility for providing resident

care among a myriad of outside

suppliers. This fragmentation in the

provision and billing of services has

diminished the SNF’s own capacity to

oversee, coordinate, and account for the

total package of care that its residents

receive, and has rendered the SNF less

able to guard against inappropriate

billing practices and utilization.

For years, HCFA pursued legislative

proposals to prohibit the practice of

unbundling in SNFs, but without

success. As with inpatient hospital

services, the event that finally brought

about a comprehensive billing

requirement for SNF services was the

creation of a PPS for SNFs. In order to

have a prospective payment that

includes all of the medically necessary

services that an SNF resident receives,

it is essential to tie all of those services

into a single facility package, by

prohibiting unbundling. Otherwise, the

Medicare program would once again be

faced with potentially paying twice for

the same service—once to the SNF

under the Part A prospective payment,

and again to an outside supplier under

Part B.

B. Skilled Nursing Facility Consolidated

Billing Legislation

Under the SNF Consolidated Billing

requirement established by section

4432(b) of the BBA 1997, the SNF itself

has the Medicare billing responsibility

for virtually all of the Medicare-covered

services that its residents receive. The

following is a discussion of the specific

provisions of the legislation.

1. Specific Provisions of the Legislation

• Section 4432(b)(1) of the BBA 1997

adds a new paragraph (18) to section

1862(a) of the Act, which prohibits

Medicare coverage of services furnished

to an SNF resident (other than those

services that are specifically excluded

from the SNF Consolidated Billing

requirement) unless they are furnished

or arranged for by the SNF itself.

• Section 4432(b)(2) of the BBA 1997

adds a new paragraph (E) to section

1842(b)(6) of the Act, which specifies

that, for any such services that are

covered under Part B, Medicare makes

payment to the SNF rather than to the

beneficiary.

• Section 4432(b)(3) of the BBA 1997

adds to section 1888(e) of the Act a new

paragraph (9), which requires that the

payment amount for Part B services

furnished to an SNF resident shall be

the amount prescribed in the otherwise

applicable fee schedule, and a new

paragraph (10), which requires the

SNF’s Part B bills to identify all items

and services through a uniform coding

system to be specified by the Secretary.

Under this authority, we are specifying

the HCFA Common Procedure Coding

System (HCPCS) as the coding system to

be used. The HCPCS coding

requirement is intended to enable the

Medicare contractor to identify

individual items and services more

readily on the claim; this, in turn, will

help enable the contractor to limit the

amounts it pays the SNF to any

applicable Part B fee schedule amounts

in accordance with section 1888(e)(9) of

the Act.

• Section 4432(b)(4) of the BBA 1997

adds a new paragraph (t) to section 1842

of the Act, which requires physicians to

include the SNF’s Medicare provider

number on bills for physician services

furnished to SNF residents that are

separately billable to the Part B carrier

(see discussion in section V.B.2. below).

• Section 4432(b)(5) of the BBA 1997

includes a series of conforming

amendments. The SNF Consolidated

Billing provision requires an SNF to

furnish virtually all services to its

residents, either directly or under

‘‘arrangements’’ with an outside source

in which the SNF itself bills Medicare.

Accordingly, section 4432(b)(5)(D)

amends section 1861(h) of the Act to

expand the scope of SNF services that

Part A can cover under the extended

care benefit to include services

furnished under arrangements between

the SNF and an outside source, as

discussed in section VI. below. Section

4432(b)(5)(F) adds a new clause (ii) to

section 1866(a)(1)(H) of the Act to make

compliance with the SNF Consolidated

Billing provision a specific requirement

under the terms of an SNF’s Medicare

provider agreement.

2. Types of Services That Are Subject to

the Provision

Like the SNF PPS itself, SNF

Consolidated Billing applies

comprehensively to the ‘‘covered skilled

nursing facility services’’ described in

section 1888(e)(2)(A)(i) of the Act when

furnished to SNF residents, except for

those services that appear on a short list

of exclusions described in section

1888(e)(2)(A)(ii) of the Act. However, in

practical terms, the SNF Consolidated

Billing and PPS provisions encompass

slightly different sets of services, since

the SNF PPS includes a few individual

services that are not subject to the

Consolidated Billing provision. This is

because the SNF PPS encompasses the

entire range of Part A extended care

services that are coverable under section

1861(h) of the Act when furnished or

arranged for by the SNF itself, including

an extremely small number of such

services (for example, dialysis services)

that section 1888(e)(2)(A)(ii) of the Act

specifically identifies as alternatively

being billable separately under Part B.
26296 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

Similarly, the Consolidated Billing

provision encompasses a small number

of services that are not coverable under

Part A or includable in the PPS

payment, even though furnished or

arranged for by the SNF itself during a

covered Part A stay. This is because the

services included in the SNF PPS

payment are, by definition, limited to

the range of diagnostic and therapeutic

services that are coverable under the

Part A extended care benefit, while the

Consolidated Billing provision

encompasses not only those types of

services, but also certain preventive and

screening services that are not

considered diagnostic or therapeutic in

nature and, thus, are coverable only

under Part B. (See the portion of section

1861(h) of the Act following paragraph

(7), which limits the scope of coverage

under the Part A extended care benefit

to those ‘‘diagnostic and therapeutic’’

services that are coverable under the

inpatient hospital benefit, and section

1862(a)(1) of the Act, which describes

preventive services to avoid the

occurrence of a medical condition

altogether (paragraph (B)) and screening

services to detect the presence of a

medical condition while it is still in an

asymptomatic state (paragraph (F)) as

being separate and distinct categories

from services to diagnose or treat a

condition that has already manifested

itself (paragraph (A)). Thus, for

example, if an SNF resident receives a

vaccination for pneumococcal

pneumonia or hepatitis B in the course

of a covered Part A stay, this would not

represent a diagnostic or therapeutic

service that could be covered under the

Part A extended care benefit, but a

preventive service that is coverable only

as one of the ‘‘medical and other health

services’’ included under Part B (see

section 1861(s)(10) of the Act).

Accordingly, while the SNF’s Part A

PPS payment would not include this

service, the Consolidated Billing

provision would still require the SNF

itself to submit the bill for the service

to Part B.

The statutory list of excluded services

in section 1888(e)(2)(A)(ii) of the Act

consists of a number of specific service

categories. These include several types

of practitioner services that are exempt

from the Consolidated Billing

requirement and, thus, are still to be

billed separately to the Part B carrier.

These exempt practitioner services

include the following:

• Physicians’ services furnished to

individual SNF residents (section

4432(b)(4) of the BBA 1997 requires

such bills to include the SNF’s Medicare

provider number).

• Physician assistants working under

a physician’s supervision.

• Nurse practitioners and clinical

nurse specialists working in

collaboration with a physician.

• Certified nurse-midwives.

• Qualified psychologists.

• Certified registered nurse

anesthetists.

In addition to these exempt categories

of practitioner services, section

1888(e)(2)(A)(ii) of the Act also excludes

the following types of services:

• Home dialysis supplies and

equipment, self-care home dialysis

support services, and institutional

dialysis services and supplies as

described in section 1861(s)(2)(F) of the

Act;

• Erythropoietin (EPO) for certain

dialysis patients as described in section

1861(s)(2)(O) of the Act, subject to

methods and standards established by

the Secretary in regulations for its safe

and effective use (see §§ 405.2163(g) and

(h)); and

• For services furnished during 1998

only: The transportation costs of

electrocardiogram equipment for

electrocardiogram test services (HCPCS

Code R0076) furnished during 1998.

This reflects section 4559 of the BBA

1997, which temporarily restores

separate Part B payment for the

transportation of portable

electrocardiogram equipment used in

furnishing tests during 1998.

Further, we note that hospice care (as

defined in section 1861(dd) of the Act)

is not subject to Consolidated Billing

when an SNF resident elects to receive

care under the Medicare hospice

benefit, since the hospice (rather than

the SNF) assumes the overall

responsibility for those care needs

relating to the beneficiary’s terminal

condition, while the SNF itself retains

responsibility only for those aspects of

the beneficiary’s care needs that are not

related to the terminal condition (see

further discussion in section V.B.4.

below). In addition, as discussed in

section V.B.4. below, we are clarifying

that in terms of ambulance services, the

Consolidated Billing provision applies

only to ambulance transportation

furnished during the SNF stay, and not

to an ambulance trip that occurs at

either the beginning or end of the stay.

With regard to the services of

physicians and other practitioners, even

though the SNF Consolidated Billing

requirement generally does not apply to

the specific types of practitioners listed

above, it does apply to certain particular

subcategories of their services, which

must be billed by and paid to the SNF.

Section 1888(e)(2)(A)(ii) of the Act

specifies that physical, occupational,

and speech-language therapy services

furnished to SNF residents are subject to

Consolidated Billing and, therefore,

must be billed by the SNF itself,

regardless of whether these services are

furnished by (or under the supervision

of) a physician or other health care

professional. In effect, this statutory

provision converts the coverage of what

would otherwise be practitioner services

into provider (that is, SNF) services.

Thus, those practitioner services that

fall within the categories of physical,

occupational, or speech language

therapy services must be billed by the

SNF to its FI, and the practitioner

cannot submit a separate bill to the Part

B carrier. (We note that the Physicians’

Current Procedural Terminology (CPT)

coding used on physician and other

practitioner bills enables the Part B

carrier to identify those services that are

physical, occupational, and speechlanguage therapy services.)

Further, with respect to physicians’

services, we are providing—consistent

with the longstanding policy under the

bundling requirement for inpatient

hospital services—that the SNF

Consolidated Billing provision excludes

only those particular physicians’

services that meet the criteria described

in § 415.102(a) for payment on a fee

schedule basis. Essentially, these are

services (ordinarily requiring

performance by a physician) that the

physician personally furnishes to an

individual beneficiary, which contribute

directly to that beneficiary’s diagnosis

or treatment and, in the case of

radiology or laboratory services, meet

the additional requirements specified in

§§ 415.120 and 415.130, respectively. By

contrast, this exclusion of the types of

physicians’ services described in

§ 415.102(a) does not extend to more

generalized physician functions that

typically occur in the provider setting

(such as quality control activities),

which are performed not for an

individual beneficiary but for the

overall benefit of the provider’s entire

patient population, and are considered

a provider cost under §§ 415.55 and

415.60.

In addition, the Consolidated Billing

requirement does not exempt those

types of nonphysician services that

would otherwise be billed to the Part B

carrier in conjunction with related

physician services and paid under a

single, global fee. For example, payment

for diagnostic radiology services is

sometimes made through a global fee

that includes both a technical

component (for the diagnostic test itself)

and a professional component (for the

physician’s interpretation of the test).

However, under Consolidated Billing,
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26297

when such services are furnished to an

SNF resident, only the professional

(physician) component is billed

separately as a physician’s service,

while the technical (nonphysician)

component must be billed by the SNF

itself.

Also, while the SNF Consolidated

Billing provision does not apply to the

professional services that a physician or

other exempt practitioner performs

personally, it does apply to those

services that are furnished to an SNF

resident by someone other than the

practitioner, as an incident to the

practitioner’s professional service. This

position is consistent with the approach

that has long been taken under the

hospital bundling requirement, as well

as with section 1888(e)(2)(A)(ii) of the

Act, which specifically identifies

‘‘physicians’’ services’’ themselves as

the service category that is excluded

from SNF Consolidated Billing.

Physicians’ services, in turn, are

covered by Part B under section

1861(s)(1) of the Act and are defined in

section 1861(q) as being performed by a

physician, while ‘‘incident to’’ services

are covered under a separate statutory

authority (section 1861(s)(2)(A) of the

Act) and are, by definition, not

performed by a physician. Similarly, for

the other types of practitioner services

that are exempt from the SNF

Consolidated Billing requirement, we

are specifying that this exemption

applies only to the professional services

that the practitioner performs

personally, and that services furnished

by others as an incident to the

practitioner’s professional service are

themselves subject to the Consolidated

Billing requirement.

We believe that to do otherwise with

regard to these ‘‘incident to’’ services

would effectively create a loophole

through which a potentially broad and

diverse array of services could be

unbundled, merely by virtue of being

furnished under the general auspices of

such practitioners. This, in turn, would

ultimately defeat the very purpose of the

SNF Consolidated Billing provision—

that is, to make the SNF itself

responsible for billing Medicare for

essentially all of its residents’ services,

other than those identified in a small

number of narrow and specifically

delimited exclusions. Further, as noted

above, both the Consolidated Billing

and SNF PPS provisions employ the

same statutory list of excluded services.

Thus, the approach we are adopting

with regard to the limited range of

services that qualify for exclusion is

essential not only to safeguard the

integrity of the Consolidated Billing

requirement, but also that of the SNF

PPS itself.

Finally, we note that laboratory

services are subject to the SNF

Consolidated Billing requirement. Thus,

when an outside laboratory performs

tests for SNF residents, the Medicare

billing must be done by the SNF itself

rather than by the outside laboratory.

However, it will be necessary for the

Congress to make a conforming change

in section 1833(h)(5)(A) of the Act, in

order to resolve a technical

inconsistency in the text of that

provision. The current wording of that

section of the Act generally allows Part

B to make payment for clinical

diagnostic laboratory tests only to the

person or entity that actually performs

(or supervises the performance of) the

test. This provision already contains a

specific exception at section

1833(h)(5)(A)(iii) of the Act that permits

a hospital to receive Part B payment for

laboratory services that the hospital

obtains under arrangements made with

an outside laboratory. As mentioned

previously, hospitals have long had a

comprehensive Medicare billing

requirement, which served as a model

for the one now being established for

SNFs. Accordingly, we believe that the

BBA 1997’s lack of a conforming change

that explicitly extends the payment

provision’s existing hospital exception

to SNFs is merely an inadvertent

oversight, and we plan to pursue a

technical amendment to make an

appropriate conforming change in the

text of section 1833(h)(5)(A) of the Act.

3. Facilities That Are Subject to the

Provision

In terms of facilities (as explained in

the following discussion of SNF

‘‘resident’’ status), the Consolidated

Billing requirement applies to Medicareparticipating SNFs, including distinct

part SNFs. Consolidated Billing does

not apply to a nursing home that has no

Medicare certification whatsoever, such

as a nursing home that does not

participate at all in either the Medicare

or Medicaid programs, or a nursing

home that exclusively participates only

in the Medicaid program as a nursing

facility (NF). However, Consolidated

Billing does apply to services furnished

to residents in any nursing home of

which a distinct part is a Medicareparticipating SNF. This means that if

any portion of a nursing home has

Medicare SNF certification,

Consolidated Billing applies to the

entire nursing home. (This avoids

creating a perverse incentive for SNFs to

set aside a nonparticipating section in

which they could otherwise circumvent

the Consolidated Billing requirement for

those residents who are not in a covered

Part A stay.)

Thus, when a nursing home limits its

Medicare participation as an SNF to

only a distinct part of the overall

institution—

• In terms of program payment, Part

A coverage under the extended care

benefit is limited to the portion of the

nursing home that actually participates

in Medicare as an SNF; and

• In terms of Medicare billing

responsibility, the Consolidated Billing

requirement applies to the entire

nursing home.

We note that if the surrounding

institution that houses a Medicare

distinct part SNF includes an entity

other than a nursing home (that is, a

hospital, or a domiciliary or ‘‘board and

care’’ home), then the Consolidated

Billing requirement would not apply to

that entity, but would apply only to the

nursing home itself (including the

nursing home’s participating distinct

part SNF along with any

nonparticipating remainder).

4. Skilled Nursing Facility ‘‘Resident’’

Status for Purposes of This Provision

For purposes of determining program

payment in the specific context of the

Part A extended care benefit, section

1861(h) of the Act limits coverage to

those beneficiaries who reside in an

SNF, which section 1819(a) of the Act

defines as an institution (or a distinct

part of an institution) that is actually

certified as meeting the SNF

requirements for participation.

