Medicare Program; Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities for FY 2010; Minimum Data Set, Version 3.0 for Skilled Nursing Facilities and Medicaid Nursing Facilities, 40288-40395 [E9-18662]

Agencies

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

[Federal Register Volume 74, Number 153 (Tuesday, August 11, 2009)]
[Rules and Regulations]
[Pages 40288-40395]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-18662]



[[Page 40287]]

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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 483



Medicare Program; Prospective Payment System and Consolidated Billing 
for Skilled Nursing Facilities for FY 2010; Minimum Data Set, Version 
3.0 for Skilled Nursing Facilities and Medicaid Nursing Facilities; 
Final Rule

Federal Register / Vol. 74, No. 153 / Tuesday, August 11, 2009 / 
Rules and Regulations

[[Page 40288]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 483

[CMS-1410-F]
RIN 0938-AP46


Medicare Program; Prospective Payment System and Consolidated 
Billing for Skilled Nursing Facilities for FY 2010; Minimum Data Set, 
Version 3.0 for Skilled Nursing Facilities and Medicaid Nursing 
Facilities

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule updates the payment rates used under the 
prospective payment system (PPS) for skilled nursing facilities (SNFs), 
for fiscal year (FY) 2010. In addition, it recalibrates 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 the results of our ongoing analysis of nursing home 
staff time measurement data collected in the Staff Time and Resource 
Intensity Verification project, as well as a new Resource Utilization 
Groups, version 4 case-mix classification model for FY 2011 that will 
use the updated Minimum Data Set 3.0 resident assessment for case-mix 
classification. In addition, this final rule discusses the public 
comments that we have received on these and other issues, including a 
possible requirement for the quarterly reporting of nursing home 
staffing data, as well as on applying the quality monitoring mechanism 
in place for all other SNF PPS facilities to rural swing-bed hospitals. 
Finally, this final rule revises the regulations to incorporate certain 
technical corrections.

DATES: Effective Date: This final rule becomes effective on October 1, 
2009.

FOR FURTHER INFORMATION CONTACT: Ellen Berry, (410) 786-4528 (for 
information related to clinical issues). Trish Brooks, (410) 786-4561 
(for information related to Resident Assessment Protocols (RAPs) under 
the Minimum Data Set (MDS)). Jeanette Kranacs, (410) 786-9385 (for 
information related to the development of the payment rates and case-
mix indexes). Abby Ryan, (410) 786-4343 (for information related to the 
STRIVE project). Jean Scott, (410) 786-6327 (for information related to 
the request for comment on the possible quarterly reporting of nursing 
home staffing data). Bill Ullman, (410) 786-5667 (for information 
related to level of care determinations, consolidated billing, and 
general information).

SUPPLEMENTARY INFORMATION: To assist readers in referencing sections 
contained in this document, we are providing the following Table of 
Contents.

Table of Contents

I. Background
    A. Current System for Payment of 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. FY 2010 Rate Updates Using the Skilled Nursing Facility 
Market Basket Index
II. Summary of the Provisions of the FY 2010 Proposed Rule
III. Analysis of and Responses to Public Comments on the FY 2010 
Proposed Rule
    A. General Comments on the FY 2010 Proposed Rule
    B. Annual Update of Payment Rates Under the Prospective Payment 
System for Skilled Nursing Facilities
    1. Federal Prospective Payment System
    a. Costs and Services Covered by the Federal Rates
    b. Methodology Used for the Calculation of the Federal Rates
    2. Case-Mix Adjustments
    a. Background
    b. Development of the Case-Mix Indexes
    3. Wage Index Adjustment to Federal Rates
    4. Updates to Federal Rates
    5. Relationship of RUG-III Classification System to Existing 
Skilled Nursing Facility Level-of-Care Criteria
    6. Example of Computation of Adjusted PPS Rates and SNF Payment
    C. Resource Utilization Groups, Version 4 (RUG-IV)
    1. Staff Time and Resource Intensity Verification (STRIVE) 
Project
    a. Data Collection
    b. Developing the Analytical Database
    i. Concurrent Therapy
    ii. Adjustments to STRIVE Therapy Minutes
    iii. ADL Adjustments
    iv. ``Look-Back'' Period
    v. Organizing the Nursing and Therapy Minutes
    vi. Data Dissemination
    2. The RUG-IV Classification System
    3. Development of the FY 2011 Case-Mix Indexes
    4. Relationship of RUG-IV Classification System to Existing 
Skilled Nursing Facility Level-of-Care Criteria
    5. Prospective Payment for SNF Nontherapy Ancillary Costs
    D. Minimum Data Set, Version 3.0 (MDS 3.0)
    1. Description of the MDS 3.0
    2. MDS Elements, Common Definitions, and Resident Assessment 
Protocols (RAPs) Used Under the MDS
    3. Data Submission Requirements Under the MDS 3.0
    4. Proposed Change to Section T of the Resident Assessment 
Instrument (RAI) Under the MDS 3.0
    E. Other Issues
    1. Invitation of Comments on Possible Quarterly Reporting of 
Nursing Home Staffing Data
    2. Miscellaneous Technical Corrections and Clarifications
    F. The Skilled Nursing Facility Market Basket Index
    1. Use of the Skilled Nursing Facility Market Basket Percentage
    2. Market Basket Forecast Error Adjustment
    3. Federal Rate Update Factor
    G. Consolidated Billing
    H. Application of the SNF PPS to SNF Services Furnished by 
Swing-Bed Hospitals; Quality Monitoring of Swing-Bed Hospitals
IV. Provisions of the Final Rule
V. Collection of Information Requirements
VI. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects
    C. Alternatives Considered
    D. Accounting Statement
    E. Conclusion
Regulation Text
Addendum: FY 2010 CBSA-Based Wage Index Tables (Tables A & B) RUG-
III to RUG-IV Comparison (Table C)

