Medicare Program; Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities; Disclosures of Ownership and Additional Disclosable Parties Information, 26364-26429 [2011-10555]

Agencies

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

[Federal Register Volume 76, Number 88 (Friday, May 6, 2011)]
[Proposed Rules]
[Pages 26364-26429]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-10555]



[[Page 26363]]

Vol. 76

Friday,

No. 88

May 6, 2011

Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 413, 424, and 455



Medicare Program; Prospective Payment System and Consolidated Billing 
for Skilled Nursing Facilities; Disclosures of Ownership and Additional 
Disclosable Parties Information; Proposed Rule

Federal Register / Vol. 76 , No. 88 / Friday, May 6, 2011 / Proposed 
Rules

[[Page 26364]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 413, 424, and 455

[CMS-1351-P]
RIN 0938-AQ29


Medicare Program; Prospective Payment System and Consolidated 
Billing for Skilled Nursing Facilities; Disclosures of Ownership and 
Additional Disclosable Parties Information

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule presents two options for updating the 
payment rates used under the prospective payment system for skilled 
nursing facilities (SNFs), for fiscal year 2012. In this context, it 
examines recent changes in provider behavior relating to the 
implementation of the Resource Utilization Groups, version 4 (RUG-IV) 
case-mix classification system and considers a possible recalibration 
of the case-mix indexes so that they more accurately reflect parity in 
expenditures between RUG-IV and the previous case-mix classification 
system. It also includes a discussion of a Non-Therapy Ancillary 
component and outlier research currently under development within CMS. 
In addition, this proposed rule discusses the impact of certain 
provisions of the Affordable Care Act. It proposes to require for 
fiscal year 2012 and subsequent fiscal years that the SNF market basket 
percentage change be reduced by the multi-factor productivity 
adjustment. It also proposes to require Medicare SNFs and Medicaid 
nursing facilities to disclose certain information to the Secretary of 
the United States Department of Health and Human Services (the 
Secretary) and other entities regarding the ownership and 
organizational structure of their facilities. Finally, it proposes 
certain changes relating to the payment of group therapy services and 
proposes new resident assessment policies.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on June 27, 2011.

ADDRESSES: In commenting, please refer to file code CMS-1351-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address only: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1351-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 to 
the following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1351-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 before the close of the comment period 
to either of the following addresses:
    a. Centers for Medicare & Medicaid Services, Department of Health 
and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue, SW., Washington, DC 20201.
    (Because access to the interior of the Hubert H. Humphrey 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.)
    b. Centers for Medicare & Medicaid Services, Department of Health 
and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses 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:

Sandra Bastinelli, (410) 786-3630 (for disclosure of ownership).
Penny Gershman, (410) 786-6643 (for information related to clinical 
issues).
John Kane, (410) 786-0557 (for information related to the development 
of the payment rates and case-mix indexes). Kia Sidbury, (410) 786-7816 
(for information related to the wage index).
Bill Ullman, (410) 786-5667 (for information related to level of care 
determinations, consolidated billing, and general information).

SUPPLEMENTARY INFORMATION: 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.regulations.gov. Follow the search instructions 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. The Affordable Care Act
    G. Skilled Nursing Facility Prospective Payment--General 
Overview
    1. Payment Provisions--Federal Rate
    2. FY 2012 Rate Updates Using the Skilled Nursing Facility 
Market Basket Index
II. FY 2012 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

[[Page 26365]]

