[Federal Register: July 30, 1999 (Volume 64, Number 146)]
[Rules and Regulations]
[Page 41643-41683]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30jy99-25]
[[Page 41643]]
_______________________________________________________________________
Part III
Department of Health and Human Services
_______________________________________________________________________
Health Care Financing Administration
_______________________________________________________________________
42 CFR Parts 409, 411, 413, and 489
Medicare Program; Prospective Payment System and Consolidated Billing
for Skilled Nursing Facilities--Update; Final Rule and Notice
[[Page 41644]]
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Parts 409, 411, 413, and 489
[HCFA-1913-F]
RIN 0938-AI47
Medicare Program; Prospective Payment System and Consolidated
Billing for Skilled Nursing Facilities
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule responds to comments submitted by the public
on our May 12, 1998 interim final rule, that implemented provisions in
section 4432 of the Balanced Budget Act of 1997 regarding Medicare
payment for skilled nursing facility services. This legislation
established a prospective payment system, a consolidated billing
provision, and a number of related changes.
EFFECTIVE DATE: These regulations are effective on September 28, 1999.
FOR FURTHER INFORMATION CONTACT:
Dana Burley, (410) 786-4547 (for information related to the case-mix
classification methodology).
John Davis, (410) 786-0008 (for information related to the Federal
rates).
Jackie Gordon, (410) 786-4517 (for information related to consolidated
billing).
Steve Raitzyk, (410) 786-4599 (for information related to the facility-
specific transition payment rates).
Bill Ullman, (410) 786-5667 (for information related to coverage and
level of care determinations).
Laurence Wilson, (410) 786-4603 (for general information).
SUPPLEMENTARY INFORMATION: To assist readers in referencing sections
contained in this preamble, we are providing the following table of
contents.
Table of Contents
I. Background
A. Payment Provisions--Federal Rate
B. Payment Provisions--Transition Period
C. Payment Provisions--Facility-Specific Rate
D. Consolidated Billing for Skilled Nursing Facilities
II. Provisions of the Interim Final Rule
III. Analysis of and Responses to Public Comments
A. Federal Rates--Outliers/Non-therapy ancillaries (NTAs)
B. Federal Rate Calculation
C. Federal Rates--Part B Add-on
D. Facility-specific Rates-Transition
E. Minimum Data Set (MDS) Assessments
1. Billing Issues
2. Corrections
3. Other Medicare Required Assessment (OMRA)
F. Certification and Recertification
G. MDS Scheduling Requirements
1. Grace Days
2. Completion and Locking
3. Discharge and Leave of Absence
H. Other Medicare MDS Requirements
I. Medical Review
J. Rehabilitation Therapy Services and PPS
K. RUG-III Groups
L. Nurse Staffing and the Staff Time Measurement Studies
M. SNF Coverage and Level of Care Determinations
N. SNF Consolidated Billing
O. Scope of Extended Care Benefits
P. Impact Analysis
IV. Provisions of the Final Regulations
V. Collection of Information Requirements
VI. Impact Analysis
A. Background
B. Impact of this Final Rule
C. Rural Hospital Impact Statement
D. Unfunded Mandates
In addition, because of the many terms to which we refer by acronym
in this rule, we are listing these acronyms and their corresponding
terms in alphabetical order below:
ADLs Activities of daily living
ASC Ambulatory Surgical Center
BBA Balanced Budget Act of 1997
CAH Critical access hospital
CBO Congressional Budget Office
CFR Code of Federal Regulations
CORF Comprehensive Outpatient Rehabilitation Facility
CPI Consumer Price Index
CPI-U Consumer Price Index for All Urban Consumers
CPT [Physicians'] Current Procedural Terminology
DME Durable medical equipment
ESRD End stage renal disease
FI Fiscal intermediary
GAO General Accounting Office
HCFA Health Care Financing Administration
HCPCS HCFA Common Procedure Coding System
HIPPS Health Insurance Prospective Payment System
ICD-9-CM International Classification of Diseases, Ninth Edition,
Clinical Modification
MDS Minimum Data Set
MEDPAR Medicare Provider Analysis and Review File
MGCRB Medicare Geographic Classification Review Board
MIM-3 Medicare Intermediary Manual, Part 3
MRI Magnetic Resonance Imaging
MSA Metropolitan Statistical Area
NHCMQD [Multistate] Nursing Home Case-mix and Quality Demonstration
OBRA 87 Omnibus Budget Reconciliation Act of 1987
OIG Office of the Inspector General
OMRA Other Medicare Required Assessment
PM Program Memorandum
PPS Prospective payment system
PRM Provider Reimbursement Manual
PRO Peer Review Organization
RAI Resident Assessment Instrument
RAPs Resident Assessment Protocols
RUG-III Resource Utilization Groups, version III
SNF Skilled nursing facility
SOM State Operations Manual
STM Staff time measure
I. Background
Section 4432 of the Balanced Budget Act of 1997 (BBA) (Public Law
105-33) mandated the implementation of a per diem prospective payment
system (PPS) for skilled nursing facilities (SNFs), covering all costs
(routine, ancillary, and capital) 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. Major elements of
the system include:
<bullet> Rates: Per diem Federal rates are established for urban
and rural areas using allowable costs from fiscal year (FY) 1995 cost
reports. These rates also include an estimate of the cost of services
that, before July 1, 1998, had been paid under Part B but furnished to
SNF residents during a Part A covered stay. Rates are case-mix adjusted
using a resident classification system (Resource Utilization Groups,
version III (RUG-III)) based on resident assessments (using the Minimum
Data Set (MDS) 2.0). In addition, the Federal rates are adjusted by a
wage index to account for geographic variation in wages. Finally, the
rates will be adjusted annually using an SNF market basket index.
<bullet> Transition: The SNF PPS includes a 3-year transition that
blends a facility-specific payment rate with the Federal case-mix
adjusted rate. The blend that is used changes each cost reporting
period after a facility migrates to the new system. For most
facilities, the facility-specific rate is based on allowable costs from
FY 1995.
<bullet> Coverage: The PPS legislation did not change Medicare's
fundamental statutory requirements for SNF coverage. However, because
RUG-III classification is based, in part, on the resident's need for
skilled nursing care and therapy, we have attempted where possible to
adapt the existing claims review procedures to coordinate them with the
outputs of resident assessment and RUG-III classifying activities, as
discussed later in this preamble.
[[Page 41645]]
<bullet> Consolidated Billing: The statute includes a billing
provision that requires an SNF to submit consolidated Medicare bills
for its residents for virtually all services that are covered under
either Part A or Part B. The statute excludes a small list of services
(primarily those of physicians and certain other types of
practitioners). A related statutory provision requires SNFs to use HCFA
Common Procedure Coding System (HCPCS) coding on all Part B bills, and
specifies that they are to be paid an amount determined in accordance
with the otherwise applicable Part B fee schedule for the particular
item or service.
<bullet> Effective Date: The SNF PPS is effective for cost
reporting periods beginning on or after July 1, 1998. The law provides
that the consolidated billing and coding requirements are effective for
services and items furnished on or after July 1, 1998.
An interim final rule implementing the SNF PPS was published in the
Federal Register on May 12, 1998 (63 FR 26252), and the comment period
was initially scheduled to close on July 13, 1998. A follow-up notice
(63 FR 37498, July 13, 1998) extended the public comment period for an
additional 60 days, and a second notice (63 FR 65561, November 27,
1998) reopened the comment period for another 30 days. In addition, a
correction notice (63 FR 53301, October 5, 1998) made a number of minor
technical and editorial corrections to the interim final rule. We have
also issued several Program Memorandums (PMs) on claims processing and
billing under the SNF PPS that are available on the SNF PPS home page
at the HCFA website on the Internet, at the following location:
<www.hcfa.gov/medicare/snfpps.htm>.
As described in the interim final rule, the BBA requires
implementation of a Medicare SNF PPS for cost reporting periods
beginning on or after July 1, 1998. Under the PPS, SNFs are no longer
paid under the previous, reasonable cost-based system, but rather
through per diem prospective case-mix adjusted payment rates applicable
to all covered SNF services. These payment rates cover all the costs of
furnishing covered skilled nursing services (that is, routine,
ancillary, and capital-related costs) other than costs associated with
approved educational activities. Covered SNF services include
posthospital SNF services for which benefits are provided under Part A
and all items and services that, prior to July 1, 1998, had been paid
under Part B (other than physician and certain other services
specifically excluded under the BBA), but furnished to SNF residents
during a Part A covered stay.
A. Payment Provisions--Federal Rate
The statute sets forth a fairly prescriptive methodology for
calculating the amount of payments under the SNF PPS. 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 system. We
developed the Federal payment rates using allowable costs from
hospital-based and freestanding SNF cost reports during the base year
(that is, for reporting periods that began in FY 1995). The data used
in developing the Federal rates also incorporate an estimate of the
amounts that were paid separately under Part B for covered SNF services
furnished during the base year to individuals who were residents of a
facility and receiving Part A covered services.
In developing the rates, we update costs to the first effective
year of the PPS (15-month period beginning July 1, 1998) using an SNF
market basket index, and standardize for facility differences in case-
mix and for geographic variations in wages. Providers that received
"new provider" exemptions from the routine cost limits are excluded
from the data base used to compute the Federal payment rates. In
addition, costs related to payments for exceptions to the routine cost
limits are excluded from the data base used to compute the Federal
payment rates. In accordance with the formula prescribed in the BBA, we
set the Federal rates at a level equal to a weighted mean of
freestanding costs plus 50 percent of the difference between the
freestanding mean and a weighted mean of all SNF costs (hospital-based
and freestanding) combined. We compute and apply separately payment
rates for facilities located in urban and rural areas.
The Federal rate also incorporates adjustments to account for
facility case-mix using a resident classification system that accounts
for the relative resource utilization of different patient types. This
classification system, RUG-III, uses resident assessment data (from the
MDS) completed by SNFs to assign residents into one of 44 groups. SNFs
complete these assessments according to an assessment schedule
specifically designed for Medicare payment (that is, on the 5th, 14th,
30th, 60th, and 90th days after admission to the SNF).
For Medicare billing purposes, there are specific codes associated
with each of the 44 RUG-III groups, and each assessment applies to
specific days within a resident's SNF stay. SNFs that fail to perform
assessments timely are paid a default payment for the days of a
patient's care for which they are not in compliance with this schedule.
In addition, we adjust the portion of the Federal rate attributable to
wage-related costs by a wage index.
For the initial period of the PPS, beginning on July 1, 1998, and
ending on September 30, 1999, the payment rates were contained in the
interim final rule. For each succeeding fiscal year, we will publish
the rates in the Federal Register before August 1 of the year preceding
the affected Federal fiscal year. Pursuant to section 1888(e)(4)(E)(ii)
of the Social Security Act (the Act), for FY 2000 through 2002, we will
increase the rates each year by a factor equal to the SNF market basket
change minus one percentage point. For subsequent fiscal years, we will
increase the rates by the applicable SNF market basket change.
B. Payment Provisions--Transition Period
Beginning with a provider's first cost reporting period beginning
on or after July 1, 1998, there is a transition period covering three
cost reporting periods. During this transition phase, SNFs receive a
payment rate comprising a blend between the Federal rate and a
facility-specific rate based on each facility's FY 1995 cost report.
Under section 1888(e)(2)(E)(ii) of the Act, SNFs that received their
first payment from Medicare on or after October 1, 1995, receive
payment according to the Federal rates only.
For SNFs subject to the transition, the composition of the blended
rate varies depending on the year of the transition. For the first cost
reporting period beginning on or after July 1, 1998, we make payment
based on 75 percent of the facility-specific rate and 25 percent of the
Federal rate. In the next cost reporting period, the rate consists of
50 percent of the facility-specific rate and 50 percent of the Federal
rate. In the following cost reporting period, the rate consists of 25
percent of the facility-specific rate and 75 percent of the Federal
rate. For all subsequent cost reporting periods, we base payment
entirely on the Federal rate.
C. Payment Provisions--Facility-Specific Rate
For most facilities, we compute the facility-specific payment rate
used for the transition using the allowable costs of SNF services for
cost reporting periods that began in FY 1995 (cost reporting periods
beginning on or after October 1, 1994, and before October 1, 1995).
