The Administrative Law Judge (ALJ) issued a decision dated January 24, 2002. Evansville Manor, a skilled nursing facility (SNF), has asked the Medicare Appeals Council to review this action. The Council grants the request for review because the ALJ's decision is not supported by substantial evidence and is based on an error of law. See 20 C.F.R. �� 404.967 and 404.970, incorporated by reference in 42 C.F.R. � 405.724.

Because this decision is fully favorable to the appellant and all other parties, the Council has not issued a separate notice granting the request for review.

This case involves SNF services provided to the beneficiary by Evansville Manor from November 19 to December 31, 1999. Payment for these services is governed by the rules of the Medicare prospective payment system for skilled nursing facilities (SNF PPS). ⁽¹⁾

Before discussing the facts of this case, we briefly describe relevant elements of the SNF PPS. These elements are set forth in greater detail in a May 12, 1998, interim final rule and in a July 30, 1999, final rule promulgated by the Centers for Medicare & Medicaid Services (CMS). See 63 Fed. Reg. 26252 (May 12, 1998); 64 Fed. Reg. 41644 (July 30, 1999).

1. The SNF Prospective Payment System

Under the PPS, a SNF is paid at prospective per diem rates that cover the costs of providing covered SNF services to a beneficiary. The SNF PPS is a case-mix payment system. This means that the Medicare's per diem payment for SNF services furnished to a particular beneficiary is tied in large measure to the amount and intensity of care and services required by the beneficiary.

To determine the appropriate per diem payment rate for a given period of SNF care, a beneficiary is assigned to 1 of 44 resource utilization groups, or RUGs. These 44 RUGs are divided into 7 categories -- rehabilitation, extensive services, special care, clinically complex, impaired cognition, behavior only, and reduced physical functioning. See 63 Fed. Reg. 26257. The rehabilitation category includes 14 RUGs, each representing a different level of intensity measured by the total minutes of therapy received per week, the patient's activities of daily living (ADL) score, the number of different types of therapy received, and the number of days on which a particular type of therapy is received. See 63 Fed. Reg. 26262, 26263.

RUG classifications are based on data obtained from periodic resident assessments and reported in the Minimum Data Set (MDS). ⁽²⁾ Assessments of a resident must be completed according to a prescribed schedule -- that is, on or by the 5^th, 14^th, 30^th, 60^th, and 90^th days after admission to the SNF. ⁽³⁾ Any assessment performed after the initial 5-day assessment may result in a RUG classification change. When rehabilitation therapy (e.g., physical or occupational therapy) is completely discontinued but the patient continues to require skilled care, the SNF must perform an Other Medicare Required Assessment (OMRA), which always results in the patient's reassignment from a rehabilitation RUG to a non-rehabilitation RUG. See 63 Fed. Reg. 26266; 64 Fed. Reg. 41656.

The RUG to which a resident is assigned as a result of an assessment becomes the basis for calculating the per diem rate for the payment days to which that assessment applies. The relationship between assessments and payment days is set forth in a table in the May 12, 1998, interim final rule, which we partially reproduce below. (Note: the "assessment reference date," shown in the second column, is the last day of the observation period for the assessment.)

As the table shows, the results of the 5-day assessment are used to establish the payment rate for days 1 through 14 of the patient's stay in the SNF. Similarly, the results of the 14-day assessment are used to establish the payment rate for days 15 through 30. The payment rate applicable to a given payment day is the rate that corresponds to the pertinent RUG (as adjusted by other, facility-specific factors, such as the facility's geographic location).

2. Case Background

As indicated, the payment period at issue in this case is November 19, 1999, (the date of the beneficiary's admission to Evansville Manor) to December 31, 1999. The facility performed 5-day, 14-day, and 30-day assessments, as well as a OMRA, during this period. Based on the 5-day, 14-day, and 30-day assessments, the facility assigned the beneficiary to "very high rehabilitation" RUGs ("RVB" and "RVA"). Treatment records confirm that the beneficiary received physical and occupational therapy from November 19 to December 17, 1999. The OMRA was performed following the cessation of therapy. Based on the OMRA, Evansville Manor assigned the beneficiary to a "clinically complex" RUG effective December 26, 1999.