    2. Methodology Used for the Calculation of the Federal Rates
    B. Case-Mix Adjustments
    1. Background
    2. Parity Adjustment
    a. Option for Recalibration of the Parity Adjustment
    b. Option for Application of Standard Update for FY 2012 Without 
Recalibration
    C. Wage Index Adjustment to Federal Rates
    D. Updates to Federal Rates
    E. Relationship of Case-Mix Classification System to Existing 
Skilled Nursing Facility Level-of-Care Criteria
    F. Example of Computation of Adjusted PPS Rates and SNF Payment
III. Resource Utilization Groups, Version 4 (RUG-IV)
    A. Prospective Payment for SNF Non-Therapy Ancillary Costs
    1. Previous Research
    2. Conceptual Analysis
    3. Analytic Sample
    4. Approach to Analysis
    5. Payment Methodology
    a. Routine Non-Therapy Ancillary Payment
    b. Tiered Non-Routine NTA Bundled Payment
    c. Non-Routine NTA Outlier Payment
    6. Temporary AIDS Add-On Payment Under Section 511 of the MMA
IV. Ongoing Initiatives Under the Affordable Care Act
    A. Value-Based Purchasing (Section 3006)
    B. Payment Adjustment for Hospital-Acquired Conditions (Section 
3008)
    C. Nursing Home Transparency and Improvement (Section 6104)
V. Other Issues
    A. Required Disclosure of Ownership and Additional Disclosable 
Parties Information (Section 6101)
    B. Therapy Student Supervision
    C. Group Therapy and Therapy Documentation
    D. Proposed Changes to the MDS 3.0 Assessment Schedule and Other 
Medicare-Required Assessments
    E. Discussion of Possible Future Initiatives
VI. The Skilled Nursing Facility Market Basket Index
    A. Use of the Skilled Nursing Facility Market Basket Percentage
    B. Market Basket Forecast Error Adjustment
    C. Multifactor Productivity Adjustment
    1. Incorporating the Multifactor Productivity Adjustment Into 
the Market Basket Update
    D. Federal Rate Update Factor
VII. Consolidated Billing
VIII. Application of the SNF PPS to SNF Services Furnished by Swing-
Bed Hospitals
IX. Provisions of the Proposed Rule
X. Collection of Information Requirements
XI. Response to Comments
XII. Economic Analyses
    A. Regulatory Impact Analysis
    1. Introduction
    2. Statement of Need
    3. Overall Impacts
    4. Detailed Economic Analysis
    a. Impacts of Implementing the Recalibration Option for FY 2012
    b. Impacts of Not Implementing the Recalibration Option for FY 
2012
    5. Alternatives Considered
    6. Accounting Statement
    7. Conclusion
    B. Regulatory Flexibility Act Analysis
    C. Unfunded Mandates Reform Act Analysis
    D. Federalism Analysis
Regulation Text
Addendum:
    FY 2012 CBSA-Based Wage Index Tables (Tables A & B)

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:

ABN Advance Beneficiary Notice
AIDS Acquired Immune Deficiency Syndrome
ARD Assessment Reference Date
ASAP Assessment Submission and Processing
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
CAH Critical Access Hospital
CBSA Core-Based Statistical Area
CCR Cost-to-Charge Ratio
CFR Code of Federal Regulations
CMI Case-Mix Index
CMS Centers for Medicare & Medicaid Services
COT Change of Therapy
EOT End of Therapy
EOT-R End of Therapy--Resumption
FQHC Federally Qualified Health Center
FR Federal Register
FY Fiscal Year
GAO Government Accountability Office
HAC Hospital-Acquired Condition
HCC Hierarchical Condition Category
HCPCS Healthcare Common Procedure Coding System
HR-III Hybrid Resource Utilization Groups, Version 3
IGI IHS (Information Handling Services) Global Insight, Inc.
MDS Minimum Data Set
MFP Multifactor Productivity
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
MPAF Medicare PPS Assessment Form
MSA Metropolitan Statistical Area
NTA Non-Therapy Ancillary
OMB Office of Management and Budget
OMRA Other Medicare-Required Assessment
ONTA Other Non-Therapy Ancillary
OSCAR Online Survey Certification and Reporting System
PAC-PRD Post Acute Care Payment Reform Demonstration
PECOS Medicare Provider Enrollment, Chain, and Ownership System
PPS Prospective Payment System
QIES Quality Improvement and Evaluation System
RAI Resident Assessment Instrument
RAVEN Resident Assessment Validation Entry
RFA Regulatory Flexibility Act, Public Law 96-354
RNP Routine NTA Bundled Payment
RHC Rural Health Clinic
RIA Regulatory Impact Analysis
RTM Reimbursable Therapy Minutes
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
STM Staff Time Measurement
STRIVE Staff Time and Resource Intensity Verification
TNP Tiered Non-routine NTA Payment
UMRA Unfunded Mandates Reform Act, Public Law 104-4

I. Background

    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, Public Law 105-33, enacted on August 
5, 1997), and amended by subsequent legislation as discussed elsewhere 
in this preamble. Our most recent annual update occurred in an update 
notice with comment period (75 FR 42886, July 22, 2010) that set forth 
updates to the SNF PPS payment rates for fiscal year (FY) 2011. We 
subsequently published a correction notice (75 FR 55801, September 14, 
2010) with respect to those payment rate updates. We will respond to 
public comments which relate to the FY 2011 update notice, along with 
those relating to this current proposed rule, in the FY 2012 final 
rule.

