[Federal Register: August 3, 2007 (Volume 72, Number 149)]
[Rules and Regulations]
[Page 43411-43463]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03au07-17]
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Part IV
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Part 409
Medicare Program; Prospective Payment System and Consolidated Billing
for Skilled Nursing Facilities for FY 2008; Final Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 409
[CMS-1545-F]
RIN 0938-AO64
Medicare Program; Prospective Payment System and Consolidated
Billing for Skilled Nursing Facilities for FY 2008
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) 2008. In addition, this final rule revises and
rebases the SNF market basket, and modifies the threshold for the
adjustment to account for market basket forecast error. This final rule
also responds to public comments submitted on the proposed rule and
makes a technical correction in the regulations text.
DATES: This final rule becomes effective on October 1, 2007.
FOR FURTHER INFORMATION CONTACT:
Ellen Berry, (410) 786-4528 (for information related to the case-mix
classification methodology).
Mollie Knight, (410) 786-7948 (for information related to the SNF
market basket and labor-related share).
Jeanette Kranacs, (410) 786-9385 (for information related to the
development of the payment rates).
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 Skilled Nursing Facility
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 System--General
Overview
1. Payment Provisions--Federal Rate
2. Rate Updates Using the Skilled Nursing Facility Market Basket
Index
II. Summary of the Provisions of the FY 2008 Proposed Rule
III. Analysis of and Response to Public Comments on the FY 2008
Proposed Rule
A. General Comments on the FY 2008 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 Refinements
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. 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
D. Revising and Rebasing the Skilled Nursing Facility Market
Basket Index
E. Consolidated Billing
F. Application of the SNF PPS to SNF Services Furnished by
Swing-Bed Hospitals
IV. Provisions of the Final Rule
V. Waiver of Proposed Rulemaking
VI. Collection of Information Requirements
VII. Regulatory Impact Analysis
A. Overall Impact
B. Anticipated Effects
C. Accounting Statement
D. Alternatives Considered
E. Conclusion
Addendum: FY 2008 CBSA Wage Index Tables (Tables 8 & 9)
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:
AIDS Acquired Immune Deficiency Syndrome
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BBRA Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of
1999, Pub. L. 106-113
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000, Pub. L. 106-554
CAH Critical Access Hospital
CBSA Core-Based Statistical Area
CFR Code of Federal Regulations
CMS Centers for Medicare & Medicaid Services
ECI Employment Cost Index
FLSA Fair Labor Standards Act, Pub. L. 75-718
FQHC Federally Qualified Health Center
FR Federal Register
FY Fiscal Year
GAO Government Accountability Office
GII Global Insight, Inc.
HCPCS Healthcare Common Procedure Coding System
MCR Medicare Cost Report
MDS Minimum Data Set
MEDPAC Medicare Payment Advisory Commission
MEDPAR Medicare Provider Analysis and Review File
MIEA Medicare Improvements and Extension Act of 2006, Pub. L. 109-
432
MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, Pub. L. 108-173
MSA Metropolitan Statistical Area
OMB Office of Management and Budget
PPI Producer Price Index
PPS Prospective Payment System
RFA Regulatory Flexibility Act, Pub. L. 96-354
RHC Rural Health Clinic
RIA Regulatory Impact Analysis
RUG-III Resource Utilization Groups, Version III
RUG-53 Refined 53-Group RUG-III Case-Mix Classification System
SCHIP State Children's Health Insurance Program
SNF Skilled Nursing Facility
STM Staff Time Measurement
UMRA Unfunded Mandates Reform Act, Pub. L. 104-4
I. Background
On May 4, 2007, we published a proposed rule in the Federal
Register (72 FR 25526, hereafter referred to as the FY 2008 proposed
rule), setting forth the proposed updates to the payment rates used
under the prospective payment system (PPS) for skilled nursing
facilities (SNFs) for FY 2008. Annual updates to the prospective
payment system (PPS) rates for skilled nursing facilities (SNFs) are
required by section 1888(e) of the Social Security Act (the Act), as
added by section 4432 of the Balanced Budget Act of 1997 (BBA), and
amended by the Medicare, Medicaid, and SCHIP Balanced Budget Refinement
Act of 1999 (BBRA), the Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000 (BIPA), and the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA).
Our most recent annual update occurred in an update notice (71 FR
43158, July 31, 2006) that set forth updates to the SNF PPS payment
rates for fiscal year (FY) 2007. We subsequently published a correction
notice (71 FR 57519, September 29, 2006) with respect to those payment
rate updates.
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A. Current System for Payment of Skilled Nursing Facility Services
Under Part A of the Medicare Program
Section 4432 of the Balanced Budget Act of 1997 (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 2008. Major elements of the
SNF PPS include:
Rates. As discussed in section I.F.1 of the FY 2008
proposed rule, we established per diem Federal rates for urban and
rural areas using allowable costs from FY 1995 cost reports. These
rates also included an estimate of the cost of services that, before
July 1, 1998, had been paid under Part B but furnished to Medicare
beneficiaries in a SNF during a Part A covered stay. We update the
rates annually using a SNF market basket index, and we adjust them by
the hospital inpatient wage index to account for geographic variation
in wages. We also apply a case-mix adjustment to account for the
relative resource utilization of different patient types. This
adjustment utilizes a refined, 53-group version of the Resource
Utilization Groups, version III (RUG-III) case-mix classification
system, based on information obtained from the required resident
assessments using the Minimum Data Set (MDS) 2.0. Additionally, as
noted in the August 4, 2005 final rule (70 FR 45028), the payment rates
at various times have also reflected specific legislative provisions,
including section 101 of the BBRA, sections 311, 312, and 314 of the
BIPA, and section 511 of the MMA.
Transition. Under sections 1888(e)(1)(A) and (e)(11) of
the Act, the SNF PPS included an initial, three-phase transition that
blended a facility-specific rate (reflecting the individual facility's
historical cost experience) with the Federal case-mix adjusted rate.
The transition extended through the facility's first three cost
reporting periods under the PPS, up to and including the one that began
in FY 2001. Thus, the SNF PPS is no longer operating under the
transition, as all facilities have been paid at the full Federal rate
effective with cost reporting periods beginning in FY 2002. As we now
base payments entirely on the adjusted Federal per diem rates, we no
longer include adjustment factors related to facility-specific rates
for the coming fiscal year.
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 output of
beneficiary assessment and RUG-III classifying activities. This
approach includes an administrative presumption that utilizes a
beneficiary's initial classification in one of the upper 35 RUGs of the
refined 53-group system to assist in making certain SNF level of care
determinations, as was discussed in greater detail in section II.E. of
the FY 2008 proposed rule.
Consolidated Billing. The SNF PPS includes a consolidated
billing provision that requires a SNF to submit consolidated Medicare
bills to its fiscal intermediary for almost all of the services that
its residents receive during the course of a covered Part A stay. While
section 313 of the BIPA repealed the Part B aspect of the consolidated
billing requirement, SNFs maintain responsibility for submitting
consolidated Medicare bills to the fiscal intermediary for physical,
occupational, and speech-language therapy that residents receive 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 appeared in section V. of the FY 2008
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 can be found
in section VI. of the FY 2008 proposed rule.
Technical Correction. We are also taking this opportunity
to make a technical correction in the text of the regulations, as
discussed in greater detail in section IV 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 publish annually
in the Federal Register:
1. The unadjusted Federal per diem rates to be applied to days of
covered SNF services furnished during the FY.
2. The case-mix classification system to be applied with respect to
these services during the FY.
3. The factors to be applied in making the area wage adjustment
with respect to these services.
In the July 30, 1999 final rule (64 FR 41670), we indicated that we
would announce any changes to the guidelines for Medicare level of care
determinations related to modifications in the RUG-III classification
structure (see section II.E of the FY 2008 proposed rule for a
discussion of the relationship between the case-mix classification
system and SNF level of care determinations).
Along with a number of other revisions outlined later in this
preamble, this final rule provides the annual updates to the Federal
rates as mandated by the Act.
C. The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of
1999 (BBRA)
There were several provisions in the BBRA that resulted in
adjustments to the SNF PPS. We described these provisions in detail in
the final rule that we published in the Federal Register on July 31,
2000 (65 FR 46770). In particular, section 101(a) of the BBRA provided
for a temporary 20 percent increase in the per diem adjusted payment
rates for 15 specified RUG-III groups. In accordance with section
101(c)(2) of the BBRA, this temporary payment adjustment expired on
January 1, 2006, with 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 section V. of the FY 2008 proposed rule and in Program
Memorandum AB-00-18 (Change Request 1070), issued March 2000,
which is available online at http://www.cms.hhs.gov/transmittals/downloads/AB001860.pdf.
Further, for
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swing-bed hospitals with more than 49 (but less than 100) beds, section
408 of the BBRA provided for the repeal of certain statutory
restrictions on length of stay and aggregate payment for patient days,
effective with the end of the SNF PPS transition period described in
section 1888(e)(2)(E) of the Act. In the July 31, 2001 final rule (66
FR 39562), we made conforming changes to the regulations at Sec.
413.114(d), effective for services furnished in cost reporting periods
beginning on or after July 1, 2002, to reflect section 408 of the BBRA.
D. The Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000 (BIPA)
The BIPA also included several provisions that resulted in
adjustments to the SNF PPS. We described these provisions in detail in
the final rule that we published in the Federal Register on July 31,
2001 (66 FR 39562). In particular:
Section 203 of the BIPA exempted CAH swing-beds from the
SNF PPS. We included further information on this provision in Program
Memorandum A-01-09 (Change Request 1509), issued January 16,
2001, which is available online at http://www.cms.hhs.gov/transmittals/downloads/a0109.pdf
.
Section 311 of the BIPA revised the statutory update
formula for the SNF market basket, and also directed us to conduct a
study of alternative case-mix classification systems for the SNF PPS.
In 2006, we submitted a report to the Congress on this study, which is
available online at http://www.cms.hhs.gov/snfpps/downloads/rc_2006_pc-ppssnf.pdf
.
Section 312 of the BIPA provided for a temporary increase
of 16.66 percent in the nursing component of the case-mix adjusted
Federal rate for services furnished on or after April 1, 2001, and
before October 1, 2002. The add-on is no longer in effect. This section
also directed the Government Accountability Office (GAO) to conduct an
audit of SNF nursing staff ratios and submit a report to the Congress
on whether the temporary increase in the nursing component should be
continued. The report (GAO-03-176), which GAO issued in November 2002,
is available online at http://www.gao.gov/new.items/d03176.pdf.
Section 313 of the BIPA repealed the consolidated billing
requirement for services (other than physical, occupational, and
speech-language therapy) furnished to SNF residents during noncovered
stays, effective January 1, 2001. (A more detailed discussion of this
provision appears in section V. of the FY 2008 proposed rule.)
Section 314 of the BIPA corrected an anomaly involving
three of the RUGs that the BBRA had designated to receive the temporary
payment adjustment discussed above in section I.C. of this final rule.
(As noted previously, in accordance with section 101(c)(2) of the BBRA,
this temporary payment adjustment expired with 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. As discussed in section
III.B.3 of this final rule, this has proven not to be feasible due to
the volatility of existing SNF wage data and the significant amount of
resources that would be required to improve the quality of such 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 http://www.cms.hhs.gov/transmittals/downloads/a0108.pdf
.
