Medicare Program: Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities; Final Rule. Click here to link to full text of this May 12, 1998 Federal Register Notice -

[Federal Register: May 12, 1998 (Volume 63, Number 91)][Rules and Regulations] [Page 26251-26316]From the Federal Register Online via GPO Access [wais.access.gpo.gov][DOCID:fr12my98-11][[Page 26251]] Part II Department of Health and Human Services Health Care Financing Administration _______________________________________________________________________

42 CFR Parts 409, et al.Medicare Program: Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities; Final Rule

[[Page 26252]]DEPARTMENT OF HEALTH AND HUMAN SERVICESHealth Care Financing Administration42 CFR Parts 409, 410, 411, 413, 424, 483, and 489[HCFA-1913-IFC]RIN 0938-AI47 Medicare Program; Prospective Payment System and Consolidated Billing for Skilled Nursing FacilitiesAGENCY: Health Care Financing Administration (HCFA), HHS.ACTION: Interim final rule with comment period. -----------------------------------------------------------------------

SUMMARY: This interim final rule implements provisions in section 4432 of the Balanced Budget Act of 1997 related to Medicare payment for skilled nursing facility services. These include the implementation of a Medicare prospective payment system for skilled nursing facilities, consolidated billing, and a number of related changes. The prospective payment system described in this rule replaces the retrospective reasonable cost-based system currently utilized by Medicare for payment of skilled nursing facility services under Part A of the program. DATES: These regulations are effective July 1, 1998. Comments will be considered if we receive them at the appropriate address, as provided below, no later than 5 p.m. on July 13, 1998.ADDRESSES: Mail an original and 3 copies of written comments to the following address:Health Care Financing Administration, Department of Health and Human Services, Attention: HCFA-1913-IFC, P.O. Box 26688, Baltimore, MD 21207-0488 If you prefer, you may deliver an original and 3 copies of your written comments to one of the following addresses:Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, D.C. 20201, orRoom C5-09-26, 7500 Security Boulevard, Baltimore, Maryland 21244-1850. Because of staffing and resource limitations, we cannot accept comments by facsimile (FAX) transmission. In commenting, please refer to file code HCFA-1913-IFC. Comments received timely will be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, in Room 309-G of the Department's offices at 200 Independence Avenue, SW., Washington, D.C., on Monday through Friday of each week from 8:30 a.m. to 5 p.m. (phone: (202) 690-7890). Copies: To order copies of the Federal Register containing this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 or by faxing to (202) 512-2250. The cost for each copy is $8. As an alternative, you can view and photocopy the Federal Register document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the Federal Register. This Federal Register document is also available from the Federal Register online database through GPO Access, a service of the U.S. Government Printing Office. Free public access is available on a Wide Area Information Server (WAIS) through the Internet and via asynchronous dial-in. Internet users can access the database by using the World Wide Web; the Superintendent of Documents home page address is http://www.access.gpo.gov/su__docs/, by using local WAIS client software, or by telnet to swais.access.gpo.gov, then login as guest (no password required). Dial-in users should use communications software and modem to call (202) 512-1661; type swais, then login as guest (no password required).

FOR FURTHER INFORMATION CONTACT:Laurence Wilson, (410) 786-4603 (for general information). John Davis, (410) 786-0008 (for information related to the Federal rates).Dana Burley, (410) 786-4547 (for information related to the case-mix classification methodology).Steve Raitzyk, (410) 786-4599 (for information related to the facility-specific transition payment rates).Bill Ullman, (410) 786-5667 (for information related to consolidated billing and related provisions).