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 would update the

[[Page 26366]]

per diem payment rates for SNFs for FY 2012. Major elements of the SNF 
PPS include:
     Rates. As discussed in section I.G.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 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. As further discussed in section I.G.1. of this proposed rule, 
for FY 2012 this adjustment will utilize the Resource Utilization 
Groups, version 4 (RUG-IV) case-mix classification, and will use 
information obtained from the required resident assessments using 
version 3.0 of the Minimum Data Set (MDS 3.0). (The resident assessment 
is approved under OMB 0938-0739.) Additionally, as noted 
elsewhere in this preamble, the payment rates at various times have 
also reflected specific legislative provisions for certain temporary 
adjustments.
     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 case-mix 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. As 
further discussed in section II.E. of this proposed rule, in FY 2012, 
this approach includes an administrative presumption that utilizes a 
beneficiary's initial classification in one of the upper 52 RUGs of the 
66-group RUG-IV case-mix classification 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 in the case-mix classification structure (see section 
II.E. of this proposed rule for a more detailed discussion of the 
relationship between the case-mix classification system and SNF level 
of care determinations).
     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 therapy, 
occupational therapy, and speech-language pathology services 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 VII. 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 VIII. 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 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 
proposed 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 (Pub. L. 106-113, enacted 
on November 29, 1999) 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 groups in the original, 44-
group Resource Utilization Groups, version 3 (RUG-III) case-mix 
classification system. In accordance with section 101(c)(2) of the 
BBRA, this temporary payment adjustment expired on January 1, 2006, 
upon the implementation of a refined, 53-group version of the RUG-III 
system, RUG-53 (see section I.G.1. of this proposed rule). We included 
further information on BBRA provisions that affected the SNF PPS in 
Program Memoranda 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 VII. 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 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 (Pub. L. 106-554, enacted December 21, 2000) also included 
several provisions that resulted in adjustments to the SNF PPS. We 
described these provisions in detail in

[[Page 26367]]

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.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.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 therapy, occupational 
therapy, and speech-language pathology services) furnished to SNF 
residents during noncovered stays, effective January 1, 2001. (A more 
detailed discussion of this provision appears in section VII. of this 
proposed rule.)
     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 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 unfeasible 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.gov/transmittals/downloads/a0108.pdf.

E. The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA)

    The MMA (Pub. L. 108-173, enacted on December 8, 2003) included a 
provision that resulted 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 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.gov/transmittals/downloads/r160cp.pdf. In the SNF PPS final rule for FY 
2010 (74 FR 40288, August 11, 2009), we did not address the 
certification of the AIDS add-on in that final rule's implementation of 
the case-mix refinements for RUG-IV, 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 2009 data, we identified 
less than 3,500 SNF residents with a diagnosis code of 042 (Human 
Immunodeficiency Virus (HIV) Infection). For FY 2012, an urban facility 
with a resident with AIDS in RUG-IV group ``HC2'' would have a case-mix 
adjusted payment of $400.01 (see Table 5) 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 $912.02.
    In addition, section 410 of the MMA contained a provision that 
excluded from consolidated billing certain services furnished to SNF 
residents by rural health clinics (RHCs) and Federally Qualified Health 
Centers (FQHCs). (Further information on this provision appears in 
section VII of this proposed rule.)

F. The Affordable Care Act

    On March 23, 2010, the Patient Protection and Affordable Care Act, 
Public Law 111-148, was enacted. Following the enactment of Public Law 
111-148, the Health Care and Education Reconciliation Act of 2010 (Pub. 
L. 111-152, enacted on March 30, 2010) amended certain provisions of 
Public Law 111-148 and certain sections of the Social Security Act and, 
in certain instances, included ``freestanding'' provisions (Pub. L. 
111-148 and Pub. L. 111-152 are collectively referred to in this 
proposed rule as ``the Affordable Care Act''). Section 10325 of the 
Affordable Care Act included a provision involving the SNF PPS. Section 
10325 postponed the implementation of the RUG-IV case-mix 
classification system published in the FY 2010 SNF PPS final rule (74 
FR 40288, August 11, 2009), requiring that the Secretary not implement 
the RUG-IV case-mix classification system before October 1, 2011. 
Notwithstanding this postponement of overall RUG-IV implementation, 
section 10325 further specified that the Secretary implement, effective 
October 1 2010, the changes related to concurrent therapy and the look-
back period that were finalized as components of RUG-IV (see 74 FR 
40315-19, 40322-24, August 11, 2009). As we noted in the FY 2011 SNF 
PPS update notice (75 FR 42889), implementing the particular 
combination of RUG-III and RUG-IV features specified in section 10325 
of the Affordable Care Act would require developing a revised grouper, 
something that could not be accomplished by that provision's effective 
date (October 1, 2010) without risking serious disruption to providers, 
suppliers, and State agencies. Accordingly, in the FY 2011 update 
notice (75 FR 42889), we announced our intention to proceed on an 
interim basis with implementation of the full RUG-IV case-mix 
classification system as of October 1, 2010, followed by a retroactive 
claims adjustment, using a hybrid RUG-III (HR-III) system reflecting 
the Affordable Care Act configuration, once we had developed a revised 
grouper that could accommodate it. In that update notice, we also 
invited public comment specifically on our plans for implementing 
section 10325 of the Affordable Care Act in this manner.
    However, on December 15, 2010, the President signed H.R. 4994, the 
``Medicare and Medicaid Extenders Act of 2010'' (Pub. L. 111-309), in 
which section 202 repeals section 10325 of the

