23984 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 410, 411, 413, 424, 482,

and 489

[HCFA–1163–P]

RIN 0938–AK47

Medicare Program; Prospective

Payment System and Consolidated

Billing for Skilled Nursing Facilities—

Update

AGENCY: Health Care Financing

Administration (HCFA), HHS.

ACTION: Proposed rule.

SUMMARY: This proposed rule updates

the payment rates used under the

prospective payment system (PPS) for

skilled nursing facilities (SNFs), for

fiscal year (FY) 2002, as required by

statute. Annual updates to the PPS rates

are required by section 1888(e) of the

Social Security Act (the Act), as

amended by the Medicare, Medicaid,

and SCHIP Balanced Budget Refinement

Act of 1999 (BBRA 1999), and the

Medicare, Medicaid, and SCHIP

Benefits Improvement and Protection

Act of 2000 (BIPA 2000), relating to

Medicare payments and consolidated

billing for SNFs. As part of this annual

update, we are rebasing and revising the

routine SNF market basket to reflect

1997 total cost data (the latest available

complete data on the structure of SNF

costs), and modifying certain variables

for some of the cost categories. In

addition, we propose to implement the

transition of swing-bed facilities to the

SNF PPS, as required by section

1888(e)(7) of the Act.

DATES: We will consider comments if

we receive them at the appropriate

address, as provided below, no later

than 5 p.m. on July 9, 2001.

ADDRESSES: Mail written comments (one

original and three copies) to the

following address: Health Care

Financing Administration, Department

of Health and Human Services,

Attention: HCFA–1163–P, P.O. Box

8013, Baltimore, MD 21244–8013.

If you prefer, you may deliver your

written comments (one original and

three copies) to one of the following

addresses: Hubert H. Humphrey

Building, Room 443–G, 200

Independence Avenue, SW.,

Washington, DC 20201, or Health Care

Financing Administration, Room C5–

15–03, 7500 Security Boulevard,

Baltimore, MD 21244–8150.

Comments mailed to those addresses

designated for courier delivery may be

delayed and could be considered late.

Because of staffing and resource

limitations, we cannot accept comments

by facsimile (FAX) transmission. Please

refer to file code HCFA–1163–P on each

comment. Comments received timely

will be available for public inspection as

they are received, generally beginning

approximately 3 weeks after publication

of this document, in Room C5–12–08 of

the Health Care Financing

Administration, 7500 Security

Boulevard, Baltimore, Maryland,

Monday through Friday of each week

from 8:30 a.m. to 5 p.m. Please call (410)

786–7197 to make an appointment to

view comments.

FOR FURTHER INFORMATION CONTACT:

Dana Burley, (410) 786–4547 or Sheila

Lambowitz, (410) 786–7605 (for

information related to the case-mix

classification methodology)

John Davis, (410) 786–0008 (for

information related to the Wage

Index)

Bill Ullman, (410) 786–5667 (for

information related to consolidated

billing)

Susan Burris, (410) 786–6655 (for

information related to payment)

Sheila Lambowitz, (410) 786–7605 (for

information related to swing-bed

providers)

Bill Ullman, (410) 786–5667 or Susan

Burris, (410) 786–6655 (for general

information)

SUPPLEMENTARY INFORMATION:

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.

The cost for each copy is $9. Please

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 toll free at 1–888–293–

6498) or by faxing to (202) 512–2250.

You can also 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.

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. Requirements of the Balanced Budget

Act of 1997 for Updating the Prospective

Payment System for Skilled Nursing

Facilities

C. The Medicare, Medicaid, and SCHIP

Balanced Budget Refinement Act of 1999

(BBRA 1999)

D. The Medicare, Medicaid, and SCHIP

Benefits Improvement and Protection

Act of 2000 (BIPA 2000)

E. Skilled Nursing Facility Prospective

Payment—General Overview

1. Payment Provisions—Federal Rates

2. Payment Provisions—Transition Period

F. Skilled Nursing Facility Market Basket

Index

II. Update of Payment Rates Under the

Prospective Payment System for Skilled

Nursing Facilities

A. Federal Prospective Payment System

1. Costs and Services Covered by the

Federal Rates

2. Methodology Used for the Calculation of

the Federal Rates

B. Case-Mix Adjustment

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

F. Three-year Transition Period

G. Example of Computation of Adjusted

PPS Rates and SNF Payment

III. The Skilled Nursing Facility Market

Basket Index

A. Background

B. Rebasing and Revising the SNF Market

Basket

IV. Update Framework

A. The Need for an Update Framework

B. Factors Inherent in SNF Payments per

Day

C. Defining Each Factor Inherent in SNF

Costs per Day

1. Input Prices

2. Productivity

3. Real Case-Mix per Day

4. Case-Mix Constant Real Output Intensity

per Day

D. Applying the Factors that Affect SNF

Costs per Day in an Update Framework

E. Current HCFA Inpatient Hospital PPS

and Illustrative SNF PPS Payment

Update Frameworks

F. Additional Conceptual and Data Issues

V. Consolidated Billing

VI. Application of the SNF PPS to SNF

Services Furnished by Swing-Bed

Hospitals

A. Current System for Payment of SwingBed Facility Services Under Part A of the

Medicare Program

B. Requirement of the Balanced Budget Act

of 1997 for Swing-Bed Facility Services

to be Paid under the Prospective

Payment System for Skilled Nursing

Facilities

C. Requirements of BBRA 1999 Affecting

Swing-Bed Payment and Eligibility

D. Implications of Swing-Bed Facility

Conversion to the SNF PPS

E. SNF PPS Rate Components

F. Implementation of the SNF PPS for

Swing-Bed Facilities

G. Use of the Resident Assessment

Instrument—Minimum Data Set (MDS

2.0)

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 23985

H. Required Schedule for Completing the

MDS

I. RUG–III ‘‘Grouper’’ Methodology and

Software

J. Applicability of Consolidated Billing to

SNF Services Furnished in Swing-Bed

Facilities

K. Costs Associated with Automating the

MDS: Preliminary Estimates

L. Provider Training

VII. Provisions of the Proposed Rule

VIII. Collection of Information Requirements

IX. Regulatory Impact Analysis

A. Background

B. Impact of the Proposed Rule

X. Federalism

Regulation Text

Appendix—Technical Features of the

Proposed 1997-based Skilled Nursing

Facility Market Basket Index

I. Synopsis of Structural Changes Adopted in

the Proposed Revised and Rebased 1997

Skilled Nursing Facility Market Basket

II. Methodology for Developing the Cost

Category Weights

III. Price Proxies Used to Measure Cost

Category Growth

A. Wages and Salaries

B. Employee Benefits

C. All Other Expenses

D. Capital-Related Expenses

In addition, because of the many terms to

which we refer by abbreviation in this

proposed rule, we are listing these

abbreviations and their corresponding terms

in alphabetical order below:

ADL Activity of Daily Living

AHE Average Hourly Earnings

ARD Assessment Reference Date

BBA 1997 Balanced Budget Act of 1997,

Pub. L. 105–33

BBRA 1999 Medicare, Medicaid and SCHIP

Balanced Budget Refinement Act of 1999,

Pub. L. 106–113

BEA (U.S.) Bureau of Economic Analysis

BIPA 2000 The Medicare, Medicaid, and

SCHIP Benefits Improvement and

Protection Act of 2000, Pub. L. 106–554

BES (U.S.) Business Expenditures Survey

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-All Urban

Consumers

CPT (Physicians’) Current Procedural

Terminology

DRG Diagnosis Related Group

ECI Employment Cost Index

FI Fiscal Intermediary

FR Federal Register

FY Fiscal Year

GAO General Accounting Office

HCFA Health Care Financing

Administration

HCPCS HCFA Common Procedure Coding

System

ICD–9–CM International Classification of

Diseases, Ninth Edition, Clinical

Modification

IFC Interim Final Rule with Comment

Period

MDS Minimum Data Set

MEDPAR Medicare Provider Analysis and

Review File

MIP Medicare Integrity Program

MSA Metropolitan Statistical Area

NECMA New England County Metropolitan

Area

OIG Office of the Inspector General

OMRA Other Medicare Required

Assessment

PCE Personal Care Expenditures

PPI Producer Price Index

PPS Prospective Payment System

PRM Provider Reimbursement Manual

RAI Resident Assessment Instrument

RAP Resident Assessment Protocol

RAVEN Resident Assessment Validation

Entry

RUG Resource Utilization Groups

SCHIP State Children’s Health Insurance

Program

SNF Skilled Nursing Facility

STM Staff Time Measure

I. Background

On July 31, 2000, we published in the

Federal Register (65 FR 46770), a final

rule that set forth updates to the

payment rates used under the

prospective payment system (PPS) for

skilled nursing facilities (SNFs), for

fiscal year (FY) 2001. Annual updates to

the PPS rates are required by section

1888(e) of the Social Security Act (the

Act), as amended by the Medicare,

Medicaid, and SCHIP Balanced Budget

Refinement Act of 1999 (BBRA 1999)

and the Medicare, Medicaid, and SCHIP

Benefits Improvement and Protection

Act of 2000 (BIPA 2000), relating to

Medicare payments and consolidated

billing for SNFs.

A. Current System for Payment of

Skilled Nursing Facility Services Under

Part A of the Medicare Program

Section 4432 of the Balanced Budget

Act of 1997 (BBA 1997) amended

section 1888 of the Act to provide for

the implementation of a per diem PPS

for SNFs, covering all costs (routine,

ancillary, and capital) of covered SNF

services furnished to beneficiaries under

Part A of the Medicare program,

effective for cost reporting periods

beginning on or after July 1, 1998. We

propose to update the per diem payment

rates for SNFs, for FY 2002. Major

elements of the SNF PPS include:

• Rates. Per diem Federal rates were

established for urban and rural areas

using allowable costs from FY 1995 cost

reports. These rates also included an

estimate of the cost of services that,

before July 1, 1998, had been paid under

Part B but furnished to Medicare

beneficiaries in a SNF during a Part A

covered stay. The rates were adjusted

annually using a SNF market basket

index. Rates were case-mix adjusted

using a classification system (Resource

Utilization Groups, version III (RUG–

III)) based on beneficiary assessments

(using the Minimum Data Set (MDS)

2.0). The rates were also adjusted by the

hospital wage index to account for

geographic variation in wages. (In

section II.C of this preamble, we discuss

the wage index adjustment in detail,

including an examination of the

feasibility of developing a wage index

based on SNF-specific wage data.) At

this time, data for the FY 2002 hospital

wage index are not yet available;

therefore, the index applied in this

proposed rule is the same index used in

the July 31, 2000 final rule. A correction

notice was published on January 16,

2001 (66 FR 3497) that announced

corrections to several of the wage

factors. Additionally, as noted in the

July 31, 2000 final rule (65 FR 46770),

section 101 of BBRA 1999 also affects

the payment rate. Finally, sections 311,

312, and 314 of BIPA 2000 affect the

Part A PPS payment rates for SNFs.

These new provisions are discussed in

detail in section I.D. of this proposed

rule.

• Transition. The SNF PPS includes

an initial 3-year, phased transition that

blended a facility-specific payment rate

with the Federal case-mix adjusted rate.

For each cost reporting period after a

facility migrated to the new system, the

facility-specific portion of the blend

decreased and the Federal portion

increased in 25 percentage point

increments. For most facilities, the

facility-specific rate was based on

allowable costs from FY 1995; however,

since the last year of the transition is FY

2001, all facilities will be paid at the full

Federal rate by the coming fiscal year

(FY 2002), for which we are now

proposing updated rates. Therefore,

unlike previous years, this proposed

rule does not include adjustment factors

related to facility-specific rates for the

coming fiscal year.

• Coverage. Medicare’s fundamental

requirements for SNF coverage were not

changed by BBA 1997; however,

because RUG–III classification is based,

in part, on the beneficiary’s need for

skilled nursing care and therapy, we

have attempted, where possible, to

coordinate claims review procedures

with the outputs of beneficiary

assessment and RUG–III classifying

activities.

• Consolidated Billing. BBA 1997

included a billing provision that

required a SNF to submit consolidated

Medicare bills for its residents for

almost all services that are covered

under either Part A or Part B (the statute

excluded a small list of services,

primarily those of physicians and

certain other types of practitioners).

With the exception of physical therapy,

occupational therapy, and speechlanguage therapy, section 313 of BIPA

2000 has now limited the scope of this

23986 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

provision to apply only to those services

that are furnished during the course of

a resident’s covered Part A stay in the

SNF, as discussed later in this proposed

rule.

• Application of the SNF PPS to SNF

services furnished by swing-bed

hospitals. Section 1883 of the Act

permits certain small, rural hospitals to

enter into a Medicare swing-bed

agreement, under which the hospital

can use its beds to provide either acute

or SNF care, as needed. Part A currently

pays for SNF services furnished by

swing-bed hospitals on a cost-related

basis. Section 1888(e)(7) of the Act

requires the SNF PPS to encompass

these services no earlier than cost

reporting periods beginning on July 1,

1999, and no later than the end of the

SNF PPS transition period described in

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

B. Requirements of the Balanced Budget

Act of 1997 for Updating the Prospective

Payment System for Skilled Nursing

Facilities

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

requires that we publish in the Federal

Register:

1. The unadjusted Federal per diem

rates to be applied to days of covered

SNF services furnished during the FY.

2. The case-mix classification system

to be applied with respect to these

services during the FY.

3. The factors to be applied in making

the area wage adjustment with respect

to these services.

In the July 30, 1999 final rule (64 FR

41670), we indicated that we would

announce any changes to the guidelines

for Medicare level of care

determinations related to modifications

in the RUG–III classification structure.

Along with a number of other

revisions discussed later in this

preamble, this proposed rule provides

the annual updates to the Federal rates

as mandated by the Act.

C. The Medicare, Medicaid, and SCHIP

Balanced Budget Refinement Act of

1999 (BBRA 1999)

There were several provisions in

BBRA 1999 that resulted in adjustments

to the PPS for SNFs. The provisions

were described in the final rule that we

published on July 31, 2000 (65 FR

46770). In particular, section 101

provided for a temporary, 20 percent

increase in the per diem adjusted

payment rates for 15 specified RUG–III

groups (SE3, SE2, SE1, SSC, SSB, SSA,

CC2, CC1, CB2, CB1, CA2, CA1, RHC,

RMC, and RMB). Section 101 also

included a 4 percent across-the-board

increase in the adjusted Federal per

diem payment rates each year for FYs

2001 and 2002, exclusive of the 20

percent increase.

We included further information on

all of the provisions of BBRA 1999 in

Program Memorandums A–99–53 and

A–99–61 (December 1999), and Program

Memorandum AB–00–18 (March 2000).

D. The Medicare, Medicaid, and SCHIP

Benefits Improvement and Protection

Act of 2000 (BIPA 2000)

The following highlights the major

provisions in BIPA 2000 that result in

adjustments to the PPS for SNFs:

• Section 203—Exemption of Critical

Access Hospital (CAH) Swing-beds from

SNF PPS. This provision exempts

swing-beds in CAHs from section

1888(e)(7) of the Act (as enacted by

section 4432(a) of BBA 1997) which

applies the SNF PPS to SNF services

furnished by swing-bed hospitals.

Accordingly, this provision enables

CAHs to be paid for their swing-bed

SNF services on a reasonable cost basis.

This provision is effective with cost

reporting periods beginning on or after

December 21, 2000, the date of the

enactment of this Act. We include

further information on this provision in

Program Memorandum A–01–09

(January 16, 2001).

• Section 311—Elimination of

Reduction in SNF Market Basket Update

in 2001. This provision eliminates the

one percent reduction reflected in the

update formula for the Federal rates for

FY 2001 that was required by BBA 1997.

In implementing this change, this

provision modifies the schedule and

rates according to which Federal per

diem payments are updated. For FY

2002 and FY 2003, the updates would

be the market basket index increase

minus 0.5 percentage points. This

provision also provides a special rule

that, for purposes of making payments

under the SNF PPS for FY 2001, for the

first half of FY 2001 (the period

beginning October 1, 2000, and ending

March 31, 2001), the market basket

update remains at market basket minus

1, and for the second half of the fiscal

year (the period beginning on April 1,

2001, and ending on September 30,

2001), the market basket update changes

from market basket minus 1 to market

basket plus 1.

In addition, this provision requires

the General Accounting Office (GAO) to

submit a report to Congress by July 1,

2002, on the adequacy of SNF payment

rates. It also requires the Secretary to

conduct a study of the different systems

for categorizing patients in SNFs in a

manner that accounts for the relative

resource utilization of different patient

types, and to submit a report to

Congress not later than January 1, 2005.

• Section 312—Increase in Nursing

Component of PPS Federal Rate. This

provision requires the Secretary to

increase by 16.66 percent the nursing

component of the case-mix adjusted

Federal rate specified in the July 31,

2000 final rule (65 FR 46770) for

services furnished on or after April 1,

2001, and before October 1, 2002. This

provision also requires the GAO to

conduct an audit of SNF nursing staff

ratios, and to submit a report to

Congress by August 1, 2002, including

a recommendation on whether the

temporary 16.66 percent increase in the

nursing component should be

continued.

• Section 313—Application of SNF

Consolidated Billing Requirement

Limited to Part A Covered Stays. This

provision repeals the consolidated

billing requirement for services (other

than physical therapy, occupational

therapy, and speech-language therapy)

furnished to those SNF residents who

are in non-covered stays, effective

January 1, 2001. It also directs the

Secretary to monitor Part B payments

for such services, in order to guard

against duplicate billing and the

excessive provision of services.

• Section 314—Adjustment of

Rehabilitation RUGs to Correct Anomaly

in Payment Rates. For services

furnished from April 1, 2001, until the

date that RUG refinements are

implemented, this provision requires

the Secretary to increase by 6.7 percent

the adjusted Federal per diem rate for

all of the following RUG–III

rehabilitation groups: RUC, RUB, RUA,

RVC, RVB, RVA, RHC, RHB, RHA, RMC,

RMB, RMA, RLB, and RLA. This

provision amends section 101(b) of

BBRA 1999 and supersedes the 20

percent increase that BBRA 1999 had

previously established for the RHC,

RMC, and RMB rehabilitation groups,

and corrects the resulting anomaly

under which the payment rates for these

particular groups were actually higher

than the rates for some other, more

intensive rehabilitation RUGs. This

provision also requires the Office of

Inspector General (OIG) to review

whether the RUG payment structure in

effect under BBRA 1999 included

incentives for the delivery of inadequate

care and report to the Congress by

October 1, 2001.

• Section 315—Establishment of

Process for Geographic Reclassification.

This provision explicitly permits the

Secretary to establish a geographic

reclassification procedure that is

specific to SNFs, for purposes of

payment for covered SNF services under

the PPS. The Secretary may not

implement this procedure until the

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 23987

Secretary has collected data necessary to

establish a SNF wage index that is based

on wage data from nursing homes.

We include further information on

several of these provisions in Program

Memorandum A–01–08 (January 16,

2001).

E. Skilled Nursing Facility Prospective

Payment—General Overview

The Medicare SNF PPS was

implemented for cost reporting periods

beginning on or after July 1, 1998.

Under the PPS, SNFs are paid through

prospective, case-mix adjusted per diem

payment rates applicable to all covered

SNF services. These payment rates

cover all the costs of furnishing covered

skilled nursing services (routine,

ancillary, and capital-related costs)

other than costs associated with

approved educational activities.

Covered SNF services include posthospital services for which benefits are

provided under Part A and all items and

services that, before July 1, 1998, had

been paid under Part B (other than

physician and certain other services

specifically excluded under BBA 1997)

but furnished to Medicare beneficiaries

in a SNF during a Part A covered stay.

A complete discussion of these

provisions appears in the May 12, 1998

interim final rule (63 FR 26252).

1. Payment Provisions—Federal Rate

The PPS uses per diem Federal

payment rates based on mean SNF costs

in a base year updated for inflation to

the first effective period of the PPS. We

developed the Federal payment rates

using allowable costs from hospitalbased and freestanding SNF cost reports

for reporting periods beginning in FY

1995. The data used in developing the

Federal rates also incorporated an

estimate of the amounts that would be

payable under Part B for covered SNF

services furnished to individuals who

were receiving Part A covered services

in a SNF.

In developing the rates for the initial

period, we updated costs to the first

effective year of PPS (15-month period

beginning July 1, 1998) using a SNF

market basket index, and then

standardized for the costs of facility

differences in case-mix and for

geographic variations in wages.

Providers that received new provider

exemptions from the routine cost limits

were excluded from the database used

to compute the Federal payment rates,

as well as costs related to payments for

exceptions to the routine cost limits. In

accordance with the formula prescribed

in BBA 1997, we set the Federal rates at

a level equal to the weighted mean of

freestanding costs plus 50 percent of the

difference between the freestanding

mean and weighted mean of all SNF

costs (hospital-based and freestanding)

combined. We computed and applied

separately the payment rates for

facilities located in urban and rural

areas. In addition, we adjusted the

portion of the Federal rate attributable

to wage-related costs by a wage index.

The Federal rate also incorporates

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

accounts for the relative resource

utilization of different patient types.

This classification system, RUG–III,

utilizes beneficiary assessment data

from the Minimum Data Set (MDS)

completed by SNFs to assign

beneficiaries to one of 44 groups. The

May 12, 1998 interim final rule (63 FR

26252) included a complete and

detailed description of the RUG–III

classification system.

The Federal rates in this proposed

rule reflect an update to the rates in the

July 31, 2000 update notice (65 FR

46770) equal to the SNF market basket

index minus 0.5 percent, as well as the

elimination of the 1 percent reduction

reflected in the update formula for the

FY 2001 payment rates under section

311 of BIPA 2000. According to section

311 of BIPA 2000, for FY 2002, we will

update the rate by adjusting the current

rates by the SNF market basket change

minus 0.5 percent.

2. Payment Provisions—Transition

Period

The SNF PPS includes an initial,

phased transition from a facility-specific

rate (which reflects the individual

facility’s historical cost experience) to

the Federal case-mix adjusted rate. The

transition extends through the facility’s

first three cost reporting periods under

the PPS, up to and including the one

that begins in FY 2001. Accordingly,

starting with cost reporting periods that

begin in FY 2002, we will base

payments entirely on the Federal rates.

F. Skilled Nursing Facility Market

Basket Index

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

the Secretary to establish a SNF market

basket index that reflects changes over

time in the prices of an appropriate mix

of goods and services included in the

covered SNF services. The SNF market

basket index is used to update the

Federal rates on an annual basis. We are

proposing a revised and rebased 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 proposed

SNF market basket index is presented in

Section III.

II. Update of Payment Rates Under the

Prospective Payment System for Skilled

Nursing Facilities

A. Federal Prospective Payment System

This proposed rule sets forth a

schedule of Federal prospective

payment rates applicable to Medicare

Part A SNF services beginning October

1, 2001. The schedule incorporates per

diem Federal rates that provide Part A

payment for all costs of services

furnished to a beneficiary in a SNF

during a Medicare-covered stay.

1. Costs and Services Covered by the

Federal Rates

The Federal rates apply to all costs

(routine, ancillary, and capital-related

costs) of covered SNF services other

than costs associated with approved

educational activities as defined in

§ 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), as well as all items

and services (other than those services

excluded by statute) that, before July 1,

1998, were paid under Part B (the

supplementary medical insurance

program) but furnished to Medicare

beneficiaries in a SNF during a Part A

covered stay. (These excluded service

categories are discussed in greater detail

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

interim final rule (63 FR 26295–97)).

2. Methodology Used for the Calculation

of the Federal Rates

The proposed FY 2002 rates would

reflect an update using the latest market

basket index minus 0.5 percentage

point. The FY 2002 market basket

update factor is 2.9 percent, and

subtracting 0.5 percentage points yields

an update of 2.4 percent. For a complete

description of the multi-step process,

see the May 12, 1998 interim final rule

(63 FR 26252). In accordance with

section 101 of BBRA 1999 and section

314 of BIPA 2000, we have provided for

a temporary increase in the per diem

adjusted payment rates of 20 percent for

certain specified RUGs, and 6.7 percent

for certain others. These temporary

increases of 20 percent and 6.7 percent

for certain specified RUGs will continue

until implementation of case-mix

refinements, as described in section 101

of BBRA 1999 and section 314 of BIPA

2000. Also, in accordance with section

101 of BBRA 1999, we are providing a

4 percent increase in the adjusted

Federal rate for FY 2002. These

temporary adjustments (that is, 20

23988 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

percent, 6.7 percent, or 4 percent) are

not reflected in the rate tables (Tables 1,

2, 3, 4, 5, and 6 of this proposed rule).

Rather, in accordance with the statute,

they are applied only after all other

adjustments (wage and case-mix) have

been made. Further, several provisions

of BIPA 2000 affect the payment rates

for SNFs, as described in the previous

section.

We used the SNF market basket to

adjust each per diem component of the

Federal rates forward to reflect cost

increases occurring between the

midpoint of the Federal FY beginning

October 1, 2000, and the midpoint of the

Federal FY beginning October 1, 2001

and ending September 30, 2002, to

which the payment rates apply. In

accordance with section 311 of BIPA

2000, the payment rates are updated for

FY 2002 by a factor equal to the annual

market basket index percentage increase

minus 0.5 percentage point. However,

we note that section 311 of BIPA 2000

has also eliminated the one percent

reduction in the market basket

associated with the establishment of the

FY 2001 payment rates. Therefore, in

establishing the payment rates for FY

2002, we would update from the FY

2001 payment rates determined using

the full market basket amount for that

year rather than the rates as they

appeared in the July 31, 2000 final rule

(65 FR 46770), that were determined

using the one percent reduction. As

modified in this manner to reflect

section 311 of BIPA 2000, the FY 2001

rates would be updated using the latest

market basket minus 0.5 percentage

point to determine the payment rates for

FY 2002. The nursing case-mix

component of the proposed rates, both

urban and rural, includes the 16.66

percent increase provided by section

312 of BIPA 2000. The rates are further

adjusted by a wage index budget

neutrality factor, described later in this

section. Tables 1 and 2 reflect the

updated components of the unadjusted

Federal rates (including both the market

basket adjustment and the 16.66 percent

increase in the nursing case-mix

component).

TABLE 1.—UNADJUSTED FEDERAL RATE PER DIEM, URBAN

Rate component Nursing—

case-mix

Therapy—

case-mix

Therapy—

non-case-mix Non-case-mix

Per Diem Amount ............................................................................................ $137.89 $89.03 $11.73 $60.33

TABLE 2.—UNADJUSTED FEDERAL RATE PER DIEM, RURAL

Rate component Nursing—

case-mix

Therapy—

case-mix

Therapy—

non-case-mix Non-case-mix

Per Diem Amount ............................................................................................ $131.76 $102.67 $12.53 $61.44

B. Case-Mix Adjustment

For FY 2002, we are not proposing to

modify the case-mix classification

system. The payment rates set forth in

this proposed rule reflect the continued

use of the existing 44-group RUG–III

classification system discussed in the

May 12, 1998 interim final rule (63 FR

26252). Consequently, we will also

maintain the add-ons to the Federal

rates for specified RUG–III groups, as

required by section 101 of BBRA 1999

and subsequently modified by section

314 of BIPA 2000. The case-mix

adjusted payment rates are listed

separately for urban and rural SNFs in

Tables 3 and 4, with the corresponding

case-mix index values. These tables do

not reflect the add-ons (that is, 20

percent, 6.7 percent, or 4 percent)

provided for in BBRA 1999 and BIPA

2000, which are applied only after all

other adjustments (wage and case-mix)

have been made.

TABLE 3.—CASE-MIX ADJUSTED FEDERAL RATES AND ASSOCIATED INDEXES URBAN

RUG III category Nursing

index

Therapy

index

Nursing

component

Therapy

component

Non-case

mix

therapy

comp.

Non-case

mix

component

Total rate

RUC ....................................................................... 1.30 2.25 179.26 200.32 .................. 60.33 439.91

RUB ........................................................................ 0.95 2.25 131.00 200.32 .................. 60.33 391.65

RUA ........................................................................ 0.78 2.25 107.55 200.32 .................. 60.33 368.20

RVC ........................................................................ 1.13 1.41 155.82 125.53 .................. 60.33 341.68

RVB ........................................................................ 1.04 1.41 143.41 125.53 .................. 60.33 329.27

RVA ........................................................................ 0.81 1.41 111.69 125.53 .................. 60.33 297.55

RHC ....................................................................... 1.26 0.94 173.74 83.69 .................. 60.33 317.76

RHB ........................................................................ 1.06 0.94 146.16 83.69 .................. 60.33 290.18

RHA ........................................................................ 0.87 0.94 119.96 83.69 .................. 60.33 263.98

RMC ....................................................................... 1.35 0.77 186.15 68.55 .................. 60.33 315.03

RMB ....................................................................... 1.09 0.77 150.30 68.55 .................. 60.33 279.18

RMA ....................................................................... 0.96 0.77 132.37 68.55 .................. 60.33 261.25

RLB ........................................................................ 1.11 0.43 153.06 38.28 .................. 60.33 251.67

RLA ........................................................................ 0.80 0.43 110.31 38.28 .................. 60.33 208.92

SE3 ........................................................................ 1.70 .................. 234.41 .................. 11.73 60.33 306.47

SE2 ........................................................................ 1.39 .................. 191.67 .................. 11.73 60.33 263.73

SE1 ........................................................................ 1.17 .................. 161.33 .................. 11.73 60.33 233.39

SSC ........................................................................ 1.13 .................. 155.82 .................. 11.73 60.33 227.88

SSB ........................................................................ 1.05 .................. 144.78 .................. 11.73 60.33 216.84

SSA ........................................................................ 1.01 .................. 139.27 .................. 11.73 60.33 211.33

CC2 ........................................................................ 1.12 .................. 154.44 .................. 11.73 60.33 226.50

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 23989

TABLE 3.—CASE-MIX ADJUSTED FEDERAL RATES AND ASSOCIATED INDEXES URBAN—Continued

RUG III category Nursing

index

Therapy

index

Nursing

component

Therapy

component

Non-case

mix

therapy

comp.