Abbreviations

    In addition, because of the many terms to which we refer by 
abbreviation in this final rule, we are listing these abbreviations and 
their corresponding terms in alphabetical order below:

ADLs Activities of Daily Living
AIDS Acquired Immune Deficiency Syndrome
AOTA American Occupational Therapy Association
APTA American Physical Therapy Association
ARD Assessment Reference Date
ASHA American Speech-Language-Hearing Association
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999, Public Law 106-113
BIMS Brief Interview for Mental Status
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000, Public Law 106-554
CAA Care Area Assessment
CAH Critical Access Hospital

[[Page 40289]]

CAM Confusion Assessment Method
CARE Continuity Assessment Record and Evaluation
CAT Care Area Trigger
CBSA Core-Based Statistical Area
CFR Code of Federal Regulations
CMI Case-Mix Index
CMS Centers for Medicare & Medicaid Services
CMSO Center for Medicaid and State Operations
DRA Deficit Reduction Act of 2005, Public Law 109-171
DSM-IV Diagnostic and Statistical Manual of Mental Disorders, 4th 
Revision
FQHC Federally Qualified Health Center
FR Federal Register
FY Fiscal Year
GAO Government Accountability Office
HCPCS Healthcare Common Procedure Coding System
HHA Home Health Agency
HIPPS Health Insurance Prospective Payment System
HIT Health Information Technology
HIV Human Immunodeficiency Virus
IFC Interim Final Rule with Comment Period
IPPS Hospital Inpatient Prospective Payment System
IRF Inpatient Rehabilitation Facility
LTCH Long-Term Care Hospital
MAC Medicare Administrative Contractor
MMACS Medicare/Medicaid Automated Certification System
MDS Minimum Data Set
MIPPA Medicare Improvements for Patients and Providers Act of 2008, 
Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public 
Law 110-173
MSA Metropolitan Statistical Area
MS-DRG Medicare Severity Diagnosis-Related Group
NCQA National Committee for Quality Assurance
NF Nursing Facility
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
OSCAR Online Survey Certification and Reporting System
PAC Post-Acute Care
PHQ-9 9-Item Patient Health Questionnaire
PPS Prospective Payment System
QM Quality Measure
RAI Resident Assessment Instrument
RAND RAND Corporation
RAP Resident Assessment Protocol
RAVEN Resident Assessment Validation Entry
RFA Regulatory Flexibility Act, Public Law 96-354
RHC Rural Health Clinic
RIA Regulatory Impact Analysis
RST Resident Specific Time
RUG-III Resource Utilization Groups, Version 3
RUG-IV Resource Utilization Groups, Version 4
RUG-53 Refined 53-Group RUG-III Case-Mix Classification System
SCHIP State Children's Health Insurance Program
SNF Skilled Nursing Facility
SOM State Operations Manual
STM Staff Time Measurement
STRIVE Staff Time and Resource Intensity Verification
TEP Technical Expert Panel
UMRA Unfunded Mandates Reform Act, Public Law 104-4

I. Background

    On May 12, 2009, we published a proposed rule (74 FR 22208) in the 
Federal Register (hereafter referred to as the FY 2010 proposed rule), 
setting forth updates to the payment rates used under the prospective 
payment system (PPS) for skilled nursing facilities (SNFs), for fiscal 
year (FY) 2010. Annual updates to the PPS rates for 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) (Pub. L. 105-33, 
enacted on August 5, 1997), and amended by the Medicare, Medicaid, and 
State Children's Health Insurance Program (SCHIP) Balanced Budget 
Refinement Act of 1999 (BBRA) (Pub. L. 106-113, enacted on November 29, 
1999), the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA) (Pub. L. 106-554, enacted on December 21, 
2000), and the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173, enacted on December 
8, 2003). Our most recent annual update occurred in a final rule (73 FR 
46416, August 8, 2008) that set forth updates to the SNF PPS payment 
rates for FY 2009. We subsequently published a correction notice (73 FR 
56998, October 1, 2008) 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 final rule, we are updating the per diem payment rates 
for SNFs for FY 2010. Major elements of the SNF PPS include:
     Rates. As discussed in section I.F.1 of this final rule, 
we established per diem Federal rates for urban and rural areas using 
allowable costs from FY 1995 cost reports. These rates also included a 
``Part B add-on'' (an estimate of the cost of those services that, 
before July 1, 1998, were paid under Part B but 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 3 (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 
final rule for FY 2006 (70 FR 45028, August 4, 2005), 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 care and therapy, we have attempted, where 
possible, to coordinate claims review procedures with the existing 
resident assessment process and case-mix classification system. 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. 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