[[Page 26368]]

Affordable Care Act. We will, therefore, leave in place permanently the 
implementation of the full RUG-IV system as of FY 2011, as finalized in 
the FY 2010 SNF PPS final rule (74 FR 40288). Moreover, as the repeal 
of section 10325 of the Affordable Care Act has now eliminated the need 
for a subsequent transition to the HR-III system, this also effectively 
renders moot any further discussion of public comments that we had 
invited on our planned implementation of that transition. In addition, 
we note that implementation of version 3.0 of the Minimum Data Set (MDS 
3.0) has proceeded as originally scheduled, with an effective date of 
October 1, 2010. The MDS 3.0 RAI Manual and MDS 3.0 Item Set are 
published on the MDS 3.0 Training Materials Web site, at https://www.cms.gov/NursingHomeQualityInits/45_NHQIMDS30TrainingMaterials.asp.
    We note that a parity adjustment was applied to the RUG-53 nursing 
case-mix weights when the RUG-III system was initially refined in 2006, 
in order to ensure that the implementation of the refinements would not 
cause any change in overall payment levels (70 FR 45031, August 4, 
2005). A detailed discussion of the parity adjustment in the specific 
context of the RUG-IV payment rates appears in the FY 2010 SNF PPS 
proposed rule (74 FR 22236-38, May 12, 2009) and final rule (74 FR 
40338-40339, August 11, 2009), and in the FY 2011 update notice (75 FR 
42892-42893).
    Accordingly, as discussed above, effective October 1, 2010, we 
implemented and paid claims under the RUG-IV system that was finalized 
in the FY 2010 SNF PPS final rule. In section IV. of this proposed 
rule, we discuss certain ongoing Affordable Care Act initiatives that 
relate to SNFs, and in section V.A., we discuss proposed revisions 
involving section 6101 of the Affordable Care Act, regarding required 
disclosure of ownership and additional disclosable parties information.

G. 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 methodology uses 
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 and bad debts. 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. 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-IV 
classification system uses beneficiary assessment data from the MDS 3.0 
completed by SNFs to assign beneficiaries to one of 66 RUG-IV groups. 
The original RUG-III case-mix classification system used beneficiary 
assessment data from the MDS, version 2.0 (MDS 2.0) completed by SNFs 
to assign beneficiaries to one of 44 RUG-III groups. Then, 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-III 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 RUG-53 system appeared in the 
proposed and final rules for FY 2006 (70 FR 29070, May 19, 2005, and 70 
FR 45026, August 4, 2005), and a detailed description of the current 
66-group RUG-IV system appeared in the proposed and final rules for FY 
2010 (74 FR 22208, May 12, 2009, and 74 FR 40288, August 11, 2009).
    Further, in accordance with sections 1888(e)(4)(E)(ii)(IV) and 
(e)(5) of the Act, the Federal rates in this proposed rule reflect an 
update to the rates that we published in the update notice for FY 2011 
(75 FR 42886, July 22, 2010) and the associated correction notice (75 
FR 55801, September 14, 2010), equal to the full change in the SNF 
market basket index, adjusted by the forecast error correction, if 
applicable, and the Multifactor Productivity (MFP) adjustment for FY 
2012. A more detailed discussion of the SNF market basket index and 
related issues appears in sections I.G.2. and VI. of this proposed 
rule.
2. FY 2012 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, adjusted in the manner described 
below, 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 proposed FY 2012 market basket 
increase is 2.7 percent, which is based on IHS Global Insight, Inc. 
(IGI) first quarter 2011 forecast with historical data through fourth 
quarter 2010.
    In addition, as explained in the final rule for FY 2004 (66 FR 
46058, August 4, 2003) and in section VI.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, the threshold

[[Page 26369]]

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 2010 (the most recently available FY for which there is final 
data), the estimated increase in the market basket index was 2.2 
percentage points, while the actual increase was 2.0 percentage points, 
resulting in the actual increase being 0.2 percentage point lower than 
the estimated increase. 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 2012 do not 
include a forecast error adjustment. As we stated in the final rule for 
FY 2004 that first promulgated the forecast error adjustment (68 FR 
46058, August 4, 2003), the adjustment will ``* * * reflect both upward 
and downward adjustments, as appropriate.'' Table 1 shows the 
forecasted and actual market basket amounts for FY 2010.