Included in the facility-specific per diem rate for most facilities is
an
[[Page 41646]]
estimate of the amount that was paid separately under Part B for
covered SNF services furnished during the base year to individuals who
were residents of the facility and receiving Part A covered services.
Under section 1888(e)(3)(A) of the Act, the facility-specific rate (in
contrast to the Federal rates) includes amounts paid to SNFs for
exceptions to the routine cost limits. In addition, we also take into
account "new provider" exemptions from the routine cost limits, but
only to the extent that routine costs do not exceed 150 percent of the
routine cost limit.
We update the facility-specific rate for each cost reporting period
after FY 1995 to the first cost reporting period beginning on or after
July 1, 1998 (the initial period of the PPS) by a factor equal to the
SNF market basket percentage increase minus 1 percentage point. For the
FYs 1998 and 1999, we update this rate by a factor equal to the SNF
market basket increase minus 1 percentage point, and, for each
subsequent year, we update it by the applicable SNF market basket
increase.
D. Consolidated Billing for Skilled Nursing Facilities
Section 4432(b) of the BBA sets forth a consolidated billing
requirement applicable to all SNFs providing Medicare services. SNF
consolidated billing is a comprehensive billing requirement (similar to
the one that has been in effect for inpatient hospital services for
well over a decade), under which the SNF itself is responsible for
billing Medicare for virtually all of the services that its residents
receive. As with hospital bundling, the SNF consolidated billing
requirement does not apply to the services of physicians and certain
other types of medical practitioners. In a related provision, section
4432(b)(3) of the BBA requires the use of fee schedules and uniform
coding specified by the Secretary of Health and Human Services (the
Secretary) for SNF Part B bills. The law provides that these
requirements are effective for services furnished on or after July 1,
1998.
II. Provisions of the Interim Final Rule
In the interim final rule that was published on May 12, 1998, we
made a number of revisions in the regulations in order to implement
both the PPS and the SNF consolidated billing provision and its
conforming statutory changes:
<bullet> With regard to payment, we revised the regulations in 42
CFR part 413, subpart A (that deal with Medicare payment to providers
of services) to reflect the replacement of the existing reasonable cost
reimbursement methodology for SNFs by the new SNF PPS.
<bullet> We revised the regulations to provide that for SNF
residents who are in a covered Part A stay, Medicare makes payment
under the PPS described in new subpart J of part 413, effective with
cost reporting periods beginning on or after July 1, 1998.
<bullet> For SNF residents who are not in a covered Part A stay, we
revised the regulations to provide that Medicare makes payment on the
basis of the otherwise applicable Part B fee schedule amounts,
effective for services furnished on or after July 1, 1998.
<bullet> We made a conforming change in subpart B of part 483
(requirements for long term care facilities) to indicate that the
frequency of resident assessments is subject to the timeframes
prescribed under the SNF PPS in the new subpart J of part 413.
<bullet> We made a number of revisions to implement the
consolidated billing provision, under which the SNF itself has the
Medicare billing responsibility for virtually all of the services that
its residents receive.
<bullet> We revised the regulations in part 410 (payment of
benefits under Part B) to provide that Part B makes payment for these
services to the SNF rather than to the beneficiary. We also made
conforming changes with regard to Part B coverage of certain individual
medical and other health services.
<bullet> We revised part 411 (exclusions from coverage) to exclude
from coverage any service furnished to an SNF resident (other than
certain specified service categories) when billed to Medicare by an
entity other than the SNF itself, and we added a definition of an SNF
"resident" for purposes of this provision.
<bullet> We revised the regulations in subpart B of part 489
(Medicare provider agreements) to add compliance with the consolidated
billing provision to the specific terms of an SNF's provider agreement.
<bullet> We revised subpart C of part 424 (claims for payment) to
require the inclusion of an SNF's Medicare provider number on claims
for physician services furnished to an SNF resident, and the inclusion
of HCPCS coding on an SNF's Part B claims.
<bullet> We made a number of conforming changes in subparts C, D,
and F of part 409 of the regulations which describe, respectively, the
scope of covered SNF benefits under Part A, the criteria for
determining a covered SNF level of care, and benefit period
determinations.
As noted previously, the PPS legislation did not change the basic
statutory definition of an SNF level of care. However, because RUG-III
classification is based, in part, on the resident's need for skilled
nursing care and therapy, our revisions in the level of care criteria
reflected an attempt where possible to coordinate claims review
procedures with the outputs of resident assessment and RUG-III
classifying activities. For example, we believe that an initial 5-day
assessment, properly completed, that places the resident in one of the
upper 26 RUG-III classifications provides the basis for us to assume
that the resident needed a covered level of SNF care upon admission and
at least up until the assessment reference date of the initial
Medicare-required 5-day assessment. We will, however, continue to make
individual review determinations for claims of individuals who classify
in the lower 18 RUG-III categories.
III. Analysis of and Responses to Public Comments
We received almost 500 comments on the SNF PPS interim final rule
published on May 12, 1998 (63 FR 26302). Comments were submitted by
nursing homes and other providers, suppliers and practitioners (both
individually, and through their respective trade associations), State
agencies, nursing home resident advocacy groups, elected officials,
health care consulting firms, and private citizens.
The comments basically fell into three broad areas. The first
involved the payment rates, including treatment of "outlier"
situations and non-therapy ancillaries, calculation of the Federal
rates themselves and of the Part B add-on, and the transition from
facility-specific rates to the Federal rates. The second area concerned
the clinical aspects of the SNF PPS, including MDS assessment and
scheduling requirements, certification and recertification procedures,
medical review criteria, treatment of rehabilitation therapy under the
RUG-III classification system, nurse staffing and staff time
measurement studies, and coverage and level of care determinations. The
third broad area involved the consolidated billing requirement and the
scope of the extended care benefit.
As noted in the interim final rule, because of the large number of
items of correspondence we normally receive on Federal Register
documents published for comment, we are unable to acknowledge or
respond to them individually. In particular, a number of commenters on
the interim final rule raised extremely technical and detailed
questions regarding the MDS and the
[[Page 41647]]
billing process. These questions are of a nature that would more
appropriately be addressed through manual instructions and other
issuances than in these regulations. In this final rule, we are
addressing the general concerns raised by the commenters. A summary of
the major issues and our responses follows:
A. Federal Rates--Outliers/Non-therapy Ancillaries (NTAs)
Comment: We received a number of comments expressing concern over
the ability of the PPS to provide adequate payment for certain outlier
or extraordinary cases. Several of the comments noted specific examples
of these cases, such as HIV-infected patients with significant drug
therapy needs, patients receiving intravenous (IV) drug therapy for
antibiotic-resistant infections, ventilator-dependent patients, or
simply patients with generally high costs. A number of commenters
recommended the adoption of an outlier payment process or exceptions
process to provide higher payments for these cases.
Other comments suggested use of a later base year (for example, FY
1997) or add-on to the rates in order to recognize changes made by
facilities after 1995, the year on which the rates are based. These
commenters argued that many facilities increased the scope of services
provided to beneficiaries and served a higher acuity resident
population after 1995 and, therefore, the costs associated with
providing this higher level of care were not reflected in the
calculation of the Federal rate.
Response: Section 1888(e)(4) of the Act provides specific
requirements related to the formula and cost data to be used in
computing the Federal rates. The statute provides that "the amount of
the payment for all costs * * * of covered skilled nursing facility
services" during the transition period is "equal to" a prescribed
blended payment, and after the transition period is "equal to" the
applicable adjusted Federal per diem rate. The statute does not provide
for additional payments over and above these prescribed amounts. While
the Act includes specific statutory authority for the application of
outlier policies in relation to the acute care hospital PPS (section
1886(d) through (f) of the Act), home health PPS (section 1895 of the
Act), and inpatient rehabilitation PPS (section 1886(j) of the Act), it
does not provide such explicit authority with regard to the SNF PPS.
However, we are concerned about this matter and are pursuing the basic
issue of the accuracy of payments through an examination of the case-
mix classification system.
In addition, the statute mandates use of the FY 1995 cost data in
the development of the payment rates. It should be noted that when the
rates were computed, the FY 1995 data were the latest available to
compute the rates. We believe the Congress took this into consideration
when developing the statutory language related to the computation of
the Federal rates as well as the specific impact of using the 1995 data
on the accumulation of Medicare savings, a key goal of the BBA.
We also note that while the Congress provided for Medicare
budgetary savings through the SNF PPS (which had an obvious downward
effect on the rates), there are numerous reports by the U.S. General
Accounting Office (GAO) and Office of the Inspector General (OIG)
suggesting Medicare payment for SNF ancillary services under cost
reimbursement was inappropriately inflated in the past. If correct,
this would mitigate the impact of the budgetary savings. The OIG
includes an expanded discussion of this concept in a 1998 report on the
SNF PPS titled "Review of the Health Care Financing Administration's
Development of a Prospective Payment System for Skilled Nursing
Facilities" (Number A-14-98-00350).
We understand the concerns expressed in the comments related to
this issue. As discussed in the impact analysis accompanying the
interim final rule, the SNF PPS will have a varying impact on
providers. Because "prices" are based on averages, SNFs should expect
that certain patients cost more than payments and others less. The
extent to which certain facilities can provide quality care, while
incorporating efficiencies in their purchasing of services and
operations, will affect how well they manage under this payment system,
which uses mean-based prices rather than reasonable costs. Financial
performance should, therefore, be determined by looking across each
facility's Medicare population, not on a patient specific comparison of
costs and the payment rate under which the rate would become
essentially a limit.
We will focus our efforts on ensuring that these prices are as
accurate as possible with respect to the resources used by Medicare
beneficiaries. The SNF PPS, through case-mix classification and
adjustment, currently reflects a full range of SNF patient types with
varying characteristics and degrees of resource intensity. Through
research and refinements to the PPS, we will try to ensure that the PPS
not only continues to account for a high level of resource intensity,
but improves in terms of its sensitivity to less common conditions or
patient types. This aspect of our plan is discussed later in the
context of the comments on payment for certain ancillary services.
Comment: There were a number of comments expressing concern with
the adequacy of the PPS rates to cover the costs of ancillary services
other than occupational, physical, and speech therapy (non-therapy
ancillaries), including such things as drugs, laboratory services,
respiratory therapy, and medical supplies. Prescription drugs or
medication therapy were frequently noted areas of concern due to their
potentially high cost for particular residents. Some commenters
suggested that the RUG-III case-mix classification methodology does not
adequately provide for payments that account for the variation in, or
the real costs of, these services provided to their residents. A number
of commenters stated their belief that the payment rates do not
generally reflect the costs of certain of these services (for example,
drugs or respiratory therapy).
Recommendations from commenters included removing all or some of
these services from the PPS rates and continuing to pay for them on a
cost basis, and making changes to the case-mix system and indices to
account for these services more accurately.
Response: We are aware of the challenges certain providers have
faced as they transition from a payment system based on reasonable
costs to one that uses mean-based prices such as the SNF PPS. In fact,
many of the same concerns raised in the comments to the interim final
rule were voiced by hospitals when we implemented the hospital PPS
system in the early 1980s. However, we believe this is an important
issue that calls for a broader discussion of the PPS itself, and
requires the clarification of certain technical issues related to the
PPS and to the statute.
Section 1888(e)(1) of the Act requires that the PPS provide payment
for "all costs" (including routine, ancillary, and capital related
costs) of covered SNF services. Consistent with the statute, the PPS
rates are based on 1995 allowable costs calculated from Medicare Part A
cost report data and applicable Part B allowable charges. Thus, a
facility's historical costs (from FY 1995) of drugs, laboratory
services, respiratory therapy, and other non-therapy ancillary services
were captured in these cost reports and reflected in both the Federal
and facility-specific transition rates.
In addition, many of these non-therapy ancillary services (for
example, respiratory therapy, IV medications, and
[[Page 41648]]
IV feedings) are captured both directly and indirectly in the case-mix
methodology and result in higher payments for SNFs. The issue of
whether the nursing case-mix index adequately reflects the relative
costs of non-therapy ancillary services was one that was studied in the
development of the interim final rule and the associated payment rates.
