Medicare Program; Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities for FY 2009, 25918-25960 [08-1214]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 73, Number 89 (Wednesday, May 7, 2008)]
[Proposed Rules]
[Pages 25918-25960]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 08-1214]



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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 413



 Medicare Program; Prospective Payment System and Consolidated Billing 
for Skilled Nursing Facilities for FY 2009; Proposed Rule

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

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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.

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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 https://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: https://
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

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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 https://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 https://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 https://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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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 
https://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 ch