However, in excluding Medicare

coverage for unbundled services

furnished to SNF residents, section

4432(b)(1) of the BBA 1997 further

specifies that this provision applies to

services furnished to any beneficiary

who ‘‘* * * is a resident of a skilled

nursing facility or of a part of a facility

that includes a skilled nursing facility

(as determined under

regulations) * * * .’’ This statutory

language establishes that, for purposes

of the SNF Consolidated Billing

provision, the Congress intended:

• That the definition of an SNF

resident should include not only those

beneficiaries who reside in the certified

area of a nursing home, but also (as

discussed in the preceding section)

those who reside in the nonparticipating

portion of any nursing home that also

includes a Medicare-certified distinct

part SNF; and

• To grant the Secretary the specific

authority to define the concept of

‘‘services furnished to SNF residents’’

further in regulations.

Accordingly, for purposes of the SNF

Consolidated Billing provision, we are
26298 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

defining an SNF ‘‘resident’’ in the

regulations as including beneficiaries

who reside in Medicare-certified SNFs,

as well as those beneficiaries who reside

anywhere within a nursing home if that

nursing home includes a distinct part

that is a Medicare-certified SNF.

We note that the SNF Consolidated

Billing legislation defines the scope of

this provision in terms of a

comprehensive package of services

furnished to an SNF resident. For

example, in terms of ambulance

services, the initial ambulance trip that

first brings a beneficiary to the SNF

would not be subject to the

Consolidated Billing provision (since

the beneficiary, at that point, has not yet

been admitted to the SNF as a resident).

Similarly, an ambulance trip that occurs

at the end of an SNF stay, in connection

with one of the events that (as discussed

below) ends a beneficiary’s status as an

SNF resident for Consolidated Billing

purposes, would not be subject to the

Consolidated Billing provision. By

contrast, ambulance transportation

furnished during an SNF stay is subject

to the SNF Consolidated Billing

provision.

As noted above, the Consolidated

Billing requirement is intended to

encompass a comprehensive package of

services furnished to an SNF resident.

Accordingly, we believe that it is

necessary to prevent a facility from

being able to circumvent this

requirement and unbundle particular

services that would otherwise be an

integral part of the package, merely by

temporarily discontinuing a

beneficiary’s status as a ‘‘resident’’ of

the SNF just long enough to receive the

services (for example, by briefly sending

the beneficiary offsite to receive them as

a hospital or clinic outpatient), and

immediately thereafter reinstating the

beneficiary’s status as an SNF

‘‘resident.’’ Therefore, we are providing

that a beneficiary’s departure from the

facility does not automatically end his

or her status as an SNF ‘‘resident’’ for

Consolidated Billing purposes. Rather,

the beneficiary’s status as an SNF

resident in this context would end when

one of the following events occurs—

• The beneficiary is admitted as an

inpatient to a Medicare-participating

hospital or critical access hospital

(CAH, formerly referred to as a rural

primary care hospital (RPCH)) or as a

resident to another SNF;

• The beneficiary receives services,

under a plan of care, from a Medicareparticipating home health agency;

• The beneficiary receives outpatient

services from a Medicare-participating

hospital or CAH (but only with respect

to those services that are not furnished

pursuant to the resident assessment or

the comprehensive care plan required

under § 483.20); or

• The beneficiary is formally

discharged or otherwise departs from

the SNF (for example, on a leave of

absence), unless readmitted to that or

another SNF within 24 consecutive

hours. This means that the facility’s

responsibilities under the Consolidated

Billing provision (including its

responsibility to furnish or make

arrangements for needed care and

services) remain in effect until the

beneficiary’s status as an SNF

‘‘resident’’ ends due to the occurrence of

one of the events described above.

We are providing that, for purposes of

determining the applicability of the SNF

Consolidated Billing requirement, a

beneficiary’s status as an SNF resident

ends at the point when the beneficiary

is admitted as an inpatient to a

participating hospital or CAH, or as a

resident to another SNF, even if the

beneficiary subsequently returns to the

original SNF within 24 hours of

departure. This is because these settings

all represent situations in which another

provider has assumed the ongoing

responsibility for the beneficiary’s

comprehensive care needs. For the same

reason, we are including the receipt of

services from a participating home

health agency under a plan of care as

another event that would end a

beneficiary’s status as an SNF

‘‘resident’’ for Consolidated Billing

purposes. We note that these situations

are distinct, however, from one in

which a terminally ill SNF resident

elects to receive care under the

Medicare hospice benefit, since a

hospice assumes responsibility only for

those care needs that relate to the

beneficiary’s terminal condition, while

the SNF itself remains responsible for

any care needs that are unrelated to the

terminal condition. This is equally true

whether an SNF resident receives the

hospice care while still in the SNF or

during a temporary absence from the

facility. Accordingly, an SNF resident’s

election to receive care under the

Medicare hospice benefit would not

result in a blanket exclusion of all

services furnished to that resident from

the Consolidated Billing requirement;

rather, as discussed previously in

section V.B.2., only the specific aspects

of such a resident’s care that are actually

provided under the hospice benefit are

excluded from the Consolidated Billing

provision, while care that is unrelated to

the resident’s terminal condition

remains subject to the provision.

Similarly, when an SNF resident

receives outpatient services at a

hospital, the hospital does not

necessarily assume any ongoing

responsibility for the resident’s

comprehensive care needs beyond the

outpatient visit itself, which often may

represent nothing more than a single,

isolated encounter. We do not believe

that such an event, when followed

shortly thereafter by the resident’s

return to the SNF, should serve to

relieve the SNF categorically of any

Medicare billing responsibility for

services furnished during the outpatient

visit, especially with respect to those

types of services that SNFs would

ordinarily include within the

comprehensive package of care

furnished to a resident (such as

physical, occupational, and speechlanguage therapy, or types of medical

supplies and diagnostic tests that are

routinely furnished or arranged for by

SNFs).

At the same time, however, we

recognize that there are certain types of

intensive diagnostic or invasive

procedures that are specific to the

hospital setting and that are well

beyond the normal scope of SNF

services. Further, we note that

Medicare’s longstanding comprehensive

billing or ‘‘bundling’’ requirement for

inpatient hospital services under section

1862(a)(14) of the Act was subsequently

expanded to apply to outpatient

hospital services as well, and that

section 4523 of the BBA 1997 provides

for the establishment of a PPS for these

outpatient hospital services. Thus, when

an SNF resident is sent to a hospital to

receive outpatient services, it is

necessary to delineate the respective

areas of responsibility for the SNF under

the Consolidated Billing provision, and

for the hospital under the outpatient

bundling provision, with regard to these

services.

Accordingly, we are providing that in

situations where a beneficiary receives

outpatient services from a Medicareparticipating hospital or CAH while

temporarily absent from the SNF, the

beneficiary continues to be considered

an SNF resident specifically with regard

to those services that are furnished

pursuant to the comprehensive care

plan required under the regulations at

§ 483.20(d), which is developed to

address the resident’s care needs

identified in the comprehensive

assessment under § 483.20(b). Such

services are, therefore, subject to the

SNF Consolidated Billing provision,

while those other services that, under

commonly accepted standards of

medical practice, lie exclusively within

the purview of hospitals rather than

SNFs, are not subject to SNF

Consolidated Billing, but are instead

bundled to the hospital (for example,
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26299

cardiac catheterization, CT scans,

magnetic resonance imaging,

ambulatory surgery involving the use of

an operating room). We believe that it is

appropriate to specify the resident’s

comprehensive care plan as the basis for

defining the extent of the SNF’s

responsibility in this situation, since it

is this same resident assessment and

care planning process that provides the

basis for establishing SNF coverage and

determining the actual level of Part A

payment under the SNF PPS. In effect,

this defines the SNF’s responsibility in

terms of the scope of services included

under the extended care benefit, as

explained below. This same scope of

services would effectively define the

extent of the SNF’s responsibility with

regard to a beneficiary who has resided

exclusively in the institution’s

nonparticipating portion which, under

the law, is subject to the SNF

Consolidated Billing provision but not

to the SNF requirements for

participation regarding resident

assessment and care planning.

As indicated in § 483.20(d)(1), the

resident assessment must thoroughly

identify the resident’s medical, nursing,

and mental and psychosocial needs, and

the plan of care must describe in a

comprehensive manner the services that

the SNF itself assumes the

responsibility to furnish, or make

arrangements for, in order to address

these needs. However,the

comprehensive care plan does not

typically address emergency services

(which, by their nature, cannot be

anticipated and planned in advance) or

those types of intensive diagnostic or

invasive procedures that, as discussed

previously, appropriately lie within the

purview of hospitals rather than SNFs.

By contrast, the care plan must address

the beneficiary’s need for the broad

categories of services that section

1861(h) of the Act identifies as being

included within the scope of the

extended care benefit, such as nursing

care and associated room and board

(sections 1861(h)(1) and (2) of the Act);

physical, occupational, and speechlanguage therapy (section 1861(h)(3) of

the Act); medical social services (section

1861(h)(4) of the Act); drugs,

biologicals, supplies, appliances, and

equipment that represent an ordinary

part of the facility’s inpatient care and

treatment (section 1861(h)(5) of the Act);

and services that an SNF furnishes

through its transfer agreement hospital

(section 1861(h)(6) of the Act).

As amended by the BBA 1997, section

1861(h)(7) of the Act also includes

coverage of other types of services that

SNFs generally provide, either directly

or under arrangements with outside

sources. As discussed in section VI.

below with regard to the conforming

revisions in regulations at § 409.27,

longstanding administrative policy has

also included within this category most

of the medical and other health services

described in section 1861(s) of the Act,

with certain exceptions. For example,

physician services (section 1861(s)(1) of

the Act) cannot be regarded as services

that are ‘‘generally provided’’ by SNFs,

since they are not within the scope of

the inpatient hospital benefit (see

section 1861(b)(4) of the Act) and,

accordingly, are also not within the

scope of the extended care benefit (see

section 1861(h) of the Act following

paragraph (7)). In addition, as discussed

previously in section V.B.2., preventive

services such as vaccines for

pneumococcal pneumonia or hepatitis B

(section 1861(s)(10) of the Act) and

screening services such as screening

mammographies or pap smears (sections

1861(s)(13) and (14) of the Act,

respectively) are not within the scope of

the extended care benefit, since they are

not considered reasonable and

necessary for the diagnosis or treatment

of a condition that has already

manifested itself. Finally, the extended

care benefit does not include the types

of acute or emergent services discussed

above as being exclusively within the

purview of hospitals rather than SNFs,

since these are types of services that

SNFs themselves do not generally

provide, either directly or under

arrangements.

We specifically invite comments on

the treatment of outpatient hospital

services furnished to SNF residents

under the SNF Consolidated Billing

provision, including other possible

ways to exempt those particular

outpatient hospital procedures that are

clearly beyond the scope of SNF

services while preserving the integrity

of the SNF service package itself. We

also note that further refinements in this

policy may eventually become

necessary, in order to ensure

consistency with the new outpatient

hospital PPS as its specific

characteristics are developed.

In addition, effective January 1, 1999,

section 4541 of the BBA 1997 imposes

an annual per beneficiary limit of

$1,500 on all outpatient physical

therapy services (including speechlanguage therapy services), and imposes

a similar limit on all outpatient

occupational therapy services, but

specifically excludes services furnished

by a hospital’s outpatient department

from each of these annual limits. We

note that this exclusion of hospital

outpatient department services does not

apply to services furnished to a

beneficiary who is an SNF resident for

Consolidated Billing purposes. For an

SNF resident who is not in a covered

stay and has reached the annual $1,500

limit, this avoids creating a perverse

incentive to have a hospital outpatient

department furnish therapy services that

the resident could appropriately receive

from the SNF itself. We will specifically

address this point in the regulations that

we are currently developing to

implement section 4541 of the BBA

1997.

Another event that would generally

end a beneficiary’s ‘‘resident’’ status for

SNF Consolidated Billing purposes

would be the beneficiary’s formal

discharge from the SNF, or a departure

from the SNF without a formal

discharge (for example, for a trial visit

home on a leave of absence), unless

followed within 24 consecutive hours

by a readmission to that or another SNF.

We are using a 24-hour timeframe for

readmission following any discharge or

other departure from the SNF because

we believe that this duration should

generally be sufficient to preclude

situations in which the beneficiary is

temporarily sent outside the SNF for

only a brief period to receive a service

offsite (for example, through an

outpatient visit to a hospital or clinic),

merely to circumvent the SNF

Consolidated Billing requirement.

Further, as indicated above, we believe

that in most situations where a

beneficiary with comprehensive care

needs is absent from the SNF for 24

consecutive hours, another provider

will have already assumed the ongoing

responsibility for those comprehensive

care needs by that point in time.

In addition, we note that section

1886(a)(4) of the Act includes a

preadmission ‘‘payment window’’

provision for hospitals, under which

certain Part B services furnished by a

hospital or by an entity wholly owned

or operated by the hospital within 3

days (or, for non-PPS hospitals, within

1 day) before an inpatient admission to

that hospital are included in the

Medicare Part A payment for the

hospital admission itself (see

§§ 412.2(c)(5) (for PPS hospitals) and

413.40(c)(2) (for non-PPS hospitals)).

Further, section 1833(d) of the Act

prohibits payment under Part B for any

services for which Part A can make

payment. Thus, if a hospital inpatient

has spent a portion of the preadmission

period as a resident of an SNF that is

wholly owned or operated by the

admitting hospital, this would preclude

coverage (and SNF billing) under Part B

for diagnostic services and other

admission-related services received as

an SNF resident during the
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preadmission period, since those

services would be included in the

hospital’s Part A payment for the

subsequent inpatient admission.

5. Effects of This Provision

For those services that are subject to

the SNF Consolidated Billing

requirement, Medicare will no longer

permit ‘‘unbundling’’ (that is, Medicare

billing by any entity other than the SNF

itself). Rather, the SNF itself will have

to furnish the services—either directly,

or under arrangements with an outside

supplier in which the SNF itself (rather

than the supplier) bills Medicare.

Section 1861(w)(1) of the Act defines

‘‘arrangements’’ as those in which the

SNF’s receipt of Medicare payment for

a beneficiary’s covered service

discharges the liability of the

beneficiary or any other person to pay

for the service. Further, longstanding

manual instructions at MIM–3, § 3007

and § 206 of the Medicare SNF Manual

provide that in making such

arrangements, an SNF should not act

merely as a billing conduit, but should

also exercise professional responsibility

over the arranged-for services. However,

the requirement for the SNF to furnish

under ‘‘arrangements’’ any services that

it obtains from an outside supplier does

not mandate the SNF itself to meet the

applicable supplier standards for that

service, but merely to select an outside

supplier that meets them. For example,

when an SNF bills for ambulance

services furnished to its residents under

arrangements with an outside supplier,

this does not make the SNF itself

responsible for meeting the ambulance

regulations’ standards regarding

vehicles and vehicle staffing (see

§ 410.40(a)), but merely for selecting an

outside supplier that itself meets these

standards. Similarly, under the

requirements for participation at

§ 483.75(k)(1)(ii), if an SNF elects to

provide portable x-ray services under

arrangements with an outside supplier,

the SNF is responsible only for selecting

a portable x-ray supplier that itself

meets the applicable Medicare

conditions for coverage (see subpart C of

part 486); under § 483.75(k)(1)(i), an

SNF must itself meet the applicable

provider standards for diagnostic

radiology services (at § 482.26) only if

the SNF elects to provide such services

directly with its own resources.