As indicated in the preamble of that rule, using MDS assessments to
classify patients into RUG-III groups, we compared the relative charges
for non-therapy ancillaries to the nursing case-mix indices for each
RUG-III group. We found that the pattern of the two relative amounts
was similar across the RUG-III groups. That is, RUG-III groups with
high nursing weights also tended to have relatively high charges per
stay for non-therapy ancillaries.
Based on this comparison, we concluded that it was reasonable to
include non-therapy ancillary costs in the nursing component of the
rate. Accordingly, the idea that the PPS rates do not reflect the cost
of respiratory therapy, drugs, and other non-therapy ancillaries is
simply not accurate. Whether the accuracy of the rates can be enhanced
in this regard is a subject for research and development that we
discuss below.
The recommendation to remove or "carve out" these services as a
class from the PPS rates and continue to pay for them on a cost basis
raises some fundamental concerns related to both the statutory and
conceptual framework of the PPS. As discussed above, section
1888(e)(A)(1) of the Act requires that the PPS provide payment for
"all costs" (including routine, ancillary, and capital related costs)
of covered SNF services. The conference report associated with section
4432 of the BBA explicitly states that under the SNF PPS, "services
and supplies provided to residents will be included in pre-determined
per diem payment rates."
Beyond the threshold issue of statutory language, the issue of
whether specific services should be identified and paid separately
appears to conflict with certain fundamental concepts embodied in a
PPS. Carried to its logical conclusion, this approach is antithetical
to the very concept of the SNF PPS itself, which is based on bundling
services for similar patients and paying an average, prospectively
determined amount for all services included in the bundle. The PPS rate
already recognizes differences between nursing, rehabilitation therapy,
and ancillary services, as well as non-case-mix components.
It is important to consider the budgetary impact of the commenters'
proposal to remove certain services from the PPS rates and to continue
paying for them on a cost basis. The budgetary impact would be
significant and would reduce the savings to Medicare associated with
the SNF PPS provisions of the BBA. Implementing the provision in a way
that would have a budget neutral impact on savings (for example, a
downward adjustment to the Federal rates) would penalize providers that
have made changes to their operations in order to provide services more
efficiently, and would benefit those that have not. Therefore, we
believe that further disaggregation of the payment rate would not be
consistent with the objectives of prospective payment from a
conceptual, statutory, or budgetary perspective.
Finally, we agree with the commenters' recommendation that we
explore the potential for refinements to the PPS and, more
specifically, the case-mix classification system (RUG-III) to ensure
that it continues to account more accurately for the services provided
to SNF residents. We consider the continuing adequacy of the PPS rates,
and the case-mix methodology in particular, to be a high priority. We
believe very strongly that the case-mix methodology should be
periodically evaluated to determine the appropriateness of the RUG-III
groups in relation to changes in patient care practices and the
Medicare population.
In addition, the conference report language associated with section
4432 of the BBA specifically recommended examining payment for
medication therapy in the context of the SNF PPS. Accordingly, we are
funding substantial research to examine the potential for refinements
to the case-mix methodology, including an examination of medication
therapy, medically complex patients, and other non-therapy ancillary
services.
We are currently funding two research contracts to determine the
potential for refinements to the RUG-III model. The first contract was
awarded in FY 1997 and provides preliminary analysis and alternatives
for refinements using a limited database. The next phase of the
research focuses on fully developing these options using more extensive
data. Completion of the research is targeted for January 1, 2000.
Potential refinements to the case-mix model may include the division of
the current 44 groups or the addition of new ones based on items
currently on the MDS 2.0 (for example, new extensive care groups
combining both medical ancillaries and rehabilitation).
In addition, a new payment index (or set of relative weights) based
on ancillary charges, rather than the current staff-time based indices,
is being explored for the non-therapy ancillary component of the PPS
rates. Any refinements to the RUG-III model and case-mix indices that
result from this research would have a distributional effect on
payments resulting in a new set of payment weights across the various
groups. If the research supports refinements, we anticipate their
implementation in conjunction with the October 1, 2000, update to the
PPS rates. This time line is dictated by the complexity of the research
and by operational and regulatory requirements, including publication
of a proposed rule.
It should be noted that the BBA provisions establishing the SNF PPS
provided for over $9 billion in savings to Medicare (in fee for
service) as a result of the statutory formula used for developing the
rates. Accordingly, an SNF's current costs may well exceed the PPS
rates if the SNF does not revise the historical purchasing and charging
practices that it followed under the preexisting cost-based payment
system.
B. Federal Rate Calculation
Section 4432(a) of the BBA amended section 1888 of the Act by
adding a new paragraph (e) that provides for the establishment of per
diem Federal payment rates under the SNF PPS. These rates encompass all
costs of furnishing covered skilled nursing services (that is, routine,
ancillary, and capital-related costs), other than costs associated with
approved educational activities. In the interim final rule, we
established a new subpart J in the regulations at 42 CFR part 413, that
describes this new payment methodology. In this section of the
preamble, we are providing responses to comments on a number of
important issues related to the Federal rates. These include payment
for non-rehabilitation ancillary services, outlier cases, and a variety
of issues related to the data and design of the Federal payment rates.
In addition, we are providing for a minor increase in the unadjusted
rates effective October 1, 1999, based on the recommendation of one
commenter.
Comment: We received a number of comments recommending that we
periodically recompute the PPS rates using the most recent data.
Reasons commonly mentioned include that rebasing would allow the PPS to
recognize changes over time in the intensity and scope of services
provided in SNFs, and that it would provide an opportunity for re-
standardization of the
[[Page 41649]]
payment rates using actual resident assessment (MDS) data.
Conversely, we received comments that recommended against rebasing
payment rates periodically. These commenters were concerned that
because the PPS provides incentives for SNFs to provide services more
efficiently and eliminate distinct parts (that would tend to lower
average SNF costs, as determined from Medicare cost reports), the
impact of rebasing the rates would be unfair, since it would tend to
penalize providers for being efficient.
Response: While we are not able to predict the absolute impact on
SNF costs of the incentive for SNFs to provide services more
efficiently or their continued desire to maintain distinct parts under
PPS, we have no doubt that the PPS will result in some downward
pressure on costs. Anecdotal evidence up to this point certainly
supports this conclusion.
Section 1888(e)(4)(A) of the Act requires a 1995 base year. Section
1888(e)(5)(A) of the Act specifically provides for the establishment of
an SNF market basket index, while section 1888(e)(4)(E) of the Act
requires that the SNF PPS rates be updated annually using that index.
As discussed in response to earlier comments, we believe that it is
appropriate to recognize changes over time in the Medicare population
or care delivery practices in SNFs in the context of case-mix
adjustments. Our periodic evaluation of the case-mix classification and
indices will provide an opportunity for making refinements to the PPS
that recognize changes in the intensity and scope of services provided
in SNFs.
Comment: We received several comments regarding certain costs that
were not included in the computation of the Federal rate. Specifically,
the commenters expressed concern that all SNFs receiving "new"
provider exemptions from the routine cost limits and all allowable
costs associated with atypical services exceptions to the cost limits
have not been included in the data used for computation of the Federal
rates.
The commenters suggested that it is unfair to exclude the cost
associated with those providers that are providing atypical levels of
care. Further, they noted that these are the same providers that would
have a high case-mix in the new payment rates and, therefore, should be
included. Virtually all of these commenters suggested that the rates
are distorted due to the exclusion of many providers and costs of
furnishing atypical services.
Response: The statute is very specific regarding the exclusion of
providers that have received "new" provider exemptions from the
calculation of the Federal rates. Section 1888(e)(4)(A) of the Act
requires that cost data from SNFs "that were subject to (and not
exempted from) the per diem limits" be used in computing the payment
rates. Similarly, the statute specifically requires the exclusion of
allowable costs associated with exceptions granted in the FY 1995 base
year. Section 1888(e)(4)(A)(i) requires the use of the allowable costs
of SNF services "excluding exceptions payments" in calculating the
payment rates.
Comment: Several commenters were concerned that we eliminated
certain cost reports from the calculation of the Federal rates on the
basis of their duration. Cost reports in excess of 13 months or less
than 10 months in duration were eliminated from the rate computations.
In addition, concerns were expressed over the use of a geometric
outlier elimination process to remove SNF costs from the data.
Response: As we indicated in the interim final rule, we used only
those cost reports for periods of at least 10 months but not more than
13 months. We excluded those periods that fell outside these parameters
on the basis that those cost reports may not be reflective of a normal
cost reporting period and, therefore, may tend to distort the rate
computation. For example, providers entering or exiting the Medicare
program could have abnormally high or low costs due to fluctuations in
occupancy. This approach does not affect a large number of cost reports
and is consistent with our rate setting methodology in other areas of
Medicare.
Similarly, we believe the application of a geometric outlier
elimination process for the SNF costs used to calculate the payment
rates is an appropriate analytical approach consistent with rate
setting for payment systems in other areas of Medicare. We believe that
three standard deviations from the geometric mean of the log value for
each cost component is a fair level of tolerance that focuses on the
truly aberrant cost values. In addition, this process involved the
removal of both high cost and low cost aberrant values, resulting in a
more equitable and more meaningful computation of the rate components.
We would also add that we used all FY 1995 cost reports that were
available at the time of the development of the interim final rule and
associated payment rates. While some cost reports may not have been
available at that time, we constructed the rates based upon the best
available data and are confident it was more than adequate for
construction of the rates. Finally, a small number of cost reports were
eliminated from the computation of the rates due to faulty or missing
data on critical items.
Comment: Several commenters expressed concern with our methodology
related to the use of a MEDPAR analog in the standardization of the
Federal payment rates. They questioned whether the MEDPAR data were
sufficiently accurate for the purpose of developing payment rates and
referred to the 28 percent difference, reported in the interim final
rule (63 FR 26260), between the therapy index calculated from actual
MDS assessments and the MEDPAR analog-generated index. They noted
additional limitations of the analog, such as the lack of functional
status information and recommended that we use actual MDS data, when
available, to re-standardize the payment rates, possibly in conjunction
with a rebasing of the cost data.
Response: As noted in the interim final rule, an adequate national
sample of MDS data for use in standardizing the Federal payment rates
does not yet exist. In the absence of these data, we believe the MEDPAR
analog, adjusted by the case-mix adjustment factor, provides an
appropriate estimate of case-mix for the purpose of rate
standardization. Based on our comparison of actual MDS and MEDPAR data,
we concluded that limitations of the MEDPAR case-mix analog had no
effect on the nursing component of the rate. Whatever inaccuracy
existed in the MEDPAR analog data, the effect was limited to the
therapy component and tended to increase, not decrease, the payment
rate. The fact that the available MDS data yielded a therapy index
value 29 percent higher than the MEDPAR analog data for the same cases
demonstrates that use of the MEDPAR data alone would have made the
therapy component inappropriately high. That is the reason that the
correction factor was applied to the therapy component.
Comment: A few commenters expressed concern about the adjustment we
made to the cost report data in developing the Federal rates, to
account for providers with cost reports that were not settled. One
commenter indicated that all SNFs should not be penalized by this
adjustment. It was also suggested that the rates be redone in the
future to account for the actual change between the as-submitted cost
reports and the settled ones. In addition, one comment
[[Page 41650]]
addressed the methodological application of the adjustment in the
computation of the rates, suggesting an alternative where the
adjustment is applied to total Medicare routine costs as opposed to
only costs subject to the routine limit.
Response: As we indicated in the interim final rule, the adjustment
made pursuant to section 1888(e)(4)(A)(i) of the Act was applied to
unsettled cost reports and was based on the average ratio for all
providers in 1995, between their as-submitted and settled cost report.
This adjustment is only applied to the cost report data of providers
whose cost report was not settled as of the time we computed the rates.
It is an actuarial adjustment required under the law that affects how
the average SNF costs are determined and does not penalize other
providers with settled reports.
As we indicated in the interim final rule, these adjustment factors
were validated using data from three previous years, that showed this
ratio remains fairly constant. To update and change the rates in the
future based on revised cost reports is impractical. Revisions are
constantly being made to cost reports (for many years) and our
validation exercise indicates the ratios are accurate.