Non-case

mix

component

Total rate

CC1 ........................................................................ 0.99 .................. 136.51 .................. 11.73 60.33 208.57

CB2 ........................................................................ 0.91 .................. 125.48 .................. 11.73 60.33 197.54

CB1 ........................................................................ 0.84 .................. 115.83 .................. 11.73 60.33 187.89

CA2 ........................................................................ 0.83 .................. 114.45 .................. 11.73 60.33 186.51

CA1 ........................................................................ 0.75 .................. 103.42 .................. 11.73 60.33 175.48

IB2 .......................................................................... 0.69 .................. 95.14 .................. 11.73 60.33 167.20

IB1 .......................................................................... 0.67 .................. 92.39 .................. 11.73 60.33 164.45

IA2 .......................................................................... 0.57 .................. 78.60 .................. 11.73 60.33 150.66

IA1 .......................................................................... 0.53 .................. 73.08 .................. 11.73 60.33 145.14

BB2 ........................................................................ 0.68 .................. 93.77 .................. 11.73 60.33 165.83

BB1 ........................................................................ 0.65 .................. 89.63 .................. 11.73 60.33 161.69

BA2 ........................................................................ 0.56 .................. 77.22 .................. 11.73 60.33 149.28

BA1 ........................................................................ 0.48 .................. 66.19 .................. 11.73 60.33 138.25

PE2 ........................................................................ 0.79 .................. 108.93 .................. 11.73 60.33 180.99

PE1 ........................................................................ 0.77 .................. 106.18 .................. 11.73 60.33 178.24

PD2 ........................................................................ 0.72 .................. 99.28 .................. 11.73 60.33 171.34

PD1 ........................................................................ 0.70 .................. 96.52 .................. 11.73 60.33 168.58

PC2 ........................................................................ 0.65 .................. 89.63 .................. 11.73 60.33 161.69

PC1 ........................................................................ 0.64 .................. 88.25 .................. 11.73 60.33 160.31

PB2 ........................................................................ 0.51 .................. 70.32 .................. 11.73 60.33 142.38

PB1 ........................................................................ 0.50 .................. 68.95 .................. 11.73 60.33 141.01

PA2 ........................................................................ 0.49 .................. 67.57 .................. 11.73 60.33 139.63

PA1 ........................................................................ 0.46 .................. 63.43 .................. 11.73 60.33 135.49

TABLE 4.—CASE-MIX ADJUSTED FEDERAL RATES AND ASSOCIATED INDEXES, RURAL

RUG III category Nursing

index

Therapy

index

Nursing

component

Therapy

component

Non-case

mix

therapy

comp

Non-case

mix

component

Total rate

RUC ....................................................................... 1.30 2.25 171.29 231.01 .................. 61.44 463.74

RUB ........................................................................ 0.95 2.25 125.17 231.01 .................. 61.44 417.62

RUA ........................................................................ 0.78 2.25 102.77 231.01 .................. 61.44 395.22

RVC ........................................................................ 1.13 1.41 148.89 144.76 .................. 61.44 355.09

RVB ........................................................................ 1.04 1.41 137.03 144.76 .................. 61.44 343.23

RVA ........................................................................ 0.81 1.41 106.73 144.76 .................. 61.44 312.93

RHC ....................................................................... 1.26 0.94 166.02 96.51 .................. 61.44 323.97

RHB ........................................................................ 1.06 0.94 139.67 96.51 .................. 61.44 297.62

RHA ........................................................................ 0.87 0.94 114.63 96.51 .................. 61.44 272.58

RMC ....................................................................... 1.35 0.77 177.88 79.06 .................. 61.44 318.38

RMB ....................................................................... 1.09 0.77 143.62 79.06 .................. 61.44 284.12

RMA ....................................................................... 0.96 0.77 126.49 79.06 .................. 61.44 266.99

RLB ........................................................................ 1.11 0.43 146.25 44.15 .................. 61.44 251.84

RLA ........................................................................ 0.80 0.43 105.41 44.15 .................. 61.44 211.00

SE3 ........................................................................ 1.70 .................. 223.99 .................. 12.53 61.44 297.96

SE2 ........................................................................ 1.39 .................. 183.15 .................. 12.53 61.44 257.12

SE1 ........................................................................ 1.17 .................. 154.16 .................. 12.53 61.44 228.13

SSC ........................................................................ 1.13 .................. 148.89 .................. 12.53 61.44 222.86

SSB ........................................................................ 1.05 .................. 138.35 .................. 12.53 61.44 212.32

SSA ........................................................................ 1.01 .................. 133.08 .................. 12.53 61.44 207.05

CC2 ........................................................................ 1.12 .................. 147.57 .................. 12.53 61.44 221.54

CC1 ........................................................................ 0.99 .................. 130.44 .................. 12.53 61.44 204.41

CB2 ........................................................................ 0.91 .................. 119.90 .................. 12.53 61.44 193.87

CB1 ........................................................................ 0.84 .................. 110.68 .................. 12.53 61.44 184.65

CA2 ........................................................................ 0.83 .................. 109.36 .................. 12.53 61.44 183.33

CA1 ........................................................................ 0.75 .................. 98.82 .................. 12.53 61.44 172.79

IB2 .......................................................................... 0.69 .................. 90.91 .................. 12.53 61.44 164.88

IB1 .......................................................................... 0.67 .................. 88.28 .................. 12.53 61.44 162.25

IA2 .......................................................................... 0.57 .................. 75.10 .................. 12.53 61.44 149.07

IA1 .......................................................................... 0.53 .................. 69.83 .................. 12.53 61.44 143.80

BB2 ........................................................................ 0.68 .................. 89.60 .................. 12.53 61.44 163.57

BB1 ........................................................................ 0.65 .................. 85.64 .................. 12.53 61.44 159.61

BA2 ........................................................................ 0.56 .................. 73.79 .................. 12.53 61.44 147.76

BA1 ........................................................................ 0.48 .................. 63.24 .................. 12.53 61.44 137.21

PE2 ........................................................................ 0.79 .................. 104.09 .................. 12.53 61.44 178.06

PE1 ........................................................................ 0.77 .................. 101.46 .................. 12.53 61.44 175.43

PD2 ........................................................................ 0.72 .................. 94.87 .................. 12.53 61.44 168.84

PD1 ........................................................................ 0.70 .................. 92.23 .................. 12.53 61.44 166.20

23990 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

TABLE 4.—CASE-MIX ADJUSTED FEDERAL RATES AND ASSOCIATED INDEXES, RURAL—Continued

RUG III category Nursing

index

Therapy

index

Nursing

component

Therapy

component

Non-case

mix

therapy

comp

Non-case

mix

component

Total rate

PC2 ........................................................................ 0.65 .................. 85.64 .................. 12.53 61.44 159.61

PC1 ........................................................................ 0.64 .................. 84.33 .................. 12.53 61.44 158.30

PB2 ........................................................................ 0.51 .................. 67.20 .................. 12.53 61.44 141.17

PB1 ........................................................................ 0.50 .................. 65.88 .................. 12.53 61.44 139.85

PA2 ........................................................................ 0.49 .................. 64.56 .................. 12.53 61.44 138.53

PA1 ........................................................................ 0.46 .................. 60.61 .................. 12.53 61.44 134.58

We remain committed to efforts to

monitor the RUG–III classification

system and to pursue refinements in

SNF payment. In the proposed rule

associated with the FY 2001 SNF PPS

update published April 10, 2000 (65 FR

19188), we had discussed options for

refinements to the RUG–III classification

system to account more accurately for

the services provided to medically

complex patients. The refinement

approaches discussed had a particular

focus on ancillary services other than

rehabilitation (physical, occupational,

and speech-language therapy), such as

prescription drugs and respiratory

therapy. We described our ongoing

research and analyses in this area and

shared the initial results that we

proposed be incorporated into the

Medicare SNF PPS system effective

October 1, 2000. In that proposed rule,

we cautioned that the proposed RUG–III

refinements were based on limited data

from seven states from periods prior to

the implementation of the SNF PPS

(1996 and 1997). Consequently, we

indicated our plan to validate the

findings using more current data from a

broad national sample before issuing a

final rule.

As discussed in the final rule

published on July 31, 2000 (65 FR

46770), we conducted the validation

analyses to determine the predictive

power of the proposed case-mix models

in identifying variations in non-therapy

ancillary costs, using national data from

a current period (that is, after the

implementation of the SNF PPS). Based

on these analyses, we determined that

the refinement models developed using

the pre-PPS sample were not effective in

predicting resource use in the post-PPS

environment. We identified several

important variations in the post-PPS

volume and distribution of beneficiaries

and ancillary services costs using the

1999 national data, which appear to

have affected the performance of the

case-mix refinement models described

in the proposed rule. We noted our

belief that the introduction of the PPS

and consolidated billing provisions for

covered Part A SNF stays may have

caused changes in facility practice

patterns and billing. These changes, as

well as the use of the broader national

data sample, likely diminished the

effectiveness of the models.

Accordingly, in the final rule, we

indicated our decision not to proceed

with the implementation of case-mix

refinements for FY 2001.

However, this decision did not in any

way reflect a lack of commitment to

pursuing appropriate case-mix

refinements, and we remain dedicated

to achieving this objective as quickly as

possible. While the language in section

101 of BBRA 1999 does not directly

mandate that we make case-mix

refinements, we believe it nonetheless

reflects a clear expectation that

refinements will occur, by establishing

payment adjustments that will expire

upon the implementation of case-mix

refinements, and by characterizing those

adjustments as temporary. Accordingly,

we are continuing our active efforts in

this area, with the expectation that we

will, over the next 12 months, develop

case-mix refinements.

The inability of the specific case-mix

refinement models based on a pre-PPS

study sample (as described in the FY

2001 proposed rule) to explain behavior

adequately in the post-PPS data does

not warrant the conclusion that further

efforts to improve the payment system’s

ability to allocate payments based on

expected ancillary use would be

unproductive. In fact, we believe there

may well be the potential to establish

meaningful refinements in the short

term based on the results of a deliberate,

comprehensive analysis using the

extensive MDS 2.0, claims, and other

administrative data now available.

Moreover, this research will also

provide an important foundation for a

longer term analysis which seeks to

identify alternative classification

approaches in the SNF setting. The

analysis we propose to conduct will be

included in the report to Congress

mandated by section 311 of BIPA 2000.

This section requires us to submit the

report no later than January 1, 2005.

This work may also support a longer

term goal, supported by HCFA and

MedPAC, of developing more integrated

approaches for the payment and

delivery system for Medicare post acute

services generally.

Therefore, we are currently

proceeding with efforts to develop

refinements to the RUG–III system, and

are in the process of initiating a research

contract in this area. We plan to look

broadly for alternative refinement

approaches that will improve the

payment system’s ability to account for

the variation in resources associated

with SNF patients generally, as well as

medically complex patients and nontherapy ancillary services more

specifically. This may include further

analysis to develop a non-therapy

ancillary index, similar to that proposed

in the FY 2001 proposed rule, as well

as exploration of other potential

refinement approaches that could utilize

information related to service use,

function, diagnosis, and co-morbidities.

In exploring possible refinement

approaches, it is necessary to consider

the potential effect of the refinements on

aggregate SNF payments, as well as on

access to and quality of care. In

addition, we recognize the utility of

using administrative data (such as

claims) in the construction of the casemix indexes and may, as MedPAC has

recommended in the past, examine the

potential for using this data to

accomplish the tasks we are

undertaking. Such an approach would

facilitate annual updates to the case-mix

indexes similar to the inpatient hospital

PPS. In continuing this research, we

will carefully consider the comments

we received pursuant to the FY 2001

proposed rule. In addition, we

specifically solicit comments in this

proposed rule regarding possible

approaches to refining the case-mix

system.

While we recognize the need to seek

improvements in the payment system,

we are not aware of any substantive

findings that demonstrate, as has been

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 23991

suggested at recent MedPAC meetings,

that the RUG–III system has proven to

be unworkable. In fact, several recent

reports indicate that quality and access

do not appear to be impaired. This may

be more a function of overall revenues

available to SNFs under the PPS,

especially considering recent increases

in funding under BBRA 1999 and BIPA

2000. Even though they do not affect the

current case-mix classification structure,

a number of these recent payment

increases are nonetheless intended to

ensure that facilities continue to be paid

appropriately until RUG refinements

can be made. We also note that it may

be premature to make assumptions

regarding the effect of case-mix on

provider behavior based on currently

available data (which, at this point, still

reflect only payments made during the

transition period when SNFs received a

blend of the Federal rate and facilityspecific rate), since provider behavior

may change significantly once payment

is made under the fully case-mix

adjusted Federal rates.

Further, it is worth noting that in

research conducted to support the

implementation of the SNF PPS, the

RUG–III case-mix system was shown to

predict approximately 55 percent of the

overall variation in nursing and therapy

staff time costs across total facility

population (that includes both Medicare

and Medicaid, as well as other patients).

The level of variance explanation is

somewhat less across the Medicare

population due to its greater

homogeneity. While we have not

measured this directly, an examination

of the 1997 staff time data focusing on

patients in Medicare certified units that

specialize in medically complex care or

intensive rehabilitation found that

RUG–III predicted 41 percent of nursing

and rehabilitation staff time costs across

total facility population (which includes

Medicare, Medicaid, and private pay

patients). We believe that it continues to

be highly effective in this area. While

we have found that pharmacy costs are

correlated somewhat with the nursing

case-mix indexes in RUG–III, it is

important to note that such costs are, by

and large, difficult to account for in

case-mix systems because drug costs do

not necessarily follow physical

condition, resource use, or functional

and clinical pathways.

We look forward to addressing this

important issue through the study of

alternative case-mix systems required

under BIPA 2000, which provides an

opportunity for a deliberate analytical

approach to the question of how best to

refine the current classification system

or to redirect Medicare’s payment

system to produce more equitable

payments for providers and best support

access and quality of care for Medicare

beneficiaries. Similarly, we look

forward to the study required under

section 545 of BIPA 2000 (required to be

completed by January 1, 2005), which

requires us to submit a report on the

development of standard instruments

for the assessment of the health and

functional status of patients. We also

invite comments on possible approaches

to refining the current case-mix

classification system, as well as on

identifying and studying alternatives to

the current system. With regard to the

MDS 2.0, we continue to believe that the

MDS is an accurate and effective

assessment tool, which meets program

objectives related to its major purposes

of supporting quality of care and

providing patient status and treatment

information needed to support payment.

We are currently engaged in a number

of activities that support accurate

completion of the MDS. These include

expanded provider training, clearer

definitions of certain MDS elements and

coding instructions, and funding of

program safeguard contractor activities

to undertake auditing and verification of

the MDS. We also note our concern that

the OIG’s recent reports related to the

accuracy of the MDS contained a

number of methodological limitations

(as acknowledged in the reports) that

limit their utility for drawing

conclusions about the MDS.

However, we recognize the increased

financial incentives that BIPA creates

for the rehabilitation categories and the

potential for upcoding under the SNF

PPS to gain higher payments. In fact, the

potential for inappropriate upcoding

exists in any prospective payment

system that uses coding of clinical

information as the basis for determining

payment amounts due to providers, and

the SNF PPS (which bases payment

amounts on the clinical information

entered on the MDS) is no exception. In

this context, we note that fiscal

intermediaries (FIs) will continue

reviewing SNF PPS bills. As with

current practice, the FIs will focus on

identifying instances in which

inappropriate services were provided or

where the beneficiary did not meet the

requirements for Medicare Part A

coverage in an SNF. As part of this

review, the MDS and the medical record

is assessed to verify that the reported

information supports the RUG category

billed.

We believe that the practice of FIs

using a data driven approach to focus

medical review efforts will help address

the incentive for upcoding. Once bills

have been targeted for review, the FIs

will identify instances in which

inappropriate services were provided or

where the beneficiary did not meet the

requirements for Medicare Part A

coverage in a SNF. As part of this

review, the medical record (which

includes the MDS) is assessed to verify

that the reported information supports

the RUG category billed.

To lend further support to program

safeguard efforts, we are in the process

of awarding a contract to a Medicare

Integrity Program (MIP) contractor to

provide an ongoing centralized data

surveillance process to assess the

accuracy and reliability of MDS data

particular to the health care furnished

by SNFs, and payment for these

services. This includes ensuring

appropriate payment and payment

denial decisions. The findings will

produce evidence for further actions at

national, regional, and State levels in

addressing concerns in the areas of

program integrity, beneficiary health

and safety, and quality improvement.

The contractor is also expected to

perform monitoring and data analyses to

determine if there are variations over

time in the case-mix intensity, and

whether those differences represent

changes in actual or real case status of

beneficiaries rather than changes that

reflect improper provider behavior.

Through the MIP contractor and the FIs,

we will address instances of improper

billing through recoupment of improper

payments, intensified reviews, and

provider education.

Further, in the context of our ongoing

efforts to ensure accurate payment for

appropriate care, we note a situation

regarding rehabilitation therapy that is

being provided in SNFs in a manner

that conflicts with Medicare coverage

guidelines. This issue involves

providers that refuse to employ

therapists who are unwilling to perform,

on a routine basis, concurrent therapy.

Concurrent therapy is the practice of

one professional therapist treating more

than one Medicare beneficiary at a

time—in some cases, many more than

one individual at a time.

Concurrent therapy is distinguished

from group therapy, because all

participants in group therapy are

working on some common skill

development and the ratio of

participants to therapist may be no

higher than 4 to 1. In addition, in the

July 30, 1999 SNF PPS final rule (64 FR

41662), we specified that the minutes of

group therapy received by the

beneficiary may account for no more

than 25 percent of the therapy (per

discipline) received in a 7 day period.

By contrast, a beneficiary who is

receiving concurrent therapy with one

or more other beneficiaries likely is not

23992 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

receiving services that relate to those

needed by any of the other participants.

Although each beneficiary may be

receiving care that is prescribed in his

individual plan of treatment, it is not

being delivered according to Medicare

coverage guidelines; that is, the therapy

is not being provided individually, and

it is unlikely that the services being

delivered are at the complex skill level

required for coverage by Medicare.

The Medicare SNF benefit provides

coverage of therapy services only when

the services are of such a level of

complexity and sophistication (or the

beneficiary’s condition is such) that the

services can be safely and effectively

performed only by or under the

supervision of a qualified professional

therapist. Therapy services that are

concurrently being delivered by one

treating therapist to many beneficiaries

would not appear to meet these criteria.

If the therapist or therapy assistant can

provide distinct services to several

beneficiaries at once, then it is unlikely

that the services are sufficiently

complex and sophisticated to qualify for

coverage under the Medicare guidelines.

We note that there have always been

isolated instances in which a

professional therapist has been allowed

to have some overlap in the time of

concluding treatment to one individual

and the time of commencing the

treatment of another, even to the point

of briefly providing therapy

concurrently in certain cases. However,

the key principle here is that Medicare

relies on the professional judgment of

the therapist to determine when, based

on the complexity of the services to be

delivered and the condition of the

beneficiary, it is appropriate to deliver

care to more than one beneficiary at the

same time. Our concern now is that in

some areas of the country, concurrent

therapy is becoming a standard practice

rather than the exception, and is being

dictated by facility management

personnel rather than according to the

professional judgment of the therapists

involved.

We believe that it is important to

heighten the SNF and therapy

industries’ awareness of the applicable

Medicare policy in this regard. Medicare

policy has not, until now, specifically

addressed coverage of skilled

rehabilitation therapy in situations in

which a single professional therapist (or

therapy assistant under the supervision

of the professional therapist)

simultaneously provides different

treatments to multiple beneficiaries. As

noted above, we have relied on the

professional therapist’s judgment as to

when it is appropriate for an individual

therapist to provide services to more

than one beneficiary. We now wish to

advise the providers of care of our

concern about the potentially adverse

effect of this practice on the quality of

the therapy provided to beneficiaries in

Part A SNF stays, as well as our concern

about the implications of making

payments in such situations. We solicit

public comments regarding the scope

and magnitude of this problem, and

possible approaches for addressing this

issue.

C. Wage Index Adjustment to Federal

Rates

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

requires that we adjust the Federal rates

to account for differences in area wage

levels, using an appropriate wage index,

as determined by the Secretary. Section

315 of BIPA 2000 authorizes the

Secretary to establish a reclassification

system for SNFs, similar to the hospital

methodology. This reclassification

system cannot be implemented until the

Secretary has collected data necessary to

establish an area wage index for SNFs

based on wage data from such facilities.

Pursuant to section 106(a) of the Social

Security Act Amendments of 1994 (P.L.

103–432), the Secretary was directed to

begin to collect data on employee

compensation and paid hours of

employment in SNFs for the purpose of

constructing a SNF wage index. Since

the inception of a PPS for SNFs, we

have utilized hospital wage data in

developing a wage index to be applied

to SNFs.

The computation of the proposed

wage index is similar to past years

because we incorporate the latest data

and methodology used to construct the

hospital wage index (see the discussion

in the May 12, 1998 interim final rule

(63 FR 26274)). The wage index

adjustment is applied to the proposed

labor-related portion of the Federal rate,

which is 75.374 percent of the total rate.

This percentage reflects the laborrelated relative importance for FY 2002.

The labor-related relative importance is

calculated from the SNF market basket,

and approximates the labor-related

portion of the total costs after taking

into account historical and projected

price changes between the base year and

FY 2002. The price proxies that move

the different cost categories in the

market basket do not necessarily change

at the same rate, and the relative

importance captures these changes.

Accordingly, the relative importance

figure more closely reflects the cost

share weights for FY 2002 than the base

year weights from the SNF market

basket.

We calculate the labor-related relative

importance for FY 2002 in four steps.

First, we compute the FY 2002 price

index level for the total market basket

and each cost category of the market

basket. Second, we calculate a ratio for

each cost category by dividing the FY

2002 price index level for that cost

category by the total market basket price

index level. Third, we determine the FY

2002 relative importance for each cost

category by multiplying this ratio by the

base year (FY 1997) weight. Finally, we

sum the FY 2002 relative importance for

each of the labor-related cost categories

(that is, wages and salaries; employee

benefits; nonmedical professional fees;

labor-intensive services; and, capitalrelated) to produce the FY 2002 laborrelated relative importance. Tables 5

and 6 show the Federal rates by laborrelated and non-labor-related

components.

TABLE 5.—CASE-MIX ADJUSTED FEDERAL RATES FOR URBAN SNFS BY

LABOR AND NON-LABOR COMPONENT

RUG III

category

Total

rate

Labor

portion

Nonlabor

portion

RUC ............ 439.91 331.58 108.33

RUB ............ 391.65 295.20 96.45

RUA ............ 368.20 277.53 90.67

RVC ............ 341.68 257.54 84.14

RVB ............ 329.27 248.18 81.09

RVA ............ 297.55 224.28 73.27

RHC ............ 317.76 239.51 78.25

RHB ............ 290.18 218.72 71.46

RHA ............ 263.98 198.97 65.01

RMC ............ 315.03 237.45 77.58

RMB ............ 279.18 210.43 68.75

RMA ............ 261.25 196.91 64.34

RLB ............. 251.67 189.69 61.98

RLA ............. 208.92 157.47 51.45

SE3 ............. 306.47 231.00 75.47

SE2 ............. 263.73 198.78 64.95

SE1 ............. 233.39 175.92 57.47

SSC ............ 227.88 171.76 56.12

SSB ............. 216.84 163.44 53.40

SSA ............. 211.33 159.29 52.04

CC2 ............. 226.50 170.72 55.78

CC1 ............. 208.57 157.21 51.36

CB2 ............. 197.54 148.89 48.65

CB1 ............. 187.89 141.62 46.27

CA2 ............. 186.51 140.58 45.93

CA1 ............. 175.48 132.27 43.21

IB2 .............. 167.20 126.03 41.17

IB1 .............. 164.45 123.95 40.50

IA2 .............. 150.66 113.56 37.10

IA1 .............. 145.14 109.40 35.74

BB2 ............. 165.83 124.99 40.84

BB1 ............. 161.69 121.87 39.82

BA2 ............. 149.28 112.52 36.76

BA1 ............. 138.25 704.20 34.05

PE2 ............. 780.99 136.42 44.57

PE1 ............. 178.24 134.35 43.89

PD2 ............. 171.34 129.15 42.19

PD1 ............. 168.58 127.07 41.51

PC2 ............. 161.69 121.87 39.82

PC1 ............. 160.31 120.83 39.48

PB2 ............. 142.38 107.32 35.06

PB1 ............. 141.01 106.28 34.73

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 23993

TABLE 5.—CASE-MIX ADJUSTED FEDERAL RATES FOR URBAN SNFS BY

LABOR AND NON-LABOR COMPONENT—Continued

RUG III

category

Total

rate

Labor

portion

Nonlabor

portion

PA2 ............. 139.63 105.24 34.39

PA1 ............. 135.49 102.12 33.37

TABLE 6.—CASE-MIX ADJUSTED FEDERAL RATES FOR RURAL SNFS BY

LABOR AND NON-LABOR COMPONENT

RUG III

category

Total

rate

Labor

portion

Nonlabor

portion

RUC ............ 463.74 349.54 114.20

RUB ............ 417.62 314.78 102.84

RUA ............ 395.22 297.89 97.33

RVC ............ 355.09 267.65 87.44

RVB ............ 343.23 258.71 84.52

RVA ............ 312.93 235.87 77.06

RHC ............ 323.97 244.19 79.78

RHB ............ 297.62 224.33 73.29

RHA ............ 272.58 205.45 67.13

RMC ............ 318.38 239.98 78.40

RMB ............ 284.12 214.15 69.97

RMA ............ 266.99 201.24 65.75

RLB ............. 251.84 189.82 62.02

RLA ............. 211.00 159.04 51.96

SE3 ............. 297.96 224.58 73.38

SE2 ............. 257.12 193.80 63.32

SE1 ............. 228.13 171.95 56.18

SSC ............ 222.86 167.98 54.88

SSB ............. 212.32 160.03 52.29

SSA ............. 207.05 156.06 50.99

CC2 ............. 221.54 166.98 54.56

CC1 ............. 204.41 154.07 50.34

CB2 ............. 193.87 146.13 47.74

CB1 ............. 184.65 139.18 45.47

CA2 ............. 183.33 138.18 45.15

CA1 ............. 172.79 130.24 42.55

IB2 .............. 164.88 124.28 40.60

IB1 .............. 162.25 122.29 39.96

IA2 .............. 149.07 112.36 36.71

IA1 .............. 143.80 108.39 35.41

BB2 ............. 163.57 123.29 40.28

BB1 ............. 159.61 120.30 39.31

BA2 ............. 147.76 111.37 36.39

BA1 ............. 137.21 103.42 33.79

PE2 ............. 178.06 134.21 43.85

PE1 ............. 175.43 132.23 43.20

PD2 ............. 168.84 127.26 41.58

PD1 ............. 166.20 125.27 40.93

PC2 ............. 159.61 120.30 39.31

PC1 ............. 158.30 119.32 38.98

PB2 ............. 141.17 106.41 34.76

PB1 ............. 139.85 105.41 34.44

TABLE 6.—CASE-MIX ADJUSTED FEDERAL RATES FOR RURAL SNFS BY

LABOR AND NON-LABOR COMPONENT—Continued

RUG III

category

Total

rate

Labor

portion

Nonlabor

portion

PA2 ............. 138.53 104.42 34.11

PA1 ............. 134.58 101.44 33.14

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

also requires that the application of this

wage index be made in a manner that

does not result in aggregate payments

that are greater or lesser than would

otherwise be made in the absence of the

wage adjustment. In this fourth PPS year

(Federal rates effective October 1, 2001),

we are updating the wage index

applicable to SNF payments using the

most recent hospital wage data and

applying an adjustment to fulfill the

budget neutrality requirement. This

requirement will be met by multiplying

each of the components of the

unadjusted Federal rates by a factor

equal to the ratio of the volume

weighted mean wage adjustment factor

(using the wage index from the previous

year) to the volume weighted mean

wage adjustment factor, using the wage

index for the FY beginning October 1,

2001. The same volume weights are

used in both the numerator and

denominator and will be derived from

1997 Medicare Provider Analysis and

Review File (MEDPAR) data. The wage

adjustment factor used in this

calculation is defined as the labor share

of the rate component multiplied by the

wage index plus the non-labor share.

The proposed budget neutrality factor

for FY 2002 is .99939.

Over the past few years, we have

received many comments asking that we

evaluate a SNF-specific wage index,

which would be based solely on wage

and hourly data from SNFs. To develop

this analysis, a schedule was added to

the cost report to gather wage and

hourly data from each SNF. In this

proposed rule we are publishing a wage

index prototype based on SNF data,

along with the wage index based on the

hospital wage data that was used in the

FY 2001 final rule published July 31,

2000 in the Federal Register (65 FR

46770).

The wage index computations for the

SNF prototype were done in the same

manner as the current wage index based

on hospital data, except that SNFs use

one of three cost reports to report their

data: Freestanding SNFs use the HCFA–

2540, Worksheet S–3; hospital-based

SNFs use the HCFA–2552, Worksheet

S–3; and low-volume SNF providers use

the HCFA–2540-S, Worksheet S–3.

The SNF-specific wage indexes

illustrated in Table 7 include the

following categories of data associated

with costs paid under the SNF PPS:

• Salaries and hours from

freestanding and hospital-based SNFs.

• Home office costs and hours.

• Certain contract labor costs and

hours.

• Wage-related costs.

Consistent with the wage index

methodology used in the development

of the hospital wage index, the wage

indexes published here would also

continue to exclude the direct and

overhead costs of salaries and hours for

services not paid through the SNF PPS,

such as home health services, and other

sub-provider components that are not

subject to the PPS. In addition, as is

done in computing the hospital wage

index, we would phase out costs

associated with graduate medical

education (GME) (teaching physicians

and residents). For purposes of

illustrating the wage indexes shown in

Table 7, the SNF wage index is based on

a blend of 60 percent of an average

hourly wage including the GME costs,

and 40 percent of an average hourly

wage excluding these costs.

Table 7 shows a side by side

comparison of the wage index. Column

A shows the Metropolitan Statistical

Area (MSA); Column B shows the wage

index, utilizing data derived from SNFs

with cost reporting periods ending

during FY 1998; Column C shows the

wage index developed using SNF data

from cost reporting periods ending

during FY 1999; and Column D shows

the wage index from the FY 2001 final

rule, as revised by the correction notice

published on January 16, 2001 (66 FR

3497).