            Table 1--Difference Between the Forecasted and Actual Market Basket Increases for FY 2010
----------------------------------------------------------------------------------------------------------------
                                       Forecasted FY 2010      Actual FY 2010 increase
               Index                       increase *                    **                FY 2010 difference
----------------------------------------------------------------------------------------------------------------
SNF...............................                      2.2                       2.0                      -0.2
----------------------------------------------------------------------------------------------------------------
* Published in Federal Register; based on second quarter 2009 IHS Global Insight Inc. forecast (2004-based
  index).
** Based on the first quarter 2011 IHS Global Insight forecast, with historical data through the fourth quarter
  2010 (2004-based index).

    Furthermore, effective FY 2012, as required by section 3401(b) of 
the Affordable Care Act, the market basket percentage is reduced by a 
productivity adjustment equal to ``the 10-year moving average of 
changes in annual economy-wide private nonfarm business multi-factor 
productivity (as projected by the Secretary for the 10-year period 
ending with the applicable fiscal year, year, cost-reporting period or 
other annual period)'' (the MFP adjustment). As discussed in greater 
detail in section VI.C of this proposed rule, the proposed MFP 
adjustment for FY 2012 is 1.2 percent.

II. FY 2012 Annual Update of Payment Rates Under the Prospective 
Payment System for Skilled Nursing Facilities

A. Federal Prospective Payment System

    This proposed rule sets forth a schedule of Federal prospective 
payment rates applicable to Medicare Part A SNF services beginning 
October 1, 2011. 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.
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 FY 2012 rates reflect an update using the latest market basket 
index, reduced by the MFP adjustment. The FY 2012 market basket 
increase factor is 2.7 percent, which as discussed in section VI.C of 
this proposed rule, is reduced by a 1.2 percent MFP adjustment. 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. As explained 
above in section I.C of this proposed rule, under 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, 2010, and ending 
September 30, 2011, and the midpoint of the Federal FY beginning 
October 1, 2011, and ending September 30, 2012, to which the payment 
rates apply. In accordance with sections 1888(e)(4)(E)(ii)(IV) and 
(e)(5) of the Act, we update the payment rates for FY 2012 by a factor 
equal to the market basket index percentage increase, as discussed in 
sections I.G.2 and VI. of this proposed rule. As further explained in 
sections I.G.2 and VI. of this proposed rule, as applicable, we adjust 
the market basket index by the forecast error from the most recently 
available FY for which there is final data and apply this adjustment 
whenever the difference between the forecasted and actual change in the 
market basket exceeds a 0.5 percentage point threshold. In addition, as 
further explained in sections I.G.2 and VI. of this proposed rule, 
effective FY 2012 and each subsequent fiscal year, we are required to 
reduce the market basket percentage by the MFP adjustment. 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 2012, prior to adjustment for case-
mix.

[[Page 26370]]



                             Table 2--FY 2012 Unadjusted Federal Rate per Diem Urban
----------------------------------------------------------------------------------------------------------------
                                                                          Therapy-- non-case-
         Rate component           Nursing-- case-mix  Therapy-- case-mix          mix            Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount.................            $160.20             $120.68              $15.90              $81.76
----------------------------------------------------------------------------------------------------------------


                             Table 3--FY 2012 Unadjusted Federal Rate Per Diem Rural
----------------------------------------------------------------------------------------------------------------
                                                                          Therapy-- non-case-
         Rate component           Nursing-- case-mix  Therapy-- case-mix          mix            Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount.................            $153.07             $139.15              $16.97              $83.28
----------------------------------------------------------------------------------------------------------------

