25918 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 413 

[CMS–1534–P] 

RIN 0938–AP11 

Medicare Program; Prospective 

Payment System and Consolidated 

Billing for Skilled Nursing Facilities for 

FY 2009 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

update the payment rates used under 

the prospective payment system (PPS) 

for skilled nursing facilities (SNFs), for 

fiscal year (FY) 2009. In addition, it 

would recalibrate the case-mix indexes 

so that they more accurately reflect 

parity in expenditures related to the 

implementation of case-mix refinements 

in January 2006. It also discusses our 

ongoing analysis of nursing home staff 

time measurement data collected in the 

Staff Time and Resource Intensity 

Verification (STRIVE) project. Finally, 

the proposed rule would make technical 

corrections in the regulations text with 

respect to Medicare bad debt payments 

to SNFs and the reference to the 

definition of urban and rural as applied 

to SNFs. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on June 30, 2008. 

ADDRESSES: In commenting, please refer 

to file code CMS–1534–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.regulations.gov. Follow the 

instructions for ‘‘Comment or 

Submission’’ and enter the file code to 

find the document accepting comments. 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–1534– 

P, P.O. Box 8016, Baltimore, MD 21244– 

8016. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–1534–P, Mail Stop C4–26–05, 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses. 

a. Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

b. 7500 Security Boulevard, 

Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

9994 in advance to schedule your 

arrival with one of our staff members. 

Comments mailed to the address 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Ellen Berry, (410) 786–4528 (for 

information related to clinical issues). 

Jeanette Kranacs, (410) 786–9385 (for 

information related to the development 

of the payment rates and case-mix 

indexes). Bill Ullman, (410) 786–5667 

(for information related to level of care 

determinations, consolidated billing, 

and general information). 

SUPPLEMENTARY INFORMATION: 

Submitting Comments: We welcome 

comments from the public on all issues 

set forth in this rule to assist us in fully 

considering issues and developing 

policies. You can assist us by 

referencing the file code CMS–1534–P 

and the specific ‘‘issue identifier’’ that 

precedes the section on which you 

choose to comment. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://www.cms.hhs.gov/ 

eRulemaking. Click on the link 

‘‘Electronic Comments on CMS 

Regulations’’ on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

To assist readers in referencing 

sections contained in this document, we 

are providing the following Table of 

Contents. 

Table of Contents 

I. Background 

A. Current System for Payment of SNF 

Services Under Part A of the Medicare 

Program 

B. Requirements of the Balanced Budget 

Act of 1997 (BBA) for Updating the 

Prospective Payment System for Skilled 

Nursing Facilities 

C. The Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 1999 

(BBRA) 

D. The Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (BIPA) 

E. The Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) 

F. Skilled Nursing Facility Prospective 

Payment—General Overview 

1. Payment Provisions—Federal Rate 

2. Rate Updates Using the Skilled Nursing 

Facility Market Basket Index 

II. Annual Update of Payment Rates Under 

the Prospective Payment System for 

Skilled Nursing Facilities 

A. Federal Prospective Payment System 

1. Costs and Services Covered by the 

Federal Rates 

2. Methodology Used for the Calculation of 

the Federal Rates 

B. Case-Mix Adjustments 

1. Background 

2. Development of the Case-Mix Indexes 

C. Wage Index Adjustment to Federal Rates 

1. Clarification of New England Deemed 

Counties 

2. Multi-Campus Hospital Wage Index Data 

D. Updates to Federal Rates 

E. Relationship of RUG–III Classification 

System to Existing Skilled Nursing 

Facility Level-of-Care Criteria 

F. Example of Computation of Adjusted 

PPS Rates and SNF Payment 


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G. Other Issues 

1. Staff Time and Resource Intensity 

Verification (STRIVE) Project 

2. Minimum Data Set (MDS) 3.0 

3. Integrated Post Acute Care Payment 

H. Miscellaneous Technical Corrections 

and Clarifications 

1. Bad Debt Payments 

2. Additional Clarifications 

III. The Skilled Nursing Facility Market 

Basket Index 

A. Use of the Skilled Nursing Facility 

Market Basket Percentage 

B. Market Basket Forecast Error 

Adjustment 

C. Federal Rate Update Factor 

IV. Consolidated Billing 

V. Application of the SNF PPS to SNF 

Services Furnished by Swing-Bed 

Hospitals 

VI. Provisions of the Proposed Rule 

VII. Collection of Information Requirements 

VIII. Regulatory Impact Analysis 

A. Overall Impact 

B. Anticipated Effects 

C. Alternatives Considered 

D. Accounting Statement 

E. Conclusion 

Regulation Text 

Addendum: FY 2009 CBSA-Based Wage 

Index Tables (Tables 8 & 9) 

Abbreviations 

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: 

AIDS Acquired Immune Deficiency 

Syndrome 

ARD Assessment Reference Date 

BBA Balanced Budget Act of 1997, Pub. L. 

105–33 

BBRA Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 1999, 

Pub. L. 106–113 

BIPA Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection Act 

of 2000, Pub. L. 106–554 

CAH Critical Access Hospital 

CARE Continuity Assessment Record and 

Evaluation 

CBSA Core-Based Statistical Area 

CFR Code of Federal Regulations 

CMI Case-Mix Index 

CMS Centers for Medicare & Medicaid 

Services 

DRA Deficit Reduction Act of 2005, Pub. L. 

109–171 

FQHC Federally Qualified Health Center 

FR Federal Register 

FY Fiscal Year 

GAO Government Accountability Office 

HAC Hospital-Acquired Condition 

HCPCS Healthcare Common Procedure 

Coding System 

HIPPS Health Insurance Prospective 

Payment System 

HIT Health Information Technology 

IFC Interim Final Rule with Comment 

Period 

IPPS Hospital Inpatient Prospective 

Payment System 

MDS Minimum Data Set 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003, Pub.L. 108–173 

MSA Metropolitan Statistical Area 

MS–DRG Medicare Severity DiagnosisRelated Group 

NRST Non-Resident Specific Time 

NTA Non-Therapy Ancillary 

OIG Office of the Inspector General 

OMB Office of Management and Budget 

OMRA Other Medicare Required 

Assessment 

PAC–PRD Post-Acute Care Payment Reform 

Demonstration 

PPS Prospective Payment System 

RAI Resident Assessment Instrument 

RAP Resident Assessment Protocol 

RAVEN Resident Assessment Validation 

Entry 

RFA Regulatory Flexibility Act, Pub. L. 96–

354 

RHC Rural Health Clinic 

RIA Regulatory Impact Analysis 

RUG–III Resource Utilization Groups, 

Version III 

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

RST Resident Specific Time 

SCHIP State Children’s Health Insurance 

Program 

SNF Skilled Nursing Facility 

STM Staff Time Measurement 

STRIVE Staff Time and Resource Intensity 

Verification 

UMRA Unfunded Mandates Reform Act, 

Pub. L. 104–4 

VBP Value-Based Purchasing 

I. Background 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘BACKGROUND’’ at the 

beginning of your comments.] 

Annual updates to the prospective 

payment system (PPS) rates for skilled 

nursing facilities (SNFs) are required by 

section 1888(e) of the Social Security 

Act (the Act), as added by section 4432 

of the Balanced Budget Act of 1997 

(BBA), and amended by the Medicare, 

Medicaid, and State Children’s Health 

Insurance Program (SCHIP) Balanced 

Budget Refinement Act of 1999 (BBRA), 

the Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (BIPA), and the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA). Our 

most recent annual update occurred in 

a final rule (72 FR 43412, August 3, 

2007) that set forth updates to the SNF 

PPS payment rates for fiscal year (FY) 

2008. We subsequently published two 

correction notices (72 FR 55085, 

September 28, 2007, and 72 FR 67652, 

November 30, 2007) with respect to 

those payment rate updates. 

A. Current System for Payment of 

Skilled Nursing Facility Services Under 

Part A of the Medicare Program 

Section 4432 of the BBA amended 

section 1888 of the Act to provide for 

the implementation of a per diem PPS 

for SNFs, covering all costs (routine, 

ancillary, and capital-related) of covered 

SNF services furnished to beneficiaries 

under Part A of the Medicare program, 

effective for cost reporting periods 

beginning on or after July 1, 1998. In 

this proposed rule, we propose to 

update the per diem payment rates for 

SNFs for FY 2009. Major elements of the 

SNF PPS include: 

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

of this proposed rule, we established per 

diem Federal rates 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 were 

furnished to Medicare beneficiaries in a 

SNF during a Part A covered stay. We 

adjust the rates annually using a SNF 

market basket index, and we adjust 

them by the hospital inpatient wage 

index to account for geographic 

variation in wages. We also apply a 

case-mix adjustment to account for the 

relative resource utilization of different 

patient types. This adjustment utilizes a 

refined, 53-group version of the 

Resource Utilization Groups, version III 

(RUG–III) case-mix classification 

system, based on information obtained 

from the required resident assessments 

using the Minimum Data Set (MDS) 2.0. 

Additionally, as noted in the August 4, 

2005 final rule (70 FR 45028), the 

payment rates at various times have also 

reflected specific legislative provisions, 

including section 101 of the BBRA, 

sections 311, 312, and 314 of the BIPA, 

and section 511 of the MMA. 

• Transition. Under sections 

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

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

facility’s historical cost experience) with 

the Federal case-mix adjusted rate. The 

transition extended through the 

facility’s first three cost reporting 

periods under the PPS, up to and 

including the one that began in FY 

2001. Thus, the SNF PPS is no longer 

operating under the transition, as all 

facilities have been paid at the full 

Federal rate effective with cost reporting 

periods beginning in FY 2002. As we 

now base payments entirely on the 

adjusted Federal per diem rates, we no 

longer include adjustment factors 

related to facility-specific rates for the 

coming FY. 

• Coverage. The establishment of the 

SNF PPS did not change Medicare’s 

fundamental requirements for SNF 

coverage. However, because the RUG–III 

classification is based, in part, on the 

beneficiary’s need for skilled nursing 


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25920 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 

care and therapy, we have attempted, 

where possible, to coordinate claims 

review procedures with the output of 

beneficiary assessment and RUG–III 

classifying activities. This approach 

includes an administrative presumption 

that utilizes a beneficiary’s initial 

classification in one of the upper 35 

RUGs of the refined 53-group system to 

assist in making certain SNF level of 

care determinations, as discussed in 

greater detail in section II.E. of this 

proposed rule. 

• Consolidated Billing. The SNF PPS 

includes a consolidated billing 

provision that requires a SNF to submit 

consolidated Medicare bills to its fiscal 

intermediary or Medicare 

Administrative Contractor for almost all 

of the services that its residents receive 

during the course of a covered Part A 

stay. In addition, this provision places 

with the SNF the Medicare billing 

responsibility for physical, 

occupational, and speech-language 

therapy that the resident receives during 

a noncovered stay. The statute excludes 

a small list of services from the 

consolidated billing provision 

(primarily those of physicians and 

certain other types of practitioners), 

which remain separately billable under 

Part B when furnished to a SNF’s Part 

A resident. A more detailed discussion 

of this provision appears in section IV. 

of this 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. For critical 

access hospitals (CAHs), Part A pays on 

a reasonable cost basis for SNF services 

furnished under a swing-bed agreement. 

However, in accordance with section 

1888(e)(7) of the Act, these services 

furnished by non-CAH rural hospitals 

are paid under the SNF PPS, effective 

with cost reporting periods beginning 

on or after July 1, 2002. A more detailed 

discussion of this provision appears in 

section V. of this proposed rule. 

B. Requirements of the Balanced Budget 

Act of 1997 (BBA) for Updating the 

Prospective Payment System for Skilled 

Nursing Facilities 

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

requires that we publish annually 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 

(see section II.E. of this proposed rule 

for a discussion of the relationship 

between the case-mix classification 

system and SNF level of care 

determinations). 

Along with other revisions proposed 

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) 

There were several provisions in the 

BBRA that resulted in adjustments to 

the SNF PPS. We described these 

provisions in detail in the final rule that 

we published in the Federal Register on 

July 31, 2000 (65 FR 46770). In 

particular, section 101(a) of the BBRA 

provided for a temporary 20 percent 

increase in the per diem adjusted 

payment rates for 15 specified RUG–III 

groups. In accordance with section 

101(c)(2) of the BBRA, this temporary 

payment adjustment expired on January 

1, 2006, upon the implementation of 

case-mix refinements (see section I.F.1. 

of this proposed rule). We included 

further information on BBRA provisions 

that affected the SNF PPS in Program 

Memorandums A–99–53 and A–99–61 

(December 1999). 

Also, section 103 of the BBRA 

designated certain additional services 

for exclusion from the consolidated 

billing requirement, as discussed in 

section IV. of this proposed rule. 

Further, for swing-bed hospitals with 

more than 49 (but less than 100) beds, 

section 408 of the BBRA provided for 

the repeal of certain statutory 

restrictions on length of stay and 

aggregate payment for patient days, 

effective with the end of the SNF PPS 

transition period described in section 

1888(e)(2)(E) of the Act. In the July 31, 

2001 final rule (66 FR 39562), we made 

conforming changes to the regulations at 

§ 413.114(d), effective for services 

furnished in cost reporting periods 

beginning on or after July 1, 2002, to 

reflect section 408 of the BBRA. 

D. The Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (BIPA) 

The BIPA also included several 

provisions that resulted in adjustments 

to the SNF PPS. We described these 

provisions in detail in the final rule that 

we published in the Federal Register on 

July 31, 2001 (66 FR 39562). In 

particular: 

• Section 203 of the BIPA exempted 

CAH swing-beds from the SNF PPS. We 

included further information on this 

provision in Program Memorandum A–

01–09 (Change Request #1509), issued 

January 16, 2001, which is available 

online at http://www.cms.hhs.gov/ 

transmittals/downloads/a0109.pdf. 

• Section 311 of the BIPA revised the 

statutory update formula for the SNF 

market basket, and also directed us to 

conduct a study of alternative case-mix 

classification systems for the SNF PPS. 

In 2006, we submitted a report to the 

Congress on this study, which is 

available online at http:// 

www.cms.hhs.gov/SNFPPS/Downloads/ 

RC__2006_PC__PPSSNF.pdf. 

• Section 312 of the BIPA provided 

for a temporary increase of 16.66 

percent in the nursing component of the 

case-mix adjusted Federal rate for 

services furnished on or after April 1, 

2001, and before October 1, 2002. The 

add-on is no longer in effect. This 

section also directed the Government 

Accountability Office (GAO) to conduct 

an audit of SNF nursing staff ratios and 

submit a report to the Congress on 

whether the temporary increase in the 

nursing component should be 

continued. The report (GAO–03–176), 

which GAO issued in November 2002, 

is available online at http:// 

www.gao.gov/new.items/d03176.pdf. 

• Section 313 of the BIPA repealed 

the consolidated billing requirement for 

services (other than physical, 

occupational, and speech-language 

therapy) furnished to SNF residents 

during noncovered stays, effective 

January 1, 2001. (A more detailed 

discussion of this provision appears in 

section IV. of this proposed rule.) 