Evansville Manor submitted a bill to Medicare requesting payment based on the very high rehabilitation and clinically complex RUGs. The following table lists each RUG (as billed to Medicare), the assessment on which the RUG assignment was based, and the payment days corresponding to each assignment:

Initially, the fiscal intermediary (FI) made full payment based on the RUGs shown on Evansville Manor's bill (and in the above table). The FI later rescinded its payment for the December dates of service based on a finding that a physician had not recertified the beneficiary's need for SNF services during that month. See Exhs. 1 (at 2-3) and 5. Evansville Manor appealed this payment denial to the ALJ. Exh. 6.

In his decision, the ALJ determined that Evansville Manor had in fact obtained a physician recertification for the December 1999 dates of service. See ALJ Decision at 4. The ALJ then proceeded to consider whether the beneficiary had received sufficient minutes of therapy (during the relevant 7-day observation periods) to be placed in the "very high rehabilitation" RUGs -- RVB and RVA -- shown on its claim for payment. To be assigned to these RUGs, a SNF resident must be receiving at least 500 therapy minutes per week. See 63 Fed. Reg. 26258. The ALJ found that the beneficiary had received the following minutes of therapy during the relevant 7-day observation periods:

Based on his findings that the beneficiary had received fewer than 500 minutes of therapy during the observation periods associated with the 5-day and 14-day assessments, the ALJ determined that Evansville Manor had assigned the beneficiary to an incorrect RUG for the December payment days covered by those assessments. Accordingly, the ALJ directed the FI to pay Evansville Manor at the rates corresponding to "high rehabilitation" RUGs (RHB and RHA) instead of at the higher rates corresponding to the "very high rehabilitation" RUGS (RVB and RVA). ⁽⁴⁾ ALJ Decision at 5. The ALJ also determined that because all therapy had ceased on December 17, 1999, no payment could be made based on a rehabilitation RUG for any days after December 18, 1999 (the end of the observation period for the 30-day assessment). Id. He therefore directed the FI to make payment at the rate corresponding to a "clinically complex" RUG (CA1) for the period December 19 to December 31, 1999. Id.

As a preliminary matter, we find that a physician had adequately recertified the beneficiary's need for SNF services for the month in question (December 1 to December 31, 1999), as required by 42 C.F.R. � 424.20. See Exh. 8; CMS Program Memorandum A-01-29. Accordingly, we adopt the ALJ's finding in favor of Evansville Manor on that issue.

Turning to the PPS rate issue, Evansville Manor asserts in the request for review that the ALJ's therapy minute calculations are erroneous and that the beneficiary had been correctly assigned to the "very high rehabilitation" RUGs (RVB and RVA) as a result of the 5-day, 14-day, and 30-day assessments. We agree and, for the reasons below, find that the Evansville Manor is entitled to payment at the rates corresponding to the RUGs shown on its claim for payment.

Contrary to the ALJ's finding, the treatment logs for the observation periods associated with the 5-day and 14-day assessments indicate that the beneficiary received more than 500 minutes during each observation period. In particular, for the November 17 to November 23, 1999, observation period, the beneficiary received 255 minutes of physical therapy and 255 minutes of occupational therapy, a total of 510 minutes. We arrived at the same total for the November 26 to December 2, 1999, observation period. As for the December 12 to December 18 observation period, the ALJ found -- and we concur -- that the beneficiary received more than 500 minutes of therapy during that period. Because the beneficiary received more than 500 therapy minutes during these observation periods, Evansville Manor properly sought payment based on the "very high rehabilitation" RUGs (RVB and RVA).