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 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 (CMIs).
    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 case-mix adjustment derived 
from a classification system based on comprehensive resident 
assessments using the MDS. Case-mix classification is based, in part, 
on the beneficiary's need for skilled nursing care and therapy. The 
case-mix classification system uses clinical data from the MDS, and 
wage-adjusted staff time measurement 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. Because the MDS is a payment as well as a 
clinical document, we have provided extensive training on proper coding 
and the time frames for MDS completion in our Resident Assessment 
Instrument (RAI) Manual. For an MDS to be considered valid for use in 
determining payment, the MDS assessment must be completed in compliance 
with the instructions in the RAI Manual in effect at the time the 
assessment is completed. For payment and quality monitoring purposes, 
the RAI Manual consists of both the Manual instructions and the 
interpretive guidance and policy clarifications posted on the 
appropriate MDS Web site at https://www.cms.gov/NursingHomeQualityInits/25_NHQIMDS30.asp.
    The original RUG-III grouper logic was based on clinical data 
collected in 1990, 1995, and 1997. As discussed in the SNF PPS proposed 
rule for FY 2010 (74 FR 22208, May 12, 2009), we subsequently conducted 
a multi-year data collection and analysis under the Staff Time and 
Resource Intensity Verification (STRIVE) project to update the case-mix 
classification system for FY 2011. The resulting RUG-IV case-mix 
classification system reflected the data collected in 2006-2007 during 
the STRIVE project, and was finalized in the FY 2010 SNF PPS final rule 
(74 FR 40288, August 11, 2009) to take effect in FY 2011 concurrently 
with an updated new resident assessment instrument, the MDS 3.0, which 
collects the clinical data used for case-mix classification under RUG-
IV.
    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.G of this proposed rule, 
the payment rates set forth herein reflect the use of the RUG-IV case-
mix classification system from October 1, 2011, through September 30, 
2012.
2. Parity Adjustment
    As discussed further below, we are considering two options for the 
CMIs that would be applied to the FY 2012 RUG-IV payment rates.
a. Option for Recalibration of the Parity Adjustment
    As explained in the FY 2011 SNF PPS notice with comment period (75 
FR 42886, 42892, July 22, 2010), we applied an upward adjustment of 61 
percent to the RUG-IV nursing CMIs to achieve parity between the RUG-53 
and RUG-IV models, based on an analysis using final FY 2009 claims 
data. Our calculation of the parity adjustment used the most recent 
data available to estimate RUG-IV utilization. As we stated in the FY 
2010 SNF PPS final rule (74 FR 40339), in the absence of actual RUG-IV 
utilization for FY 2011, we believed the most recent data represented 
the best source available, by virtue of being the closest to the FY 
2011 timeframe. We also stated that as actual data for RUG-IV 
utilization became available, we intended to assess the effectiveness 
of the parity adjustment in maintaining budget neutrality and, if 
necessary, to recalibrate the adjustment in future years (see 74 FR 
40339).
    Since the FY 2011 SNF PPS update notice was published, actual first 
quarter RUG-IV claims data became available. Our continued monitoring 
of recent claims data indicates that actual RUG-IV utilization patterns 
differ significantly from those we had projected using the FY 2009 
claims data. In particular, the proportion of patients grouped in the 
highest-paying RUG therapy categories, such as Ultra High 
Rehabilitation, greatly exceeded our expectations. This is likely due 
to the significant reduction in the use of concurrent therapy, which 
first quarter 2011 RUG-IV claims data suggest has been reduced to less 
than 5 percent of all therapy utilization. These first quarter 2011 
RUG-IV claims also suggest a significant increase in the utilization of 
individual and group therapy, which, given current MDS coding 
instructions, may also account for the high proportion of SNF residents 
classified in the Ultra High Rehabilitation RUG categories.
    Based on this initial RUG-IV claims data, it would appear that 
rather than simply achieving parity, the FY 2011 parity adjustment may 
have inadvertently triggered a significant increase in overall payment 
levels. We

[[Page 26371]]