• Section 314 of the BIPA corrected 

an anomaly involving three of the RUGs 

that the BBRA had designated to receive 

the temporary payment adjustment 

discussed above in section I.C. of this 

proposed rule. (As noted previously, in 

accordance with section 101(c)(2) of the 

BBRA, this temporary payment 

adjustment expired upon the 

implementation of case-mix refinements 

on January 1, 2006.) 

• Section 315 of the BIPA authorized 

us to establish a geographic 

reclassification procedure that is 

specific to SNFs, but only after 

collecting the data necessary to establish 

a SNF wage index that is based on wage 

data from nursing homes. To date, this 

has proven to be infeasible due to the 

volatility of existing SNF wage data and 

the significant amount of resources that 


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Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 25921 

would be required to improve the 

quality of that data. 

We included further information on 

several of the BIPA provisions in 

Program Memorandum A–01–08 

(Change Request #1510), issued January 

16, 2001, which is available online at 

www.cms.hhs.gov/transmittals/ 

downloads/a0108.pdf. 

E. The Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) 

The MMA included a provision that 

results in a further adjustment to the 

SNF PPS. Specifically, section 511 of 

the MMA amended section 1888(e)(12) 

of the Act, to provide for a temporary 

increase of 128 percent in the PPS per 

diem payment for any SNF resident 

with Acquired Immune Deficiency 

Syndrome (AIDS), effective with 

services furnished on or after October 1, 

2004. This special AIDS add-on was to 

remain in effect until ‘‘* * * such date 

as the Secretary certifies that there is an 

appropriate adjustment in the case mix. 

***’’ The AIDS add-on is also 

discussed in Program Transmittal #160 

(Change Request #3291), issued on April 

30, 2004, which is available online at 

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

downloads/r160cp.pdf. As discussed in 

the SNF PPS final rule for FY 2006 (70 

FR 45028, August 4, 2005), we did not 

address the certification of the AIDS 

add-on with the implementation of the 

case-mix refinements, thus allowing the 

temporary add-on payment created by 

section 511 of the MMA to continue in 

effect. 

For the limited number of SNF 

residents that qualify for the AIDS addon, implementation of this provision 

results in a significant increase in 

payment. For example, using FY 2006 

data, we identified less than 2,700 SNF 

residents with a diagnosis code of 042 

(Human Immunodeficiency Virus (HIV) 

Infection). For FY 2009, an urban 

facility with a resident with AIDS in 

RUG group ‘‘SSA’’ would have a casemix adjusted payment of almost $246.55 

(see Table 4) before the application of 

the MMA adjustment. After an increase 

of 128 percent, this urban facility would 

receive a case-mix adjusted payment of 

approximately $562.13. 

In addition, section 410 of the MMA 

contained a provision that excluded 

from consolidated billing certain 

practitioner and other services 

furnished to SNF residents by rural 

health clinics (RHCs) and Federally 

Qualified Health Centers (FQHCs). 

(Further information on this provision 

appears in section IV. of this proposed 

rule.) 

F. Skilled Nursing Facility Prospective 

Payment—General Overview 

We implemented the Medicare SNF 

PPS effective with cost reporting 

periods beginning on or after July 1, 

1998. This PPS pays SNFs through 

prospective, case-mix adjusted per diem 

payment rates applicable to all covered 

SNF services. These payment rates 

cover all costs of furnishing covered 

skilled nursing services (routine, 

ancillary, and capital-related costs) 

other than costs associated with 

approved educational activities. 

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 the BBA) 

but furnished to Medicare beneficiaries 

in a SNF during a covered Part A stay. 

A comprehensive discussion of these 

provisions appears in the May 12, 1998 

interim final rule (63 FR 26252). 

1. Payment Provisions—Federal Rate 

The PPS uses per diem Federal 

payment rates based on mean SNF costs 

in a base year 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 during 

the course of a covered Part A stay in 

a SNF. 

In developing the rates for the initial 

period, we updated costs to the first 

effective year of the PPS (the 15-month 

period beginning July 1, 1998) using a 

SNF market basket index, and then 

standardized for the costs of facility 

differences in case-mix and for 

geographic variations in wages. In 

compiling the database used to compute 

the Federal payment rates, we excluded 

those providers that received new 

provider exemptions from the routine 

cost limits, as well as costs related to 

payments for exceptions to the routine 

cost limits. Using the formula that the 

BBA prescribed, we set the Federal rates 

at a level equal to the weighted mean of 

freestanding costs plus 50 percent of the 

difference between the freestanding 

mean and weighted mean of all SNF 

costs (hospital-based and freestanding) 

combined. We computed and applied 

separately the payment rates for 

facilities located in urban and rural 

areas. In addition, we adjusted the 

portion of the Federal rate attributable 

to wage-related costs by a wage index. 

The Federal rate also incorporates 

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

accounts for the relative resource 

utilization of different patient types. 

The RUG–III classification system uses 

beneficiary assessment data from the 

Minimum Data Set (MDS) completed by 

SNFs to assign beneficiaries to one of 53 

RUG–III groups. The original RUG–III 

case-mix classification system included 

44 groups. However, under refinements 

that became effective on January 1, 

2006, we added nine new groups—

comprising a new Rehabilitation plus 

Extensive Services category—at the top 

of the RUG hierarchy. The May 12, 1998 

interim final rule (63 FR 26252) 

included a detailed description of the 

original 44-group RUG–III case-mix 

classification system. A comprehensive 

description of the refined 53-group 

RUG–III case-mix classification system 

(RUG–53) appeared in the proposed and 

final rules for FY 2006 (70 FR 29070, 

May 19, 2005, and 70 FR 45026, August 

4, 2005). 

Further, in accordance with section 

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

Federal rates in this proposed rule 

reflect an update to the rates that we 

published in the August 3, 2007 final 

rule for FY 2008 (72 FR 43412) and the 

associated correction notices (on 

September 28, 2007, 72 FR 55085, and 

November 30, 2007, 72 FR 67652), equal 

to the full change in the SNF market 

basket index. A more detailed 

discussion of the SNF market basket 

index and related issues appears in 

sections I.F.2. and III. of this proposed 

rule. 

2. Rate Updates Using the Skilled 

Nursing Facility Market Basket Index 

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

us to establish a SNF market basket 

index that reflects changes over time in 

the prices of an appropriate mix of 

goods and services included in covered 

SNF services. We use the SNF market 

basket index to update the Federal rates 

on an annual basis. In the August 3, 

2007, FY 2008 SNF PPS final rule (72 

FR 43425 through 43430), we revised 

and rebased the market basket, which 

included updating the base year from 

FY 1997 to FY 2004. The proposed FY 

2009 market basket increase is 3.1 

percent. 

In addition, as explained in the 

August 4, 2003, final rule for FY 2004 

(66 FR 46058) and in section III.B. of 

this proposed rule, the annual update of 

the payment rates includes, as 

appropriate, an adjustment to account 

for market basket forecast error. As 

described in the final rule for FY 2008, 


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25922 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 

the threshold percentage that serves to 

trigger an adjustment to account for 

market basket forecast error is 0.5 

percentage point effective for FY 2008 

and subsequent years. This adjustment 

takes into account the forecast error 

from the most recently available FY for 

which there is final data, and applies 

whenever the difference between the 

forecasted and actual change in the 

market basket exceeds a 0.5 percentage 

point threshold. For FY 2007 (the most 

recently available FY for which there is 

final data), the estimated increase in the 

market basket index was 3.1 percentage 

points, while the actual increase was 3.1 

percentage points, resulting in no 

difference. Accordingly, as the 

difference between the estimated and 

actual amount of change does not 

exceed the 0.5 percentage point 

threshold, the payment rates for FY 

2009 do not include a forecast error 

adjustment. Table 1 below shows the 

forecasted and actual market basket 

amounts for FY 2007. 

TABLE 1.—DIFFERENCE BETWEEN THE FORECASTED AND ACTUAL MARKET BASKET INCREASES FOR FY 2007 

Index Forecasted FY 

2007 Increase* 

Actual FY 2007 

Increase** 

FY 2007 

Difference*** 

SNF ........................................................................................................................................ 3.1 3.1 0.0 

*Published in Federal Register; based on second quarter 2006 Global Insight Inc. forecast (97 index). 

**Based on the first quarter 2008 Global Insight Inc.forecast (97 index). 

***The FY 2007 forecast error correction for the PPS Operating portion will be applied to the FY 2009 PPS update recommendations. Any 

forecast error less than 0.5 percentage points will not be reflected in the update recommendation. 

II. Annual Update of Payment Rates 

Under the Prospective Payment System 

for Skilled Nursing Facilities 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Annual Update’’ at the 

beginning of your comments.] 

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, 2008. 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 

In accordance with section 

1888(e)(2)(B) of the Act, the Federal 

rates apply to all costs (routine, 

ancillary, and capital-related) of covered 

SNF services other than costs associated 

with approved educational activities as 

defined in § 413.85. Under section 

1888(e)(2)(A)(i) of the Act, covered SNF 

services include post-hospital SNF 

services for which benefits are provided 

under Part A (the hospital insurance 

program), as well as all items and 

services (other than those services 

excluded by statute) that, before July 1, 

1998, were paid under Part B (the 

supplementary medical insurance 

program) but furnished to Medicare 

beneficiaries in a SNF during a Part A 

covered stay. (These excluded service 

categories are discussed in greater detail 

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

interim final rule (63 FR 26295 through 

26297)). 

2. Methodology Used for the Calculation 

of the Federal Rates 

The proposed FY 2009 rates would 

reflect an update using the full amount 

of the latest market basket index. The 

proposed FY 2009 market basket 

increase factor is 3.1 percent. A 

complete description of the multi-step 

process used to calculate Federal rates 

initially appeared in the May 12, 1998 

interim final rule (63 FR 26252), as 

further revised in subsequent rules. We 

note that in accordance with section 

101(c)(2) of the BBRA, the previous 

temporary increases in the per diem 

adjusted payment rates for certain 

designated RUGs, as specified in section 

101(a) of the BBRA and section 314 of 

the BIPA, are no longer in effect due to 

the implementation of case-mix 

refinements as of January 1, 2006. 

However, the temporary increase of 128 

percent in the per diem adjusted 

payment rates for SNF residents with 

AIDS, enacted by section 511 of the 

MMA, remains in effect. 

We used the SNF market basket to 

adjust each per diem component of the 

Federal rates forward to reflect cost 

increases occurring between the 

midpoint of the Federal FY beginning 

October 1, 2007, and ending September 

30, 2008, and the midpoint of the 

Federal FY beginning October 1, 2008, 

and ending September 30, 2009, to 

which the payment rates apply. In 

accordance with section 

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

update the payment rates for FY 2009 by 

a factor equal to the full market basket 

index percentage increase. (We note, 

however, that the President’s budget 

currently includes a provision that 

would establish a zero percent market 

basket update for FYs 2009 through 

2011, and that the provisions outlined 

in this proposed rule would need to 

reflect any legislation that the Congress 

may enact to adopt that proposal.) We 

further adjust the rates by a wage index 

budget neutrality factor, described later 

in this section. Tables 2 and 3 reflect the 

updated components of the unadjusted 

Federal rates for FY 2009. 

TABLE 2.—FY 2009 UNADJUSTED FEDERAL RATE PER DIEM—URBAN

Rate component Nursing— 

Case-mix 

Therapy— 

Case-mix 

Therapy— 

Non-case-mix Non-case-mix 

Per Diem Amount ............................................................................................ $151.30 $113.97 $15.00 $77.22 

TABLE 3.—FY 2009 UNADJUSTED FEDERAL RATE PER DIEM—RURAL

Rate component Nursing— 

Case-mix 

Therapy— 

Case-mix 

Therapy— 

Non-case-mix Non-case-mix 

Per Diem Amount ............................................................................................ $144.55 $131.42 $16.04 $78.64 


jlentini on PROD1PC65 with PROPOSALS2
Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 25923 

B. Case-Mix Adjustments 

1. Background 

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

requires the Secretary to make an 

adjustment to account for case-mix. The 

statute specifies that the adjustment is 

to reflect both a resident classification 

system that the Secretary establishes to 

account for the relative resource use of 

different patient types, as well as 

resident assessment and other data that 

the Secretary considers appropriate. In 

first implementing the SNF PPS (63 FR 

26252, May 12, 1998), we developed the 

Resource Utilization Groups, version III 

(RUG–III) case-mix classification 

system, which tied the amount of 

payment to resident resource use in 

combination with resident characteristic 

information. Staff time measurement 

(STM) studies conducted in 1990, 1995, 

and 1997 provided information on 

resource use (time spent by staff 

members on residents) and resident 

characteristics that enabled us not only 

to establish RUG–III, but also to create 

case-mix indexes. 

Under the BBA, each update of the 

SNF PPS payment rates must include 

the case-mix classification methodology 

applicable for the coming Federal FY. 

As indicated in section I.F.1 of this 

proposed rule, the payment rates set 

forth herein reflect the use of the refined 

RUG–53 system that we discussed in 

detail in the proposed and final rules for 

FY 2006. 

When we developed the refined RUG–

53 system, we constructed new case-mix 

indexes, using the Staff Time 

Measurement (STM) study data that was 

collected during the 1990s and 

originally used in creating the SNF PPS 

case-mix classification system and casemix indexes. In section II.B.2 of this 

proposed rule, we discuss further 

adjustments to those new case-mix 

indexes. 

2. Development of the Case-Mix Indexes 

In the SNF PPS final rule for FY 2006 

(70 FR 45032, August 4, 2005), we 

introduced two refinements to the SNF 

PPS: nine new case-mix groups to 

account for the care needs of 

beneficiaries requiring both extensive 

medical and rehabilitation services, and 

an adjustment to reflect the variability 

in the use of non-therapy ancillaries 

(NTAs). We made these refinements by 

using the resource minute data from the 

original 44-group RUG–III model to 

create a new set of relative weights, or 

case-mix indexes (CMIs), for the 53- 

group RUG–III model. We then 

compared the CMIs for the two models 

to ensure that estimated total payments 

under the 53-group model would 

maintain parity to those that would 

have been made under the 44-group 

model. 

In conducting this analysis, we used 

FY 2001 claims data (the most current 

data available at the time) to compare 

the distribution of payment days by 

RUG category in the original, 44-group 

model with anticipated payments by 

RUG category in the refined 53-group 

model. Based on the results of this 

analysis, we adjusted the new CMIs 

upward by applying a parity adjustment 

factor, in order to ensure that the RUG–

III model was expanded in a budgetneutral manner. We then applied a 

second adjustment to the CMIs to 

account for the variability in the use of 

NTA services. These two adjustments 

resulted in a combined 17.9 percent 

increase in the CMIs that went into 

effect on January 1, 2006, as part of the 

case-mix refinement implementation. A 

detailed description of the methods 

used to make these two adjustments to 

the CMIs appears in the SNF PPS 

proposed rule for FY 2006 (70 FR 29077 

through 29078, May 19, 2005). However, 

we recognized that utilization patterns 

change over time, and in the FY 2006 

final rule (70 FR 45031, August 4, 2005), 

we committed to monitoring the 

accuracy and effectiveness of the CMIs 

used in the 53-group model. 