Finally, we have decided to incorporate the methodological
alternative described above and will adjust the unadjusted nursing
case-mix component of the urban and rural Federal rates by +$.32 and
+$.24, respectively. In addition, we will adjust the unadjusted non-
case-mix component of the urban and rural Federal rate by +$.25 and
+$.21, respectively. We believe this refinement in the application of
the adjustment factor may result in a more accurate estimate of the
routine costs of SNFs. This adjustment will be prospective and will be
effective at the next scheduled update of the SNF PPS rates on October
1, 1999. That is the earliest point at which we can implement changes
to the standard claims processing systems.
Comment: We received one comment asking why the issue of payments
for low-volume SNFs was not addressed in the interim final rule.
Response: The new Part A PPS established in section 1888(e) of the
Act applies to all SNFs, and does not include any special treatment for
low-volume SNFs. Section 1888(d) of the Act provided for a separate,
optional payment system for SNFs with less than 1500 days (that is,
low-volume SNFs) in their preceding cost reporting period. However,
according to current law, this special payment system for low-volume
SNFs is only in effect for cost reporting periods beginning before July
1, 1998.
Comment: Numerous comments were received from hospital-based
facilities and their representatives indicating that the rates are too
low and do not recognize the additional overhead incurred in a
hospital-based facility. The commenters pointed out that the Federal
rate uses a mean of the average for all freestanding providers and the
average for all freestanding and hospital-based providers. This
computation double counts freestanding providers, thus lowering the
rates. Some commenters suggested the rates should be redone, or an add-
on or separate rate for freestanding versus hospital-based providers be
established, similar to what was done for routine cost limits.
Response: As many of the commenters have already recognized, the
computation as described above is clearly mandated in the formula set
out in section 1888(e)(4) of the Act.
Comment: We received several comments regarding the wage index that
is used to standardize and adjust the rates. The commenters suggested
that the hospital wage index might not adequately represent wages paid
in SNFs. Many of the commenters pointed out that SNF wages and hours
are excluded from the hospital wage index computation, yet we are
applying it to SNF payments. Most commenters want the wage index
updated periodically and often to reflect the most recent changes in
wages. One commenter suggested that we make other changes to the method
for how the wage index is calculated by including costs that are now
excluded, such as physician salaries, and excluding items like interns'
and residents' salaries. There were also a few commenters who suggested
that any move to a wage index based on SNF wage data be done slowly to
ensure it is done accurately. Most commenters hope to see a wage index
based on SNF data soon. In addition, many commenters want us to use a
later wage index to reflect the recent mandated changes in the minimum
wages rates paid to some employees.
Response: As we indicated in the interim final rule, we are using
the hospital wage data since the SNF wage data have not been completed.
We used the latest completed hospital wage index that was available at
the time of publication. It is our intent to use the latest wage index
data that are complete and available when we publish rates or updates
to the rates in the future.
We have been unable to evaluate a wage index based on SNF wage
data, as not all SNF providers reported data via the worksheet S-3. Now
that we have a full year of wage data for both freestanding and
hospital-based facilities, we will begin to evaluate and analyze the
wage and hourly data from the SNF and hospital-based SNF cost reports.
We will analyze and develop these data to evaluate their accuracy and
validity. It is our intent, if the data are accurate, eventually to use
and publish a wage index based on SNF wage data. However, it has been
our experience in the past that when new wage data are used, they can
result in enormous and erratic shifts in the wage indexes; many
providers could be adversely affected while others experience a
windfall. Therefore, before we use any SNF wage data, we will perform
numerous edits to ensure quality. In addition, we will ask for public
comments once the wage index data are available. Since we have not yet
developed a wage index based on SNF wage data, we do not know the
impact of excluding or including any particular cost centers.
As discussed above and in the interim final rule, until an
appropriate wage index based on SNF data is available, we will use the
latest available hospital wage index data in making annual updates to
the payment rates. We believe that SNFs and hospitals compete in the
same labor market areas and, therefore, absent specific SNF wage data,
we continue to believe that the hospital wage data accurately reflect
the relative wage costs between labor areas. In making these annual
updates, section 1888(e)(4)(G)(ii) of the Act requires that the
application of this wage index be made in a manner that does not result
in aggregate payments which are greater or less than would otherwise be
made in the absence of the wage adjustment. For the initial period of
the SNF PPS, the adjustment required by this section was accounted for
through the standardization of the cost data that formed the basis for
the per diem rate components. By means of standardization, each rate
component was adjusted for wage index and case-mix differences so that
aggregate payments were unaffected by the presence of these payment
adjustors.
Since, for the second PPS year (Federal rates effective October 1,
1999), we plan to update the wage index applicable to SNF payments
using the most recent hospital wage data, it is necessary to ensure
that the aggregate payments in the second year are neither greater nor
less than they would be if we continued to use the wage index from the
initial year. This requirement, established pursuant to section
1888(e)(4)(F)(ii) of the Act, will be met by multiplying each of the
per diem rate components by the ratio of the volume
[[Page 41651]]
weighted mean wage adjustment factor (using the wage index from the
initial year) to the volume weighted mean wage adjustment factor, using
the wage index for the fiscal year beginning October 1, 1999. The same
volume weights are used in both the numerator and denominator and will
be derived from 1997 MedPAR data. The wage adjustment factor used in
this calculation is defined as the labor share of the rate component
multiplied by the wage index plus the non-labor share.
Comment: We received two comments suggesting that the rates should
have an add-on to account for the additional cost of completing
resident assessments and the administrative costs associated with
implementing this new payment system and other unfunded mandates.
Response: We recognize that the increased frequency of assessment
may result in additional costs for SNFs. However, as we indicated in
response to an earlier comment, the Congress mandated both the basic
formula and the fiscal year cost data that we are to use in developing
the rates. To the extent that any of these assessment costs are
included in the base year data, they are reflected in the rates. We
would note that, as we indicated in the interim final rules discussion
of the Paperwork Reduction Act, it was determined that the increased
assessments required and the time to transmit them has a minimal impact
on each individual facility. We recognize that providers will incur
additional costs associated with more frequent assessments but we
believe our current rate scheme is consistent with the law.
Comment: Several commenters suggested that capital should not be
part of the rate, suggesting that it be an add-on or pass-through to
recognize those facilities that were committed to large capital
expenditures incurred after 1995.
Response: In accordance with section 1888(e)(2)(B) of the Act, the
calculation of the Federal rates included the capital costs. We realize
that committed capital expenditures after 1995 may create some hardship
on some providers. However, we believe that the present rate scheme,
which includes capital, is consistent with the language and intent of
the statute. Further, we believe that the capital costs included in the
rates are adequate to cover capital costs that would be incurred for
providers over time.
Comment: We received numerous requests, particularly from rural
hospital-based facilities, suggesting that we allow providers to
reclassify to a nearby adjacent urban area to receive the urban wage
index or the rates applicable to the adjoining urban area, especially
in circumstances where the hospital has been reclassified because it is
in a county that was defined as urban under section 1886(d)(8)(B) of
the Act (sometimes referred to as a "Lugar" county) or as a result of
geographic reclassifications based on decisions of the Medicare
Geographical Classification Review Board (MGCRB) or the Secretary under
section 1886(d)(10) of the Act for purposes of the hospital PPS. These
commenters suggested that the SNFs are competing in the same market as
hospitals. One commenter suggested that a board similar to the MGCRB be
established to consider an SNF's request to be reclassified.
Response: While we have broad authority to develop an SNF wage
index, we continue to believe that the reclassifications permitted for
hospitals under sections 1886(d)(8)(B) and 1886(d)(10) of the Act are
specific to hospitals. The Congress could have chosen to extend this
provision to SNFs under section 1888(e) of the Act, but it did not. In
addition, it has been our longstanding policy not to allow or recognize
reclassification for SNFs for payment under the routine cost limits.
Since we hope eventually to develop a wage index specific to SNFs, the
possible effect of reclassification on the wage index is unclear and
might have unintended consequences.
Comment: Two comments were received asking that we consider an
adjustment for the non-labor portion for Alaska and Hawaii providers,
similar to what is done for routine cost limits for SNFs. These
commenters suggested that these areas experience a much higher cost
than those providers in the continental United States and, therefore,
are entitled to this adjustment.
Response: The hospital inpatient PPS does have an adjustment
similar to that requested by these commenters; however, it was mandated
by the statute governing the hospital PPS. By contrast, the Congress
did not provide for such an adjustment in the legislation for the SNF
PPS. Costs incurred by Alaska and Hawaii providers are, of course,
included in the base year computation.
Comment: One comment we received suggested that SNFs that were
subject to the low-volume rates should have been eliminated from the
calculation of the Federal rates. Furthermore, the commenter added that
these providers should be exempt from PPS and continue to be paid under
the low-volume rates.
Response: Section 1888(e)(4)(A) of the Act specifically included
low-volume facilities in the SNF PPS rate calculation.
C. Federal Rates--Part B Add-on
In describing the data to be used in developing the Federal rates,
section 1888(e)(4)(A)(ii) of the Act provides for including an estimate
of the amounts payable under Part B for covered SNF services furnished
during FY 1995 to individuals who were residents of a facility and
receiving Part A covered services. This estimate is also known as the
"Part B add-on." In this section of the preamble we are providing an
expanded discussion of the development of the add-on for Part B
services which is included in the Federal rates.
Comment: We received a number of comments questioning the accuracy
of our estimate of Medicare Part B allowable charges associated with
patients in Medicare Part A stays during the FY 1995 base year used for
determining both the Federal and facility-specific payment rates.
Certain commenters cited evidence of missing bills and charges
associated with individual providers for particular types of services
(for example, laboratory services or rehabilitation therapy). In
addition, several commenters suggested that we allow for an appeals
process related to the Part B estimate associated with facility-
specific rates.
Response: We took great care in both the methodological design and
construction of the data sources necessary for the development of this
estimate. We are aware of several independent industry efforts to
review this methodology which found no defects in the design. In this
final rule, we are providing the following, more detailed discussion of
the methodology used for the development of the Part B estimate with
the hope that doing so will clarify our process of determining this
estimate and respond to questions and concerns.
The facility-specific payment rate used for the transition is
computed using the allowable costs of SNF services for cost reporting
periods beginning in FY 1995 (cost reporting periods beginning on or
after October 1, 1994, and before October 1, 1995). Included in the
facility-specific per diem rate is an estimate of the amount payable
under Part B for covered SNF services furnished during cost reporting
periods beginning in FY 1995 to individuals who were residents of the
facility and receiving Part A covered services.
These estimates were developed using allowed charges (including
coinsurance and deductibles) from all Medicare Part
[[Page 41652]]
B claims actually submitted (other than those specifically excluded
from the consolidated billing requirements, such as physician services)
associated with SNF residents in a Part A stay during cost reporting
periods that began in FY 1995. Applying the methodology described
below, we provided the fiscal intermediaries (FIs) in May of 1998 with
the total aggregate amount payable under Part B. In addition, at the
request of the nursing home industry, we included a detailing of
certain components of that amount for informational purposes.
At that time, we instructed the FIs that only the item listed as
"Total Part B Add-on Amount" should be incorporated in the
calculation of the facility-specific rates. We noted that, while the
total Part B amount was an accurate estimate based on the universe of
Part B claims, the assignment of allowed charges into the different
service components was only an approximation due to the level of
specificity of the codes and the variation in supplier billing and
coding practices. The following description details the methodology
used to determine the Part B add-on amounts:
1. Identify Cost Report Period
For each SNF, determined appropriate FY 1995 cost report period.
Used all FY 1995 cost reports on file as of January 30, 1998. If no FY
1995 cost report was available, estimated a FY 1995 period from the
latest cost report available.
2. Create List of Dates for SNF Stays for Each Beneficiary
For each SNF, identified all Part A SNF claims with the discharge
date on the claim falling within the cost report period. For each
beneficiary, identified the dates of each stay during the cost report
period.
3. Identify All Non-Physician Part B Claims
Obtained all Part B physician, supplier, DME claims for 1994, 1995,
and 1996. Omitted all professional services, defined as any service
associated with a physician specialty code. Obtained all Part B
outpatient department facility claims for 1994, 1995, and 1996.