believe that if this preliminary assessment is confirmed as further FY 
2011 RUG-IV claims data become available, a recalibration of the parity 
adjustment may become warranted in the FY 2012 final rule, in order to 
ensure that the adjustment continues to serve as intended to make the 
transition from RUG-53 to RUG-IV in a budget-neutral manner. As 
discussed in the FY 2010 SNF PPS final rule (74 FR 40296), we believe 
that ensuring parity (that is, ensuring that the RUG-IV classification 
system is implemented as intended on a budget-neutral basis) is 
integral to the process of providing ``for an appropriate adjustment to 
account for case mix'' that is based upon appropriate data in 
accordance with section 1888(e)(4)(G)(i) of the Act. Accordingly, in 
this proposed rule, we include the following analysis based on first 
quarter RUG-IV data in order to provide the public with information on 
the potential scope and impact of the recalibration we are considering 
for FY 2012.
    To determine a specific parity adjustment factor that, under the 
initial RUG-IV claims data currently available, would be needed to 
reestablish budget neutrality, we used approximately 920,000 first 
quarter 2011 claims (the most current data available at the time) to 
compare the distribution of payment days by RUG category under the 
original RUG-53 model with the distribution of payment days observed in 
the first quarter of 2011 under the RUG-IV model. Using a file which 
linked these 920,000 claims to the corresponding MDS assessments, we 
determined the appropriate RUG group for the patients covered by the 
aforementioned set of claims under RUG-53. This permitted a more 
precise comparison of the same patients under both systems, to control 
for potential variations in case-mix or patient volume. Given the RUG 
assignments for this set of SNF residents under both RUG-53 and RUG-IV, 
we were able to determine a distribution of RUG assignments.
    To determine the appropriate parity adjustment, consistent with the 
methodology described in the FY 2010 SNF PPS final rule (74 FR 40296) 
and detailed in the FY 2006 SNF PPS proposed rule (70 FR 29077 through 
29079), we determined the total number of first quarter FY 2011 RUG-IV 
payment days, as well as the number of first quarter FY 2011 payment 
days of each RUG-IV category based on the first quarter FY 2011 SNF PPS 
claims. By linking these FY 2011 claims with the corresponding MDS 3.0 
data, we were able to determine the appropriate RUG-53 category for 
each FY 2011 SNF resident represented in the sample of FY 2011 claims. 
We multiplied the percentage of SNF residents in each RUG-IV and RUG-53 
category by the total number of first quarter FY 2011 payment days of 
service in order to determine a distribution of RUG-IV and RUG-53 
payment days, given the first quarter FY 2011 claims and linked MDS 3.0 
data. We then multiplied the projected RUG-IV and RUG-53 days of 
service by the FY 2012 unadjusted Federal per diem payment rate 
components, multiplied by the unadjusted case mix indexes to establish 
expenditures under the RUG-53 and RUG-IV systems. The parity adjustment 
used to ensure that the transition between the two systems is budget-
neutral and does not create, in and of itself, an increase in the 
amount of SNF expenditures, was determined as the percent increase 
necessary for the nursing CMIs to generate estimated expenditure levels 
under the RUG-IV system that were equal to those estimated under the 
RUG-53 system. Based on the first quarter FY 2011 RUG-IV claims data, 
we determined that the adjustment, which had originally produced an 
increase of 61 percent to the nursing CMIs as discussed in the FY 2011 
SNF PPS update notice, would need to be decreased to 22.55 percent to 
achieve budget neutrality, if we were to apply the parity adjustment 
equally to all nursing CMIs as we have done in the past. However, given 
that the most notable differences between expected and actual 
utilization patterns occurred within the therapy RUG categories, we 
believe that rather than applying the new parity adjustment percentage 
to all the nursing CMIs, it would be more appropriate to achieve budget 
neutrality between the RUG-53 and RUG-IV systems by maintaining the 61 
percent parity adjustment to the nursing CMIs for the RUG-IV non-
therapy groups, and reducing the 61 percent parity adjustment as it 
applied to the nursing CMIs for the RUG-IV therapy groups. Using this 
recalibration methodology described above, we found that the adjustment 
to the nursing CMIs of the RUG-IV therapy groups necessary to achieve 
parity, while maintaining the 61 percent parity adjustment for RUG-IV 
non-therapy groups, would be an updated adjustment of 19.81 percent. An 
analysis of recent utilization patterns is provided in Table 4. In this 
proposed rule, we are including Tables 5A and 6A, which illustrate the 
payment rates that would be derived from nursing CMIs reflecting this 
recalibration methodology.