In monitoring recent claims data, we 

observed that actual utilization patterns 

differed significantly from those we had 

projected using the 2001 data. In 

particular, the proportion of patients 

grouped in the highest paying RUG 

categories—combining high therapy 

with extensive services—greatly 

exceeded our projections. We have, 

therefore, used actual claims data to 

recalibrate both of the adjustments to 

the CMIs: the parity adjustment 

designed to make the change from the 

44-group model to the 53-group model 

in a budget-neutral manner, and the 

factor used to recognize the variability 

in NTA utilization. 

To determine the parity adjustment 

factor needed to re-establish budget 

neutrality, we compared simulated CY 

2006 payments (using the most recent 

data available) for the 44-group and 53- 

group RUG–III models using the same 

methodology that we described in the 

SNF PPS proposed rule for FY 2006 (70 

FR 29077 through 29078, May 19, 2005). 

Once we had identified the recalibrated 

parity adjustment factor necessary to reestablish budget neutrality, we then 

determined the recalibrated percentage 

adjustment that would be needed to 

reset the NTA component of the CMIs 

at the appropriate level specified in the 

SNF PPS final rule for FY 2006 (70 FR 

45031, August 4, 2005). Under our 

proposed recalibration, these two 

adjustments, which had initially 

produced a combined increase of 17.9 

percent in the FY 2006 refinement, 

would instead result in an overall 9.68 

percent increase for FY 2009. Thus, for 

FY 2009, the aggregate impact of this 

proposed recalibration would be the 

difference between the original, FY 2006 

total increase of 17.9 percent and the 

recalibrated total increase of 9.68 

percent, or a negative $770 million. 

It is extremely important to note that 

this adjustment, as proposed, would be 

made prospectively. However, we are 

responsible for maintaining the fiscal 

integrity of the SNF PPS, and by using 

the actual claims data, the SNF PPS 

would better reflect the resources used, 

resulting in more accurate payment. To 

that end, we have developed our 

proposed recalibration of the parity and 

NTA adjustments to the CMIs using 

actual claims distribution data. 

Although the 2001 data were the best 

source available at the time the FY 2006 

refinements were introduced, the 2006 

data provide the most recent and a more 

accurate source of RUG–53 utilization. 

(We also note that pursuant to our 

ongoing commitment to monitoring the 

accuracy and effectiveness of the CMIs 

under the refined case-mix system, there 

may be further revisions to the 

recalibration as we develop the FY 2009 

final rule, based on the data available at 

that time.) 

We note that the negative $770 

million adjustment described above 

would be largely offset by the FY 2009 

market basket adjustment factor of 3.1 

percent, or $710 million, with a net 

result of a negative annual update of 

approximately $60 million. We are, 

nevertheless, confident that this 

proposed recalibration would achieve 

the goals of the refinement provision 

implemented in January 2006, and that, 

as a result, payments would better 

reflect those policies. We also wish to 

note that after it conducted a thorough 

review of SNF profit margins, MedPAC 

concluded that, in the aggregate, SNFs 

are operating on a sound financial basis. 

As evidenced by MedPAC’s recent 

recommendation for a zero percent 

update for SNFs in FY 2009, we believe 

that this recalibration could be made 

without creating undue hardship on 

providers. 

We list the case-mix adjusted 

payment rates separately for urban and 

rural SNFs in Tables 4 and 5, with the 

corresponding case-mix values. These 

tables do not reflect the AIDS add-on 

enacted by section 511 of the MMA, 

which we apply only after making all 

other adjustments (wage and case-mix). 


jlentini on PROD1PC65 with PROPOSALS2
25924 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 

TABLE 4.—RUG–53 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 

RUX .......................................................... 1.77 2.25 267.80 256.43 .................... 77.22 601.45 

RUL .......................................................... 1.31 2.25 198.20 256.43 .................... 77.22 531.85 

RVX .......................................................... 1.44 1.41 217.87 160.70 .................... 77.22 455.79 

RVL .......................................................... 1.24 1.41 187.61 160.70 .................... 77.22 425.53 

RHX .......................................................... 1.33 0.94 201.23 107.13 .................... 77.22 385.58 

RHL .......................................................... 1.27 0.94 192.15 107.13 .................... 77.22 376.50 

RMX ......................................................... 1.80 0.77 272.34 87.76 .................... 77.22 437.32 

RML .......................................................... 1.57 0.77 237.54 87.76 .................... 77.22 402.52 

RLX .......................................................... 1.22 0.43 184.59 49.01 .................... 77.22 310.82 

RUC ......................................................... 1.20 2.25 181.56 256.43 .................... 77.22 515.21 

RUB .......................................................... 0.92 2.25 139.20 256.43 .................... 77.22 472.85 

RUA .......................................................... 0.78 2.25 118.01 256.43 .................... 77.22 451.66 

RVC .......................................................... 1.14 1.41 172.48 160.70 .................... 77.22 410.40 

RVB .......................................................... 1.01 1.41 152.81 160.70 .................... 77.22 390.73 

RVA .......................................................... 0.77 1.41 116.50 160.70 .................... 77.22 354.42 

RHC ......................................................... 1.13 0.94 170.97 107.13 .................... 77.22 355.32 

RHB .......................................................... 1.03 0.94 155.84 107.13 .................... 77.22 340.19 

RHA .......................................................... 0.88 0.94 133.14 107.13 .................... 77.22 317.49 

RMC ......................................................... 1.07 0.77 161.89 87.76 .................... 77.22 326.87 

RMB ......................................................... 1.01 0.77 152.81 87.76 .................... 77.22 317.79 

RMA ......................................................... 0.97 0.77 146.76 87.76 .................... 77.22 311.74 

RLB .......................................................... 1.06 0.43 160.38 49.01 .................... 77.22 286.61 

RLA .......................................................... 0.79 0.43 119.53 49.01 .................... 77.22 245.76 

SE3 .......................................................... 1.72 .................... 260.24 .................... 15.00 77.22 352.46 

SE2 .......................................................... 1.38 .................... 208.79 .................... 15.00 77.22 301.01 

SE1 .......................................................... 1.17 .................... 177.02 .................... 15.00 77.22 269.24 

SSC .......................................................... 1.14 .................... 172.48 .................... 15.00 77.22 264.70 

SSB .......................................................... 1.05 .................... 158.87 .................... 15.00 77.22 251.09 

SSA .......................................................... 1.02 .................... 154.33 .................... 15.00 77.22 246.55 

CC2 .......................................................... 1.13 .................... 170.97 .................... 15.00 77.22 263.19 

CC1 .......................................................... 0.99 .................... 149.79 .................... 15.00 77.22 242.01 

CB2 .......................................................... 0.91 .................... 137.68 .................... 15.00 77.22 229.90 

CB1 .......................................................... 0.84 .................... 127.09 .................... 15.00 77.22 219.31 

CA2 .......................................................... 0.83 .................... 125.58 .................... 15.00 77.22 217.80 

CA1 .......................................................... 0.75 .................... 113.48 .................... 15.00 77.22 205.70 

IB2 ............................................................ 0.69 .................... 104.40 .................... 15.00 77.22 196.62 

IB1 ............................................................ 0.67 .................... 101.37 .................... 15.00 77.22 193.59 

IA2 ............................................................ 0.57 .................... 86.24 .................... 15.00 77.22 178.46 

IA1 ............................................................ 0.53 .................... 80.19 .................... 15.00 77.22 172.41 

BB2 .......................................................... 0.68 .................... 102.88 .................... 15.00 77.22 195.10 

BB1 .......................................................... 0.65 .................... 98.35 .................... 15.00 77.22 190.57 

BA2 .......................................................... 0.56 .................... 84.73 .................... 15.00 77.22 176.95 

BA1 .......................................................... 0.48 .................... 72.62 .................... 15.00 77.22 164.84 

PE2 .......................................................... 0.79 .................... 119.53 .................... 15.00 77.22 211.75 

PE1 .......................................................... 0.77 .................... 116.50 .................... 15.00 77.22 208.72 

PD2 .......................................................... 0.72 .................... 108.94 .................... 15.00 77.22 201.16 

PD1 .......................................................... 0.70 .................... 105.91 .................... 15.00 77.22 198.13 

PC2 .......................................................... 0.66 .................... 99.86 .................... 15.00 77.22 192.08 

PC1 .......................................................... 0.65 .................... 98.35 .................... 15.00 77.22 190.57 

PB2 .......................................................... 0.52 .................... 78.68 .................... 15.00 77.22 170.90 

PB1 .......................................................... 0.50 .................... 75.65 .................... 15.00 77.22 167.87 

PA2 .......................................................... 0.49 .................... 74.14 .................... 15.00 77.22 166.36 

PA1 .......................................................... 0.46 .................... 69.60 .................... 15.00 77.22 161.82 

TABLE 5.—RUG–53 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 

RUX .......................................................... 1.77 2.25 255.85 295.70 .................... 78.64 630.19 

RUL .......................................................... 1.31 2.25 189.36 295.70 .................... 78.64 563.70 

RVX .......................................................... 1.44 1.41 208.15 185.30 .................... 78.64 472.09 

RVL .......................................................... 1.24 1.41 179.24 185.30 .................... 78.64 443.18 

RHX .......................................................... 1.33 0.94 192.25 123.53 .................... 78.64 394.42 

RHL .......................................................... 1.27 0.94 183.58 123.53 .................... 78.64 385.75 

RMX ......................................................... 1.80 0.77 260.19 101.19 .................... 78.64 440.02 

RML .......................................................... 1.57 0.77 226.94 101.19 .................... 78.64 406.77 

RLX .......................................................... 1.22 0.43 176.35 56.51 .................... 78.64 311.50 


jlentini on PROD1PC65 with PROPOSALS2
Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 25925 

TABLE 5.—RUG–53 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 

RUC ......................................................... 1.20 2.25 173.46 295.70 .................... 78.64 547.80 

RUB .......................................................... 0.92 2.25 132.99 295.70 .................... 78.64 507.33 

RUA .......................................................... 0.78 2.25 112.75 295.70 .................... 78.64 487.09 

RVC .......................................................... 1.14 1.41 164.79 185.30 .................... 78.64 428.73 

RVB .......................................................... 1.01 1.41 146.00 185.30 .................... 78.64 409.94 

RVA .......................................................... 0.77 1.41 111.30 185.30 .................... 78.64 375.24 

RHC ......................................................... 1.13 0.94 163.34 123.53 .................... 78.64 365.51 

RHB .......................................................... 1.03 0.94 148.89 123.53 .................... 78.64 351.06 

RHA .......................................................... 0.88 0.94 127.20 123.53 .................... 78.64 329.37 

RMC ......................................................... 1.07 0.77 154.67 101.19 .................... 78.64 334.50 

RMB ......................................................... 1.01 0.77 146.00 101.19 .................... 78.64 325.83 

RMA ......................................................... 0.97 0.77 140.21 101.19 .................... 78.64 320.04 

RLB .......................................................... 1.06 0.43 153.22 56.51 .................... 78.64 288.37 

RLA .......................................................... 0.79 0.43 114.19 56.51 .................... 78.64 249.34 

SE3 .......................................................... 1.72 .................... 248.63 .................... 16.04 78.64 343.31 

SE2 .......................................................... 1.38 .................... 199.48 .................... 16.04 78.64 294.16 

SE1 .......................................................... 1.17 .................... 169.12 .................... 16.04 78.64 263.80 

SSC .......................................................... 1.14 .................... 164.79 .................... 16.04 78.64 259.47 

SSB .......................................................... 1.05 .................... 151.78 .................... 16.04 78.64 246.46 

SSA .......................................................... 1.02 .................... 147.44 .................... 16.04 78.64 242.12 

CC2 .......................................................... 1.13 .................... 163.34 .................... 16.04 78.64 258.02 

CC1 .......................................................... 0.99 .................... 143.10 .................... 16.04 78.64 237.78 

CB2 .......................................................... 0.91 .................... 131.54 .................... 16.04 78.64 226.22 

CB1 .......................................................... 0.84 .................... 121.42 .................... 16.04 78.64 216.10 

CA2 .......................................................... 0.83 .................... 119.98 .................... 16.04 78.64 214.66 

CA1 .......................................................... 0.75 .................... 108.41 .................... 16.04 78.64 203.09 

IB2 ............................................................ 0.69 .................... 99.74 .................... 16.04 78.64 194.42 

IB1 ............................................................ 0.67 .................... 96.85 .................... 16.04 78.64 191.53 

IA2 ............................................................ 0.57 .................... 82.39 .................... 16.04 78.64 177.07 

IA1 ............................................................ 0.53 .................... 76.61 .................... 16.04 78.64 171.29 

BB2 .......................................................... 0.68 .................... 98.29 .................... 16.04 78.64 192.97 

BB1 .......................................................... 0.65 .................... 93.96 .................... 16.04 78.64 188.64 

BA2 .......................................................... 0.56 .................... 80.95 .................... 16.04 78.64 175.63 

BA1 .......................................................... 0.48 .................... 69.38 .................... 16.04 78.64 164.06 

PE2 .......................................................... 0.79 .................... 114.19 .................... 16.04 78.64 208.87 

PE1 .......................................................... 0.77 .................... 111.30 .................... 16.04 78.64 205.98 

PD2 .......................................................... 0.72 .................... 104.08 .................... 16.04 78.64 198.76 

PD1 .......................................................... 0.70 .................... 101.19 .................... 16.04 78.64 195.87 

PC2 .......................................................... 0.66 .................... 95.40 .................... 16.04 78.64 190.08 

PC1 .......................................................... 0.65 .................... 93.96 .................... 16.04 78.64 188.64 

PB2 .......................................................... 0.52 .................... 75.17 .................... 16.04 78.64 169.85 

PB1 .......................................................... 0.50 .................... 72.28 .................... 16.04 78.64 166.96 

PA2 .......................................................... 0.49 .................... 70.83 .................... 16.04 78.64 165.51 

PA1 .......................................................... 0.46 .................... 66.49 .................... 16.04 78.64 161.17 

C. Wage Index Adjustment to Federal 

Rates 

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

requires that we adjust the Federal rates 

to account for differences in area wage 

levels, using a wage index that we find 

appropriate. Since the inception of a 

PPS for SNFs, we have used hospital 

wage data in developing a wage index 

to be applied to SNFs. We propose to 

continue that practice for FY 2009, as 

we continue to believe that in the 

absence of SNF-specific wage data, 

using the hospital inpatient wage index 

is appropriate and reasonable for the 

SNF PPS. As explained in the update 

notice for FY 2005 (69 FR 45786, July 

30, 2004), the SNF PPS does not use the 

hospital area wage index’s occupational 

mix adjustment, as this adjustment 

serves specifically to define the 

occupational categories more clearly in 

a hospital setting; moreover, the 

collection of the occupational wage data 

also excludes any wage data related to 

SNFs. Therefore, we believe that using 

the updated wage data exclusive of the 

occupational mix adjustment continues 

to be appropriate for SNF payments. 