[[Page 40290]]

in the RUG-III classification structure (see section III.B.5 of this 
final rule for a discussion of the relationship between the current 
case-mix classification system and SNF level of care determinations, 
and section III.C.4 for a discussion of this process in the context of 
the upcoming conversion to version 4 of the RUGs (RUG-IV)).
     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 III.G of this 
final 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 III.H of this final 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 provide for 
publication annually in the Federal Register:
    1. The unadjusted Federal per diem rates to be applied to days of 
covered SNF services furnished during the upcoming FY.
    2. The case-mix classification system to be applied with respect to 
these services during the upcoming FY.
    3. The factors to be applied in making the area wage adjustment 
with respect to these services.
    Along with other revisions discussed later in this preamble, this 
final rule provides these required annual updates to the Federal rates.

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 SNF PPS final rule for FY 2001 (65 FR 46770, July 31, 2000). 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 final 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 greater detail in section III.G of this final 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 final rule for FY 
2002 (66 FR 39562, July 31, 2001), 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 for FY 2002 (66 FR 39562, July 31, 2001). 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; accordingly, this 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.
     Section 314 of the BIPA corrected an anomaly involving 
three of the RUGs that section 101(a) of the BBRA had designated to 
receive the temporary payment adjustment discussed above in section 
I.C. of this final 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 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 https://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)

[[Page 40291]]

of the Act, to provide for a temporary increase of 128 percent in the 
PPS per diem payment for any SNF residents 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 ``* * * the Secretary certifies that there is an appropriate 
adjustment in the case mix * * * to compensate for the increased costs 
associated with [such] residents * * *.'' 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 in that final 
rule's implementation of the case-mix refinements, thus allowing the 
temporary add-on payment created by section 511 of the MMA to remain 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 2007 data, we identified 
slightly more than 2,700 SNF residents with a diagnosis code of 042 
(Human Immunodeficiency Virus (HIV) Infection). For FY 2010, an urban 
facility with a resident with AIDS in RUG group ``SSA'' would have a 
case-mix adjusted payment of $252.95 (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 $576.73. A further discussion of the AIDS add-on in the 
context of research conducted during the recent STRIVE study appears in 
section III.C.5 of this final rule.
    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), as discussed in section 
III.G of this final 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 SNF 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, as well as those items and services (other 
than physician and certain other services specifically excluded under 
the BBA) which, before July 1, 1998, had been paid under Part B 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 (FY 1995) 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. As discussed previously in 
section I.A of this final rule, the data used in developing the Federal 
rates also incorporated a ``Part B add-on,'' an estimate of the amounts 
that would be payable under Part B in the base year for covered SNF 
services furnished to individuals during the course of a covered Part A 
SNF stay.
    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 incremental 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 final rule reflect an update to the 
rates that we published in the final rule for FY 2009 (73 FR 46416, 
August 8, 2008) and the associated correction notice (73 FR 56998, 
October 1, 2008), 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.F of this final rule.
2. FY 2010 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 SNF PPS final rule for FY 2008 (72 FR 43425 
through 43430, August 3, 2007), we revised and rebased the market 
basket, which included updating the base year from FY 1997 to FY 2004. 
The FY 2010 market basket increase is 2.2 percent, which is based on 
IHS Global Insight, Inc. second quarter 2009 forecast with historical 
data through the first quarter 2009.
    In addition, as explained in the final rule for FY 2004 (66 FR 
46058, August 4, 2003) and in section III.F.2 of this final 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, 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

[[Page 40292]]

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 2008 (the most recently available FY for which there 
is final data), the estimated increase in the market basket index was 
3.3 percentage points, while the actual increase was 3.6 percentage 
points, resulting in a difference of 0.3 percentage point. 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 2010 do not include a forecast error adjustment. Table 1 shows 
the forecasted and actual market basket amounts for FY 2008.

            Table 1--Difference Between the Forecasted and Actual Market Basket Increases for FY 2008
----------------------------------------------------------------------------------------------------------------
                                               Forecasted FY 2008       Actual FY 2008       FY 2008 difference
                   Index                           increase *            increase **                ***
----------------------------------------------------------------------------------------------------------------
SNF........................................                   3.3                    3.6                    0.3
----------------------------------------------------------------------------------------------------------------
* Published in Federal Register; based on second quarter 2007 IHS Global Insight Inc. forecast (2004-based
  index).
** Based on the second quarter 2009 IHS Global Insight forecast (2004-based index).
*** The FY 2008 forecast error correction for the PPS Operating portion will be applied to the FY 2010 PPS
  update recommendations. Any forecast error less than 0.5 percentage points will not be reflected in the update
  recommendation.