When the SNF furnishes services

under an arrangement with an outside

supplier, the outside supplier must look

to the SNF instead of to Medicare Part

B for payment, and the terms of the

supplier’s payment by the SNF are

established exclusively through

contractual agreements negotiated

between the two parties themselves,

rather than being prescribed for them by

the Medicare program. For a resident in

a covered Part A stay, all services

furnished by the SNF (either directly, or

under arrangements with an outside

supplier) are included in the SNF’s Part

A bill. For a resident who is not in a

covered Part A stay (Part A benefits

exhausted, posthospital or level of care

requirements not met, etc.), the SNF

itself submits all bills to Part B.

We note that while new section

1888(e)(9) of the Act provides that the

amount of Part B payment shall be the

amount provided under the applicable

fee schedule for an SNF’s services—

including those services provided under

arrangements with an outside

supplier—the law is silent with regard

to how much (if any) of this fee

schedule amount the SNF itself can

retain when it pays the supplier. If an

outside supplier agrees to furnish

services to the SNF for less than the

applicable fee schedule amount, we are

concerned that allowing the SNF to

retain the difference for each service

billed to Part B is likely to create a

financial incentive for the SNF to

provide unnecessary services. The

approach that we favor as a means of

solving this problem would be to

request legislation to limit the SNF’s

Part B payment to the lower of the

applicable fee schedule amount or the

amount that the supplier actually

charges the SNF. Another option—

which we did not select—would be to

require that the SNF pay to the supplier

the entire fee schedule payment

amount, less a reasonable charge for

administration. We specifically invite

comments on the extent to which this

problem may arise and on the

advisability of pursuing our suggested

legislative approach or other

approaches.

While the SNF Consolidated Billing

requirement prohibits Medicare billing

by any entity other than the SNF, we

note that this does not preclude an SNF

from engaging the services of an outside

entity to assist the SNF in performing

the specific tasks involved in actually

completing and sending in the bill itself.

This practice, known as ‘‘contract

billing,’’ is permissible as long as the

billing takes place under the SNF’s

Medicare provider number, and the SNF

itself remains the legally responsible

billing party. However, an SNF is

precluded from relinquishing or

reassigning to any other party the actual

legal responsibility for and control over

a claim. This reflects the Medicare law’s

general prohibitions with regard to the

reassignment of claims at sections

1815(c) and 1842(b)(6) of the Act and

regulations at subpart F of part 424, as

well as the specific prohibitions on

reassignment of provider claims

discussed in the manual instructions at

MIM–3, §§ 3488ff.

The changes introduced by the

Consolidated Billing provision will

bring about a number of significant

program improvements. First, this

requirement provides an essential

foundation for the new Part A SNF PPS,

by bundling into a single facility

package those services that the PPS

payment is intended to capture. Second,

it spares beneficiaries who are in

covered Part A stays from incurring outof-pocket liability for Part B deductibles

and coinsurance. Third, it eliminates

the potential for duplicative billings for

the same service to the FI by the SNF

and to the carrier by an outside

supplier. Fourth, this requirement will

help promote greater quality of care, by

enhancing the SNF’s capacity to meet its

existing responsibility to oversee and

coordinate the entire package of care

that each of its residents receives.

Finally, by making the SNF itself more

directly accountable for this overall

package of care and services, the

Consolidated Billing requirement may

help restrain certain inappropriate

billing practices, while at the same time

helping to ensure that each resident

actually receives those services for

which there is a legitimate medical

need.

C. Effective Date for Consolidated

Billing

Unlike the SNF PPS itself, the

effective date of the Consolidated

Billing requirement is not tied to the

start of the individual SNF’s first cost

reporting period that begins on or after

July 1, 1998. Rather, the Consolidated

Billing provision is effective for services

furnished on or after July 1, 1998. We

note that in April 1998, HCFA issued

Program Memorandum (PM) No. AB–

98–18, which contains operational

instructions for Medicare contractors on

the implementation of consolidated

billing. The PM provides that, for

individual facilities that lack the

capability to perform consolidated

billing as of the July 1 effective date, the

SNF must begin consolidated billing

with respect to items and services

furnished on or after the earlier of (1)

January 1, 1999 or (2) the date the

facility comes under the PPS.

VI. Changes in the Regulations

As discussed below, we are making a

number of revisions in the regulations

in order to implement both the

prospective payment system and the

SNF Consolidated Billing provision and
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26301

its conforming statutory changes. First,

we are revising the regulations in 42

CFR part 410, subpart I, which deal with

payment of benefits under Part B, in

order to implement section 1842(b)(6)(E)

of the Act, as amended by section

4432(b)(2) of the BBA 1997.

Specifically, we are adding a new

paragraph (b)(14) to § 410.150, which

specifies that for those services subject

to the SNF Consolidated Billing

requirement, Medicare makes Part B

payment to the SNF rather than to the

beneficiary. We are also making certain

conforming changes to provisions in

part 410, subpart B, which describe Part

B coverage of individual medical and

other health services, such as outpatient

hospital services (§ 410.27(a)(1)(i)),

hospital or CAH diagnostic tests

(§ 410.28(a)(1)), diagnostic tests

(§ 410.32(e)), and ambulance services

(§ 410.40(b)).

In addition, we are revising the

regulations in part 411, subpart A,

which deal with exclusions from

Medicare coverage, in order to

implement section 1862(a)(18) of the

Act, as amended by section 4432(b)(1) of

the BBA 1997. Specifically, we are

adding a new paragraph (p)(1) to

§ 411.15, which excludes from coverage

any service furnished to an SNF

resident (other than those individual

services listed in new paragraph (p)(2)

of this section) by an entity other than

the SNF itself. In addition, a new

paragraph (p)(3) will set out the

definition of an SNF ‘‘resident’’ for

purposes of this provision, as discussed

previously in section V.B.4.

We are revising the regulations in part

413, which deal with Medicare payment

to providers of services. Section 413.1

establishes that providers are generally

paid on the basis of reasonable cost, and

then sets out several specific exceptions

to this general principle. Currently, the

only exception for SNFs is at § 413.1(g),

with regard to the existing Part A PPS

under section 1888(d) of the Act, which

applies exclusively to low volume

SNFs. However, under sections 4432(a)

and (b)(5)(H) of the BBA 1997, the

existing SNF Part A payment

methodologies (that is, on a reasonable

cost basis, or under a PPS established

specifically for low volume SNFs) will

be superseded by the new PPS for SNFs

generally, effective with cost reporting

periods beginning on or after July 1,

1998. Accordingly, we are revising

§ 413.1(g) as follows, to reflect the BBA

1997 provisions for a general SNF PPS,

as well as its related conforming

changes. In paragraph (g)(1), we clarify

that the previous SNF payment

methodology (that is, either on a

reasonable cost basis or under the low

volume SNF PPS) is effective only for

those cost reporting periods beginning

before July 1, 1998. In paragraph

(g)(2)(i), we provide that effective with

cost reporting periods beginning on or

after July 1, 1998, payment for services

furnished during a covered Part A stay

will be made in accordance with the

new SNF PPS under section 1888(e) of

the Act, as implemented by regulations

in the new subpart J of part 413. This

new subpart will set forth the regulatory

framework of the new PPS. It

specifically discusses the scope and

basis of the PPS rates as well as the

methodology for computing them. It

also describes the transition phase of the

PPS and related rules.

In paragraph (g)(2)(ii), we implement

section 1888(e)(9) of the Act (as

amended by section 4432(b)(3) of the

BBA 1997), which provides that the

payment amount for services that are

not furnished during a covered Part A

stay shall be the amount provided under

the otherwise applicable Part B fee

schedule. Unlike the new Part A PPS for

SNFs, the effective date for the Part B

fee schedule provision is not tied to the

beginning of an individual SNF’s cost

reporting period, but rather, is effective

for all services furnished on or after July

1, 1998. Consequently, we note that

there is a potential overlap between this

provision and the reasonable cost

provision described in paragraph (g)(1),

during the period of time running from

July 1, 1998, until the conclusion of an

individual SNF’s last cost reporting

period beginning prior to that date.

Accordingly, we are revising the

beginning of paragraph (g)(1), to clarify

that Part B payment during that period

of time is made according to the new fee

schedule provision rather than the

previous payment methodology. Finally,

we are implementing a conforming

change in section 4432(b)(5)(A) of the

BBA 1997 by revising paragraph (b)(4)

of § 483.20, to indicate that the

frequency of resident assessments

specified in that section of the

regulations is subject to the timeframes

prescribed under the SNF PPS in new

subpart J of part 413.

We are revising the portion of part

424 dealing with the prescribed

certification and recertification

(§ 424.20) that the requirements for a

covered SNF level of care are met, along

with that portion of part 409 that sets

out the level of care requirements

themselves (at § 409.30), to reflect the

use of the RUG–III groups, as discussed

previously in section II.D. of this

preamble. We are also revising certain

portions of part 424 that deal with

claims for payment. Specifically, we are

revising § 424.32(a)(2) to require the

inclusion of an SNF’s Medicare provider

number on claims for physician services

furnished to an SNF resident. We are

also adding to § 424.32(a) the

requirement for an SNF to include

HCPCS coding on its Part B claims.

We are also revising the regulations in

part 489, subpart B (which deal with the

basic requirements of Medicare provider

agreements), in order to implement

section 1866(a)(1)(H)(ii) of the Act, as

amended by section 4432(b)(5)(F) of the

BBA 1997. Specifically, we are adding

a new paragraph (s) to § 489.20, which

will require a participating SNF, under

the terms of its provider agreement, to

furnish all services that are subject to

the Consolidated Billing provision,

either directly or under an arrangement

with an outside source in which the

SNF itself bills Medicare.

In addition, we are making a number

of conforming changes in part 409,

subpart C of the regulations, as

discussed below. Section 1861(h) of the

Act describes coverage of ‘‘extended

care’’ (that is, Part A SNF) services. In

addition to the specific service

categories set out in paragraphs (1)

through (6) of section 1861(h),

paragraph (7) provides for coverage of

other services that are generally

provided in this setting. Prior to the

BBA 1997, coverage of services

‘‘generally provided by’’ SNFs under

this statutory authority required not

only for a particular service to be

‘‘generally provided’’ (that is, for the

provision of that type of service to be

the prevailing practice among SNFs

nationwide), but also for the service to

be provided directly ‘‘by’’ the SNF itself.

However, section 4432(b)(5)(D) of the

BBA 1997 has now expanded section

1861(h)(7) of the Act to include

coverage of services that are generally

provided ‘‘under arrangements . . . made

by’’ SNFs with outside sources. As a

result, the extended care benefit now

covers the full range of services that

SNFs generally provide, either directly

or under arrangements with outside

sources. For example, the services of

respiratory therapists have until now

been specifically coverable as extended

care services only when provided

directly by those therapists who are

employees of the SNF’s transfer

agreement hospital under section

1861(h)(6) of the Act. Since these are

services that SNFs historically have

‘‘generally provided’’ (albeit in the

limited context of the transfer agreement

hospital provision), we are now revising

the regulations at § 409.27 to permit

coverage of respiratory therapy services

under amended section 1861(h)(7) of the

Act when provided under an

arrangement between the SNF and a
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respiratory therapist, regardless of

whether the therapist is employed by

the SNF’s transfer agreement hospital.

We are also revising this section of the

regulations to incorporate longstanding

manual instructions in MIM–3,

§ 3133.9.A and in § 230.10.A. of the SNF

Manual, which specify that the medical

and other health services identified in

section 1861(s) of the Act are considered

to be generally furnished by SNFs and,

therefore, coverable under the Part A

extended care benefit. We specify that

such coverage would be subject to any

applicable limitations or exclusions. For

example, the Part A extended care

benefit cannot include coverage of those

services (such as physician services)

that are not within the scope of the

inpatient hospital benefit. As discussed

previously in section V.B.2., the

preventive and screening procedures

specified in section 1861(s) of the Act

are not coverable as extended care

services, since they are not considered

to be reasonable and necessary for

diagnosing or treating a condition that

has already manifested itself. Finally,

coverage under this provision does not

include specific types of services (such

as the intensive or emergency types of

hospital services discussed previously

in section V.B.4.) that SNFs themselves

do not generally provide, either directly

or under arrangements.

In addition to specifically revising the

regulations at § 409.27 to reflect the

recent BBA 1997 amendment of section

1861(h)(7) of the Act, we are also taking

this opportunity to revise the overall

organization of subpart C of part 409 so

that it more accurately reflects the

format of its statutory authority, section

1861(h) of the Act. As a result, we are

making the following revisions in this

subpart:

• We are renumbering the provisions

in § 409.20(a) to conform more closely

to the numbering used in the

corresponding statutory authority at

section 1861(h) of the Act.

• A new § 409.21, entitled ‘‘Nursing

care,’’ corresponds to section 1861(h)(1)

of the Act, which authorizes coverage

under the extended care benefit of

nursing care provided by or under the

supervision of a registered professional

nurse. This new section also includes a

more direct statement of the policy with

regard to coverage of private duty nurses

in SNFs, which until now has been

reflected in § 409.20(b)(1) when read in

combination with § 409.12(b).

• A new § 409.24, entitled ‘‘Medical

social services,’’ corresponds to section

1861(h)(4) of the Act, which authorizes

coverage under the extended care

benefit of medical social services. This

new section incorporates the services

described in longstanding manual

instructions at § 3133.4 of MIM–3 and

§ 230.4 of the Medicare SNF Manual,

and which also appear (in the context of

Comprehensive Outpatient

Rehabilitation Facility (CORF) services)

in existing regulations at § 410.100(h) of

this chapter.

• The material previously contained

in §§ 409.24 (‘‘Drugs and biologicals’’)

and 409.25 (‘‘Supplies, appliances, and

equipment’’) is combined into a new

§ 409.25, entitled ‘‘Drugs, biologicals,

supplies, appliances, and equipment,’’

which corresponds to section 1861(h)(5)

of the Act.

• The material previously contained

in §§ 409.26 (‘‘Services furnished by an

intern or a resident-in-training’’) and

409.27 (‘‘Other diagnostic or therapeutic

services’’) is combined into a new

§ 409.26, entitled ‘‘Transfer agreement

hospital services,’’ which corresponds

to section 1861(h)(6) of the Act. We are

also clarifying that the references in this

context to an institution that has a

swing-bed approval apply specifically to

those services that the institution

furnishes to its own SNF-level

inpatients under its swing bed approval.

• A new § 409.27, entitled ‘‘Other

services generally provided by (or under

arrangements made by) SNFs,’’

corresponds to section 1861(h)(7) of the

Act, as amended by section

4432(b)(5)(D) of the BBA 1997. We are

also including a conforming change in

the section heading and text of

§ 409.20(b)(2).

Further, in view of the previously

discussed statutory change to allow Part

A coverage of the full range of services

that SNFs generally provide, either

directly or under arrangements with

outside sources, we are making a

conforming change to the long-term care

facility requirements for participation at

§ 483.75(h) of this chapter. Previously,

§ 483.75(h) provided for the furnishing

of any services by outside sources under

either an ‘‘arrangement’’ (which, by

definition, makes the facility itself

responsible for billing the program) or

an ‘‘agreement’’ (which does not

necessarily mandate this result). We are

now revising this provision so that it

more accurately reflects the statutory

authority at section 1819(b)(4)(A) of the

Act, as well as revised section

1861(h)(7). Section 1819(b)(4)(A) of the

Act, which specifies the range of

services that a nursing home must

furnish in order to participate in the

Medicare program as an SNF, allows for

‘‘agreements’’ only with respect to

dental services (for which virtually no

coverage exists under the Medicare

program), and provides that all other

required services must be furnished

either directly by the SNF itself or under

‘‘arrangements’’ with an outside source

in which the SNF itself bills Medicare.

Finally, as discussed in section II.D.,

we are making certain specific

modifications in the existing SNF level

of care criteria contained in part 409,

subpart D. Further, we are also adding

to subpart F of part 409 a new

administrative presumption with regard

to the ending of a benefit period in an

SNF, at § 409.60(c)(2).