Since the implementation of the SNF 

PPS, as set forth in § 413.337(a)(1)(ii), a 

SNF’s wage index is determined based 

on the location of the SNF in an urban 

or rural area as defined in § 413.333 and 

further defined in § 412.62(f)(1)(ii) and 

§ 412.62(f)(1)(iii) as urban and rural 

areas, respectively. In the FY 2006 SNF 

PPS final rule (70 FR 45041, August 4, 

2005), we adopted revised labor market 

area definitions based on CBSAs. At the 

time, we noted that these were the same 

labor market area definitions (based on 

OMB’s new CBSA designations) 

implemented under the Hospital 

Inpatient Prospective Payment System 

(IPPS) at § 412.64(b), which were 

effective for those hospitals beginning 

October 1, 2004, as discussed in the 

IPPS final rule for FY 2005 (69 FR at 

49026 through 49034, August 11, 2004). 

In the FY 2006 SNF PPS final rule, we 

inadvertently omitted making a 

conforming regulation text change for 

§ 413.333. However, no change was 

made to our decision to follow the IPPS 

definition of urban and rural. We are 

proposing to make that conforming 

regulation text change to revise the 

definitions for rural and urban areas 


jlentini on PROD1PC65 with PROPOSALS2
25926 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 

effective for services provided on or 

after October 1, 2005, to reference the 

regulations at § 412.64(b)(1)(ii)(A) 

through (C), consistent with the revision 

under the IPPS. 

1. Clarification of New England Deemed 

Counties 

We are taking this opportunity to 

address the change in the treatment of 

‘‘New England deemed counties’’ (that 

is, those counties in New England listed 

in § 412.64(b)(1)(ii)(B) that were deemed 

to be part of urban areas under section 

601(g) of the Social Security 

Amendments of 1983) that was made in 

the FY 2008 IPPS final rule with 

comment period (72 FR 47337 through 

47338, August 22, 2007). These counties 

include the following: Litchfield 

County, Connecticut; York County, 

Maine; Sagadahoc County, Maine; 

Merrimack County, New Hampshire; 

and Newport County, Rhode Island. Of 

these five ‘‘New England deemed 

counties,’’ three (York County, 

Sagadahoc County, and Newport 

County) are also included in 

metropolitan statistical areas defined by 

OMB and are considered urban under 

both the current IPPS and SNF PPS 

labor market area definitions in 

§ 412.64(b)(1)(ii)(A). The remaining two, 

Litchfield County and Merrimack 

County, are geographically located in 

areas that are considered rural under the 

current IPPS (and SNF PPS) labor 

market area definitions, but have been 

previously deemed urban under the 

IPPS in certain circumstances, as 

discussed below. 

In the FY 2008 IPPS final rule with 

comment period, § 412.64(b)(1)(ii)(B) 

was revised such that the two ‘‘New 

England deemed counties’’ that are still 

considered rural under the OMB 

definitions (Litchfield County, CT and 

Merrimack County, NH), are no longer 

considered urban effective for 

discharges occurring on or after October 

1, 2007, and therefore, are considered 

rural in accordance with 

§ 412.64(b)(1)(ii)(C). However, for 

purposes of payment under the IPPS, 

acute-care hospitals located within 

those areas are treated as being 

reclassified to their deemed urban area 

effective for discharges occurring on or 

after October 1, 2007 (see 72 FR 47337 

through 47338). We note that the SNF 

PPS does not provide for such 

geographic reclassification. Also, in the 

FY 2008 IPPS final rule with comment 

period (72 FR 47338), we explained that 

we have limited this policy change for 

the ‘‘New England deemed counties’’

only to IPPS hospitals, and any change 

to non-IPPS provider wage indexes 

would be addressed in the respective 

payment system rules. Accordingly, we 

are taking this opportunity to clarify the 

treatment of ‘‘New England deemed 

counties’’ under the SNF PPS in this 

proposed rule. 

As discussed above, the SNF PPS has 

consistently used the IPPS definition of 

‘‘urban’’ and ‘‘rural’’ with regard to the 

wage index used in the SNF PPS. 

Historical changes to the labor market 

area/geographic classifications and 

annual updates to the wage index values 

under the SNF PPS are made effective 

October 1 each year. When we 

established the most recent SNF PPS 

payment rate update, effective for SNF 

services provided on or after October 1, 

2007 through September 30, 2008, we 

considered the ‘‘New England deemed 

counties’’ (including Litchfield County, 

CT and Merrimack County, NH) as 

urban for FY 2008, as evidenced by the 

inclusion of Litchfield County as one of 

the constituent counties of urban CBSA 

25540 (Hartford-West Hartford-East 

Hartford, CT), and the inclusion of 

Merrimack County as one of the 

constituent counties of urban CBSA 

31700 (Manchester-Nashua, NH)). 

As noted above, § 413.333 indicates 

that the terms ‘‘rural’’ and ‘‘urban’’ are 

defined according to the definitions of 

those terms as used in the IPPS. 

Applying the IPPS definitions, 

Litchfield County, CT and Merrimack 

County, NH are not considered ‘‘urban’’

under § 412.64(b)(1)(ii)(A) through (B) 

as revised under the FY 2008 IPPS final 

rule and, therefore, are considered 

‘‘rural’’ under § 412.64(b)(1)(ii)(C). 

Accordingly, reflecting our policy to use 

the IPPS definitions of ‘‘urban’’ and 

‘‘rural,’’ these two counties will be 

considered ‘‘rural’’ under the SNF PPS 

effective with the next update of the 

SNF PPS payment rates on October 1, 

2008, and will no longer be included in 

urban CBSA 25540 (Hartford-West 

Hartford-East Hartford, CT) and urban 

CBSA 31700 (Manchester-Nashua, NH), 

respectively. We note that this policy is 

consistent with our policy of not taking 

into account IPPS geographic 

reclassifications in determining 

payments under the SNF PPS. As 

indicated above, we are proposing to 

make a technical change to the 

regulations at § 413.333 to reflect the 

updated IPPS regulation reference. 

2. Multi-Campus Hospital Wage Index 

Data 

In the FY 2008 SNF PPS final rule (72 

FR 43412, August 3, 2007), we 

established SNF PPS wage index values 

for FY 2008 calculated from the same 

data (collected from cost reports 

submitted by hospitals for cost reporting 

periods beginning during FY 2004) used 

to compute the FY 2008 acute care 

hospital inpatient wage index, without 

taking into account geographic 

reclassification under sections 

1886(d)(8) and (d)(10) of the Act. 

However, the IPPS policy that 

apportions the wage data for multicampus hospitals was not finalized 

before the SNF PPS final rule. The SNF 

PPS wage index values applicable for 

services provided on or after October 1, 

2007 through September 30, 2008 are 

shown in Table 8 (for urban areas) and 

Table 9 (for rural areas) and in the 

Addendum to the FY 2008 SNF PPS 

final rule (72 FR 43437 through 43463). 

We are continuing to use IPPS wage 

data for FY 2009 because we believe 

that in the absence of SNF-specific wage 

data, using the hospital inpatient wage 

data is appropriate and reasonable for 

the SNF PPS. We note that the IPPS 

wage data used to determine the 

proposed FY 2009 SNF wage index 

values reflect our policy that was 

adopted under the IPPS beginning in FY 

2008, which apportions the wage data 

for multi-campus hospitals located in 

different labor market areas, or CoreBased Statistical Areas (CBSAs), to each 

CBSA where the campuses are located 

(see the FY 2008 IPPS final rule with 

comment period (72 FR 47317 through 

47320)). Specifically, for the proposed 

FY 2009 SNF PPS, the wage index was 

computed using IPPS wage data 

(published by hospitals for cost 

reporting periods beginning in 2005, as 

with the FY 2009 IPPS wage index), 

which allocated salaries and hours to 

the campuses of two multi-campus 

hospitals with campuses that are located 

in different labor areas; one is 

Massachusetts and the other is Illinois. 

The wage index values for the proposed 

FY 2009 SNF PPS in the following 

CBSAs are affected by this policy: 

Boston-Quincy, MA (CBSA 14484), 

Providence-New Bedford-Falls River, 

RI–MA (CBSA 39300), ChicagoNaperville-Joliet, IL (CBSA 16974) and 

Lake County-Kenosha County, IL–WI 

(CBSA 29404) (please refer to Table 8 in 

the Addendum of this proposed rule). 

In summary, for FY 2009, we propose 

to use the FY 2009 wage index data 

(collected from cost reports submitted 

by hospitals for cost reporting periods 

beginning during FY 2005) to adjust 

SNF PPS payments beginning October 1, 

2008. These data reflect the multicampus and New England deemed 

counties policies discussed above. 

Finally, we propose to continue using 

the same methodology discussed in the 

SNF PPS final rule for FY 2008 (72 FR 

43423) to address those geographic areas 

in which there are no hospitals and, 

thus, no hospital wage index data on 


jlentini on PROD1PC65 with PROPOSALS2
Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 25927 

which to base the calculation of the FY 

2009 SNF PPS wage index. For rural 

geographic areas that do not have 

hospitals and, therefore, lack hospital 

wage data on which to base an area 

wage adjustment, we would use the 

average wage index from all contiguous 

CBSAs as a reasonable proxy. This 

methodology is used to construct the 

wage index for rural Massachusetts. 

However, we would not apply this 

methodology to rural Puerto Rico due to 

the distinct economic circumstances 

that exist there, but instead would 

continue using the most recent wage 

index previously available for that area. 

For urban areas without specific 

hospital wage index data, we would use 

the average wage indexes of all of the 

urban areas within the State to serve as 

a reasonable proxy for the wage index 

of that urban CBSA. The only urban area 

without wage index data available is 

CBSA (25980) Hinesville-Fort Stewart, 

GA. 

To calculate the SNF PPS wage index 

adjustment, we would apply the wage 

index adjustment to the labor-related 

portion of the Federal rate, which is 

69.994 percent of the total rate. This 

percentage reflects the labor-related 

relative importance for FY 2009, using 

the revised and rebased FY 2004-based 

market basket. The labor-related relative 

importance for FY 2008 was 70.249, as 

shown in Table 11. We calculate the 

labor-related relative importance from 

the SNF market basket, and it 

approximates the labor-related portion 

of the total costs after taking into 

account historical and projected price 

changes between the base year and FY 

2009. 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 2009 than the base year weights 

from the SNF market basket. 

We calculate the labor-related relative 

importance for FY 2009 in four steps. 

First, we compute the FY 2009 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 

2009 price index level for that cost 

category by the total market basket price 

index level. Third, we determine the FY 

2009 relative importance for each cost 

category by multiplying this ratio by the 

base year (FY 2004) weight. Finally, we 

add the FY 2009 relative importance for 

each of the labor-related cost categories 

(wages and salaries, employee benefits, 

non-medical professional fees, laborintensive services, and a portion of 

capital-related expenses) to produce the 

FY 2009 labor-related relative 

importance. Tables 6 and 7 below show 

the Federal rates by labor-related and 

non-labor-related components. 

TABLE 6.—RUG–53 CASE-MIX ADJUSTED FEDERAL RATES FOR URBAN SNFS BY LABOR AND NON-LABOR COMPONENT

RUG-III 

category Total rate Labor portion 

Non-labor 

portion 

RUX ......................................................................................................................................................... 601.45 420.98 180.47 

RUL .......................................................................................................................................................... 531.85 372.26 159.59 

RVX .......................................................................................................................................................... 455.79 319.03 136.76 

RVL .......................................................................................................................................................... 425.53 297.85 127.68 

RHX ......................................................................................................................................................... 385.58 269.88 115.70 

RHL .......................................................................................................................................................... 376.50 263.53 112.97 

RMX ......................................................................................................................................................... 437.32 306.10 131.22 

RML ......................................................................................................................................................... 402.52 281.74 120.78 

RLX .......................................................................................................................................................... 310.82 217.56 93.26 

RUC ......................................................................................................................................................... 515.21 360.62 154.59 

RUB ......................................................................................................................................................... 472.85 330.97 141.88 

RUA ......................................................................................................................................................... 451.66 316.13 135.53 

RVC ......................................................................................................................................................... 410.40 287.26 123.14 

RVB .......................................................................................................................................................... 390.73 273.49 117.24 

RVA .......................................................................................................................................................... 354.42 248.07 106.35 

RHC ......................................................................................................................................................... 355.32 248.70 106.62 

RHB ......................................................................................................................................................... 340.19 238.11 102.08 

RHA ......................................................................................................................................................... 317.49 222.22 95.27 

RMC ......................................................................................................................................................... 326.87 228.79 98.08 

RMB ......................................................................................................................................................... 317.79 222.43 95.36 

RMA ......................................................................................................................................................... 311.74 218.20 93.54 

RLB .......................................................................................................................................................... 286.61 200.61 86.00 

RLA .......................................................................................................................................................... 245.76 172.02 73.74 

SE3 .......................................................................................................................................................... 352.46 246.70 105.76 

SE2 .......................................................................................................................................................... 301.01 210.69 90.32 

SE1 .......................................................................................................................................................... 269.24 188.45 80.79 

SSC .......................................................................................................................................................... 264.70 185.27 79.43 

SSB .......................................................................................................................................................... 251.09 175.75 75.34 

SSA .......................................................................................................................................................... 246.55 172.57 73.98 

CC2 .......................................................................................................................................................... 263.19 184.22 78.97 

CC1 .......................................................................................................................................................... 242.01 169.39 72.62 

CB2 .......................................................................................................................................................... 229.90 160.92 68.98 

CB1 .......................................................................................................................................................... 219.31 153.50 65.81 

CA2 .......................................................................................................................................................... 217.80 152.45 65.35 

CA1 .......................................................................................................................................................... 205.70 143.98 61.72 

IB2 ............................................................................................................................................................ 196.62 137.62 59.00 

IB1 ............................................................................................................................................................ 193.59 135.50 58.09 

IA2 ............................................................................................................................................................ 178.46 124.91 53.55 

IA1 ............................................................................................................................................................ 172.41 120.68 51.73 

BB2 .......................................................................................................................................................... 195.10 136.56 58.54 

BB1 .......................................................................................................................................................... 190.57 133.39 57.18 

BA2 .......................................................................................................................................................... 176.95 123.85 53.10 

BA1 .......................................................................................................................................................... 164.84 115.38 49.46 


jlentini on PROD1PC65 with PROPOSALS2
25928 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 

TABLE 6.—RUG–53 CASE-MIX ADJUSTED FEDERAL RATES FOR URBAN SNFS BY LABOR AND NON-LABOR

COMPONENT—Continued 

RUG-III 

category Total rate Labor portion 

Non-labor 

portion 

PE2 .......................................................................................................................................................... 211.75 148.21 63.54 

PE1 .......................................................................................................................................................... 208.72 146.09 62.63 