TABLE 7.—WAGE INDEX FOR URBAN AREAS

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

0040 Abilene, TX .............................................................................................................................................................. 0.7354 0.8162 0.8240

Taylor, TX

0060 Aguadilla, PR ........................................................................................................................................................... 0.0000 0.0000 0.4391

Aguada, PR

23994 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

Aguadilla, PR

Moca, PR

0080 Akron, OH ................................................................................................................................................................ 0.9636 1.0553 0.9736

Portage, OH

Summit, OH

0120 Albany, GA .............................................................................................................................................................. 0.6203 0.7460 0.9933

Dougherty, GA

Lee, GA

0160 Albany-Schenectady-Troy, NY ................................................................................................................................ 1.0860 1.0809 0.8549

Albany, NY

Montgomery, NY

Rensselaer, NY

Saratoga, NY

Schenectady, NY

Schoharie, NY

0200 Albuquerque, NM ..................................................................................................................................................... 0.7892 0.7980 0.9136

Bernalillo, NM

Sandoval, NM

Valencia, NM

0220 Alexandria, LA ......................................................................................................................................................... 0.7849 0.6318 0.8123

Rapides, LA

0240 Allentown-Bethlehem-Easton, PA ........................................................................................................................... 1.1553 1.0749 0.9925

Carbon, PA

Lehigh, PA

Northampton, PA

0280 Altoona, PA .............................................................................................................................................................. 0.9559 0.9712 0.9346

Blair, PA

0320 Amarillo, TX ............................................................................................................................................................. 0.8377 0.8338 0.8715

Potter, TX

Randall, TX

0380 Anchorage, AK ........................................................................................................................................................ 1.5003 1.4716 1.2793

Anchorage, AK

0440 Ann Arbor, MI .......................................................................................................................................................... 1.0845 1.1059 1.1254

Lenawee, MI

Livingston, MI

Washtenaw, MI

0450 Anniston, AL ............................................................................................................................................................ 0.7619 0.9226 0.8284

Calhoun, AL

0460 Appleton-Oshkosh-Neenah, WI ............................................................................................................................... 1.0962 1.0662 0.9052

Calumet, WI

Outagamie, WI

Winnebago, WI

0470 Arecibo, PR ............................................................................................................................................................. 0.0000 0.0000 0.4525

Arecibo, PR

Camuy, PR

Hatillo, PR

0480 Asheville, NC ........................................................................................................................................................... 0.9090 0.9482 0.9516

Buncombe, NC

Madison, NC

0500 Athens, GA .............................................................................................................................................................. 0.9653 0.9264 0.9739

Clarke, GA

Madison, GA

Oconee, GA

0520 Atlanta, GA .............................................................................................................................................................. 0.9733 0.9474 1.0096

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 ..................................................................................................................................... 1.1443 1.1406 1.1182

Atlantic City, NJ

Cape May, NJ

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 23995

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

0580 Auburn-Opelika, AL ................................................................................................................................................. 0.9892 0.8857 0.8106

Lee, AL

0600 Augusta-Aiken, GA-SC ............................................................................................................................................ 0.7831 0.7898 0.9160

Columbia, GA

McDuffie, GA

Richmond, GA

Aiken, SC

Edgefield, SC

0640 Austin-San Marcos, TX ........................................................................................................................................... 0.8694 0.8826 0.9577

Bastrop, TX

Caldwell, TX

Hays, TX

Travis, TX

Williamson, TX

0680 Bakersfield, CA ........................................................................................................................................................ 1.0005 1.0059 0.9678

Kern, CA

0720 Baltimore, MD .......................................................................................................................................................... 1.0144 0.9797 0.9365

Anne Arundel, MD

Baltimore, MD

Baltimore City, MD

Carroll, MD

Harford, MD

Howard, MD

Queen Annes, MD

0733 Bangor, ME .............................................................................................................................................................. 1.0358 0.8851 0.9561

Penobscot, ME

0743 Barnstable-Yarmouth, MA ....................................................................................................................................... 1.2663 1.2722 1.3839

Barnstable, MA

0760 Baton Rouge, LA ..................................................................................................................................................... 0.7459 0.7803 0.8842

Ascension, LA

East Baton Rouge, LA

Livingston, LA

West Baton Rouge, LA

0840 Beaumont-Port Arthur, TX ....................................................................................................................................... 0.8049 0.7895 0.8744

Hardin, TX

Jefferson, TX

Orange, TX

0860 Bellingham, WA ....................................................................................................................................................... 0.9121 0.8984 1.1439

Whatcom, WA

0870 Benton Harbor, MI ................................................................................................................................................... 0.8766 0.9098 0.8671

Berrien, MI

0875 Bergen-Passaic, NJ ................................................................................................................................................. 1.3811 1.2739 1.1848

Bergen, NJ

Passaic, NJ

0880 Billings, MT .............................................................................................................................................................. 0.9429 0.9017 0.9585

Yellowstone, MT

0920 Biloxi-Gulfport-Pascagoula, MS ............................................................................................................................... 0.8023 0.9676 0.8236

Hancock, MS

Harrison, MS

Jackson, MS

0960 Binghamton, NY ...................................................................................................................................................... 0.9400 0.9231 0.8690

Broome, NY

Tioga, NY

1000 Birmingham, AL ....................................................................................................................................................... 0.8846 0.9155 0.8452

Blount, AL

Jefferson, AL

St. Clair, AL

Shelby, AL

1010 Bismarck, ND ........................................................................................................................................................... 0.8939 0.8745 0.7705

Burleigh, ND

Morton, ND

1020 Bloomington, IN ....................................................................................................................................................... 0.8272 0.9108 0.8733

Monroe, IN

1040 Bloomington-Normal, IL ........................................................................................................................................... 0.8547 0.9268 0.9095

McLean, IL

1080 Boise City, ID ........................................................................................................................................................... 1.0779 0.9592 0.9006

Ada, ID

Canyon, ID

1123 Boston-Worcester-Lawrence-Lowell-Brockton, MA–NH .......................................................................................... 1.2273 1.1947 1.1160

Bristol, MA

Essex, MA

Middlesex, MA

Norfolk, MA

Plymouth, MA

Suffolk, MA

Worcester, MA

Hillsborough, NH

23996 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

Merrimack, NH

Rockingham, NH

Strafford, NH

1125 Boulder-Longmont, CO ............................................................................................................................................ 1.1414 0.9062 0.9731

Boulder, CO

1145 Brazoria, TX ............................................................................................................................................................. 0.7869 0.7187 0.8658

Brazoria, TX

1150 Bremerton, WA ........................................................................................................................................................ 0.9945 0.9732 1.0975

Kitsap, WA

1240 Brownsville-Harlingen-San Benito, TX .................................................................................................................... 0.8226 0.7991 0.8722

Cameron, TX

1260 Bryan-College Station, TX ....................................................................................................................................... 0.8326 0.6742 0.8237

Brazos, TX

1280 Buffalo-Niagara Falls, NY ........................................................................................................................................ 1.0114 0.9494 0.9580

Erie, NY

Niagara, NY

1303 Burlington, VT .......................................................................................................................................................... 1.0690 1.0145 1.0735

Chittenden, VT

Franklin, VT

Grand Isle, VT

1310 Caguas, PR ............................................................................................................................................................. 0.0000 0.0000 0.4562

Caguas, PR

Cayey, PR

Cidra, PR

Gurabo, PR

San Lorenzo, PR

1320 Canton-Massillon, OH ............................................................................................................................................. 0.9343 0.8839 0.8584

Carroll, OH

Stark, OH

1350 Casper, WY ............................................................................................................................................................. 0.7798 0.8405 0.8724

Natrona, WY

1360 Cedar Rapids, IA ..................................................................................................................................................... 0.8652 0.9390 0.8736

Linn, IA

1400 Champaign-Urbana, IL ............................................................................................................................................ 0.9478 1.0588 0.9198

Champaign, IL

1440 Charleston-North Charleston, SC ............................................................................................................................ 0.7764 0.7695 0.9038

Berkeley, SC

Charleston, SC

Dorchester, SC

1480 Charleston, WV ....................................................................................................................................................... 0.9525 0.9975 0.9240

Kanawha, WV

Putnam, WV

1520 Charlotte-Gastonia-Rock Hill, NC–SC ..................................................................................................................... 1.0230 0.9661 0.9407

Cabarrus, NC

Gaston, NC

Lincoln, NC

Mecklenburg, NC

Rowan, NC

Stanly, NC

Union, NC

York, SC

1540 Charlottesville, VA ................................................................................................................................................... 0.9619 0.9943 1.0789

Albemarle, VA

Charlottesville City, VA

Fluvanna, VA

Greene, VA

1560 Chattanooga, TN–GA .............................................................................................................................................. 0.9186 0.8876 0.9833

Catoosa, GA

Dade, GA

Walker, GA

Hamilton, TN

Marion, TN

1580 Cheyenne, WY ........................................................................................................................................................ 1.0743 0.9800 0.8308

Laramie, WY

1600 Chicago, IL .............................................................................................................................................................. 0.9358 0.9860 1.1146

Cook, IL

De Kalb, IL

Du Page, IL

Grundy, IL

Kane, IL

Kendall, IL

Lake, IL

McHenry, IL

Will, IL

1620 Chico-Paradise, CA ................................................................................................................................................. 0.9238 0.9565 0.9918

Butte, CA

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 23997

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

1640 Cincinnati, OH–KY–IN ............................................................................................................................................ 0.9579 0.9615 0.9415

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 .............................................................................................................................. 0.7928 0.7668 0.8204

Christian, KY

Montgomery, TN

1680 Cleveland-Lorain-Elyria, OH .................................................................................................................................... 1.0330 1.0271 0.9597

Ashtabula, OH

Geauga, OH

Cuyahoga, OH

Lake, OH

Lorain, OH

Medina, OH

1720 Colorado Springs, CO ............................................................................................................................................. 0.8972 0.9387 0.9697

El Paso, CO

1740 Columbia, MO .......................................................................................................................................................... 0.9174 0.8050 0.8961

Boone, MO

1760 Columbia, SC .......................................................................................................................................................... 0.9423 0.9195 0.9554

Lexington, SC

Richland, SC

1800 Columbus, GA–AL ................................................................................................................................................... 0.7897 0.8062 0.8568

Russell, AL

Chattanoochee, GA

Harris, GA

Muscogee, GA

1840 Columbus, OH ......................................................................................................................................................... 1.0294 1.0288 0.9619

Delaware, OH

Fairfield, OH

Franklin, OH

Licking, OH

Madison, OH

Pickaway, OH

1880 Corpus Christi, TX ................................................................................................................................................... 0.8333 0.8573 0.8726

Nueces, TX

San Patricio, TX

1890 Corvallis, OR ........................................................................................................................................................... 0.7759 0.8492 1.1326

Benton, OR

1900 Cumberland, MD–WV .............................................................................................................................................. 0.8879 0.9957 0.8369

Allegany, MD

Mineral, WV

1920 Dallas, TX ................................................................................................................................................................ 0.8943 0.9558 0.9913

Collin, TX

Dallas, TX

Denton, TX

Ellis, TX

Henderson, TX

Hunt, TX

Kaufman, TX

Rockwall, TX

1950 Danville, VA ............................................................................................................................................................. 0.7390 0.7589 0.8589

Danville City, VA

Pittsylvania, VA

1960 Davenport-Moline-Rock Island, IA–IL ...................................................................................................................... 0.8633 0.8694 0.8898

Scott, IA

Henry, IL

Rock Island, IL

2000 Dayton-Springfield, OH ............................................................................................................................................ 0.9102 0.9455 0.9442

Clark, OH

Greene, OH

Miami, OH

Montgomery, OH

2020 Daytona Beach, FL .................................................................................................................................................. 0.8922 0.9231 0.9200

Flagler, FL

Volusia, FL

2030 Decatur, AL .............................................................................................................................................................. 0.9186 0.8669 0.8534

Lawrence, AL

Morgan, AL

23998 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

2040 Decatur, IL ............................................................................................................................................................... 0.8804 0.8322 0.8125

Macon, IL

2080 Denver, CO .............................................................................................................................................................. 1.0833 1.0643 1.0181

Adams, CO

Arapahoe, CO

Denver, CO

Douglas, CO

Jefferson, CO

2120 Des Moines, IA ........................................................................................................................................................ 0.9003 0.9712 0.9118

Dallas, IA

Polk, IA

Warren, IA

2160 Detroit, MI ................................................................................................................................................................ 0.9798 0.9957 1.0510

Lapeer, MI

Macomb, MI

Monroe, MI

Oakland, MI

St. Clair, MI

Wayne, MI

2180 Dothan, AL ............................................................................................................................................................... 0.7485 0.8621 0.7943

Dale, AL

Houston, AL

2190 Dover, DE ................................................................................................................................................................ 1.1346 1.0334 1.0078

Kent, DE

2200 Dubuque, IA ............................................................................................................................................................. 0.9533 1.0244 0.8746

Dubuque, IA

2240 Duluth-Superior, MN–WI ......................................................................................................................................... 0.9492 1.0842 1.0032

St. Louis, MN

Douglas, WI

2281 Dutchess County, NY .............................................................................................................................................. 1.0745 1.1267 1.0249

Dutchess, NY

2290 Eau Claire, WI ......................................................................................................................................................... 0.9402 0.9868 0.8790

Chippewa, WI

Eau Claire, WI

2320 El Paso, TX ............................................................................................................................................................. 0.7912 0.8687 0.9346

El Paso, TX

2330 Elkhart-Goshen, IN 1.0718 0.9752 0.9145

Elkhart, IN

2335 Elmira, NY ............................................................................................................................................................... 1.0063 1.0535 0.8546

Chemung, NY

2340 Enid, OK .................................................................................................................................................................. 0.7874 0.7879 0.8610

Garfield, OK

2360 Erie, PA ................................................................................................................................................................... 1.0605 1.0583 0.8985

Erie, PA

2400 Eugene-Springfield, OR ........................................................................................................................................... 0.8713 0.8417 1.0965

Lane, OR

2440 Evansville-Henderson, IN–KY ................................................................................................................................. 0.9297 0.9342 0.8173

Posey, IN

Vanderburgh, IN

Warrick, IN

Henderson, KY

2520 Fargo-Moorhead, ND–MN ....................................................................................................................................... 0.9621 1.0643 0.8749

Clay, MN

Cass, ND

2560 Fayetteville, NC ....................................................................................................................................................... 0.8495 0.8584 0.8655

Cumberland, NC

2580 Fayetteville-Springdale-Rogers, AR ........................................................................................................................ 0.8193 0.8512 0.7910

Benton, AR

Washington, AR

2620 Flagstaff, AZ–UT ..................................................................................................................................................... 1.2591 1.0997 1.0686

Coconino, AZ

Kane, UT

2640 Flint, MI .................................................................................................................................................................... 0.9788 0.9726 1.1205

Genesee, MI

2650 Florence, AL ............................................................................................................................................................ 0.9251 0.9031 0.7616

Colbert, AL

Lauderdale, AL

2655 Florence, SC ............................................................................................................................................................ 0.7684 0.7799 0.8777

Florence, SC

2670 Fort Collins-Loveland, CO ....................................................................................................................................... 0.9010 0.9680 1.0647

Larimer, CO

2680 Ft. Lauderdale, FL ..................................................................................................................................................... 0.9681 0.9625 1.0121

Broward, FL

2700 Fort Myers-Cape Coral, FL ..................................................................................................................................... 0.9444 0.8951 0.9247

Lee, FL

2710 Fort Pierce-Port St. Lucie, FL ................................................................................................................................. 1.0172 0.9880 0.9538

Martin, FL

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 23999

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

St. Lucie, FL

2720 Fort Smith, AR–OK .................................................................................................................................................. 0.7268 0.7499 0.8052

Crawford, AR

Sebastian, AR

Sequoyah, OK

2750 Fort Walton Beach, FL ............................................................................................................................................ 0.9440 0.9582 0.9607

Okaloosa, FL

2760 Fort Wayne, IN . ...................................................................................................................................................... 0.9082 0.9763 0.8665

Adams, IN

Allen, IN

De Kalb, IN

Huntington, IN

Wells, IN

Whitley, IN

2800 Forth Worth-Arlington, TX ....................................................................................................................................... 0.8821 0.9047 0.9527

Hood, TX

Johnson, TX

Parker, TX

Tarrant, TX

2840 Fresno, CA .............................................................................................................................................................. 0.8738 0.9823 1.0104

Fresno, CA

Madera, CA

2880 Gadsden, AL ............................................................................................................................................................ 0.9108 0.6287 0.8423

Etowah, AL

2900 Gainesville, FL ......................................................................................................................................................... 0.9325 1.0300 1.0074

Alachua, FL

2920 Galveston-Texas City, TX ....................................................................................................................................... 0.7678 0.6821 0.9918

Galveston, TX

2960 Gary, IN ................................................................................................................................................................... 0.9827 0.9807 0.9454

Lake, IN

Porter, IN

2975 Glens Falls, NY ....................................................................................................................................................... 0.9560 0.9772 0.8361

Warren, NY

Washington, NY

2980 Goldsboro, NC ......................................................................................................................................................... 0.9370 0.8740 0.8423

Wayne, NC

2985 Grand Forks, ND–MN .............................................................................................................................................. 0.8816 0.9022 0.8816

Polk, MN

Grand Forks, ND

2995 Grand Junction, CO ................................................................................................................................................. 0.9539 0.9156 0.9109

Mesa, CO.

3000 Grand Rapids-Muskegon-Holland, MI ..................................................................................................................... 0.9715 0.9978 1.0248

Allegan, MI

Kent, MI

Muskegon, MI

Ottawa, MI

3040 Great Falls, MT ........................................................................................................................................................ 0.9712 1.0019 0.9065

Cascade, MT

3060 Greeley, CO ............................................................................................................................................................. 0.9253 0.8880 0.9814

Weld, CO

3080 Green Bay, WI ......................................................................................................................................................... 0.9441 1.0262 0.9225

Brown, WI

3120 Greensboro-Winston-Salem-High Point, NC ........................................................................................................... 1.0166 0.9782 0.9131

Alamance, NC

Davidson, NC

Davie, NC

Forsyth, NC

Guilford, NC

Randolph, NC

Stokes, NC

Yadkin, NC

3150 Greenville, NC ......................................................................................................................................................... 0.8844 0.9400 0.9384

Pitt, NC

3160 Greenville-Spartanburg-Anderson, SC .................................................................................................................... 0.8362 0.9622 0.9003

Anderson, SC

Cherokee, SC

Greenville, SC

Pickens, SC

Spartanburg, SC

3180 Hagerstown, MD ...................................................................................................................................................... 0.9318 0.9153 0.9409

Washington, MD

3200 Hamilton-Middletown, OH ........................................................................................................................................ 0.9739 0.9532 0.9061

Butler, OH

3240 Harrisburg-Lebanon-Carlisle, PA ............................................................................................................................. 1.1052 1.0753 0.9386

Cumberland, PA

Dauphin, PA

Lebanon, PA

24000 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

Perry, PA

3283 Hartford, CT ............................................................................................................................................................. 1.2733 1.1675 1.1373

Hartford, CT

Litchfield, CT

Middlesex, CT

Tolland, CT

3285 Hattiesburg, MS ....................................................................................................................................................... 0.8421 0.7540 0.7490

Forrest, MS

Lamar, MS

3290 Hickory-Morganton-Lenoir, NC ................................................................................................................................ 0.9086 0.9027 0.9008

Alexander, NC

Burke, NC

Caldwell, NC

Catawba, NC

3320 Honolulu, HI ............................................................................................................................................................. 1.2242 1.2838 1.1863

Honolulu, HI

3350 Houma, LA ............................................................................................................................................................... 0.6694 0..6749 0.8086

Lafourche, LA

Terrebonne, LA

3360 Houston, TX ............................................................................................................................................................. 0.8506 0.8634 0.9732

Chambers, TX

Fort Bend, TX

Harris, TX

Liberty, TX

Montgomery, TX

Waller, TX

3400 Huntington-Ashland, WV–KY–OH ........................................................................................................................... 0.7948 0.8957 0.9876

Boyd, KY

Carter, KY

Greenup, KY

Lawrence, OH

Cabell, WV

Wayne, WV

3440 Huntsville, AL ........................................................................................................................................................... 0.9774 0.7569 0.8932

Limestone, AL

Madison, AL

3480 Indianapolis, IN ........................................................................................................................................................ 0.9932 1.0128 0.9787

Boone, IN

Hamilton, IN

Hancock, IN

Hendricks, IN

Johnson, IN

Madison, IN

Marion, IN

Morgan, IN

Shelby, IN

3500 Iowa City, IA ............................................................................................................................................................ 0.9092 0.8611 0.9657

Johnson, IA

3520 Jackson, MI ............................................................................................................................................................. 0.9393 1.0367 0.9134

Jackson, MI

3560 Jackson, MS ............................................................................................................................................................ 0.8731 0.9642 0.8812

Hinds, MS

Madison, MS

Rankin, MS

3580 Jackson, TN ............................................................................................................................................................. 0.9437 0.8032 0.8796

Chester, TN

Madison, TN

3600 Jacksonville, FL ....................................................................................................................................................... 0.9566 0.9309 0.9208

Clay, FL

Duval, FL

Nassau, FL

St. Johns, FL

3605 Jacksonville, NC ...................................................................................................................................................... 0.6554 0.8257 0.7777

Onslow, NC

3610 Jamestown, NY ....................................................................................................................................................... 0.9276 0.8990 0.7818

Chautaqua, NY

3620 Janesville-Beloit, WI ................................................................................................................................................ 0.8899 0.9652 0.9585

Rock, WI

3640 Jersey City, NJ ........................................................................................................................................................ 1.2879 0.8535 1.1502

Hudson, NJ

3660 Johnson City-Kingsport-Bristol, TN–VA .................................................................................................................. 0.8853 0.8303 0.8272

Carter, TN

Hawkins, TN

Sullivan, TN

Unicoi, TN

Washington, TN

Bristol City, VA

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24001

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

Scott, VA

Washington, VA

3680 Johnstown, PA ......................................................................................................................................................... 0.9877 0.9914 0.8846

Cambria, PA

Somerset, PA

3700 Jonesboro, AR ......................................................................................................................................................... 0.6568 0.8322 0.7832

Craighead, AR

3710 Joplin, MO .............................................................................................................................................................. 0.8112 0.8128 0.8148

Jasper, MO

Newton, MO

3720 Kalamazoo-Battle Creek, MI ................................................................................................................................... 0.9773 0.9982 1.0453

Calhoun, MI

Kalamazoo, MI

Van Buren, MI

3740 Kankakee, IL ............................................................................................................................................................ 0.8635 0.8886 0.9902

Kankakee, IL

3760 Kansas City, KS–MO ............................................................................................................................................... 0.9439 0.9726 0.9527

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 ............................................................................................................................................................ 1.1006 1.0354 0.9611

Kenosha, WI

3810 Killeen-Temple, TX .................................................................................................................................................. 0.7996 0.8280 1.0119

Bell, TX

Coryell, TX

3840 Knoxville, TN ........................................................................................................................................................... 0.9046 0.8712 0.8340

Anderson, TN

Blount, TN

Knox, TN

Loudon, TN

Sevier, TN

Union, TN

3850 Kokomo, IN .............................................................................................................................................................. 1.0415 0.8785 0.9518

Howard, IN

Tipton, IN

3870 La Crosse, WI–MN .................................................................................................................................................. 0.9343 0.9838 0.9211

Houston, MN

La Crosse, WI

3880 Lafayette, LA ........................................................................................................................................................... 0.7373 0.7000 0.8490

Acadia, LA

Lafayette, LA

St. Landry, LA

St. Martin, LA

3920 Lafayette, IN ............................................................................................................................................................ 1.0308 0.9298 0.8834

Clinton, IN

Tippecanoe, IN

3960 Lake Charles, LA ..................................................................................................................................................... 0.7437 0.7102 0.7399

Calcasieu, LA

3980 Lakeland-Winter Haven, FL ..................................................................................................................................... 1.0545 1.0235 0.9239

Polk, FL

4000 Lancaster, PA .......................................................................................................................................................... 1.0528 1.0114 0.9259

Lancaster, PA

4040 Lansing-East Lansing, MI ........................................................................................................................................ 0.9933 1.0271 0.9934

Clinton, MI

Eaton, MI

Ingham, MI

4080 Laredo, TX ............................................................................................................................................................... 0.7832 0.8348 0.8168

Webb, TX

4100 Las Cruces, NM ....................................................................................................................................................... 0.6816 0.7263 0.8658

Dona Ana, NM

4120 Las Vegas, NV–AZ .................................................................................................................................................. 1.0189 1.0278 1.0796

Mohave, AZ

Clark, NV

Nye, NV

4150 Lawrence, KS .......................................................................................................................................................... 0.9625 0.9352 0.8190

Douglas, KS

4200 Lawton, OK .............................................................................................................................................................. 0.6546 0.7951 0.8996

Comanche, OK

4243 Lewiston-Auburn, ME .............................................................................................................................................. 0.8717 0.9202 0.9036

24002 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

Androscoggin, ME

4280 Lexington, KY .......................................................................................................................................................... 0.9208 0.7549 0.8866

Bourbon, KY

Clark, KY

Fayette, KY

Jessamine, KY

Madison, KY

Scott, KY

Woodford, KY

4320 Lima, OH ................................................................................................................................................................. 0.8609 0.9397 0.9320

Allen, OH

Auglaize, OH

4360 Lincoln, NE .............................................................................................................................................................. 1.0497 1.0192 0.9626

Lancaster, NE

4400 Little Rock-North Little Rock, AR ............................................................................................................................ 0.9213 0.9210 0.8906

Faulkner, AR

Lonoke, AR

Pulaski, AR

Saline, AR

4420 Longview-Marshall, TX ............................................................................................................................................ 0.7978 0.9291 0.8922

Gregg, TX

Harrison, TX

Upshur, TX

4480 Los Angeles-Long Beach, CA ................................................................................................................................. 1.0083 1.0129 1.1996

Los Angeles, CA

4520 Louisville, KY–IN ..................................................................................................................................................... 0.9433 0.9206 0.9350

Clark, IN

Floyd, IN

Harrison, IN

Scott, IN

Bullitt, KY

Jefferson, KY

Oldham, KY

4600 Lubbock, TX ............................................................................................................................................................ 0.7676 0.7802 0.8838

Lubbock, TX

4640 Lynchburg, VA ......................................................................................................................................................... 0.8673 0.8209 0.8867

Amherst, VA

Bedford City, VA

Bedford, VA

Campbell, VA

Lynchburg City, VA

4680 Macon, GA ............................................................................................................................................................... 0.8420 0.7877 0.8974

Bibb, GA

Houston, GA

Jones, GA

Peach, GA

Twiggs, GA

4720 Madison, WI ............................................................................................................................................................. 0.9982 1.0705 1.0271

Dane, WI

4800 Mansfield, OH .......................................................................................................................................................... 0.8294 0.9051 0.8690

Crawford, OH

Richland, OH

4840 Mayaguez, PR ......................................................................................................................................................... 0.0000 0.0000 0.4589

Anasco, PR

Cabo Rojo, PR

Hormigueros, PR

Mayaguez, PR

Sabana Grande, PR

San German, PR

4880 McAllen-Edinburg-Mission, TX ................................................................................................................................ 0.8136 0.7935 0.8566

Hidalgo, TX

4890 Medford-Ashland, OR .............................................................................................................................................. 0.9732 0.9528 1.0344

Jackson, OR

4900 Melbourne-Titusville-Palm Bay, FL ......................................................................................................................... 1.0452 1.0178 0.9688

Brevard, Fl

4920 Memphis, TN–AR–MS ............................................................................................................................................. 0.9554 0.9919 0.8723

Crittenden, AR

De Soto, MS

Fayette, TN

Shelby, TN

Tipton, TN

4940 Merced, CA .............................................................................................................................................................. 0.7959 0.9022 0.9646

Merced, CA

5000 Miami, FL ................................................................................................................................................................. 0.9359 0.9577 1.0059

Dade, FL

5015 Middlesex-Somerset-Hunterdon, NJ ....................................................................................................................... 1.1283 1.2052 1.1075

Hunterdon, NJ

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24003

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

Middlesex, NJ

Somerset, NJ

5080 Milwaukee-Waukesha, WI ....................................................................................................................................... 1.0373 1.0397 0.9767

Milwaukee, WI

Ozaukee, WI

Washington, WI

Waukesha, WI

5120 Minneapolis-St Paul, MN–WI .................................................................................................................................. 1.2186 1.2375 1.1017

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

5140 Missoula, MT ......................................................................................................................................................... 0.9197 0.8724 0.9274

Missoula, MT

5160 Mobile, AL ................................................................................................................................................................ 0.8273 0.9284 0.8163

Baldwin, AL

Mobile, AL

5170 Modesto, CA ............................................................................................................................................................ 0.8732 0.9675 1.0396

Stanislaus, CA

5190 Monmouth-Ocean, NJ ............................................................................................................................................. 1.1251 1.0979 1.1278

Monmouth, NJ

Ocean, NJ

5200 Monroe, LA .............................................................................................................................................................. 0.7793 0.8161 0.8396

Ouachita, LA

5240 Montgomery, AL ...................................................................................................................................................... 0.7738 0.8229 0.7653

Autauga, AL

Elmore, AL

Montgomery, AL

5280 Muncie, IN ............................................................................................................................................................... 0.9597 0.9550 1.0969

Delaware, IN

5330 Myrtle Beach, SC .................................................................................................................................................... 0.9077 0.7922 0.8440

Horry, SC

5345 Naples, FL ............................................................................................................................................................... 0.9628 1.0437 0.9661

Collier, FL

5360 Nashville, TN ........................................................................................................................................................... 0.9408 0.9345 0.9490

Cheatham, TN

Davidson, TN

Dickson, TN

Robertson, TN

Rutherford, TN

Sumner, TN

Williamson, TN

Wilson, TN

5380 Nassau-Suffolk, NY ................................................................................................................................................. 1.5592 1.5034 1.3932

Nassau, NY

Suffolk, NY

5483 New Haven-Bridgeport-Stamford-Waterbury-Danbury, CT ..................................................................................... 1.2799 1.3446 1.2297

Fairfield, CT

New Haven, CT

5523 New London-Norwich, CT ....................................................................................................................................... 1.2035 1.2438 1.2063

New London, CT

5560 New Orleans, LA ..................................................................................................................................................... 0.8077 0.8436 0.9295

Jefferson, LA

Orleans, LA

Plaquemines, LA

St. Bernard, LA

St. Charles, LA

St. James, LA

St. John The Baptist, LA

St. Tammany, LA

5600 New York, NY .......................................................................................................................................................... 1.5638 1.4983 1.4651

Bronx, NY

Kings, NY

New York, NY

Putnam, NY

Queens, NY

Richmond, NY

Rockland, NY

24004 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

Westchester, NY

5640 Newark, NJ .............................................................................................................................................................. 1.2344 1.1704 1.1837

Essex, NJ

Morris, NJ

Sussex, NJ

Union, NJ

Warren, NJ

5660 Newburgh, NY–PA .................................................................................................................................................. 1.2791 1.2347 1.0847

Orange, NY

Pike, PA

5720 Norfolk-Virginia Beach-Newport News, VA–NC ...................................................................................................... 0.8084 0.7828 0.8412