VII. Response to Comments

Because of the large number of items

of correspondence we normally receive

on Federal Register documents

published for comment, we are not able

to acknowledge or respond to them

individually. We will consider all

comments we receive by the date and

time specified in the DATES section of

this preamble, and, when we proceed

with a subsequent document, we will

respond to the comments in the

preamble to that document.

VIII. Waiver of Proposed Rulemaking

We ordinarily publish a notice of

proposed rulemaking in the Federal

Register and invite public comment on

the proposed rule. The notice of

proposed rulemaking includes a

reference to the legal authority under

which the rule is proposed, and the

terms and substance of the proposed

rule or a description of the subjects and

issues involved. This procedure can be

waived, however, if an agency finds

good cause that a notice-and-comment

procedure is impracticable,

unnecessary, or contrary to the public

interest, and incorporates a statement of

the finding and its reasons in the rule.

We find that the circumstances

surrounding this rule make it

impracticable to pursue a process of

notice-and-comment rulemaking before

the provisions of this rule take effect.

The BBA 1997 was enacted on August

5, 1997. As discussed earlier in this

rule, the effective date for the SNF PPS

is for cost reporting periods beginning

on or after July 1, 1998. In addition,

section 4432(a) of the BBA 1997

requires publication of the prospective

payment rates prior to May 1, 1998. The

resulting timeframe allowed HCFA 9

months to complete the process of

development and review of the

regulations to implement the PPS and

related changes. The immense scope of

SNF PPS development combined with

this limited time period made it

impracticable to conduct notice-andcomment rulemaking before the

statutory effective date of the PPS. In

addition to the normal length of time

needed to develop and review a
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26303

regulation of this magnitude, the time

schedule associated with the

completion of development of a number

of critical components of the PPS made

it impossible to complete the

calculation of the payment rates in time

to promulgate a notice of proposed

rulemaking. For example, the national

case-mix indices and SNF market basket

index, set forth earlier in this rule, had

to be developed. As discussed earlier,

these indices are an essential element of

the case-mix payment and rate setting

methodology. In addition, these indices

are essential for standardizing and

updating the Federal payment rates as

required by the BBA 1997. Also, the

redesign and validation of the MEDPAR

analog, development of the Part B

estimate included in the PPS rates, and

research related to application of the

case-mix adjustment to certain ancillary

services (for example, drugs, laboratory

services, medical supplies) were

important components of the rate setting

methodology, which required much

time to develop.

We believe it evident that HCFA

could not compute payment rates and

complete the numerous components of

the PPS and Consolidated Billing

requirements that are described in this

rule until immediately prior to the

publication date required by statute and,

therefore, it was impracticable to

complete notice-and-comment rule

making before May 1. Therefore, we find

good cause to waive the notice of

proposed rulemaking and to issue this

final rule on an interim final basis. We

are providing a 60-day comment period

for public comment.

Effect of the Contract with America

Advancement Act, Pub. L. 104–121

This rule has been determined to be

a major rule as defined in Title 5,

United States Code, section 804(2).

Ordinarily, under 5 U.S.C. 801, as added

by section 251 of Pub. L. 104–121, major

rule shall take effect 60 days after the

later of (1) the date a report on the rule

is submitted to the Congress or (2) the

date the rule is published in the Federal

Register. However, section 808(2) of

Title 5, United States Code, provides

that, notwithstanding 5 U.S.C. 801, a

major rule shall take effect at such time

as the Federal agency promulgating the

rule determines if for good cause the

agency finds that notice and public

procedure are impracticable,

unnecessary, or contrary to the public

interest. As indicated above, for good

cause we find that it was impracticable

to complete notice and comment

procedures before publication of this

rule. Accordingly, pursuant to 5 U.S.C.

808(2), these regulations are effective on

July 1, 1998.

IX. Regulatory Impact Statement

We have examined the impacts of this

interim final rule as required by

Executive Order 12866, the Unfunded

Mandates Reform Act of 1995, and the

Regulatory Flexibility Act (RFA) (Public

Law 96–354). Executive Order 12866

directs agencies to assess all costs and

benefits of available regulatory

alternatives and, when regulation is

necessary, to select regulatory

approaches that maximize net benefits

(including potential economic,

environmental, public health and safety

effects, distributive impacts, and

equity). A regulatory impact analysis

(RIA) must be prepared for major rules

with economically significant effects

($100 million or more annually). The

payment changes set forth in this

interim final rule due to the BBA 1997

will result in projected savings for fiscal

years 1999 through 2002 in excess of

$100 million per year. Because the

projected savings resulting from this

interim final rule are expected to exceed

$100 million, it is considered a major

rule.

The Unfunded Mandates Reform Act

of 1995 also requires (in section 202)

that agencies prepare an assessment of

anticipated costs and benefits for any

rule that may result in an annual

expenditure by State, local, or tribal

governments, in the aggregate, or by the

private sector, of $100 million. This

interim final rule does not mandate any

requirements for State, local, or tribal

governments. We believe the private

sector costs of this rule fall below these

thresholds, as well.

The RFA requires agencies to analyze

options for regulatory relief of small

businesses. For purposes of the RFA,

small entities include small businesses,

nonprofit organizations and

governmental agencies. Most SNFs and

suppliers are considered small entities,

either by nonprofit status or by having

revenues of $5 million or less annually.

Intermediaries and carriers are not

considered to be small entities.

A. Background

This interim final rule sets forth a

schedule of prospectively determined

per diem rates to be used for payments

under the Medicare program as well as

a Consolidated Billing requirement.

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

that the Secretary establish and publish

prospectively determined per diem rates

at least 60 days prior to the beginning

of the period to which such rates are to

be applied.

As required under section

1888(e)(4)(H), this interim final rule sets

forth the first schedule of unadjusted

Federal per diem rates, to be used for

payment beginning July 1, 1998.

While section 1888(e) specifies the

base year and certain other components

of computing the payment rates, the

statute does allow us broad authority in

the establishment of several key

elements of the system, and HCFA had

some opportunity to consider

alternatives for these elements. These

include the case-mix methodology

(including the assessment schedule),

market basket index, wage index, and

urban/rural distinction used in the

development and/or adjustment of the

Federal rates. In addition, the

incorporation of the case mix

methodology into the coverage

requirements involved discretion on

HCFA’s part. Most of these elements,

and the alternatives that were

considered, were discussed in detail

earlier in the preamble of this rule.

Several that may warrant some

additional discussion include the case

mix system and associated assessment

schedule.

Regarding the case mix system, as we

have noted in the background portion of

the preamble, we are aware of a variety

of case-mix systems used by various

States in the administration of their

Medicaid payment systems for nursing

homes. However, due to the different

range of covered services furnished by

Medicaid nursing homes and

differences in approaches taken by the

unique State systems, none of these

case-mix systems met our needs. As a

classification and weighting system, the

only case-mix system that was suited for

the Medicare patient population is the

RUG-III methodology we are

implementing as part of this PPS.

With regard to the assessment

schedule, the schedule adopted in this

rule was the result of analysis of

information from our Multistate Nursing

Home Case-Mix and Quality

Demonstration. In developing this

schedule, we weighed the need for the

payment system to capture changes in

patient condition against the burden on

SNFs and their staffs. The resulting

schedule is designed to balance these

competing considerations.

B. Impact of This Interim Final Rule

Below, the impact of this rule is

discussed in terms of its fiscal impact

on the budget and in terms of its impact

on providers and suppliers. The

estimated fiscal impact of this rule is

discussed first.
26304 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

1. Budgetary Impact

The effect of this rule is that the rates

will result in estimated 5-year annual

savings ranging from $30 million to

$4.28 billion, as shown in Table IX.1

below. (It should also be noted that

Table IX.1 shows the impact for FYs

2000 through 2002 even though an

update to this rule will go out effective

October 1, 1999 (and every subsequent

fiscal year) that will set forth a new

schedule of rates to be used for FY 2000.

These numbers are shown to provide a

full picture of the impact of this new

payment system once it is fully phased

in to 100 percent of the Federal rate.)

These savings include both the savings

to Medicare fee-for-service and managed

care payments. The managed care

savings make up approximately 25

percent of the total savings.

This table takes into account the

behaviors that we believe SNFs will

engage in order to minimize any

perceived adverse effects of section

4432 of the BBA 1997 on their

payments. We believe these behavioral

offsets might include an increase in the

number of covered days and an increase

in the average case-mix for each facility.

We believe that, on average, these

behavioral offsets will result in a 45

percent reduction in the effects these

rates might otherwise have on an

individual SNF.

TABLE IX.1—SAVINGS TO THE MEDICARE PROGRAM

[In millions of dollars]

(A) (B) (C) (D) (E) (F)

FY Transition Inflation Other Part A Part B Total

1998 .................................................................................. 0 30 ¥20 10 20 30

1999 .................................................................................. 90 1500 ¥70 1520 60 1580

2000 .................................................................................. 240 2880 ¥80 3040 60 3100

2001 .................................................................................. 410 3480 ¥80 3810 70 3880

2002 .................................................................................. 610 3690 ¥90 4210 70 4280

Column (A) shows the savings from

the transition to the Federal rate. This

reflects the effect of eliminating

exceptions and limiting exemptions as

required by the Act and discussed

earlier in this rule. This was estimated

by calculating the effect for a sample of

SNFs which had exceptions and

exemptions and extrapolating the

results to the entire SNF industry. It also

reflects the effect of applying a lower

weight to the higher per diem costs of

hospital-based SNFs in computing the

Federal rates as required by the Act as

amended by the BBA 1997 and

described earlier in this rule. Column

(B) shows the savings from using the

statutorily determined update factor,

which will result in lower payment

increases than allowed under the

current cost-based system. These

payment increases under the cost-based

system were computed using historical

trends of these increases and projecting

a continuation of those trends into the

future. As can be seen from the table,

most of the savings are the result of this

provision. As noted, this component of

the rate setting methodology is required

by statute and does not allow for our

consideration of any alternatives.

Column (C) shows the cost of shifting

the Consolidated Billing piece into Part

A of Medicare. Column (D) shows the

total savings to Part A of Medicare. It is

column (A) plus column (B) plus

column (C). Column (E) shows the total

savings to Part B of Medicare resulting

from the Consolidated Billing

provisions. The sum of column (E) and

Column (C) represents the impact of the

Consolidated Billing provision on the

Part B coinsurance. Column (F) is the

total savings from this rule and is

column (D) plus column (E).

2. Impact on Providers and Suppliers

Table IX.2 below shows the number of

facilities projected to experience a

decrease in Medicare SNF payments

under the new prospective payment

rates and the percentage change for the

type of facility.

TABLE IX.2—IMPACT ON SNFS BY TYPE

Type of SNF (A) Total number of SNFs

(B) Number of

SNFs with

lower payment

(C) Estimated

average percentage reduction in payments

MSA Freestanding ........................................................................................................................ 5617 5568 17

MSA Hospital Based .................................................................................................................... 683 676 19

Non-MSA Freestanding ................................................................................................................ 2204 2185 17

Non-MSA Hospital Based ............................................................................................................ 533 529 18

Total ............................................................................................................................... 9037 8958 17

Specifically, column (A) of the table

shows the total number of SNFs in the

data base for FY 1995 cost reporting

periods. Column (B) shows the number

of SNFs whose payment rate for cost

reporting periods beginning July 1, 1998

would be lower than the payment they

would have received under the former

cost-based methodology for cost

reporting periods beginning July 1,

1998. We estimated the payments

received under the new system based on

a facility level case-mix score developed

using the case-mix indices and the

MEDPAR analog described earlier in

this rule. We estimated the payments

received under the former system by

using the same average inflation factor

from the 1995 data for each facility.

Column (C) shows the expected

reduction in payments between the two

payment methodologies on a percentage

basis.

The results listed in Table IX.2 should

be viewed with caution and as

illustrative of broad groupings of SNFs.

The effects of these provisions on
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26305

individual SNFs are unknown. As stated

previously, in developing these

estimates, we assumed each facility

would increase costs at the national

average rate. This national average

increase includes the higher costs of

new facilities entering the program.

Therefore this increase is slightly higher

than the true amount for existing

facilities. We do, however, expect total

payments to SNFs to decrease compared

to payments that would have occurred

under the former cost-based

methodology. The effects of this

decrease in payments to any individual

SNF will depend on that SNF’s ability

to operate under the new payment

methodology and on the proportion of

its revenues that comes from the

Medicare program.

Under the RFA, an economic impact

is significant if the annual total costs or

revenues of a substantial number of

entities will increase or decrease by at

least 3 percent. Medicare payments

generally do not account for a high

proportion of SNF revenue (about 10

percent on average) and this rule

reduces those payments by

approximately 17 percent on average.

Therefore, total revenues for SNFs will

be reduced by about 1.7 percent. As

stated above we are unable to determine

the effects on individual SNFs and

therefore are unable to determine if the

new SNF per diem rates will result in

a substantial number of SNFs

experiencing significant decreases in

their total revenues.

We do not expect suppliers of items

and services to SNFs to be significantly

affected economically by the

Consolidated Billing provisions. Total

Medicare reimbursement to suppliers is

about $4 billion each year. As shown in

Table IX.1, column (E), the

reimbursement for these items and

services is about $60 million each year.

Therefore, Consolidated Billing related

to the services provided to patients in

Part A SNF stays should have a minimal

impact on suppliers, generally. The

majority of ancillary services are

provided directly by SNFs or under

arrangements with suppliers and are,

therefore, already billed to Medicare by

the SNFs. While there is a possibility

that, for those services now being

consolidated, a sizeable number of these

suppliers would likely be reimbursed at

rates lower than the rates at which they

were reimbursed under the previous

system, this is highly dependent on the

reaction each individual supplier has to

the new payment system.

In addition, with regard to

Consolidated Billing related to services

provided to SNF patients who are not in

a covered Part A stay, to the extent that

these services have been necessary in

the past, they will still be required and

provided to these patients by suppliers.

Accordingly, it is anticipated that the

total impact on suppliers will be

minimal. However, determining the

effect on individual suppliers is not

possible due to a lack of data. Therefore

we are not able to determine if these

new SNF per diem rates will result in

a substantial number of suppliers

experiencing significant decreases in

their total revenues.

Our experience with the inpatient

hospital PPS has been that providers

will now have incentives to provide the

most cost efficient care possible while

still providing the level of care

necessary for the patient. The SNF PPS

system provides some of the same

incentives as does the hospital DRG/PPS

system, and many of the changes that

have taken place in the inpatient

hospital system can be expected for

these providers.

C. Rural Hospital Impact Statement

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 50

beds.

We have not prepared a rural impact

statement since we have determined,

and the Secretary certifies, that this rule

will not have a significant economic

impact on the operations of a substantial

number of small rural hospitals.

In accordance with the provisions of

Executive Order 12866, this regulation

was reviewed by the Office of

Management and Budget.

X. Collection of Information

Requirements

Emergency Clearance: Public

Information Collection Requirements

Submitted to the Office of Management

and Budget

Pursuant to sections 3506(c)(2)(A) and

3507(j) of the Paperwork Reduction Act

of 1995 (PRA), the Health Care

Financing Administration (HCFA),

Department of Health and Human

Services (DHHS), has submitted to the

Office of Management and Budget

(OMB) a request for emergency review.

We are requesting an emergency review

because the collection of information

described below is needed prior to the

expiration of the time limits under

OMB’s regulations at 5 CFR, Part 1320.

The Agency cannot reasonably comply

with the normal clearance procedures

because of the statutory requirement, as

set forth in section 4432 of the BBA

1997, to implement these requirements

on July 1, 1998.