The ALJ erred in finding that no payment could be made based on a rehabilitation RUG after December 18, 1999. As noted above, when rehabilitation therapy (e.g., physical or occupational therapy) is completely discontinued but the patient continues to require skilled care, the SNF must perform an Other Medicare Required Assessment (OMRA), which will always result in the patient's reassignment from a rehabilitation to a non-rehabilitation RUG. See 63 Fed. Reg. 26266; 64 Fed. Reg. 41656.

The OMRA's "assessment reference date," is the last day of the observation period for that assessment. This date must be no earlier than 8 days and no later than 10 days after the conclusion of all rehabilitative therapy. 63 Fed. Reg. 26266. This timing ensures that no therapy minutes will be captured on the OMRA, and that the beneficiary's new classification will be into one of the non-therapy RUG groups. 64 Fed. Reg. 41656.

Unless the OMRA serves to replace one of the regularly scheduled assessments (e.g., the 14-day or 30-day assessment), the rate change reflecting the discontinuation of therapy occurs on the assessment reference date of the OMRA, and not on the date of the cessation of therapy. ⁽⁵⁾ 64 Fed. Reg. 41656. This means that for the days between the cessation of rehabilitative therapy and the assessment reference date of the OMRA, the applicable payment rate is the rate corresponding to the RUG that the beneficiary was in on the day that therapy ceased.

In this case, after therapy ceased on December 17, Evansville Manor performed an OMRA, which resulted in the beneficiary's reclassification from the very high rehabilitation RUG to the clinically complex RUG. The OMRA did not replace a regularly scheduled assessment. Accordingly, the rate change corresponding to the reclassification became effective on the assessment reference date of the OMRA. The assessment reference date of the OMRA was December 26, 1999, according to the FI's records. See Exh. 1 at 2. Consequently, for eight days after the discontinuance of therapy (December 18 to December 25, 1999), Evansville Manor was entitled to payment at the rate corresponding to the very high rehabilitation RUG.

CMS's rulemaking emphasizes that, if the beneficiary remains in the SNF through the eighth day following the discontinuation of rehabilitative therapy, there must be some clinical reason for the continued stay that is supported by the medical record. 64 Fed. Reg. 41656. We concur in the ALJ's conclusion that a continued stay for "clinically complex" skilled nursing care was reasonable and necessary through December 31, 1999. Based on the foregoing findings, we conclude that Evansville Manor's bill, as originally submitted to the FI, was based on correct RUG classifications for the payment days in question. These classifications and payment days are the ones shown in the table on page four of this decision.

It is the decision of the Medicare Appeals Council that, for the period December 1 to December 31, 1999, Evansville Manor is entitled to Medicare payment at the rates corresponding to the RUGs identified in its claim for payment.

Date: June 28, 2004

M. Susan Wiley
Administrative Appeals Judge

Bruce P. Gipe
Administrative Appeals Judge

1. The SNF PPS became effective for reporting periods beginning on July 1, 1998. See 63 Fed. Reg. 26252.

2. The MDS is a standard tool for communicating information about the resident's clinical conditions, use of services, and functional status.

3. The rules provide for a grace period allowing completion of the 5-day assessment by the 8^th day of the stay. See 63 Fed. Reg. 26265.

4. In particular, the ALJ ordered payment for December 1 and 2, 1999 (days covered by the 5-day assessment) at the RHB level, and for December 3-18,1999 (days covered by the 14-day assessment) at the RHA level. ALJ Dec. at 5.

5. The OMRA will replace a regularly scheduled assessment if it is performed within the range of days that may be used as the assessment reference date for the regularly scheduled assessment. See 63 Fed. Reg. 26267. If the OMRA is deemed to replace a regularly scheduled assessment, the rate change occurs on the first day of the payment period for a regularly scheduled assessment if that day is earlier than the assessment reference date for the OMRA. See CMS Program Memorandum A-01-124.