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 ............................................................................................................................................................ 1.0815 1.0616 1.4983

Alameda, CA

Contra Costa, CA

5790 Ocala, FL ................................................................................................................................................................. 0.9967 0.7345 0.9243

Marion, FL

5800 Odessa-Midland, TX ................................................................................................................................................ 0.7857 0.8858 0.9205

Ector, TX

Midland, TX

5880 Oklahoma City, OK .................................................................................................................................................. 0.7911 0.7955 0.8822

Canadian, OK

Cleveland, OK

Logan, OK

McClain, OK

Oklahoma, OK

Pottawatomie, OK

5910 Olympia, WA ............................................................................................................................................................ 0.9888 0.9548 1.0677

Thurston, WA

5920 Omaha, NE–IA ........................................................................................................................................................ 1.0212 1.0731 0.9572

Pottawattamie, IA

Cass, NE

Douglas, NE

Sarpy, NE

Washington, NE

5945 Orange County, CA ................................................................................................................................................. 1.0747 1.0649 1.1467

Orange, CA

5960 Orlando, FL .............................................................................................................................................................. 0.9445 0.9566 0.9610

Lake, FL

Orange, FL

Osceola, FL

Seminole, FL

5990 Owensboro, KY ....................................................................................................................................................... 1.0374 0.8987 0.8159

Daviess, KY

6015 Panama City, FL ...................................................................................................................................................... 0.9224 0.9344 0.9010

Bay, FL

6020 Parkersburg-Marietta, WV–OH ................................................................................................................................ 0.9779 0.9064 0.8274

Washington, OH

Wood, WV

6080 Pensacola, FL .......................................................................................................................................................... 0.7929 0.8519 0.8176

Escambia, FL

Santa Rosa, FL

6120 Peoria-Pekin, IL ....................................................................................................................................................... 0.8375 0.9017 0.8645

Peoria, IL

Tazewell, IL

Woodford, IL

6160 Philadelphia, PA–NJ ................................................................................................................................................ 1.1553 1.1460 1.0937

Burlington, NJ

Camden, NJ

Gloucester, NJ

Salem, NJ

Bucks, PA

Chester, PA

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24005

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

Delaware, PA

Montgomery, PA

Philadelphia, PA

6200 Phoenix-Mesa, AZ ................................................................................................................................................... 1.0176 1.0219 0.9669

Maricopa, AZ

Pinal, AZ

6240 Pine Bluff, AR .......................................................................................................................................................... 0.6727 0.7983 0.7791

Jefferson, AR

6280 Pittsburgh, PA .......................................................................................................................................................... 1.0937 1.0574 0.9741

Allegheny, PA

Beaver, PA

Butler, PA

Fayette, PA

Washington, PA

Westmoreland, PA

6323 Pittsfield, MA ............................................................................................................................................................ 1.1357 1.0739 1.0288

Berkshire, MA

6340 Pocatello, ID ............................................................................................................................................................ 0.7864 0.7717 0.9076

Bannock, ID

6360 Ponce, PR ............................................................................................................................................................... 0.7238 0.6854 0.5006

Guayanilla, PR

Juana Diaz, PR

Penuelas, PR

Ponce, PR

Villalba, PR

Yauco, PR

6403 Portland, ME ............................................................................................................................................................ 1.0594 1.0378 0.9748

Cumberland, ME

Sagadahoc, ME

York, ME

6440 Portland-Vancouver, OR–WA .................................................................................................................................. 1.0495 1.0048 1.0910

Clackamas, OR

Columbia, OR

Multnomah, OR

Washington, OR

Yamhill, OR

Clark, WA

6483 Providence-Warwick-Pawtucket, RI ........................................................................................................................ 1.0486 1.0120 1.0864

Bristol, RI

Kent, RI

Newport, RI

Providence, RI

Washington, RI

6520 Provo-Orem, UT ...................................................................................................................................................... 0.7640 0.9453 1.0029

Utah, UT

6560 Pueblo, CO .............................................................................................................................................................. 0.8689 0.9305 0.8815

Pueblo, CO

6580 Punta Gorda, FL ...................................................................................................................................................... 0.9549 0.9761 0.9613

Charlotte, FL

6600 Racine, WI ............................................................................................................................................................... 1.1701 1.1432 0.9246

Racine, WI

6640 Raleigh-Durham-Chapel Hill, NC ............................................................................................................................ 1.0767 1.0122 0.9646

Chatham, NC

Durham, NC

Franklin, NC

Johnston, NC

Orange, NC

Wake, NC

6660 Rapid City, SD ......................................................................................................................................................... 0.7728 0.9584 0.8865

Pennington, SD

6680 Reading, PA ............................................................................................................................................................ 1.0531 1.1283 0.9152

Berks, PA

6690 Redding, CA ............................................................................................................................................................ 1.1269 1.0330 1.1664

Shasta, CA

6720 Reno, NV ................................................................................................................................................................. 1.0926 1.2112 1.0550

Washoe, NV

6740 Richland-Kennewick-Pasco, WA ............................................................................................................................. 1.0241 1.0334 1.1460

Benton, WA

Franklin, WA

6760 Richmond-Petersburg, VA ....................................................................................................................................... 0.7927 0.8517 0.9617

Charles City County, VA

Chesterfield, VA

Colonial Heights City, VA

Dinwiddie, VA

Goochland, VA

Hanover, VA

Henrico, VA

24006 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

Hopewell City, VA

New Kent, VA

Petersburg City, VA

Powhatan, VA

Prince George, VA

Richmond City, VA

6780 Riverside-San Bernardino, CA ................................................................................................................................ 1.0127 1.0086 1.1239

Riverside, CA

San Bernardino, CA

6800 Roanoke, VA ........................................................................................................................................................... 0.7443 0.8052 0.8750

Botetourt, VA

Roanoke, VA

Roanoke City, VA

Salem City, VA

6820 Rochester, MN ......................................................................................................................................................... 1.1764 1.1235 1.1315

Olmsted, MN

6840 Rochester, NY ......................................................................................................................................................... 1.0708 1.0488 0.9182

Genesee, NY

Livingston, NY

Monroe, NY

Ontario, NY

Orleans, NY

Wayne, NY

6880 Rockford, IL ............................................................................................................................................................. 0.8844 0.9617 0.8819

Boone, IL

Ogle, IL

Winnebago, IL

6895 Rocky Mount, NC .................................................................................................................................................... 0.9221 0.8247 0.8849

Edgecombe, NC

Nash, NC

6920 Sacramento, CA ...................................................................................................................................................... 1.0230 1.0580 1.1950

El Dorado, CA

Placer, CA

Sacramento, CA

A6960 Saginaw-Bay City-Midland, MI .............................................................................................................................. 0.8510 0.9002 0.9575

Bay, MI

Midland, MI

Saginaw, MI

6980 St. Cloud, MN .......................................................................................................................................................... 0.8480 0.9556 1.0016

Benton, MN

Stearns, MN

7000 St. Joseph, MO ........................................................................................................................................................ 1.1074 1.0774 0.9071

Andrews, MO

Buchanan, MO

7040 St. Louis, MO–IL ...................................................................................................................................................... 0.8900 0.9056 0.9049

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 ............................................................................................................................................................... 0.9308 0.8379 1.0189

Marion, OR

Polk, OR

7120 Salinas, CA .............................................................................................................................................................. 1.0856 1.1224 1.4502

Monterey, CA

7160 Salt Lake City-Ogden, UT ....................................................................................................................................... 0.9984 0.9405 0.9807

Davis, UT

Salt Lake, UT

Weber, UT

7200 San Angelo, TX ....................................................................................................................................................... 0.8222 0.7841 0.8083

Tom Green, TX

7240 San Antonio, TX ...................................................................................................................................................... 0.8252 0.8159 0.8580

Bexar, TX

Comal, TX

Guadalupe, TX

Wilson, TX

7320 San Diego, CA ......................................................................................................................................................... 1.0177 1.0038 1.1784

San Diego, CA

7360 San Francisco, CA .................................................................................................................................................. 1.1958 1.1930 1.4156

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24007

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

Marin, CA

San Francisco, CA

San Mateo, CA

7400 San Jose, CA .......................................................................................................................................................... 1.0787 1.1736 1.3652

Santa Clara, CA

7440 San Juan-Bayamon, PR .......................................................................................................................................... 0.5454 0.5070 0.4690

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

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 Obispo-Atascadero-Paso Robles, CA ...................................................................................................... 1.0873 0.9472 1.0673

San Luis Obispo, CA

7480 Santa Barbara-Santa Maria-Lompoc, CA ............................................................................................................... 0.9547 1.0338 1.0597

Santa Barbara, CA

7485 Santa Cruz-Watsonville, CA .................................................................................................................................... 1.1349 0.9398 1.4040

Santa Cruz, CA

7490 Santa Fe, NM ............................................................................................................................................................. 0.8636 1.3115 1.0537

Los Alamos, NM

Santa Fe, NM

7500 Santa Rosa, CA ....................................................................................................................................................... 1.0368 1.1709 1.2646

Sonoma, CA

7510 Sarasota-Bradenton, FL .......................................................................................................................................... 1.0006 1.0294 0.9809

Manatee, FL

Sarasota, FL

7520 Savannah, GA ......................................................................................................................................................... 0.8804 0.7861 0.9697

Bryan, GA

Chatham, GA

Effingham, GA

7560 Scranton-Wilkes-Barre-Hazleton, PA ...................................................................................................................... 1.0313 1.0346 0.8421

Columbia, PA

Lackawanna, PA

Luzerne, PA

Wyoming, PA

7600 Seattle-Bellevue-Everett, WA .................................................................................................................................. 1.1078 1.0440 1.0996

Island, WA

King, WA

Snohomish, WA

7610 Sharon, PA .............................................................................................................................................................. 1.0333 0.9605 0.7928

Mercer, PA

7620 Sheboygan, WI ........................................................................................................................................................ 1.1775 1.2892 0.8379

Sheboygan, WI

7640 Sherman-Denison, TX ............................................................................................................................................. 0.8663 0.8372 0.8694

Grayson, TX

7680 Shreveport-Bossier City, LA .................................................................................................................................... 0.7241 0.6735 0.8750

Bossier, LA

Caddo, LA

Webster, LA

7720 Sioux City, IA–NE ................................................................................................................................................... 0.9021 0.9063 0.8473

Woodbury, IA

Dakota, NE

7760 Sioux Falls, SD ........................................................................................................................................................ 0.8511 0.9286 0.8790

24008 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

Lincoln, SD

Minnehaha, SD

7800 South Bend, IN ........................................................................................................................................................ 1.0075 1.0621 1.0000

St. Joseph, IN

7840 Spokane, WA ........................................................................................................................................................... 0.9486 0.9854 1.0513

Spokane, WA

7880 Springfield, IL ........................................................................................................................................................... 0.8276 0.9314 0.8685

Menard, IL

Sangamon, IL

7920 Springfield, MO ........................................................................................................................................................ 0.9289 0.9309 0.8488

Christian, MO

Greene, MO

Webster, MO

8003 Springfield, MA ................................................................................................................................................. 1.2171 1.1537 1.0637

Hampden, MA

Hampshire, MA

8050 State College, PA .................................................................................................................................................... 1.0164 0.9558 0.9038

Centre, PA

8080 Steubenville-Weirton, OH–WV ................................................................................................................................ 0.9182 0.9057 0.8548

Jefferson, OH

Brooke, WV

Hancock, WV

8120 Stockton-Lodi, CA .................................................................................................................................................... 0.9860 1.0313 1.0629

San Joaquin, CA

8140 Sumter, SC .............................................................................................................................................................. 0.7762 0.8687 0.8271

Sumter, SC

8160 Syracuse, NY ........................................................................................................................................................... 1.0121 1.0499 0.9549

Cayuga, NY

Madison, NY

Onondaga, NY

Oswego, NY

8200 Tacoma, WA ............................................................................................................................................................ 0.9407 0.9441 1.1564

Pierce, WA

8240 Tallahassee, FL ....................................................................................................................................................... 0.9658 0.9761 0.8545

Gadsden, FL

Leon, FL

8280 Tampa-St. Petersburg-Clearwater, FL .................................................................................................................... 1.0177 1.0025 0.8982

Hernando, FL

Hillsborough, FL

Pasco, FL

Pinellas, FL

8320 Terre Haute, IN ........................................................................................................................................................ 0.8222 0.8286 0.8304

Clay, IN

Vermillion, IN

Vigo, IN

8360 Texarkana, AR-Texarkana, TX ................................................................................................................................ 0.8290 0.8049 0.8363

Miller, AR

Bowie, TX

8400 Toledo, OH .............................................................................................................................................................. 0.9963 0.9904 0.9832

Fulton, OH

Lucas, OH

Wood, OH

8440 Topeka, KS .............................................................................................................................................................. 0.7969 0.8241 0.9117

Shawnee, KS

8480 Trenton, NJ .............................................................................................................................................................. 1.1897 1.1835 1.0137

Mercer, NJ

8520 Tucson, AZ .............................................................................................................................................................. 0.9488 0.9534 0.8794

Pima, AZ

8560 Tulsa, OK ................................................................................................................................................................. 0.8445 0.8104 0.8454

Creek, OK

Osage, OK

Rogers, OK

Tulsa, OK

Wagoner, OK

8600 Tuscaloosa, AL ........................................................................................................................................................ 0.8490 0.8208 0.8064

Tuscaloosa, AL

8640 Tyler, TX .................................................................................................................................................................. 0.8607 0.8562 0.9404

Smith, TX

8680 Utica-Rome, NY ....................................................................................................................................................... 0.9634 0.9279 0.8560

Herkimer, NY

Oneida, NY

8720 Vallejo-Fairfield-Napa, CA ....................................................................................................................................... 1.1949 1.1287 1.2847

Napa, CA

Solano, CA

8735 Ventura, CA ............................................................................................................................................................. 1.0838 1.0338 1.1030

Ventura, CA

8750 Victoria, TX .............................................................................................................................................................. 0.7002 0.7270 0.8154

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24009

TABLE 7.—WAGE INDEX FOR URBAN AREAS—Continued

Urban Area (Constituent Counties or County Equivalents)

Wage Index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

Victoria, TX

8760 Vineland-Millville-Bridgeton, NJ ............................................................................................................................... 1.1806 1.1019 1.0501

Cumberland, NJ

8780 Visalia-Tulare-Porterville, CA .................................................................................................................................. 0.9010 0.9027 0.9551

Tulare, CA

8800 Waco, TX ................................................................................................................................................................. 0.8453 0.8291 0.8314

McLennan, TX

8840 Washington, DC–MD–VA–WV ................................................................................................................................ 1.0430 1.0368 1.0755

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 ......................................................................................................................................... 0.8201 0.8820 0.8404

Black Hawk, IA

8940 Wausau, WI ............................................................................................................................................................. 1.1470 1.2648 0.9418

Marathon, WI

8960 West Palm Beach-Boca Raton, FL ......................................................................................................................... 1.0131 0.9912 0.9682

Palm Beach, FL

9000 Wheeling, OH–WV .................................................................................................................................................. 0.9131 0.9078 0.7733

Belmont, OH

Marshall, WV

Ohio, WV

9040 Wichita, KS .............................................................................................................................................................. 0.9211 0.9050 0.9544

Butler, KS

Harvey, KS

Sedgwick, KS

9080 Wichita Falls, TX ..................................................................................................................................................... 0.7375 0.7385 0.7668

Archer, TX

Wichita, TX

9140 Williamsport, PA ...................................................................................................................................................... 0.9543 1.0264 0.8392

Lycoming, PA

9160 Wilmington-Newark, DE–MD ................................................................................................................................... 1.0931 1.0284 1.1191

New Castle, DE

Cecil, MD

9200 Wilmington, NC ........................................................................................................................................................ 0.9507 0.8675 0.9402

New Hanover, NC

Brunswick, NC

9260 Yakima, WA ............................................................................................................................................................. 0.9038 0.8770 0.9907

Yakima, WA

9270 Yolo, CA .................................................................................................................................................................. 1.0452 1.0260 1.0199

Yolo, CA

9280 York, PA .................................................................................................................................................................. 1.0718 1.0923 0.9264

York, PA

9320 Youngstown-Warren, OH ........................................................................................................................................ 0.8731 0.8594 0.9543

Columbiana, OH

Mahoning, OH

Trumbull, OH

9340 Yuba City, CA .......................................................................................................................................................... 1.0615 1.0246 1.0706

Sutter, CA

Yuba, CA

9360 Yuma, AZ ................................................................................................................................................................. 0.9209 0.9020 0.9529

Yuma, AZ

24010 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

TABLE 8.—WAGE INDEX FOR RURAL AREAS

Rural area

Wage index

SNF98 SNF99 HOSP

Col. A Col. B Col. C Col. D

Alabama ............................................................................................................................................. 0.7724 0.8020 0.7489

Alaska ................................................................................................................................................ 1.4132 1.3582 1.2392

Arizona ............................................................................................................................................... 1.0111 0.9175 0.8317

Arkansas ............................................................................................................................................ 0.6972 0.7278 0.7445

California ............................................................................................................................................ 0.9685 0.9712 0.9861

Colorado ............................................................................................................................................ 0.8710 0.9147 0.8968

Connecticut ........................................................................................................................................ 1.2870 1.0540 1.1715

Delaware ............................................................................................................................................ 1.0854 0.9338 0.9074

Florida ................................................................................................................................................ 0.8331 0.8921 0.8919

Georgia .............................................................................................................................................. 0.7850 0.7985 0.8329

Guam ................................................................................................................................................. 0.0000 0.0000 0.9611

Hawaii ................................................................................................................................................ 1.1915 1.2995 1.1059

Idaho .................................................................................................................................................. 0.8892 0.8320 0.8678

Illinois ................................................................................................................................................. 0.8296 0.8274 0.8160

Indiana ............................................................................................................................................... 0.8875 0.9008 0.8602

Iowa ................................................................................................................................................... 0.7706 0.7834 0.8030

Kansas ............................................................................................................................................... 0.7562 0.7941 0.7605

Kentucky ............................................................................................................................................ 0.8237 0.7905 0.7931

Louisiana ............................................................................................................................................ 0.6699 0.7014 0.7681

Maine ................................................................................................................................................. 0.8766 0.8908 0.8766

Maryland ............................................................................................................................................ 0.9015 0.8780 0.8651

Massachusetts ................................................................................................................................... 1.1740 1.2039 1.1204

Michigan ............................................................................................................................................. 0.9505 0.9655 0.8987

Minnesota .......................................................................................................................................... 1.1396 1.0221 0.8881

Mississippi .......................................................................................................................................... 0.7412 0.7885 0.7491

Missouri .............................................................................................................................................. 0.7904 0.7898 0.7698

Montana ............................................................................................................................................. 0.8996 0.8606 0.8688

Nebraska ............................................................................................................................................ 0.7977 0.8182 0.8109

Nevada ............................................................................................................................................... 0.8621 0.9222 0.9232

New Hampshire ................................................................................................................................. 1.1065 1.1171 0.9845

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

New Mexico ....................................................................................................................................... 0.6834 0.8052 0.8497

New York ........................................................................................................................................... 1.0081 0.9981 0.8499

North Carolina .................................................................................................................................... 0.9255 0.9028 0.8445

North Dakota ...................................................................................................................................... 0.7649 0.7779 0.7716

Ohio ................................................................................................................................................... 0.8895 0.8948 0.8670

Oklahoma ........................................................................................................................................... 0.7481 0.7275 0.7491

Oregon ............................................................................................................................................... 0.8616 0.8455 1.0132

Pennsylvania ...................................................................................................................................... 0.9870 0.9443 0.8578

Puerto Rico ........................................................................................................................................ 0.3897 0.3866 0.4264

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

South Carolina ................................................................................................................................... 0.7941 0.8367 0.8370

South Dakota ..................................................................................................................................... 0.7946 0.8373 0.7570

Tennessee ......................................................................................................................................... 0.8656 0.8415 0.7838

Texas ................................................................................................................................................. 0.7512 0.7528 0.7502

Utah ................................................................................................................................................... 0.9492 0.8196 0.9037

Vermont ............................................................................................................................................. 0.9914 1.0299 0.9274

Virginia ............................................................................................................................................... 0.8157 0.8601 0.8189

Virgin Islands ..................................................................................................................................... 0.0000 0.0000 0.6306

Washington ........................................................................................................................................ 0.9539 0.9475 1.0434

West Virginia ...................................................................................................................................... 0.8260 0.8668 0.8231

Wisconsin ........................................................................................................................................... 0.9516 0.9893 0.8880

Wyoming ............................................................................................................................................ 0.9081 0.8314 0.8817

1All counties within the State are classified urban.

We have drawn the following

conclusions from these tables and our

analysis of the wage data:

A comparison of the wage index

based on hospital data with one based

on SNF-specific wage data has created

many significant variances, not only

between the SNF wage index and the

hospital wage index, but also between

the two SNF wage indexes illustrated in

Tables 7 and 8. While we would expect

some changes from year to year, and

between a wage index based on SNF

data and one based on hospital data, we

believe that the large quantity of

significant variations raises questions as

to the reliability of the SNF-specific

wage data.

The following illustrates the impact of

using the various wage indexes

contained in Tables 7 and 8:

• When comparing the FY 1998 SNFspecific wage index to the hospital wage

index, we found the number of areas

that:

Increased more than 20%—15 (the

highest was 44.59%)

Increased between 10–20%—53

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24011

Increased between 5–10%—49

Increased between 0–5%—64

Decreased between 0–5%—69

Decreased between 5–10%—56

Decreased between 10–20%—51

Decreased greater than 20%—12 (the

largest was 37.55%)

• When comparing the FY 1999 SNFspecific wage index to the hospital wage

index, we found the number of areas

that:

Increased more than 20%—12 (the

largest was 53.86%)

Increased between 10–20%—47

Increased between 5–10%—67

Increased between 0–5%—70

Decreased between 0–5%—56

Decreased between 5–10%—60

Decreased between 10–20%—44

Decreased greater than 20%—13 (the

largest was 33.06%)

• When comparing the FY 1998 SNFspecific wage index to the FY 1999 SNFspecific wage index, we found the

number of areas that:

Increased more than 20%—9 (the largest

was 51.86%)

Increased between 10–20%—25

Increased between 5–10%—52

Increased between 0–5%—102

Decreased between 0–5%—110

Decreased between 5–10%—44

Decreased between 10–20%—22

Decreased greater than 20%—5 (the

largest was 33.73%)

The FY 1998 and FY 1999 SNF wage

index had 6 areas with no values.

For FY 1998, from a total of 13,587

freestanding providers, we eliminated

2,674 providers because they had a zero

value for wages or hours. For hospitalbased SNFs, of the 2,185 providers, we

eliminated 160 providers for the same

reason. For FY 1999, of the 12,491

freestanding providers, we eliminated

2,461 providers because they had a zero

value for wages or hours. For hospitalbased SNFs, of the 2,034 providers, we

eliminated 132 providers for the same

reason. In addition, for FY 1998, we

eliminated 231 providers that had

average hourly wages either below

$5.00, or above the 99th percentile

($24.15). For FY 1999, we eliminated

206 providers with average hourly

wages either below $5.00, or above the

99th percentile ($24.79).

There are far fewer significant

changes between MSAs in the annual

hospital wage index. The latest

comparison of the year-to-year

differences in the hospital wage index

(pre-classified, pre-floor) shows only 7

areas with increases of 10 percent or

more and 4 with decreases greater than

10 percent. A comparison of the FY

1998 and 1999 SNF-specific wage

indexes shows 34 areas that experienced

an increase of 10 percent or more and

27 areas with decreases of 10 percent or

more.

We believe that any changes to the

wage index adjustment under the SNF

PPS should support greater precision in

Medicare payments; however, as a result

of the variations in the SNF-specific

wage data and the large number of SNFs

that are unable to provide adequate

wage and hourly data, we are concerned

about the reliability of the data used in

establishing a SNF wage index at this

time.

We continue to believe that a wage

index based on hospital wage data is the

best and most appropriate to use in

adjusting payments to SNFs, since both

hospitals and SNFs compete in the same

labor markets. We invite public

comment on the SNF-specific wage

data; however, for the reasons discussed

above we currently plan to use the

updated hospital wage data when we

publish the final rule. In addition, in

accordance with section 315(b) of BIPA

2000, since we currently do not have

reliable SNF-specific wage data, we are

not proposing at this time to develop or

incorporate any type of geographic

reclassification system for SNFs.

D. Updates to the Federal Rates

In accordance with section

1888(e)(4)(E) of the Act and section 311

of BIPA 2000, the proposed payment

rates listed here reflect an update equal

to the SNF market basket minus 0.5

percentage point, which equals 2.4

percent. For each succeeding FY, we

will publish the rates in the Federal

Register before August 1 of the year

preceding the affected Federal FY.

E. Relationship of RUG–III Classification

System to Existing Skilled Nursing

Facility Level-of-Care Criteria

As discussed in § 413.345, we include

in each update of the Federal payment

rates in the Federal Register the

designation of those specific RUGs

under the classification system that

represent the required SNF level of care,

as provided in § 409.30. This

designation reflects an administrative

presumption that beneficiaries who are

correctly assigned to one of the upper 26

RUG–III groups in the initial 5-day,

Medicare-required assessment are

automatically classified as meeting the

SNF level of care definition up to that

point.

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

presumption recognizes the strong

likelihood that beneficiaries assigned to

one of the upper 26 groups during the

immediate post-hospital period require

a covered level of care, which would be

significantly less likely for those

beneficiaries assigned to one of the

lower 18 groups.

We propose to continue the existing

designation of the upper 26 RUG–III

groups for purposes of this

administrative presumption, consisting

of the following RUG–III classifications:

all groups within the Ultra High

Rehabilitation category; all groups

within the Very High Rehabilitation

category; all groups within the High

Rehabilitation category; all groups

within the Medium Rehabilitation

category; all groups within the Low

Rehabilitation category; all groups

within the Extensive Services category;

all groups within the Special Care

category; and, all groups within the

Clinically Complex category.

F. Three-Year Transition Period

As noted previously, the rates that we

now propose are for the fourth year of

the SNF PPS. As a result, the PPS is no

longer operating under the initial threeyear transition period from facilityspecific to Federal rates and, therefore,

now equals 100 percent of the adjusted

Federal per diem rate.

G. Example of Computation of Adjusted

PPS Rates and SNF Payment

Using the XYZ SNF described in

Table 9A, the following shows the

adjustments made to the Federal per

diem rate to compute the provider’s

actual per diem PPS payment. XYZ’s 12-

month cost reporting period begins

October 1, 2001. Table 9B displays the

44 RUG–III categories and their

respective add-ons, as provided in

BBRA 1999 and BIPA 2000.

24012 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

TABLE 9.A.—SNF XYZ FROM ABOVE IS LOCATED IN STATE COLLEGE, PA WITH A WAGE INDEX OF 0.9038

RUG group Labor

portion

Wage

index

Adjusted

labor

Nonlabor

portion

Adjusted

rate

Percent

adjustment

Medicare

days Payment

RVC ........................ $257.54 0.9038 $232.76 $84.14 $316.90 $350.81 50 $17,541

SSC ........................ 171.76 0.9038 155.24 56.12 211.36 3 262.09 25 6,552

IA2 .......................... 113.56 0.9038 102.64 37.10 139.74 4 145.33 25 3,633

Total ............ .................... .................... .................... .................... .................... .................... 100 27,726

1From Table 5.

2 Reflects a 10.7 percent adjustment (the 4 percent adjustment from section 101(d) of BBRA 1999 and the 6.7 percent adjustment from section

314 of BIPA 2000). 3 Reflects a 24 percent adjustment (the 4 percent and 20 percent adjustments from sections 101(a) and (d) of BBRA 1999).

4 Reflects the 4 percent adjustment from section 101(d) of BBRA 1999.

TABLE 9.B.—BBRA 1999 & BIPA

2000 ADD-ONS, BY RUG–III CATEGORY

RUG–III

category 4% 1 10.7% 2 24% 3

RUC ................ X

RUB ................. X

RUA ................. X

RVC ................. X

RVB ................. X

RVA ................. X

RHC ................ X

RHB ................. X

RHA ................. X

RMC ................ X

RMB ................ X

RMA ................ X

RLB ................. X

RLA ................. X

SE3 ................. X

SE2 ................. X

SE1 ................. X

SSC ................. X

SSB ................. X

SSA ................. X

CC2 ................. X

CC1 ................. X

CB2 ................. X

CB1 ................. X

CA2 ................. X

CA1 ................. X

IB2 ................... X

IB1 ................... X

IA2 ................... X

IA1 ................... X

BB2 ................. X

BB1 ................. X

BA2 ................. X

BA1 ................. X

PE2 ................. X

PE1 ................. X

PD2 ................. X

PD1 ................. X

PC2 ................. X

PC1 ................. X

PB2 ................. X

PB1 ................. X

PA2 ................. X

PA1 ................. X

1From BBRA 1999.

2 Includes the 4% increase from BBRA 1999

and the 6.7% increase from BIPA 2000. 3 Includes the 4% and 20% increases from

BBRA 1999.

For rates addressed in this proposed

rule, we are using wage index values

that are based on hospital wage data

from cost reporting periods beginning in

FY 1996, the same wage data as used to

compute the FY 2001 wage index values

for the SNF PPS. We will incorporate

updated wage data in the final rule for

the FY 2002 SNF PPS update. XYZ’s

total PPS payment will equal $27,726.

III. The Skilled Nursing Facility Market

Basket Index

A. Background

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

requires the Secretary to establish a

market basket index that reflects

changes over time in the prices of an

appropriate mix of goods and services

included in the SNF PPS. Effective for

cost reporting periods beginning on or

after July 1, 1998, we revised and

rebased our 1977 routine costs input

price index and adopted a total

expenses SNF input price index using

data from 1992 as the base year.

The term ‘‘market basket’’ technically

describes the mix of goods and services

needed to produce SNF care, and is also

commonly used to denote the input

price index that includes both weights

(mix of goods and services) and price

factors. The term ‘‘market basket’’ used

in this proposed rule refers to the SNF

input price index.

The 1992-based SNF market basket

represents routine costs, costs of

ancillary services and capital-related

costs. The percentage change in the

market basket reflects the average

change in the price of a fixed set of

goods and services purchased by SNFs

to furnish all services. For further

background information, see the May

12, 1998 Federal Register (63 FR

26289).

For purposes of SNF PPS, the SNF

market basket is a fixed-weight

(Laspeyres type) price index. (A

Laspeyres type index compares the cost

of purchasing a specified group of

commodities at current prices to the

cost of purchasing that same group in a

selected base period.) The SNF market

basket is constructed in three steps.