HCFA is requesting OMB review and

approval of this collection within 11

working days, with a 180-day approval

period. Written comments from the

public will be accepted and considered

if received by the individuals

designated below, within 10 working

days of publication of this regulation in

the Federal Register. During this 180-

day period, HCFA will pursue OMB

clearance of this collection under 5 CFR

1320.5.

In order to fairly evaluate whether an

information collection should be

approved by OMB, section 3506(c)(2)(A)

of the PRA requires that we solicit

comment on the following issues:

• The need for the information

collection and its usefulness in carrying

out the proper functions of our agency.

• The accuracy of our estimate of the

information collection burden.

• The quality, utility, and clarity of

the information to be collected.

• Recommendations to minimize the

information collection burden on the

affected public, including automated

collection techniques.

Therefore, we are soliciting public

comment on each of these issues for the

information collection requirements

discussed below.

Section 413.343 Resident Assessment

Data

SNFs are required to submit the

resident assessment data as described at

§ 483.20 of this chapter in the manner

necessary to administer the payment

rate methodology described in

§ 413.337. Pursuant to sections 4204(b)

and 4214(d) of OBRA 1987, the current

requirements related to the submission

and retention of resident assessment

data are not subject to the PRA, but it

has been determined that the new

requirement to maintain performance of

patient assessment data for the 5th,

30th, and 60th days following

admission, necessary to administer the

payment rate methodology described in

§ 413.337, is subject to the PRA. The

burden associated with this requirement

is the time required to maintain MDS

data submitted electronically to a State

agency or an agent of the State. We do

not believe there is any additional

burden associated with the transmission

of the data itself, since the supplemental

data will be submitted as part of the

routine monthly transfer of provider

MDS data.
26306 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

There are an estimated 17,000

facilities that will be required to

maintain the minimum data set. It is

estimated that it will require 5 minutes

per facility, per month, to electronically

store the additional MDS data for a total

annual burden of 1 hour per facility.

Section 424.32 Basic Requirements For

All Claims

The requirements of this section,

currently approved under OMB number

0938–0008, are being modified to

require that a claim for services

furnished to an SNF resident under

§ 411.15(p)(2)(i) of this chapter must

also include the SNF’s Medicare

provider number and a Part B claim

filed by an SNF must include

appropriate HCPCS coding.

The burden associated with these

requirements is the time required to

include the two data elements, as

necessary, on a Medicare claim. Given

that the burden is minimal and is

captured during the completion of a

HCFA–1500 common claim form,

approved under OMB number 0938–

0008, we are assigning 1 token-hour for

the annual burden per facility

associated with these new requirements.

We will include these requirements as

part of the supporting requirements for

the HCFA–1500, when we resubmit the

HCFA–1500 to OMB for reapproval.

We have submitted a copy of this rule

to OMB for its review of the information

collection requirements above. To

obtain copies of the supporting

statement and any related forms for the

proposed paperwork collections

referenced above, e-mail your request,

including your address, phone number,

and HCFA regulation identifier HCFA–

1913, to Paperwork@hcfa.gov, or call the

Reports Clearance Office on (410) 786–

1326.

As noted above, comments on these

information collection and record

keeping requirements must be mailed

and/or faxed to the designee referenced

below, within 10 working days of

publication of this collection in the

Federal Register:

Health Care Financing Administration,

Office of Information Services,

Information Technology Investment

Management Group, Division of

HCFA Enterprise Standards, Room

C2–26–17, 7500 Security Boulevard,

Baltimore, MD 21244–1850; Attn:

John Burke HCFA–1913; Fax Number:

(410) 786–1415

And,

Office of Information and Regulatory

Affairs, Office of Management and

Budget, Room 10235, New Executive

Office Building, Washington, DC

20503, Attn: Allison Herron Eydt,

HCFA Desk Officer; Fax Number:

(202) 395–6974 or (202) 395–5167.

List of Subjects

42 CFR Part 409

Health facilities, Medicare.

42 CFR Part 410

Health facilities, Health professions,

Kidney diseases, Laboratories,

Medicare, Rural areas, X-rays.

42 CFR Part 411

Kidney diseases, Medicare, Reporting

and recordkeeping requirements.

42 CFR Part 413

Health facilities, Kidney diseases,

Medicare, Puerto Rico, Reporting and

recordkeeping requirements.

42 CFR Part 424

Emergency medical services, Health

facilities, Health professions, Medicare.

42 CFR Part 483

Grant programs-health, Health

facilities, Health professions, Health

records, Medicaid, Medicare, Nursing

homes, Nutrition, Reporting and

recordkeeping requirements, Safety.

42 CFR Part 489

Health facilities, Medicare, Reporting

and recordkeeping requirements.

For the reasons set forth in the

preamble, 42 CFR chapter IV is

amended as follows:

PART 409—HOSPITAL INSURANCE

BENEFITS

A. Part 409 is amended as set forth

below:

1. The authority citation for part 409

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

Social Security Act (U.S.C. 1302 and

1895hh).

Subpart C—Posthospital SNF Care

2. In § 409.20, the introductory text to

paragraph (a) is revised, paragraphs

(a)(6) and (a)(7) are revised, paragraph

(a)(8) is removed, and paragraph (b)(2)

is revised to read as follows:

§ 409.20 Coverage of services.

(a) Included services. Subject to the

conditions and limitations set forth in

this subpart and subpart D of this part,

‘‘posthospital SNF care’’ means the

following services furnished to an

inpatient of a participating SNF, or of a

participating hospital or critical access

hospital (CAH) that has a swing-bed

approval.

* * * * *

(6) Services furnished by a hospital

with which the SNF has a transfer

agreement in effect under § 483.75(n) of

this chapter; and

(7) Other services that are generally

provided by (or under arrangements

made by) SNFs.

(b) Excluded services—

* * * * *

(2) Services not generally provided by

(or under arrangements made by) SNFs.

Except as specifically listed in §§ 409.21

through 409.27, only those services

generally provided by (or under

arrangements made by) SNFs are

considered as posthospital SNF care.

For example, a type of medical or

surgical procedure that is ordinarily

performed only on an inpatient basis in

a hospital is not included as

‘‘posthospital SNF care,’’ because such

procedures are not generally provided

by (or under arrangements made by)

SNFs.

* * * * *

3. A new § 409.21 is added to read as

follows:

§ 409.21 Nursing care.

(a) Basic rule. Medicare pays for

nursing care as posthospital SNF care

when provided by or under the

supervision of a registered professional

nurse.

(b) Exception. Medicare does not pay

for the services of a private duty nurse

or attendant. An individual is not

considered to be a private duty nurse or

attendant if he or she is an SNF

employee at the time the services are

furnished.

4. Section 409.24 is revised to read as

follows:

§ 409.24 Medical social services.

Medicare pays for medical social

services as posthospital SNF care,

including—

(a) Assessment of the social and

emotional factors related to the

beneficiary’s illness, need for care,

response to treatment, and adjustment

to care in the facility;

(b) Case work services to assist in

resolving social or emotional problems

that may have an adverse effect on the

beneficiary’s ability to respond to

treatment; and

(c) Assessment of the relationship of

the beneficiary’s medical and nursing

requirements to his or her home

situation, financial resources, and the

community resources available upon

discharge from facility care.

5. Section 409.25 is revised to read as

follows:
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26307

§ 409.25 Drugs, biologicals, supplies,

appliances, and equipment.

(a) Drugs and biologicals. Except as

specified in paragraph (b) of this

section, Medicare pays for drugs and

biologicals as posthospital SNF care

only if—

(1) They represent a cost to the

facility;

(2) They are ordinarily furnished by

the facility for the care and treatment of

inpatients; and

(3) They are furnished to an inpatient

for use in the facility.

(b) Exception. Medicare pays for a

limited supply of drugs for use outside

the facility if it is medically necessary

to facilitate the beneficiary’s departure

from the facility and required until he

or she can obtain a continuing supply.

(c) Supplies, appliances, and

equipment. Except as specified in

paragraph (d) of this section, Medicare

pays for supplies, appliances, and

equipment as posthospital SNF care

only if they are—

(1) Ordinarily furnished by the facility

to inpatients; and

(2) Furnished to inpatients for use in

the facility.

(d) Exception. Medicare pays for

items to be used after the individual

leaves the facility if—

(1) The item is one that the

beneficiary must continue to use after

leaving, such as a leg brace; or

(2) The item is necessary to permit or

facilitate the beneficiary’s departure

from the facility and is required until he

or she can obtain a continuing supply,

for example, sterile dressings.

6. Section 409.26 is revised to read as

follows:

§ 409.26 Transfer agreement hospital

services.

(a) Services furnished by an intern or

a resident-in-training. Medicare pays for

medical services that are furnished by

an intern or a resident-in-training

(under a hospital teaching program

approved in accordance with the

provisions of § 409.15) as posthospital

SNF care, if the intern or resident is in—

(1) A participating hospital with

which the SNF has in effect an

agreement under § 483.75(n) of this

chapter for the transfer of patients and

exchange of medical records; or

(2) A hospital that has a swing-bed

approval, and is furnishing services to

an SNF-level inpatient of that hospital.

(b) Other diagnostic or therapeutic

services. Medicare pays for other

diagnostic or therapeutic services as

posthospital SNF care if they are

provided—

(1) By a participating hospital with

which the SNF has in effect a transfer

agreement as described in paragraph

(a)(1) of this section; or

(2) By a hospital or a CAH that has a

swing-bed approval, to its own SNFlevel inpatient.

7. Section 409.27 is revised to read as

follows:

§ 409.27 Other services generally provided

by (or under arrangements made by) SNFs.

In addition to those services specified

in §§ 409.21 through 409.26, Medicare

pays as posthospital SNF care for such

other diagnostic and therapeutic

services as are generally provided by (or

under arrangements made by) SNFs,

including—

(a) Medical and other health services

as described in subpart B of part 410 of

this chapter, subject to any applicable

limitations or exclusions contained in

that subpart or in § 409.20(b); and

(b) Respiratory therapy services

prescribed by a physician for the

assessment, diagnostic evaluation,

treatment, management, and monitoring

of patients with deficiencies and

abnormalities of cardiopulmonary

function.

Subpart D—Requirements for

Coverage of Posthospital SNF Care

8. In § 409.30, the introductory text is

revised to read as follows:

§ 409.30 Basic requirements.

Posthospital SNF care, including

SNF-type care furnished in a hospital or

CAH that has a swing-bed approval, is

covered only if the beneficiary meets the

requirements of this section and only for

days when he or she needs and receives

care of the level described in § 409.31.

A beneficiary in an SNF is also

considered to meet the requirements of

this section and of § 409.31 when

assigned to one of the Resource

Utilization Groups that is designated (in

the annual publication of Federal

prospective payment rates described in

§ 413.345 of this chapter) as

representing the required level of care.

9. In § 409.33, paragraph (a) is

removed, and paragraphs (b), (c), and (d)

are redesignated as paragraphs (a), (b),

and (c), respectively; and newly

redesignated paragraphs (a)(1) and (a)(2)

are revised to read as follows:

§ 409.33 Examples of skilled nursing and

rehabilitation services.

(a) Services that qualify as skilled

nursing services. (1) Intravenous or

intramuscular injections and

intravenous feeding.

(2) Enteral feeding that comprises at

least 26 per cent of daily calorie

requirements and provides at least 501

milliliters of fluid per day.

* * * * *

Subpart F—Scope of Hospital

Insurance Benefits

10. In § 409.60, the heading of

paragraph (c) is republished, paragraphs

(c)(2)(i) through (c)(2)(iii) are

redesignated as paragraphs (c)(2)(ii)

through (c)(2)(iv), respectively, and a

new paragraph (c)(2)(i) is added to read

as follows:

§ 409.60 Benefit periods.

* * * * *

(c) Presumptions.

* * * * *

(2) * * *

(i) To have met the skilled level of

care requirements during any period for

which the beneficiary was assigned to

one of the Resource Utilization Groups

designated as representing the required

level of care, as provided in § 409.30.

* * * * *

Part 410—Supplementary Medical

Insurance (SMI) Benefits

B. Part 410 is amended as set forth

below:

1. The authority citation for part 410

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

Social Security Act (42 U.S.C. 1302 and

1395(hh)), unless otherwise indicated.

Subpart B—Medical and Other Health

Services

2. In § 410.27, paragraph (a)(1)(i) is

revised to read as follows:

§ 410.27 Outpatient hospital services and

supplies incident to physicians’ services:

Conditions.

(a) * * *

(1) * * *

(i) By or under arrangements made by

a participating hospital, except in the

case of an SNF resident as provided in

§ 411.15(p) of this chapter; and

* * * * *

3. In § 410.28, paragraph (a)(1) is

revised to read as follows:

§ 410.28 Hospital or CAH diagnostic

services furnished to outpatients:

Conditions.

(a) * * *

(1) They are furnished by or under

arrangements made by a participating

hospital or participating CAH, except in

the case of an SNF resident as provided

in § 411.15(p) of this chapter.

* * * * *

4. In § 410.32, the introductory text to

paragraph (e) is republished, and a new
26308 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

paragraph (e)(7) is added to read as

follows:

§ 410.32 Diagnostic X-ray texts, diagnostic

laboratory tests, and other diagnostic tests:

Conditions.

* * * * *

(e) Diagnostic laboratory tests.

Medicare Part B pays for covered

diagnostic laboratory tests that are

furnished by any of the following:

* * * * *

(7) An SNF to its resident under

§ 411.15(p) of this chapter, either

directly (in accordance with

§ 483.75(k)(1)(i) of this chapter) or under

an arrangement (as defined in § 409.3 of

this chapter) with another entity

described in this paragraph.

5. In § 410.40, the introductory text to

paragraph (b) is republished, paragraphs

(b)(2) and (b)(3)(ii) are revised, and a

new paragraph (b)(4) is added to read as

follows:

§ 410.40 Ambulance services: Limitations.

* * * * *

(b) Limits on coverage of ambulance

transportation. Medicare Part B pays for

ambulance transportation only if—

* * * * *

(2) Medicare Part A payment is not

available for the service;

(3) * * *

(ii) The transportation is furnished by

an ambulance service with which the

hospital does not have an arrangement

(as defined in § 409.3 of this chapter),

and the hospital has a waiver (in

accordance with § 489.23 of this

chapter) under which Medicare Part B

payment may be made to the ambulance

service; and

(4) In the case of an SNF resident (as

defined in § 411.15(p)(3) of this

chapter), the transportation is furnished

by, or under arrangements made by, the

SNF.

* * * * *

Subpart I—Payment of SMI Benefits

6. In § 410.150, the heading of

paragraph (a) is republished, paragraph

(a)(2) is revised, the introductory text to

paragraph (b) is republished, and a new

paragraph (b)(14) is added to read as

follows:

§ 410.150 To whom payment is made.

(a) General rules.

* * * * *

(2) The services specified in

paragraphs (b)(5) through (b)(14) of this

section must be furnished by a facility

that has in effect a provider agreement

or other appropriate agreement to

participate in Medicare.

(b) Specific rules. Subject to the

conditions set forth in paragraph (a) of

this section, Medicare Part B pays as

follows:

* * * * *

(14) To an SNF for services (other

than those described in § 411.15(p)(2) of

this chapter) that are furnished to a

resident (as defined in § 411.15(p)(3) of

this chapter) of the SNF.

PART 411—EXCLUSIONS FROM

MEDICARE AND LIMITATIONS ON

MEDICARE PAYMENT

C. Part 411 is amended as set forth

below:

1. The authority citation for part 411

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

Social Security Act (42 U.S.C. 1302 and

1395hh).

Subpart A—General Exclusions and

Exclusion of Particular Services

2. In § 411.15, the introductory text is

republished; in the heading to

paragraph (m) of this section, the word

‘‘furnished’’ is added before the word

‘‘to’’; and a new paragraph (p) is added

to read as follows:

§ 411.15 Particular services excluded from

coverage.