4. Match List of Part A SNF Stays to Part B Claims
By beneficiary, matched list of Part A SNF stays to Part B claims.
Kept all non-physician services or facility claims falling on or
between dates of admit and discharge for each SNF stay.
5. Drop Claims for DME
For non-physician Part B claims, that is, not facility claims,
reviewed all alphanumeric HCPCS and identified and dropped obvious DME
codes, for example, wheelchairs, canes, transcutaneous electrical nerve
stimulation (TENS), glucose monitors, commodes, walkers, bath and
toilet aids, lifts, and oxygen equipment. Because coverage under the
Part B DME benefit is not allowed for beneficiaries in an SNF stay, we
believe that these codes probably occurred on either the day of
admission or the day of discharge or were associated with erroneous
payments.
6. Adjust Outpatient Claims to Reflect Costs
Adjusted total charges on Part B outpatient facility bills to
reflect total Medicare payments using a payment to charge ratio
calculated from FY 95 outpatient cost reports. If no FY 95 cost report
was available, used ratio from FY 94 or, if necessary, FY 93 cost
report. If a FY 93 cost report was not available, used the payment
amount associated with the claim.
7. Drop Outpatient Bills
Removed claims with home health and dialysis provider numbers.
Dropped Part B outpatient facility claims where the SNF provider number
matched the hospital outpatient provider number. Dropped bills with at
least one of the following revenue centers: surgery, emergency room
(ER), ambulatory surgical center (ASC), cardiac catheterization,
computerized axial tomography (CT) scan, and magnetic resonance imaging
(MRI). These outpatient hospital services are excluded from the
consolidated billing requirements.
8. Calculate Totals
Calculated total allowed charges for all non-physician Part B
claims. Calculated total payments for Part B outpatient facility
claims.
9. Create Descriptive Categories Within Totals
At request of certain members of the industry, created general
categories to describe the distribution of dollars among types of
services. Categories are not exact due to the lack of precision in
categories for HCPCS ranges, local codes, and the structure of facility
claims. For example, dollars for laboratory services could appear in
(a) the "laboratory" category for non-physician Part B, (b) the
"other" category for non-physician Part B if the code was local, or
(c) the outpatient department's (OPD) "other" category for laboratory
tests conducted by an outpatient facility.
Created categories for non-physician Part B claims using HCPCS and
CPT ranges. Often, broad HCPCS categories capture some unrelated codes.
In addition, temporary local codes had to be placed into the "other"
category.
The structure of the outpatient facility claims prevents
associating a code with a specific dollar amount. Created outpatient
therapy category by combining all claims from CORF hospitals and any
claim with only one physical therapy (PT), occupational therapy (OT),
or speech-language pathology (SLP) code. Left all remaining bills in
OPD category.
As discussed in the above description of our methodology, a number
of factors prevented us from disaggregating the total Part B allowable
charges precisely into distinct high level categories (for example,
laboratory services). However, we decided to attempt to provide an
approximate breakout by category to provide SNFs some notion of what
their Part B service mix may have looked like in the FY 1995 base year.
While we did note in the listing of Part B add-ons provided to FIs
that the categorization of charges was only an approximation, this
qualification may not have always been understood by providers. We
regret any confusion caused by this breakout. We would note that our
purpose in developing the total estimate of Part B allowable charges
did not go beyond providing an accurate account of the total allowed
charges to be included in the PPS rates, and we believe our estimate
accomplished this. However, even if our purpose had been to map every
charge and HCPCS code precisely to some broad category, once again, the
data and structure of Medicare's billing system would not have
permitted it.
Beyond issues related to the categorization of Part B charges, we
received no comments that contained substantiated evidence of
systematic defects in the methodology or data. We would note that
section 1888(e)(8)(B) of the Act limits administrative review of this
estimate.
Comment: We received numerous comments indicating that we should
publish, or otherwise make available to the public and the industry,
the complete and itemized data that were included in the computation of
the rates. Of particular concern was the percentage of the nursing
case-mix component of the rate that is attributable to nursing services
and non-therapy ancillary costs. Some commenters suggested that they
were
[[Page 41653]]
unable to replicate the rates we published with the data currently
available.
Response: Much of the data necessary to compute the rates have been
available for some time, including the 1995 SNF cost reports and the
MEDPAR files. We have also put data and information related to the
computation of the case-mix indices on our SNF PPS website, at:
<www.hcfa.gov/medicare/snfpps.htm>. A public use file containing the
most significant data items relating to the calculation of the
unadjusted Federal rates can also be found on the website. The
standardization and case-mix correction factors are included with the
public use data.
It is our understanding from conversations with a number of users
of the data that the public use file, along with the data that were
already available, has been quite helpful in understanding the
calculation of the rates. In addition, we have honored several requests
under the Freedom of Information Act for data associated with the rate
calculations, and have provided further information through data
release agreements.
Regarding the percentage of the nursing case-mix component of the
rate that is attributable to nursing services and social services and
non-therapy ancillary costs, we agreed with earlier comments to the
interim final rule that the public would benefit by knowing the
percentages for nursing and social services and non-therapy ancillary
services included in the rate. Accordingly, on November 27, 1998, we
published a notice in the Federal Register (63 FR 65561) to reopen
comments to the interim final rule. We also provided the public with a
percentage breakdown of the nursing case-mix component of the rates to
the extent feasible.
Comment: We received a number of comments concerning our discussion
in the interim final rule related to OIG's proposal to adjust the
Federal rates to account for costs in the 1995 base year cost data that
result from medically unnecessary services or improper payments. These
comments strongly recommended that we not proceed with such an
adjustment, citing the already significant downward impact on the
Federal rates of the BBA budgetary savings, the inadequate statistical
basis for pursuing such an adjustment, and insufficient statutory
authority for proceeding with an actuarial adjustment of this type to
the rates.
Response: We are concerned about the application of an adjustment
that would have a downward impact on the Federal rates in light of the
substantial reduction already incorporated into the calculation under
the BBA requirements. According to the impact analysis contained in the
interim final rule, this reduction is 17 percent on average. However,
there is a substantial body of evidence, in the form of OIG and GAO
studies, that at least suggests there were inappropriate services or
improper payments associated with SNF services during the 1995 base
year. Consequently, it could reasonably be argued that exclusion of the
costs of these services from the cost base used to compute the Federal
payment rates is appropriate.
However, we believe that in considering the level of budgetary
savings to incorporate into the statutory formula for establishing the
Federal rates, the Congress took into account the existing cost base
and aggregate SNF payment levels to determine an appropriate level of
budgetary savings. Our policy with regard to this issue will be not to
proceed with such an adjustment in the absence of specific statutory
direction from the Congress.
D. Facility-specific Rates-Transition
Section 1888(e)(2) of the Act provides, for most facilities, a
phased transition from facility-specific payment rates (which reflect
the individual facility's historical cost experience) to the Federal
rates. During such a facility's first three cost reporting periods
under the SNF PPS, it receives a blended payment rate, in which the
Federal portion initially represents 25 percent of the facility's total
payment rate, and then increases by 25 percent increments in each
succeeding period until the facility is paid at the full Federal rate.
In this section of the preamble, we are providing responses to
comments on a number of issues related to the PPS transition period and
the calculation of the facility-specific rates. These include issues
related to the eligibility of certain SNFs for the transition. In
addition, this section includes policy changes related to the
calculation of the Federal rates for certain SNFs with short cost
reporting periods and the eligibility for the transition of SNFs with
cost reporting periods beginning in FY 1994 but including the entire FY
1995 period.
Comment: We received several comments suggesting that we should
define a new SNF as one that first furnished patient care on or after
October 1, 1995, rather than one that first received payment on or
after October 1, 1995, as our present policy dictates.
Response: We understand that there are many concerns regarding the
issue of eligibility for the PPS transition. However, we believe
current policy is consistent with the statute. Section 1888(e)(2)(E) of
the Act specifically refers to the date an SNF first received payment
from Medicare on or after October 1, 1995, as the threshold date.
However, it is important to understand that the threshold for
determining eligibility for the transition period affects providers in
different ways, creating both winners and losers. Thus, while many
providers may want to receive PPS transition payments, many other
providers would rather be paid on the basis of the full Federal rate.
We do not see the benefit of a policy change that creates losers under
the system from winners and vice versa.
Comment: We received a number of comments recommending that we
modify our policy with regard to the PPS transition, to allow existing
SNFs to elect to bypass the transition and be paid 100 percent of the
Federal rate if they had experienced significant shifts in case-mix or
significant capital expenditures after the 1995 base year used for
determining the facility-specific rate. One commenter included a
detailed assessment of this proposed policy, including an estimate of
the aggregate costs to the Medicare program of its adoption.
Response: We understand the concern of SNFs that have operated
under the Medicare program since 1995 or earlier and yet find
themselves disadvantaged by the PPS transition due to changes in their
care delivery model or significant capital expenditures that occurred
after the 1995 base year used for computing the facility-specific rate.
However, we believe our present policy to be reasonable and consistent
with the plain language of the statute. Section 1888(e)(2)(E)(ii) of
the Act sets forth the requirements concerning whether a facility
receives payment under the PPS transition or solely according to the
Federal rates. This section provides that for SNFs that "first
received Medicare payment for services under this title on or after
October 1, 1995, payment for such services shall be made under this
subsection as if all services were furnished after the transition
period." In our view, this language establishes clear criteria related
to provider eligibility for the transition and the appropriate basis
for Medicare payment. Accordingly, we have established a policy which
relies on the date an SNF first received payment (interim or otherwise)
from Medicare to determine the basis of their payment.
Comment: We received one comment asking us to reconsider our policy
regarding eligibility for the transition for providers that do not have
a cost
[[Page 41654]]
reporting period beginning in FY 1995, but whose period contains the
entire 1995 FY. Examples of these cost reporting periods include a 13-
month cost reporting period beginning September 1, 1994, and ending on
September 30, 1995 or reporting periods with a floating beginning date
(that is, tied to a specific day of the week) of September 27, 1994.
Response: In Transmittal 405 of the Provider Reimbursement Manual
(PRM, HCFA Pub. 15-1), we had initially required these providers to be
paid at the Federal rate without a transition period, since these
providers did not have a cost reporting period beginning in FY 1995
(the statutory basis for computing the facility-specific transition
rate). However, we have reconsidered our policy, because these
providers did receive their first payment from Medicare before October
1, 1995. These providers will now be eligible for the transition
period.
In addition, any provider that has been paid the full Federal rate
based on our original policy contained in Transmittal 405 of the
Provider Reimbursement Manual will be held harmless, since they have
already transitioned to the PPS. In short, this means that providers
with a cost reporting period beginning date in 1994 and whose period
contains the full 1995 fiscal year (that is, the 12 months beginning
October 1, 1994, through September 30, 1995), will be able to elect
either a PPS transition based payment or the full Federal rate.
Whichever rate the provider chooses must be used for all the years of
the transition period.
Comment: We received a number of comments regarding our policy on
changes of ownership and mergers as they relate to a provider's
eligibility for the PPS transition.
Response: As discussed earlier in this section, SNFs that first
received payment from Medicare on or after October 1, 1995 receive
payment based on the Federal rate only while SNFs that first received
payment from Medicare prior to October 1, 1995 are paid according to
the transition rate and are precluded from receiving payment solely
based on the Federal rate. In addition, our policy, as stated broadly
in transmittal 405 of the Provider Reimbursement Manual, requires that,
for purposes of determining a provider's eligibility for the
transition, Medicare makes its determination based on the date of first
Medicare payment (interim or otherwise) under the present provider
number.
For example, when an SNF undergoes a change in ownership, such as a
merger or a consolidation, the payment is determined by the payment
history of the surviving entity as indicated by the surviving SNF's
provider number. This conforms with longstanding reimbursement policy
and payment principles as applied under the former reasonable cost
payment system and provides administrative simplicity in addressing
complex transactions among SNFs, hospitals, and other entities.
Comment: We received several comments recommending that we adopt a
policy where SNFs would be allowed to elect to bypass the transition
period and receive payment based on the full Federal rate.