SUPPLEMENTARY INFORMATION: To assist readers in referencing sections contained in this document, we are providing the following table of contents.Table of ContentsI. BackgroundA. Current System for Payment of Skilled Nursing Facility Services Under Part A of the Medicare ProgramB. Requirement of the Balanced Budget Act of 1997 for a Prospective Payment System for Skilled Nursing FacilitiesC. Summary of the Development of the Medicare Prospective Payment System for Skilled Nursing FacilitiesD. Skilled Nursing Facility Prospective Payment System--General Overview 1. Payment Provisions--Federal Rate 2. Payment Provisions--Transition Period 3. Payment Provisions--Facility-Specific Rate 4. Implementation of the Prospective Payment System (PPS)E. Consolidated Billing for Skilled Nursing FacilitiesII. Prospective Payment System for Skilled Nursing FacilitiesA. Federal Payment Rates 1. Cost and Services Covered by the Federal Rates 2. Data Sources Utilized for the Development of the Federal Rates a. Cost Report Data b. Estimate of Part B Payments c. Hospital Wage Index d. Case-Mix Indices e. MEDPAR Case-Mix Analog (1) Rehabilitation Category (2) Non-Rehabilitation Categories (3) Case-Mix Using the Analog f. Skilled Nursing Facility Market Basket Index 3. Methodology Used for the Calculation of the Federal Rates a. Per Diem Costs b. Updating the Data c. Standardization of Cost Data d. Computation of National Standardized Payment RatesB. Design and Methodology for Case-Mix Adjustment of Federal Rates 1. Background on the Resource Utilization Groups (RUGs) Patient Classification System 2. The RUG-III Classification System 3. Use of RUG-III ``Grouper'' Software 4. Determining the Case-Mix Indices 5. Application of the RUG-III System 6. Use of the Resident Assessment Instrument--Minimum Data Set (MDS 2.0) 7. Required Schedule for Completing the MDS 8. The Relationship Between Payment and the MDS 9. Assessments and the Transition to the Prospective Payment System a. Medicare Beneficiaries Receiving Part A Benefits Admitted Within the Past 30 Days b. Medicare Beneficiaries Receiving Part A Benefits Admitted Over 30 Days Prior c. Medicare Part A Beneficiaries With Less Than 14 Days of Medicare Eligibility Remaining 10. Late Assessments 11. The Default Rate[[Page 26253]] 12. Case-Mix Adjusted Federal Payment RatesC. Wage Index Adjustment to Federal RatesD. Updates to the Federal RatesE. Relationship of RUG-III Classification System to Existing Skilled Nursing Facility Level of Care CriteriaIII. Three-Year Transition PeriodA. Determination of Facility-Specific Per Diem Rates 1. Part A Cost Determination a. Freestanding Skilled Nursing Facilities (1) Skilled Nursing Facilities Without an Exception for Medical and Paramedical Education (Sec. 413.30(f)(4)) or a New Provider Exemption in the Base Year (2) Skilled Nursing Facilities With an Exception for Medical and Paramedical Education in the Base Year (3) Skilled Nursing Facilities With New Provider Exemptions From the Cost Limits in the Base Year b. Hospital-Based Skilled Nursing Facilities (1) Skilled Nursing Facilities Without an Exception for Medical and Paramedical Education or a New Provider Exemption (2) Skilled Nursing Facilities With an Exception for Medical and Paramedical Education in the Base Year (3) Skilled Nursing Facilities With Exemptions From the Cost Limits in the Base Year c. Medicare Low Volume Skilled Nursing Facilities Electing Prospectively Determined Payment Rate (Fewer Than 1500 Medicare Days) (1) Providers Filing HCFA-2540-S-87 (2) Providers Filing HCFA-2540 or HCFA-2552 d. Providers Participating in the Multistate Nursing Home Case-Mix and Quality Demonstration--Calculation of the Prospective Payment System Rate e. Base Period Cost Reports That Are Adjusted for Exception Amounts or Other Post Settlement AdjustmentsB. Determination of the Part B EstimateC. Calculation of the Facility-Specific Per Diem RateD. Computation of the Skilled Nursing Facility Prospective Payment System Rate During the TransitionIV. The Skilled Nursing Facility Market Basket IndexA. Rebasing and Revising of the Skilled Nursing Facility Market Basket 1. Background 2. Rebasing and Revising of the Skilled Nursing Facility Market BasketB. Use of the Skilled Nursing Facility Market Basket Percentage 1. Facility-Specific Rate Update Factor a. Short Period in Base Year b. Short Period in Initial Period c. Short Period Between Base Year and Initial Period 2. Federal Rate Update FactorV. Consolidated BillingA. Background of the Skilled Nursing Facility Consolidated Billing ProvisionB. Skilled Nursing Facility Consolidated Billing Legislation 1. Specific Provisions of the Legislation 2. Types of Services That Are Subject to the Provision 3. Facilities That Are Subject to the Provision 4. Skilled Nursing Facility ``Resident'' Status for Purposes of This Provision 5. Effects of This ProvisionC. Effective Date for Consolidated BillingVI. Changes in the RegulationsVII. Response to CommentsVIII. Waiver of Proposed RulemakingIX. Regulatory Impact StatementA. BackgroundB. Impact of This Interim Final Rule 1. Budgetary Impact 2. Impact on Providers and SuppliersC. Rural Hospital Impact StatementX. Collection of Information RequirementsRegulations Text Appendix A--Technical Features of the 1992 Skilled Nursing Facility Total Cost Market Basket