E. The Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (MMA)
The MMA included a provision that results in a further adjustment
to the SNF PPS. Specifically, section 511 of the MMA amended section
1888(e)(12) of the Act to provide for a temporary increase of 128
percent in the PPS per diem payment for any SNF resident with Acquired
Immune Deficiency Syndrome (AIDS), effective with services furnished on
or after October 1, 2004. This special AIDS add-on was to remain in
effect until ``* * * such date as the Secretary certifies that there is
an appropriate adjustment in the case mix * * *.'' The AIDS add-on is
also discussed in Program Transmittal 160 (Change Request
3291), issued on April 30, 2004, which is available online at
http://www.cms.hhs.gov/transmittals/downloads/r160cp.pdf. As discussed
in the SNF PPS final rule for FY 2006 (70 FR 45028, August 4, 2005), we
did not address the certification of the AIDs add-on with the
implementation of the case-mix refinements, thus allowing the temporary
add-on payment created by section 511 of the MMA to continue in effect.
For the limited number of SNF residents that qualify for the AIDS
add-on, implementation of this provision results in a significant
increase in payment. For example, using fiscal year 2006 data, we
identified 2,590 SNF residents with a principal or secondary diagnosis
code of 042 (``Human Immunodeficiency Virus (HIV) Infection''). For FY
2008, an urban facility with a resident with AIDS in RUG group ``SSA''
would have a case-mix adjusted payment of almost $250.65 (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 $571.48.
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). (A more detailed discussion
of this provision appears in section V. of the FY 2008 proposed rule,
as well as in Program Transmittal 390 (Change Request
3575), issued December 10, 2004, which is available online at
http://www.cms.hhs.gov/transmittals/downloads/r390cp.pdf.)
F. Skilled Nursing Facility Prospective Payment System--General
Overview
We implemented the Medicare SNF PPS effective with cost reporting
periods beginning on or after July 1, 1998. This PPS pays SNFs through
prospective, case-mix adjusted per diem payment rates applicable to all
covered SNF services. These payment rates cover all costs of furnishing
covered skilled nursing services (routine, ancillary, and capital-
related costs) other than costs associated with approved educational
activities. Covered SNF services include post-hospital services for
which benefits are provided under Part A and all items and services
that, before July 1, 1998, had been paid under Part B (other than
physician and certain other services specifically excluded under the
BBA) but were furnished to Medicare beneficiaries in a SNF during a
covered Part A stay. A complete discussion of these provisions appears
in the May 12, 1998 interim final rule (63 FR 26252).
1. Payment Provisions--Federal Rate
The PPS uses per diem Federal payment rates based on mean SNF costs
in a base year updated for inflation to the first effective period of
the PPS. We developed the Federal payment rates using allowable costs
from hospital-based and freestanding SNF cost reports for reporting
periods beginning in FY 1995. The data used in developing the Federal
rates also incorporated an estimate of the amounts that would be
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payable under Part B for covered SNF services furnished to individuals
during the course of a covered Part A stay in a SNF.
In developing the rates for the initial period, we updated costs to
the first effective year of the PPS (the 15-month period beginning July
1, 1998) using a SNF market basket index, and then standardized for the
costs of facility differences in case-mix and for geographic variations
in wages. In compiling the database used to compute the Federal payment
rates, we excluded those providers that received new provider
exemptions from the routine cost limits, as well as costs related to
payments for exceptions to the routine cost limits. Using the formula
that the BBA prescribed, we set the Federal rates at a level equal to
the weighted mean of freestanding costs plus 50 percent of the
difference between the freestanding mean and weighted mean of all SNF
costs (hospital-based and freestanding) combined. We computed and
applied separately the payment rates for facilities located in urban
and rural areas. In addition, we adjusted the portion of the Federal
rate attributable to wage-related costs by a wage index.
The Federal rate also incorporates adjustments to account for
facility case-mix, using a classification system that accounts for the
relative resource utilization of different patient types. The RUG-III
classification system uses beneficiary assessment data from the Minimum
Data Set (MDS) completed by SNFs to assign beneficiaries to one of 53
RUG-III groups. The original RUG-III case-mix classification system
included 44 groups. However, under refinements that became effective on
January 1, 2006, we added nine new groups--comprising a new
Rehabilitation plus Extensive Services category--at the top of the RUG
hierarchy. The May 12, 1998 interim final rule (63 FR 26252) included a
complete and 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 July 31, 2006 final rule for FY 2007 (71
FR 43158) and the associated correction notice (71 FR 57519, September
29, 2006), 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.C of the FY 2008 proposed
rule.
2. Rate Updates Using the Skilled Nursing Facility Market Basket Index
Section 1888(e)(5) of the Act requires us to establish a SNF market
basket index that reflects changes over time in the prices of an
appropriate mix of goods and services included in covered SNF services.
We use the SNF market basket index to update the Federal rates on an
annual basis. In the FY 2008 proposed rule, we proposed to revise and
rebase the market basket to reflect 2004 Medicare-allowable cost data,
as detailed in section III.A of that proposed rule. The proposed FY
2008 market basket increase was 3.3 percent. (However, we also noted
that both the President's budget and the recommendations of the
Medicare Payment Advisory Commission (MedPAC) included a proposal for a
zero percent update in the SNF market basket for FY 2008, and that the
provisions outlined in the proposed rule would need to reflect any
legislation that the Congress might enact to adopt this proposal.)
In the FY 2008 proposed rule, we also proposed to revise the
threshold percentage that serves to trigger an adjustment to account
for market basket forecast error, which we discuss in greater detail in
section III.C.2 of this final rule. Table 1 below shows the forecasted
and actual market basket amount for FY 2006.
Table 1.--Difference Between the Forecasted and Actual Market Basket Increases for FY 2006
----------------------------------------------------------------------------------------------------------------
Forecasted actual Actual FY 2006
Index FY 2006 increase* increase** FY 2006 difference
----------------------------------------------------------------------------------------------------------------
SNF................................................. 3.1 3.4 0.3
----------------------------------------------------------------------------------------------------------------
*Published in Federal Register; based on the second quarter 2005 Global Insight Inc. forecast (97 index).
**Based on the second quarter 2007 Global Insight forecast (97 index).
II. Summary of the Provisions of the FY 2008 Proposed Rule
The FY 2008 proposed rule included proposed updates to the Federal
payment rates used under the SNF PPS. In accordance with section
1888(e)(4)(E)(ii)(IV) of the Act, the updates reflect the full SNF
market basket percentage change for the fiscal year. We also proposed
to revise and rebase the SNF market basket (which would include
updating the base year from FY 1997 to FY 2004), and to modify the
threshold that serves to trigger an adjustment to account for market
basket forecast error. In addition, we proposed to specify an area wage
adjustment methodology for those geographic areas that lack hospital
wage index data. Further, we invited public comments on additional
HCPCS codes that could represent the type of ``high-cost, low
probability'' services within certain designated service categories
(that is, chemotherapy and its administration, radioisotope services,
and customized prosthetic devices) that section 103 of the BBRA has
authorized us to exclude from the SNF consolidated billing provision.
More detailed information on each of these issues, to the extent that
we received public comments on them, appears in the discussion
contained in the following sections of this final rule.
III. Analysis of and Response to Public Comments on the FY 2008
Proposed Rule
In response to the publication of the May 4, 2007 proposed rule for
FY 2008, we received 17 timely items of correspondence from the public.
The comments originated primarily from various trade associations and
major organizations, but also from individual providers, corporations,
and government agencies.
Brief summaries of each proposed provision, a summary of the public
comments we received and our responses to the comments are set forth
below.
A. General Comments on the FY 2008 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.
[[Page 43416]]
Comment: Some commenters asked us to consider modifications to the
SNF PPS payment system that would better recognize the specialized care
provided in hospital-based SNFs. A few commenters encouraged us to
create a SNF outlier policy. Other commenters requested that we address
perceived inadequacies in payment for non-therapy ancillary services,
including those services relating to the provision of ventilator care
in SNFs.
Response: As noted previously in section I.F.1 of this final rule,
the SNF PPS final rule for FY 2006 (70 FR 45034, August 4, 2005)
introduced a refined case-mix classification system as of January 1,
2006, which added nine new Rehabilitation plus Extensive Service groups
to the RUG hierarchy to account more accurately for patients with both
rehabilitation needs and extensive services. At that time, we described
the FY 2006 refinements as a first step in updating the SNF PPS. We
described our intent to perform a staff time measurement study, in
which we would survey SNFs and collect data that better reflects
current practice patterns and resource use. We are concerned that
incentives of the SNF PPS and the public reporting of nursing home
quality measures likely have altered industry practices, and have had a
significant impact on the nursing resources required to treat different
types of patients.
The Staff Time and Resource Intensity Verification (STRIVE) project
started onsite facility data collection in the spring of 2006, and will
continue to collect data through the summer of 2007. When complete, the
study will have collected data from approximately 200 facilities from
approximately 15 States. While facilities were selected largely based
on random sampling techniques, targeted sampling was also performed to
ensure adequate representation of special populations, such as
residents in hospital-based facilities. In addition to providing us
with data to analyze and evaluate how current industry practices have
affected the Federal classification system, the data will enable us to
analyze non-therapy ancillary usage more thoroughly, assess the need
for a SNF outlier policy, and gain a better understanding of the
resource usage of residents in hospital-based SNFs. We plan to make
available some preliminary analysis results in 2008, which should aid
us in reviewing and addressing some of the concerns expressed by the
commenters.
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, 2007. The schedule incorporates per diem Federal rates that
provide Part A payment for all costs of services furnished to a
beneficiary in a SNF during a Medicare-covered stay.
a. Costs and Services Covered by the Federal Rates
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) 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 26295-97)).
b. Methodology Used for the Calculation of the Federal Rates
The FY 2008 rates reflect an update using the full amount of the
latest market basket index. The FY 2008 market basket increase factor
is 3.3 percent. A complete description of the multi-step process
initially appeared in the May 12, 1998 interim final rule (63 FR
26252), as further revised in subsequent rules. We note that in
accordance with section 101(c)(2) of the BBRA, the previous, temporary
increases in the per diem adjusted payment rates for certain designated
RUGs, as specified in section 101(a) of the BBRA and section 314 of the
BIPA, are no longer in effect due to the implementation of case-mix
refinements as of January 1, 2006. However, the temporary increase of
128 percent in the per diem adjusted payment rates for SNF residents
with AIDS, enacted by section 511 of the MMA, remains in effect.
We used the SNF market basket to adjust each per diem component of
the Federal rates forward to reflect cost increases occurring between
the midpoint of the Federal fiscal year beginning October 1, 2006, and
ending September 30, 2007, and the midpoint of the Federal fiscal year
beginning October 1, 2007, and ending September 30, 2008, to which the
payment rates apply. In accordance with section 1888(e)(4)(E)(ii)(IV)
of the Act, we update the payment rates for FY 2008 by a factor equal
to the full market basket index percentage increase. We further
adjusted 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 2008.
Table 2.--FY 2008 Unadjusted Federal Rate Per Diem Urban
----------------------------------------------------------------------------------------------------------------
Therapy-non-case-
Rate component Nursing-case-mix Therapy-case-mix mix Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount................. $146.62 $110.44 $14.54 $74.83
----------------------------------------------------------------------------------------------------------------
Table 3.--FY 2008 Unadjusted Federal Rate Per Diem Rural
----------------------------------------------------------------------------------------------------------------
Therapy-non-case-
Rate component Nursing-case-mix Therapy-case-mix mix Non-case-mix
----------------------------------------------------------------------------------------------------------------
Per Diem Amount................. $140.08 $127.35 $15.54 $76.21
----------------------------------------------------------------------------------------------------------------
[[Page 43417]]
2. Case-Mix Refinements
Under the BBA, each update of the SNF PPS payment rates must
include the case-mix classification methodology applicable for the
coming Federal fiscal year. As indicated previously in section I.F.1,
the payment rates set forth in this final rule reflect the use of the
refined RUG-53 classification system that we discussed in detail in the
proposed and final rules for FY 2006 (70 FR 29070, May 19, 2005, and 70
FR 45026, August 4, 2005). As noted in the FY 2006 final rule, we
deferred RUG-53 implementation from the beginning of FY 2006 (October
1, 2005) until January 1, 2006, in order to allow sufficient time to
prepare for and ease the transition to the refinements (70 FR 45034).