Response: Similar to our response to an earlier comment, we
understand how the transition payment methodology may disadvantage
certain providers. However, section 1888(e)(1) and (2)(E) of the Act
specifically addresses the issue of which providers are paid the full
Federal rate and which ones must receive transition payments. As we
discussed, the statute requires that SNFs that received their first
payment under Medicare before October 1, 1995, are to be paid based on
the transition payment methodology described in the interim final rule.
Comment: We received a number of comments related to the Part B
add-on and the methodology for computing facility-specific rates for
SNFs that participated in the Multistate Nursing Home Case-Mix and
Quality Demonstration (NHCMQD) in 1997. Under the interim final rule,
these facilities did not receive a Part B add-on as part of their
facility-specific rate. The commenters argued that a Part B add-on is
appropriate for these SNFs. Several commenters provided detailed
arguments asserting that a Part B add-on for these providers is legally
supportable under the statute.
Response: It appears to us that a Part B add-on to the facility-
specific rate for providers participating in the NHCMQD in 1997 could
well be an appropriate payment policy in light of the historical
circumstances.
During the NHCMQD, many Medicare Part A patients in these SNFs
received certain ancillary items or services provided by suppliers who
then billed Medicare directly under Part B. However, we find that the
statutory language at section 1888(e)(3)(B) of the Act, that provides
the formula for computing facility-specific rates for NHCMQD providers,
does not support this policy outcome.
Accordingly, we are maintaining the policy, set forth in the
interim final rule, of not including a Part B add-on in the calculation
of facility-specific rates for SNFs participating in the NHCMQD in
1997. We believe this policy is consistent with the statute. The
statute treats NHCMQD providers differently from other facilities. For
most facilities, the statute directs the Secretary to use a 1995 base
year and provides for a Part B "add-on"; for NHCMQD facilities, the
statute directs the Secretary to use a later base year (1997) and does
not provide for a Part B "add-on." Although a Part B add-on for
NHCMQD facilities might be appropriate as a conceptual matter, the
statute does not provide for a Part B add-on and we do not believe the
lack of a Part B add-on leads to an absurd result.
In our effort to ensure the appropriateness of the payment
methodology set forth in the interim final rule, we have decided to
make a modification to one aspect of the calculation of the facility
specific rates. This change only affects the methodology for
determining the inflation factor applied in the calculation of the
facility specific rates for certain providers with short cost reporting
periods (that is, less than 12 months).
There were three different types of short periods discussed in the
interim final rule:
a. A short period in the base year,
b. A short period in the initial period, and
c. A short period between the base year and the initial period.
The interim final rule included separate instructions on how to
determine which factor to use for an SNF having a short period. There
was, however, no discussion of how to determine which factor to use if
a SNF had more than one short period. For example, an SNF could have a
short period in the base year and a short period between the base year
and the initial period of the PPS.
We now believe that the instructions for item c should not be
applied to SNFs which have both a short period in the base year and a
short period between the base year and the initial period. If an SNF
has a short period in the base year and a short period between the base
year and the initial period, the instructions in section (a) should be
applied using the short period in the base year.
E. MDS Assessments
Under the SNF PPS, the Federal rate incorporates adjustments to
account for case-mix, using a resident classification system that
accounts for the relative resource utilization of different patient
types. This classification system, RUG-III, assigns beneficiaries into
one of 44
[[Page 41655]]
groups, using assessment data from the MDS that the SNF completes
according to an assessment schedule specifically designed for Medicare
payment.
In the interim final rule, we discussed issues relating to the use
of the RUG-III classification system under the SNF PPS, including
scheduling and other requirements pertaining to the MDS, use of the
RUG-III "grouper" software, and the use of an Other Medicare Required
Assessment (OMRA) in certain situations following the discontinuation
of rehabilitation therapy services.
In this section of the preamble, we are providing responses to
comments on a number of issues related to the use of the OMRA, grace
days, and the Health Insurance Prospective Payment System (HIPPS) codes
used to bill Medicare Part A covered SNF stays. We also address
comments and questions about the midnight rule and its effect on the
MDS schedule, and provide clarification regarding counting therapy
minutes on the MDS, as well as the requirements for the therapy plan of
treatment. In addition, we are responding to comments concerning
recognition of respiratory therapy and recreational therapy in the
payment rates and on the MDS.
Comment: We received numerous suggestions of ways to improve the
MDS instrument, the assessment schedule, and the classification system.
These comments included suggestions both to increase and decrease the
frequency of required MDS assessments, to improve the MDS staging of
pressure ulcers, ideas for modifications to individual RUG-III groups,
and commenters' requests that we be more directive in our rules about
how facilities are to spend the payments they receive from Medicare.
Response: We appreciate all of the suggestions and will consider
them in our future work in these areas. The comments were very specific
and too numerous to address in this context. Rather, the subject matter
and degree of specificity of some of these suggested changes would be
more appropriately addressed through manual issuances.
It is also worth noting that at this time, the SNF PPS has been in
effect in most facilities for less than 12 months. In the future, when
providers have achieved greater stability and familiarity with the
system, and we have additional data to guide our decisions, we can
consider making additional refinements such as those suggested by the
commenters.
1. Billing Issues
Comment: There were several questions submitted with the comments
regarding the HIPPS codes used for billing SNF PPS claims. The
questions focused on how to use these codes for billing as
distinguished from MDS coding instructions.
Response: Although these codes were not mentioned in the interim
final rule, we believe that it would be helpful and appropriate to
explain here what the HIPPS codes are as distinct from the MDS
information. The HIPPS codes are 5-character codes used solely for
billing the Medicare FI for the Part A SNF stay. The codes reflect the
RUG-III group into which the beneficiary classified and the reason for
the assessment used for determining the classification. The HIPPS code
does not appear anywhere on the MDS. The reason for assessment
reflected in the HIPPS code is based on information coded in items A8a
and A8b of the MDS, but is not a duplication of the data reported on
the MDS. Rather, a conversion must be made from the information on the
MDS to the reason for assessment identifier that comprises the last two
digits of the HIPPS code.
For instructions for billing on the Unified Billing Form 92 (UB-
92), see Transmittal 405 of the Provider Reimbursement Manual (PRM,
HCFA Pub. 15-1, 7/98) published on our website. These instructions are
sent to our FIs and are also available through them.
Further, in the context of billing procedures, we would also like
to use this opportunity to clarify our policy on Periodic Interim
Payments (PIP). Since the inception of the Medicare program, SNFs
reimbursed on the basis of reasonable costs received interim payments
during their cost reporting year for the cost of Part A services
provided to Medicare beneficiaries. For many years, SNFs have also been
permitted to receive PIP--interim payments paid in equal biweekly
amounts--for these services if they met the requirements in
Sec. 413.64(h) and received intermediary approval. Since July 1987, the
statutory authority for PIP for qualifying SNFs has been in section
1815(e)(2) of the Act. Section 1815(e)(1) of the Act was added to
include certain requirements, in addition to the requirements in
Sec. 413.64(h), specifically applicable to hospitals receiving
prospective payments under section 1886(d) of the Act in order for the
hospitals to receive PIP. Section 1815(e)(2) of the Act clarified that
the additional requirements applicable to those hospitals were not
applicable to other types of providers, including SNFs, entitled to
PIP. Accordingly, the regulations at Sec. 413.64(h) were revised to
provide for the continuing availability of PIP after July 1987 for
these other types of providers, including for Part A services provided
by SNFs.
Interim payments, including PIP, provide cost reimbursed providers
with estimated payments during the cost reporting year pending
submittal and subsequent settlement of a Medicare cost report. A
provider can submit its cost report to the intermediary as late as the
last day of the fifth month after the end of the cost reporting period.
Following submittal, the intermediary's determination of Medicare cost
reimbursement to the provider for services provided to beneficiaries
during the year cannot be made until the cost report is reviewed,
sometimes including audit of the provider's records. Because
determination of Medicare reimbursement takes place after the end of
the cost reporting year, interim payments are needed during the year
until this final payment can be determined.
Because a cost report is not required to calculate prospective
payments, interim payments are not necessary to a provider for services
paid on the basis of prospective payments. Nevertheless, with the
exception of special requirements for hospitals receiving prospective
payments under section 1886(d) of the Act, section 1815(e) currently
provides for the availability of PIP for certain services, including
Part A services provided by SNFs, if the requirements in Sec. 413.64(h)
are met. It does not prohibit PIP for SNFs receiving prospective
payments.
While the BBA eliminated PIP under the provisions mandating a PPS
for home health agencies (HHAs), the Congress made no such requirement
under the statutory provisions related to SNF PPS. This may be because,
like the preceding SNF payment system, the SNF PPS continues to rely on
a daily payment amount, while for the HHA PPS, changes in the unit of
payment were contemplated. However, at this time, we see no reason to
discontinue administratively our existing policy of allowing PIP for
qualified SNFs, though we may choose to evaluate its continuing need in
the future.
Therefore, we are permitting the continued availability of PIP for
services of SNFs paid under the PPS. For those services, PIP is based
on estimated prospective payments for the year rather than on estimated
cost reimbursement. An SNF receiving prospective payments, whether or
not it received PIP prior to receiving prospective payments, may
receive PIP if it meets the requirements in Sec. 413.64(h) and receives
approval by its intermediary. Likewise, if an intermediary determines
that an SNF which received PIP prior to
[[Page 41656]]
receiving prospective payments is no longer entitled to receive PIP, it
will remove the SNF from PIP. As provided in Sec. 413.64(h)(5),
intermediary approval of PIP is conditioned upon the intermediary's
best judgment as to whether payment can be made under the PIP method
without undue risk of its resulting in an overpayment to the provider.
An SNF can receive Medicare payment for the bad debts of Medicare
beneficiaries if it meets the requirements at Sec. 413.80 and
implementing instructions. Payment for these bad debts are not included
in the prospective payments but rather are claimed on the Medicare cost
report. Also, some SNFs may incur costs for an approved medical
education program or may incur other costs that are not included in the
prospective payment. Payment for these costs are determined based on
the completion of a Medicare cost report. Because final payment for
Medicare bad debts and for costs paid outside the prospective payment
system is not determined until the cost report is settled, it is
appropriate that SNFs which receive prospective payments should receive
estimated interim payments during the year for bad debts and for costs
paid outside the prospective payment system. Payments for these costs
are made in equal biweekly payments in the same manner as PIP. There is
no requirement for an SNF to meet in order to receive biweekly payments
for these costs because it is the only type of interim payment made for
them.
The new regulations providing for PIP for SNFs receiving
prospective payments and for biweekly interim payments for costs
outside the prospective payment system closely follow the regulations
at Sec. 412.116 which provide for PIP for hospitals receiving
prospective payments under section 1886(d) of the Act, as adjusted to
remove provisions specifically applicable to those hospitals. As with
Sec. 412.116 for hospitals and Sec. 413.64 for SNFs under the previous
cost-based system, these regulations for SNFs also provide for
accelerated payments in certain situations.
2. Corrections
Comment: We received several comments with questions and
suggestions regarding the policies governing the correction of MDS
errors and billing errors.
Response: The MDS corrections policy is set forth in the State
Operations Manual (SOM, HCFA Pub. 7) by HCFA's Center for Medicaid and
State Operations. The corrections policy applies to all users of the
MDS and, thus, is beyond the scope of this regulation. We address
issues and provide clarification of Medicare policy regarding how to
correct or adjust SNF Part A bills to the Medicare program in the
Provider Reimbursement Manual.
3. Other Medicare Required Assessment (OMRA)
Comment: There were a number of questions about the OMRA. These
included questions about when the OMRA is to be performed and whether
it is a full or comprehensive assessment.
Response: An OMRA is required 8 to 10 days after rehabilitation
therapy is discontinued for Medicare beneficiaries who have been
receiving rehabilitation therapy in the SNF. Specifically, there is
confusion regarding whether or not this assessment type is required in
certain circumstances. For example, when the beneficiary has no further
need for skilled care and has been moved out of the Medicare-certified
portion of the institution before the eighth day following the
cessation of rehabilitation services or when one or two of three
therapy services are discontinued. As stated in our corrections notice
to the interim final rule, published in the Federal Register on October
5, 1998 (63 FR 53301), the OMRA is not required to be a comprehensive
assessment. There are no PPS requirements for comprehensive assessments
(that is, those including Resident Assessment Protocols (RAPs)).