PD2 .......................................................................................................................................................... 201.16 140.80 60.36 

PD1 .......................................................................................................................................................... 198.13 138.68 59.45 

PC2 .......................................................................................................................................................... 192.08 134.44 57.64 

PC1 .......................................................................................................................................................... 190.57 133.39 57.18 

PB2 .......................................................................................................................................................... 170.90 119.62 51.28 

PB1 .......................................................................................................................................................... 167.87 117.50 50.37 

PA2 .......................................................................................................................................................... 166.36 116.44 49.92 

PA1 .......................................................................................................................................................... 161.82 113.26 48.56 

TABLE 7.—RUG–53 CASE-MIX ADJUSTED FEDERAL RATES FOR RURAL SNFS BY LABOR AND NON-LABOR COMPONENT

RUG-III 

category Total rate Labor portion 

Non-labor 

portion 

RUX ......................................................................................................................................................... 630.19 441.10 189.09 

RUL .......................................................................................................................................................... 563.70 394.56 169.14 

RVX .......................................................................................................................................................... 472.09 330.43 141.66 

RVL .......................................................................................................................................................... 443.18 310.20 132.98 

RHX ......................................................................................................................................................... 394.42 276.07 118.35 

RHL .......................................................................................................................................................... 385.75 270.00 115.75 

RMX ......................................................................................................................................................... 440.02 307.99 132.03 

RML ......................................................................................................................................................... 406.77 284.71 122.06 

RLX .......................................................................................................................................................... 311.50 218.03 93.47 

RUC ......................................................................................................................................................... 547.80 383.43 164.37 

RUB ......................................................................................................................................................... 507.33 355.10 152.23 

RUA ......................................................................................................................................................... 487.09 340.93 146.16 

RVC ......................................................................................................................................................... 428.73 300.09 128.64 

RVB .......................................................................................................................................................... 409.94 286.93 123.01 

RVA .......................................................................................................................................................... 375.24 262.65 112.59 

RHC ......................................................................................................................................................... 365.51 255.84 109.67 

RHB ......................................................................................................................................................... 351.06 245.72 105.34 

RHA ......................................................................................................................................................... 329.37 230.54 98.83 

RMC ......................................................................................................................................................... 334.50 234.13 100.37 

RMB ......................................................................................................................................................... 325.83 228.06 97.77 

RMA ......................................................................................................................................................... 320.04 224.01 96.03 

RLB .......................................................................................................................................................... 288.37 201.84 86.53 

RLA .......................................................................................................................................................... 249.34 174.52 74.82 

SE3 .......................................................................................................................................................... 343.31 240.30 103.01 

SE2 .......................................................................................................................................................... 294.16 205.89 88.27 

SE1 .......................................................................................................................................................... 263.80 184.64 79.16 

SSC .......................................................................................................................................................... 259.47 181.61 77.86 

SSB .......................................................................................................................................................... 246.46 172.51 73.95 

SSA .......................................................................................................................................................... 242.12 169.47 72.65 

CC2 .......................................................................................................................................................... 258.02 180.60 77.42 

CC1 .......................................................................................................................................................... 237.78 166.43 71.35 

CB2 .......................................................................................................................................................... 226.22 158.34 67.88 

CB1 .......................................................................................................................................................... 216.10 151.26 64.84 

CA2 .......................................................................................................................................................... 214.66 150.25 64.41 

CA1 .......................................................................................................................................................... 203.09 142.15 60.94 

IB2 ............................................................................................................................................................ 194.42 136.08 58.34 

IB1 ............................................................................................................................................................ 191.53 134.06 57.47 

IA2 ............................................................................................................................................................ 177.07 123.94 53.13 

IA1 ............................................................................................................................................................ 171.29 119.89 51.40 

BB2 .......................................................................................................................................................... 192.97 135.07 57.90 

BB1 .......................................................................................................................................................... 188.64 132.04 56.60 

BA2 .......................................................................................................................................................... 175.63 122.93 52.70 

BA1 .......................................................................................................................................................... 164.06 114.83 49.23 

PE2 .......................................................................................................................................................... 208.87 146.20 62.67 

PE1 .......................................................................................................................................................... 205.98 144.17 61.81 

PD2 .......................................................................................................................................................... 198.76 139.12 59.64 

PD1 .......................................................................................................................................................... 195.87 137.10 58.77 

PC2 .......................................................................................................................................................... 190.08 133.04 57.04 

PC1 .......................................................................................................................................................... 188.64 132.04 56.60 

PB2 .......................................................................................................................................................... 169.85 118.88 50.97 

PB1 .......................................................................................................................................................... 166.96 116.86 50.10 

PA2 .......................................................................................................................................................... 165.51 115.85 49.66 

PA1 .......................................................................................................................................................... 161.17 112.81 48.36 


jlentini on PROD1PC65 with PROPOSALS2
Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 25929 

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

also requires that we apply this wage 

index in a manner that does not result 

in aggregate payments that are greater or 

less than would otherwise be made in 

the absence of the wage adjustment. For 

FY 2009 (Federal rates effective October 

1, 2008), we would apply an adjustment 

to fulfill the budget neutrality 

requirement. We would meet this 

requirement by multiplying each of the 

components of the unadjusted Federal 

rates by a budget neutrality factor equal 

to the ratio of the weighted average 

wage adjustment factor for FY 2008 to 

the weighted average wage adjustment 

factor for FY 2009. For this calculation, 

we use the same 2006 claims utilization 

data for both the numerator and 

denominator of this ratio. We define the 

wage adjustment factor used in this 

calculation as the labor share of the rate 

component multiplied by the wage 

index plus the non-labor share of the 

rate component. The proposed budget 

neutrality factor for this year is 1.0009. 

The wage index applicable to FY 2009 

is set forth in Tables 8 and 9, which 

appear in the Addendum of this 

proposed rule. 

In the SNF PPS final rule for FY 2006 

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

adopted the changes discussed in the 

Office of Management and Budget 

(OMB) Bulletin No. 03–04 (June 6, 

2003), available online at 

www.whitehouse.gov/omb/bulletins/ 

b03–04.html, which announced revised 

definitions for Metropolitan Statistical 

Areas (MSAs), and the creation of 

Micropolitan Statistical Areas and 

Combined Statistical Areas. In addition, 

OMB published subsequent bulletins 

regarding CBSA changes, including 

changes in CBSA numbers and titles. As 

indicated in the FY 2008 SNF PPS final 

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

and all subsequent SNF PPS rules and 

notices are considered to incorporate 

the CBSA changes published in the 

most recent OMB bulletin that applies 

to the hospital wage data used to 

determine the current SNF PPS wage 

index. The OMB bulletins may be 

accessed online at http:// 

www.whitehouse.gov/omb/bulletins/ 

index.html. 

In adopting the OMB Core-Based 

Statistical Area (CBSA) geographic 

designations, we provided for a 1-year 

transition with a blended wage index for 

all providers. For FY 2006, the wage 

index for each provider consisted of a 

blend of 50 percent of the FY 2006 

MSA-based wage index and 50 percent 

of the FY 2006 CBSA-based wage index 

(both using FY 2002 hospital data). We 

referred to the blended wage index as 

the FY 2006 SNF PPS transition wage 

index. As discussed in the SNF PPS 

final rule for FY 2006 (70 FR 45041), 

subsequent to the expiration of this 1- 

year transition on September 30, 2006, 

we used the full CBSA-based wage 

index values, as now presented in 

Tables 8 and 9 of this proposed rule. 

D. Updates to the Federal Rates 

In accordance with section 

1888(e)(4)(E) of the Act, as amended by 

section 311 of the BIPA, the proposed 

payment rates in this proposed rule 

reflect an update equal to the full SNF 

market basket, estimated at 3.1 

percentage points. We would continue 

to disseminate the rates, wage index, 

and case-mix classification methodology 

through the Federal Register before the 

August 1 that precedes the start of each 

succeeding FY. 

E. Relationship of RUG–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 under the refined RUG–53 

that beneficiaries who are correctly 

assigned to one of the upper 35 of the 

RUG–53 groups on the initial 5-day, 

Medicare-required assessment are 

automatically classified as meeting the 

SNF level of care definition up to and 

including the assessment reference date 

on the 5-day Medicare required 

assessment. 

A beneficiary assigned to any of the 

lower 18 groups is not automatically 

classified as either meeting or not 

meeting the definition, but instead 

receives an individual level of care 

determination using the existing 

administrative criteria. This 

presumption recognizes the strong 

likelihood that beneficiaries assigned to 

one of the upper 35 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. 

In this proposed rule, we are 

continuing the designation of the upper 

35 groups for purposes of this 

administrative presumption, consisting 

of the following RUG–53 classifications: 

All groups within the Rehabilitation 

plus Extensive Services category; 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. Example of Computation of Adjusted 

PPS Rates and SNF Payment 

Using the hypothetical SNF XYZ 

described in Table 10 below, the 

following shows the adjustments made 

to the Federal per diem rate to compute 

the provider’s actual per diem PPS 

payment. SNF XYZ’s 12-month cost 

reporting period begins October 1, 2008. 

SNF XYZ’s total PPS payment would 

equal $29,719. We derive the Labor and 

Non-labor columns from Table 6 of this 

proposed rule. 

TABLE 10.—RUG–53 SNF XYZ: LOCATED IN CEDAR RAPIDS, IA (URBAN CBSA 16300) 

[Wage Index: 0.8924] 

RUG Group Labor Wage index Adj. labor Non-labor Adj. rate Percent adj Medicare 

days payment 

RVX .................................. $319.03 0.8924 $284.70 $136.76 $421.46 $421.46 14 $5,900.00 

RLX .................................. 217.56 0.8924 194.15 93.26 287.41 287.41 30 8,622.00 

RHA .................................. 222.22 0.8924 198.31 95.27 293.58 293.58 16 4,697.00 

CC2 .................................. 184.22 0.8924 164.40 78.97 243.37 554.88* 10 5,549.00 

IA2 .................................... 124.91 0.8924 111.47 53.55 165.02 165.02 30 4,951.00 

Total .......................... .................... .................... .................... .................... .................... .................... 100 29,719.00 

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


jlentini on PROD1PC65 with PROPOSALS2
25930 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 

G. Other Issues 

1. Staff Time and Resource Intensity 

Verification (STRIVE) Project 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘STRIVE Project’’ at the 

beginning of your comments.] 

As noted previously in section II.B.1 

of this proposed rule, section 

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

Secretary to make an adjustment to 

account for case-mix. The statute 

specifies that the adjustment is to reflect 

both a resident classification system that 

the Secretary establishes to account for 

the relative resource use of different 

patient types, as well as resident 

assessment and other data that the 

Secretary considers appropriate. In first 

implementing the SNF PPS (63 FR 

26252, May 12, 1998), we developed the 

RUG-III case-mix classification system, 

which tied the amount of payment to 

resident resource use in combination 

with resident characteristic information. 

Staff time measurement (STM) studies 

conducted in 1990, 1995, and 1997 

provided information on resource use 

(time spent by staff members on 

residents) and resident characteristics 

that enabled us not only to establish 

RUG–III, but also to create case-mix 

indexes. 

Since that time, we have become 

concerned that incentives of the SNF 

PPS and the public reporting of nursing 

home quality measures likely have 

altered industry practices, and have 

affected the nursing resources required 

to treat different types of patients. 

Changes to technology might also have 

affected care methods, while more 

choices in housing alternatives (such as 

assisted living and community housing) 

may have altered the population mix 

served by nursing homes. 

To help ensure that the SNF PPS 

payment rates reflect current practices 

and resource needs, CMS sponsored a 

national nursing home time study, 

STRIVE, which began in the Fall of 

2005. Information collected in STRIVE 

includes the amount of time that staff 

members spend on residents and 

information on residents’’ physical and 

clinical status derived from MDS 

assessment data. 

Two hundred and five nursing homes 

from the following fifteen States and 

jurisdictions volunteered to participate 

in STRIVE: The District of Columbia, 

Nevada, Florida, Illinois, Iowa, 

Kentucky, Louisiana, Michigan, 

Montana, New York, Ohio, South 

Dakota, Texas, Virginia, and 

Washington. We are currently analyzing 

staff time and MDS assessment data for 

approximately 9,700 residents. 

Nursing homes with poor survey 

histories or pending enforcement 

actions were excluded from the sample. 

In addition, nursing homes with poor 

quality measure (QM) scores, low 

occupancy rates, or large proportions of 

private pay or pediatric patients were 

also excluded. 

Nursing homes were randomly 

recruited within five strata. The five 

strata follow: Hospital-based facilities; 

facilities with high concentrations of 

residents on ventilators; facilities with 

high concentrations of residents with 

Human Immunodeficiency Virus (HIV); 

facilities with high concentrations of 

residents on Medicare Part A stays; and 

all other facilities. Facilities with large 

concentrations of residents on 

ventilators, residents with HIV, or 

residents on Part A stays were oversampled in order to assure sufficient 

numbers of residents in those 

populations. Nursing homes were 

voluntarily recruited in random order 

until enough facilities in each targeted 

category agreed to participate. 

Participating facilities included both 

not-for-profit entities and corporations; 

chains and independent operators; 

nursing homes with populations small 

to large in size; and facilities situated in 

urban and rural locations. 

STRIVE began on-site data collection 

at both SNFs and Medicaid Nursing 

Facilities (NFs) in the Spring of 2006. 

STRIVE collected data from both types 

of facilities because almost half of the 

States use a version of the RUG-III 

system for their Medicaid 

reimbursement systems. 

Participating facilities submitted both 

time and MDS assessment data. Nursing 

staff recorded their time over 48 hours. 

Nursing staff included registered nurses, 

licensed practical nurses, and nursing 

aides. Therapy staff recorded their time 

over 7 consecutive days. Therapy staff 

included physical therapists and aides; 

occupational therapists and aides; and 

speech-language pathologists. Each 

nursing home staff member recorded his 

or her time at the facility in different 

categories (for example, residentspecific time (RST), non-residentspecific time (NRST), unpaid time, and 

non-study time). 

As our analysis continues, we expect 

to introduce changes to the RUG-III 

grouper methodology and clinical 

assessment instrument. Further 

exploration of STRIVE data and possible 

refinements to the SNF PPS may 

ultimately culminate in a new RUG 

model, version IV. 

To date, STRIVE has benefited from 

stakeholder input, starting with the 

December 2005 Open Door Forum to 

which the public was invited. The 

educators, researchers, beneficiary 

advocates, clinicians, consultants, 

government experts, and representatives 

from health care, nursing home, and 

other related industry associations 

serving on the STRIVE technical expert 

panel (TEP) have provided valuable 

insights on topics such as sample 

populations. Beginning in 2005 until its 

most recent February 2008 meeting, the 

TEP has met twice and held two 

teleconferences. Additionally, our 

contractor recently established a smaller 

Analytic Panel consisting of various 

stakeholders who meet regularly with 

our researchers to discuss the analysis 

of the STRIVE data. 