We list the case-mix adjusted payment rates separately for urban
and rural SNFs in Tables 4 and 5, with the corresponding case-mix
values. These tables do not reflect the AIDS add-on enacted by section
511 of the MMA, which we apply only after making all other adjustments
(wage and case-mix).
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3. Wage Index Adjustment to Federal Rates
Section 1888(e)(4)(G)(ii) of the Act requires that we adjust the
Federal rates to account for differences in area wage levels, using a
wage index that we find appropriate. Since the inception of a PPS for
SNFs, we have used hospital wage data in developing a wage index to be
applied to SNFs. We proposed and are finalizing that practice for FY
2008, as we continue to believe that in the absence of SNF-specific
wage data, using the hospital inpatient wage data is appropriate and
reasonable for the SNF PPS. As explained in the update notice for FY
2005 (69 FR 45786, July 30, 2004), the SNF PPS does not use the
hospital area wage index's occupational mix adjustment, as this
adjustment serves specifically to define the occupational categories
more clearly in a hospital setting; moreover, the collection of the
occupational wage data also excludes any wage data related to SNFs.
Therefore, we believe that using the updated wage data exclusive of the
occupational mix adjustment continues to be appropriate for SNF
payments.
Comment: A few commenters requested that we develop a SNF-specific
wage index and subsequently allow geographic reclassification.
Response: The regulations that govern the SNF PPS currently do not
provide a mechanism for allowing providers to seek geographic
reclassification. Moreover, as we have explained on numerous occasions
in the past (most recently, in the SNF PPS final rule for FY 2006, 70
FR 45040-45041, August 4, 2005), while section 315 of the BIPA does
authorize us to establish such a reclassification methodology under the
SNF PPS, it additionally stipulates that such reclassification cannot
be implemented until we have collected the data necessary to establish
a SNF-specific wage index. This, in turn, has proven not to be feasible
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'' (70 FR 45041). We continue to believe that these
factors make it unlikely for such an approach to yield meaningful
improvements in our ability to determine facility payments, or to
justify the significant increase in administrative resources as well as
burden on providers that this type of data collection would involve.
We plan to monitor current research efforts on wage index issues
nonetheless. Section 106(b)(1)(A) of the Medicare Improvements and
Extension Act of 2006 (MIEA, Pub. L. 109-432) requires MedPAC to submit
a report to the Congress on the wage index not later than June 30,
2007. MIEA requires the report to include any alternatives the
Commission recommends to the method to compute the wage index. MedPAC
discusses this issue in its Report to the Congress entitled ``Promoting
Greater Efficiency in Medicare'' (June 2007), which is available online
at http://www.medpac.gov/documents/Jun07_EntireReport.pdf. The
Secretary is required to consider MedPAC's recommendations and nine
specific aspects of the wage index as part of making one or more
proposals in the Hospital Inpatient PPS (IPPS) proposed rule for FY
2009.
Comment: One commenter suggested that CMS provide an adjustment to
certain States due to the impact of the new Federal minimum wage on the
wage index.
Response: On May 25, 2007, the President signed the U.S. Troop
Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability
Appropriations Act, 2007 (Pub. L. 110-28) that, among other things,
amended the Fair Labor Standards Act (FLSA, Pub. L. 75-718) to increase
the Federal minimum wage in three steps: to $5.85 per hour effective
July 24, 2007; to $6.55 per hour effective July 24, 2008; and to $7.25
per hour effective July 24, 2009. Wage data reflecting the new Federal
minimum wage will not be available for the FY 2008 SNF PPS. We plan to
monitor current research efforts on all wage index issues, including
the MIEA-required MedPAC report and the IPPS proposed rule for FY 2009.
In this final rule, we apply the wage index adjustment to the
labor-related portion of the Federal rate, which is 70.152 percent of
the total rate. This percentage reflects the labor-related relative
importance for FY 2008, using the revised and rebased FY 2004-based
market basket. The labor-related relative importance for FY 2007 was
75.839, using the FY 1997-based market basket, as shown in Table 13. We
calculate the labor-related relative importance from the SNF market
basket, and it approximates the labor-related portion of the total
costs after taking into account historical and projected price changes
between the base year and FY 2008. The price proxies that move the
different cost categories in the market basket do not necessarily
change at the same rate, and the relative importance captures these
changes. Accordingly, the relative importance figure more closely
reflects the cost share weights for FY 2008 than the base year weights
from the SNF market basket.
We calculate the labor-related relative importance for FY 2008 in
four steps. First, we compute the FY 2008 price index level for the
total market basket and each cost category of the market basket.
Second, we calculate a ratio for each cost category by dividing the FY
2008 price index level for that cost category by the total market
basket price index level. Third, we determine the FY 2008 relative
importance for each cost category by multiplying this ratio by the base
year (FY 1997) weight. Finally, we add the FY 2008 relative importance
for each of the labor-related cost categories (wages and salaries,
employee benefits, nonmedical professional fees, labor-intensive
services, and a portion of capital-related expenses) to produce the FY
2008 labor-related relative importance. Tables 6 and 7 show the Federal
rates by labor-related and non-labor-related components.
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Section 1888(e)(4)(G)(ii) of the Act also requires that we apply
this wage index in a manner that does not result in aggregate payments
that are greater or less than would otherwise be made in the absence of
the wage adjustment. For FY 2008 (Federal rates effective October 1,
2007), we apply the most recent wage index using the hospital inpatient
wage data, and also apply an adjustment to fulfill the budget
neutrality requirement. We meet this requirement by multiplying each of
the components of the unadjusted Federal rates by a factor equal to the
ratio of the volume weighted mean wage adjustment factor (using the
wage index from the previous year) to the volume weighted mean wage
adjustment factor, using the wage index for the FY beginning October 1,
2007. We use the same volume weights in both the numerator and
denominator, and derive them from the 1997 Medicare Provider Analysis
and Review File (MEDPAR) data. We define the wage adjustment factor
used in this calculation as the labor share of the rate component
multiplied by the wage index plus the non-labor share. The budget
neutrality factor for this year is 0.9993. The wage index applicable to
FY 2008 appears in Tables 8 and 9 of this final rule, which are
attached as an addendum.
In the SNF PPS final rule for FY 2006 (70 FR 45026, August 4,
2005), we adopted the changes discussed in the Office of Management and
Budget (OMB) Bulletin No. 03-04 (June 6, 2003), available online at
http://www.whitehouse.gov/omb/bulletins/b03-04.html, which announced
revised definitions for Metropolitan Statistical Areas (MSAs), and the
creation of Micropolitan Statistical Areas and Combined Statistical
Areas. In addition, OMB published subsequent bulletins regarding CBSA
changes, including changes in CBSA numbers and titles. We clarified
that this and all subsequent SNF PPS rules and notices are considered
to incorporate the CBSA changes published in the most recent OMB
bulletin that applies to the hospital wage data used to determine the
current SNF PPS wage index. The OMB bulletins are available online at
http://www.whitehouse.gov/omb/bulletins/index.html.
In adopting the OMB Core-Based Statistical Area (CBSA) geographic
designations, we provided for a 1-year transition with a blended wage
index for all providers. For FY 2006, the wage index for each provider
consisted of a blend of 50 percent of the FY 2006 MSA-based wage index
and 50 percent of the FY 2006 CBSA-based wage index (both using FY 2002
hospital data). We referred to the blended wage index as the FY 2006
SNF PPS transition wage index. As discussed in the SNF PPS final rule
for FY 2006 (70 FR 45041, August 4, 2005), subsequent to the expiration
of this 1-year transition on September 30, 2006, we use the full CBSA-
based wage index values, as presented in Tables 8 and 9 of this final
rule.
When adopting OMB's new labor market designations, we identified
some geographic areas where there were no hospitals and, thus, no
hospital wage index data on which to base the calculation of the SNF
PPS wage index (70 FR 29095, May 19, 2005). As in the SNF PPS final
rule for FY 2006 (70 FR 45041) and in the SNF PPS update notice for FY
2007 (71 FR 43170, July 31, 2006), we proposed to address two
situations concerning the wage index in the FY 2008 proposed rule.
First, we proposed a minor change in the wage index for rural
geographic areas that do not have hospitals and, therefore, lack
hospital wage data on which to base an area wage adjustment. We
proposed to use the average wage index from all contiguous CBSAs as a
reasonable proxy for the rural area, consistent with the policy adopted
in the CY 2007 Home Health final rule. We note that Massachusetts is
the only State that this change would affect; we did not propose to
apply this methodology to rural Puerto Rico due to the distinct
economic circumstances that exist there, but instead proposed to
continue using the most recent wage index (0.4047) previously available
for that area.
Comment: One commenter supported our proposal to use the average
wage index from all contiguous CBSAs as a reasonable proxy for rural
Massachusetts.
Response: We agree that the use of the average wage index from all
contiguous CBSAs is a reasonable proxy for rural Massachusetts, which
is a rural geographic area that does not have hospitals and, therefore,
lacks hospital wage data on which to base an area wage adjustment for
use in the SNF PPS. We believe it is appropriate at this point to
update our methodology. By using the average wage index from all
contiguous CBSAs as a reasonable proxy for those rural areas without
hospital wage data, we are able to meet our goals of using pre-floor,
pre-reclassified hospital wage data that is easy to evaluate,
updateable from year-to-year, and uses the most local data available.
Therefore, we are adopting our proposed policy of using the average
wage index from all contiguous CBSAs as a reasonable proxy for rural
geographic areas that do not have hospitals and, therefore, lack
hospital wage data on which to base an area wage adjustment. We note
that, at this time, Massachusetts is the only State that this change
would affect; we are not applying this methodology to rural Puerto Rico
due to the distinct economic circumstances that exist there.
The second situation involved the urban CBSA (25980) Hinesville-
Fort Stewart, GA. Again, under CBSA designations there are no urban
hospitals within that CBSA. For FY 2006 and FY 2007, we used the
average wage indexes of all of the urban areas within the State to
serve as a reasonable proxy for the urban area without specific
hospital wage index data in determining the SNF PPS wage index for that
urban CBSA. In the FY 2008 proposed rule, we proposed to continue this
approach for urban areas without specific hospital wage index data.
Therefore, we would calculate the wage index for urban CBSA (25980)
Hinesville-Fort Stewart, GA as the average wage index of all urban
areas in Georgia. We received no comments on this particular aspect of
the proposed rule, and we will continue to use the approach that we
adopted in FYs 2006 and 2007.
We are finalizing the wage index and associated policies as
proposed for the SNF PPS for FY 2008. In addition, we note that we plan
to evaluate any policies adopted in the FY 2008 IPPS final rule that
affect the wage index, including how we treat certain New England
hospitals under Sec. 601(g) of the Social Security Amendments of 1983
(Pub. L. 98-21).
4. Updates to the Federal Rates
In accordance with section 1888(e)(4)(E) of the Act as amended by
section 311 of the BIPA, the payment rates in this final rule reflect
an update equal to the full SNF market basket, estimated at 3.3
percentage points. We will continue to disseminate the rates, wage
index, and case-mix classification methodology through the Federal
Register before the August 1 that precedes the start of each succeeding
fiscal year.
5. Relationship of RUG-III Classification System to Existing Skilled
Nursing Facility Level-of-Care Criteria
As discussed in Sec. 413.345, we include in each update of the
Federal payment rates in the Federal Register the designation of those
specific RUGs under the classification system that represent the
required SNF level of care, as provided in Sec. 409.30. This
designation reflects an administrative presumption under the refined
RUG-53
[[Page 43424]]
classification system that beneficiaries who are correctly assigned to
one of the upper 35 of the RUG-53 groups on the initial 5-day,
Medicare-required assessment are automatically classified as meeting
the SNF level of care definition up to and including the assessment
reference date on the 5-day Medicare required assessment.