Comprehensive assessments are only required for clinical reasons, as
they have been since implementation of the nursing home reform
requirements enacted in the Omnibus Budget Reconciliation Act of 1987
(OBRA 87, Public Law 100-203).
An SNF must perform an OMRA only for those beneficiaries who
continue to have skilled care requirements after their rehabilitation
therapy services have been discontinued. For those beneficiaries who
are not ready for discharge from the facility, and who continue to
require a Medicare covered skilled level of care, an OMRA must be
performed in order to obtain an accurate classification into one of the
non-therapy RUG-III groups.
The assessment reference date of the OMRA must be set on day 8, 9,
or 10 after the last day any rehabilitation therapy services were
provided. 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-III groups. An OMRA will always result in
classification into a non-therapy RUG-III group. For the days between
the cessation of rehabilitation therapy and the assessment reference
date of the OMRA, the beneficiary continues to be covered at the
therapy RUG-III group level to which he or she was classified before
cessation.
We expect that there will be many cases in which the beneficiary
will be discharged from the facility shortly after rehabilitation
therapy services end. Before PPS, beneficiaries were often discharged
from the SNF immediately upon the discontinuation of rehabilitation
therapies. Likewise, many SNF residents who received rehabilitation
therapy services under Medicare Part A were moved to a non-Medicare
level of care following the cessation of therapy services. These same
patterns are expected to continue under the PPS.
In circumstances in which the beneficiary is discharged from the
facility (or from the Medicare-certified portion of a larger,
noncertified institution) before the eighth day following the end of
all rehabilitation therapy, there is no expectation by Medicare that an
OMRA will be performed. If the beneficiary remains in the Medicare-
certified facility through the eighth day following rehabilitation
therapy discontinuation, there must be some clinical reason for his or
her continuing skilled stay that is supported by documentation in the
medical record. We realize that there will be cases in which the
beneficiary stays in the SNF for a number of days after rehabilitation
therapy ends, in order for the facility staff to verify that his or her
status is stable and to assure that the plans for his or her next
destination are appropriate and in the best interests of the
beneficiary.
By contrast, always waiting to perform the OMRA to verify that the
beneficiary is stable and no longer in need of skilled nursing or
therapy services is not appropriate. A pattern of OMRA assessments
immediately preceding discharge from the facility, or from the Medicare
level of care within the facility, would indicate that perhaps the
facility is at times using those 8 to 10 days inappropriately. We
believe it is unfair to the beneficiary to use any of the 100 Medicare
SNF benefit days available in a benefit period unless he or she is
actually in need of skilled services. Likewise, it is an inappropriate
use of Medicare trust fund dollars for Medicare to pay for SNF days
that are not needed by the beneficiary.
The beneficiary should not be kept in a Medicare Part A stay if
skilled services are neither needed, nor being provided. We believe
that nursing homes' clinical staff should know when there are no
[[Page 41657]]
skilled services being provided to a beneficiary. Our guidelines
provided in the PRM (Transmittal 405) reinforce the expectation that
facilities may, and in fact are expected to, act in the best interest
of the beneficiary with regard to use of the beneficiary's limited SNF
benefit days, by ending Medicare Part A coverage appropriately. (See
also the discussion below regarding circumstances that serve to
discontinue a presumption that the SNF level of care requirement is met
by a beneficiary who has classified into one of the upper 26 RUG-III
groups.)
F. Certification and Recertification
Comment: We received a few comments regarding the statutory
requirement for initial certification and periodic recertification as
to level of care, as required under section 1814(a)(2) of the Act.
Response: The comments regarding this particular provision are
addressed later, in the discussion on coverage and level of care
determinations under the SNF PPS. However, we would like to take this
opportunity to clarify that the required certification and
recertification statements are not the same as any requirements
specifically related to the plan of treatment for therapy that is
required for purposes of coverage, or to the overall requirement for
the multidisciplinary plan of care required by the long-term care
facility requirements for participation at section 1819(b)(2) of the
Act.
G. MDS Scheduling Requirements
1. Grace Days
Comment: We received several comments asking about the appropriate
use of the 3-day grace period provided for the Medicare 5-day
assessment. There is some confusion about when use of the grace days
could result in the facility being at a high risk for an audit.
Response: Days six, seven, and eight, of the Medicare covered stay,
were provided as grace days for setting the assessment reference date
for the Medicare 5-day assessment. This assessment is to have an
assessment reference date (MDS 2.0 Item A3a) of any day one through
eight of the Medicare Part A stay. Days one through five are optimal
but days six through eight are also acceptable, and for some residents
may actually be more appropriate; for example, to allow maximum
flexibility for nurses to determine when to set the assessment
reference date for the beneficiary's MDS, and thereby lessen the burden
of the increased frequency of assessments that accompanied the PPS.
Thus, the resident can be assessed using any one of these first eight
days as the assessment reference date for the Medicare-required 5-day
assessment.
However, we discourage the routine use of grace days for assessing
every Medicare admission. We plan to identify patterns of inappropriate
use as we gain a better understanding of what facilities' practice
patterns are. When a facility routinely uses a grace day as the
assessment reference date for the 5-day assessment, it loses the
cushion that these days provide against performing the MDS later than
day eight and, thus, risks being faced with payment at the default
rate.
At this time our main interest is to encourage facilities to
perform assessments timely and to recognize the grace days as a cushion
and to use them as such, rather than as deadlines for setting each
beneficiary's assessment reference date. The grace days are also
provided to offset any incentive that facilities may have to initiate
therapy services before the beneficiary is able to tolerate that level
of activity.
Our discussion in the interim final rule about the possibility of
audits was intended to address the possible practice of routinely using
grace days for Medicare assessments. We were cognizant that the routine
use of a grace day for the 5-day assessment would pose a temptation to
back-date the assessment fraudulently when day eight was missed. We
believed that any facility that routinely used grace days for the
required assessments was liable to have assessments billed at the
default rate; and that the absence of default rate billings in the
facility's claims might indicate that some misrepresentation of the
assessment reference dates had occurred.
Unlike the routine use of grace days described above, we do expect
that many beneficiaries who classify into the rehabilitation category
will have 5-day assessment reference dates that fall on grace days.
There are many cases in which the beneficiary is not physically able to
begin therapy services until he or she has been in the facility for a
few days. Thus, for a beneficiary who does not begin receiving
rehabilitation therapy until the fifth, sixth, or seventh day of his or
her SNF stay, the assessment reference date may be set for one of the
grace days in order to capture an adequate number of days and minutes
in section P of the current version of the MDS to qualify the resident
for classification into one of the rehabilitation therapy RUG-III
groups.
Another reason for the provision of three grace days for the 5-day
assessment was to make it possible for beneficiaries to classify into
the two highest RUG-III rehabilitation sub-categories. Classification
into the Ultra High and Very High Rehabilitation sub-categories is not
possible unless the beneficiary receives the sub-category's minimum
level of services during the first seven days of the stay.
We also intended to minimize the incentive to facilities to provide
too high a level of rehabilitation therapy to newly admitted
beneficiaries. Having these extra few days allows time for those
beneficiaries who need it, to stabilize from the acute care setting and
be prepared for the beginning of rehabilitation in the SNF. We expect
facilities will not compromise any beneficiary's health by beginning
rehabilitation therapy prematurely or at a level that is too rigorous
for the individual's status. In summary, use of grace days is
acceptable and permitted for patients with any condition. However, a
facility that uses grace days routinely may be subject to audit to
determine that assessment reference dates are accurately reflected.
Comment: One commenter requested that we modify the statement at
section II.B.7 of the interim final rule that states SNFs "must submit
the Resident Assessment Protocols (RAPs) with either the 5-day or the
14-day assessment" to indicate that the SNFs must submit the completed
RAP Summary Form, section V of the MDS with either the 5-day or 14-day
assessment.
Response: This may be a helpful clarification for providers;
however, we want to be certain that providers fully understand this
requirement. We will take this opportunity to make clear that the RAPs
are not a PPS requirement. The requirements for completion of section V
and the care planning responsibilities of facility clinical staff are
unchanged by the PPS. We included the clinical requirement for RAPs in
the interim final rule in an effort to help providers to understand how
the Medicare required SNF PPS assessments coordinate with the required
clinical assessments.
The requirement for RAPs is entirely outside of the SNF PPS. In
fact, if the clinical initial admission assessment (item AA8a of the
MDS 2.0 = "01") was performed before the beneficiary started his
Medicare covered SNF stay, neither the Medicare required 5-day, nor the
Medicare 14-day assessment is required to have a completed section V.
There are no care planning requirements associated with any full MDS
assessment performed solely for the purpose of complying with the
Medicare assessment schedule for a Part
[[Page 41658]]
A Medicare beneficiary's SNF stay. The Medicare PPS requirements are
separate from the clinical requirements. However, we have designed the
Medicare requirements so that an SNF can coordinate the scheduling of
assessments to avoid duplication of effort.
2. Completion and Locking
For Medicare payment, we are requiring that any assessment,
including the 5-day, must be "completed" (that is, signed by all
members of the care team) within 14 days of the assessment reference
date (MDS item A3a). That is, the completion date at MDS item R2b, must
be a date that is within 14 days of the date at A3a. Then the
assessment must be "locked" within seven days of the date at R2b, and
transmitted to the State in which the SNF operates within 31 days of
the final lock date (State Operations Manual, HCFA Pub. 7).
However, there are other considerations to keep in mind. There is
still the clinical requirement that an Initial Admission Assessment
must be "completed" by the 14th day of the nursing home stay. This
means that for a Medicare beneficiary who is newly admitted to the SNF
for a covered Part A stay, the SNF must complete a comprehensive MDS by
day 14, regardless of the assessment reference dates on the Medicare-
required 5 day and 14 day assessments.
As has been the case since the OBRA 1987 requirements were
implemented, a comprehensive assessment (Initial Admission Assessment)
is due to be completed by the 14th day of the SNF stay. In addition,
for Medicare beneficiaries in the SNF for a covered Part A stay, a 5-
day assessment must be performed, with an assessment reference date on
any day one through eight of the Medicare Part A covered stay, and must
be completed within 14 days of the assessment reference date. Also, by
the end of the second week in the Medicare Part A covered stay, the
Medicare 14-day assessment must be performed. This assessment must have
an assessment reference date of any day 11 through 19 (including the 5-
day grace period provided for this assessment).
Given these requirements during the first weeks of the SNF stay,
and considering that Medicare Part A coverage often begins on the day
of admission, we believe that in many cases nursing homes will opt to
complete a single assessment to satisfy the requirements for both the
5-day (or 14-day) assessment and the Initial Admission Assessment. In
this example, the Medicare 5-day assessment, with an assessment
reference date of any day, one through eight of the stay, will be a
comprehensive assessment and will have to be completed within 14 days
of the start of the SNF stay. The day of admission is counted as day
one. The assessment must comply with the requirements for the Initial
Admission Assessment. That is, it must be a comprehensive assessment,
including the RAPs.
When the Medicare 5-day assessment is also used to fulfill the
requirement for the Initial Admission Assessment, the Medicare 14-day
assessment may be performed using any day 11 through 14 of the stay as
the assessment reference date (MDS item A3a) and, in addition, the SNF
may use the five available grace days (through day 19), if necessary.
The Medicare 14-day assessment must then be completed (dated at item
R2b) 14 days after the assessment reference date, locked in seven days,
and so forth. Keep in mind that there are no grace days for completion
of the Initial Admission Assessment. As always, the Initial Admission
Assessment must be completed by day 14. Another factor to consider in
timing completion and locking of assessments is that bills may only be
sent for assessments that have been locked.
3. Discharge and Leave of Absence
Comment: One commenter asked for a definition of "leave of
absence" as distinguished from a "discharge."