The following services are excluded

from coverage.

* * * * *

(p) Services furnished to SNF

residents. (1) Basic rule. Except as

provided in paragraph (p)(2) of this

section, any service furnished to a

resident of an SNF by an entity other

than the SNF, unless the SNF has an

arrangement (as defined in § 409.3 of

this chapter) with that entity to furnish

that particular service to the SNF’s

residents. Services subject to exclusion

under this paragraph include, but are

not limited to—

(i) Any physical, occupational, or

speech-language therapy services

regardless of whether or not the services

are furnished by, or under the

supervision of, a physician or other

health care professional; and

(ii) Services furnished as an incident

to the professional services of a

physician or other health care

professional specified in paragraph

(p)(2) of this section.

(2) Exceptions. The following services

are not excluded from coverage:

(i) Physicians’ services that meet the

criteria of § 415.102(a) of this chapter for

payment on a fee schedule basis,

provided that the claim for payment

includes the SNF’s Medicare provider

number in accordance with

§ 424.32(a)(2) of this chapter.

(ii) Services performed under a

physician’s supervision by a physician

assistant who meets the applicable

definition in section 1861(aa)(5) of the

Act.

(iii) Services performed by a nurse

practitioner or clinical nurse specialist

who meets the applicable definition in

section 1861(aa)(5) of the Act and is

working in collaboration (as defined in

section 1861(aa)(6) of the Act) with a

physician.

(iv) Services performed by a certified

nurse-midwife, as defined in section

1861(gg) of the Act.

(v) Services performed by a qualified

psychologist, as defined in section

1861(ii) of the Act.

(vi) Services performed by a certified

registered nurse anesthetist, as defined

in section 1861(bb) of the Act.

(vii) Dialysis services and supplies, as

defined in section 1861(s)(2)(F) of the

Act.

(viii) Erythropoietin (EPO) for dialysis

patients, as defined in section

1861(s)(2)(O) of the Act.

(ix) Hospice care, as defined in

section 1861(dd) of the Act.

(x) An ambulance trip that initially

conveys an individual to the SNF to be

admitted as a resident, or that conveys

an individual from the SNF in

connection with one of the

circumstances specified in paragraphs

(p)(3)(i) through (p)(3)(iv) of this section

as ending the individual’s status as an

SNF resident.

(xi) For services furnished during

1998 only. The transportation costs of

electrocardiogram equipment for

electrocardiogram test services (HCPCS

code R0076).

(3) SNF resident defined. For

purposes of this paragraph, a beneficiary

who is admitted to a Medicareparticipating SNF (or to the

nonparticipating portion of a nursing

home of which a distinct part is a

Medicare-participating SNF) is

considered to be a resident of the SNF,

regardless of whether Part A covers the

stay. Whenever such a beneficiary

leaves the facility, the beneficiary’s

status as an SNF resident for purposes

of this paragraph (along with the SNF’s

responsibility to furnish or make

arrangements for the services described

in paragraph (p)(1) of this section) ends

when one of the following events

occurs—

(i) The beneficiary is admitted as an

inpatient to a Medicare-participating

hospital or CAH, or as a resident to

another SNF;

(ii) The beneficiary receives services

from a Medicare-participating home

health agency under a plan of care;

(iii) The beneficiary receives

outpatient services from a Medicareparticipating hospital or CAH (but only
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26309

with respect to those services that are

not furnished pursuant to the

comprehensive care plan required under

§ 483.20 of this chapter); or

(iv) The beneficiary is formally

discharged (or otherwise departs) from

the SNF, unless the beneficiary is

readmitted (or returns) to that or another

SNF within 24 consecutive hours.

PART 413—PRINCIPLES OF

REASONABLE COST

REIMBURSEMENT; PAYMENT FOR

END-STAGE RENAL DISEASE

SERVICES; OPTIONAL

PROSPECTIVELY DETERMINED

PAYMENT RATES FOR SKILLED

NURSING FACILITIES

D. Part 413 is amended as set forth

below:

1. The authority citation for part 413

continues to read as follows:

Authority: Secs. 1102, 1861(v)(1)(A), and

1871 of the Social Security Act (42 U.S.C.

1302, 1395x(v)(1)(A), and 1395hh).

Subpart A—Introduction and General

Rules

2. In § 413.1, paragraph (g) is revised

to read as follows:

§ 413.1 Introduction.

* * * * *

(g) Payment for services furnished in

SNFs. (1) Except as specified in

paragraph (g)(2)(ii) of this section, the

amount paid for services furnished in

cost reporting periods beginning before

July 1, 1998, is determined on a

reasonable cost basis or, where

applicable, in accordance with the

prospectively determined payment rates

for low-volume SNFs established under

section 1888(d) of the Act, as set forth

in subpart I of this part.

(2) The amount paid for services

(other than those described in

§ 411.15(p)(2) of this chapter)—

(i) That are furnished in cost reporting

periods beginning on or after July 1,

1998, to a resident who is in a covered

Part A stay, is determined in accordance

with the prospectively determined

payment rates for SNFs established

under section 1888(e) of the Act, as set

forth in subpart J of this part.

(ii) That are furnished on or after July

1, 1998, to a resident who is not in a

covered Part A stay, is determined in

accordance with any applicable Part B

fee schedule or, for a particular item or

service to which no fee schedule

applies, by using the existing payment

methodology utilized under Part B for

such item or service.

3. The heading for subpart I of part

413 is revised to read as follows:

Subpart I—Prospectively Determined

Payment Rates for Low-Volume Skilled

Nursing Facilities, for Cost Reporting

Periods Beginning Prior to July 1, 1998

4. A new subpart J, consisting of

§§ 413.330, 413.333, 413.335, 413.337,

413.340, 413.343, 413.345, and 413.348,

is added to part 413 to read as follows:

Subpart J—Prospective Payment for Skilled

Nursing Facilities

Sec.

413.330 Basis and scope.

413.333 Definitions.

413.335 Basis of payment.

413.337 Methodology for calculating the

prospective payment rates.

413.340 Transition period.

413.343 Resident assessment data.

413.345 Publication of Federal prospective

payment rates.

413.348 Limitation on review.

Subpart J—Prospective Payment for

Skilled Nursing Facilities

§ 413.330 Basis and scope.

(a) Basis. This subpart implements

section 1888(e) of the Act, which

provides for the implementation of a

prospective payment system for SNFs

for cost reporting periods beginning on

or after July 1, 1998.

(b) Scope. This subpart sets forth the

framework for the prospective payment

system for SNFs, including the

methodology used for the development

of payment rates and associated

adjustments, the application of a

transition phase, and related rules.

§ 413.333 Definitions.

As used in this subpart—

Case-mix index means a scale that

measures the relative difference in

resource intensity among different

groups in the resident classification

system.

Market basket index means an index

that reflects changes over time in the

prices of an appropriate mix of goods

and services included in covered skilled

nursing services.

Resident classification system means

a system for classifying SNF residents

into mutually exclusive groups based on

clinical, functional, and resource-based

criteria. For purposes of this subpart,

this term refers to the current version of

the Resource Utilization Groups, as set

out in the annual publication of Federal

prospective payment rates described in

§ 413.345.

Rural area means any area outside of

an urban area.

Urban area means a metropolitan

statistical area (MSA) or New England

County Metropolitan Area (NECMA), as

defined by the Office of Management

and Budget, or a New England county

deemed to be an urban area, as listed in

§ 412.62(f)(1)(ii)(B) of this chapter.

§ 413.335 Basis of payment.

(a) Method of payment. Under the

prospective payment system, SNFs

receive a per diem payment of a

predetermined rate for inpatient

services furnished to Medicare

beneficiaries. The per diem payments

are made on the basis of the Federal

payment rate described in § 413.337

and, during a transition period, on the

basis of a blend of the Federal rate and

the facility-specific rate described in

§ 413.340. These per diem payment

rates are determined according to the

methodology described in § 413.337 and

§ 413.340.

(b) Payment in full. The payment rates

represent payment in full (subject to

applicable coinsurance as described in

subpart G of part 409 of this chapter) for

all costs (routine, ancillary, and capitalrelated) associated with furnishing

inpatient SNF services to Medicare

beneficiaries other than costs associated

with operating approved educational

activities as described in § 413.85.

§ 413.337 Methodology for calculating the

prospective payment rates.

(a) Data used. (1) To calculate the

prospective payment rates, HCFA

uses—

(i) Medicare data on allowable costs

from freestanding and hospital-based

SNFs for cost reporting periods

beginning in fiscal year 1995. SNFs that

received ‘‘new provider’’ exemptions

under § 413.30(e)(2) are excluded from

the data base used to compute the

Federal payment rates. In addition,

allowable costs related to exceptions

payments under § 413.30(f) are excluded

from the data base used to compute the

Federal payment rates;

(ii) An appropriate wage index to

adjust for area wage differences;

(iii) The most recent projections of

increases in the costs from the SNF

market basket index;

(iv) Resident assessment and other

data that account for the relative

resource utilization of different resident

types; and

(v) Medicare Part B SNF claims data

reflecting amounts payable under Part B

for covered SNF services (other than

those services described in

§ 411.15(p)(2) of this chapter) furnished

during SNF cost reporting periods

beginning in fiscal year 1995 to

individuals who were residents of SNFs

and receiving Part A covered services.

(b) Methodology for calculating the

per diem Federal payment rates. (1)

Determining SNF costs. In calculating

the initial unadjusted Federal rates
26310 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

applicable for services provided during

the period beginning July 1, 1998

through September 30, 1999, HCFA

determines each SNF’s costs by

summing its allowable costs for the cost

reporting period beginning in fiscal year

1995 and its estimate of Part B payments

(described in paragraphs (a)(1)(i) and

(a)(1)(v) of this section).

(2) Use of market basket index. The

SNF market basket index is used to

adjust the SNF cost data to reflect cost

increases occurring between cost

reporting periods represented in the

data and the initial period (beginning

July 1, 1998 and ending September 30,

1999) to which the payment rates apply.

For each year, the cost data are updated

by a factor equivalent to the annual

market basket index percentage minus 1

percentage point.

(3) Calculation of the per diem cost.

For each SNF, the per diem cost is

computed by dividing the cost data for

each SNF by the corresponding number

of Medicare days.

(4) Standardization of data for

variation in area wage levels and casemix. The cost data described in

paragraph (b)(2) of this section are

standardized to remove the effects of

geographic variation in wage levels and

facility variation in case-mix. The cost

data are standardized for geographic

variation in wage levels using the wage

index. The cost data are standardized

for facility variation in case-mix using

the case-mix indices and other data that

indicate facility case-mix.

(5) Calculation of unadjusted Federal

payment rates. HCFA calculates the

national per diem unadjusted payment

rates by urban and rural classification in

the following manner:

(i) By computing the average per diem

standardized cost of freestanding SNFs

weighted by Medicare days.

(ii) By computing the average per

diem standardized cost of freestanding

and hospital-based SNFs combined

weighted by Medicare days.

(iii) By computing the average of the

amounts determined under paragraphs

(b)(5)(i) and (b)(5)(ii) of this section.

(c) Calculation of adjusted Federal

payment rates for case-mix and area

wage levels. The Federal rate is adjusted

to account for facility case-mix using a

resident classification system and

associated case-mix indices that account

for the relative resource utilization of

different patient types. This

classification system utilizes the

resident assessment instrument

completed by SNFs as described at

§ 483.20 of this chapter, according to the

assessment schedule described in

§ 413.343(b). The Federal rate is also

adjusted to account for geographic

differences in area wage levels using an

appropriate wage index.

(d) Annual updates of Federal

unadjusted payment rates. HCFA

updates the unadjusted Federal

payment rates on a fiscal year basis.

(1) For fiscal years 2000 through 2002,

the unadjusted Federal rate is equal to

the rate for the previous period or fiscal

year increased by a factor equal to the

SNF market basket index percentage

minus 1 percentage point.

(2) For subsequent fiscal years, the

unadjusted Federal rate is equal to the

rate for the previous fiscal year

increased by the applicable SNF market

basket index amount.

§ 413.340 Transition period.

(a) Duration of transition period and

proportions for the blended transition

rate. Beginning with an SNF’s first cost

reporting period beginning on or after

July 1, 1998, there is a transition period

covering three cost reporting periods.

During this transition phase, SNFs

receive a payment rate comprising a

blend of the adjusted Federal rate and

a facility-specific rate. For the first cost

reporting period beginning on or after

July 1, 1998, payment is based on 75

percent of the facility-specific rate and

25 percent of the Federal rate. For the

subsequent cost reporting period, the

rate is comprised of 50 percent of the

facility-specific rate and 50 percent of

the Federal rate. In the final cost

reporting period of the transition, the

rate is comprised of 25 percent of the

facility-specific rate and 75 percent of

the Federal rate. For all subsequent cost

reporting periods, payment is based

entirely on the Federal rate.

(b) Calculation of facility-specific rate

for the first cost reporting period. The

facility-specific rate is computed based

on the SNF’s Medicare allowable costs

from its fiscal year 1995 cost report plus

an estimate of the amounts payable

under Part B for covered SNF services

(other than those services described in

§ 411.15(p)(2) of this chapter) furnished

during fiscal year 1995 to individuals

who were residents of SNFs and

receiving Part A covered services.

Allowable costs associated with

exceptions, as described in § 413.30(f),

are included in the calculation of the

facility-specific rate. Allowable costs

associated with exemptions, as

described in § 413.30(e)(2), are included

in the calculation of the facility-specific

rate but only to the extent that they do

not exceed 150 percent of the routine

cost limit. Low Medicare volume SNFs

that were paid a prospectively

determined rate under § 413.300 for

their cost reporting period beginning in

fiscal year 1995 will utilize that rate as

the basis for the allowable costs of

routine (operating and capital-related)

expenses in determining the facilityspecific rate. Each SNF’s allowable costs

are updated to the first cost reporting

period to which the payment rates apply

using annual factors equal to the SNF

market basket percentage minus 1

percentage point.

(c) SNFs participating in the

Multistate Nursing Home Case-Mix and

Quality Demonstration. SNFs that

participated in the Multistate Nursing

Home Case-Mix and Quality

Demonstration in a cost reporting period

that began in calendar year 1997 will

utilize their allowable costs from that

cost reporting period, including

prospective payment amounts

determined under the demonstration

payment methodology.

(d) Update of facility-specific rates for

subsequent cost reporting periods. The

facility-specific rate for a cost reporting

period that is subsequent to the first cost

reporting period is equal to the facilityspecific rate for the first cost reporting

period (described in paragraph (a) of

this section) updated by the market

basket index.

(1) For a subsequent cost reporting

period beginning in fiscal years 1998

and 1999, the facility-specific rate is

equal to the facility-specific rate for the

previous cost reporting period updated

by the applicable market basket index

percentage minus one percentage point.

(2) For a subsequent cost reporting

period beginning in fiscal year 2000, the

facility-specific rate is equal to the

facility-specific rate for the previous

cost reporting period updated by the

applicable market basket index

percentage.

(e) SNFs excluded from the transition

period. SNFs that received their first

payment from Medicare, under present

or previous ownership, on or after

October 1, 1995, are excluded from the

transition period, and payment is made

according to the Federal rates only.

§ 413.343 Resident assessment data.

(a) Submission of resident assessment

data. SNFs are required to submit the

resident assessment data described at

§ 483.20 of this chapter in the manner

necessary to administer the payment

rate methodology described in

§ 413.337. This provision includes the

frequency, scope, and number of

assessments required.

(b) Assessment schedule. In

accordance with the methodology

described in § 413.337(c) related to the

adjustment of the Federal rates for casemix, SNFs must submit assessments

according to an assessment schedule.

This schedule must include
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26311

performance of patient assessments on

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

following admission and such other

assessments that are necessary to

account for changes in patient care

needs.