II. Summary of the Provisions of the FY 2010 Proposed Rule

    In the FY 2010 proposed rule (74 FR 22208), we proposed to update 
the payment rates used under the SNF PPS for FY 2010. We also proposed 
to 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. We also discussed the results of our 
ongoing analysis of nursing home staff time measurement (STM) data 
collected in the Staff Time and Resource Intensity Verification 
(STRIVE) project, and proposed a new RUG-IV case-mix classification 
model that would use the updated Minimum Data Set (MDS) 3.0 resident 
assessment for case-mix classification effective FY 2011. In addition, 
we requested public comment on a possible requirement for the quarterly 
reporting of nursing home staffing data, and also on applying the 
quality monitoring mechanism in place for all other SNF PPS facilities 
to rural swing-bed hospitals. Finally, we proposed to revise the 
regulations to incorporate certain technical corrections.

III. Analysis and Response to Public Comments on the FY 2010 Proposed 
Rule

    In response to the publication of the FY 2010 proposed rule, we 
received over 112 timely items of correspondence from the public. The 
comments originated primarily from various trade associations and major 
organizations, but also from individual providers, corporations, 
government agencies, and private citizens.
    Brief summaries of each proposed provision, a summary of the public 
comments that we received, and our responses to the comments appear 
below.

A. General Comments on the FY 2010 Proposed Rule

    In addition to the comments that we received on the proposed rule's 
discussion of specific aspects of the SNF PPS (which we address later 
in this final rule), commenters also submitted the following, more 
general observations on the payment system.
    Comment: Some commenters noted that while the proposed rule's SNF 
PPS rate updates would be effective for FY 2010, its proposed 
conversion of the Resource Utilization Groups (RUGs) from version 3 
(RUG-III) to version 4 (RUG-IV) would not take effect until FY 2011. 
The commenters argued that it is unprecedented to publish such a 
proposal so far in advance of its anticipated effective date, and that 
the 60-day public comment period would not afford sufficient time to 
analyze and comment meaningfully on it. The commenters then suggested 
that we withdraw the current RUG conversion proposal and reissue it at 
a later date with a ``more reasonable'' comment period.
    Response: While it is true that the RUG conversion proposal would 
not become effective until FY 2011, our decision to include a 
discussion of it in the FY 2010 proposed rule and to propose to 
finalize it well in advance of its actual implementation date 
represents a response to specific requests from the nursing home 
industry for us to provide as much advance notification as possible of 
the nature of the proposed RUG-IV revisions, and to provide adequate 
time for system updates and training necessary to implement any 
proposed changes that are finalized. Thus, rather than arbitrarily 
deferring our discussion of this proposal until the FY 2011 rulemaking 
cycle (which, in any event, would have provided for exactly the same 
60-day duration for the public comment period), we decided to include 
the discussion in the current proposed rule, in order to ensure that 
providers, States, and other stakeholders and interested parties would 
have the maximum time available to familiarize themselves with the 
broad outlines of the new model and to prepare for its implementation. 
Moreover, even after the close of the FY 2010 proposed rule's public 
comment period, we fully intend to continue our analysis of the 
proposed changes that are finalized in this rule, in order to consider 
the most current data as it becomes available. As an essential part of 
this ongoing analysis, we will, of course, also continue to welcome 
input from the various stakeholders and interested parties as we move 
closer to actual implementation.
    Comment: We received comments similar to those discussed previously 
in the August 3, 2007 SNF PPS final rule for FY 2008 (72 FR 43415 
through 43416) regarding the need to address certain perceived 
inadequacies in payment for non-therapy ancillary (NTA) services, 
including those services relating to the provision of ventilator care 
in SNFs. We also received comments recommending that we continue to 
monitor ongoing research, and that we consider alternative case-mix 
methodologies such as the recent MedPAC proposal that appears on the 
MedPAC Web site (see https://www.MedPAC.gov).
    Response: As we noted in the proposed rule for FY 2010, we are 
conducting the analyses preparatory to developing a separate 
classification method for NTAs. For these analyses, we are using data 
developed through STRIVE, as well as alternative models such as the 
conceptual design released first by the Urban Institute and then by 
MedPAC. However, as noted in our December 2006 Report to Congress 
(available online at https://

[[Page 40293]]

www.cms.hhs.gov/SNFPPS/Downloads/RC_2006_PC-PPSSNF.pdf), our analysis 
of NTA utilization has been hindered by a lack of data. Almost all 
other Medicare institutional providers submit more detailed billing 
than SNFs on the ancillary services furnished during a Medicare-covered 
stay. SNFs may currently submit summary data that shows total dollar 
amounts for each ancillary service category, such as radiology and 
pharmacy, but are not required to submit more detailed data on drugs 
and biologicals, the most costly NTA expense category. As we examine 
the NTA analyses discussed in detail in the FY 2010 proposed rule, we 
will re-evaluate whether our current data requirements are sufficient 
to move forward with additional program enhancements. We will also 
consider whether collecting more detailed claims information on a 
regular basis will allow us to establish more accurate payment rates 
for NTA services.
    We also believe it is important to monitor ongoing research 
activities, and work with all stakeholders, including MedPAC, to 
identify opportunities for future program enhancements. At the same 
time, we note that the SNF PPS reimbursement structure will be 
completely examined as part of the Post Acute Care Payment Reform 
Demonstration (PAC-PRD) project. Under this major CMS initiative, we 
intend to analyze the costs and outcomes across all post-acute care 
providers, and the data collected in this demonstration will enable us 
to evaluate the possibility of establishing an integrated payment model 
centered on beneficiary needs and service utilization (including the 
use of non-therapy ancillaries) across settings. In considering future 
changes to the SNF PPS, it will be important to evaluate how shorter 
term enhancements contribute to our integrated post acute care 
strategy.
    A discussion of the public comments that we received on the STRIVE 
project itself appears in section III.C.1 of this final rule.