Response: Although this is not a distinction that is specific to
the PPS, we would like to define these terms in the context of
clarifying another somewhat misunderstood aspect of Medicare coverage,
the so-called "midnight rule" and the clinical requirements for
Discharge forms and Re-Entry Tracking forms. We received questions from
other commenters on how to handle cases in which the beneficiary is out
of the facility at the time of census-taking, midnight. These
activities are all interrelated and have generated many questions
during the initial phase of PPS implementation. There are a number of
reasons why a beneficiary may leave the SNF for a "leave of absence."
These include a temporary home visit, a temporary therapeutic leave, or
a hospital observational stay of less than 24 hours in which the
beneficiary is not formally admitted to the hospital and is not
discharged from the SNF. In each of these situations, there is no
requirement for the SNF to complete a Discharge or a Re-Entry Tracking
form.
When a beneficiary goes to an acute care hospital emergency room
(ER) during his or her SNF stay and is in the ER at midnight, there is
an additional aspect with regard to Medicare payment. According to
Medicare rules, the day preceding the midnight on which the beneficiary
was absent from the facility becomes a day for which the SNF may not
bill Part A of Medicare. This is known as the "midnight rule."
However, for clinical purposes, as long as the beneficiary returns to
the facility in less than 24 hours, was not admitted to the hospital,
and was not discharged from the SNF, this time in the ER is considered
a "leave of absence" and requires no discharge form.
Likewise, from the perspective of Medicare payment under PPS, there
is no requirement for any additional assessment. The day preceding the
midnight is not a covered Part A day and, therefore, the Medicare
assessment "clock" is altered by skipping that day in calculating
when the next Medicare assessment is due. From a clinical standpoint,
the leave of absence does not affect the "clock" for the clinical
assessments.
For example, if the beneficiary is due for his 30-day assessment on
March 30 (day 30 of his Medicare covered stay), but he spends midnight
of March 27 in the ER, day 30 of his Medicare Part A covered stay now
falls on March 31, as March 27 does not count as one of the
beneficiary's 100 days of Medicare SNF care. In other words, the count
of days in the Medicare covered stay changes when there is a noncovered
day because the facility cannot count that day as one of the
beneficiary's benefit days. Given the flexibility of the assessment
windows for the Medicare assessments, altering the count of days as
described here should have no more than a negligible effect on
assessment scheduling for facilities.
Of course, a beneficiary who is required to be in the ER at
midnight may well have experienced a significant change in clinical
status. In that case, the facility must comply with the clinical
requirement to complete a Significant Change in Status Assessment when
the beneficiary returns to the SNF. The Medicare payment requirements
and the midnight rule have no bearing on this requirement for
completion of a Significant Change in Status Assessment.
Alternatively, if the beneficiary is in the ER for more than 24
hours, or is actually admitted to the hospital or discharged from the
SNF, a Discharge Tracking form is required. In addition, when the
beneficiary returns to the SNF, a Re-Entry Tracking form is required,
and a Return/Readmission Assessment (MDS 2.0 item A8b=5) must be
performed to restart the Medicare assessment schedule. The Return/
[[Page 41659]]
Readmission Assessment fulfills the requirement for a Medicare 5-day
assessment in this situation, and the next required assessment would be
the Medicare 14-day assessment.
Finally, with regard to MDS scheduling requirements, we are taking
this opportunity to clarify the regulations text at Sec. 413.343(b),
which specifies the assessment schedule required under the SNF PPS. The
current language requires the performance of such assessments on the
5th, 14th, 30th, 60th, and 90th days "following admission." However,
as indicated in the preceding discussion, it is not the admission date
per se that determines the start of the Medicare assessment schedule,
but rather, the commencement of Medicare-covered care in the SNF.
Although Medicare-covered posthospital SNF care often does begin
immediately upon a beneficiary's admission to the SNF, the existing
language fails to address those situations in which such care does not
commence until sometime after the day of admission. The Medicare
required assessment schedule is based only on those days in the
Medicare Part A covered stay and, thus, cannot be scheduled based on
the day of admission per se. Therefore, we are revising the language in
the regulations text to take into account the possibility that a
beneficiary's "posthospital SNF care" (that is, SNF care that is
covered under Medicare Part A) may begin subsequent to the day of his
or her actual admission to the facility. The Medicare required
assessments are to be performed so that, using the first day of
posthospital SNF care as day 1, there is a full MDS assessment on the
5th day, the 14th day, the 30th day, the 60th day and the 90th day of
the SNF stay.
H. Other Medicare MDS Requirements
In the interim final rule, we stated that collection of medication
information using a revised version of section U of the MDS would be
required under PPS, beginning October 1, 1999. The criteria we
established for this process anticipated that a refined section U would
be developed to facilitate streamlined data collection, maximize data
accuracy, and minimize burden to facilities. We have, to date, made
considerable progress in our work on the section U refinements.
However, due to systems constraints resulting from the need to achieve
Year 2000 (Y2K) compliance (see the further discussion of the Y2K issue
below in the context of the partial delay in SNF consolidated billing
implementation), we will not be able to implement the refined version
of section U until after the first months of the year 2000 have passed.
Therefore, we have determined that the most straightforward and least
burdensome approach is to defer section U implementation until October
1, 2000.
I. Medical Review
Comment: We received several comments requesting that we publish
the medical review criteria to be used now that PPS is in place. Also,
there were requests that we institute consistent medical review
policies across FIs.
Response: We are currently formalizing the medical review criteria
that will be used in the review of SNF PPS bills. Certainly, one of the
primary goals of the new policy is to provide reviewers with guidelines
that will facilitate consistent national medical review policy, one of
the initial goals of implementing the PPS. We recently published a PM
(PM transmittal No. A-99-20, May 1999) to instruct medical reviewers in
the new process. One aspect of the reviews of SNF PPS bills to be
performed by the FIs focuses on the MDS information and its consistency
with the documentation in the rest of the medical record. In addition,
the review process focuses on identification of instances in which
inappropriate services were provided or in which the beneficiary did
not meet the requirements for Medicare Part A coverage in an SNF.
Comment: There were questions about how the MDS information might
be matched to claims data to facilitate monitoring or auditing of SNF
reporting practices.
Response: The process for matching the bill to the MDS takes place
at HCFA. We use the bill data forwarded to us by the FIs to match to
the appropriate MDS from the HCFA MDS Repository. From these matched or
unmatched files, we generate various reports for use by HCFA and the
FIs in their audit functions.
Comment: We received a comment requesting that we instruct FIs to
give demand bills a high priority within the review process and to
process these submissions no later than 30 days from the date of the
request.
Response: The policy governing how demand bills will be processed
under the SNF PPS will be determined by considering the FIs' overall
workloads, of which the SNF PPS represents only a small portion.
Comment: A commenter requested that we generate and disseminate to
the nursing home industry and to the payers, the full process of
transmission of clinical Medicare Part A information and claims
submission requirements, including documentation requirements needed by
the fiscal intermediary for late assessment reference dates.
Response: The requirements for the transmission of all MDS
assessments can be found in the Federal Register published on December
23, 1997 (62 FR 67174). There are no separate requirements for Medicare
Part A information. The facility must submit the MDS to the State in
which it operates and the State transmits it to us. In contrast, the
SNF submits claims to the FI, as they did before PPS. Each claim is
transmitted to us by the FI after it has been paid, and we match the
claim to the appropriate MDS. The FI may request any information it
deems to be necessary to verify the level of services billed by the
facility.
Comment: We received one comment suggesting that we should exempt
from post-payment review or on-site audit, any 5-day assessment with an
assessment reference date on one of the grace days that results in the
beneficiary's classification into a Low Rehabilitation group.
Response: This comment reflects a misunderstanding of our policy
regarding grace days. As explained above in this final rule, the grace
days are available for use, without penalty. The reference to audits in
the interim final rule was not intended to preclude any appropriate use
of the grace days. Therefore, although the comment indicates that
beneficiaries who classify into one of the low rehabilitation groups
should be exempt from review (presumably because of the requirement for
six days of nursing rehabilitation services in order to qualify for
this RUG-III group), there is no reason for us to consider excluding
any type of Medicare SNF claims from post-payment review.
Comment: Several commenters cited the BBA mandate that we must
implement a quality monitoring system. Section 4432(c) of the BBA
requires the Secretary to establish a medical review process to examine
the effects of the SNF and PPS related provisions on the quality of SNF
services furnished to Medicare beneficiaries, with particular emphasis
on the quality of non-routine covered services and Medicare-covered
physician services.
Response: The quality of care provided to beneficiaries is
paramount in our view. We will use our existing survey and enforcement
activities (along with the new techniques and data that are now
becoming available with the advent of prospective payment) to ensure
the quality of SNF services provided to Medicare beneficiaries.
[[Page 41660]]
In addition to the more traditional medical review process we are
establishing, as described above, we have also begun work toward the
establishment of a quality medical review process that is specifically
designed to fulfill the BBA mandate. We have developed an SNF PPS
Quality Medical Review Pilot project that uses MDS and other data to
monitor and target quality and program integrity problems. This
monitoring will be accomplished by testing a more integrated and
cooperative approach to medical review of SNF services using several
pilot states to partner Peer Review Organizations (PROs), FIs, State
Survey Agencies, and Medicaid agencies to assess, monitor, and improve
the quality of Medicare SNF services under the PPS.
We are implementing a two-tier strategy using the PRO Special
Project process. This strategy is expected to strengthen program
integrity and quality review in SNFs, promote SNF quality improvement,
deter fraud and abuse, and enhance beneficiary protection. The first
tier is a statistical analysis PRO (StatPRO), that is testing a data
driven approach which analyzes MDS data to flag potential quality of
care and program integrity problems. The MDS data set will be linked
with other HCFA data sets (such as, Medicare Part A and B claims,
OSCAR-Online Survey Certification and Reporting System, HCIS-HCFA
Customer Information System, FI payment, and program integrity data) to
identify patterns and trends in care. The second tier of the project
pilot tests a data based approach using StatPRO and other data to
examine State trends and variations in SNF data and patient care
through the collaboration of quality medical review (QMR) teams
composed of the PRO, FI, and State survey agency in two States (NC and
CO) and in three States (AZ, MA, and MD) the Medicaid Agency is added.
The QMR pilots will field test an integrated model where they will work
together to better understand each other's program integrity and
quality review roles, develop collaborative approaches within their
regulatory authority, test a targeted clinical data driven intervention
strategy, target beneficiary protection, and deterrence of fraud and
abuse. Finally, we will use the vast data resources available from the
national MDS data repository to support our quality initiatives.
J. Rehabilitation Therapy Services and PPS
Comment: Many commenters questioned when rehabilitation therapy may
begin in the SNF stay.
Response: Although rehabilitation therapy may begin as early as day
one of the Medicare Part A SNF stay, we note that all of the
rehabilitation therapy services (PT, OT, and SLP) must meet each of the
following criteria in order to be coded in the MDS as minutes of
rehabilitation therapy:
<bullet> The service must be ordered by a physician.
<bullet> The therapy intervention must relate directly and
specifically to an active written treatment regimen established by the
physician after any needed consultation with the qualified
rehabilitation therapy professional and must be reasonable and
necessary to the treatment of the beneficiary's illness or injury
(section 230 of the Medicare Skilled Nursing Facility Manual, HCFA Pub.
12).
<bullet> An appropriately licensed or certified individual must
provide or directly supervise the therapeutic service and coordinate
the intervention with nursing services.
Even though these three criteria are not new with PPS, the
establishment of a new payment system has heightened interest in
understanding and satisfying these standards. For instance, in addition
to the commenters' question about when rehabilitation therapy services
can begin, we have received many questions during the first year of PPS
implementation regarding standards for supervision of rehabilitation
therapy assistants and aides, and many questions regarding the
physician signature requirements for the rehabilitation therapy plan of
treatment. Accordingly, we will take this opportunity to provide
further clarification of those issues. The rehabilitation therapy
service must be ordered by a physician. The Medicare policy regarding
the requirement for the physician signature on the therapy plan of
treatment has not changed. As is stated in the SNF Manual,
rehabilitation therapy services provided to a beneficiary in a SNF must
be directly and specifically related to an active written treatment
plan established by the physician after any needed consultation with a
qualified therapist. Implementation of the PPS did nothing to alter
this guideline. We will, however, take this opportunity to clarify what
is required for coverage of rehab 