A beneficiary assigned to any of the lower 18 groups is not
automatically classified as either meeting or not meeting the
definition, but instead receives an individual level of care
determination using the existing administrative criteria. This
presumption recognizes the strong likelihood that beneficiaries
assigned to one of the upper 35 groups during the immediate post-
hospital period require a covered level of care, which would be
significantly less likely for those beneficiaries assigned to one of
the lower 18 groups.
In this final rule, we continue the designation of the upper 35
groups for purposes of this administrative presumption, consisting of
the following RUG-53 classifications: All groups within the
Rehabilitation plus Extensive Services category; all groups within the
Ultra High Rehabilitation category; all groups within the Very High
Rehabilitation category; all groups within the High Rehabilitation
category; all groups within the Medium Rehabilitation category; all
groups within the Low Rehabilitation category; all groups within the
Extensive Services category; all groups within the Special Care
category; and, all groups within the Clinically Complex category.
6. Example of Computation of Adjusted PPS Rates and SNF Payment
Using the hypothetical example of SNF XYZ described in Table 10,
the following shows the adjustments made to the Federal per diem rate
to compute the provider's actual per diem PPS payment. SNF XYZ's total
PPS payment would equal $29,758. The Labor and Non-labor columns are
derived from Table 6.
Table 10.--RUG-53 SNF XYZ: Located in Cedar Rapids, IA (Urban CBSA 16300) Wage Index: 0.8852
--------------------------------------------------------------------------------------------------------------------------------------------------------
Wage Adj. Percent Medicare
RUG Group Labor index Labor Non-Labor Adj. Rate Adj Days Payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
RVX........................................................... $320.13 0.8852 $283.38 $136.21 $419.59 $419.59 14 $5,874.00
RLX........................................................... 220.55 0.8852 195.23 93.84 289.07 289.07 30 8,672.00
RHA........................................................... 222.00 0.8852 196.51 94.46 290.97 290.97 16 4,656.00
CC2........................................................... 188.18 0.8852 166.58 80.07 246.65 562.36* 10 5,624.00
IA2........................................................... 125.44 0.8852 111.04 53.37 164.41 164.41 30 4,932.00
......... ......... ......... ......... ......... ......... 100 29,758.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Reflects a 128 percent adjustment from section 511 of the MMA.
C. The Skilled Nursing Facility Market Basket Index
Section 1888(e)(5)(A) of the Act requires the establishment of a
SNF market basket index (input price index) that reflects changes over
time in the prices of an appropriate mix of goods and services included
in the SNF PPS. We are incorporating into this final rule updated
projections based on the latest available projections at the time of
publication. Accordingly, we have developed a 2004-based SNF market
basket index that encompasses the most commonly used cost categories
for SNF routine services, ancillary services, and capital-related
expenses. A detailed discussion of our proposal to revise and rebase
the SNF market basket appears in section IV. of the FY 2008 proposed
rule (72 FR 25540-25554, May 4, 2007), and our response to the comments
that we received on this proposal appears in section III.D of this
final rule.
Comment: Several commenters asked us to develop an adjustment to
the SNF PPS that would prospectively adjust for forthcoming major
program and policy changes, such as the increase in the Federal minimum
wage, that affect Medicare reimbursement to affected providers. They
state that the market basket update factor for the SNF PPS will not
reflect the increase in costs associated with the Federally-mandated
minimum wage increase.
Response: We do not agree with the commenter's suggestion to make
additional adjustments to the market basket update factor to account
for the increase in the minimum wage. The update factor is based on the
Global Insight, Inc. (GII) second quarter 2007 (2007q2) forecast with
historical data through the first quarter of 2007 (2007q1) for this
final rule. GII is a nationally recognized economic and financial
forecasting firm that contracts with CMS to forecast the components of
CMS's market baskets. Accordingly, the SNF market basket forecast
already reflects inflationary pressures, including those associated
with increases in the minimum wage.
Use of the Skilled Nursing Facility Market Basket Percentage
Section 1888(e)(5)(B) of the Act defines the SNF market basket
percentage as the percentage change in the SNF market basket index, as
described in the previous section, from the average of the prior fiscal
year to the average of the current fiscal year. For the Federal rates
established in this final rule, we use the percentage increase in the
SNF market basket index to compute the update factor for FY 2008. We
use the Global Insight, Inc. (GII, formerly DRI-WEFA), 1st quarter 2007
(2007q2) forecasted percentage increase in the FY 2004-based SNF market
basket index for routine, ancillary, and capital-related expenses,
described in the previous section, to compute the update factor.
Finally, as discussed previously in section I.A. of this final rule, we
no longer compute update factors to adjust a facility-specific portion
of the SNF PPS rates, because the initial three-phase transition period
from facility-specific to full Federal rates that started with cost
reporting periods beginning in July 1998 has expired.
2. Market Basket Forecast Error Adjustment
As discussed in the June 10, 2003, supplemental proposed rule (68
FR 34768) and finalized in the August 4, 2003, final rule (68 FR
46067), the regulations at 42 CFR 413.337(d)(2) currently provide for
an adjustment to account for market basket forecast error. The initial
adjustment applied to the update of the FY 2003 rate for FY 2004, and
took into account the cumulative forecast error for the period from FY
2000 through FY 2002. Subsequent adjustments in succeeding FYs take
into account the forecast error from the most recently available fiscal
year for which there is final data, and apply whenever the difference
between the forecasted and actual change in the market basket exceeds a
0.25 percentage point threshold.
[[Page 43425]]
As discussed in section I.F.2. of the FY 2008 proposed rule (72 FR
25530), in order to help distinguish between the significant forecast
errors that gave rise to this policy initially and the far more typical
minor variances that have consistently occurred in each of the
succeeding years (which we view as an inherent aspect of this type of
statistical measurement), we proposed to raise the 0.25 percentage
point threshold for forecast error adjustments under the SNF PPS to 0.5
percentage point, effective with FY 2008. We invited comments on
various aspects of this issue, including the proposed effective date.
As also discussed in that section, the proposed payment rates for FY
2008 did not include a forecast error adjustment, as the difference
between the estimated and actual amounts of increase in the market
basket index for FY 2006 (the most recently available fiscal year for
which there is final data) does not exceed the proposed 0.5 percentage
point threshold.
Comment: Several commenters expressed concern about the proposal to
raise the forecast error threshold percentage from 0.25 percentage
point to 0.5 percentage point. Some commenters suggested maintaining
the 0.25 percentage point threshold. Some commenters stated that we
should delay the implementation of a higher threshold. Other commenters
maintained that every forecast error, however small, should be
corrected, and that the effect of using any threshold would build over
time, resulting in increasing inaccuracies in the rates. One commenter
added that the existence of any minimum threshold for triggering the
adjustment forces SNFs to face inflation with inadequate payment
levels. Another commenter did not support making adjustments on an
automatic basis--particularly when coupled with automatic market basket
increases--but agreed that such adjustments, when made, should focus on
correcting major errors.
Response: For FY 2004, CMS applied a one-time, cumulative forecast
error correction of 3.26 percent (68 FR 46036). Since that time, the
forecast errors have been relatively small and clustered near zero. We
believe the forecast error correction should be applied only when the
forecast error in any given year reflects a percentage such that the
SNF PPS base payment rate does not adequately reflect the historical
price changes faced by SNFs. We believe that a threshold of 0.5 percent
represents an appropriate amount to draw a distinction between the kind
of exceptional, unanticipated major increases in wages and benefits
that initially gave rise to this policy, and the more typical minor
variances that are inherent in statistical measurements. The 0.5
percentage point threshold for triggering a forecast error adjustment
represents an amount that is sufficiently high to screen out these
expected minor variances in a projected statistical methodology, while
at the same time appropriately serving to trigger an adjustment in
those instances where it is clear that the historical price changes are
not being adequately reflected, as was the case with the initial,
cumulative 3.26 percent adjustment. We believe the existing 0.25
percentage point threshold is too low for this purpose, as values that
only slightly exceed it may still inappropriately capture the minor
variations that are inherently associated with measuring statistics.
Moreover, our experience suggests that the forecast errors are
relatively small, and generally clustered around zero.
MedPAC analysis suggests that freestanding SNFs (which represent
more than 80 percent of all SNFs) have received Medicare payments that
exceed costs by 10.8 percent or more since 2001, and margins are
projected to be 11 percent in 2007. In the March 2007 MedPAC report,
MedPAC stated that SNF payments appear more than adequate.
We believe that raising the threshold from 0.25 percentage point to
0.5 percentage point effective for the FY 2008 SNF PPS and subsequent
years furthers our overarching Medicare integrity objective of paying
the appropriate amount at the right time. By delaying the
implementation, we would continue to pay for minor variations which
would further delay accurate payment.
Moreover, we continue to believe that the forecast error adjustment
mechanism should appropriately be reserved for the type of major,
unexpected change that initially gave rise to this policy, rather than
the minor variances that are a routine and inherent aspect of this type
of statistical measurement. We note that the objections to the proposed
higher threshold primarily concerned its projected effect specifically
on payment in the coming year rather than the appropriate role of a
forecast error adjustment in general. However, we believe that delays
in implementing changes are usually justified by establishing that
immediate implementation would result in severe short-term hardship--
for example, due to inadequate lead time to prepare for an
administratively complex change. We note that we delayed the effective
date of case-mix refinements from October 1, 2005, until January 1,
2006 for precisely that reason (see the FY 2006 final rule at 70 FR
45034, August 4, 2005); however, no such conditions apply with regard
to the revised forecast error adjustment threshold. Further, we believe
that the industry's continued strong profit margins (in the
neighborhood of 10 percent) should help to dampen any potential short-
term financial effects of immediate implementation. Therefore, we will
use the 0.5 percentage point threshold to determine whether a forecast
error adjustment is appropriate, effective for FY 2008 and subsequent
years. We note, as we did in our original proposal of the forecast
error adjustment methodology (68 FR 34769), that this threshold is
applied uniformly: Not only in those instances where the forecasted
percent change is lower than the actual percent change (as has been the
case up to this point under the SNF PPS), but also in those instances
where the forecasted percent change is higher than the actual percent
change. We [further] note that the latter circumstance would result in
SNFs receiving lower than expected payments.
3. Federal Rate Update Factor
Section 1888(e)(4)(E)(ii)(IV) of the Act requires that the update
factor used to establish the FY 2008 Federal rates be at a level equal
to the full market basket percentage change. Accordingly, to establish
the update factor, we determined the total growth from the average
market basket level for the period of October 1, 2006 through September
30, 2007 to the average market basket level for the period of October
1, 2007 through September 30, 2008. Using this process, the market
basket update factor for FY 2008 SNF Federal rates is 3.3 percent. We
use this update factor to compute the Federal portion of the SNF PPS
rate shown in Tables 2 and 3.
D. Revising and Rebasing the Skilled Nursing Facility Market Basket
Index
As discussed in greater detail in section IV. of the FY 2008
proposed rule (72 FR 25541-25555), we proposed to make a number of
changes in connection with the SNF market basket. We proposed to update
the base year from FY 1997 to FY 2004, and to update the market basket
inputs as well. In addition, we proposed using Medicare-allowable total
cost data to derive the market basket cost weights. This represented a
change from the existing policy of using total facility cost data. We
also proposed to create two new cost categories: Professional liability
insurance and postage.
[[Page 43426]]
Comment: One commenter supported the rebasing and revising of the
SNF market basket, but suggested that it should occur more frequently.
Response: Typically, we rebase and revise the market basket about
every five years, as we have found that the cost weights do not change
substantially between one year and the next. However, we will continue
to monitor the appropriateness of the SNF market basket and rebase more
frequently if necessary.