B. Annual Update of Payment Rates Under the Prospective Payment System 
for Skilled Nursing Facilities

1. Federal Prospective Payment System
    This final rule sets forth a schedule of Federal prospective 
payment rates applicable to Medicare Part A SNF services beginning 
October 1, 2010. The schedule incorporates per diem Federal rates that 
provide Part A payment for almost all costs of services furnished to a 
beneficiary in a SNF during a Medicare-covered stay.
a. 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)).
b. Methodology Used for the Calculation of the Federal Rates
    The FY 2010 rates reflect an update using the full amount of the 
latest market basket index. The FY 2010 market basket increase factor 
is 2.2 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 
(and discussed previously in section I.E of this final rule), 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, 2008, and ending 
September 30, 2009, and the midpoint of the Federal FY beginning 
October 1, 2009, and ending September 30, 2010, to which the payment 
rates apply. In accordance with section 1888(e)(4)(E)(ii)(IV) of the 
Act, we would update the payment rates for FY 2010 by a factor equal to 
the full market basket index percentage increase. 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 2010.

                             Table 2--FY 2010 Unadjusted Federal Rate Per Diem Urban
----------------------------------------------------------------------------------------------------------------
                                       Nursing-- case-    Therapy-- case-     Therapy-- non-
           Rate Component                    mix                mix              case-mix         Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount.....................           $155.23            $116.93             $15.40             $79.22
----------------------------------------------------------------------------------------------------------------


                             Table 3--FY 2010 Unadjusted Federal Rate Per Diem Rural
----------------------------------------------------------------------------------------------------------------
                                       Nursing-- case-    Therapy-- case-     Therapy-- non-
           Rate component                    mix                mix              case-mix         Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount.....................           $148.31            $134.83             $16.45             $80.69
----------------------------------------------------------------------------------------------------------------

2. Case-Mix Adjustments
a. 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

[[Page 40294]]