(c) Noncompliance with assessment

schedule. HCFA pays a default rate for

the Federal rate when a SNF fails to

comply with the assessment schedule in

paragraph (b) of this section. The default

rate is paid for the days of a patient’s

care for which the SNF is not in

compliance with the assessment

schedule.

§ 413.345 Publication of Federal

prospective payment rates.

HCFA publishes information

pertaining to each update of the Federal

payment rates in the Federal Register.

This information includes the

standardized Federal rates, the resident

classification system that provides the

basis for case-mix adjustment (including

the designation of those specific

Resource Utilization Groups under the

resident classification system that

represent the required SNF level of care,

as provided in § 409.30 of this chapter),

and the wage index. This information is

published before May 1 for the fiscal

year 1998 and before August 1 for the

fiscal years 1999 and after.

§ 413.348 Limitation on review.

Judicial or administrative review

under sections 1869 or 1878 of the Act

or otherwise is prohibited with regard to

the establishment of the Federal rates.

This prohibition includes the

methodology used in the computation of

the Federal standardized payment rates,

the case-mix methodology, and the

development and application of the

wage index. This prohibition on judicial

and administrative review also extends

to the methodology used to establish the

facility-specific rates but not to

determinations related to reasonable

cost in the fiscal year 1995 cost

reporting period used as the basis for

these rates.

PART 424—CONDITIONS FOR

MEDICARE PAYMENT

E. Part 424 is amended as set forth

below:

1. The authority citation for part 424

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

Social Security Act (U.S.C. 1302 and

1895hh).

Subpart A—General Provisions

2. In § 424.3, the following definition

is added, in alphabetical order, to read

as follows:

§ 424.3 Definitions.

* * * * *

HCPCS means HCFA Common

Procedure Coding System.

* * * * *

Subpart B—Certification and Plan of

Treatment Requirements

3. In § 424.20, the introductory text

and paragraph (a) are revised to read as

follows:

§ 424.20 Requirements for posthospital

SNF care.

Medicare Part A pays for posthospital

SNF care furnished by an SNF, or a

hospital or CAH with a swing-bed

approval, only if the certification and

recertification for services are consistent

with the content of paragraph (a) or (c)

of this section, as appropriate.

(a) Content of certification—(1)

General requirements. Posthospital SNF

care is or was required because—

(i) The individual needs or needed on

a daily basis skilled nursing care

(furnished directly by or requiring the

supervision of skilled nursing

personnel) or other skilled rehabilitation

services that, as a practical matter, can

only be provided in an SNF or a swingbed hospital on an inpatient basis, and

the SNF care is or was needed for a

condition for which the individual

received inpatient care in a participating

hospital or a qualified hospital, as

defined in § 409.3 of this chapter; or

(ii) The individual has been correctly

assigned to one of the Resource

Utilization Groups designated as

representing the required level of care,

as provided in § 409.30 of this chapter.

* * * * *

4. In § 424.32, the introductory text to

paragraph (a) is republished, paragraph

(a)(2) is revised, and a new paragraph

(a)(5) is added, to read as follows:

§ 424.32 Basic requirements for all claims.

(a) A claim must meet the following

requirements:

* * * * *

(2) A claim for physician services

must include appropriate diagnostic

coding using ICD–9–CM and, for

services furnished to an SNF resident

under § 411.15(p)(2)(i) of this chapter,

must also include the SNF’s Medicare

provider number.

* * * * *

(5) A Part B claim filed by an SNF

must include appropriate HCPCS

coding.

* * * * *

PART 483—REQUIREMENTS FOR

STATES AND LONG TERM CARE

FACILITIES

F. Part 483 is amended as set forth

below:

1. The authority citation for part 483

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

Social Security Act (42 U.S.C. 1302 and

1395hh).

Subpart B—Requirements for Long

Term Care Facilities

2. In § 483.20, paragraph (b)(4) is

revised to read as follows:

§ 483.20 Resident assessment.

* * * * *

(b) Comprehensive assessments.

* * * * *

(4) Frequency. Subject to the

timeframes prescribed in § 413.343(b) of

this chapter, assessments must be

conducted—

(i) No later than 14 days after the date

of admission;

(ii) Promptly after a significant change

in the resident’s physical or mental

condition; and

(iii) In no case, less often than once

every 12 months.

* * * * *

3. In § 483.75, paragraph (h)(1) is

revised to read as follows:

§ 483.75 Administration.

* * * * *

(h) Use of outside resources. (1) If the

facility does not employ a qualified

professional person to furnish a specific

service to be provided by the facility,

the facility must have that service

furnished to residents by a person or

agency outside the facility under an

arrangement described in section

1861(w) of the Act or (with respect to

services furnished to NF residents and

dental services furnished to SNF

residents) an agreement described in

paragraph (h)(2) of this section.

* * * * *

PART 489—PROVIDER AGREEMENTS

AND SUPPLIER APPROVAL

G. Part 489 is amended to read as

follows:

1. The authority citation for part 489

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

Social Security Act (42 U.S.C. 1302 and

1395hh).

Subpart B—Essentials of Provider

Agreements

2. In § 489.20, the introductory text is

republished, and a new paragraph (s) is

added to read as follows:
26312 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

§ 489.20 Basic commitments.

The provider agrees to the following:

* * * * *

(s) In the case of an SNF, either to

furnish directly or make arrangements

(as defined in § 409.3 of this chapter) for

all Medicare-covered services furnished

to a resident (as defined in

§ 411.15(p)(3) of this chapter) of the

SNF, except the following:

(1) Physicians’ services that meet the

criteria of § 415.102(a) of this chapter for

payment on a fee schedule basis.

(2) Services performed under a

physician’s supervision by a physician

assistant who meets the applicable

definition in section 1861(aa)(5) of the

Act.

(3) Services performed by a nurse

practitioner or clinical nurse specialist

who meets the applicable definition in

section 1861(aa)(5) of the Act and is

working in collaboration (as defined in

section 1861(aa)(6) of the Act) with a

physician.

(4) Services performed by a certified

nurse-midwife, as defined in section

1861(gg) of the Act.

(5) Services performed by a qualified

psychologist, as defined in section

1861(ii) of the Act.

(6) Services performed by a certified

registered nurse anesthetist, as defined

in section 1861(bb) of the Act.

(7) Dialysis services and supplies, as

defined in section 1861(s)(2)(F) of the

Act.

(8) Erythropoietin (EPO) for dialysis

patients, as defined in section

1861(s)(2)(O) of the Act.

(9) Hospice care, as defined in section

1861(dd) of the Act.

(10) An ambulance trip that initially

conveys an individual to the SNF to be

admitted as a resident, or that conveys

an individual from the SNF in

connection with one of the

circumstances specified in

§ 411.15(p)(3)(i) through (p)(3)(iv) of this

chapter as ending the individual’s status

as an SNF resident.

(11) For services furnished during

1998 only. The transportation costs of

electrocardiogram equipment for

electrocardiogram test services (HCPCS

code R0076).

(Catalog of Federal Domestic Assistance

Program No. 93.773, Medicare—Hospital

Insurance; and Program No. 93.774,

Medicare—Supplementary Medical

Insurance Program)

Dated: April 22, 1998.

Nancy-Ann Min DeParle,

Administrator, Health Care Financing

Administration.

Approved: April 28, 1998.

Donna E. Shalala,

Secretary.

Note: The following Appendix will not

appear in the Code of Federal Regulations.

Appendix A—Technical Features of the 1992

Skilled Nursing Facility Total Cost Market

Basket Index

As discussed in the preamble of this rule,

we are revising and rebasing the SNF market

basket. This appendix describes the technical

aspects of the 1992-based index that we are

implementing in this rule. We present this

description of the market basket in three

steps:

• A synopsis of the structural differences

between the 1977- and the 1992-based market

baskets.

• A description of the methodology used

to develop the cost category weights in the

1992-based market basket.

• A description of the data sources used to

measure price change for each component of

the 1992-based market basket, making note of

the differences from the price proxies used in

the 1977-based market basket.

I. Synopsis of Structural Changes Adopted in

the Revised and Rebased 1992 Skilled

Nursing Facility Total Cost Market Basket

Four major structural differences exist

between the current 1977-based and the

1992-based SNF market baskets.

• The 1992-based market basket has total

costs (routine, ancillary, and capital-related)

whereas the 1977-based market basket had

only routine costs.

• More recent SNF cost data are used in

the revised and rebased SNF market basket.

The 1977-based market basket contained

cost shares that were derived from 1977

National Center for Health Statistics data.

The 1992-based market basket uses data from

the PPS–9 Medicare Cost Reports for

freestanding SNFs with Medicare expenses

greater than 1 percent of total expenses for

five major categories of cost. PPS–9 cost

reports have cost reporting periods beginning

after September 30, 1991 and before October

1, 1992. Cost allocations with the six major

cost categories use two Department of

Commerce data sources, the 1992 Asset and

Expenditure Survey, Bureau of the Census,

Economics and Statistics Administration,

and the 1992 Bureau of Economic Analysis

Input-Output Tables.

• Some cost categories have been

disaggregated and some cost categories have

been combined. These category changes

reflect the availability of data in the cost

reports, the Asset and Expenditure Survey,

and the Input-Output Tables. The cost

categories for Fuel Oil, Coal, etc. and Natural

Gas have been combined into Fuels,

Nonhighway. The Supplies category has been

disaggregated into several subcategories:

Paper, Rubber and Plastics, and Chemicals.

The 1977-based Miscellaneous Costs cost

category was disaggregated into

Miscellaneous Products and Other Services,

which was then further disaggregated into

Telephone, Labor-intensive Services, and

Non Labor-intensive Services. The Capitalrelated Expenses major cost category was

added, and then disaggregated into five

subcategories, including Depreciation

expenses for Building and Fixed Equipment

and for Movable Equipment, Interest

expenses for Government and Nonprofit

SNFs and for For-profit SNFs, and Other

Capital-related expenses.

• Some new price proxies have been

incorporated in the revised and rebased

market basket.

II. Methodology for Developing the Cost

Category Weights

Cost category weights for the 1992-based

market basket were developed in two stages.

First, base weights for six main categories

(wages and salaries, employee benefits,

contract labor, pharmaceuticals, capitalrelated expenses, and a residual all other)

were derived from the SNF Medicare Cost

Reports described above. The residual ‘‘all

other’’ cost category was divided into

subcategories, using U.S. Department of

Commerce data sources for the nursing home

industry. Relationships from the 1992 InputOutput Tables were used to allocate the ‘‘all

other’’ cost category.

Below we describe the source of the six

main category weights and their

subcategories in the 1992-based market

basket.

• Wages and Salaries: The wages and

salaries cost category is one of the six base

weights derived from using 1992 SNF

Medicare Cost Reports.

• Employee Benefits: The ratio used in the

employee benefits cost category is derived

from 1993 SNF Medicare cost reports. The

1993 cost reports contained information from

which to derive the ratio of employee

benefits to wages and salaries that was not

available in the 1992 SNF cost reports.

• Pharmaceuticals: The ratio used in the

pharmaceuticals cost category was derived

from 1993 SNF Medicare cost reports. The

1993 cost reports contained information from

which to derive the ratio of pharmaceuticals

costs to that cost that was not available in the

1992 cost reports.

• Capital-related: The weight for the

overall capital-related expenses cost category

was derived using 1992 SNF Medicare Cost

Reports. The subcategory and vintage weights

within the overall capital-related expenses

were derived using additional data sources.

The methodology for deriving these weights

is described below.

In determining the subcategory weights, we

used a combination of information from the

1992 and 1993 SNF Medicare Cost Reports,

the 1992 Census Asset and Expenditure

Survey, and the 1992 hospital Medicare Cost

Reports. We estimated the depreciation

expense share of capital-related expenses,

including the distribution between building

and fixed equipment and movable

equipment, from the 1992 Asset and

Expenditure Survey. Depreciation expenses

cannot be disaggregated from the Medicare

Cost Reports due to multiple reporting

methods. From these calculations,

depreciation expenses, not including
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26313

depreciation expenses implicit from leases,

were estimated to be 50.7 percent of total

capital-related expenditures in 1992.

The interest expense share of capitalrelated expenses was derived from a special

file of the 1993 SNF Medicare Cost Reports.

Interest expenses are not identifiable in the

1992 SNF Medicare Cost Reports and not

reported in the 1992 Asset and Expenditure

Survey. We determined the split between forprofit interest expense and not-for profit

interest expense based on the distribution of

long-term debt outstanding by type of SNF

(for-profit or not-for-profit) from the 1992

SNF Medicare Cost Reports. Interest expense,

not including interest expenses from leases,

was estimated to be 27.3 percent of total

capital-related expenditures in 1992.

A small category, other capital-related

expenses (insurance, taxes, other), was

calculated using a ratio from the 1992

hospital Medicare Cost Reports. We

determined the ratio of other capital-related

expenses to book values for hospital

depreciable assets by type of hospital control

(for-profit, not-for-profit, and government)

from the 1992 hospital Medicare Cost

Reports. We then applied this ratio by type

of SNF control to the book values of SNF

depreciable assets from the 1992 SNF

Medicare Cost Reports to determine other

capital-related expenses for SNFs. This

methodology assumes that by type of control,

hospitals and SNFs have the same proportion

of other capital-related expenses to

depreciable assets. This assumption was

necessary since other capital-related

expenses not including leases were not

directly available from the SNF Medicare

Cost Reports. Other capital-related expenses,

not including other capital-related expenses

implicit from leases, were estimated to be 4.5

percent of total capital-related expenditures

in 1992.

Consistent with the methodology from the

hospital PPS capital input price index, we

calculated lease expenses as a residual by

subtracting depreciation, interest, and other

capital-related expenses from total capitalrelated expenses. We then assumed that

roughly 10 percent of lease expenses were

overhead, the same assumption used in the

hospital PPS capital input price index, and

included them in the other capital-related

expense category. The remaining 90 percent

of lease expenses were distributed across the

depreciation (61.5 percent = 50.7/82.5),

interest (33.1 percent = 27.3/82.5), and other

capital-related expenses (5.4 percent = 4.5/

82.5) categories using the shares determined

by the methodology described above. The

amount of lease expenses applied to the

depreciation subcategories, building and

fixed equipment (93.9 percent) and movable

equipment (6.1 percent), were determined

using the 1992 Asset and Expenditure Survey

distribution of lease expenses. The table

below shows the final capital-related expense

distribution, including expenses from leases,

in the SNF PPS market basket:

SNF capitalrelated

expenses*

SNF capitalrelated

expenses**

Total ......................................................................................................................................................................... 100.0 9.8

Depreciation ...................................................................................................................................................... 60.5 5.9

Building and Fixed ..................................................................................................................................... 42.1 4.1

Equipment.

Movable Equipment ................................................................................................................................... 18.4 1.8

Interest .............................................................................................................................................................. 32.6 3.2

Other capital-related expense ........................................................................................................................... 6.9 0.7

*As a percent of total capital-related expenses.

**As percent of total SNF expenses.

As explained in the Rebasing and Revising

the SNF market basket section of the

preamble, the HCFA methodology for

determining the price change of capitalrelated expenses accounts for the vintage

nature of capital, which is the acquisition

and use of capital over time. In order to

capture this vintage nature, the price proxies

must be vintage-weighted. The determination

of these vintage weights occurs in two steps.

First, we must determine the expected life of

capital and debt instruments in SNFs.

Second, we must identify the proportion of

expenditures within a cost category that are

attributable to each year over the life of

capital assets in that category, or the vintage

weights. Each of these steps is explained in

detail below.