IndexI. Synopsis of Structural Changes Adopted in the Revised and Rebased 1992 Skilled Nursing Facility Total Cost Market BasketII. Methodology for Developing the Cost Category WeightsIII. Price Proxies Used To Measure Cost Category Growth 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 livingAHEs Average Hourly EarningsBBA 1997 Balanced Budget Act of 1997BEA [U.S.] Bureau of Economic AnalysisBLS [U.S.] Bureau of Labor StatisticsCAH Critical access hospitalCFR Code of Federal RegulationsCPI Consumer Price IndexCPI-U Consumer Price Index for All Urban ConsumersCPT [Physicians'] Current Procedural TerminologyECI Employment Cost IndexFI Fiscal intermediaryHCFA Health Care Financing AdministrationHCPCS HCFA Common Procedure Coding SystemICD-9-CM International Classification of Diseases, Ninth Edition, Clinical Modification MDS Minimum Data SetMEDPAR Medicare provider analysis and review fileMSA Metropolitan Statistical AreaNECMA New England County Metropolitan AreaPCE Personal Care ExpendituresPPI Producer Price IndexPPS Prospective payment systemRAI Resident Assessment InstrumentRAPs Resident Assessment Protocol GuidelinesRUG Resource Utilization GroupSNF Skilled nursing facilitySTM Staff time measureI. BackgroundA. Current System for Payment of Skilled Nursing Facility Services Under Part A of the Medicare Program Under the present payment system, Medicare skilled nursing facility (SNF) services are paid according to a retrospective, reasonable cost-based system. Under Medicare payment principles set forth in section 1861 of the Social Security Act (the Act) and part 413 of the Code of Federal Regulations (CFR), SNFs receive payment for three major categories of costs: routine costs, ancillary costs, and capital-related costs. In general, routine costs are the costs of those services included by the provider in a daily service charge. Routine service costs include regular room, dietary, nursing services, minor medical supplies, medical social services, psychiatric social services, and the use of certain facilities and equipment for which a separate charge is not made. Ancillary costs are costs for specialized services, such as therapy, drugs, and laboratory services, that are directly identifiable to individual patients. Capital-related costs include the costs of land, building, equipment, and the interest incurred in financing the acquisition of such items. Under Medicare rules, the reasonable costs of ancillary services and capital-related expenses are paid in full. Routine operating costs are also paid on a reasonable cost basis, subject to per diem limits. Sections 1861(v)(1) and 1888 of the Act authorize the Secretary to set limits on the allowable routine costs incurred by an SNF. In addition, section 1888(d) of the Act gives low Medicare volume SNFs the option of receiving a single prospectively determined payment rate for routine operating and capital-related costs in lieu of the normal reasonable cost reimbursement method. A SNF may elect this payment method only if it had fewer than 1,500 Medicare covered inpatient days in its immediately preceding cost reporting period. An SNF's prospective payment rate under section 1888(d) of the Act, excluding capital-related costs, cannot exceed its routine service cost limits. Under this payment method, ancillary costs are still a pass-through cost.B. Requirement of the Balanced Budget Act of 1997 for a Prospective Payment System for Skilled Nursing Facilities Section 4432(a) of the Balanced Budget Act of 1997 (BBA 1997) (Public Law 105-33), enacted on August 5, 1997, amended section 1888 of the Act by adding subsection (e). This[[Page 26254]]subsection requires implementation of a Medicare SNF prospective payment system (PPS) for all SNFs for cost reporting periods beginning on or after July 1, 1998. Under the PPS, SNFs will be paid under a PPS applicable to all covered SNF services. These payment rates will encompass all costs of furnishing covered skilled nursing services (that is, routine, ancillary, and capital-related costs) other than costs associated with operating approved educational activities. Covered SNF services include posthospital SNF services for which benefits are provided under Part A (the hospital insurance program) and all items and services (other than services excluded by statute) for which, prior to July 1, 1998, payment may be made under Part B (the supplementary medical insurance program) and which are furnished to SNF residents during a Part A covered stay. Section 1888(e)(4) of the Act provides the basis for the establishment of the per diem Federal payment rates applied under the PPS. It sets forth the formula for establishing the rates as well as the data on which they are based. In addition, this section requires adjustments to such rates based on geographic variation and case-mix and prescribes the methodology for updating the rates in future years. Section 1888(e)(2) sets forth a requirement applicable to most providers for a transition phase covering the first three cost reporting periods under the PPS. During this transition phase, SNFs will receive a payment rate comprised of a blend between the Federal rate and a facility-specific rate based on historical costs. Section 1888(e)(3) prescribes the methodology for computing the facility- specific rates. In addition to the payment