RUG-III case-mix classification system, which tied the amount of 
payment to resident resource use in combination with resident 
characteristic information. The 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.
    Although the establishment of the SNF PPS did not change Medicare's 
fundamental requirements for SNF coverage, there is a correlation 
between level of care and provider payment. One of the elements 
affecting the SNF PPS per diem rates is the RUG-III case-mix adjustment 
classification system based on beneficiary assessments using the MDS 
2.0. RUG-III classification is based, in part, on the beneficiary's 
need for skilled nursing care and therapy. As discussed previously in 
section I.F.1 of this final rule, the SNF PPS final rule for FY 2006 
(70 FR 45026, August 4, 2005) refined the case-mix classification 
system effective January 1, 2006, by adding nine new Rehabilitation 
Plus Extensive Services RUGs at the top of the original, 44-group 
system, for a total of 53 groups. This nine-group addition was designed 
to better account for the higher costs of beneficiaries requiring both 
rehabilitation and certain high intensity medical services. When we 
developed the refined RUG-53 system, we constructed new case-mix 
indexes, using the 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 addition, the RUG-III system was 
standardized with the intent of ensuring parity in payments under the 
44-group and 53-group models. In section III.B.2.b of this final rule, 
we discuss further adjustments to those new case-mix indexes.
    The RUG-III case-mix classification system uses clinical data from 
the MDS 2.0, and wage-adjusted STM data, to assign a case-mix group to 
each patient record that is then used to calculate a per diem payment 
under the SNF PPS. The existing RUG-III grouper logic was based on 
clinical data collected in 1990, 1995, and 1997. As discussed in 
section III.C.1, we have recently completed a multi-year data 
collection and analysis under the STRIVE project to update the RUG-III 
case-mix classification system for FY 2011. As discussed later in this 
preamble, we are introducing a revised case-mix classification system, 
the RUG-IV, based on the data collected in 2006-2007 during the STRIVE 
project. At the same time, we plan to introduce an updated new resident 
assessment instrument, the MDS 3.0, to collect the clinical data that 
will be used for case-mix classification under RUG-IV. We believe that 
the coordinated introduction of the RUG-IV and MDS 3.0 reflects current 
medical practice and resource use in SNFs across the country, and will 
enhance the accuracy of the SNF PPS. Further, we plan to defer 
implementation of the RUG-IV and MDS 3.0 until October 1, 2010, to 
allow all stakeholders adequate time for the systems updates and staff 
training needed to assure a smooth transition. We discuss the RUG-IV 
methodology, the MDS 3.0, and the stakeholder comments in greater 
detail in sections III.C and III.D, respectively.
    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 final rule, 
the FY 2010 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.
b. Development of the Case-Mix Indexes
    In the FY 2010 proposed rule (74 FR 22208, 22214, May 12, 2009), we 
discussed the incremental refinements to the case-mix classification 
system that we introduced effective January 1, 2006. We also discussed 
the accompanying adjustment that was intended to ensure that estimated 
total payments under the refined 53-group model would be equal to those 
payments that would have been made under the 44-group model that it 
replaced. We then explained that actual utilization patterns under the 
refined case-mix system differed significantly from the initial 
projections, and as a consequence, rather than simply achieving parity, 
this adjustment inadvertently triggered a significant increase in 
overall payment levels under the refined model, representing 
substantial overpayments to SNFs. Accordingly, the FY 2010 proposed 
rule included a proposal to recalibrate the parity adjustment in order 
to restore the intended parity to the 2006 case-mix refinements on a 
prospective basis. The comments that we received on this proposal, and 
our responses, appear below.
    Comment: Most commenters opposed our proposal to recalibrate the 
case-mix weights put into place for the refined RUG-53 system. Some 
commenters expressed the belief that we have overstated the amount of 
the proposed parity adjustment, by incorrectly identifying increased 
payments related to treatment of higher case-mix patients with an 
overpayment related to the use of an incorrect budget neutrality 
adjustment factor applied in January 2006. They believed that the 
recalibration proposal should be either withdrawn or significantly 
reduced to eliminate the effect of real acuity changes. One commenter 
conducted a detailed analysis of MDS clinical data that included 
changes in reported activities of daily living (ADLs), infections, 
falls, medication use, and other clinical conditions to support their 
conclusions that patient acuity has increased since the start of the 
SNF PPS and that our recalibration proposal incorrectly ignored the 
impact of these changes. Another commenter believed that the proposed 
recalibration could be more accurately calculated using either 2005 
data or a combination of 2005 and 2006 data.
    Response: We agree that, on average, the case-mix indexes for 
current SNF patients are higher than they were in 2001. In fact, our 
primary reason for implementing the STRIVE project was to identify 
changes in patient characteristics, and to adjust the RUG case-mix 
classification system to reflect the staff time and resource costs 
needed to reimburse fairly for the type of patients currently being 
treated in nursing homes. Moreover, in the STRIVE study, we collected 
2006-2007 patient and facility staff data in order to update the case-
mix classification system. As indicated in detail in the proposed rule, 
STRIVE data also show significant changes in patient characteristics 
and facility practice patterns that need to be incorporated into the 
case-mix methodology to reimburse facilities more accurately.
    However, we do not agree that changes in patient acuity levels 
skewed the results of our recalibration analysis. When we introduced 
nine new Rehabilitation Plus Extensive Care groups to create the RUG-53 
model in January 2006, we made a small, focused adjustment to the case-
mix classification of patients receiving both Extensive Care and 
Rehabilitation services. Under RUG-44, patients receiving both services 
would be classified into the highest paying group for which they 
qualified--either Extensive Care or Rehabilitation. Under RUG-53, we 
created a separate category for this subgroup of patients. As explained 
in the FY 2006 proposed rule (70 FR 29070, 29077, May 19, 2005), we 
took the nursing minutes used to create the original RUG-III system, 
and resorted the records to create three hierarchy categories 
(Rehabilitation, Extensive Care, and Rehabilitation Plus Extensive) 
from the two categories that were used

[[Page 40295]]