Comment: Several commenters suggested that we treat the market
basket methodology in this year's final rule as an interim methodology.
They asserted that a full 60 days to analyze the data and prepare
comments was not available due to the CMS data set problems. Similarly,
they argued that CMS would have only a short time to analyze and react
to the comments. They added that viewing the proposed market basket
methodology as an interim methodology would give CMS and other
stakeholders the opportunity over the next year to further refine and
improve the market basket component methodologies and the wage price
proxies for the SNF setting without locking in the methodology for
several years. Further, they proposed that the nursing home industry
and CMS should agree to revisit the cost reports to improve their
utility for a future revision of the market basket.
Response: We do not agree with the commenters who asserted that a
full 60 days was not available to analyze the proposed market basket
methodology and that, therefore, we should publish an interim final
rule rather than a final rule. In fact, the FY 2008 proposed rule
included a detailed discussion of our proposal, and the ``CMS data set
problems'' that these commenters cite pertain solely to the SNF
Medicare cost report (MCR) public use files that we posted on the CMS
Web site. These public use files, in turn, are not an integral part of
the proposal itself, but merely represent an additional package of
customized technical information that we provide in an effort to
accommodate the industry. We agree that we should continually review
the market basket methodologies, including alternative methodologies
proposed by the various stakeholders. However, we believe that it is
necessary to rebase the market basket to reflect the changes in the
average SNF's cost structure from 1997 to 2004, as well as to revise
the market basket to reflect more appropriate, industry-specific price
proxies (such as the blended compensation and chemical price proxies).
We believe our current Medicare-allowable methodology, now adjusted to
include an estimate of Medicaid drug expenses (as explained in more
detail below), represents the best available technical methodology at
this time. However, we will continue to work with the industry
stakeholders and consider their suggestions for improvements to further
refine and revise our market basket methodology, as appropriate. We
also welcome suggestions from the SNF community on how the SNF Medicare
cost report forms can be improved to better capture data needed for the
market basket rebasing and revising process.
Comment: Several commenters stated that if CMS's ``total allowable
cost'' methodology is utilized, either nursing labor costs for the
entire facility should be included in the computation for the nursing
labor weight, or labor costs for the support service departments should
only include the portion allocated to the SNF unit and ancillary cost
centers (after step-down).
Response: The labor costs for the support service departments (as
reported in the general service cost centers, otherwise referred to as
``overhead cost centers'') did reflect only the portion allocated to
the SNF unit and ancillary cost centers (i.e., Medicare-allowable cost
centers). Specifically, we calculated overhead salaries attributable to
the non-Medicare allowable departments by multiplying the ratio of
total overhead salaries to total facility salaries by total non-
Medicare allowable salaries. The Medicare-allowable wages and salary
cost weight prior to excluding these non-Medicare allowable overhead
salaries was one percentage point higher.
Comment: Several commenters requested that rather than using the
proposed CMS total allowable Medicare cost methodology for the
calculation of the pharmacy weight of the market basket, we should
review, replicate, analyze, and adopt the commenter's alternative
Medicare-specific reimbursable pharmacy cost methodology. They noted
that the proposed pharmaceutical methodology assumes that total
pharmaceutical costs for the facility are captured by the cost reports,
and claimed this is not accurate, because the vast majority of nursing
facility patients consists of dual-eligibles whose FY 2004
pharmaceutical costs were directly reimbursed by Medicaid. Nursing
facilities did not submit Medicaid claims for these pharmaceuticals
because such claims were submitted by the dispensing local pharmacies
instead.
Response: We acknowledge the commenters' point that Medicaid drug
expenses are not represented in the Medicare-allowable drug cost
weight. Further, we note that with the exception of drug expenses, all
of the other cost category weights reflect all payers, including
Medicaid. This is because the MCR does not specifically break out
Medicare expenses by cost category (i.e., salaries, benefits, contract
labor), but rather, reports costs for all patients, regardless of
payer. In view of this, we have adjusted drug expenses and total
expenses to include an estimate of total Medicaid drug costs. (For
purposes of recalculating the market basket weights, because we added
Medicaid drug expenses--which are not reported in the MCR--into the
drug costs, we then added those same Medicaid drug expenses into the
market basket total costs.) We believe this is technically appropriate
and achieves greater consistency, as all of the other cost weights
already reflect Medicaid-related expenses. As a result of adjusting the
market basket to include an estimate for Medicaid drug expenses, we
have revised all of the cost weights in the proposed 2004-based SNF
market basket.
Our estimate of Medicaid drug expenses is based on the average
Medicaid drug expense per day times the number of Medicare-allowable
Medicaid days (as reported on the MCR). We examined two primary data
sources to derive the average Medicaid drug expense per beneficiary per
day: The Medicare Analytic Extract (MAX) data and the Medicare Current
Beneficiary Survey (MCBS) data. The MAX data is a set of person-level
data files on Medicaid eligibility, service utilization, and payments
extracted from the Medicaid Statistical Information System (MSIS). The
MCBS is a survey of a representative sample of the Medicare population
that CMS conducts through a contract with Westat, Inc.
To calculate the institutionalized Medicaid drug costs per
beneficiary per day from the MAX data, we used a nationally-
representative sample of records of Medicaid drug costs for nursing
home residents for 2003 during their institutionalizations. We summed
the records and then divided by the number of resident days to produce
a cost per day estimate. We then extrapolated this result by the PPI
for prescription drugs to obtain a 2004 institutionalized Medicaid drug
cost per beneficiary per day estimate of $13.65.
We also calculated a community-based Medicaid drug cost per
beneficiary per day estimate from the
[[Page 43427]]
MCBS data. First, we took a community-based Medicaid drug cost per
capita estimate from 2002 (adjusted for under-reporting as described in
the Health Care Financing Review article ``Reporting of Drug
Expenditures in the MCBS,'' Volume 25, page 23) and converted it to a
cost per day measure. We then adjusted the cost per day figure to add
Medicaid drug rebates back into the estimate. Finally, we extrapolated
this result by the PPI for prescription drugs to produce a 2004
community-based Medicaid drug cost per beneficiary per day estimate of
$9.41. As the MCBS does not capture drug expenditures for beneficiaries
while they are institutionalized, we used the drug cost per beneficiary
per day estimate generated from the MCBS ($9.41) as a consistency check
for the estimate that we derived from the MAX data.
The adjusted pharmaceutical cost weight, representing drug
expenditures for all patients (Medicare, Medicaid, and private payer),
is 7.894 percent. This is more than twice as large as the proposed
pharmaceutical cost weight of 3.209 percent. The inclusion of Medicaid
drugs into the 2004 market basket total costs has an impact on all of
the cost weights and, therefore, the 2004-based cost weights presented
in Table 12 reflect all of the revised cost weights. We did not make
any methodological changes to any of the individual cost category
weights, except those made to the drug cost weight described above.
As additional drug data becomes available (such as Medicare Part D
drug data), we will analyze how this data may affect our estimates of
Medicare and Medicaid drug costs for institutionalized dually-eligible
Medicare and Medicaid beneficiaries and how these estimates may affect
the weights for the SNF market basket.
Comment: Several commenters requested that we adopt a Medicare-
specific market basket methodology. This methodology relies on the
ratio of Medicare to total days and cost-to-charge ratios to derive the
Medicare-specific cost weights.
Response: Ideally, we would prefer to construct a market basket
that is specific to the treatment of Medicare beneficiaries. We are
uncertain whether the use of cost-to-charge ratios to develop Medicare-
specific cost category weights is a technically-viable option at this
time. We will continue to research and examine the feasibility and
appropriateness of using cost-to-charge ratios to develop a Medicare-
specific market basket. We believe our proposed Medicare-allowable
methodology reflects the cost structures of SNFs serving Medicare
beneficiaries.
Comment: Several commenters recommended that we reexamine and
reconsider the alternative CMS cost-to-charge ratio-based methodology
for the calculation of the pharmacy component of the market basket. We
had cited the inconsistencies between the cost-to-charge ratios of
freestanding and hospital-based SNFs as the reason for not adopting
this alternative method. The commenters contended that the primary
reason for this difference is related to the allocation of overhead.
Response: As stated in the proposed rule, we explored alternative
methods for calculating the SNF market basket drug cost weight.
Specifically, we researched the viability of calculating a Medicare-
specific drug cost weight based on Medicare drug costs as a percent of
Medicare total costs. In the proposed rule, we inadvertently misstated
the explanation of the methodology used to calculate Medicare drugs.
The non-salary, non-overhead costs from the Drugs Charged to Patients
cost center was not multiplied by the cost-to-charge ratio as stated in
the proposed rule. Rather, these latter costs were multiplied by the
ratio of Medicare charges to total charges. Following publication of
the proposed regulation, we published the detailed formula on the CMS
Web site, at http://www.cms.hhs.gov/SNFPPS/Downloads/IndustryData.zip.
We continue to believe our proposed Medicare-allowable methodology
adjusted to include an estimate of Medicaid drugs is the best available
technical methodology to develop the pharmaceutical cost weight. As
stated above, we are reluctant to rely on cost-to-charge ratios to
develop cost weights. This is especially true for the pharmaceutical
cost weight, given the difference between the freestanding and
hospital-based facilities' overhead cost-to-charge ratios for the Drugs
Charged to Patient Cost center. It is possible that the difference
between the hospital-based and freestanding SNF cost-to-charge ratios
is the result of overhead allocation and, therefore, we plan to
continue to examine this area.
Comment: Several commenters suggested that we continue efforts to
identify and develop more appropriate and accurate price indexes for
tracking price changes in the SNF setting, particularly as they relate
to SNF wages and salaries, benefits, professional liability insurance,
and capital.
Response: We agree with the commenters' suggestion and plan to
continually monitor the appropriateness of the price proxies used in
all of the CMS market baskets, including the one for SNFs.
Comment: One commenter recommended that we revise our approach to
the capital weight.
Response: Although the commenter was not specific about which
capital cost-weight methodology we should revise, we assume based on
other comments from the industry that the commenter was referring to
the interest cost weight methodology and the use of Worksheet A, line
53 of the SNF Medicare cost report (MCR). The MCR instructions do not
specify which interest expenses are reported in that cost center.
Although some of these interest expenses could represent non-capital-
related expenses, we believe that the majority of the interest expenses
reported in this line are capital-related. We are unable to find any
alternative data sources for capital-related interest expenses.
We did research the feasibility of developing a capital-related
interest cost weight based on the depreciation cost weight (which comes
directly from the MCR). To develop the alternative interest cost
weight, we first determined separate interest schedules (that is, the
interest expenses for each year over the useful life of an asset) for
fixed and movable equipment. We constructed these interest schedules
(which included both not-for-profit and for-profit debt) by multiplying
the weighted averages of the average yield for Moody's AAA Corporate
Bonds and the average yield for Municipal Bonds from the Bond Buyer
Index by a fixed asset amount. We then calculated separate accumulated
depreciation schedules for fixed and movable equipment. The accumulated
depreciation schedules reflected the different useful lives of fixed
versus movable equipment (22 and 9 years) and a double-declining
balance method, a generally accepted depreciation practice. For each
year, for both fixed equipment and moveable equipment, we calculated an
interest-to-depreciation expense ratio. We then averaged these ratios
over the useful life period. Next, we weighted the average interest-to-
depreciation ratios for fixed and movable equipment by the fixed and
movable equipment split (derived from the MCR), to create a final
weighted ratio. We then multiplied this ratio by the depreciation cost
weight to produce an interest cost weight. The result was a capital-
related interest cost weight of 2.88, less than 0.3 percentage points
different from our proposed methodology of 2.59. We note that the
capital-related interest cost weight presented in Table 13 of the FY
2008 SNF proposed rule (72 FR 25544)
[[Page 43428]]
reflected interest expenses with allocated leasing expenses.