First, a base period is selected and total

base period expenditure shares are

estimated for mutually exclusive and

exhaustive spending categories. Total

costs for routine services, ancillary

services, and capital are used. These

proportions are called ‘‘cost’’ or

‘‘expenditure weights’’. The second step

is to match each expenditure category to

a price/wage variable, called a price

proxy. These price proxy variables are

drawn from publicly 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,

from which rates of growth can be

calculated.

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.

As discussed in the May 12, 1998

Federal Register (63 FR 26252), to

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

Act, we have revised and rebased the

market basket so the cost weights and

price proxies reflected the mix of goods

and services that SNFs purchase for all

costs (routine, ancillary, and capitalrelated) encompassed by SNF PPS in

fiscal year 1992.

B. Rebasing and Revising the Skilled

Nursing Facility Market Basket

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

while often used interchangeably,

actually denote different activities.

Rebasing means shifting the base year

for the structure of costs of the input

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24013

price index (for example, for this

proposed rule, we would shift the base

year cost structure from fiscal year 1992

to fiscal year 1997). Revising means

changing data sources, cost categories,

and/or price proxies used in the input

price index.

We are proposing to rebase and revise

the SNF market basket to reflect 1997

total cost data (routine, ancillary, and

capital-related). Fiscal year 1997 was

selected as the new base year because

1997 is the most recent year for which

relatively complete data are available.

These data include settled 1997

Medicare Cost Reports as well as 1997

data from two U.S. Department of

Commerce surveys: the Bureau of the

Census’ Business Expenditures Survey,

and the Bureau of Economic Analysis’

Annual Input-Output tables.

Preliminary analysis of 1998 data from

Medicare Cost Reports showed little

change in cost shares from those in the

1997 Medicare Cost Reports.

In developing the proposed market

basket, we reviewed SNF expenditure

data from Medicare Cost Reports for FY

1997 for each freestanding SNF that had

Medicare expenses. FY 1997 Cost

Reports are those with cost reporting

periods beginning after September 30,

1996 and before October 1, 1997. We

maintained our policy of using data

from freestanding SNFs because they

reflect the actual cost structure faced by

the SNF itself. By contrast, expense data

for a hospital-based SNF is influenced

by the allocation of overhead over the

entire institution.

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. Using these data, we then

determined the proportion of total costs

that each category represented. The six

major categories for the revised and

rebased cost categories and weights

derived from SNF Medicare Cost

Reports are summarized in Table 10.A.

TABLE 10.A.—1992 AND PROPOSED 1997 SKILLED NURSING FACILITY MAJOR COST CATEGORIES AND WEIGHTS FROM

MEDICARE COST REPORTS

Cost categories

1992-based

skilled nursing

facility weights

(percent)

Proposed

1997-based

skilled nursing

facility weights

(percent)

Wages and Salaries ................................................................................................................................................ 47.805 46.889

Employee Benefits ................................................................................................................................................... 10.023 9.631

Contract Labor ......................................................................................................................................................... 12.852 6.478

Pharmaceuticals ...................................................................................................................................................... 2.531 3.006

Capital-related Costs ............................................................................................................................................... 9.778 9.877

All Other Costs ........................................................................................................................................................ 17.012 24.119

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

We fully discuss the methodology for

developing these weights in the

Appendix. The main methodological

difference between the 1992-based SNF

market basket and the proposed 1997-

based market basket is in the calculation

of the contract labor weight. For the

1992-based market basket, we estimated

this share using non-salary costs for

therapy cost centers. For the proposed

1997-based index, we used the contract

labor amounts for a subset of edited

reports from Worksheet S–3 in the

Medicare Cost Reports. We believe this

new methodology provides a more

accurate reflection of the share of total

costs that are attributable to contract

labor. The data from this worksheet

were not available in the 1992 Medicare

Cost Reports.

Relative weights within the six major

categories were derived using relative

cost shares from the Bureau of the

Census’ 1997 Business Expenditures

Survey (BES), 1997 Medicare Cost

Reports, and the Bureau of Economic

Analysis’ (BEA) 1997 Annual InputOutput tables. They were used to

disaggregate and allocate costs within

the six major categories determined

from the 1997 SNF Medicare Cost

Reports. The BEA Input-Output

database is benchmarked at 5-year

intervals and updated annually between

benchmarks. We are using the annual

update for 1997. The BES is updated

every five years.

The capital-related portion of the

proposed rebased and revised SNF PPS

market basket employs the same overall

methodology used to develop the

capital-related portion of the 1992-based

SNF market basket, described in the

May 12, 1998 Federal Register (63 FR

26289). It is also the same methodology

used for the inpatient hospital PPS

capital input price index described in

the Federal Register May 31, 1996 (61

FR 27466) and August 30, 1996 (61 FR

46196). The strength of this

methodology is that it reflects the

vintage nature of capital, which

represents the acquisition and use of

capital over time.

Our work resulted in 21 separate

categories for the proposed rebased and

revised SNF market basket. The 1992-

based total cost SNF market basket also

had 21 separate cost categories. Detailed

descriptions of each cost category and

respective price proxy in the proposed

1997-based SNF market basket are

provided in the Appendix to this

proposed rule.

As in the 1992-based SNF market

basket, the proposed 1997-based SNF

market basket does not include a

separate cost category for professional

liability insurance. Our analysis of the

BEA 1997 Annual Input-Output survey

indicated that the general category for

insurance carriers (which includes

professional liability insurance as a

subset) was, at just 0.2 percent, a small

share of the total costs in 1997. It has

been our policy in the past not to

provide detailed breakouts of cost

categories unless they represent a

significant portion of the providers’

costs. We also reviewed data available

on professional liability insurance from

Worksheet S–2 of the SNF Medicare

Cost Reports, but found that nearly all

SNFs did not report data for malpractice

premiums, paid losses, or self-insurance

in 1997.

Professional liability insurance is

included with other insurance paid to

carriers in the all other labor-intensive

services cost category. We are soliciting

comments on possible data sources for

professional liability insurance costs for

SNFs. Recent indications are that

professional liability insurance costs for

SNFs are rising quickly. We are looking

both for information that would be

24014 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

available for a cost weight as well as for

a time-series of professional liability

premiums for a constant level of

coverage, similar to the data we

currently collect for hospitals and

physicians from a small sample of

insurance carriers.

After the 21 cost weights for the

proposed revised and rebased SNF

market basket were developed, we

selected the most appropriate wage and

price proxies currently available to

monitor the rate of change 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)

measure the rate of change in

employment 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 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 both occupational group

and by industry.

• Producer Price Indexes. Producer

Price Indexes (PPIs) measure price

changes for goods sold in other than

retail markets. PPIs were used when the

purchases of goods or services were

made at the wholesale level.

• 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 PPI was available.

The contract labor weight of 6.478

was reallocated to (1) wages and

salaries, and (2) employee benefits, so

that the same price proxies that we

propose to use for direct labor costs are

applied to contract costs. While we

understand that the level of unit labor

costs for contract labor can differ from

the unit labor costs of a SNF employee,

we feel that the rate at which these labor

costs change should be similar. That is,

unit contract labor costs should not

grow any more or less rapidly than SNF

employee labor costs. The rebased and

revised cost categories, weights, and

price proxies for the proposed 1997-

based SNF market basket are listed in

Table 10.B.

TABLE 10.B.—PROPOSED 1997-BASED SNF MARKET BASKET COST CATEGORIES, WEIGHTS, AND PRICE PROXIES

Cost category

1997-based

skilled nursing

facility market

basket weight

Price proxy

Operating Expenses ................................................................... 90.123

Compensation ............................................................................. 62.998

Wages and Salaries ............................................................ 52.263 ECI for Wages and Salaries for Private Nursing Homes.

Employee benefits ............................................................... 10.734 ECI for Benefits for Private Nursing Homes.

Nonmedical professional fees ..................................................... 2.634 ECI for Compensation for Private Professional, Technical and

Specialty workers.

Utilities ......................................................................................... 2.368

Electricity .............................................................................. 1.420 PPI for Commercial Electric Power.

Fuels, nonhighway ............................................................... 0.426 PPI for Commercial Natural Gas.

Water and sewerage ........................................................... 0.522 CPI–U for Water and Sewarge.

Other Expenses .......................................................................... 22.123

Other Products ............................................................................ 13.522

Pharmaceuticals .................................................................. 3.006 PPI for Prescription Drugs.

Food ..................................................................................... 4.136

Food, wholesale purchase ........................................... 3.198 PPI for Processed Foods.

Food, retail purchase .................................................... 0.937 CPI–U for Food Away From Home.

Chemicals ............................................................................ 0.891 PPI for Industrial Chemicals.

Rubber and plastics ............................................................. 1.611 PPI for Rubber and Plastic Products.

Paper products .................................................................... 1.289 PPI for Converted Paper and Paperboard.

Miscellaneous products ....................................................... 2.589 PPI for Finished Goods less Food and Energy.

Other Services ............................................................................ 8.602

Telephone Services ............................................................. 0.448 CPI–U for Telephone Services.

Labor-intensive Services ..................................................... 4.094 ECI for Compensation for Private Service Occupations.

Non labor-intensive services ............................................... 4.059 CPI–U for All Items.

Capital-related Expenses ............................................................ 9.877

Total Depreciation ....................................................................... 5.266

Building & Fixed Equipment ................................................ 3.609 Boeckh Institutional Construction Index (vintage-weighted over

23 years).

Movable Equipment ............................................................. 1.657 PPI for Machinery & Equipment (vintage-weighted over 10

years).

Total Interest ............................................................................... 3.852

Government & Nonprofit SNFs ............................................ 1.890 Average Yield Municipal Bonds (Bond Buyer Index-20 bonds)

(vintage-weighted over 22 years).

For-Profit SNFs .................................................................... 1.962 Average Yield Moody’s AAA Bonds (vintage-weighted over 22

years).

Other Capital-related Expenses .................................................. 0.760 CPI–U for Residential Rent.

0Total ............................................................................... * 100.000

* Total may not equal 100 due to rounding

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24015

In the proposed 1997-based SNF

market basket, the labor-related share

for FY 1997 is 73.588 percent, while the

non-labor-related share is 26.412

percent. The labor-related share reflects

the proportion of the average SNF’s

costs that vary with local area wages.

This share includes wages and salaries,

employee benefits, professional fees,

labor-intensive services, and a 39.1

percent share of capital-related

expenses, as shown in Table 10.C. By

comparison, the labor-related share of

the 1992-based SNF market basket was

75.888 percent. The labor-related share

of the market basket is the sum of the

weights for those cost categories that are

influenced by the local labor market.

The labor-related share is calculated

from the base year, which for the

proposed SNF market basket is FY 1997.

The labor-related share for capitalrelated expenses was estimated using a

statistical analysis of individual SNF

Medicare Cost Reports for 1997, similar

to the analysis done on the 1992 SNF

Medicare Cost Reports and explained in

the May 12, 1998 Federal Register (63

FR 26289). 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

portion of the market basket. We used

regression analysis with total 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 these factors, we used

number of beds, case-mix indexes,

occupancy rate, ownership, age of

assets, length of stay, FTEs per bed, and

wage index values based on the hospital

wage index (wages and employee

benefits) as independent variables. Our

regression analysis indicated that the

coefficient on the area wage index was

73.588, which represents the proportion

of total costs that vary with local labor

markets, holding constant other factors.

From the operating portion of the

market basket, we can specifically

identify cost categories that reflect local

labor markets and include them in the

labor-related share. These cost

categories equal 69.727, and reflect

approximately 77 percent of operating

costs. Thus, the labor-related share for

capital-related costs is 3.861 (73.588

minus 69.727), and reflects

approximately 39 percent of capitalrelated costs.

Capital-related expenses are

determined in some proportion by local

area labor 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.

Thus, it is appropriate that capitalrelated expenses would vary less with

local wages than would operating

expenses for SNFs. Therefore, we are

proposing to use this analysis in

determining the labor-related share for

SNF PPS.

All price proxies for the proposed

revised and rebased SNF market basket

are listed in Table 10.B and summarized

in the Appendix to this proposed rule.

A comparison of the yearly historical

percent changes from FY 1995 through

FY 2000 for the current 1992-based

market basket and the proposed 1997-

based market basket is shown in Table

10.D.

TABLE 10.C.—1992 AND PROPOSED 1997-BASED LABOR-RELATED SHARE

Cost category

1992-based

skilled nursing

facility market

basket weight

Proposed

1997-based

skilled nursing

facility market

basket weight

Wages and Salaries ................................................................................................................................................ 54.262 52.263

Employee Benefits ................................................................................................................................................... 12.797 10.734

Nonmedical Professional Fees ................................................................................................................................ 1.916 2.634

Labor-intensive Services ......................................................................................................................................... 3.686 4.094

Capital-related .......................................................................................................................................................... 3.227 3.861

Total .............................................................................................................................................................. 75.888 73.588

TABLE 10.D.—COMPARISON OF THE 1992-BASED SKILLED NURSING FACILITY MARKET BASKET AND THE PROPOSED

1997-BASED SKILLED NURSING FACILITY MARKET BASKET, PERCENT CHANGES, 1995–2000

Fiscal years beginning October 1

1992-based

skilled nursing

facitlity market

basket

Proposed

1997-based

skilled nursing

facility market

basket

Historical:

October 1994, FY 1995 .................................................................................................................................... 2.9 3.0

October 1995, FY 1996 .................................................................................................................................... 2.7 2.7

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

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

October 1998, FY 1999 .................................................................................................................................... 3.1 3.0

October 1999, FY 2000 .................................................................................................................................... 4.1 4.0

Historical average 1995–2000: ................................................................................................................................ 3.0 3.0

Released by HCFA, OACT, National Health Statistics Group.

The historical average rate of growth

for 1995 through 2000 for the proposed

SNF 1997-based market basket is similar

to that of the 1992-based market basket.

The proposed 1997-based SNF market

basket provides a more current measure

of the annual price increases for total

care than the 1992-based SNF market

basket because the cost weights reflect

the structure of costs for the most recent

year for which there are relatively

complete data. The forecasted rates of

24016 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

growth for FY 2002 for the proposed 1997-based and current 1992-based SNF

market basket are shown in Table 10.E.

TABLE 10.E.—COMPARISON OF FORECASTED CHANGE FOR THE 1992-BASED SKILLED NURSING FACILITY MARKET

BASKET, AND THE PROPOSED 1997-BASED SKILLED NURSING FACILITY MARKET BASKET PERCENT CHANGE FOR FY 2002

Fiscal Year beginning October 1

1992-based

skilled nursing

facility market

basket

1997-based

skilled nursing

facility market

basket

October 2001, FY 2002 ........................................................................................................................................... 3.0 2.9

Source: Standard & Poor’s DRI HCC, 1st QTR, 2001; @ USMARCRO/MODTREND@CISSIM/TRENDLONG0201.

Released by HCFA, OACT, National Health Statistics Group.

IV. Update Framework

A. The Need for an Update Framework

Medicare payments to SNFs are based

on a predetermined national payment

amount per day. Annual updates to

these payments are required by section

1888(e) of the Act. These updates are

usually based on the increase in the

SNF market basket. For FY 2002, the

update is set at market basket minus 0.5

percent. Our goal is to develop a method

for analyzing and comparing expected

trends in the underlying cost per day to

use in establishing these updates.

The SNF market basket, or input price

index, developed by HCFA’s Office of

the Actuary (OACT) is just one

component in the SNF cost per day

amount. It captures only the pure price

change of inputs (labor, materials, and

capital) used by the SNF to produce a

constant quantity and quality of care.

Other factors also contribute to the

change in costs per day, which include

changes in case-mix, intensity, and

productivity.

Under the inpatient hospital PPS,

HCFA and MedPAC use an update

framework to account for these other

factors and to make annual

recommendations to the Congress

concerning the magnitude of the update.

We are currently examining these

factors and exploring ways that they

could be incorporated into an update

framework for the SNF PPS. We are also

examining some additional conceptual

and data issues that must be considered

when the framework is constructed and

applied.

We are not proposing to apply an

update framework in a recommendation

to the Congress at this time. We are

actively pursing development efforts

aimed at producing an analytical

framework which, by informing policy

makers concerning the magnitude of

annual updates, would support the

continued appropriateness and

relevance of the payment rates for

services provided to beneficiaries in

SNFs. To this end, we are requesting

comments concerning the conceptual

approach we have outlined in this

proposed rule, including the utility and

feasibility of this approach for SNFs. We

are specifically interested in comments

concerning whether certain factors

should be accounted for in the

framework, and suggestions concerning

potential data sources and analysis to

support the model. As with the existing

methodology, the features of a SNFspecific update framework would need

to be based on a sound policy and

methodology.

B. Factors Inherent in SNF Payments

per Day

In order to understand the factors that

determine SNF costs per day, it is first

necessary to understand the factors that

determine SNF payments per day.

Payments per day under SNF PPS are

based on the cost and an implicit

normal profit margin to the SNF in

providing an efficient level of care. We

have developed a methodology to

identify a mutually exclusive and

exhaustive set of factors included in

SNF payments per day. The discussion

here details a set of equations to identify

these factors.

In its simplest form, the average

payment per day to a SNF can be

separated into a cost term and a profit

term as shown in equation (1):

( )1 = + Payments

Days

Costs

Days

Profits

Days

This equation can be made

multiplicative by converting profit per

day into a profit rate as shown in

equation (2):

( ) 2 = ∗ Payments

Days

Costs

Days

Payments

Costs

An output price term can be

introduced into the equation by

multiplying and dividing through by

input prices and productivity. As shown

in equation (3), the term inside the

brackets represents the output price,

since an output price reflects the input

price and profit margin adjusted for

productivity:

( ) 3 =∗ ∗ 



 



 ∗ Payments

Days

Costs

Days

Payments Input Prices

Productivity

Productivity

Costs Input Prices

The cost per day term can be further separated by accounting for real case-mix. Under SNF PPS, Resource Utilization

Groups (RUGs) are used to classify patients. Based on accurate RUG classification data, average real case-mix per day

can be incorporated, as shown in equation (4):

( ) 4 = ∗ ∗∗ 



 



 ∗ Payments

Days

Costs/Days

Real Case Mix/Days

Real Case Mix

Days

Payments Input Prices

Productivity

Productivity

Costs Input Prices

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24017

The term ‘‘real’’ is imperative here because only true case-mix should be measured, not case-mix caused by improper

coding behavior. By rearranging the terms in equation (4), a set of mutually exclusive and exhaustive factors such

as those shown in equation (5) can be identified:

5 1 ( ) =

∗

∗





















∗ ∗ ∗∗ Payments

Days

Costs

Days

Input Prices Real Case Mix

Days

Productivity Real Case Mix

Days Productivity Input Prices PaymentsCosts

The term of the equation in brackets can be analyzed in two steps. First, excluding the productivity term from

the equation results in case-mix adjusted real cost per day, which is input intensity per day. Second, multiplying

input intensity by productivity results in case-mix adjusted real payment per day, or output intensity per day. The

rationale behind this step is explained in detail in the next section.

The result of this exercise is that SNF payment per day can be determined from the following factors:

( ) 6

















∗ 



 



 ∗ ( ) ∗ ( )

Payment Per Day =

Case-Mix-Constant

Real Output Intensity

Per Day

Real Case Mix

Input Prices Profit Margins

Productivity

Per Day

Thus, it holds that the change in SNF

payment per day is a function of the

change in these factors. In order to

determine an annual update that most

accurately reflects the underlying cost to

the SNF of efficiently providing care,

the four factors related to cost must be

accounted for when an update

framework is developed. A brief

discussion of each factor, including

specific conceptual and data issues, is

provided in the next section.

C. Defining Each Factor Inherent in SNF

Costs per Day

Each cost factor from equation (6)

above is discussed here in detail.

Because this is a basic conceptual

discussion, it is likely that more

detailed issues may be relevant that are

not explored here.

1. Input Prices

Input prices are the pure prices of

inputs used by the SNF in providing

services. When we refer to inputs we are

referring to costs, which have both a

price and a quantity component. The

price is an input price, and the quantity

component reflects real inputs, or real

costs. Similarly, when we refer to

outputs, we are referring to payments,

which also have both a price and a

quantity component. The price

component is the transaction output

price, and the quantity component is the

real output, or real payment. The real

inputs include labor, capital, and

materials, such as drugs. By definition,

an input price reflects prices that SNFs

encounter in purchasing these inputs,

whereas an output price reflects the

prices that buyers encounter in

purchasing SNF services. We currently

can measure input prices using the SNF

market basket.

2. Productivity

Productivity measures the efficiency

of the SNF in producing outputs. It is

the amount of real outputs, or real

payments, that can be produced from a

given amount of real inputs, or real

costs. For SNFs, these inputs are in the

form of both labor and capital; thus,

they represent multi-factor productivity,

as not just labor productivity is

reflected. The following set of equations

shows how multi-factor productivity

can be measured in terms of available

data, such as payments, costs, and input

prices:

Productivity Real Payments

Real Costs

Payments/Output Price

Costs/Input Price

Payments

Costs

Input Price

Output Price

=

= ( )

( )

= ∗

Rearranging the terms, this multifactor productivity equation was used as

the basis for incorporating an output

price term in equation (3) above. This

equation is the basis for understanding

the relationship between input prices,

output prices, profit margins, and

productivity.

Equation (6) shows that productivity

is divided through the equation,

offsetting other factors. The theory

behind this offset is that if an efficient

SNF in a competitive market can

produce more output with the same

amount of inputs, the full increase in

input costs does not have to be passed

on by the provider to maintain a normal

profit margin.

3. Real Case-Mix per Day

Real case-mix per day is the average

overall mix of care provided by the SNF,

as measured using the RUG

classification system. Over time, a

measure of real case-mix will change as

care is given in more or less complex

RUGs. Changes in the level of care

within a RUG classification group

would not be reflected in a case-mix

measure based on RUGs, but instead

should be captured in the intensity

factor of equation (6).

The important distinction here is the

difference between real and nominal

case-mix. SNFs submit claims using the

RUG classification system. The case-mix

reflected by the claims is considered

‘‘nominal’’. However, the reported

classification can reflect the true level of

care provided or improper coding

behavior. An example of improper

coding behavior would be the upcoding,

or case-mix ‘‘creep,’’ that took place

when the hospital PPS was

implemented. Any change in case-mix

that is not associated with the actual

level of care or a true change in the level

of care provided must be excluded in

order to determine real case-mix.

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

us with the statutory authority to make

adjustments to the unadjusted Federal

per diem rates for changes caused by

case-mix creep.

24018 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

4. Case-Mix-Constant Real Output

Intensity per Day

Intensity is the true underlying nature

of the product or service and can take

the form of output and/or input

intensity. In the case of SNFs, output

intensity per day is associated with real

payment per day, while input intensity

per day is associated with real cost per

day. For example, input intensity would

be associated with a therapist’s hours

when providing treatment, whereas

output intensity would be associated

with the amount of treatments a

therapist provides. The underlying

nature of SNF services is determined by

such factors as technological

capabilities, increased utilization of

inputs (such as labor or drugs), site of

care, and practice patterns. Because

these factors can be difficult to measure,

intensity per day is usually calculated

as a residual after the other factors from

equation (6) have been accounted for.

Accounting for output intensity

associated with an efficient SNF can be

more accurately analyzed using a SNF’s

costs rather than its payments. This

analysis would also provide an

alternative to developing or using a

transaction output price index, which

has been difficult for the Bureau of

Labor Statistics (BLS) to measure for

SNFs. The following series of equations

shows how to use the definition of an

output price as defined earlier to

convert the equation for output intensity

per day to reflect costs instead of

payments, as used in equation (6):

Case-Mix-Constant Real Output Intensity Per Day Payments/Days

Output Prices Real Case Mix/Days

Payments/Days

Payments Input Prices

Productivity Real Case Mix/Days

Payments/Days Costs

Payments Input Prices

Productivity Real Case Mix/Days

Payments Costs/Days

Payments Input Prices

Productivity Real Case Mix/Days

Costs/Days

Input Prices

Productivity Real Case Mix/Days

Costs/Days

= [ ] ∗

= [ ]

∗ 



 



 ∗

= ∗

∗ ∗

= ∗[ ]

∗ ∗

= [ ]

∗

=

Costs

[ ]

∗ ∗ Input Prices Real Case Mix/Days Productivity

The last equation is identical to the

term in brackets in equation (5), casemix-constant real input intensity per

day multiplied by productivity. Thus,

output intensity per day can be defined

in such a way that cost data from the

SNF are utilized. This equation can be

broken down even further to account for

different types of input intensity per

day. We discuss this matter more fully

in the next section.

D. Applying the Factors That Affect SNF

Costs per Day in an Update Framework

As discussed earlier, payments per

day under SNF PPS must be updated

each year. Currently, the updates are

specified by legislation as the percent

change in the SNF market basket for FY

2001, the percent change in the SNF

market basket minus 0.5 percentage

points for FY 2002 and FY 2003, and the

percent change in the SNF market

basket thereafter. However, it is

important to understand the underlying

trends in SNF costs per day for an

efficient provider, especially should the

change in these costs deviate from the

legislated updates. The development of

an update framework with a sound

conceptual basis will provide this

capability.

Earlier, factors inherent in SNF costs

per day were identified. Changes in

these factors determine the change in

SNF costs per day. Fitting these factors

into a framework would allow us to

recommend updates each year that

appropriately reflect changes in

underlying costs for efficient SNFs.

Accounting for each of these factors

from equation (6) under SNF PPS is

discussed below:

• Change in case-mix constant real

output intensity per day would be

accounted for in the update framework,

reflecting the factors that affect not only

case-mix constant real input intensity

per day, but also productivity, which is

determined separately. Factors that can

cause changes in case-mix constant real

input intensity per day include, but are

not limited to, changes in site of service,

changes in within-RUG case-mix,

changes in practice patterns, changes in

the use of inputs, and changes in

technology available.

• As discussed earlier, changes in

nominal case-mix are automatically

included in the payment to the SNF.

However, the law gives us the authority

to make adjustments for case-mix

change due to improper coding

behavior. Therefore, the update

framework should include an

adjustment to convert changes in

nominal case-mix per day to changes in

real case-mix per day.

• Change in multi-factor productivity

would be accounted for in the update

framework. The availability of historical

data on input prices, payments, and

costs are useful in the analysis of this

factor. MedPAC sets this factor as a

target under hospital PPS.

• Changes in input prices for labor,

material, and capital would be

accounted for in the update framework.

Our Office of the Actuary currently has

an input price index, or market basket,

for SNF services. This is the market

basket referred to in the legislated

updates. In an update framework, a

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24019

forecast error adjustment has typically

been included, to reflect that the

updates are set prospectively and some

degree of forecast error is inevitable. In

the case of the inpatient hospital PPS,

this adjustment is made on a two-year

lag and only if the error exceeds a

defined threshold (0.25 percentage

points).

E. Current HCFA Inpatient Hospital PPS

and Illustrative SNF PPS Payment

Update Frameworks

Table 11 shows the payment update

framework for the current inpatient

hospital PPS and an illustrative update

framework for the SNF PPS. Some of the

factors in the inpatient hospital PPS

framework are computed using the

Medicare Cost Report data, while others

are determined based on policy

considerations. The details of

calculating each factor for the inpatient

hospital PPS framework can be found in

the August 1, 2000 Federal Register (65

FR 47054) final rule that set forth

updates to the payment rates used under

the inpatient PPS. This design for a SNF

update framework is for illustrative

purposes only, as much more work

needs to be done to determine the

appropriate level of detail for each

factor and the manner in which the

factors would be developed through

policy. The numbers provided for the

hospital update are only intended to

serve as examples of prior updates

recommended for the hospital PPS.

MedPAC supports the use of this type

of framework for updating payments

and applies a similar framework when

it proposes updates to hospital

payments in its annual recommendation

to Congress. The appropriateness of this

framework for updating inpatient

hospital payments was discussed in the

Health Care Financing Review, Winter

1992, in an article entitled, ‘‘Are PPS

Payments Adequate? Issues for

Updating and Assessing Rates.’’ A

similar framework would be useful for

analyzing updates to SNF payments.

TABLE 11.—CURRENT HCFA HOSPITAL PPS AND ILLUSTRATIVE SNF PPS PAYMENT UPDATE FRAMEWORKS

HCFA hospital PPS update

FY 2001 calculated hospital

update

percent change

Illustrative SNF PPS update

Percent Change in:

HCFA PPS Hospital Market Basket ................................... 3.4 .................... HCFA SNF Market Basket.

Forecast Error ..................................................................... 0.0 .................... Forecast Error.

Productivity ......................................................................... ¥0.5 to ¥0.4 ... Productivity.

Output Intensity .......................................................................... 0.0 to ¥0.6 ...... Output Intensity:

Science and Technology .................................................... ........................... Science and Technology

Practice Patterns.

Real within-DRG Change ................................................... ........................... Real within-RUG Change.

Site of Service .................................................................... ........................... Utilization of Inputs.

Site of Service.

Case-mix Adjustment Factors: ........................... Case-mix Adjustment Factors:

Projected Case-mix ............................................................ ¥0.5 ................. Nominal across-RUG Case-mix.

Real across-DRG Change .................................................. 0.5 .................... Real across-RUG Change.

Total Cost per Admission .......................................................... ¥0.5 to ¥1.0 ... Total per Diem Cost.

Other Policy Factors: ........................... Other Policy Factors:

Reclassification and Recalibration ..................................... 0.0 .................... None.

Total Calculated Update 2.4 to 2.9 .......... Total Calculated Update.

Table data derived from the August 1, 2000 Federal Register, Medicare Program; Changes to the Hospital Inpatient Prospective Payment

System and Fiscal Year 2001 Rates; Final Rule.

F. Additional Conceptual and Data

Issues

Three conceptual issues specific to

the SNF PPS are the relevance of a siteof-service substitution adjustment, the

necessity of an adjustment for RUG

reclassification, and the handling of

one-time factors.

Under the inpatient hospital PPS, a

site-of-service substitution factor

(captured as part of intensity) was

necessary because of the incentive to

shift care from hospital inpatient to

such other settings as hospital

outpatient, SNFs, or home health

agencies (HHAs). For SNF PPS, it must

be determined whether incentives to

shift care to these other settings will

continue or whether the SNF PPS will

reduce these incentives and/or create

alternative incentives to shift care out of

SNFs. It is not clear without additional

research in this area whether changes in

behavior created by the different

Medicare payment systems should be

reflected in a SNF update framework.