Our preliminary analyses of RUG IIIrelated resource times and payment 

rates indicated that, as mentioned 

previously, SNF care patterns have 

changed significantly over the decade 

since we last conducted STMs. We note 

that calculating CMIs based upon 

STRIVE data for use within a RUG-III 

model constructed over a decade ago 

would create methodological challenges 

and, therefore, could only be considered 

an interim step, as we would have to 

reexamine the CMIs after changes to the 

structural model are finalized. We will 

continue to analyze STRIVE data and 

intend to create an updated RUG 

classification structure that would more 

accurately reflect current care practices 

and resource use. Our contractors also 

plan to receive input from the TEP and 

the Analytic Panel to guide the STRIVE 

analysis. We may also use the results of 

the contractors’ analyses to make 

changes to the RUG classification 

structure. It is our intention to introduce 

new case-mix weights in FY 2010 that 

reflect the results of the STRIVE 

analysis and any changes to the RUG 

classification structure. 

More information on STRIVE appears 

at the following Web site: https:// 

www.qtso.com/strive.html. Items posted 

there include: Assessment forms 

distributed by STRIVE; ‘‘train the 

trainer’’ materials used to teach the data 

monitors who, in turn, instructed 

nursing home staff members on how to 

record their time; materials from State 

teleconferences; and slides presented at 

STRIVE TEPs. We plan to post 

preliminary results of the STRIVE 

analyses, when available, on the 

following Web site: http:// 

www.cms.hhs.gov/SNFPPS/ 

10_TimeStudy.asp. 

2. Minimum Data Set (MDS) 3.0 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘MDS 3.0’’ at the beginning of 

your comments.] 

Sections 1819(f)(6)(A)–(B) and 

1919(f)(6)(A)–(B) of the Social Security 


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Act, as amended by the Omnibus 

Budget Reconciliation Act of 1987 

(OBRA 1987), require the Secretary of 

the Department of Health and Human 

Services (the Secretary) to specify a 

minimum data set of core elements for 

use in conducting comprehensive 

assessments. As stated in § 483.20, 

Medicare- and Medicaid-participating 

nursing homes must conduct ‘‘a 

comprehensive, accurate, standardized, 

reproducible assessment’’ of each 

nursing home resident’s functional 

capacity. 

CMS is developing a new version of 

the MDS, MDS 3.0, to reflect more 

accurately each resident’s clinical, 

cognitive, and functional status as well 

as the care that nursing homes provide 

residents. The regulations at 

§ 483.20(b)(1)(i) through (xviii) list the 

clinical domains that must be included 

in the Resident Assessment Instrument 

(RAI). These domains have been 

incorporated into the MDS 2.0 and 

would also be included in MDS 3.0. We 

anticipate that in FY 2010, MDS 3.0 

would become the current version of the 

MDS. MDS 3.0, like MDS 2.0, would 

focus on the clinical assessment of each 

nursing home resident to screen for 

common, often unrecognized or 

unevaluated, conditions and syndromes. 

We made clinical revisions to the 

instrument based on input from subjectarea experts, feedback from MDS users, 

resident advocates and families, and 

new knowledge and evidence about 

resident assessment. With the 

implementation of MDS 3.0, we aim to 

increase the clinical relevance, 

accuracy, and efficiency of assessments; 

require assessors to record direct 

resident responses on some items; 

include assessment items used in other 

care settings; and move items toward 

future electronic health record formats. 

On January 24, 2008, CMS hosted a 

special Open Door Forum to provide 

details about MDS 3.0. 

We now plan to evaluate the impact 

of the MDS 3.0 changes on the RUG–III 

resident classification system used in 

the Medicare payment structure. We 

intend to develop ways to adapt the 

RUG system to the MDS 3.0 assessment 

instrument as part of the STRIVE study. 

We would then finalize changes to the 

MDS 3.0 and any necessary adaptations 

to the RUG classification system. Our 

intent would be to implement the 

updated system nationally in FY 2010. 

We are very much aware that the 

transition to a new MDS instrument in 

conjunction with the possible release of 

a new RUG grouper requires careful 

planning and extensive provider 

training. CMS staff are already working 

on training plans that would include a 

new MDS 3.0 manual, documentation 

explaining the updated RUG grouper 

methodology, data specifications for 

providers and vendors, training videos, 

a help desk call and e-mail center, and 

a train-the-trainer conference tentatively 

scheduled for Spring 2009. However, we 

realize that the most effective training 

would require coordination between 

CMS and its key stakeholders, including 

provider and professional associations, 

Fiscal Intermediaries and Part A and 

Part B Medicare Administrative 

Contractors (MACs), and State agencies. 

We want to encourage stakeholders to 

work with CMS staff to provide 

additional training opportunities on the 

local level to ensure a smooth transition. 

We plan to publish a transition plan in 

2008 that should highlight opportunities 

for joint action. In 2009, we intend to 

make draft MDS 3.0 specifications 

available to providers and vendors. We 

also tentatively plan to include in the 

update to the FY 2010 SNF PPS rates 

(which we intend to introduce in Spring 

2009 and finalize by the end of July, 

2009) definitive information on the final 

MDS 3.0 and RUG grouper 

specifications. Additional information is 

available online at http:// 

www.cms.hhs.gov via the following 

links: 

• MDS 3.0 information: http:// 

www.cms.hhs.gov/ 

NursingHomeQualityInits/ 

25_NHQIMDS30.asp. 

• January 15, 2008 version of the 

MDS 3.0 instrument: http:// 

www.cms.hhs.gov/ 

NursingHomeQualityInits/Downloads/ 

MDS30DraftVersion.pdf. 

• MDS 3.0 timeline: http:// 

www.cms.hhs.gov/ 

NursingHomeQualityInits/Downloads/ 

MDS30Timeline.pdf. 

3. Integrated Post Acute Care Payment 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Integrated Post Acute Care 

Payment’’ at the beginning of your 

comments.] 

Under current law, Medicare covers 

post-acute care (PAC) services in 

various care settings, including SNFs, 

home health agencies (HHAs), long-term 

care hospitals (LTCHs), and inpatient 

rehabilitation facilities (IRFs). Each of 

the PAC sites has a separate payment 

system that relies on different patient 

assessment instruments, although there 

is no mandated assessment instrument 

for LTCHs. The current model is based 

on provider-oriented ‘‘silos’’ with 

significant payment differentials 

existing between provider types that 

treat similar patients and provide 

similar services. 

In the SNF PPS update notice for FY 

2007 (71 FR 43172 through 43173, July 

31, 2006), we described our plans to 

explore refinements to the existing PAC 

payment methodologies to create a more 

seamless system for payment and 

delivery of PAC under Medicare. The 

new model will focus on beneficiary 

needs rather than provider type and will 

be characterized by more consistent 

payments for the same type of care 

across different sites of service, qualitydriven pay-for-performance incentives, 

and collection of uniform clinical 

assessment information to support 

quality and discharge planning 

functions. 

We also noted in the FY 2007 SNF 

PPS update notice (71 FR 43172) that 

section 5008 of the Deficit Reduction 

Act (DRA) of 2005 mandates a PAC 

payment reform demonstration for 

purposes of understanding costs and 

outcomes across different PAC sites. To 

meet this mandate, CMS implemented 

the PAC Payment Reform 

Demonstration (PAC–PRD) to examine 

differences in costs and outcomes for 

PAC patients of similar case-mix who 

use different types of PAC providers and 

to develop a standardized patient 

assessment tool for use at hospital 

discharge and at PAC admission and 

discharge. This tool, the Continuity 

Assessment Record and Evaluation 

(CARE) tool, will measure the health 

and functional status of Medicare acute 

discharges. During the demonstration, 

CARE will be used at hospital discharge 

and upon admission and discharge from 

PAC settings. The CARE instrument 

consists of a core set of assessment 

items that are common to all patients 

and care settings and are organized 

under several major domains: Medical, 

Functional, Cognitive, Social, and 

Continuity of Care, in addition to 

supplemental items for specific 

conditions and care settings. Additional 

information on the PAC–PRD is 

available at: http://www.cms.hhs.gov/

DemoProjectsEvalRpts/MD/itemdetail.

asp?filterType=dual,%20keyword&filter

Value=post%20acute%20care&filter

ByDID=0&sortByDID=3&sortOrder=

descending&itemID=CMS1201325&

intNumPerPage=10. 

We are interested in receiving public 

comments on the CARE instrument, and 

specifically invite comments on how 

CARE might advance the use of Health 

Information Technology (HIT) in 

automating the process for collecting 

and submitting quality data. The CARE 

tool is available at http:// 

www.cms.hhs.gov/ 

paperworkreductionactof1995/pral/ 

list.asp. Viewers should scroll down to 

the entry for CMS–10243, ‘‘Data 


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Collection for Administering the 

Medicare Continuity Assessment Record 

and Evaluation (CARE) Instrument.’’

Viewers can then click on the link to 

CMS–10243, click on the link to 

‘‘Downloads,’’ and open Appendix A 

(‘‘CARE Tool Item Matrix,’’ a .pdf file) 

and Appendix B (‘‘CARE Tool Master 

Document,’’ in Microsoft Word). 

In addition, we wish to take this 

opportunity to discuss recent 

developments in the related area of 

value-based purchasing (VBP). VBP ties 

payment to performance through the use 

of incentives based on measures of 

quality and cost of care. The 

implementation of VBP is rapidly 

transforming CMS from being a passive 

payer of claims to an active purchaser 

of higher quality, more efficient health 

care for Medicare beneficiaries. Our 

VBP initiatives include hospital pay for 

reporting (the Reporting Hospital 

Quality Data for the Annual Payment 

Update Program), physician pay for 

reporting (the Physician Quality 

Reporting Initiative), home health pay 

for reporting, the Hospital VBP Plan 

Report to Congress, and various VBP 

demonstration programs across payment 

settings, including the Premier Hospital 

Quality Incentive Demonstration and 

the Physician Group Practice 

Demonstration. 

The preventable hospital-acquired 

conditions (HAC) payment provision for 

IPPS hospitals is another of CMS’’

value-based purchasing initiatives. The 

principal behind the HAC payment 

provision (Medicare not paying more for 

healthcare-associated conditions) could 

be applied to the Medicare payment 

systems for other settings of care. 

Section 1886(d)(4)(D) of the Act 

required the Secretary to select for the 

HAC IPPS payment provision 

conditions that: (a) are high cost, high 

volume, or both; (b) are assigned to a 

higher-paying Medicare severity 

diagnosis-related group (MS–DRG) 

when present as a secondary diagnosis; 

and (c) could reasonably have been 

prevented through the application of 

evidence-based guidelines. Beginning 

October 1, 2008, Medicare can no longer 

assign an inpatient hospital discharge to 

a higher-paying MS–DRG if a selected 

HAC condition was not present on 

admission. That is, the case will be paid 

as though the secondary diagnosis were 

not present. (Medicare will continue to 

assign a discharge to a higher-paying 

MS–DRG in those instances where the 

selected condition was, in fact, present 

on admission). 

The broad principle articulated in the 

HAC payment provision for IPPS 

hospitals—of Medicare not paying for 

these types of preventable conditions—

could potentially be applied to other 

Medicare payment systems for similar 

conditions that occur in settings other 

than IPPS hospitals. Other possible 

settings of care might include hospital 

outpatient departments, SNFs, HHAs, 

end-stage renal disease facilities, and 

physician practices. The 

implementation would be different for 

each setting, as each payment system is 

different and the reasonable 

preventability through the application 

of evidence-based guidelines could vary 

for candidate conditions over the 

different settings. However, alignment 

of incentives across settings of care is an 

important goal for all of CMS’’ VBP 

initiatives, including the HAC 

provision. 

A related application of the broad 

principle behind the HAC payment 

provision for IPPS hospitals could be 

considered through Medicare secondary 

payer policy by requiring the provider 

that failed to prevent the occurrence of 

a preventable condition in one setting to 

pay for all or part of the necessary 

follow-up care in a second setting. This 

would help shield the Medicare 

program from inappropriately paying for 

the downstream effects of a preventable 

condition acquired in the first setting 

but treated in the second setting. 

We note that we are not proposing 

new Medicare policy in this discussion 

of the possible application of HACs 

payment policy for IPPS hospitals to 

other settings, as some of these 

approaches may require new statutory 

authority. Rather, we are seeking public 

comment on the application of the 

preventable HACs payment provision 

for IPPS hospitals to other Medicare 

payment systems and settings. We look 

forward to working with stakeholders in 

the fight against these preventable 

conditions. 

H. Miscellaneous Technical Corrections 

and Clarifications 

We are also taking the opportunity to 

set forth certain technical corrections 

and clarifications in this proposed rule, 

as discussed below. 

1. Bad Debt Payments 

We are proposing to make a technical 

revision in the SNF PPS regulations at 

§ 413.335(b) to reflect Medicare bad debt 

payments to SNFs. Under section 

1861(v)(1) of the Act and § 413.89 of the 

regulations, Medicare may pay some or 

all of the uncollectible deductible and 

coinsurance amounts to those entities 

paid under a reasonable cost payment 

methodology that are eligible to receive 

payment for ‘‘bad debt’’ as defined in 

§ 413.89(b)(1). Under the original 

reasonable cost SNF payment 

methodology that preceded the 

introduction of the SNF PPS, SNFs did, 

in fact, receive bad debt payments for 

uncollectible SNF coinsurance amounts 

(the SNF benefit has no deductible). As 

we noted in the preamble to the July 30, 

1999 SNF PPS final rule (64 FR 41656), 

while the SNF PPS has maintained this 

longstanding practice of recognizing 

SNF bad debt payments ever since its 

inception, these payments are not 

included within the SNF PPS per diem 

itself, but rather, are claimed on the 

SNF’s Medicare cost report. However, in 

drafting the regulations text in 

§ 413.335(b) on the scope of the SNF 

PPS per diem payment, we 

inadvertently omitted a reference to this 

practice. 

Accordingly, in this proposed rule, 

we now propose to rectify that 

inadvertent omission by adding a new 

clause to § 413.335(b), to clarify that in 

addition to the Federal per diem 

payment amounts, SNFs receive 

payment for bad debts of Medicare 

beneficiaries, as specified in the 

provisions of the regulations at § 413.89. 

We note that those provisions include 

the 30 percent reduction in applicable 

SNF bad debt payments made in 

accordance with section 5004 of the 

DRA, as specified in § 413.89(h)(2). 

Further, we note that the President’s 

budget currently includes a provision 

that would eliminate Medicare bad debt 

payments altogether, and that the 

provisions outlined in this proposed 

rule would need to reflect any 

legislation that the Congress may enact 

to adopt that proposal. Finally, we note 

that our proposed revision is similar to 

language that already appears in the 

regulations text for the inpatient 

psychiatric facility PPS, at 

§ 412.422(b)(2). 

2. Additional Clarifications 

We are also proposing to make 

clarifications in two other areas: When 

a SNF may bill at the default payment 

rate, and the role of rehabilitation 

services evaluations in SNFs. 