We also determined an average interest-to-depreciation expense
ratio using depreciation expenses based on a straight-line depreciation
method, also a generally accepted depreciation practice. This resulted
in an interest cost weight of 3.51, which is almost one percentage
point higher than our proposed interest cost weight of 2.59.
Given that our current methodology uses the MCR, our lack of other
data sources, and the variability of our alternative methodology
results, we believe our current methodology is the most technically
appropriate methodology for calculating the capital-related interest
cost weight. Therefore, we are adopting our proposed methodology to
derive the capital-related interest cost weight.
As stated in the proposed rule, we researched the feasibility and
appropriateness of using the ratio of total ancillary costs (that is,
therapy and non-therapy ancillary costs) to routine costs to develop
the movable equipment vintage weights (72 FR 25546). We found that
incorporating therapy costs was somewhat problematic because of the
dramatic decrease in therapy expenses between 1998 and 1999. Therapy
ancillary costs decreased approximately 40 percent from 1998 to 1999--a
likely impact of implementation of the SNF PPS. However, we still
believe that the vintage weights should reflect therapy equipment
purchases and, therefore, we are going to adopt the use of this ratio
of total ancillary costs to total routine costs as the proxy for
changes in intensity of SNF services that would cause SNFs to purchase
movable equipment. We believe the drop in therapy expenses from 1998 to
1999 does not necessarily indicate a drop in movable equipment
purchases, but rather, reflects other behavioral changes as a result of
the then-new Medicare policies enacted in the BBA. As a result, we are
going to begin incorporating the data on a best percent change-basis
beginning with 2000 data. (The best percent change-basis method
involves several steps. First, we apply the percent change of the ratio
of total ancillary to routine costs for 2000 to the ratio of non-
therapy ancillary to routine costs for 1999. Then, we apply the 2001
percent change of the ratio of total ancillary costs to routine costs
to the 2000 ratio produced in Step 1. We then repeat this latter step
for the 2002 through 2004 time period.) Again, we believe it is
necessary to incorporate therapy costs into the vintage weight
methodology in order to reflect therapy equipment purchases. The
revision to the movable equipment vintage weights in the nine-year
useful life period due to the incorporation of therapy costs does not
exceed one-hundredth of a percentage point. Below is a table presenting
the vintage weights for 2004-based SNF PPS capital-related price
proxies, including the revised moveable-equipment vintage weights.
Table 11.--Vintage Weights for 2004-Based SNF PPS Capital-Related Price
Proxies
------------------------------------------------------------------------
Building
and fixed Movable
Year equipment Interest
equipment
------------------------------------------------------------------------
1...................................... 0.078 0.136 0.039
2...................................... 0.073 0.155 0.039
3...................................... 0.071 0.134 0.04
4...................................... 0.066 0.080 0.04
5...................................... 0.06 0.077 0.042
6...................................... 0.05 0.092 0.043
7...................................... 0.046 0.102 0.045
8...................................... 0.042 0.105 0.047
9...................................... 0.037 0.120 0.049
10..................................... 0.034 ......... 0.052
11..................................... 0.035 ......... 0.055
12..................................... 0.037 ......... 0.057
13..................................... 0.037 ......... 0.058
14..................................... 0.036 ......... 0.057
15..................................... 0.035 ......... 0.054
16..................................... 0.035 ......... 0.054
17..................................... 0.035 ......... 0.055
18..................................... 0.036 ......... 0.056
19..................................... 0.037 ......... 0.057
20..................................... 0.039 ......... 0.059
21..................................... 0.04 ......... .........
22..................................... 0.042 ......... .........
--------------------------------
Total.............................. \*\1.000 \*\1.000 \*\1.000
------------------------------------------------------------------------
Sources: 2004 SNF Medicare Cost Reports; CMS.
\*\ Note: Totals may not sum to 1.000 due to rounding.
Comment: One commenter suggested that we reconsider our policy of
using only data from freestanding SNFs to calculate the SNF market
basket. The commenter recommended that we apply a percentage,
proportionate to hospital-based SNFs' percentage of total cost, of the
actual costs experienced by hospital-based SNFs.
Response: While the commenter was not more specific in what was
being sought, we believe the commenter is suggesting that CMS develop
separate cost weights for hospital-based and freestanding SNFs, and
then combine them together (based upon hospital-based SNFs' and
freestanding SNFs' share of total SNF costs) to create a unified set of
SNF cost weights.
As stated in the proposed rule (72 FR 25542, May 4, 2007), we
maintain our policy of using data from freestanding SNFs because
freestanding SNF data reflect the actual cost structure faced by the
SNF itself. In contrast, expense data for a hospital-based SNF reflect
the allocation of overhead over the entire institution. Due to this
method of allocation, total expenses will be correct, but the
individual components' expenses may be skewed. If data from hospital-
based SNFs were included, the resultant cost structure might be
unrepresentative of the costs that we believe a typical SNF
experiences.
Table 12 presents the final 2004-based SNF Market Basket Index.
BILLING CODE 4120-01-P
[[Page 43429]]
[GRAPHIC] [TIFF OMITTED] TR03AU07.004
BILLING CODE 4120-01-C
[[Page 43430]]
Each year, we calculate a revised labor-related share based on the
relative importance of labor-related cost categories in the input price
index. Table 13 summarizes the updated labor-related share for FY 2008,
which is based on the final rebased and revised SNF market basket.
[GRAPHIC] [TIFF OMITTED] TR03AU07.005
Note: In Table 17 of the proposed rule (72 FR 25549), the cost
weights for the for-profit and not-for-profit interest were
inadvertently mislabeled. The for-profit interest cost weight was
displayed as the not-for-profit cost weight. We have corrected this
in the final rule, and the 2004-based SNF market basket update
factor reflects this revision.
E. Consolidated Billing
As established by section 4432(b) of the BBA, the consolidated
billing requirement places with the SNF the Medicare billing
responsibility for virtually all of the services that the SNF's
residents receive, except for a small number of services that the
statute specifically identifies as being excluded from this provision.
Section 103 of the BBRA amended this provision by further excluding a
number of high-cost, low probability services (identified by Healthcare
Common Procedure Coding System (HCPCS) codes) within several broader
categories that otherwise remained subject to the provision. Section
313 of the BIPA further amended this provision by repealing its Part B
aspect, that is, its applicability to services furnished to a resident
during a SNF stay that Medicare does not cover. (However, physical and
occupational therapy, and speech-language pathology services remain
subject to consolidated billing, regardless of whether the resident who
receives these services is in a covered Part A stay.) In addition,
section 313 of the BIPA specified that consolidated billing applies
only to services furnished to those individuals residing in an
institution (or portion of an institution) that is actually certified
by Medicare as a SNF. Further, as noted in section I.E. of this final
rule, section 410 of the MMA revised the SNF consolidated billing
requirement as it relates to certain services furnished on or after
January 1, 2005, by rural health clinics (RHCs) and Federally qualified
health centers (FQHCs).
To date, the Congress has enacted no further legislation affecting
the consolidated billing provision. However, as we noted in the April
10, 2000 proposed rule (65 FR 19232), section 1888(e)(2)(A)(iii) of the
Act, as added by section 103 of the BBRA, not only identified for
exclusion from this provision a number of particular service codes
within four specified categories (that is, chemotherapy items,
chemotherapy administration services, radioisotope services, and
customized prosthetic devices), but `` * * * also gives the Secretary
the authority to designate additional, individual services for
exclusion within each of the specified service categories.'' In the FY
2001 proposed rule, we also noted that the BBRA Conference Report (H.R.
Conf. Rep. No. 106-479 at 854) characterizes the individual services
that this legislation targets for exclusion as ``* * * high-cost, low
probability events that could have devastating financial impacts
because their costs far exceed the payment [SNFs] receive under the
prospective payment system * * *.'' According to the conferees, section
103(a) ``is an attempt to exclude from the PPS certain services and
costly items that are provided infrequently in SNFs * * *.'' By
contrast, we noted that the Congress declined to designate for
exclusion any of the remaining services within those four categories
(thus leaving all of those services subject to SNF consolidated
billing), because they are relatively inexpensive and are furnished
routinely in SNFs.
As we further explained in the July 31, 2000 final rule (65 FR
46790), any additional service codes that we might designate for
exclusion under our discretionary authority must meet the same criteria
that the Congress used in identifying the original codes excluded from
consolidated billing under section 103(a) of the BBRA: They must fall
within one of the four service categories specified in the BBRA, and
they also must meet the same standards of high cost and low probability
in the SNF setting. Accordingly, we characterized this statutory
authority to identify additional service codes for exclusion ``* * * as
essentially affording the flexibility to revise the list of excluded
codes in response to changes of major significance that may occur over
time (for example, the development of new medical technologies or other
advances in the state of medical practice)'' (65 FR 46791). In view of
the amount of time that has elapsed since we last invited comments on
this issue, we invited public comments in the FY 2008 SNF PPS proposed
rule on codes in any of these four service categories which represent
recent medical advances that might meet the BBRA criteria for exclusion
from SNF consolidated billing (72 FR 25556).
Comment: In response to our invitation in the proposed rule, some
[[Page 43431]]
commenters submitted lists of additional chemotherapy codes that they
recommended for exclusion from consolidated billing.
Response: We note that the law (at section 1888(e)(2)(A)(iii)(II)
of the Act) describes the chemotherapy code ranges that the BBRA
identified for exclusion in terms of the version of the HCPCS codes
that was in existence ``as of July 1, 1999.'' In the SNF PPS final rule
for FY 2006 (70 FR 45048, August 4, 2005), we reiterated our belief
that the authority granted by the BBRA to identify additional codes for
exclusion within this category was ``* * * essentially affording the
flexibility to revise the list of excluded codes in response to changes
of major significance that may occur over time (for example, the
development of new medical technologies or other advances in the state
of medical practice)'' (emphasis added). Accordingly, we view this
discretionary authority as applying only to codes that were created
subsequent to that point, and not to those codes that were in existence
as of July 1, 1999. A review of the particular chemotherapy codes that
commenters submitted in response to the proposed rule's invitation
revealed that one of the codes, J9180 (Epirubicin hydrochloride (HCL),
50 mg), has been discontinued as of December 31, 2003 (we note that
J9178 (Epirubicin HCL, 2 mg), a currently-existing code for the same
medication in a different quantity, is in fact excluded). Another code
that commenters submitted, J9219 (Leuprolide acetate implant, 65 mg),
is a hormonal agent which is clinically analogous to other existing
codes that have not been designated for exclusion; moreover, as this
drug is used in treating the commonly-occurring condition of prostate
cancer, we believe that it is unlikely to meet the criterion of ``low
probability'' specified in the BBRA. Moreover, the rest of the codes
that commenters submitted were themselves already in existence as of
July 1, 1999, but did not fall within the specific code ranges
statutorily designated for exclusion in the BBRA. As the statute does
not specifically exclude these already-existing codes, we are not
adding them to the exclusion list.
Comment: Although the FY 2008 SNF PPS proposed rule specifically
invited comments on possible exclusions within the particular service
categories identified in the BBRA legislation, a number of commenters
took this opportunity to reiterate concerns about other aspects of
consolidated billing. For example, some commenters reiterated past
suggestions that we unbundle additional service categories, such as
specialized wound care procedures (including hyperbaric oxygen therapy)
and ambulance services.
Response: As we have consistently stated (see, for example, the SNF
PPS final rule for FY 2006, at 70 FR 45049 (August 4, 2005)), the BBRA
authorizes us to identify additional services for exclusion only within
those particular service categories--chemotherapy and its
administration; radioisotope services; and, customized prosthetic
devices--that it has designated for this purpose, and does not give us
the authority to create additional categories of excluded services
beyond those specified in the law. Accordingly, as the particular
services that these commenters recommended for exclusion do not fall
within one of the specific service categories designated for this
purpose in the statute itself, these services remain subject to
consolidated billing.