methodology, section 4432(a) of the BBA 1997 added several other provisions to the Act related to the implementation and administration of the PPS. Section 1888(e)(8) prohibits judicial or administrative review on matters relating to the establishment of the Federal rates. This includes the methodology used in the computation of the Federal rates, the case-mix methodology, and the development and application of the wage index. This limitation on judicial and administrative review also extends to the establishment of the facility-specific rates, except the determinations of reasonable cost in the fiscal year 1995 cost reporting period used as the basis for these rates. In addition, section 1888(e)(7) requires the application of the PPS to extended care services furnished in hospital swing bed units. However, this requirement is to be implemented no earlier than cost reporting periods beginning on July 1, 1999 and no later than for cost reporting periods beginning in the 12-month period starting on July 1, 2001. Accordingly, we are not revising the payment regulations for swing-bed hospitals (42 CFR 413.114) at this time, but will do so at a later date. Finally, section 4432(c) of the BBA 1997 requires the Secretary to establish a medical review process to examine the impact of the PPS, consolidated billing, and other related changes set forth in this rule on the quality of SNF services provided to Medicare beneficiaries. This medical review process will place a particular emphasis on the quality of non-routine covered ancillary and physician services. C. Summary of the Development of the Medicare Prospective Payment System for Skilled Nursing Facilities The prospective payment system described in the following sections is the culmination of substantial research efforts beginning as early as the 1970s, focusing on the areas of nursing home payment and quality. In addition, it is based on a foundation of knowledge and work by a number of States that have developed and implemented similar payment methodologies for their Medicaid nursing home payment systems. Over the last 20 years, approximately 25 nursing home case-mix payment systems have been implemented by such States as New York, Ohio, West Virginia, and Texas. Building on earlier research, the Health Care Financing Administration (HCFA) funded the development of the Multistate Nursing Home Case-Mix and Quality Demonstration in 1989. The purpose of this project was to design, implement, and evaluate a Medicare nursing home prospective payment and quality monitoring system across several States. These States were Kansas, Maine, Mississippi, New York, South Dakota, and Texas. The 3-year demonstration was implemented in 1995. The current focus in the development of State and Federal payment systems for nursing home care rests on explicit recognition of the differences among residents, particularly in the utilization of resources. Recognition of these differences ensures that payment levels are adequate to support quality and access to care, especially for more costly resource intensive patients. In a case-mix adjusted payment system, the amount of payment given to the nursing home for care of a resident is tied to the intensity of resource use (for example, hours of nursing or therapy time needed per day) and/or other relevant factors (for example, requirement for a ventilator). The focus of the demonstration was on the development and testing of such a case-mix PPS. A case-mix system measures the intensity of care and services required for each resident and then translates it into a payment level. As discussed above, a number of States do have case-mix prospective payment systems for their Medicaid nursing home benefits. However, most of these payment systems were not readily transferrable to Medicare due to the relative differences in the resident populations served by each program. While naturally there is overlap, Medicare generally serves a more postacute resident population while Medicaid generally serves a longer-term custodial care population. As a result of these differences, the development phase of the Multistate demonstration was devoted to developing a case-mix classification system appropriate for the Medicare population. The demonstration, like the national PPS set forth in this rule, utilized information from the Minimum Data Set (MDS) resident assessment instrument to classify residents into resource utilization groups (RUGs), which account for the relative resource use of different patient types. This classification system and its relationship to the MDS and the PPS are described in detail elsewhere in this rule.D. Skilled Nursing Facility Prospective Payment--General Overview As described above, the BBA 1997 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 in accordance with the present 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 operating approved educational activities. Covered SNF services include posthospital SNF services for which benefits are provided under Part A and all items and services for which, prior to July 1, 1998, payment had been made under Part B (other than physician and certain other services specifically excluded under the BBA 1997) but furnished to SNF residents during a Part A covered stay.[[Page 26255]]

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