Table 4--FY 2011 Projected versus Actual RUG-IV Utilization Distribution
                   as Percent of Total Days of Service
------------------------------------------------------------------------
                                                 Projected      Actual
                 RUG-IV group                    (percent)    (percent)
------------------------------------------------------------------------
RUX...........................................         0.18         0.60
RUL...........................................         0.05         0.75
RVX...........................................         0.36         0.41
RVL...........................................         0.53         0.56
RHX...........................................         0.43         0.17
RHL...........................................         0.72         0.19
RMX...........................................         0.76         0.33
RML...........................................         0.79         0.28
RLX...........................................         0.00         0.01
RUC...........................................         3.56        12.68
RUB...........................................         3.26        16.19
RUA...........................................         2.12        12.80
RVC...........................................         5.49         7.82
RVB...........................................         7.17         9.67
RVA...........................................         8.61         9.13
RHC...........................................         6.34         3.77
RHB...........................................         7.09         3.54
RHA...........................................        11.41         3.54
RMC...........................................         4.95         3.06
RMB...........................................         6.84         2.42
RMA...........................................         8.74         2.41
RLB...........................................         0.21         0.07
RLA...........................................         0.23         0.06
ES3...........................................         0.52         0.14
ES2...........................................         0.17         0.14
ES1...........................................         0.35         0.29
HE2...........................................         0.04         0.10
HE1...........................................         1.40         0.32
HD2...........................................         0.32         0.09
HD1...........................................         1.30         0.42
HC2...........................................         0.78         0.06
HC1...........................................         1.33         0.33
HB2...........................................         0.78         0.07
HB1...........................................         0.61         0.31
LE2...........................................         0.05         0.12
LE1...........................................         0.70         0.65
LD2...........................................         0.28         0.12
LD1...........................................         1.31         0.78
LC2...........................................         0.26         0.07
LC1...........................................         0.60         0.57
LB2...........................................         0.02         0.04
LB1...........................................         0.34         0.23
CE2...........................................         0.15         0.04
CE1...........................................         0.21         0.21
CD2...........................................         0.58         0.07
CD1...........................................         0.70         0.46
CC2...........................................         0.36         0.07
CC1...........................................         0.67         0.53
CB2...........................................         0.65         0.05
CB1...........................................         0.53         0.44
CA2...........................................         0.32         0.07
CA1...........................................         1.41         0.66
BB2...........................................         0.07         0.02
BB1...........................................         0.27         0.22
BA2...........................................         0.01         0.01
BA1...........................................         0.26         0.17
PE2...........................................         0.03         0.02
PE1...........................................         0.07         0.17
PD2...........................................         0.00         0.03
PD1...........................................         0.38         0.38
PC2...........................................         0.01         0.05
PC1...........................................         1.26         0.51
PB2...........................................         0.02         0.01
PB1...........................................         0.59         0.25
PA2...........................................         0.05         0.01

[[Page 26372]]

 
PA1...........................................         0.40         0.24
------------------------------------------------------------------------
Note: Projected utilization data based on STRIVE study results. Actual
  utilization data based on first quarter 2011 claims data.

    We want to emphasize that any such recalibration would be 
implemented on a prospective basis only, which we believe would be the 
most equitable approach with regard to its potential impact on 
providers. For FY 2012, the aggregate impact of the recalibration 
described in this proposed rule would be the difference between the 
increase of 61 percent for all nursing CMIs (as set forth in the FY 
2011 update notice), and the recalibrated increase of 19.81 percent for 
the nursing CMIs for the RUG-IV therapy groups (maintaining the 61 
percent parity adjustment to the nursing CMIs for the RUG-IV non-
therapy groups), or a negative $4.47 billion. We note that the negative 
$4.47 billion would be partly offset by the FY 2012 market basket 
adjustment factor of 1.5 percent, or $530 million, with a net result of 
a negative $3.94 billion update for FY 2012 (an aggregate negative 
impact of 11.3 percent).
    We note that as an alternative to the preceding recalibration 
methodology, we initially considered applying a recalibration to all 
nursing CMIs, irrespective of RUG category. However, we found that such 
a recalibration most drastically affected non-therapy RUG groups, such 
as the Extensive Services RUG-IV group, which seemed incongruent with 
the perceived reasons for differences between expected and actual 
utilization patterns, as noted in Table 4. In addition, we considered 
using an analytical approach that would reflect implementing partial 
adjustments to the case-mix indexes over multiple years until parity is 
achieved. However, we believe that such an approach would continue to 
reimburse in amounts that significantly exceed our intended policy. 
Moreover, as we move forward with programs designed to enhance and 
restructure our post-acute care payment systems, we believe that 
payments under the SNF PPS should be established at their intended and 
most appropriate levels. We believe that stabilizing the baseline is a 
necessary first step toward properly implementing and maintaining the 
integrity of the RUG-IV classification methodology and the SNF PPS as a 
whole.
    As explained above, in determining the parity adjustment in the FY 
2011 update notice, we used CY 2009 data as representing the most 
recent final claims data available at that time. However, we believe 
that it is appropriate to standardize the new model for the time period 
in which it is used, and we believe that using actual claims data under 
RUG-IV would allow us to calibrate the RUG-IV model more precisely. 
While, in the past, we have waited for a full year of claims data 
before recalibrating the CMIs, under the recalibration methodology 
discussed above, we are considering using partial FY 2011 claims data 
(that is, FY 2011 RUG-IV claims data available at the time of the final 
rule) to recalibrate the CMIs for FY 2012 if our analysis of such data 
prior t