in the RUG-44 model. In making these changes, we did not change any 
other part of the case-mix classification model. Thus, patient clinical 
characteristics including ADL scores (used to assign a Rehabilitation 
RUG group) calculated under the RUG-53 model would be exactly the same 
as the patient characteristics, including ADL scores, calculated under 
the RUG-44 model. As we used the same 2006 data set to test for budget 
neutrality between the two models, ADLs and other components of the 
case-mix model reflected the same 2006 level of acuity.
    In addition, we believe this concern may erroneously equate the 
introduction of a new classification model with the regular SNF PPS 
annual update process. Normally, changes in case mix are accommodated 
as the classification model identifies changes in case mix and assigns 
the appropriate RUG group. Actual payments will typically vary from 
projections since case-mix changes, which occur for a variety of 
reasons, cannot be anticipated in an impact analysis.
    However, in January 2006, we did not just update the payment rates, 
but introduced a new classification model, the RUG-53 case-mix system. 
As discussed above, the purpose of this refined model was to 
redistribute payments across the 53 groups while maintaining the same 
total expenditure level that we would have incurred had we retained the 
original 44-group RUG model.
    In testing the two models, we used 2001 data because it was the 
best data we had available, and found that using the raw weights 
calculated for the RUG-53 model, we could expect aggregate payments to 
decrease as a result of introducing the refinement. To prevent this 
expected reduction in overall Medicare expenditures, we applied an 
adjustment to the RUG-53 case-mix weights as described earlier in this 
section. Later analysis using actual 2006 data showed that, rather than 
achieving budget neutrality between the two models, expenditures under 
the RUG-53 model were significantly higher than intended. For FY 2010, 
we estimate expenditures to be $1.05 billion higher than intended.
    As noted previously, we do not agree that updating our analysis 
using CY 2006 data captured payments related to increased case mix 
rather than establishing budget neutrality between the two models. 
First, by using 2006 data to estimate expenditures under both models, 
we incorporate the same case-mix changes into the estimated expenditure 
levels for RUG-44 as well as for RUG-53. Second, we believe it is 
appropriate to standardize the new model for the time period in which 
it is being introduced. The only reason we used 2001 data in the 
original calculation is that it was the best data available at the 
time. The CY 2006 data allowed us to calibrate the RUG-53 model more 
precisely for its first year of operation.
    One commenter recommended using alternative time periods in 
calculating the budget neutrality adjustment. However, while it might 
be possible to use some or all of CY 2005 rather than CY 2006 data, 
using CY 2005 data still requires us to use a projection of the 
distributional shift to the nine new groups in the RUG-53 group model. 
We believe that using actual instead of projected data is the most 
appropriate approach. We also looked at a second recommended 
alternative, which involved averaging data periods directly before and 
after implementation of the RUG-53 model; 2005 for the RUG-44 model and 
2006 for the RUG-53 model. Again, we believe that using actual 
utilization data for CY 2006 is more accurate, as actual case mix 
during the calibration year is the basis for computing the case-mix 
adjustment. We have determined that using the 2006 data instead of the 
suggested alternatives is the most appropriate data to adopt.
    Comment: A few commenters stated that CMS failed to make public all 
information needed to provide sufficient explanation of the basis for 
the recalibration. The commenters indicated that the negative $1.05 
billion impact of the recalibration should be similar to that proposed 
in the 2009 proposed rule, and questioned the reasons for the change. 
Further, the commenters suggested that CMS has failed to provide the 
public with the aggregate baseline spending values that CMS used in 
making the initial FY 2006 ``parity'' adjustment and the one that is 
currently being used in the FY 2010 proposed rule.
    Response: In the FY 2009 rule, actual data were used to compare 
payments in 2006 under RUG-44 and RUG-53. At that time it was decided 
that an adjustment was necessary to recalibrate the CMIs because the 
adjustments in place since FY 2006, which were supposed to be budget 
neutral, actually resulted in a 3.3 percent overpayment to SNFs. It was 
also determined that the adjustment necessary to attain the appropriate 
3.3 percent reduction in payments was a 9.68 percent increase to the 
unadjusted RUG-53 case-mix indexes (73 FR 46422, August 8, 2008), to 
replace the 17.90 percent adjustment that was in place since 2006. To 
determine the dollar impact ($780 million) for the FY 2009 rule, the 
3.3 percent was applied to the estimated Medicare reimbursement to SNFs 
in FY 2008, which is net of beneficiary cost-sharing. For the FY 2010 
rule, the same data and methodology were used as in the FY 2009 rule, 
which determined that an overpayment of 3.3 percent has been in place 
since 2006, requiring an adjustment to the nursing case-mix indexes of 
9.68 percent (74 FR 22214, May 12, 2009) to replace the 17.90 percent 
adjustment. However, we believe that the presentation of the dollar 
impact would be more accurately reflected by applying the overpayment 
percentage to total SNF payments, including beneficiary cost-sharing 
amounts. The reason for using these higher payments to determine the 
dollar impact is because this is how the impact will play out in actual 
practice. Specifically, the revised 9.68 percent adjustment to the 
nursing CMIs is used to calculate total payments to SNFs, which reflect 
a combination of reimbursement from Medicare along with beneficiary 
cost-sharing. However, as the daily coinsurance amount for days 21-100 
in the SNF is set by law (in section 1813(a)(3) of the Act) at one-
eighth of the current calendar year's inpatient hospital deductible 
amount, the beneficiary cost-sharing is unaffected by the change in 
payments resulting from the recalibration. This point is best 
illustrated by way of an example: Total payments to SNFs in FY 2009 are 
estimated at approximately $31.3 billion, consisting of $25.9 billion 
in Medicare reimbursement and $5.4 billion in beneficiary cost-sharing.
    The impact of the recalibration lowers total payments to SNFs by 
approximately $1 billion (or 3.3 percent), to about $30.3 billion. Of 
this $30.3 billion, beneficiary cost-sharing (as determined by the 
statutory formula) remains unchanged at $5.4 billion, while Medicare 
reimbursement is reduced to $24.8 billion. Thus, although the 
determination of the total dollar impact changed, the methodology used 
to determine the need to recalibrate the CMIs did not change from FY 
2009 to FY 2010. The total payments to SNFs that are used to determine 
the dollar impacts are not explicitly published anywhere, but can be 
easily estimated by dividing the dollar impacts by the percentage 
impact. These results can be confirmed by contacting the CMS Office of 
the Actuary.
    Comment: Some commenters believed that CMS failed to provide 
sufficient information for a third party to reproduce CMS's conclusions 
with regard to the recalibrated parity