The expected life of capital must be

determined for both building and fixed

equipment and movable equipment. The

expected life for each of these cost categories

is determined by dividing end of year book

value amounts by annual depreciation

expenses for SNFs from the 1992 Asset and

Expenditure Survey. This calculation

produced an expected life of 23 years for

building and fixed equipment and 10 years

for movable equipment. Implicit in this

calculation is the assumption that all book

values are currently depreciable. In the

absence of data on capital debt instruments

held by SNFs, the expected life of capital

debt instruments is assumed to be 22 years

for both for-profit and not-for-profit debt

instruments, the same as for the hospital PPS

capital input price index.

Given the expected life of capital and debt

instruments as determined from the

methodology above, we must determine the

proportion of capital expenditures

attributable to each year of the expected life

by cost category. These proportions represent

the vintage weights. We were not able to find

historical time-series of capital expenditures

by SNFs. Therefore, we approximated the

capital expenditure patterns of SNFs over

time using alternative SNF data sources. For

building and fixed equipment, we used the

stock of beds in nursing homes from the

HCFA’s National Health Accounts for 1962

through 1991. We then used the change in

the stock of beds each year to approximate

building and fixed equipment purchases for

that year. This procedure assumes that bed

growth reflects the growth in capital-related

costs in SNFs for building and fixed

equipment. We believe this assumption is

reasonable since the number of beds reflects

the size of the SNF, and as the SNF adds

beds, it also adds fixed capital.

For movable equipment, we used available

SNF data to capture the changes in intensity

of SNF services that would cause SNFs to

purchase movable equipment. We estimated

the change in intensity as the trend in the

ratio of non-therapy ancillary costs to routine

costs from the 1989 through 1993 SNF

Medicare Cost Reports. We estimated this

ratio for 1962 through 1988 using regression

analysis. The time series of non-therapy

ancillary costs to routine costs for SNFs

measures changes in intensity in SNF

services, which are assumed to be associated

with movable equipment purchase patterns.

The assumption here is that as non-therapy

ancillary costs increase compared with

routine costs, the SNF caseload is more

complex and would require more movable

equipment. Again, the lack of direct movable

equipment purchase data for SNFs over time

required us to use alternative SNF data

sources. The resulting two time series,

determined from beds and the ratio of nontherapy ancillary to routine costs, reflect real

capital purchases of building and fixed

equipment and movable equipment over

time, respectively.

To obtain nominal purchases, which are

used to determine the vintage weights for

interest, we converted the two real capital

purchase series from 1963 through 1991

determined above to nominal capital

purchase series using their respective price

proxies (Boeckh institutional construction

index and PPI for machinery and equipment).

We then combined the two nominal series

into one nominal capital purchase series for

1963 through 1991. Nominal capital

purchases are needed for interest vintage

weights to capture the value of the debt

instrument.

Once these capital purchase time series

were created for 1963 through 1991, we

averaged different periods to obtain an

average capital purchase pattern over time.

For building and fixed equipment we
26314 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

averaged seven 23-year periods, for movable

equipment we averaged twenty 10-year

periods, and for interest we averaged eight

22-year periods. The vintage weight for a

given year is calculated by dividing the

capital purchase amount in any given year by

the total amount of purchases during the

expected life of the equipment or debt

instrument. For example, for the 23-year

period of 1963 through 1985 for building and

fixed equipment, the vintage weight for year

1 is calculated by dividing the real annual

capital purchase amount of building and

fixed equipment in 1963 into the total

amount of real annual capital purchases of

building and fixed equipment over the entire

1963 through 1985 period. We performed this

calculation for each year in the 23-year

period, and for each of the seven 23-year

periods. We then calculated an average of the

seven 23-year periods. The resulting vintage

weights for each of these cost categories are

shown in Table A–1 below:

Appendix Table A–1—Vintage Weights for SNF PPS Capital-Related Price Proxies

Year

Building and

fixed

equipment

Movable

equipment Interest

1 .................................................................................................................................................... 0.059 0.089 0.038

2 .................................................................................................................................................... 0.078 0.093 0.046

3 .................................................................................................................................................... 0.086 0.096 0.046

4 .................................................................................................................................................... 0.079 0.101 0.047

5 .................................................................................................................................................... 0.074 0.104 0.051

6 .................................................................................................................................................... 0.071 0.104 0.054

7 .................................................................................................................................................... 0.073 0.104 0.060

8 .................................................................................................................................................... 0.075 0.114 0.064

9 .................................................................................................................................................... 0.064 0.101 0.062

10 .................................................................................................................................................. 0.056 0.097 0.055

11 .................................................................................................................................................. 0.052 ........................ 0.056

12 .................................................................................................................................................. 0.048 ........................ 0.056

13 .................................................................................................................................................. 0.041 ........................ 0.055

14 .................................................................................................................................................. 0.034 ........................ 0.050

15 .................................................................................................................................................. 0.026 ........................ 0.042

16 .................................................................................................................................................. 0.019 ........................ 0.044

17 .................................................................................................................................................. 0.017 ........................ 0.039

18 .................................................................................................................................................. 0.016 ........................ 0.036

19 .................................................................................................................................................. 0.013 ........................ 0.025

20 .................................................................................................................................................. 0.004 ........................ 0.027

21 .................................................................................................................................................. 0.003 ........................ 0.023

22 .................................................................................................................................................. 0.005 ........................ 0.026

23 .................................................................................................................................................. 0.009 ........................ ........................

Total ............................................................................................................................... 1.000 1.000 1.000

Sources: 1992 SNF Medicare Cost Reports; HCFA, National Health Accounts.

Note: Totals may not sum to 1.000 due to

rounding.

In developing the capital-related expenses

portion of the SNF input price index, we

considered numerous alternatives for

developing the cost category and vintage

weights. Our analysis showed that using any

of these alternatives would have a minimal

impact on the capital-related expense portion

of the SNF index. Since the capital-related

expense share of the total SNF market basket

is just 9.777 percent, these minimal

differences have no effect on the total SNF

market basket percent change.

We compared the price change in the

capital-related expense component to

changes in other relevant price indexes to

evaluate our methodology. The table below

shows the four-quarter moving-average

percent change in the SNF PPS capitalrelated expense component, the hospital PPS

capital input price index, the Boeckh

institutional construction index, and the CPIall items for FY 1992 to FY 1997. Since the

two HCFA capital indexes include an

adjustment for interest rates that have been

declining in recent years, the capital-related

expense component of the SNF PPS market

basket appears to be within a reasonable

range of the other price indexes.

APPENDIX TABLE A–2—PERCENT CHANGE IN HCFA CAPITAL-RELATED EXPENSE SHARE OF SNF PPS INPUT PRICE

INDEX COMPARED TO OTHER PRICE INDEXES

HCFA capital-related expense

share of SNF

PPS input price

index

HCFA hospital

PPS capital input

price index

Boeckh institutional construction index

CPI—

all items

FY92 ................................................................................................. 2.4 1.5 2.6 3.0

FY93 ................................................................................................. 2.0 1.1 2.4 3.0

FY94 ................................................................................................. 1.8 1.1 2.8 2.6

FY95 ................................................................................................. 1.8 1.3 3.1 2.8

FY96 ................................................................................................. 1.6 1.0 2.3 2.8

FY97 ................................................................................................. 1.4 0.9 2.4 2.7

• Contract labor: The weight for the

contract labor cost category was derived

using 1992 Medicare Cost Reports. It was

then distributed among the wages and

salaries, employee benefits, and ‘‘all other’’

cost categories, so that contract costs will

have the same price proxies as direct cost

categories.

• All Other: Subcategory weights for the

All Other category were derived using

information from a U.S. Department of

Commerce data source. The 1992 Input-
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations 26315

Output Tables were used to apportion all

other costs within the SNF Medicare Cost

Reports.

III. Price Proxies Used To Measure Cost

Category Growth

• Wages and Salaries: For measuring price

growth in the wages and salaries cost

component of the 1992-based market basket,

the percentage change in the ECI for wages

and salaries for private nursing homes is

used. This is a revision from the 1977-based

market basket, in which the AHE for Nursing

and Personal Care Facilities was used to

measure the percentage change in wages and

salaries. The ECI for wages and salaries for

private nursing homes is a fixed-weight

index that measures the rate of change in

employee wage rates per hour worked. It

measures pure price change and is not

affected by shifts among occupations. The

previous measure, AHE, confounds changes

in the proportion of different occupations

with changes in earnings levels for a given

occupation.

• Employee Benefits: For measuring price

growth in the 1992-based market basket, the

percentage change in the ECI for benefits for

private nursing homes is used. This is a

revision from the 1977-based market basket,

in which the BEA Supplement to Wages and

Salaries per employee (BLS) was used to

measure this component. The ECI for benefits

for private nursing homes is also a fixedweight index that measures pure price

change and is not affected by shifts in

occupation. In contrast to the ECI, the BEA

Supplement to Wages and Salaries per

employee (BLS) is not specific to the nursing

home industry and is not as conceptually

sound for our purpose.

• All Other Expenses:

+ Nonmedical professional fees: The ECI

for compensation for Private Industry

Professional, Technical, and Specialty

Workers is used to measure price changes in

nonmedical professional fees. This is a

revision from the 1977-based index in which

the cost of nonmedical professional fees was

not specifically measured.

+ Electricity: For measuring price change

in the Electricity cost category, the PPI for

Commercial Electric Power is used. This is a

revision from the 1977-based index in which

the Implicit Price Deflator-Electricity (PCE)

was used.

+ Fuels, nonhighway: For measuring price

change in the Fuels, Nonhighway cost

category, the PPI for Commercial Natural Gas

is used. This is a revision from the 1977-

based market basket, in which the Implicit

Price Deflator-Fuel Oil (PCE) and the Implicit

Price Deflator-Natural Gas (PCE) were used

for separate cost categories.

+ Water and Sewerage: For measuring

price change in the Water and Sewerage cost

category, the CPI–U (Consumer Price Index

for All Urban Consumers) for Water and

Sewerage is used. The same price proxy was

used in the 1977-based index.

+ Food-wholesale purchases: For

measuring price change in the Foodwholesale purchases cost category, the PPI

for Processed Foods is used. The same price

proxy was used in the 1977-based index.

+ Food-retail purchases: For measuring

price change in the Food-retail purchases

cost category, the CPI–U for Food Away From

Home is used. This is a change from the

1977-based index, when the CPI–U for Food

and Beverages was used, and reflects the use

of contract food service by some SNFs.

+ Pharmaceuticals: For measuring price

change in the Pharmaceuticals cost category,

the PPI for Prescription Drugs is used. The

same price proxy was used for this cost

category in the 1977-based index.

+ Chemicals: For measuring price change

in the Chemicals cost category, the PPI for

Industrial Chemicals is used. This is a

revision from the 1977-based index, in which

the cost of chemicals was not specifically

measured.

+ Rubber and Plastics: For measuring price

change in the Rubber and Plastics cost

category, the PPI for Rubber and Plastic

Products is used. This too is a revision from

the 1977-based index, in which the cost of

rubber and plastic products was not

specifically measured.

+ Paper Products: For measuring price

change in the Paper Products cost category,

the PPI for Converted Paper and Paperboard

is used. The cost of paper products was not

specifically measured in the 1977-based

index.

+ Miscellaneous Products: For measuring

price change in the Miscellaneous Products

cost category, the PPI for Finished Goods is

used. The cost of miscellaneous products was

not specifically measured in the 1977-based

index.

+ Telephone Services: The percentage

change in the price of Telephone service as

measured by the CPI-U is applied to this

component. This is a revision from the 1977-

based index, in which the cost of telephone

services was not specifically measured.

+ Labor-intensive Services: For measuring

price change in the Labor-intensive Services

cost category, the ECI for Compensation for

Private Service Occupations is used. The cost

of Labor-intensive Services was not

specifically measured in the 1977-based

index.

+Non Labor-intensive Services: For

measuring price change in the Non Laborintensive Services cost category, the CPI-U

for All Items is used. The 1977-based index

did not specifically measure the cost of Non

Labor-intensive Services.

• Capital-related: All capital-related

expense categories are new cost categories in

the revised SNF market basket. The price

proxies chosen are the same as those used for

the hospital PPS capital input price index

described in the August 30, 1996 Federal

Register (61 FR 46326). The price proxies for

the SNF capital-related expenses are

described below:

+ Depreciation—Building and Fixed

Equipment: The Boeckh Institutional

Construction Index for unit prices of fixed

assets.

+ Depreciation—Movable Equipment: The

PPI for Machinery and Equipment.

+ Interest—Government and Nonprofit

SNFs: The Average Yield for Municipal

Bonds from the Bond Buyer Index of 20

bonds. HCFA input price indexes, including

this rebased SNF index, are concerned with

the rate of change in the price proxy and not

the level of the price proxy. While SNFs may

face different interest rate levels than

hospitals, the rate of change in most interest

rates is not significantly different. Our

research on this issue regarding hospitals has

been presented in the August 30, 1996

Federal Register (61 FR 46201).

+ Interest—For-profit SNFs: The Average

Yield for Moody’s AAA Corporate Bonds.

Again, the rebased SNF index focuses on the

rate of change in this interest rate and not the

level of the interest rate.

+ Other Capital-related Expenses: The CPIU for Residential Rent.

Appendix Table A–3—A Comparison of Price Proxies Used in the 1992-Based and 1977-Based Skilled Nursing

Facility Market Baskets

Cost

category

1992-based

price proxy

1977-based

price proxy

Wages and Salaries ....................... ECI for Wages and Salaries for Private Nursing

Homes.

AHE—Private Nursing and Personal Care Facilities

Employee Benefits ......................... ECI for Benefits for Private Nursing Homes .............. BEA Supplement to Wages and Salaries per worker

(BLS)

Nonmedical professional fees ........ ECI for Compensation for Private Professional and

Technical Workers.

n/a

Electricity ........................................ PPI for Commercial Electric Power ........................... Implicit Price Deflator—Electricity (PCE)

Fuels ............................................... PPI for Commercial Natural Gas ............................... Implicit Price Deflator—Fuel Oil (PCE) and Implicit

Price Deflator—Natural Gas (PCE)

Water and sewerage ...................... CPI-U for Water and Sewerage ................................. CPI-U for Water and Sewerage

Food—Wholesale purchases ......... PPI—Processed Foods .............................................. PPI—Processed Foods

Food—Retail purchases ................. CPI-U—Food Away From Home ............................... CPI-U—Food and Beverages

Pharmaceuticals ............................. PPI for Prescription Drugs ......................................... PPI—Prescription Drugs
26316 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 /Rules and Regulations

Appendix Table A–3—A Comparison of Price Proxies Used in the 1992-Based and 1977-Based Skilled Nursing

Facility Market Baskets—Continued

Cost

category

1992-based

price proxy

1977-based

price proxy

Chemicals ....................................... PPI for Industrial Chemicals ...................................... n/a

Rubber and plastics ....................... PPI for Rubber and Plastic Products ......................... n/a

Paper products ............................... PPI for Converted Paper and Paperboard ................ n/a

Miscellaneous products .................. PPI for Finished Goods .............................................. n/a

Telephone services ........................ CPI-U for Telephone Services ................................... n/a

Labor-intensive services ................ ECI for Compensation for Private Service Occupations.n/a

Non labor-intensive services .......... CPI-U for All Items ..................................................... n/a

Depreciation: Building and Fixed

Equipment.

Boeckh Institutional Construction Index ..................... n/a

Depreciation: Movable Equipment PPI for Machinery and Equipment ............................. n/a

Interest: Government and Nonprofit

SNFs.

Average Yield Municipal Bonds (Bond Buyer Index20 bonds).n/a

Interest: For-profit SNFs ................ Average Yield Moody’s AAA Bonds .......................... n/a

Other Capital-related Expenses ..... CPI-U for Residential Rent ........................................ n/a

[FR Doc. 98–12208 Filed 5–5–98; 12:57 pm]

BILLING CODE 4120–01–P