Comment: Other commenters took this opportunity to revisit the
existing set of administrative exclusions for certain high-intensity
outpatient hospital services under the regulations in 42 CFR
411.15(p)(3)(iii), and once again expressed the view that these
exclusions should not be limited to only those services that actually
occur in the hospital setting, but rather, should also encompass
services performed in other, non-hospital settings as well. As
examples, they cited services such as magnetic resonance imaging (MRIs)
and computerized axial tomography (CT) scans furnished in freestanding
imaging centers, and radiation therapy furnished in physicians' clinics
or ambulatory care centers, all of which may be less expensive and more
accessible in certain particular localities (such as rural areas) than
those furnished by hospitals. A few commenters additionally described
certain instances in which MRIs and CT scans failed to qualify for
exclusion even when they actually did occur in the hospital setting,
because the hospital chose to have them performed under contract with
an independent supplier that submitted the Medicare bill.
Response: We believe the comments that reflect previous suggestions
for expanding this administrative exclusion to encompass services
furnished in non-hospital settings indicate a continued
misunderstanding of the underlying purpose of this provision. As we
have consistently noted in response to comments on this issue in
previous years (most recently, in the SNF PPS final rule for FY 2006 at
70 FR 45049 (August 4, 2005)), and as also explained in Medicare
Learning Network (MLN) Matters article SE0432 (available online at
http://www.cms.hhs.gov/MLNMattersArticles/downloads/SE0432.pdf), the
rationale for establishing this exclusion was to address those types of
services that are so far beyond the normal scope of SNF care that they
require the intensity of the hospital setting in order to be furnished
safely and effectively. Moreover, we note that in the legislative
history accompanying the MMA, the Conferees characterized these
exclusions as specifically limited to ``* * * certain outpatient
services from a Medicare-participating hospital or critical access
hospital * * *'' (emphasis added). (See the House Ways and Means
Committee Report (H. Rep. No. 108-178, Part 2 at 209), and the
Conference Report (H. Conf. Rep. No. 108-391 at 641).) Therefore, these
services are excluded from SNF consolidated billing only when furnished
in the outpatient hospital or CAH setting, and not when furnished in
other, freestanding (non-hospital or non-CAH) settings.
Further, this underlying concept of service intensity also affects
the manner in which a hospital can involve another entity in the actual
performance of an excluded outpatient hospital service. Sections
1832(a)(2)(B) and 1861(s)(2)(C) of the Act authorize a hospital to
furnish outpatient diagnostic procedures under arrangements with
another entity; moreover, MRIs or CT scans that are furnished in this
manner are excluded from SNF consolidated billing, and would be
separately billable by the hospital under Part B. However, in order for
the hospital's ``arrangement'' with the other entity to be a valid one,
the hospital cannot act merely as a billing conduit, but must actually
exercise professional responsibility and control over the arranged-for
service, as specified in the guidelines on arrangements that appear in
the CMS Internet-Only Manual, Pub. 100-1, Chapter 5, section 10.3,
available online at http://www.cms.hhs.gov/Manuals/IOM/list.asp.
Therefore, in a situation where the other, non-hospital entity assumes
the Medicare billing role, a valid arrangement between the hospital and
that entity would no longer exist, so that the hospital effectively
relinquishes its professional responsibility and control over the
service to the other entity. In this situation, because the service is
no longer being furnished by the hospital itself--either directly, or
under a valid arrangement with another entity--it would not qualify for
the administrative exclusion from consolidated billing as a high-
intensity outpatient hospital service, and the
[[Page 43432]]
billing responsibility for the service would remain with the SNF.
Comment: Some other commenters reiterated previous suggestions on
expanding the existing chemotherapy exclusion to encompass related
drugs that are commonly administered in conjunction with chemotherapy
in order to treat the side effects of the chemotherapy drugs. The
commenters cited examples such as anti-emetics (anti-nausea drugs) and
erythropoietin (EPO).
Response: As we have noted previously in this final rule and in
response to comments on this issue in the past (most recently, in the
SNF PPS final rule for FY 2006 at 70 FR 45049 (August 4, 2005)), the
BBRA authorizes us to identify additional services for exclusion only
within those particular service categories--chemotherapy and its
administration; radioisotope services; and, customized prosthetic
devices--that it has designated for this purpose, and does not give us
the authority to exclude other services which, though they may be
related, fall outside of the specified service categories themselves.
Thus, while anti-emetics, for example, are commonly administered in
conjunction with chemotherapy, they are not themselves inherently
chemotherapeutic in nature and, consequently, do not fall within the
excluded chemotherapy category designated in the BBRA. With regard to
EPO, we additionally note that among the service categories that
section 1888(e)(2)(A)(ii) of the Act already specifies as being
excluded from SNF consolidated billing are items and services described
in section 1861(s)(2)(O) of the Act--that is, those items and services
that meet the requirements for coverage under the separate Part B EPO
benefit. This means that the scope of coverage under the Part B EPO
benefit effectively serves as well to determine the scope of the EPO
exclusion under the consolidated billing provision. However, section
1861(s)(2)(O) of the Act, in turn, specifically limits coverage under
this benefit to EPO that is furnished to dialysis patients, and does
not provide for coverage in any other, non-dialysis situations such as
chemotherapy.
Comment: Another commenter indicated that we should make it
``financially feasible'' for patients to receive dialysis that is
performed at bedside in the SNF, either by a dialysis facility or by
the SNF itself--presumably, by expanding the consolidated billing
provision's existing dialysis exclusion to encompass such services.
Response: As with the EPO services discussed above, the Part B
dialysis services described in section 1861(s)(2)(F) of the Act are
included among the service categories that section 1888(e)(2)(A)(ii) of
the Act specifies as being excluded from SNF consolidated billing. Once
again, this means that the scope of coverage under the Part B dialysis
benefit effectively serves as well to determine the scope of the
dialysis exclusion under the consolidated billing provision. Thus, the
commenter's suggestion regarding the further unbundling of dialysis
services actually represents a request to expand existing coverage
under the Part B dialysis benefit, an issue that is beyond the scope of
this final rule.
Comment: An additional commenter recommended that we exclude
Reclast, a new osteoporosis drug that is administered via a once-yearly
infusion. The commenter noted that several of the criteria (such as
high cost, infrequent use, and inelastic demand) that historically have
served to identify certain exceptionally intensive outpatient hospital
services for exclusion would apply to Reclast as well, but also
indicated that while the Food and Drug Administration (FDA) approved
Reclast for the treatment of Paget's disease in April 2007, it has not
yet announced its determination regarding the use of this drug in
treating osteoporosis.
Response: We note that even if the FDA were to grant Reclast
approval for this additional application, excluding such osteoporosis
drugs from consolidated billing cannot be accomplished administratively
under our existing authority. As we have noted previously, the BBRA's
existing authority for excluding certain ``high-cost, low probability''
services from SNF consolidated billing applies solely to the types of
services specified in the legislation itself (see, for example, the
discussion in the SNF PPS final rule for FY 2006 (70 FR 45048, August
4, 2005)). With regard to drugs, this authority would encompass only
the categories of chemotherapy and radioisotope services. As
osteoporosis drugs such as Reclast do not fall within either of those
two categories, we cannot administratively exclude them under this
authority as it is currently constituted. Moreover, we again note that
the outpatient hospital exclusion that the commenter cited applies
exclusively to those types of services that are so far beyond the
normal scope of SNF care plans as to require the intensity of the
hospital setting in order to be furnished safely and effectively; by
contrast, it would be medically feasible to administer drugs such as
Reclast in the SNF itself.
Further, in contrast to the SNF PPS, we note that in the context of
Medicare's home health benefit, the statute specifically addresses the
treatment of osteoporosis drugs under a PPS. For purposes of the home
health PPS, section 1861(kk) of the Act provides Part B coverage for
injectable osteoporosis drugs, and section 4603(c)(2) of the BBA
specifically amended section 1833(a)(2) of the Act to make such drugs
separately payable outside the home health PPS's bundled payment for an
episode of care. Accordingly, we believe that in terms of the SNF PPS,
excluding drugs such as Reclast from the bundled per diem payment would
require a similar statutory framework--first, to establish Part B
coverage specifically for those osteoporosis drugs that are
administered through infusion rather than injection, and additionally,
to exclude such drugs from the SNF PPS's bundled per diem payment.
F. Application of the SNF PPS to SNF Services Furnished by Swing-Bed
Hospitals
In accordance with section 1888(e)(7) of the Act as amended by
section 203 of the BIPA, Part A pays CAHs on a reasonable cost basis
for SNF services furnished under a swing-bed agreement, as indicated in
sections I.A. and I.D. of this final rule. However, effective with cost
reporting periods beginning on or after July 1, 2002, the swing-bed
services of non-CAH rural hospitals are paid under the SNF PPS. As
explained in the final rule for FY 2002 (66 FR 39562, July 31, 2001),
we selected this effective date consistent with the statutory provision
to integrate non-CAH swing-bed rural hospitals into the SNF PPS by the
end of the SNF transition period, June 30, 2002.
Accordingly, all non-CAH swing-bed rural hospitals have come under
the SNF PPS as of June 30, 2003. Therefore, all rates and wage indexes
outlined in this final rule for the SNF PPS also apply to all non-CAH
swing-bed rural hospitals. A complete discussion of assessment
schedules, the MDS and the transmission software (Raven-SB for Swing
Beds) appears in the final rule for FY 2002 (66 FR 39562, July 31,
2001). The latest changes in the MDS for non-CAH swing-bed rural
hospitals appear on our SNF PPS Web site, http://www.cms.hhs.gov/snfpps.
We received no comments on this aspect of the proposed rule.
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IV. Provisions of the Final Rule
In this final rule, we are adopting the provisions as set forth in
the May 4, 2007 proposed rule, with one change. We are changing our
approach to the calculation of the market basket's pharmaceutical cost
weight by including an adjustment for Medicaid drug expenditures, as
discussed in section III.D of this final rule.
In addition, as noted previously in section I.A of this final rule,
we are taking this opportunity to make a technical correction in the
regulations text. The correction involves Sec. 409.30(a)(2), which
originally stipulated that in order for a hospital stay to qualify a
beneficiary for coverage of posthospital SNF care, discharge from the
hospital stay must occur in or after the month that the beneficiary
becomes eligible for ``hospital insurance benefits''--the statutory
term for Medicare Part A. However, on May 26, 1993 (58 FR 30666), we
made a global revision of the word ``hospital'' in this provision and
elsewhere in the regulations by adding a reference to rural primary
care hospitals (RPCHs), and in the process, we inadvertently revised
the term ``hospital insurance benefits'' in this section so that it
incorrectly read ``hospital or RPCH insurance benefits.'' When RPCHs
subsequently became known as critical access hospitals (CAHs), we once
again made a global revision in order to revise ``RPCH'' to read
``CAH'' wherever it appeared (62 FR 46037, August 29, 1997), so that
this term now incorrectly reads ``hospital or CAH insurance benefits.''
In this final rule, we are revising the regulations text at Sec.
409.30(a)(2) in order to restore the original, correct wording of this
term, which is ``hospital insurance benefits.''
V. Waiver of Proposed Rulemaking
Regarding the technical correction to Part 409 of the regulations
that we discuss in the preceding section, we note that we would
ordinarily publish a notice of proposed rulemaking in the Federal
Register to provide a period for public comment before a revision in
the regulations text would take effect; however, we can waive this
procedure if we find good cause that a notice and comment procedure is
impracticable, unnecessary, or contrary to the public interest and
incorporate a statement of the finding and its reasons in the notice
issued. We find it unnecessary to undertake notice and comment
rulemaking in connection with this particular revision, as it merely
provides a technical correction to the regulations, without making any
substantive changes. Therefore, for good cause, we waive notice and
comment procedures for the revision that we are making to the
regulations text in Part 409.