A recent analysis of claims data has 

confirmed confusion among providers 

as to when it is permissible to submit a 

claim using the Health Insurance 

Prospective Payment System (HIPPS) 

rate code of AAA00, which is the 

default code. Under the SNF PPS, SNFs 

are required to submit resident 

assessment data according to an 

assessment schedule. When the resident 

assessment is prepared timely, the 

provider should bill the RUG payment 

group that is assigned to the assessment. 

When the SNF fails to comply with the 

assessment schedule, it must file a late 

assessment in order to be paid. In this 


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situation, CMS pays a ‘‘default rate’’—

a reduced payment made in lieu of the 

full SNF PPS rate that would have been 

paid had the resident been assessed in 

a timely manner. Noncompliance with 

the schedule is determined by the 

assessment reference date (ARD) on the 

resident assessment. 

Program instructions also allow for 

payment at the default rate in the 

following limited circumstances where 

the SNF has failed to assess the 

beneficiary: When the stay is less than 

8 days within a spell of illness; the SNF 

is notified on an untimely basis or is 

unaware of a Medicare Secondary Payer 

denial; the SNF is notified on an 

untimely basis of the revocation of a 

payment ban; the beneficiary requests a 

demand bill; or, the SNF is notified on 

an untimely basis or is unaware of a 

beneficiary’s disenrollment from a 

Medicare Advantage plan. Further 

information regarding these limited 

circumstances can be found in the 

Provider Reimbursement Manual, Part I 

(CMS Pub. 15–1), Chapter 28. 

In circumstances other than those 

described above, no payment is 

available to the SNF where the SNF fails 

to assess the resident. However, even 

when no payment will be made, we 

wish to clarify that the SNF must 

nonetheless submit a claim using the 

HIPPS default rate code and an 

occurrence code 77 indicating provider 

liability in order to ensure that the 

beneficiary’s spell of illness (benefit 

period) is updated. 

We have also recently received 

questions concerning Change Request 

(CR) 5532 (Transmittal no. 73, dated 

June 29, 2007), regarding coverage of 

rehabilitation services in a SNF (see 

CMS Pub. 100–2, Chapter 8, § 30.4.1.1). 

As a result, we wish to clarify the 

requirement that an initial evaluation 

must be completed and the plan of 

treatment developed before recording 

the number of minutes of rehabilitation 

services provided or estimated for each 

discipline on the Resident Assessment 

Instrument (RAI). 

For Medicare to cover rehabilitation 

services in a SNF, the services must be 

directly and specifically related to an 

active written treatment plan that is 

developed before the start of 

rehabilitation services. The plan must 

be based upon an initial evaluation 

performed by a qualified therapist (after 

SNF admission and before the start of 

rehabilitation services in the SNF) and 

must be approved by the physician after 

any needed consultation with the 

qualified therapist. This means that the 

evaluation must have been performed 

for each discipline and the plan of 

treatment developed in order to include 

minutes for each discipline under 

Section P (‘‘Special Treatments and 

Procedures’’) of the Resident 

Assessment Instrument, and also to 

project minutes under Section T 

(‘‘Therapy Supplement for Medicare 

PPS’’) of the Resident Assessment 

Instrument. Section T of the MDS is 

completed for Medicare 5-day 

assessments and in certain cases, when 

a beneficiary is readmitted to the SNF, 

whereas Section P is completed for each 

Medicare-required assessment. In those 

cases where a beneficiary is discharged 

during the SNF stay and later 

readmitted, an initial evaluation must 

be performed upon readmission to the 

SNF, prior to the start of rehabilitation 

services in the SNF. 

III. The Skilled Nursing Facility Market 

Basket Index 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Market Basket Index’’ at the 

beginning of your comments.] 

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

requires us to establish a SNF market 

basket index (input price index), that 

reflects changes over time in the prices 

of an appropriate mix of goods and 

services included in the SNF PPS. This 

proposed rule incorporates the latest 

available projections of the SNF market 

basket index. We will incorporate 

updated projections based on the latest 

available projections when we publish 

the SNF final rule. Accordingly, we 

have developed a SNF market basket 

index that encompasses the most 

commonly used cost categories for SNF 

routine services, ancillary services, and 

capital-related expenses. 

Each year, we calculate a revised 

labor-related share based on the relative 

importance of labor-related cost 

categories in the input price index. 

Table 11 below summarizes the 

proposed updated labor-related share 

for FY 2009. 

TABLE 11.—LABOR-RELATED RELATIVE IMPORTANCE, FY 2008 AND FY 2009 

Relative importance, labor-related, FY 2008 

07:2 forecast 

Relative importance, labor-related, FY 2009 

08:1 forecast 

Wages and salaries ......................................................................................................................................... 51.218 51.139 

Employee benefits ........................................................................................................................................... 11.720 11.595 

Nonmedical professional fees ......................................................................................................................... 1.333 1.331 

Labor-intensive services .................................................................................................................................. 3.456 3.454 

Capital-related (.391) ....................................................................................................................................... 2.522 2.475 

Total .......................................................................................................................................................... 70.249 69.994 

Source: Global Insight, Inc., formerly DRI-WEFA. 

A. Use of the Skilled Nursing Facility 

Market Basket Percentage 

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

defines the SNF market basket 

percentage as the percentage change in 

the SNF market basket index from the 

average of the previous FY to the 

average of the current FY. For the 

Federal rates established in this 

proposed rule, we use the percentage 

increase in the SNF market basket index 

to compute the update factor for FY 

2009. We use the Global Insight, Inc. 

(formerly DRI–WEFA), first quarter 2008 

forecasted percentage increase in the FY 

2004-based SNF market basket index for 

routine, ancillary, and capital-related 

expenses, described in the previous 

section, to compute the update factor in 

this proposed rule. Finally, as discussed 

in section I.A. of this proposed rule, we 

no longer compute update factors to 

adjust a facility-specific portion of the 

SNF PPS rates because the initial threephase transition period from facilityspecific to full Federal rates that started 

with cost reporting periods beginning in 

July 1998 has expired. 

B. Market Basket Forecast Error 

Adjustment 

As discussed in the June 10, 2003, 

supplemental proposed rule (68 FR 

34768) and finalized in the August 4, 


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2003, final rule (68 FR 46067), the 

regulations at § 413.337(d)(2) provide 

for an adjustment to account for market 

basket forecast error. The initial 

adjustment applied to the update of the 

FY 2003 rate for FY 2004, and took into 

account the cumulative forecast error for 

the period from FY 2000 through FY 

2002. Subsequent adjustments in 

succeeding FYs take into account the 

forecast error from the most recently 

available FY for which there is final 

data, and apply whenever the difference 

between the forecasted and actual 

change in the market basket exceeds a 

specified threshold. We originally used 

a 0.25 percentage point threshold for 

this purpose; however, for the reasons 

specified in the FY 2008 SNF PPS final 

rule (72 FR 43425, August 3, 2007), we 

adopted a 0.5 percentage point 

threshold effective with FY 2008. As 

discussed previously in section I.F.2. of 

this proposed rule, as the difference 

between the estimated and actual 

amounts of increase in the market 

basket index for FY 2007 (the most 

recently available FY for which there is 

final data) does not exceed the 0.5 

percentage point threshold, the 

proposed payment rates for FY 2009 do 

not include a forecast error adjustment. 

C. Federal Rate Update Factor 

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

requires that the update factor used to 

establish the FY 2009 Federal rates be 

at a level equal to the full market basket 

percentage change. Accordingly, to 

establish the update factor, we 

determined the total growth from the 

average market basket level for the 

period of October 1, 2007 through 

September 30, 2008 to the average 

market basket level for the period of 

October 1, 2008 through September 30, 

2009. Using this process, the proposed 

market basket update factor for FY 2009 

SNF Federal rates is 3.1 percent. We 

used this revised proposed update factor 

to compute the Federal portion of the 

SNF PPS rate shown in Tables 2 and 3. 

IV. Consolidated Billing 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Consolidated Billing’’ at the 

beginning of your comments.] 

Section 4432(b) of the BBA 

established a consolidated billing 

requirement that places the Medicare 

billing responsibility for virtually all of 

the services that the SNF’s residents 

receive on the SNF, except for a small 

number of services that the statute 

specifically identifies as being excluded 

from this provision. As noted previously 

in section I. of this proposed rule, 

subsequent legislation enacted a number 

of modifications in the consolidated 

billing provision. 

Specifically, section 103 of the BBRA 

amended this provision by further 

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

identified by the Healthcare Common 

Procedure Coding System (HCPCS) 

codes, within several broader categories 

(chemotherapy and its administration, 

radioisotope services, and customized 

prosthetic devices) that otherwise 

remained subject to the provision. We 

discuss this BBRA amendment in 

greater detail in the proposed and final 

rules for FY 2001 (65 FR 19231 through 

19232, April 10, 2000, and 65 FR 46790 

through 46795, July 31, 2000), as well as 

in Program Memorandum AB–00–18 

(Change Request #1070), issued March 

2000, which is available online at 

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

downloads/ab001860.pdf. 

Section 313 of the BIPA further 

amended this provision by repealing its 

Part B aspect; that is, its applicability to 

services furnished to a resident during 

a SNF stay that Medicare does not 

cover. (However, physical, 

occupational, and speech-language 

therapy remain subject to consolidated 

billing, regardless of whether the 

resident who receives these services is 

in a covered Part A stay.) We discuss 

this BIPA amendment in greater detail 

in the proposed and final rules for FY 

2002 (66 FR 24020 through 24021, May 

10, 2001, and 66 FR 39587 through 

39588, July 31, 2001). 

In addition, section 410 of the MMA 

amended this provision by excluding 

certain practitioner and other services 

furnished to SNF residents by RHCs and 

FQHCs. We discuss this MMA 

amendment in greater detail in the 

update notice for FY 2005 (69 FR 

45818–45819, July 30, 2004), as well as 

in Program Transmittal #390 (Change 

Request #3575), issued December 10, 

2004, which is available online at http:// 

www.cms.hhs.gov/transmittals/

downloads/r390cp.pdf. 

To date, the Congress has enacted no 

further legislation affecting the 

consolidated billing provision. 

However, as noted above and explained 

in the proposed rule for FY 2001 (65 FR 

19232, April 10, 2000), the amendments 

enacted in section 103 of the BBRA not 

only identified for exclusion from this 

provision a number of particular service 

codes within four specified categories 

(that is, chemotherapy items, 

chemotherapy administration services, 

radioisotope services, and customized 

prosthetic devices), but also gave the 

Secretary ‘‘* * * the authority to 

designate additional, individual services 

for exclusion within each of the 

specified service categories.’’ In the 

proposed rule for FY 2001, we also 

noted that the BBRA Conference report 

(H.R. Rep. No. 

106–479 at 854 (1999) (Conf. Rep.)) 

characterizes the individual services 

that this legislation targets for exclusion 

as, ‘‘* * * high-cost, low probability 

events that could have devastating 

financial impacts because their costs far 

exceed the payment [SNFs] receive 

under the prospective payment system 

***’’. According to the conferees, 

section 103(a), ‘‘is an attempt to exclude 

from the PPS certain services and costly 

items that are provided infrequently in 

SNFs * * *’’. By contrast, we noted that 

the Congress declined to designate for 

exclusion any of the remaining services 

within those four categories (thus 

leaving all of those services subject to 

SNF consolidated billing), because they 

are relatively inexpensive and are 

furnished routinely in SNFs. 

As we further explained in the final 

rule for FY 2001 (65 FR 46790, July 31, 

2000), and as our longstanding policy, 

any additional service codes that we 

might designate for exclusion under our 

discretionary authority must meet the 

same criteria that the Congress used in 

identifying the original codes excluded 

from consolidated billing under section 

103(a) of the BBRA: they must fall 

within one of the four service categories 

specified in the BBRA, and they also 

must meet the same standards of high 

cost and low probability in the SNF 

setting. Accordingly, we characterized 

this statutory authority to identify 

additional service codes for exclusion 

‘‘* * * as essentially affording the 

flexibility to revise the list of excluded 

codes in response to changes of major 

significance that may occur over time 

(for example, the development of new 

medical technologies or other advances 

in the state of medical practice)’’ (65 FR 

46791). In this proposed rule, we 

specifically invite public comments 

identifying codes in any of these four 

service categories (chemotherapy items, 

chemotherapy administration services, 

radioisotope services, and customized 

prosthetic devices) representing recent 

medical advances that might meet our 

criteria for exclusion from SNF 

consolidated billing. 

We note that the original BBRA 

legislation (as well as the implementing 

regulations) identified a set of excluded 

services by means of specifying HCPCS 

codes that were in effect as of a 

particular date (in that case, as of July 

1, 1999). Identifying the excluded 

services in this manner made it possible 

for us to utilize program issuances as 

the vehicle for accomplishing routine 

updates of the excluded codes, in order 


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to reflect any minor revisions that might 

subsequently occur in the coding system 

itself (for example, the assignment of a 

different code number to the same 

service). Accordingly, in the event that 

we identify through the current 

rulemaking cycle any new services that 

would actually represent a substantive 

change in the scope of the exclusions 

from SNF consolidated billing, we 

would identify these additional 

excluded services by means of the 

HCPCS codes that are in effect as of a 

specific date (in this case, as of October 

1, 2008). By making any new exclusions 

in this manner, we could similarly 

accomplish routine future updates of 

these additional codes through the 

issuance of program instructions. 

V. Application of the SNF PPS to SNF 

Services Furnished by Swing-Bed 

Hospitals 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Swing-Bed Hospitals’’ at the 

beginning of your comments.] 

In accordance with section 1888(e)(7) 

of the Act, as amended by section 203 

of the BIPA, Part A pays CAHs on a 

reasonable cost basis for SNF services 

furnished under a swing-bed agreement. 

However, effective with cost reporting 

periods beginning on or after July 1, 

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

SNF PPS. As explained in the final rule 

for FY 2002 (66 FR 39562, July 31, 

2001), we selected this effective date 

consistent with the statutory provision 

to integrate swing-bed rural hospitals 

into the SNF PPS by the end of the SNF 

transition period, June 30, 2002. 

Accordingly, all non-CAH swing-bed 

rural hospitals have come under the 

SNF PPS as of June 30, 2003. Therefore, 

all rates and wage indexes outlined in 

earlier sections of this proposed rule for 

the SNF PPS also apply to all non-CAH 

swing-bed rural hospitals. A complete 

discussion of assessment schedules, the 

MDS and the transmission software 

(RAVEN–SB for Swing Beds) appears in 

the final rule for FY 2002 (66 FR 39562, 

July 31, 2001). The latest changes in the 

MDS for swing-bed rural hospitals 

appear on our SNF PPS Web site, 

www.cms.hhs.gov/snfpps. 

VI. Provisions of the Proposed Rule 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Provisions of the Proposed 

Rule’’ at the beginning of your 

comments.] 

