[Federal Register: May 7, 2008 (Volume 73, Number 89)] [Proposed Rules] [Page 25917-25960] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr07my08-35] [[Page 25917]] ----------------------------------------------------------------------- Part III Department of Health and Human Services ----------------------------------------------------------------------- Centers for Medicare & Medicaid Services ----------------------------------------------------------------------- 42 CFR Part 413 Medicare Program; Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities for FY 2009; Proposed Rule [[Page 25918]] ----------------------------------------------------------------------- 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 [[Page 25919]] 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 Diagnosis-Related 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 Case-Mix 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, three-phase transition that blended a facility-specific rate (reflecting the individual facility's historical cost experience) with the Federal case-mix adjusted rate. The transition extended through the facility's first three cost reporting periods under the PPS, up to and including the one that began in FY 2001. Thus, the SNF PPS is no longer operating under the transition, as all facilities have been paid at the full Federal rate effective with cost reporting periods beginning in FY 2002. As we now base payments 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 [[Page 25920]] 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 Sec. 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 [[Page 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 add-on, 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 case-mix 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 post-hospital 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 hospital-based and freestanding SNF cost reports for reporting periods beginning in FY 1995. The data used in developing the Federal rates also incorporated an estimate of the amounts that would be payable under Part B for covered SNF services furnished to individuals during the course of a covered Part A stay in a SNF. In developing the rates for the initial period, we updated costs to the first effective year of the PPS (the 15-month period beginning July 1, 1998) using a SNF market basket index, and then standardized for the costs of facility differences in case-mix and for geographic variations in wages. In compiling the database used to compute the Federal payment rates, we excluded those providers that received new provider exemptions from the routine cost limits, as well as costs related to payments for exceptions to the routine cost limits. Using the formula that the BBA prescribed, we set the Federal rates at a level equal to the weighted mean of freestanding costs plus 50 percent of the difference between the freestanding mean and weighted mean of all SNF costs (hospital-based and freestanding) combined. We computed and applied separately the payment rates for facilities located in urban and rural areas. In addition, we adjusted the portion of the Federal rate attributable to wage-related costs by a wage index. The Federal rate also incorporates adjustments to account for facility case-mix, using a classification system that accounts for the relative resource utilization of different patient types. The RUG-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, [[Page 25922]] 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 ---------------------------------------------------------------------------------------------------------------- Forecasted FY Actual FY 2007 FY 2007 Index 2007 Increase* Increase** 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 Sec. 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 ---------------------------------------------------------------------------------------------------------------- Nursing-- Case- Therapy-- Case- Therapy-- Non- Rate component mix mix 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 ---------------------------------------------------------------------------------------------------------------- Nursing-- Case- Therapy-- Case- Therapy-- Non- Rate component mix mix case-mix Non-case-mix ---------------------------------------------------------------------------------------------------------------- Per Diem Amount................................. $144.55 $131.42 $16.04 $78.64 ---------------------------------------------------------------------------------------------------------------- [[Page 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 case-mix 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 budget-neutral 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 re-establish 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). [[Page 25924]] Table 4.--RUG-53 Case-Mix Adjusted Federal Rates and Associated Indexes--Urban -------------------------------------------------------------------------------------------------------------------------------------------------------- Non-case Non-case RUG-III category Nursing Therapy Nursing Therapy mix therapy mix Total rate index index component component comp component -------------------------------------------------------------------------------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------------------------------------------------------------------------------- Non-case Non-case RUG-III category Nursing Therapy Nursing Therapy mix therapy mix Total rate Index index component component comp component -------------------------------------------------------------------------------------------------------------------------------------------------------- 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 [[Page 25925]] 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 Sec. 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 Sec. 413.333 and further defined in Sec. 412.62(f)(1)(ii) and Sec. 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 Sec. 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 Sec. 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 [[Page 25926]] effective for services provided on or after October 1, 2005, to reference the regulations at Sec. 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 Sec. 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 Sec. 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, Sec. 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 Sec. 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'' (inclu