VI. Collection of Information Requirements
This document does not impose any information collection and
recordkeeping requirements. Consequently, it need not be reviewed by
the Office of Management and Budget under the authority of the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501).
VII. Regulatory Impact Analysis
A. Overall Impact
We have examined the impacts of this final rule as required by
Executive Order 12866 (September 1993, Regulatory Planning and Review),
the Regulatory Flexibility Act (RFA, Pub. L. 96-354, September 16,
1980), section 1102(b) of the Social Security Act (the Act), the
Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L. 104-4), and
Executive Order 13132.
Executive Order 12866 (as amended by Executive Order 13258, which
only reassigns responsibility of duties) directs agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). A
regulatory impact analysis (RIA) must be prepared for major rules with
economically significant effects ($100 million or more in any one
year). This final rule is major, as defined in Title 5, United States
Code, section 804(2), because we estimate the impact of the standard
update will be to increase payments to SNFs by approximately $690
million.
The update set forth in this final rule would apply to payments in
FY 2008. Accordingly, the analysis that follows describes the impact of
this one year only. In accordance with the requirements of the Act, we
will publish a notice for each subsequent FY that will provide for an
update to the payment rates and include an associated impact analysis.
The RFA requires agencies to analyze options for regulatory relief
of small businesses. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and government agencies.
Most SNFs and most other providers and suppliers are small entities,
either by their nonprofit status or by having revenues of $11.5 million
or less in any one year. For purposes of the RFA, approximately 53
percent of SNFs are considered small businesses according to the Small
Business Administration's latest size standards, with total revenues of
$11.5 million or less in any one year (for further information, see 65
FR 69432, November 17, 2000). Individuals and States are not included
in the definition of a small entity. In addition, approximately 29
percent of SNFs are nonprofit organizations.
This final rule updates the SNF PPS rates published in the update
notice for FY 2007 (71 FR 43158, July 31, 2006) and the associated
correction notice (71 FR 57519, September 29, 2006), thereby increasing
aggregate payments by an estimated $690 million. As indicated in Table
14 of this final rule, the effect on facilities will be an aggregate
positive impact of 3.3 percent. We note that some individual providers
may experience larger increases in payments than others due to the
distributional impact of the FY 2008 wage indexes and the degree of
Medicare utilization. While this final rule is considered major, its
overall impact is extremely small; that is, less than 3 percent of
total SNF revenues from all payor sources.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 603 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 100 beds. Because the increase in
SNF payment rates set forth in this final rule also applies to rural
non-CAH hospital swing-bed services, we believe that this final rule
would have a positive fiscal impact on non-CAH swing-bed rural
hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation. That threshold
level is currently approximately $120 million. This final rule would
not have a substantial effect on State, local, or tribal governments,
or on private sector costs.
Executive Order 13132 establishes certain requirements that an
agency must meet when it issues regulations that impose substantial
direct requirement costs on State and local governments, preempts State
law, or otherwise has Federalism implications.
[[Page 43434]]
As stated above, this final rule would have no substantial effect on
State and local governments.
B. Anticipated Effects
This final rule sets forth updates of the SNF PPS rates contained
in the update notice for FY 2007 (71 FR 43158, July 31, 2006) and the
associated correction notice (71 FR 57519, September 29, 2006). Based
on the above, we estimate the FY 2008 impact will be a net increase of
$690 million in payments to SNF providers. The impact analysis of this
final rule represents the projected effects of the changes in the SNF
PPS from FY 2007 to FY 2008. We estimate the effects by estimating
payments while holding all other payment variables constant. We use the
best data available, but we do not attempt to predict behavioral
responses to these changes, and we do not make adjustments for future
changes in such variables as days or case-mix.
We note that certain events may combine to limit the scope or
accuracy of our impact analysis, because such an analysis is future-
oriented and, thus, very susceptible to forecasting errors due to other
changes in the forecasted impact time period. Some examples of such
possible events include new legislation requiring funding changes to
the Medicare program, or legislative changes that specifically affect
SNFs. In addition, changes to the Medicare program may continue to be
made as a result of the BBA, the BBRA, the BIPA, the MMA, or new
statutory provisions. Although these changes may not be specific to the
SNF PPS, the nature of the Medicare program is such that the changes
may interact, and the complexity of the interaction of these changes
could make it difficult to predict accurately the full scope of the
impact upon SNFs.
In accordance with section 1888(e)(4)(E) of the Act, we update the
payment rates for FY 2008 by a factor equal to the full market basket
index percentage increase to determine the payment rates for FY 2008.
The special AIDS add-on established by section 511 of the MMA remains
in effect until ``* * * such date as the Secretary certifies that there
is an appropriate adjustment in the case mix * * *.'' We have not
provided a separate impact analysis for the MMA provision. As noted
previously in section I.E of this final rule, FY 2006 data indicate
that there are less than 2,600 SNF residents overall with a principal
or secondary diagnosis of 042 (HIV Infection). The impact to Medicare
is included in the ``total'' column of Table 14. In updating the rates
for FY 2008, we made a number of standard annual revisions and
clarifications mentioned elsewhere in this final rule (for example, the
update to the wage and market basket indexes used for adjusting the
Federal rates). These revisions increase payments to SNFs by
approximately $690 million.
The impacts are shown in Table 14. The breakdown of the various
categories of data in the table follows.
The first column shows the breakdown of all SNFs by urban or rural
status, hospital-based or freestanding status, and census region.
The first row of figures in the first column describes the
estimated effects of the various changes on all facilities. The next
six rows show the effects on facilities split by hospital-based,
freestanding, urban, and rural categories. The urban and rural
designations are based on the location of the facility under the CBSA
designation. The next twenty-six rows show the effects on urban versus
rural status by census region.
The second column in the table shows the number of facilities in
the impact database.
The third column of the table shows the effect of the annual update
to the wage index. This represents the effect of using the most recent
wage data available. The total impact of this change is zero percent;
however, there are distributional effects of the change.
The fourth column shows the effect of all of the changes on the FY
2008 payments. The market basket increase of 3.3 percentage points is
constant for all providers and, though not shown individually, is
included in the total column. It is projected that aggregate payments
will increase by 3.3 percent in total, assuming facilities do not
change their care delivery and billing practices in response. As can be
seen from this table, the combined effects of all of the changes vary
by specific types of providers and by location. For example, though
facilities in the rural Outlying region receive no change in payment,
some providers (such as those in the urban Outlying region) show a
significant increase of 9.6 percent. Payment increases for facilities
in the urban Outlying area of the country are the highest for any
provider category. However, we note that as there are only a small
number of providers in both the rural and urban Outlying areas, changes
to just a few providers can have a large impact on the region as a
whole.
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C. Accounting Statement
As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf
), in Table 15 below, we
have prepared an accounting statement showing the classification of the
expenditures associated with the provisions of this final rule. This
table provides our best estimate of the change in Medicare payments
under the SNF PPS as a result of the policies in this final rule based
on the data for 15,271 SNFs in our database. All expenditures are
classified as transfers to Medicare providers (that is, SNFs).
Table 15.--Accounting Statement: Classification of Estimated
Expenditures, From the 2007 SNF PPS Rate Year to the 2008 SNF PPS Rate
Year (in Millions)
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers......... $690
From Whom To Whom?..................... Federal Government to SNF
Medicare Providers.
------------------------------------------------------------------------
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D. Alternatives Considered
Section 1888(e) of the Act establishes the SNF PPS for the payment
of Medicare SNF services for cost reporting periods beginning on or
after July 1, 1998. This section of the statute prescribes a detailed
formula for calculating payment rates under the SNF PPS, and does not
provide for the use of any alternative methodology. It specifies that
the base year cost data to be used for computing the SNF PPS payment
rates must be from FY 1995 (October 1, 1994, through September 30,
1995.) In accordance with the statute, we also incorporated a number of
elements into the SNF PPS, such as case-mix classification methodology,
the MDS assessment schedule, a market basket index, a wage index, and
the urban and rural distinction used in the development or adjustment
of the Federal rates. Further, section 1888(e)(4)(H) of the Act
specifically requires us to disseminate the payment rates for each new
fiscal year through the Federal Register, and to do so before the
August 1 that precedes the start of the new fiscal year. Accordingly,
we are not pursuing alternatives with respect to the payment
methodology as discussed above.
Because we have determined that this final rule will have a
significant impact on SNFs, we will discuss the alternatives we
considered. We reviewed the options considered in the proposed rule and
took into consideration comments received during the public comment
period as discussed in the preamble.
The final rule raises the threshold for triggering a forecast error
adjustment under the SNF PPS from the current 0.25 percentage point to
0.5 percentage point, effective for FY 2008 and subsequent years.
However, as discussed in sections I.F.2 and III.B of the FY 2008
proposed rule, we also considered a higher threshold for the forecast
error adjustment (up to 1.0 percentage point), as well as delaying
implementation of this change until FY 2009. Recalibrating the
specified threshold for a forecast error adjustment from 0.25
percentage point to 0.5 percentage point should help to distinguish
between the major forecast errors that gave rise to this policy
initially and the far more typical minor variances that occur in a
projected statistical measurement. We believe that raising the
threshold from 0.25 percentage point to 0.5 percentage point for FY
2008 and subsequent years furthers our overarching Medicare integrity
objective of paying the appropriate amount at the right time.
This final rule also revises and rebases the SNF Market Basket. As
an alternative, we could have considered delaying rebasing and/or
revising the market basket. However, we believe that it is necessary to
rebase the market basket to reflect the changes in the average SNF's
cost structure from 1997 to 2004, as well as to revise the market
basket to reflect more appropriate, industry-specific price proxies
(such as the blended compensation and chemical price proxies). We
believe our current Medicare-allowable methodology, adjusted to include
an estimate of Medicaid drug expenses, represents the best available
technical methodology at this time.
E. Conclusion
Overall, estimated payments for SNFs in FY 2008 are projected to
increase by 3.3 percent compared with those in FY 2007. We estimate
that SNFs in urban areas would experience a 3.1 percent increase in
estimated payments compared with FY 2007. We estimate that SNFs in
rural areas would experience a 4.3 percent increase in estimated
payments compared with FY 2007. Facilities in the rural Outlying region
are the only providers that do not experience a payment increase,
payments for these facilities remain the same. This is due to the
changes in the wage index compared to FY 2007. Facilities in the urban
Outlying region show the largest payment increase, 9.6 percent. We did
not receive public comments on the impact analysis methodology.
Finally, in accordance with the provisions of Executive Order
12866, this regulation was reviewed by the Office of Management and
Budget.
List of Subjects in 42 CFR Part 409
Health facilities, Medicare.
0
For the reasons set forth in the preamble, the Centers for Medicare &
Medicaid Services amends 42 CFR chapter IV as follows:
PART 409--HOSPITAL INSURANCE BENEFITS
0
1. The authority citation for part 409 continues to read as follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
Subpart D--Requirements for Coverage of Posthospital SNF Care
Sec. 409.30 [Amended]
0
2. In Sec. 409.30(a)(2), the term ``hospital or CAH insurance
benefits'' is revised to read ``hospital insurance benefits''.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare-Hospital Insurance Program; and No. 93.774, Medicare-
Supplementary Medical Insurance Program)
Dated: July 18, 2007.
Leslie V. Norwalk,
Acting Administrator, Centers for Medicare & Medicaid Services.
Dated: July 24, 2007.
Michael O. Leavitt,
Secretary.
Note: The following addendum will not appear in the Code of
Federal Regulations.
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[FR Doc. 07-3784 Filed 7-31-07; 4:00 pm]
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