In this proposed rule, in addition to 

accomplishing the required annual 

update of the SNF PPS payment rates, 

we also propose making the following 

revisions in the regulations text: 

• Revise the existing SNF PPS 

definitions of ‘‘urban’’ and ‘‘rural’’ areas 

that appear in § 413.333 to include 

updated cross-references to the 

corresponding IPPS definitions in Part 

412, subpart D. 

• Make a technical revision at 

§ 413.335(b) to reflect Medicare bad debt 

payments to SNFs. 

VII. Collection of Information 

Requirements 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Collection of Information’’ at 

the beginning of your comments.] 

This document does not impose 

information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3501 et seq.). 

VIII. Regulatory Impact Analysis 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Impact Analysis’’ at the 

beginning of your comments.] 

A. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (September 19, 1980, 

RFA, Pub. L. 96–354), section 1102(b) of 

the Social Security Act (the Act), the 

Unfunded Mandates Reform Act of 1995 

(UMRA, Pub. L. 104–4), Executive Order 

13132 on Federalism, and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Order 12866, as amended, 

directs agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). 

This proposed rule is a major rule, as 

defined in Title 5, United States Code, 

section 804(2), because we estimate the 

FY 2009 impact reflects a $710 million 

increase from the update to the payment 

rates and a $770 million reduction from 

the recalibration of the case-mix 

adjustment, thereby yielding a net 

decrease of $60 million on payments to 

SNFs. 

The proposed update set forth in this 

proposed rule would apply to payments 

in FY 2009. Accordingly, the analysis 

that follows only describes the impact of 

this single year. In accordance with the 

requirements of the Act, we will publish 

a notice for each subsequent FY that 

will provide for an update to the 

payment rates and include an associated 

impact analysis. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

government jurisdictions. Most SNFs 

and most other providers and suppliers 

are small entities, either by their 

nonprofit status or by having revenues 

of $11.5 million or less in any 1 year. 

For purposes of the RFA, approximately 

53 percent of SNFs are considered small 

businesses according to the Small 

Business Administration’s latest size 

standards, with total revenues of $11.5 

million or less in any 1 year (for further 

information, see 65 FR 69432, 

November 17, 2000). Individuals and 

States are not included in the definition 

of a small entity. In addition, 

approximately 29 percent of SNFs are 

nonprofit organizations. 

This proposed rule would update the 

SNF PPS rates published in the final 

rule for FY 2008 (72 FR 43412, August 

3, 2007) and the associated correction 

notices (72 FR 55085, September 28, 

2007, and 72 FR 67652, November 30, 

2007), thereby decreasing net payments 

by an estimated $60 million. As 

indicated in Table 12, the effect on 

facilities will be a net negative impact 

of 0.3 percent. The total impact reflects 

a $770 million reduction from the 

recalibration of the case-mix 

adjustment, offset by a $710 million 

increase from the update to the payment 

rates. We note that some individual 

providers may experience a net increase 

in payments while most others 

experience a decrease. This is due to the 

distributional impact of the FY 2009 

wage indexes and the degree of 

Medicare utilization. While this 

proposed rule is considered major, its 

relative impact on SNFs overall is 

extremely small; that is, less than 3 

percent of total SNF revenues from all 

payor sources. Therefore, the Secretary 

has determined that this proposed rule 

will not have a significant economic 

impact on a substantial number of small 

entities. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

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the provisions of section 603 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area and has 

fewer than 100 beds. The proposed rule 

will affect small rural hospitals that (a) 

furnish SNF services under a swing-bed 

agreement or (b) have a hospital-based 

SNF. We anticipate that the impact on 

small rural hospitals will be similar to 

the impact on SNF providers overall. 

Section 202 of UMRA also requires 

that agencies assess anticipated costs 

and benefits before issuing any rule 

whose mandates require spending in 

any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

In 2008, that threshold is approximately 

$130 million. This proposed rule would 

not have a substantial effect on the 

governments mentioned, or on private 

sector costs. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates 

regulations that impose substantial 

direct requirement costs on State and 

local governments, preempts State law, 

or otherwise has Federalism 

implications. As stated above, this 

proposed rule would have no 

substantial effect on State and local 

governments. 

B. Anticipated Effects 

This proposed rule sets forth 

proposed updates of the SNF PPS rates 

contained in the final rule for FY 2008 

(72 FR 43412, August 3, 2007) and the 

associated correction notices (72 FR 

55085, September 28, 2007, and 72 FR 

67652, November 30, 2007). Based on 

the above, we estimate the FY 2009 

impact would be a net decrease of $60 

million on payments to SNFs (this 

reflects a $770 million reduction from 

the recalibration of the case-mix 

adjustment, offset by a $710 million 

increase from the update to the payment 

rates. The impact analysis of this 

proposed rule represents the projected 

effects of the changes in the SNF PPS 

from FY 2008 to FY 2009. We estimate 

the effects 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 these 

changes, and we do not make 

adjustments for future changes in such 

variables as days or case-mix. 

We note that certain events may 

combine to limit the scope or accuracy 

of our impact analysis, because 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 

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 

previously-enacted legislation, or new 

statutory provisions. Although these 

changes may not be specific to the SNF 

PPS, the nature of the Medicare program 

is that the changes may interact, and the 

complexity of the interaction of these 

changes could make it difficult to 

predict accurately the full scope of the 

impact upon SNFs. 

In accordance with section 

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

payment rates for FY 2008 by a factor 

equal to the full market basket index 

percentage increase plus the FY 2007 

forecast error adjustment to determine 

the payment rates for FY 2009. The 

special AIDS add-on established by 

section 511 of the MMA remains in 

effect until ‘‘* * *such date as the 

Secretary certifies that there is an 

appropriate adjustment in the case mix. 

***’’ We have not provided a separate 

impact analysis for the MMA provision. 

Our latest estimates indicate that there 

are less than 2,700 beneficiaries who 

qualify for the AIDS add-on payment. 

The impact to Medicare is included in 

the ‘‘total’’ column of Table 12. In 

proposing to update the rates for FY 

2009, standard annual revisions and 

clarifications mentioned elsewhere in 

this proposed rule (for example, the 

update to the wage and market basket 

indexes used for adjusting the Federal 

rates). These revisions would increase 

payments to SNFs by approximately 

$710 million. 

The net decrease in payments 

associated with this proposed rule is 

estimated to be $60 million for FY 2009. 

The decrease of $770 million due to the 

recalibration of the case-mix 

adjustment, together with the market 

basket increase of $710 million, results 

in a net decrease of $60 million. 

The impacts are shown in Table 12. 

The breakdown of the various categories 

of data in the table follows. 

The first column shows the 

breakdown of all SNFs by urban or rural 

status, hospital-based or freestanding 

status, and census region. 

The first row of figures in the first 

column describes the estimated effects 

of the various changes on all facilities. 

The next six rows show the effects on 

facilities split by hospital-based, 

freestanding, urban, and rural 

categories. The urban and rural 

designations are based on the location of 

the facility under the CBSA designation. 

The next twenty-two rows show the 

effects on urban versus rural status by 

census region. 

The second column in the table shows 

the number of facilities in the impact 

database. 

The third column of the table shows 

the effect of the annual update to the 

wage index. This represents the effect of 

using the most recent wage data 

available. The total impact of this 

change is zero percent; however, there 

are distributional effects of the change. 

The fourth column shows the effect of 

recalibrating the two adjustments (parity 

and NTA) to the CMIs. As explained 

previously in section II.B.2 of this 

proposed rule, we are proposing this 

recalibration so that the CMIs more 

accurately reflect parity in expenditures 

under the refined, 53-group RUG system 

introduced in 2006 relative to payments 

made under the original, 44-group RUG 

system, and in order to keep the NTA 

component at the appropriate level 

specified in the FY 2006 SNF PPS final 

rule. The total impact of this change is 

a decrease of 3.3 percent. We note that 

some individual providers may 

experience larger decreases in payments 

than others due to case-mix utilization. 

The fifth column shows the effect of 

all of the changes on the FY 2009 

payments. The market basket increase of 

3.1 percentage points is constant for all 

providers and, though not shown 

individually, is included in the total 

column. It is projected that aggregate 

payments will decrease by 0.3 percent, 

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 of the changes 

vary by specific types of providers and 

by location. For example, though most 

facilities experience payment decreases, 

some providers (for example, those in 

the urban Pacific region) show an 

increase of 1.0 percent. Payment 

increases for facilities in the urban and 

rural Pacific areas of the country are the 

highest for any of the provider 

categories. 


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C. Alternatives Considered 

Section 1888(e) of the Act establishes 

the SNF PPS for the payment of 

Medicare SNF services for cost reporting 

periods beginning on or after July 1, 

1998. This section of the statute 

prescribes a detailed formula for 

calculating payment rates under the 

SNF PPS, and does not provide for the 

use of any alternative methodology. It 

specifies that the base year cost data to 

be used for computing the SNF PPS 

payment rates must be from FY 1995 

(October 1, 1994, through September 30, 

1995.) In accordance with the statute, 

we also incorporated a number of 

elements into the SNF PPS (for example, 

case-mix classification methodology, the 

MDS assessment schedule, a market 

basket index, a wage index, and the 

urban and rural distinction used in the 

development or adjustment of the 

Federal rates). Further, section 

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

requires us to disseminate the payment 

rates for each new FY through the 

Federal Register, and to do so before the 

August 1 that precedes the start of the 

new FY. Accordingly, we are not 

pursuing alternatives with respect to the 

payment methodology as discussed 

above. 

The proposed rule would recalibrate 

the case-mix adjustment to the case-mix 

indexes based on actual CY 2006 data 

instead of continuing to use FY 2001 

data, in order to make the change from 

the 44-group RUG model to the refined 

53-group model in a budget-neutral 

manner, as described in section II.B.2. 

In the FY 2006 SNF PPS final rule (70 

FR 45031, August 4, 2005), we 

committed to monitoring the accuracy 

and effectiveness of the case-mix 

indexes used in the 53-group model. We 

believe that using actual data instead of 

superseded historical data better meets 

our objective of paying SNFs more 

accurately. 

We considered various options for 

implementing the revised case-mix 

adjustment. For example, we considered 

implementing partial adjustments to the 

case-mix indexes over multiple years 

until parity was achieved. However, we 

believe that these options would further 

delay moving to the most appropriate 

payment amounts. Moreover, in 

anticipation of the possible changes 

resulting from STRIVE in the RUG–III 

structural model and the CMIs used in 

payment, we believe it is important for 

the recalibration to be entirely 

completed beforehand, in order to 

ensure stability in the base as we move 

forward with these other changes. 

We also considered introducing new 

case-mix weights derived from the 

STRIVE time study data. However, our 

initial analyses show that it would be 

more efficient and less burdensome to 

providers to introduce any new casemix weights as part of an overall 

restructuring of the RUG–III model that 

is currently scheduled for October 2009. 

D. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 13 below, we 

have prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this proposed rule. This 

table provides our best estimate of the 

change in Medicare payments under the 

SNF PPS as a result of the policies in 

this proposed rule based on the data for 

15,346 SNFs in our database. All 

expenditures are classified as transfers 

to Medicare providers (that is, SNFs). 

TABLE 13.—ACCOUNTING STATEMENT: 

CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM THE 2008 SNF 

PPS FISCAL YEAR TO THE 2009 

SNF PPS FISCAL YEAR

[In Millions] 

Category Transfers 

Annualized Monetized Transfers.$60 million* 

From Whom To 

Whom?.

SNF Medicare Providers 

to Federal Government 

* The net decrease of $60 million in transfer 

payments is a result of the decrease of $770 

million due to the proposed recalibration of the 

case-mix adjustment, together with the proposed market basket increase of $710 million. 

E. Conclusion 

Overall estimated payments for SNFs 

in FY 2009 are projected to decrease by 

0.3 percent compared with those in FY 

2008. We estimate that SNFs in urban 

areas would experience a 0.3 percent 

decrease in estimated payments 

compared with FY 2008. We estimate 

that SNFs in rural areas would 

experience a 0.2 percent decrease in 

estimated payments compared with FY 

2008. Providers in the urban Pacific 

region and the rural Pacific region show 

increases in payments of 1.0 and 0.9 

percent, respectively. 

Finally, in accordance with the 

provisions of Executive Order 12866, 

this regulation was reviewed by the 

Office of Management and Budget. 

List of Subjects in 42 CFR Part 413 

Health facilities, Kidney diseases, 

Medicare, Reporting and recordkeeping 

requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR chapter IV as follows: 

PART 413—PRINCIPLES OF 

REASONABLE COST 

REIMBURSEMENT; PAYMENT FOR 

END-STAGE RENAL DISEASE 

SERVICES; PROSPECTIVELY 

DETERMINED PAYMENT RATES FOR 

SKILLED NURSING FACILITIES 

1. The authority citation for part 413 

continues to read as follows: 

Authority: Secs. 1102, 1812(d), 1814(b), 

1815, 1833(a), (i), and (n), 1861(v), 1871, 

1881, 1883, and 1886 of the Social Security 

Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 

1395g, 1395l(a), (i), and (n), 1395x(v), 

1395hh, 1395rr, 1395tt, and 1395ww); and 

sec. 124 of Public Law 106–133 (113 Stat. 

1501A–332). 

Subpart J—Prospective Payment for 

Skilled Nursing Facilities 

2. In § 413.333, the definitions of the 

terms ‘‘rural area’’ and ‘‘urban area’’ are 

revised to read as follows: 

§ 413.333 Definitions. 

* * * * * 

Rural area means, for services 

provided on or after July 1, 1998, but 

before October 1, 2005, an area as 

defined in § 412.62(f)(1)(iii) of this 

chapter. For services provided on or 

after October 1, 2005, rural area means 

an area as defined in § 412.64(b)(1)(ii)(C) 

of this chapter. 

Urban area means, for services 

provided on or after July 1, 1998, but 

before October 1, 2005, an area as 

defined in § 412.62(f)(1)(ii) of this 

chapter. For services provided on or 

after October 1, 2005, urban area means 

an area as defined in 

§ 412.64(b)(1)(ii)(A) and 

§ 412.64(b)(1)(ii)(B) of this chapter. 

§ 413.335 [Amended] 

3. Section 413.335 is amended by 

revising paragraph (b) to read as follows: 

§ 413.335 Basis of payment. 

* * * * * 

(b) Payment in full. (1) The payment 

rates represent payment in full (subject 

to applicable coinsurance as described 

in subpart G of part 409 of this chapter) 

for all costs (routine, ancillary, and 

capital-related) associated with 

furnishing inpatient SNF services to 

Medicare beneficiaries other than costs 

associated with approved educational 

activities as described in § 413.85. 

(2) In addition to the Federal per diem 

payment amounts, SNFs receive 

payment for bad debts of Medicare 


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beneficiaries, as specified in § 413.89 of 

this part. 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare-Hospital 

Insurance Program; and No. 93.774, 

Medicare-Supplementary Medical Insurance 

Program) 

Dated: March 14, 2008. 

Kerry Weems, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Dated: April 24, 2008. 

Michael O. Leavitt, 

Secretary. 

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[FR Doc. 08–1214 Filed 5–1–08; 8:45 am] 

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