[[Page 40296]]

adjustment, noting the following specific elements: The baseline used 
for FY 2010, the CY 2006 days of service for both the RUG-44 and RUG-53 
systems, and the separate values for the recalibrated parity adjustment 
factor and the NTA cost adjustment factor for FY 2010.
    Response: We do not agree with the commenters' assertion. The 
methodology used to establish the case-mix adjustments is the same as 
that described in detail in the FY 2006 SNF PPS proposed rule (70 FR 
29077 through 29079, May 19, 2005), the FY 2009 SNF PPS proposed rule 
(73 FR 25923, May 7, 2008) and the FY 2009 SNF PPS final rule (73 FR 
46421-22, August 8, 2008). In addition, the data used to calculate the 
adjustments are publicly available on the CMS Web site, as explained 
below. We used the CY 2006 days of service (available in the Downloads 
section of our Web site at https://www.cms.hhs.gov/SNFPPS/02_Spotlight.asp) for both the RUG-44 and RUG-53 systems. We multiplied 
the CY 2006 days of service by the FY 2008 unadjusted Federal per diem 
payment rate components (72 FR 43416, August 3, 2007) multiplied by the 
unadjusted case-mix indexes (available in the Downloads section of our 
Web site at https://www.cms.hhs.gov/SNFPPS/09_RUGRefinement.asp) to 
establish expenditures under the RUG-44 and RUG-53 systems. The budget 
neutrality adjustment was determined as the percentage increase 
necessary for the nursing CMIs to generate estimated expenditure levels 
under the RUG-53 system that were equal to estimated expenditure levels 
under the RUG-44 system. We then calculated a second adjustment factor 
to increase the baseline by an amount that served to offset the 
variability in NTA utilization.
    The separate recalibrated parity adjustment factor and the NTA cost 
adjustment factor were considered in the calculation of the combined 
parity adjustment factor of 9.68 in the FY 2009 SNF PPS proposed rule 
(73 FR 25923, May 7, 2008), the FY 2009 SNF PPS final rule (73 FR 
46421-22, August 8, 2008), and the FY 2010 SNF PPS proposed rule (74 FR 
22214, May 12, 2009). We presented the total adjustment to the nursing 
case-mix indexes of 9.68 percent because this reflects all changes to 
the payment system with respect to the recalibration. The percentage 
adjustment to the nursing CMIs to maintain parity between the 44-group 
and 53-group models is a 2.43 percent increase. The adjustment to 
account for the variability in the non-therapy ancillary utilization is 
a 7.08 percent increase. The separate adjustments represent interim 
steps in the calculations, and the final result of 9.68 percent 
represents the complete change to aggregate payments.
    Although the SNF baseline is not explicitly published, the baseline 
used can be determined by dividing the dollar impacts by the percentage 
impact. Many commenters used this approach to conduct their own 
analyses. Some of the commenters contacted CMS to confirm the baseline 
in use, and this information was provided or verified.
    Comment: A few commenters believe that CMS failed to explain fully 
the evaluation done since the FY 2009 final rule to support the 
decision to proceed with the recalibration for FY 2010.
    Response: The analytic methodology and calculations were explained 
in detail in the FY 2009 proposed and final rules. In the final rule, 
we explained that we were deferring rather than withdrawing the 
recalibration proposal. After the publication of the FY 2009 final 
rule, we worked with CMS staff and contractors, and reviewed the entire 
methodology with our actuaries. We reviewed the recalibration approach 
with the CMS actuaries, asked for an independent review by one of our 
contractors, and met with an industry representative to discuss the 
methodology. The calculations were determined to be mathematically 
correct. The approach was reconsidered along with alternative 
approaches that we presented in our FY 2009 final rule (73 FR 46423, 
46439-40) and those offered by industry. Based on our results from 
these steps, we determined that our methodology was appropriate and 
reissued the proposal for FY 2010. In addition, we further considered 
the effects of the recalibration on beneficiaries, SNF clinical staff, 
and quality of care, and as explained in the FY 2010 proposed rule (74 
FR 22214), we determined that it is appropriate to proceed with the 
recalibration in FY 2010. As we explained in the FY 2010 proposed rule 
(74 FR 22214), by recalibrating the CMIs under the 53-group model, we 
expect to restore SNF payments to their appropriate level by correcting 
an inadvertent increase in overall payments. Because the recalibration 
would simply remove an unintended overpayment rather than decrease an 
otherwise appropriate payment amount, we do not believe that the 
recalibration should negatively affect beneficiaries, clinical staff, 
or quality of care, or create an undue hardship on providers. The 
purpose of the FY 2006 refinements was to reallocate payments so that 
they more accurately reflect resources used, not to increase or 
decrease overall expenditures. Thus, we believe that it is appropriate 
to proceed with the recalibration in order to ensure that we correctly 
accomplish the purpose of the FY 2006 ca