A reclassification and recalibration

adjustment under the inpatient hospital

PPS is necessary to account for

additional changes in the case-mix

factor resulting from reclassifying and

recalibrating the DRG classification

software. This factor is applied to the

current fiscal year update, but reflects

the effect of revisions in the fiscal year

two years prior. MedPAC does not

account for this adjustment in its update

framework. Whether a RUG

reclassification adjustment would be

necessary in the update framework

would depend on the data availability

and the likelihood of revisions to RUG

classifications on a periodic basis.

There is also a question about how to

handle one-time factors, such as the

increased costs of converting computer

systems to Year 2000 (Y2K) compliance.

An update framework is the appropriate

mechanism to account for these items,

but because of uncertainty surrounding

their impact on costs, determining an

appropriate adjustment amount may be

difficult. MedPAC has discussed this

issue in prior sessions, but was unable

to agree on the exact methodology for

these types of factors.

The purpose of this conceptual

discussion is not to determine how the

identified factors of the update

framework would be measured. We do

recognize, however, that it would be

important to use the Medicare Cost

Report (MCR) and other relevant data

from SNFs to analyze the factors that

would account for growth in costs per

day. As was the case for the inpatient

hospital PPS, we will be required to

make optimal use of the MCR data as we

proceed in the development of an

update framework methodology.

The lack of historical case-mix data is

another important issue. These data are

24020 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

currently being collected under contract

but will not be available for most

historical years. This factor may prove

difficult to account for in a historical

analysis. In addition, there is no

information currently available to make

the distinction between real and

nominal case-mix change. There are also

concerns about the BLS output price

measures for SNFs, especially during

the first years of publication in 1996 and

1997. Output prices are relevant for

measuring productivity in a historical

context. Most of these concerns were

also encountered and addressed in the

inpatient hospital PPS update

framework.

The discussion here provides the

conceptual basis for developing an

update framework for SNF PPS that

reflects changes in the underlying costs

of efficiently providing SNF services. It

is important to note that the framework

does not handle distribution issues such

as geographic wage variations.

Due to some variations in technical

methodologies for measuring the factors

of an update framework, and because of

some of the data concerns mentioned

earlier, implementing an update

framework for SNF PPS would involve

making significant policy decisions on

issues similar to those for the inpatient

hospital PPS update framework. We

invite comments on the type of data

sources to use, what other factors (if

any) we should consider in an update

framework, and any additional

comments concerning the issues

discussed in this proposed rule.

V. Consolidated Billing

The consolidated billing requirement

established by section 4432(b) of BBA

1997 places the Medicare billing

responsibility with the SNF for virtually

all of the services that the SNF’s

residents receive, except for a small

number of services that the law

specifically identifies as being excluded

from this provision. For services that are

subject to this provision, the original

legislation made no distinction as to

whether the services were furnished

during the course of a covered Part A

SNF stay.

We have implemented consolidated

billing only for services that are

furnished during the course of a covered

Part A SNF stay. We have not

implemented consolidated billing for

those services furnished to SNF

residents who are not in a covered Part

A stay (for example, residents who have

exhausted their available days of

coverage under the Part A SNF benefit,

or who do not meet that benefit’s posthospital or level of care requirements).

As explained in the final rule of July 30,

1999 (64 FR 41671), implementing the

Part B aspect of the provision would

entail making significant systems

modifications, which have been delayed

by systems constraints that arose in

connection with achieving Y2K

compliance.

In addition, recently enacted

provisions in BIPA 2000 have also

affected this aspect of consolidated

billing. For services furnished on or

after January 1, 2001, section 313(a) of

BIPA 2000 amends section 1862(a)(18)

of the Act by eliminating consolidated

billing for most services furnished to

SNF residents during noncovered stays.

This amendment limits the application

of consolidated billing to those services

that are furnished during the course of

a covered Part A stay, with one

exception: for SNF residents in

noncovered stays, the only services for

which the SNF retains the Medicare

billing responsibility are physical,

occupational, and speech-language

therapy. (The related requirements for

fee schedule payment and appropriate

HCFA Common Procedure Coding

System (HCPCS) coding for Part B SNF

services have not been repealed, and

remain the law.) We propose to revise

the regulations at § 411.15(p) to reflect

this change.

We regard the provision of therapy

services as an inherent and integral

function of this type of facility, and we

believe that the statutory requirement

for SNFs to retain the Part B billing

responsibility for these particular

services reflects a number of policy

considerations. First, these are services

for which the SNF already has the

billing responsibility under the separate

Part B therapy cap provision enacted by

section 4541 of BBA 1997. In addition,

unlike some types of services (such as

ambulance and laboratory) with which

SNFs historically have had only limited

billing experience, most SNFs are

familiar with the procedures involved in

furnishing and billing for therapy and

other skilled rehabilitation services. In

fact, section 1819(a)(1) of the Act

describes such a facility in terms of

being primarily engaged in furnishing

skilled nursing or rehabilitation services

to its residents. The SNF level of care

definition in section 1814(a)(2)(B) of the

Act defines a beneficiary’s access to

SNF coverage under Part A as involving

the need for and receipt of ‘‘skilled

nursing care * * * or other skilled

rehabilitation services * * *’’.

Finally, since the inception of the

Medicare program, section 1861(h)(3) of

the Act has provided for coverage of

physical, occupational, and speechlanguage therapy services under the Part

A extended care benefit when furnished

either directly by the facility, or by

others under arrangements with the

facility. Thus, physical, occupational,

and speech-language therapy are unique

among SNF services because the law has

always explicitly provided for Part A

coverage of them when furnished under

an arrangement with an outside supplier

in which the SNF performs the

Medicare billing for the services.

Section 313 of BIPA 2000 also

contains a number of technical and

conforming changes to reflect the

amendment of section 1862(a)(18) of the

Act, as discussed above. Section

313(b)(1) amends section 1842(b)(6)(E)

of the Act (which provides that only the

SNF can receive Part B payments for

services furnished to those of its

residents in noncovered stays), by

limiting payment to SNFs to only those

situations in which the SNF elects to

furnish such Part B services—either

directly with its own resources, or

under an arrangement with an outside

supplier in which the SNF assumes the

billing responsibility. We are revising

the regulations at § 410.150 to reflect

this change. This section of the

legislation also removes the existing

language in section 1842(b)(6)(E) of the

Act that refers to services furnished to

a resident of ‘‘* * * a part of a facility

that includes a skilled nursing facility

(as determined under regulations)’’. As

explained in the May 12, 1998, SNF PPS

interim final rule (63 FR 26297), BBA

1997 originally introduced this language

in order to apply the consolidated

billing requirement not only to the

portion of a nursing home that is

actually certified as a Medicare SNF, but

also to any noncertified remainder:

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.

However, since the consolidated

billing requirement has now been

limited to those residents in Part A

covered stays, and physical,

occupational, and speech-language

therapy in noncovered stays, the

language that extended its applicability

to the noncertified portion of a nursing

home is no longer relevant. This is

reflected in our proposed change to the

regulation at § 411.15.

Section 313(b)(2) of BIPA 2000

amends section 1842(t) of the Act by

deleting a similar reference to the

noncertified portion of a nursing home.

Section 1842(t) of the Act requires that

Part B claims for physician services

furnished to SNF residents (which are

excluded from consolidated billing)

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24021

must include the SNF Medicare

provider number. Section 313(b)(2) of

BIPA 2000 also expands this

requirement to apply to Part B claims

for all types of services furnished to

SNF residents. For a SNF resident in a

covered Part A stay, this expanded

requirement would apply to claims for

any type of service that is excluded from

consolidated billing (and, thus, is

separately billable to Part B by an

outside source). For residents in a

noncovered stay, it would encompass

claims for all Part B services that the

resident receives. We are proposing to

revise the regulations at § 424.32 to

reflect this change.

Section 313(b)(3) of BIPA 2000

amends the existing language in section

1866(a)(1)(H)(i)(I) of the Act by

requiring compliance with section

1862(a)(18), as amended, under the

terms of a SNF’s Medicare provider

agreement. We are proposing to revise

the regulations at § 489.20 to reflect this

change. Finally, section 313(d) of BIPA

2000 directs the Office of Inspector

General to monitor payments for

services furnished to SNF residents

during noncovered stays, in order to

help prevent duplicate payment or the

excessive provision of services.

VI. Application of the SNF PPS to SNF

Services Furnished by Swing-Bed

Hospitals

A. Current System for Payment of

Swing-bed Facility Services Under Part

A of the Medicare Program

Section 1883 of the Act permits

certain small, rural hospitals to enter

into a swing-bed agreement, under

which the hospital can use its beds to

provide either acute or SNF care, as

needed. Currently, Part A pays for SNF

services furnished in Medicare swingbed hospitals on a cost-related basis,

with both calculated rate and

retrospective, reasonable cost-based

components. Under Medicare payment

principles set forth in section

1883(a)(2)(B) of the Act and regulations

at § 413.114, swing-bed facilities receive

payment for two major categories of

costs: routine and ancillary.

Routine costs are the costs of those

services included by the provider in a

daily service charge. Routine service

costs include regular room, dietary, and

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, such as the cost of

land, building, equipment, and the

interest incurred in financing the

acquisition of such items, are not

reimbursed separately. Instead, they are

incorporated into the routine and

ancillary cost components of the rate.

Under Medicare rules, the reasonable

cost of ancillary services is paid in full.

For routine operating costs, swing-bed

providers are paid a predetermined rate

equal to the average reasonable routine

cost of all freestanding SNFs in the

census region. This pre-determined rate

is based on annual cost report data, is

adjusted for inflation, and is calculated

on a calendar year basis. For swing-bed

payment purposes, there are nine

regions.

B. Requirement of the Balanced Budget

Act of 1997 for Swing-Bed Facility

Services To Be Paid Under the

Prospective Payment System for Skilled

Nursing Facilities

Section 1888(e)(7) of the Act and

section 203 of BIPA 2000 confers

authority on the Secretary to specify

when swing-bed hospitals become

subject to the SNF PPS, subject to the

limitation that swing-bed hospitals

cannot be paid under the SNF PPS for

cost reporting periods prior to July 1,

1999, and must be paid under the SNF

PPS by the end of the transition period

described in section 1888(e)(2)(E) of the

Act. The SNF PPS transition period

ends June 30, 2002, the day immediately

following the last day that any SNF

could be eligible for the blended rate

provisions established for the three-year

transition period.

We are proposing to revise the

regulations at § 413.114 to provide that

swing-bed payments be made under the

SNF PPS to swing-bed hospitals for cost

reporting periods beginning on and after

October 1, 2001, to ensure that the

conversion is made within the statutory

time frames. By selecting October 1,

2001 as the effective date, we can

integrate the swing-bed hospitals into

the SNF PPS program using the same

time lines that are statutorily required

for the annual SNF PPS updates.

Under BBA 1997, this conversion to

the SNF PPS was intended to apply to

payments to swing-bed facilities in

critical access hospitals (CAHs) as well

as to those facilities in rural hospitals.

However, section 203 of BIPA 2000

exempted CAHs with swing-beds from

the SNF PPS. Therefore, only rural

hospitals with swing-beds will be

subject to the SNF PPS.

Since the application of the SNF PPS

to non-CAH swing-bed providers will

not occur until the final portion of the

SNF PPS phase-in period, those swingbed providers are not eligible for a

blended rate. Upon their PPS effective

dates, all rural hospital swing-bed

providers will be paid at the per diem

Federal payment rate in effect for rural

providers when services were delivered.

Section 4407 of BBA 1997 redefined

the movement of patients from hospitals

from PPS hospitals to SNFs as transfers

rather then discharges. This provision

applies to hospital discharges for 10

specific DRGs (014, 113, 209, 210, 211,

236, 263, 264, 429, and 483), and

mandates that payment for these postacute transfers cannot exceed the sum of

50 percent of the regular transfer

payment and 50 percent of the regular

DRG payment. This provision applies to

all transfers from a DRG hospital to a

SNF that is currently reimbursed under

the SNF PPS.

Swing-bed discharges from acute to

SNF-level care were specifically

exempted from this provision, and

swing-bed hospitals would retain their

exempt status when they become

subject to the SNF PPS. However, in

connection with the possible

reevaluation of the existing swing-bed

conditions of participation discussed in

the following section, and the potential

for changes associated with a change in

payment methodology, we plan to

monitor swing-bed activity to determine

whether any additional changes may be

necessary. We are also mindful of the

unique relationship between acute care

and SNF-level services in a swing-bed

facility. For this reason, we are

soliciting comments on this issue, with

particular emphasis on both the need for

a swing-bed transfer provision and the

expected impact it would have on

swing-bed hospital operations. For a

more detailed explanation of the policy

regarding PPS hospital discharges to

post-acute care providers, please see

Program Memorandum A–98–26 (July,

1998).

C. Requirements of BBRA 1999 Affecting

Swing-Bed Payment and Eligibility

Section 408 of BBRA 1999 modified

the swing-bed provisions in section

1883(b) of the Act as follows:

• Hospitals with more than 49 and

fewer than 100 beds will no longer be

required to discharge beneficiaries from

swing-beds within 5 days of a

community SNF bed becoming

available.

• Hospitals will no longer have a cap

on the number of days of swing-bed

services they can provide. The

requirement that swing-bed days be no

more than 15 percent of the total bed

days was removed.

24022 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

• Hospitals will no longer be required

to obtain state Certificate of Need

approval for swing-beds.

By removing the per discharge

restrictions on length of stay and the

aggregate caps on the facility’s ratio of

swing-bed to acute days, these BBRA

1999 provisions give swing-bed

hospitals more flexibility in determining

how to use their swing-beds. Under

BBRA 1999, the implementation date of

these amendments is to coincide with

the timeframe for the swing-bed

transition to the SNF PPS schedule. We

propose to revise the regulations at

§ 413.114 to implement this change.

Since swing-bed services are provided

within an acute care facility and have

historically represented short stay

services, swing-bed providers have not

been subject to the full set of

participation requirements that apply to

SNFs. Instead, they have been subject to

the hospital conditions of participation,

plus an abbreviated set of SNF

participation requirements specified in

§ 482.66. It is not our intent to change

the swing-bed conditions of

participation at this time; however, we

are aware that the BBRA 1999

amendments may encourage swing-bed

facilities to make greater use of their

facilities to serve beneficiaries with

longer term needs, who otherwise

would have been transferred to a SNF.

We plan to monitor swing-bed

utilization and practice patterns to

determine whether changes are

occurring that warrant a review of

swing-bed conditions of participation.

We welcome comments on the need for

and nature of changes, if any, that

would be most helpful in ensuring

continued high quality services in

swing-bed facilities.

D. Implications of Swing-Bed Facility

Conversion to the SNF PPS

The SNF PPS is an outgrowth of

substantial research efforts beginning in

the 1970s. It is based on the recognition

that differences in patient

characteristics result in different levels

of resource utilization. Unlike some

older payment methodologies that paid

a flat per diem amount, a case-mix

system measures the intensity of care

and services required for each patient

and then translates that into a payment

level.

Under the SNF PPS, payment rates are

based on mean SNF costs in a base year,

updated for inflation. Swing-bed routine

cost reimbursement is similarly based

on a precalculated average cost.

However, under the current

methodology, swing-beds are paid at a

rate consisting of the average of the

freestanding nursing facility costs

within the region. In contrast, under the

SNF PPS, costs are calculated using

both freestanding and hospital-based

SNF data.

The ability to identify differences in

patient service needs is crucial to the

development of a case-mix system. For

the SNF PPS, we needed a sophisticated

patient classification system that

specifically captured resource use of

individuals receiving SNF-level care.

The Resource Utilization Group, version

3 (RUG–III) is a 44-group patient

classification system that was designed

specifically to measure SNF-level

services. RUG–III establishes a hierarchy

of major patient types, organized into

seven major categories. Each of these

categories is further differentiated by

patient characteristics and service needs

to yield the 44 specific patient groups

used for payment. Differences in service

use are shown by assigning a weight or

case mix index to each RUG–III group.

This weight represents the amount of

nursing and rehabilitation staff time,

weighted by salary level, and is

standardized to reflect the relative value

of each group within the 44-group

system.

Detailed descriptions of the RUG–III

classification methodology are included

in the May 12, 1998 SNF PPS final rule

(63 FR 25252). Additional information

on the RUG–III system is available in

the annual SNF PPS updates (64 FR

41645, July 30, 1999, and 65 FR 46770,

July 31, 2000). Like the DRG system

used in the inpatient hospital PPS, the

RUG–III system has been automated.

Program specifications, record layouts

and RUG–III coding logic may be found

on HCFA’s web site at www.hcfa.gov/

medicaid/mds2.0/default.htm.

All data needed to classify a Medicare

beneficiary into one of the RUG–III

groups is contained in the MDS 2.0. The

MDS 2.0 is a resident assessment

instrument used by SNFs for care

planning, quality monitoring, and SNF

PPS payment. As described in Section G

below, we plan to use the MDS 2.0 to

calculate SNF PPS payments for swingbed services.

All providers currently subject to the

SNF PPS perform periodic MDS 2.0

assessments for Medicare beneficiaries

in Part A stays. Facilities then generate

electronic MDS 2.0 records, and

transmit each beneficiary’s assessment

to a designated state agency. These

electronic MDS 2.0 records are then

transmitted by the state agency to

HCFA’s data repository. For more

information on MDS encoding and

transmission, see HCFA’s final rule

mandating the transmission of MDS

records (62 FR 67174, December 23,

1997) and the HCFA web site at

www.hcfa.gov/medicaid/mds2.0/

default.htm.

Under SNF PPS, providers must

transmit their MDS 2.0 assessments to

the appropriate state agency and receive

confirmation that the MDS 2.0 record

has been accepted into the state’s MDS

2.0 data base before submitting a bill to

the Part A FI. Billing instructions have

been developed for SNFs subject to the

SNF PPS. Three Program Memorandums

were issued shortly after the

introduction of the SNF PPS, and

provide a basic understanding of the

current billing requirements (Program

Memorandums A–98–16 (May 1998), A–

98–20 (June 1998), and A–98–26 (July

1998)). In addition, each Part A FI has

developed its own SNF PPS training

materials and billing instructions. HCFA

staff will be working with the FIs to

review these billing requirements and to

identify any changes or additions

needed to accommodate swing bed

providers. We are soliciting comments

on concerns related to billing or claims

processing in swing-bed facilities.

Finally, swing-bed claims are already

subject to medical review to ensure that

the services provided to Medicare

beneficiaries are reasonable and

necessary, and meet Medicare’s SNF

level of care criteria. Under the SNF

PPS, these reviews will be modified to

verify the accuracy of the clinical data

used to determine the RUG–III group

billed. We will work with the

appropriate contractors to finalize

procedures for these swing-bed reviews,

and we plan to publish specific

instructions and guidelines later this

year.

E. SNF PPS Rate Components

The SNF PPS methodology is

discussed in detail in the regulations at

42 CFR Part 413, subpart J. As this

methodology is only now being applied

to swing-bed hospitals, the major

components of the PPS Federal rate are

summarized below.

• The nursing component includes

direct nursing care and the cost of nontherapy ancillary services required by

Medicare beneficiaries. This portion of

the rate is case-mix adjusted using the

RUG–III classification system described

in detail in the May 12, 1998 SNF PPS

interim final rule (63 FR 26252). Swingbed facilities will be reimbursed under

the rural facility rates as shown in Table

6.

• The therapy component includes

physical, occupational, and speechlanguage therapy services provided to

beneficiaries in a Part A stay and, like

the nursing component, is case-mix

adjusted. Payment varies based on the

actual therapy resource minutes

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24023

received by the beneficiary and reported

on the MDS assessment instrument.

• The non-case-mix therapy

component is a standard amount to

cover the cost of therapy assessments of

beneficiaries who were determined not

to need continued therapy services. This

payment is added to the rate for all

RUG–III groups except those in the

Rehabilitation category.

• The non-case-mix component is

also a standard amount added to the rate

for each RUG–III group to cover

administrative and capital-related costs.

The specific costs included in this rate

component are described in the May 12,

1998 SNF PPS interim final rule (63 FR

26252).

The RUG–III system utilizes data from

the MDS to determine the appropriate

payment level for nursing and therapy

services. Upon transition to PPS, swingbed providers will be required to

complete MDS assessments according to

the same Medicare payment assessment

schedule designated for SNFs: on the

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

post-hospital extended care (Part A

SNF) services.

In addition, the portion of the Federal

rate attributable to wage-related costs is

adjusted by a wage index. For swing-bed

facilities, we will use the wage index

applicable to the county in which the

facility is located or, in the absence of

a county wage index, the rural rate for

the state in which the facility is located.

F. Implementation of the SNF PPS for

Swing-Bed Facilities

Under section 1888(e)(7) of the Act,

swing-bed providers (other than CAHs)

would be subject to the SNF PPS by the

end of the SNF PPS transition period

described in section 1888(e)(2)(E) of the

Act. However, swing-bed services are

not subject to the consolidated billing

requirement for services furnished to

SNF residents under section 1862(a)(18)

of the Act, but instead are subject to the

similar bundling requirement for

services furnished to hospital inpatients

under section 1862(a)(14) of the Act (see

section VI.J below).

G. Use of the Resident Assessment

Instrument—Minimum Data Set (MDS

2.0)

Swing-bed facilities are not currently

subject to the clinical MDS

requirements, but will be required

under the PPS to perform the Medicarerequired MDS assessments.

The MDS required for payment

purposes includes the MDS face sheet,

Sections AA–R, and Section T. In

addition, swing-bed providers, like

other nursing facilities, must complete

the discharge and reentry tracking forms

as appropriate to track the beneficiary’s

movement into and out of the post-acute

care facility. Swing-bed facilities that

also participate in the Medicaid

program may also be required, at State

option, to complete Section S.

When completing the MDS, swingbed facility staff should use the

instructions in the Long Term Care RAI

User’s Manual. A copy of this manual is

available on the HCFA web site at

www.hcfa.gov/medicaid/mds20/manform.htm and is also available for

purchase.

The types of assessments used to

support SNF PPS billing are described

below.

1. Regularly Scheduled Medicare

Assessments

MDS assessments must be performed

in accordance with a predetermined

schedule based upon the start of a

Medicare Part A covered stay. The

assessments are due on days 5, 14, 30,

60, and 90 of the SNF Part A covered

stay.

2. Readmission/Return Assessments

(MDS Item A8b=5)

This MDS reason for assessment is

used when a beneficiary who is

receiving Part A SNF care in a swingbed is hospitalized and then returns to

the swing-bed. The assessment reference

date of the Readmission/Return

Assessment must be set within 5 days

of the readmission, as with a regular

Medicare 5-day assessment. Like the 5-

day assessment, there are 3 grace days

available.

3. Other Medicare-Required

Assessments (OMRA)

Other Medicare-Required

Assessments (OMRAs) must be

performed when a beneficiary in a

covered Part A stay stops receiving

therapy, but continues to receive other

skilled services, thus remaining eligible

for Part A services. This assessment

must be performed between 8 and 10

days after the cessation of all

rehabilitation therapy services. It may

not be used to indicate changes in the

amount or frequency of service or to

show reductions in the number of

therapy disciplines provided. For

example, an OMRA is not required to

show that a beneficiary’s speechlanguage therapy has been discontinued

when the beneficiary is still receiving

physical therapy. This assessment is not

required if the beneficiary’s Part A stay

is discontinued when the therapy is

stopped.

Since swing-bed facilities do not

perform significant change or significant

correction assessments, we have no

method of recognizing changes in the

beneficiary’s clinical status that occur

outside the regular SNF PPS assessment

schedule. For this reason, we are

proposing to modify the MDS 2.0 by

adding a new reason for an OMRA

assessment specific to swing-bed

facilities. Swing-bed providers would

then use this additional reason for

assessment code when preparing offcycle assessments reflecting changes in

patient status that change the RUG-III

group and payment rate.

H. Required Schedule for Completing

the MDS

Swing-bed providers would follow

the same MDS completion schedule for

Medicare PPS assessments as other

providers reimbursed under the SNF

PPS. When performing an MDS

assessment, the registered nurse

coordinating the assessment would first

establish the period of time that would

be used to observe and assess the

beneficiary. The last day of the

observation period is defined as the

Assessment Reference Date (ARD). The

ARD is the date used to determine the

timeliness of the Medicare-required

MDS assessments. The assessment

schedule is shown in Table 12.

The Medicare Assessment Window

refers to the days on which the MDS

ARD may be set in order for the

assessment to be considered timely. For

example, the ARD for the 5-day

assessment should be set between days

1 and 5 of the beneficiary’s admission

to the swing-bed. Since we realize that

there will be exceptional circumstances

in which additional time will be

needed, we have provided for grace

days. MDS assessments with ARDs on a

grace day would also be considered

timely. The timeliness of the MDS

assessments may be monitored to

identify providers that routinely

perform assessments during the grace

period.

In addition, Medicare PPS

assessments are required to be

completed within 14 days of the ARD.

An MDS is considered completed on the

date the Assessment Coordinator

indicates on the MDS in Section R(2)(b).

Swing-bed providers that fail to perform

assessments or that perform late

assessments (ARD outside of the

specified assessment window) are paid

at the default rate. This default rate is

equal to the rate paid for the lowest

acuity level in the RUG-III system, PA1.

24024 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

TABLE 12.—ASSESSMENT SCHEDULE

Type of assessment

Assessment

window

days

Grace days Payment

period days

5 day ........................................................................................................................................................ 1–5 6–8 14

14 day ...................................................................................................................................................... 11–14 15–19 14

30 day ...................................................................................................................................................... 21–29 30–34 30

60 day ...................................................................................................................................................... 50–59 60–64 30

90 day ...................................................................................................................................................... 80–89 90–94 10

Each assessment would then be used

to calculate a RUG–III group for

payment. As shown in Table 12, the

RUG–III group is used to bill Medicare

for Medicare-covered days of SNF care.

The days shown in the payment period

column are the maximum number of

covered days that can be billed using

the 5, 14, 30, 60, and 90 day

assessments. Swing-bed care, like care

in SNFs, is covered by Medicare when

the beneficiary meets the Medicare level

of care and medical necessity criteria.

I. RUG–III ‘‘Grouper’’ Methodology and

Software

RUG–III is a patient classification

system that classifies beneficiaries

receiving SNF care based on the amount

of nursing and therapy resources needed

to provide that level of care. RUG–III

establishes a seven level hierarchy

based on resource use. The seven levels

are rehabilitative services, extensive

care, special care, clinically complex,

cognitive impairment, behavior, and

reduced physical function. The

classification system is then subdivided

into 44 groups using activities of daily

living (ADL) deficits, depression, and

the provision of restorative nursing

services as classification criteria. All

data necessary to classify a patient into

one of the RUG–III categories is

contained on the MDS 2.0.

Swing-bed bills would be paid in the

same manner as for all other providers

subject to the SNF PPS. Swing-bed

facilities would encode and transmit

their MDS data to the appropriate State

agency. The RUG–III group on the MDS

would be validated by the State upon

acceptance of the facility’s MDS data

file. The provider would bill Medicare

using the validated RUG–III code.

Detailed information on the RUG–III

system can be found in the July 30, 1999

SNF PPS final rule published in the

Federal Register (64 FR 41684), and on

HCFA’s PPS web site at www.hcfa.gov/

medicare/snfpps.htm.

Detailed information on the RUG–III

software can be found at www.hcfa.gov/

medicaid/mds20/default.htm. These

software groupers are available from

many software vendors, however, we

have developed the standard software

grouper product, RAVEN, which is

available to all providers at no cost. We

also provide ongoing support for the

RAVEN software, and have a Help Desk

to assist providers with data

transmission and other technical

problems. The RAVEN software may be

downloaded by accessing HCFA’s web

site at www.hcfa.gov/medicaid/mds20/

raven.htm.

J. Applicability of Consolidated Billing

to SNF Services Furnished in Swing-Bed

Facilities

As enacted by section 4432(b) of BBA

1997, the SNF consolidated billing

requirement (which places the Medicare

billing responsibility for almost the

entire range of Medicare-covered

services with the SNF) is based on

services that are furnished to SNF

residents. However, a swing-bed

agreement allows for the provision of

SNF services to inpatients of certain

small, rural hospitals. These swing-bed

services are not subject to the SNF

consolidated billing requirement at

section 1862(a)(18) of the Act, since that

provision applies to services that are

furnished to residents of SNFs. Rather,

these swing-bed services are subject to

the hospital bundling requirement at

section 1862(a)(14) of the Act, which

applies to services that are furnished to

inpatients of hospitals.

The hospital bundling requirement is

a longstanding provision that has

applied uniformly to all hospitals

(including those with swing-bed

agreements) and does not represent a

new requirement or a change in existing

procedures for these facilities. The

hospital bundling provision is

conceptually similar to the SNF

consolidated billing requirement (since

it places with the hospital the Medicare

billing responsibility for virtually all

services that the patient receives), and

actually served as the model for the SNF

consolidated billing legislation. Like

SNF consolidated billing, hospital

bundling specifically excludes the

services of several types of practitioners

(services furnished by physicians,

physician assistants, nurse practitioners,

clinical nurse specialists, certified

nurse-midwives, clinical psychologists,

and certified registered nurse

anesthetists). However, unlike SNF

consolidated billing, the hospital

bundling provision does not provide for

the additional exclusion of certain other

types of services, such as dialysis or

erythropoietin (EPO).

When the SNF PPS was implemented

in July 1998, we received several

questions concerning the relationship

between SNF consolidated billing and

Medicare’s preadmission payment

window provision, which requires that

certain services furnished during the

period immediately preceding an

inpatient hospital admission be

included in the payment for the hospital

admission. The most common question

is related to situations in which a SNF

resident in a covered Part A SNF stay

receives outpatient services from a

hospital, and is subsequently admitted

to that same hospital as an inpatient

within three days. Both hospital and

SNF providers were unsure whether the

hospital outpatient services should be

included on the hospital inpatient bill

or were included in the SNF PPS

payment. Since this issue is relevant to

swing-bed patients who may require a

readmission to an acute care hospital

(either within the same facility or to

another hospital), we are reiterating our

previous clarification on this point.

Section 1886(a)(4) of the Act includes

a preadmission payment window

provision for hospitals. Under this

provision, certain Part B services

furnished by a hospital (or by an entity

wholly owned or operated by the

hospital) within three days before an

inpatient admission to that hospital are

included in the Medicare Part A

payment for the hospital admission.

However, we clarified the application of

the payment window provisions in a

final regulation published in the

Federal Register on February 11, 1998

(63 FR 6865–66), to explain that this

provision does not apply to Part A

services furnished during the

preadmission period by home health

agencies, SNFs, and hospices. The

preadmission payment window applies

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24025

only to services that are ‘‘otherwise

payable under Medicare Part B.’’

Therefore, those preadmission services

that are covered under the Part A SNF

benefit would not be within the scope

of the preadmission payment window

provision.

However, services furnished on the

day that a SNF resident is admitted to

a hospital as an inpatient are not

included in the SNF PPS payment rate.

Thus, the outpatient hospital services

furnished on that day would be subject

to the preadmission payment window

provision. In addition, services

excluded from the SNF PPS under

consolidated billing are considered Part

B services and, when provided within

three days of admission as a hospital

inpatient, are subject to the

preadmission payment window. Among

these SNF PPS-excluded services are

certain exceptionally intensive services

furnished in the hospital setting: cardiac

catheterization, computerized axial

tomography (CT) scans, magnetic

resonance imaging (MRIs), ambulatory

surgery involving the use of an

operating room, emergency services,

radiation therapy, angiography, and

certain lymphatic and venous

procedures.

For a complete list of services that are

reimbursed separately from the SNF

PPS rate, please refer to Program

Memorandums A–98–37 (November

1998, reissued as A–00–01, January

2000) and AB–00–18 (March 2000).

K. Costs Associated With Automating

the MDS: Preliminary Estimates

In accordance with section 1888(e)(7)

of the Act, we propose to apply the SNF

PPS to swing-bed providers (other than

CAHs) effective with cost reporting

periods beginning on or after October 1,

2001, consistent with the statutory

mandate to implement this provision by

the end of the SNF PPS transition

period described in section 1888(e)(2)(E)

of the Act. Reimbursement under the

SNF PPS is contingent upon the

periodic completion of an MDS

assessment, which is used to assign

each beneficiary to an acuity level.

Payment is then based on that acuity

level. Therefore, all swing-bed providers

must automate the MDS data collection

and transmission process and be

capable of transmitting MDS data no

later than the effective date of the

conversion to PPS. We anticipate that

swing-bed providers will incur some

incremental costs associated with

automating and transmitting the MDS.

Most start up costs associated with

automating the MDS will be related to

hardware, software, and staff training.

These costs will vary with the size of

each swing-bed facility, the facility’s

current level of computer technology,

and the familiarity of staff with the MDS

assessment instrument.

At the current time, a number of

swing-bed hospitals also operate

distinct part SNFs, and have systems in

place to prepare, store, and transmit

MDS assessments. We estimate that

approximately 30 percent of the nation’s

1,240 Medicare swing-bed providers

presently have the hardware and

software capability for automated MDS

data collection and transmission. Other

facilities may be using computers for

other applications and may need to

upgrade their systems to provide access

to clinical and/or data entry staff within

the swing-bed unit. For swing-bed

hospitals that do not currently operate

distinct part SNFs, we expect that a

significant percentage will have either

very limited capacity or no computer

system at all.

Based on our experience with SNFs,

we have developed this preliminary

estimate of the costs a swing-bed

provider can expect to incur. Costs are

separated into two categories, start-up

and maintenance.

• Hardware: We estimate total

hardware costs associated with

automating the MDS to be

approximately $2,000 to $2,500 for a

typical swing-bed provider. This

amount includes the cost of a computer,

communications components capable of

running MDS software and transmitting

MDS assessments, and a laser printer.

This estimate is based on the most

recent cost data available for a system

that meets the specifications required by

the State system. As noted earlier in this

proposed rule, we expect that many

swing-bed hospitals already have some

computer capability and will not need

to buy an entirely new system. Based on

information currently available, we have

no way to quantify the number of

providers requiring upgrades to their

existing computer systems in order to

operate the MDS software. However, the

cost of upgrading existing systems

should be substantially less than the

hardware cost estimates provided here.

It is also possible that some providers

may elect more sophisticated and

expensive multi-user systems. However,

since these systems are not generally

appropriate for small facilities, are not

required for SNF PPS payment

purposes, we have considered this type

of multi-user system to be an optional

expense, and did not include it in the

cost estimates. For this analysis, we

assumed that all providers would

purchase new hardware, and that

assumption may overstate the cost

estimates.

This cost estimate is based on a

computer system suitable for a small

business, and assumes that the facility

will add applications and data files over

time to support ongoing operations. We

anticipate that many swing-bed

hospitals will choose to purchase this

type of system even though it will

initially provide excess capacity, and

believe that the selection is appropriate.

Facilities may, of course, choose a more

basic configuration at lower cost. A

comparison between a small business

industry standard configuration and the

minimum system capable of running the

necessary MDS software is shown in

Table 13.A. Ongoing hardware

maintenance costs for nursing homes

are expected to average about $100

annually. Service contracts are also

available for new PC purchases.

TABLE 13.A.—PPS COMPUTER REQUIREMENTS

Component Small business standard Basic MDS processing

Processor ........................................................... Pentium III 933/133MH .................................... Pentium III.

Memory .............................................................. 128MB sdram ................................................... 32 MB.

Keyboard ........................................................... Standard with PC ............................................. Standard with PC.

Monitor ............................................................... 17′′ color monitor .............................................. 14′′ color monitor.

Hard Drive ......................................................... 20GB ................................................................ 100MB.

Floppy Drive ...................................................... 1.44MB 3.5′′ ...................................................... 1.44MB 3.5′′.

Operating System .............................................. Win2000 ........................................................... Windows 98, NT.

Data Backup ...................................................... Iomega 250MB Zip drive .................................. Optional.

Mouse ................................................................ Standard with PC ............................................. Standard with PC.

Modem ............................................................... v.90 56K voice/data/fax .................................... 28.8k voice/data/fax.

Media Options ................................................... 20/48X CD–Rom .............................................. Optional.

Communications software ................................. Netscape or comparable device ...................... Netscape or comparable device.

24026 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

TABLE 13.A.—PPS COMPUTER REQUIREMENTS—Continued

Component Small business standard Basic MDS processing

Applications Software ........................................ Microsoft Small Business Norton AntiVirus ..... Optional Anti-virus software, recommended.

Printer ................................................................ Laser Printer ..................................................... Laser Printer.

• Software: Swing-bed providers

desiring only to meet the MDS data

submission requirements may use

RAVEN, the MDS software developed

by HCFA, which is available free of

charge. RAVEN allows facilities to

perform the basic encoding and

formatting functions, and allows users

to store and retrieve MDS documents.

We already provide ongoing support for

the RAVEN software, and the RAVEN

Help Desk will be available to swingbed providers to resolve software or

transmission problems. We expect that

RAVEN will meet the needs of many

small swing-bed providers.

Some facilities will choose more

sophisticated software programs that

can be used to meet other clinical or

operational needs, such as care

planning, order entry, quality assurance,

or billing. There are currently over 100

vendors marketing MDS software

products, and the cost of MDS software

packages varies widely. Depending on

the number of work stations, the level

of customer support, and the scope of

reporting subsystems, an MDS

processing system can cost anywhere

from approximately $500 to $5,000 or

more per year. Generally, the higherpriced software is designed for large

SNFs or multi-facility chains and would

be inappropriate for a small swing-bed

facility. We would expect that swingbed facilities that choose not to use

RAVEN could purchase proprietary

MDS software and support services at a

cost ranging from $500 to $1,200 per

year. While we have considered the

possibility, absent a survey of swing-bed

providers, we have no way to quantify

how many will elect to purchase more

elaborate proprietary MDS processing

systems. The extra functionality

associated with these systems is not

required for payment under the SNF

PPS, and should be considered optional

costs. However, we have included a cost

range in these estimates since we do not

want to discourage providers from using

MDS systems for other functions, such

as quality assurance.

All swing-bed providers will need a

common data communications software

package to transmit MDS assessments to

the State. This communications package

must meet our specifications related to

transmission of MDS data, which

represent current technology. The cost

of the communications software, the

anti-virus software and the most

common small business suite of word

processing and spread sheet computer

applications is included in the cost

estimate for a small business standard

configuration PC system.

• Supplies: Supplies necessary for

collection and transmission of data

including diskettes, computer paper,

and toner, will vary according to the

size of the facility in terms of residents

served and assessments required. For

the average facility, supply costs should

average approximately $200 per year.

• Maintenance: There are costs

associated with normal maintenance of

computer equipment, such as the

replacement of disk drives or memory

chips. Typically, such maintenance is

provided via extended warranty

agreements with the original equipment

manufacturer, system reseller, or a

general computer support firm. These

maintenance costs are estimated to

average no more than $100 per year.

L. Provider Training

We recognize our responsibility to

provide initial training, as well as

ongoing technical support. We are

currently evaluating training options

and solicit comments on training

methods, vehicles, and timeframes.

VII. Provisions of the Proposed Rule

The provisions of this proposed rule

are as follows:

• In § 410.150, we propose to revise

paragraph (b)(14) to reflect that Part B

makes payment to the SNF for its

resident’s services only in those

situations where the SNF itself

furnishes the services, either directly or

under an arrangement with an outside

source.

• In § 411.15, we propose to revise

paragraph (p)(1) to indicate that except

for physical, occupational, and speechlanguage therapy, consolidated billing

applies only to those services that a SNF

resident receives during the course of a

covered Part A stay. We would also

make conforming revisions in

§§ 489.20(s) and 489.21(h), in the

context of the requirements of the SNF

provider agreement. We propose to

revise paragraph (p)(2) to indicate that,

for Part B services furnished to a SNF

resident, the requirement to enter the

SNF’s Medicare provider number on the

Part B claim (which previously applied

only to claims for physician services)

would apply to all types of Part B

claims. We would also make conforming

revisions in the requirements regarding

claims for payment, at §§ 424.32(a)(2)

and (a)(5). We would revise the wording

of the existing requirement in

§ 424.32(a)(5) for a SNF to include

appropriate HCPCS coding and its

Medicare provider number on the

claims that it files for its residents’

services, by adding that these

requirements also apply to these claims

when they are filed by an outside entity.

In addition, we would revise

§ 411.15(p)(3) to exclude from the

definition of a SNF resident, for

consolidated billing purposes, those

individuals who reside in the

noncertified portion of an institution

that also contains a participating

distinct part SNF.

• In accordance with section

1888(e)(2)(E) of the Act, we propose to

revise § 413.114 to reimburse swing-bed

services of rural hospitals (other than

CAHs, which would be paid on a

reasonable cost basis) under the SNF

PPS described in regulations at subpart

J of that part. This conversion to the

SNF PPS would be effective for services

furnished during cost reporting periods

beginning on or after October 1, 2001.

We also propose to revise paragraph

(d)(1) of this section to reflect the BBRA

1999 modifications to the special

requirements for swing-bed facilities

with more than 49 but fewer than 100

beds (as discussed in section VI.C of this

preamble), and to make a conforming

revision in § 424.20(a)(2).

VIII. Collection of Information

Requirements

Under the Paperwork Reduction Act

of 1995 (PRA), agencies are required to

provide a 60-day notice in the Federal

Register and solicit public comment

when a collection of information

requirement is submitted to the Office of

Management and Budget (OMB) for

review and approval. To fairly evaluate

whether an information collection

should be approved by OMB, section

3506(c)(2)(A) of the PRA requires that

we solicit comments on the following

issues:

• Whether the information collection

is necessary and useful to carry out the

proper functions of the agency;

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24027

• The accuracy of the agency’s

estimate of the information collection

burden;

• The quality, utility, and clarity of

the information to be collected; and

• 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.

§ 413.114(a)(2)—Implementing the

requirement in section 1888(e)(7) of the

Act for the SNF PPS to encompass

swing-bed services furnished in rural

hospitals will require these providers to

complete MDS assessments, in

accordance with the schedule

prescribed in regulations at 42 CFR

413.343(b). Accordingly, we are

including in this proposed rule the

following discussion of the anticipated

burden for rural hospitals as a result of

implementing this requirement.

On December 23, 1997, we issued in

the Federal Register a final regulation

requiring Medicare-certified SNFs and

Medicaid-certified nursing facilities

(NFs) to encode and transmit MDS data

to HCFA in electronic format (42 FR

67174). In that rule, we provided cost

estimates for training staff and

conducting ongoing functions related to

the preparation, data entry and

transmission of MDS data. The

estimates presented here are based on

the analysis presented in the MDS

automation rule, but are updated to

reflect current wage data and unique

aspects of swing-bed providers. We also

used 1999 claims data to calculate the

number of swing-bed stays and the

average length of stay. These data were

used to estimate ongoing MDS-related

costs.

Using the best available 1999 claims

data, we identified 97,576 swing bed

stays. There are currently 1,250 swingbed facilities. The average annual

number of admissions is 78 per swingbed hospital. Using the same 1999

claims data, the average length of stay

is 8.79 days. Accordingly, on average, a

typical swing-bed facility would need to

complete only one MDS per admission,

since the PPS 5-day assessment governs

payment for the first 14 days of the stay.

• Data Entry: Based upon our

experience with SNFs, we estimate that

swing-bed facilities will need to train at

least one staff person to handle the data

entry and MDS processing system. State

agencies currently train SNF staff on

these functions, and the training is

generally completed in a single half-day

session. Additional training materials

and updates to program requirements

are generally posted on the MDS web

sites, and are available to staff at no

cost. By distributing information

electronically, and providing Help

Desks for software and transmission

problems, we minimize the need for

staff travel, and reduce the ongoing

costs associated with encoding and

transmitting MDS data.

Facilities may choose among a variety

of approaches to encode the MDS data

in electronic format. In many SNFs, the

nurses conducting the assessments

input their responses directly into the

computer, and the data entry time is

incorporated into the MDS preparation

time. In others, a data entry operator is

used to input the MDS data and

maintain the MDS processing system.

For SNFs, the data entry function

averages 15 minutes per assessment. We

also expect that staff will require

approximately 2 hours per month to

perform system-related functions such

as processing corrections, retrieving

assessment information, printing copies,

verifying the accuracy of the data

entered into the system, and reviewing

program updates and training materials.

The hourly rate for data entry was

estimated at $15, and reflects the salary

differentials between the two types of

staff typically performing this function:

RNs and data operators.

• Electronic Transmission: Swing-bed

staff will also need training on data

transmission procedures. Again, state

agencies have already developed

training programs in this area, and this

training will be available to swing-bed

personnel. Generally, a facility would

send one person to a half-day training

program. This individual would be

responsible for handling data

transmission functions, and would be

expected to train other facility staff on

a time-available basis. We will make the

MDS transmission system available to

swing-bed providers prior to the

effective date of the transition to the

SNF PPS, and allow staff to practice

transmission procedures. We would

expect that each swing-bed provider

would have successfully transmitted at

least one MDS data file prior to the

updated SNF PPS effective date. Once

the designated individual has been

trained, we estimate that the MDS

transmission will take approximately

one hour per month.

The hourly rate of data transmission

was estimated at $15, and reflects the

salary differentials between the two

types of staff typically performing this

function: RNs and data operators.

• MDS Coding: Training time will

vary depending on the familiarity of

swing-bed staff with MDS coding

procedures and the presence of a

hospital-based SNF that is already

subject to the SNF PPS requirements.

Many swing-bed hospital employees

may have prior experience in a SNF

where they were trained in MDS coding

procedures. In addition, in 1999,

approximately 25 percent of swing-bed

hospitals also had hospital-based SNF

facilities, and have a pool of trained

staff who can assist swing-bed

employees with MDS coding

procedures. Regardless of the amount of

inhouse support available, we believe it

is advisable for each swing-bed hospital

to designate an RN to assume lead

responsibility, and to ensure that this

RN is fully trained. We estimate that the

initial training in MDS clinical coding

and SNF PPS assessment scheduling

will require two days.

Based upon the experience SNFs have

had in completing the MDS, we estimate

that it generally takes 45 minutes to

complete a comprehensive assessment.

We considered reducing this estimate

for swing-bed providers for two reasons.

First, the requirements for

comprehensive assessments which are

mandated under the Omnibus Budget

Reconciliation Act of 1987, Pub.L. 100–

203 (OBRA 1987) are somewhat higher

than those applicable to the SNF PPS

assessments. Second, SNF staff

generally have limited knowledge

concerning the care the patient received

prior to the SNF admission, and limited

access to the records from the prior

hospital stay. As a result, the RN in the

SNF conducting a 5-day PPS assessment

has to build a completely new

knowledge base about the patient’s

condition and care needs. By contrast,

in a swing-bed hospital, the staff caring

for the patient have the advantages of

observing the patient during the acute

portion of the stay, and should have

more information already available

when completing the SNF PPS 5-day

assessment. However, rather than

reducing the time estimate, we are using

the higher number to reflect the

expected learning curve over the first

year as staff become more familiar with

and proficient in completing the MDS.

As stated above, swing-bed providers

averaged 78 stays per year with an

average swing-bed length of stay of

slightly under 9 days. Therefore, swingbed providers would generally complete

just one SNF PPS assessment for most

patients; i.e., the 5-day assessment that

governs payment for the first 14 days of

a stay.

Although our projections are based on

the most recent available data, and

indicate that swing-bed providers will

generally complete only one MDS per

beneficiary during the course of a

swing-bed stay, we are aware that this

24028 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

utilization pattern could change. We

note that the restrictions on beneficiary

length of stay and the caps on the

percentage of bed days that could be

used for swing-bed service were

eliminated by section 408 of BBRA

1999, effective with cost reporting

periods beginning on and after October

1, 2002. With this added flexibility,

swing-bed providers may decide to

adjust their admission practices, and

may serve more patients requiring

longer lengths of stay. If this change

occurs, swing-bed staff may be required

to perform additional MDS assessments.

Therefore, we plan to monitor swingbed utilization patterns to identify any

changes in provider practices and

evaluate the impact of these changes on

swing-bed performance under the SNF

PPS. However, for the current analysis,

we have used the best available

historical data to project future

experience.

To calculate the costs of preparing the

MDS, we used 1998 Bureau of Labor

Statistics nursing wage data including

fringe benefits, updated to FY 2002

levels using the SNF market basket

factor. The average hourly rate of $24.70

is used in the calculations shown in

Table 13.B. The Aggregate Cost-Basic

Option column estimates are based on

October, 2000 data showing 1,250

certified swing-bed providers. The

aggregate calculations assume that all

providers chose either the basic or small

business option. Absent a survey of all

providers, we have no way to quantify

the number of providers requiring

upgrades to existing computer systems

in order to operate the MDS software.

We have assumed purchase of a new

system for all providers, which may

result in an overstatement of actual

anticipated costs. The Basic OptionCost/Facility Hardware estimate

includes a laser printer, operating

software, basic applications software,

including Word 2000 and Excel 2000,

and a one year service agreement and

anti-virus software. The Small Business

Option-Cost/Facility Hardware estimate

includes a laser printer, operating

software, Microsoft Office Suite

applications software, anti-virus

software, and a one year service

agreement. The Communications

Software estimate reflects the cost of

Netscape or other communications

software. It is assumed that swing-bed

providers will use the free RAVEN

software for MDS processing. This

software was developed and tested by

HCFA, and has been widely used by

both hospital-based and freestanding

SNFs during the past three years. We

cannot quantify the number of providers

who will choose to purchase proprietary

systems, and therefore have included a

cost range. We believe that the free

RAVEN software, along with the

associated Help Desk Services will meet

the needs of most providers. The use of

proprietary systems should be

considered an optional cost.

TABLE 13.B.—SWING-BED RURAL HOSPITAL COST OF COMPLETING MDS

Category Basic optioncost/facility

Small business option— cost/facilityAggregate cost— basic optionAggregate cost— small business option

Hardware ........................................................... $1,400.00 $2,100.00 $1,750,000.00 $2,625,000.00

Comm. Software ............................................... 100.00 100.00 125,000.00 125,000.00

MDS Software ................................................... 0–1,200.00 0–1,200.00 0–1,500,000.00 0–1,500,000.00

Staff Training—MDS Coding ............................. 494.00 494.00 617,500.00 617,500.00

Staff Training—Entry and Transmission ........... 240.00 240.00 300,000.00 300,000.00

Start Up Costs ................................................... 2,234.00 2,934.00 2,792,500.00 3,667,500.00

MDS Preparation ............................................... 1,445.00 1,445.00 216,750.00 216,750.00

MDS Entry ......................................................... 292.50 292.50 365,625.00 365,625.00

MDS Transmission ............................................ 180.00 180.00 225,000.00 225,000.00

Supplies ............................................................. 200.00 200.00 250,000.00 250,000.00

Maintenance ...................................................... 100.00 100.00 125,000.00 125,000.00

Operating Cost .................................................. 2,217.50 2,217.50 1,182,375.00 1,182,375.00

Estimated First Year Costs ............................... 4,451.50–5,651.50 5,151.50–6,351.50 3,974,875.00–5,474,875.00 4,849,875.00–6,349,875.00

§ 424.32(a)(5)—We propose to revise

section 424.32(a)(5) to reflect the new

statutory requirement that all Part B

claims for services furnished to SNF

residents must include the SNF’s

Medicare provider number. Because the

burden associated with this additional

requirement is incidental to the

completion of a claim, we are unable to

estimate the burden associated with this

new requirement, and explicitly solicit

comment. As a result of this new

requirement, we will be revising the

OMB clearance package for the HCFA–

1500 (Common Claim Form), OMB

number 0938–0008, which is currently

being reviewed by OMB for re-approval.

We have submitted a copy of this

proposed rule to OMB for its review of

the information collection requirements

in §§ 413.411(a)(2) and 424.32(a)(5).

These requirements are not effective

until they have been approved by OMB.

If you have any comments on any of

these information collection and record

keeping requirements, please mail one

original and three copies within 60 days

of the publication date directly to the

following:

Health Care Financing Administration,

Office of Information Services,

Information Technology Investment

Management Group, Division of

HCFA Enterprise Standards, Room

N2–14–26, 7500 Security Boulevard,

Baltimore, MD 21244–1850, Attn:

John Burke, HCFA–1163–P.

And: Office of Information and

Regulatory Affairs, Room 10235, New

Executive Office Building,

Washington, DC 20503, Attn: Allison

Herron Eydt, HCFA Desk Officer.

IX. Regulatory Impact Analysis

We have examined the impact of this

rule as required by Executive Order (EO)

12866, the Unfunded Mandate Reform

Act (UMRA, Public Law 104–4), the

Regulatory Flexibility Act (RFA, Public

Law 96–354), and the Federalism

Executive Order (EO) 13132.

Executive Order 12866 directs

agencies to assess 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). This proposed rule is a major

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24029

rule as defined in Title 5, United States

Code, section 804(2), because we

estimate its impact will be to increase

the payments to SNFs by approximately

$300 million in FY 2002. The update set

forth in this proposed rule applies to

payments in FY 2002. Accordingly, the

analysis that follows describes the

impact of this one year only. In

accordance with the requirements of the

Act, we will publish a notice for each

subsequent FY that will provide for an

update to the payment rates and include

an associated impact analysis.

The UMRA also requires (in section

202) that agencies prepare an

assessment of anticipated costs and

benefits before developing any rule that

may result in an expenditure in any year

by State, local, or tribal governments, in

the aggregate, or by the private sector, of

$100 million or more. This rule will

have no consequential effect on State,

local, or tribal governments. We believe

the private sector cost of this rule falls

below these thresholds as well.

Executive Order 13132 (effective

November 2, 1999) establishes certain

requirements that an agency must meet

when it promulgates regulations that

impose substantial direct compliance

costs on State and local governments,

preempt State law, or otherwise have

Federalism implications. As stated

above, this rule will have no

consequential effect on State and local

governments.

The RFA requires agencies to analyze

options for regulatory relief of small

entities. For purposes of the RFA, small

entities include small businesses,

nonprofit organizations, and

governmental agencies. Most SNFs and

most other providers and suppliers are

small entities, either by virtue of their

nonprofit status or by having revenues

of $10 million or less annually. For

purposes of the RFA, all States and

tribal governments are not considered to

be small entities, nor are intermediaries

or carriers. Individuals and States are

not included in the definition of a small

entity.

The policies contained in this

proposed rule would update the SNF

PPS rates by increasing the payment

rates published in the July 31, 2000

notice (65 FR 46770). While we do not

believe that this will have a significant

effect upon small entities overall, some

individual providers may experience

significant increases in payments, while

others (those that are concluding their

final year under the transition from

facility-specific to full Federal rates)

may experience significant decreases, as

discussed later in this section.

In addition, section 1102(b) of the Act

requires us to prepare an RIA if a rule

may have a significant impact on the

operations of a substantial number of

small rural hospitals. This analysis must

conform to the provisions of section 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 examined the impact on

the 1,250 swing-bed facilities that

would start receiving payment under

the SNF PPS effective with cost

reporting periods beginning on or after

October 1, 2001, and find that the

payments to these facilities will increase

overall. Some swing-bed facilities may

receive significant increases in Medicare

related payments, as described later in

this section. Accordingly, the following

analysis includes a specific examination

of the projected impact of these

provisions on small rural hospitals.

A. Background

Section 1888(e) of the Act establishes

the SNF PPS for the payment of

Medicare SNF services for periods

beginning on or after July 1, 1998. This

section specifies that the base year cost

data to be used for computing the RUG–

III payment rates must be from FY 1995

(that is, October 1, 1994, through

September 30, 1995.) In accordance

with the statute, we also incorporated a

number of elements into the SNF PPS,

such as case-mix classification

methodology, the MDS assessment

schedule, a market basket index, a wage

index, and the urban and rural

distinction used in the development or

adjustment of the Federal rates.

This proposed rule sets forth updates

of the SNF PPS rates contained in the

July 31, 2000 final rule (65 FR 46770).

Table 14 presents the projected effects

of the policy changes in the SNF PPS

from FY 2001 to FY 2002, as well as

statutory changes effective for FY 2001

and FY 2002. In so doing, we estimate

the effects of each policy change by

estimating payments while holding all

other payment variables constant. We

use the best data available, but we do

not attempt to predict behavioral

responses to our policy changes, and we

do not make adjustments for future

changes in such variables as days or

case-mix.

This analysis incorporates the latest

estimates of growth in service use and

payments under the Medicare SNF

benefit based on the latest available

Medicare claims data and MDS 2.0

assessment data from 1999. We plan to

update this data in the final rule. We

note that certain events may combine to

limit the scope or accuracy of our

impact analysis, because such an

analysis is future-oriented and, thus,

very susceptible to forecasting errors

due to other changes in the forecasted

impact time period. Some examples of

such possible events are newly

legislated general Medicare program

funding changes by the Congress, or

changes specifically related to SNFs. In

addition, changes to the Medicare

program may continue to be made as a

result of BBA 1997, BBRA 1999, BIPA

2000 or new statutory provisions.

Although these changes may not be

specific to SNF PPS, the nature of the

Medicare program is such that the

changes may interact, and the

complexity of the interaction of these

changes could make it difficult to

predict accurately the full scope of the

impact upon SNFs.

B. Impact of the Proposed Rule

The purpose of this proposed rule is

not to initiate significant policy changes

with regard to the SNF PPS; rather, it is

to provide an update to the rates for FY

2002. We believe that the revisions and

clarifications mentioned elsewhere in

the preamble (for example, the update to

the wage index used for adjusting the

Federal rates) will have, at most, only a

negligible overall effect upon the

regulatory impact estimate specified in

the rule. As such, these revisions will

not represent an additional burden to

the industry.

The aggregate increase in payments

associated with this proposed rule is

estimated to be $300 million. The effect

of the 20 percent add-on from BBRA

1999 is $1.0 billion; however, since this

add-on became effective in FY 2001, it

has already been reflected in the impact

analysis for last year’s final rule (65 FR

46770) and, thus, does not represent a

new, additional impact for the FY 2002

payment rates. There are three areas of

change that produce this increase for

facilities:

1. The effect of facilities being paid

the full Federal rate.

2. The implementation of provisions

in BIPA 2000, such as the 16.6 percent

increase in the nursing component of

each RUG and the elimination of the

one percent reduction in the SNF

market basket for FY 2001.

3. The total change in payments from

FY 2001 levels to FY 2002 levels. This

includes all of the previously noted

changes in addition to the effect of the

update to the rates.

As seen in Table 14, some of these

areas are expected to result in increased

aggregate payments and others are

expected to tend to lower them. The

breakdown of the various categories of

data in the table is as follows:

24030 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

The first row of figures in the table

describes the estimated effects of the

various policies on all facilities. The

next six rows show the effects on

facilities split by hospital-based,

freestanding, urban and rural categories.

The remainder of the table shows the

effects on urban versus rural status by

census region.

The second column in the table shows

the number of facilities in the impact

database. The third column shows the

effect of the expiration of the transition

and movement to the full Federal rates

for all SNFs. This change has an overall

effect of lowering payments by an

estimated 8.5 percent, affecting hospitalbased facilities more than freestanding

facilities. The main reason for such a

large decrease is the BBRA 1999

provision that allowed facilities to

choose the full Federal rate. When given

the option to do so, an estimated 43

percent of the facilities elected to go to

the full Federal rate. This meant that the

only facilities left to transition to the

full Federal rate are ones for which the

expiration of the transition will cause a

decrease in reimbursement. In contrast,

those facilities receiving the full Federal

rate will experience an 11.6 percent

increase in payments. The overall effect,

therefore, reduced reimbursement, but

the effects across regions are quite

variable.

The fourth column shows the

projected effect of the 16.66 percent

add-on to the nursing portion of the

Federal rate mandated by BIPA 2000. As

expected, this results in an increase in

payments for all facilities; however, as

seen in the table, the varying effect of

the SNF PPS transition results in a

distributional impact. In addition, since

this increase only applies to the nursing

portion of the payment rate, the effect

on total expenditures is less than 16.66

percent.

The fifth column of the table shows

the effect of the change in the add-on for

the rehabilitation RUGs. The total

impact of this change is zero percent;

however, there are distributional effects

of this change, as seen in the table.

The sixth column of the table shows

the effect of all of the changes on the FY

2002 payments. This includes all of the

previous changes, including the update

to this year’s payment rates by the

market basket. Rebasing of the market

basket index from 1992 to 1997 had

little impact on the overall changes

displayed in this column. It is projected

that payments will increase by 2.1

percent in total, assuming facilities do

not change their care delivery and

billing practices in response. As can be

seen from this table, the combined

effects of all the changes vary widely by

specific types of providers and by

location. For example, freestanding

facilities experience payment increases,

while the effects of the transition cause

decreases in payments for hospitalbased providers.

TABLE 14.—PROJECTED IMPACT OF FY 2002 UPDATE TO THE SNF PPS

Number of

facilities

Transition to

federal rates

(percent)

Add-on to

nursing

rates

(percent)

Add-on to

rehab RUGs

(percent)

Total FY

2002

change

(percent)

Total ......................................................................................................... 9037 ¥8.5 7.9 0.0 2.1

Urban ....................................................................................................... 6300 ¥9.0 8.0 0.1 1.7

Rural ........................................................................................................ 2737 ¥6.7 7.5 ¥0.5 3.2

Hospital based urban ............................................................................... 683 ¥14.7 8.5 ¥0.8 ¥5.1

Freestanding urban .................................................................................. 5617 ¥8.1 7.9 0.3 2.8

Hospital based rural ................................................................................. 533 ¥9.7 8.2 ¥2.0 ¥1.0

Freestanding rural .................................................................................... 2204 ¥6.2 7.4 ¥0.3 3.9

Urban by region.

New England ........................................................................................... 630 ¥3.9 8.1 0.2 7.6

Middle Atlantic .......................................................................................... 877 ¥2.9 8.4 ¥1.7 7.0

South Atlantic ........................................................................................... 959 ¥10.5 7.7 0.8 0.5

East North Central ................................................................................... 1232 ¥7.6 7.8 0.9 3.9

East South Central .................................................................................. 212 ¥8.8 7.8 0.4 2.1

West North Central .................................................................................. 469 ¥10.6 7.9 0.1 ¥0.2

West South Central ................................................................................. 519 ¥19.5 8.1 0.1 ¥9.9

Mountain .................................................................................................. 303 ¥17.3 7.5 1.5 ¥6.7

Pacific ...................................................................................................... 1070 ¥13.9 8.0 0.5 ¥3.4

Rural by region.

New England ........................................................................................... 88 ¥0.9 7.5 ¥0.4 9.7

Middle Atlantic .......................................................................................... 144 ¥4.4 7.7 ¥1.5 4.9

South Atlantic ........................................................................................... 373 ¥5.3 7.5 0.1 5.4

East North Central ................................................................................... 561 ¥5.1 7.4 0.0 5.4

East South Central .................................................................................. 255 ¥5.1 7.9 ¥2.6 3.1

West North Central .................................................................................. 581 ¥8.2 7.7 ¥1.4 0.8

West South Central ................................................................................. 354 ¥14.9 7.5 0.2 ¥5.2

Mountain .................................................................................................. 204 ¥11.6 7.2 ¥0.1 ¥2.1

Pacific ...................................................................................................... 151 ¥7.4 7.2 0.6 3.3

In accordance with section 1888(e)(7)

of the Act, we propose to pay rural

hospitals for SNF-level swing-bed

services under the SNF PPS effective

with cost report periods beginning on

and after October 1, 2001. In making

this proposal, we have examined the

anticipated impact of this payment

change on swing-bed facilities.

We analyzed data from swing-bed

claims for calendar years 1996 through

1998 to determine Medicare payments

made under the current swing-bed

payment system. The claims data reflect

the predetermined routine cost

payments and the interim payment for

ancillary services. While the interim

payment rate for ancillary services is

subject to final cost settlement, it

represents a reasonable proxy for actual

swing-bed payments.

We then adjusted the historical data

on swing-bed payments to 2002 levels.

For calendar years 1999 through 2001,

we projected the average payment per

day, using the 6.5 percent growth rate

calculated from the most recent

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24031

available data from calendar years 1997

and 1998. For 2002, we used a blended

growth rate that reflects a projected

increase in payment for routine services

equal to the market basket of 2.4

percent, but retains the historical

growth factor of 6.5 percent for ancillary

payments. In 1998, the average payment

per day was $205.41. The estimated

swing-bed payment per day for 2002

under the existing method of

reimbursement is $258.41.

We then estimated the amount that

would have been paid for the same

services under the SNF PPS. This

estimate reflected both adjustments for

geographic variation and case-mix. For

the geographic adjustment, we used the

average rural wage index for FY 2001

(that is, 0.8700). For case-mix, although

Medicare swing-bed claims do not

include all of the data elements

necessary to classify patients in exactly

the same way as the patients would be

classified in the RUG–III system, there

is enough information to assign

Medicare swing-bed patients to RUG–III

categories at a general level. To generate

this classification, we used the

MEDPAR case-mix analog described in

detail in the SNF PPS interim final rule

published on May 12, 1998 (63 FR

26252). As a result, we were able to

estimate how the national swing-bed

population would classify into RUG–III

categories. We found that 69 percent of

the covered days would be assigned to

just two RUG–III categories (or six

groups): medium rehabilitation and

extensive services.

We also noted that 9 percent of the

covered days were assigned to

categories that are not typically

associated with a Medicare level of care

(impaired cognition and lower groups).

We have not assumed that these claims

were paid in error. Rather, we are

assuming that these patients had skilled

care needs other than ones that could be

captured using the MEDPAR case-mix

analog, and we have included these

stays in our analysis.

TABLE 15.—RUG–III FREQUENCY DISTRIBUTION USING CALENDAR YEAR

1999 CLAIMS

RUG–III category levelNumber of

days paid

Percent of

total days

Ultra High

Rehab ............ 30,618 3

Very High

Rehab ............ 33,687 4

High Rehab ....... 76,596 9

Medium Rehab 264,614 30

Low Rehab ....... 58,016 7

Extensive Services ................ 288,131 33

Special Care ..... 11,540 1

TABLE 15.—RUG–III FREQUENCY DISTRIBUTION USING CALENDAR YEAR

1999 CLAIMS—Continued

RUG–III category levelNumber of

days paid

Percent of

total days

Clinically Complex ................ 35,304 4

Impaired Cognition .............. 4,737 1

Other ................. 72,293 8

Totals ......... 875,536 100

Our next step was to project the SNF

PPS payments for these swing-bed

services. For the purposes of this

analysis, we used the calendar year

frequency distribution and number of

covered swing-bed days shown in Table

15. Unique nursing case-mix weights

have already been developed for each

level of the MEDPAR case-mix analog.

These weights were used to adjust the

proposed FY 2002 rural SNF PPS rates

set forth in this proposed rule to

determine the SNF PPS rates used in

this estimate. We adjusted these rates

for all BBRA and BIPA add-ons

applicable for FY 2002.

Based on our analysis, the FY 2002

SNF PPS payment amount exceeds the

projected payments under the current

swing-bed payment system for that year

in 5 of the 10 case-mix analog categories

that included 79 percent of the swing

bed days. In fact, for the two most

common RUG-III categories, medium

rehabilitation and extensive services,

the projected increases are substantial:

14 percent for medium rehabilitation

and 16 percent for extensive services. In

addition, records in two of the

categories where the projected SNF PPS

rate is lower than the projected swingbed payment amount under the present

system (impaired cognition and other)

group into much higher categories when

using the full RUG–III algorithm.

In terms of aggregate Medicare

expenditures, we estimate that the

transition to SNF PPS will increase

payments for SNF-level swing-bed

services by 9 percent, or approximately

$20 million, while the aggregate costs

will be approximately $20 million in

benefits and 6.32 million for completion

of the MDS assessments.

Based on these estimates, we believe

the financial impact on swing-bed

providers will be positive, with the

anticipated 9 percent payment increase

serving to offset the estimated start-up

costs associated with MDS completion

and transmission (described in section

VI.K of this proposed rule).

Finally, in accordance with the

provisions of Executive Order 12866,

this notice was reviewed by the Office

of Management and Budget.

X. Federalism

We have reviewed this proposed rule

under the threshold criteria of Executive

Order 13132, Federalism, and we have

determined that it does not significantly

affect the rights, roles, and

responsibilities of States.

List of Subjects

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 482

Grant programs-health, Hospitals,

Medicaid, Medicare, Reporting and

recordkeeping requirements.

42 CFR Part 489

Health facilities, Medicare, Reporting

and recordkeeping requirements.

For the reasons set forth in the

preamble, 42 CFR chapter IV is

proposed to be amended as follows:

PART 410—SUPPLEMENTARY

MEDICAL INSURANCE (SMI)

BENEFITS

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

1395hh).

* * * * *

Subpart I—Payment of SMI Benefits

2. In § 410.150, the introductory text

of paragraph (b) is republished, and

paragraph (b)(14) is revised to read as

follows:

§ 410.150 To whom payment is made.

* * * * *

(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 it furnishes to a

24032 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

resident (as defined in § 411.15(p)(3) of

this chapter) of the SNF who is not in

a covered Part A stay.

* * * * *

PART 411—EXCLUSIONS FROM

MEDICARE AND LIMITATIONS ON

MEDICARE PAYMENT

3. 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

4. In § 411.15, paragraph (p)(1) is

revised, and paragraph (p)(2)

introductory text, paragraph (p)(2)(i),

and paragraph (p)(3) introductory text

are revised to read as follows:

§ 411.15 Particular services 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 during a covered Part

A stay 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 the services are

furnished by (or under the supervision

of) a physician or other health care

professional, and regardless of whether

the resident who receives the services is

in a covered Part A stay; 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,

provided that the claim for payment

includes the SNF’s Medicare provider

number in accordance with

§ 424.32(a)(5) of this chapter:

(i) Physicians’ services that meet the

criteria of § 415.102(a) of this chapter for

payment on a fee schedule basis.

* * * * *

(3) SNF resident defined. For

purposes of this paragraph, a beneficiary

who is admitted to a Medicareparticipating SNF is considered to be a

resident of the SNF. Whenever the

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—

* * * * *

PART 413—PRINCIPLES OF

REASONABLE COST

REIMBURSEMENT; PAYMENT FOR

END-STAGE RENAL DISEASE

SERVICES; PROSPECTIVELY

DETERMINED PAYMENT RATES FOR

SKILLED NURSING FACILITIES

5. The authority citation for part 413

is amended to read as follows:

Authority: Secs. 1102, 1812(d), 1814(b),

1815, 1833(a), (i), and (n), 1871, 1881, 1883,

1886, and 1888 of the Social Security Act (42

U.S.C. 1302, 1395d(d), 1395(f)b, 1395g,

1395l(a), (i), and (n), 1395hh, 1395rr, 1395tt,

1395ww, and 1395yy).

Subpart F—Specific Categories of

Costs

6. In § 413.114:

a. Paragraph (a) is revised.

b. In paragraph (c), the heading is

revised.

c. Paragraph (d)(1) introductory text is

revised.

§ 413.114 Payment for posthospital SNF

care furnished by a swing-bed hospital.

(a) Purpose and basis. This section

implements section 1883 of the Act,

which provides for payment for

posthospital SNF care furnished by

rural hospitals and CAHs having a

swing-bed approval.

(1) Services furnished in cost

reporting periods beginning prior to

October 1, 2001. Posthospital SNF care

furnished in general routine inpatient

beds in rural hospitals and CAHs is paid

in accordance with the special rules in

paragraph (c) of this section for

determining the reasonable cost of this

care. When furnished by rural and CAH

swing-bed hospitals approved after

March 31, 1988 with more than 49 beds

(but fewer than 100), these services

must also meet the additional payment

requirements set forth in paragraph (d)

of this section.

(2) Services furnished in cost

reporting periods beginning on and after

October 1, 2001. Posthospital SNF care

furnished in general routine inpatient

beds in rural hospitals (other than

CAHs) is paid in accordance with the

provisions of the prospective payment

system for SNFs described in subpart J

of this part. Posthospital SNF care

furnished in general routine inpatient

beds in CAHs is paid based on

reasonable cost, in accordance with the

provisions of subparts A through G of

this part (other than paragraphs (c) and

(d) of this section).

* * * * *

(c) Special rules for determining the

reasonable cost of posthospital SNF

care furnished in cost reporting periods

beginning prior to October 1, 2001.

(d) Additional requirements—(1)

General rule. For services furnished in

cost reporting periods beginning prior to

October 1, 2001, in order for Medicare

payment to be made to a swing-bed

hospital with more than 49 beds (but

fewer than 100), the following payment

requirements must be met:

* * * * *

7. In § 413.337, paragraph (e) is added

to read as follows:

§ 413.337 Methodology for calculating the

prospective payment rates.

* * * * *

(e) Pursuant to section 101 of the

Medicare, Medicaid, and SCHIP

Balanced Budget Refinement Act of

1999 (BBRA) and revised by section 314

of the Medicare, Medicaid, and SCHIP

Benefits Improvement and Protection

Act of 2000 (BIPA), using the best

available data, the Secretary will issue

a new regulation with a newly refined

case-mix classification system to better

account for medically complex patients.

Upon issuance of the new regulation,

the temporary increases in payment for

certain high cost patients will no longer

be applicable.

* * * * *

PART 424—CONDITIONS FOR

MEDICARE PAYMENT

8. The authority citation for part 424

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

Social Security Act (42 U.S.C. 1302 and

1395hh).

9. In § 424.20(a)(2), the heading is

revised to read as follows:

§ 424.20 Requirements for posthospital

SNF care.

(a) * * *

(2) Special requirement for

certifications performed prior to October

1, 2001: A swing-bed hospital with more

than 49 beds (but fewer than 100) that

does not transfer a swing-bed patient to

a SNF within 5 days of the availability

date. ***

* * * * *

Subpart C—Claims for Payment

10. In § 424.32, the introductory text

of paragraph (a) is republished, and

paragraphs (a)(2) and (a)(5) are revised.

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24033

§ 424.32 Basic requirements for all claims.

(a) A claim must meet the following

requirements:

* * * * *

(2) A claim for physician services,

clinical psychologist services, or clinical

social worker services must include

appropriate diagnostic coding for those

services using ICD–9–CM.

* * * * *

(5) All Part B claims for services

furnished to SNF residents (whether

filed by the SNF or by another entity)

must include the SNF’s Medicare

provider number and appropriate

HCPCS coding.

* * * * *

PART 489—PROVIDER AGREEMENTS

AND SUPPLIER APPROVAL

11. 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

12. In § 489.20, the introductory text

is republished, and the introductory text

of paragraph (s) is revised.

§ 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

any physical, occupational, or speechlanguage therapy services furnished to a

resident of the SNF under § 411.15(p) of

this chapter (regardless of whether the

resident is in a covered Part A stay), and

also either to furnish directly or make

arrangements for all other Medicarecovered services furnished to a resident

during a covered Part A stay, except the

following:

* * * * *

13. In § 489.21, the introductory text

is republished, and paragraph (h) is

revised to read as follows:

§ 489.21 Specific limitations on charges.

Except as specified in subpart C of

this part, the provider agrees not to

charge a beneficiary for any of the

following:

* * * * *

(h) Items and services (other than

those described in § 489.20(s)(1) through

(15)) required to be furnished under

§ 489.20(s) to a resident of an SNF

(defined in § 411.15(p) of this chapter),

for which Medicare payment would be

made if furnished by the SNF or by

other providers or suppliers under

arrangements made with them by the

SNF. For this purpose, a charge by

another provider or supplier for such an

item or service is treated as a charge by

the SNF for the item or service, and is

also prohibited.

Note: This appendix will not appear in the

Code of Federal Regulations.

Appendix—Technical Features of the

Proposed 1997 Skilled Nursing Facility

Market Basket Index

As discussed in the preamble of this

proposed rule, we propose to revise and

rebase the SNF market basket. This appendix

describes the technical aspects of the 1997-

based index that we are proposing in this

rule. We present this description of the

market basket in three steps:

• A synopsis of the structural differences

between the 1992-and the 1997-based market

baskets.

• A description of the methodology used

to develop the cost category weights in the

proposed 1997-based market basket.

• A description of the data sources used to

measure price change for each component of

the proposed 1997-based market basket,

making note of the differences, if any, from

the price proxies used in the 1992-based

market basket.

I. Synopsis of Structural Changes Adopted in

the Proposed Revised and Rebased 1997

Skilled Nursing Facility Market Basket

We are proposing just one major structural

change between the current 1992-based and

the proposed 1997-based SNF market

baskets, which is that more recent SNF cost

data would be used in the proposed revised

and rebased SNF market basket.

The proposed 1997-based market basket

contains cost shares for six major cost

categories that were derived from an edited

set of FY 1997 Medicare Cost Reports for

freestanding SNFs that had Medicare

expenses. FY 1997 cost reports have cost

reporting periods beginning after September

30, 1996 and before October 1, 1997. The

1992-based market basket used data from the

PPS–9 Medicare Cost Reports for

freestanding SNFs with Medicare expenses

greater than 1 percent of total expenses. PPS–

9 cost reports have cost reporting periods

beginning after September 30, 1991 and

before October 1, 1992. Cost allocations for

the proposed 1997-based SNF market basket

within the six major cost categories use

Medicare Cost Reports and two Department

of Commerce data sources: the 1997 Business

Expenditures Survey, Bureau of the Census,

Economics and Statistics Administration,

and the 1997 Bureau of Economic Analysis’

Annual Input-Output tables.

II. Methodology for Developing the Cost

Category Weights

Cost category weights for the proposed

1997-based market basket were developed in

two stages. First, base weights for six main

categories (wages and salaries, employee

benefits, contract labor, pharmaceuticals,

capital-related 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 1997

Business Expenditures Survey and data from

the 1997 Annual Input-Output tables were

used to allocate the all other cost category.

Below we describe the source of the main

category weights and their subcategories in

the proposed 1997-based market basket.

• Wages and Salaries: The wages and

salaries cost category is derived using 1997

SNF Medicare Cost Reports. The share was

determined using wages and salaries from

Worksheet S–3, part II and total expenses

from Worksheet B. This share represents the

wage and salary share of costs for employees

of the nursing home, and does not include

the wages and salaries from contract labor,

which is allocated to wages and salaries at a

later step.

• Employee Benefits: The weight for

employee benefits was determined using

1997 Medicare Cost Reports. The share was

derived using wage-related costs from

Worksheet S–3, part II.

• Contract Labor: The weight for the

contract labor cost category was derived

using 1997 Medicare Cost Reports. For the

proposed 1997-based SNF market basket, we

used an edited group of cost reports with

data filled in for contract labor on Worksheet

S–3, part II. This methodology differed from

that of the 1992 SNF market basket (where

we estimated contract labor costs using data

from Worksheet A) since Worksheet S–3, part

II, was not available in the 1992 Cost Reports.

This methodology produces results that are

similar to the contract labor share in the 1997

Business Expenditures Survey. Contract labor

was not available in the 1992 Asset and

Expenditure Survey. As explained in the

preamble, contract labor costs were

distributed between the wages and salaries

and employee benefits cost categories, under

the assumption that contract costs should

move at the same rate as direct labor costs

even though unit labor cost levels may be

different.

• Pharmaceuticals: The pharmaceuticals

cost weight was derived from 1997 SNF

Medicare Cost Reports. This share was

calculated using non-salary costs from the

pharmacy and drugs charged to patients’ cost

centers from Worksheet A.

• Capital-Related: The weight for the

overall capital-related expenses cost category

was derived using 1997 SNF Medicare Cost

Report data from Worksheet B. 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 for

capital, we used a combination of

information from the 1997 SNF Medicare

Cost Reports and the 1997 Census Business

Expenditures Survey. We estimated the

depreciation expense share of capital-related

expenses from the SNF Medicare Cost

Reports using data from edited cost reports

with data completed on Worksheet G. For the

1992-based SNF market basket, we had used

depreciation expenses from the 1992 Asset

24034 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

and Expenditure Survey. When we

calculated the ratio of depreciation to wages

from the 1997 SNF Medicare Cost Reports,

the result was consistent with the ratio from

the 1997 Business Expenditures Survey. The

distribution between building and fixed

equipment and movable equipment was

determined from the 1997 Business

Expenditures Survey. From these

calculations, depreciation expenses (not

including depreciation expenses implicit

from leases) were estimated to be 33.2

percent of total capital-related expenditures

in 1997.

The interest expense share of capitalrelated expenses was also derived from the

same edited 1997 SNF Medicare Cost

Reports. Interest expenses are not identifiable

in the 1997 Business Expenditures Survey.

We determined the split of interest expense

between for-profit and not-for-profit facilities

based on the distribution of long-term debt

outstanding by type of SNF (for-profit or notfor-profit) from the 1997 SNF Medicare Cost

Reports. Interest expense (not including

interest expenses implicit from leases) was

estimated to be 24.3 percent of total capitalrelated expenditures in 1997.

We used the 1997 Business Expenditures

Survey to estimate the proportion of capitalrelated expenses attributable to leasing

building and fixed and movable equipment.

This share was estimated to be 34.9 percent

of capital-related expenses in 1997. The split

between fixed and movable lease expenses

was directly available from the 1997 Business

Expenditures Survey. We used this split, and

the distribution of depreciation and interest

calculated above to distribute leases among

these cost categories. The remaining residual

is considered to be other capital-related

expenses (insurance, taxes, other). Other

capital-related expenses were estimated to be

7.7 percent of total capital-related

expenditures in 1997.

Table A–1 shows the capital-related

expense distribution (including expenses

from leases) in the proposed 1997 SNF PPS

market basket and the 1992 SNF market

basket.

TABLE A–1.—CAPITAL-RELATED EXPENSE DISTRIBUTION

1992-based

SNF capitalrelated

expenses *

Proposed

1997-based

SNF capitalrelated

expenses *

Total ......................................................................................................................................................................... 100.0 100.0

Depreciation ............................................................................................................................................................. 60.5 53.3

Building and Fixed Equipment ................................................................................................................................. 42.1 36.5

Movable equipment ................................................................................................................................................. 18.4 16.8

Interest ..................................................................................................................................................................... 32.6 39.0

Other capital-related expense ................................................................................................................................. 6.9 7.7

* As a percent of Total Capital-Related Expenses.

As explained in section III.B of the

preamble, our methodology for determining

the price change of capital-related 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 vintageweighted. The determination of these vintage

weights occurs in two steps. First, we must

determine the expected useful 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 individual year over the useful life of

the relevant capital assets, or the vintage

weights.

The derivation of useful life of capital is

explained in detail in the May 12, 1998

interim final rule (63 FR 26252). The useful

lives for the proposed 1997-based SNF

market basket are the same as the 1992-based

SNF market basket. The data source that was

previously used to develop the useful lives

of capital is no longer available and a suitable

replacement has not been identified. We

welcome comments on any data sources that

would provide the necessary information for

determining useful lives of capital and debt

instruments.

Given the expected useful life of capital

and debt instruments, we must determine the

proportion of capital expenditures

attributable to each year of the expected

useful life by cost category. These

proportions represent the vintage weights.

We were not able to find an 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

National Health Accounts for 1962 through

1997. 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 1997 SNF

Medicare Cost Reports. We estimated this

ratio for 1962 through 1988 using regression

analysis. The time series of the ratio of nontherapy 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 becomes

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 1997

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 1997. 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 1997, we

averaged different periods to obtain an

average capital purchase pattern over time.

For building and fixed equipment we

averaged thirteen 23-year periods, for

movable equipment we averaged twenty-six

10-year periods, and for interest we averaged

fourteen 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 useful life of the equipment or debt

instrument. This methodology was described

in full in the May 12, 1998 Federal Register

(63 FR 26252). The resulting vintage weights

for each of these cost categories are shown in

Table A–2.

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules 24035

APPENDIX TABLE A–2.—VINTAGE

WEIGHTS FOR PROPOSED 1997-

BASED SNF PPS CAPITAL-RELATED

PRICE PROXIES

Year

Building

and fixed

equipment

Movable

equipment Interest

1 ...... 0.082 0.083 0.025

2 ...... 0.086 0.088 0.028

3 ...... 0.085 0.089 0.031

4 ...... 0.083 0.090 0.034

5 ...... 0.077 0.091 0.038

6 ...... 0.069 0.097 0.042

7 ...... 0.063 0.106 0.046

8 ...... 0.060 0.111 0.049

9 ...... 0.050 0.116 0.051

10 .... 0.040 0.128 0.051

11 .... 0.040 .................. 0.052

12 .... 0.036 .................. 0.053

13 .... 0.030 .................. 0.051

14 .... 0.020 .................. 0.050

15 .... 0.016 .................. 0.049

16 .... 0.014 .................. 0.048

17 .... 0.012 .................. 0.049

18 .... 0.017 .................. 0.050

19 .... 0.018 .................. 0.051

20 .... 0.023 .................. 0.051

21 .... 0.025 .................. 0.049

22 .... 0.027 .................. 0.051

23 .... 0.029 .................. ..................

Total 1.000 1.000 1.000

Sources: 1997 SNF Medicare Cost Reports;

HCFA, National Health Accounts.

Note: Totals may not sum to 1.000 due to

rounding.

• All Other: Subcategory weights for the

All Other category were derived using

information from two U.S. Department of

Commerce data sources. Weights for the three

utilities cost categories, as well as that for

telephone services, were derived from the

1997 Business Expenditure Survey. Weights

for other cost categories were derived from

the 1997 Annual Input-Output tables.

III. Price Proxies Used To Measure Cost

Category Growth

A. Wages and Salaries

For measuring price growth in the wages

and salaries cost component of the 1997-

based SNF market basket, we propose using

the percentage change in the ECI for wages

and salaries for private nursing homes. 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. Average Hourly Earnings (AHE)

confounds changes in the proportion of

different occupations with changes in

earnings levels for a given occupation and,

thus, is an inferior price proxy for our

purpose. Even so, using the AHE for nursing

homes has little effect on the percentage

change in the overall proposed 1997 SNF

market basket. If we used the AHE instead of

the ECI, the average annual growth rate

between 1995 and 2000 would have been

higher by 0.1 percentage points per year. This

difference reflects skill mix shifts that would

be reflected in other factors of an update

framework as conceptualized in section IV of

the preamble. In addition, while the ECI is

for all nursing homes, not just SNFs, 77

percent of employment in the nursing home

industry in 1998 and 1999 was in SNFs.

While this wage measure includes other

nursing homes in addition to skilled nursing

facilities, we believe it adequately reflects the

wage changes occurring in SNFs. It is also the

only acceptable statistical source for nursing

home wages that met our criteria of

reliability, timeliness, accessibility, and

relevance.

B. Employee Benefits

For measuring price growth in the

proposed 1997-based market basket, the

percentage change in the ECI for benefits for

private nursing homes is used. The ECI for

benefits for private nursing homes is also a

fixed-weight index that measures pure price

change and is not affected by shifts in

occupation. Again, we believe that the ECI

for nursing homes is the most acceptable and

appropriate benefit series available from

reliable, timely, accessible, and relevant

statistical sources.

C. 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.

• Electricity: For measuring price change

in the electricity cost category, the PPI for

Commercial Electric Power is used.

• Fuels, nonhighway: For measuring price

change in the Fuels, Nonhighway cost

category, the PPI for Commercial Natural Gas

is used.

• 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.

• Food-wholesale purchases: For

measuring price change in the Foodwholesale purchases cost category, the PPI

for Processed Foods is used.

• 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 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.

• Chemicals: For measuring price change

in the Chemicals cost category, the PPI for

Industrial Chemicals is used.

• Rubber and Plastics: For measuring price

change in the Rubber and Plastics cost

category, the PPI for Rubber and Plastic

Products is used.

• Paper Products: For measuring price

change in the Paper Products cost category,

the PPI for Converted Paper and Paperboard

is used.

• Miscellaneous Products: For measuring

price change in the Miscellaneous Products

cost category, the PPI for Finished Goods less

Food and Energy is used. This represents a

change from the 1992 SNF market basket, in

which the PPI for Finished Goods is used.

Both food and energy are already adequately

represented in separate cost categories and

should not also be reflected in this cost

category.

• Telephone Services: The percentage

change in the price of Telephone Services as

measured by the CPI–U is applied to this

component.

• Labor-Intensive Services: For measuring

price change in the Labor-Intensive Services

cost category, the ECI for Compensation for

Private Service Occupations is used.

• Non Labor-Intensive Services: For

measuring price change in the Non LaborIntensive Services cost category, the CPI–U

for All Items is used.

D. Capital-Related

All capital-related expense categories have

the same price proxies as those used in the

1992-based SNF PPS market basket described

in the May 12, 1998 Federal Register (63 FR

26252). The price proxies for the SNF capitalrelated 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, appropriately reflect

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 those

included in the Bond Buyer Index, the rate

of change between the two is not

significantly different.

• Interest—For-profit SNFs: The Average

Yield for Moody’s AAA Corporate Bonds.

Again, the proposed 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

CPI–U for Residential Rent.

APPENDIX TABLE A–3.—A COMPARISON OF PRICE PROXIES USED IN THE 1992-BASED AND PROPOSED 1997-BASED

SKILLED NURSING FACILITY MARKET BASKETS

Cost category 1992-based price proxy 1997-based

price proxy

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

Employee Benefits ..................................................................... ECI for Benefits for Private Nursing Homes ............................ Same.

24036 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Proposed Rules

APPENDIX TABLE A–3.—A COMPARISON OF PRICE PROXIES USED IN THE 1992-BASED AND PROPOSED 1997-BASED

SKILLED NURSING FACILITY MARKET BASKETS—Continued

Cost category 1992-based price proxy 1997-based

price proxy

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

Workers.

Same.

Electricity .................................................................................... PPI for Commercial Electric Power ......................................... Same.

Fuels .......................................................................................... PPI for Commercial Natural Gas ............................................. Same.

Water and sewerage ................................................................. CPI–U for Water and Sewerage .............................................. Same.

Food—Wholesale purchases ..................................................... PPI—Processed Foods ............................................................ Same.

Food—Retail purchases ............................................................ CPI–U—Food Away From Home ............................................. Same.

Pharmaceuticals ........................................................................ PPI for Prescription Drugs ....................................................... Same.

Chemicals .................................................................................. PPI for Industrial Chemicals .................................................... Same.

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

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

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

Goods less

Food and Energy.

Telephone services .................................................................... CPI–U for Telephone Services ................................................ Same.

Labor-intensive services ............................................................ ECI for Compensation for private service occupations ........... Same.

Non labor-intensive services ..................................................... CPI–U for All Items .................................................................. Same.

Depreciation: Building and Fixed Equipment ............................ Boeckh Institutional Construction Index ................................... Same.

Depreciation: Movable Equipment ............................................. PPI for Machinery and Equipment ........................................... Same.

Interest: Government and Nonprofit SNFs ................................ Average Yield Municipal Bonds (Bond Buyer Index-20 bonds) Same.

Interest: For-profit SNFs ............................................................ Average Yield Moody’s AAA Bonds ........................................ Same.

Other Capital-related Expenses ................................................ CPI–U for Residential Rent ...................................................... Same.

(Catalog of Federal Domestic Assistance

Program No. 93.773, Medicare-Hospital

Insurance Program; and No. 93.774,

Medicare-Supplementary Medical Insurance

Program)

Dated: March 8, 2001.

Michael McMullan,

Acting Deputy Administrator, Health Care

Financing Administration.

Dated: April 23, 2001.

Tommy G. Thompson,

Secretary.

[FR Doc. 01–11560 Filed 5–9–01; 8:45 am]

BILLING CODE 4120–01–P