[Federal Register Volume 59, Number 109 (Wednesday, June 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13506]
[[Page Unknown]]
[Federal Register: June 8, 1994]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Part 413
[BPD-409-P]
RIN 0938-AD02
Medicare Program; Optional Payment System for Low Medicare Volume
Skilled Nursing Facilities
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would implement section 9126 of the
Consolidated Omnibus Budget Reconciliation Act of 1985 by allowing
skilled nursing facilities (SNFs) that provide fewer than 1,500 days of
care to Medicare beneficiaries in a cost reporting period to have the
option of receiving prospectively determined payment rates in the
following cost reporting period. The prospectively determined payment
rates would be based on components of SNF costs such as routine
operating costs, capital-related costs, and a return on equity for
proprietary facilities for routine services furnished before October 1,
1993. This proposed rule would also specify, as required by section
13503(c) of the Omnibus Budget Reconciliation Act of 1993, that the
return on equity provision for proprietary SNFs is eliminated for
services furnished on or after October 1, 1993.
DATES: Comments will be considered if we receive them at the
appropriate address, as provided below, no later than 5 p.m. on August
8, 1994.
ADDRESSES: Mail written comments (1 original and 3 copies) to the
following address: Health Care Financing Administration, Department of
Health and Human Services, Attention: BPD-409-P, P.O. Box 7517,
Baltimore, MD 21207.
If you prefer, you may deliver your written comments (1 original
and 3 copies) to one of the following addresses:
Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201, or
Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore,
MD 21207.
Because of staffing and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code BPD-409-P. 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,
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m.
(phone: (202) 690-7890).
For comments that relate to information collection requirements,
mail a copy of comments to: Allison Herron Eydt, HCFA Desk Officer,
Office of Information and Regulatory Affairs, Room 3001, New Executive
Office Building, Washington, DC 20503.
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) 783-3238 or by faxing to (202) 275-
6802. The cost for each copy is $4.50. 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.
FOR FURTHER INFORMATION CONTACT:
David Goldberg--Simplified Cost Reporting (410) 966-4517
Robert Kuhl--All Other Issues (410) 966-4597
SUPPLEMENTARY INFORMATION:
I. Background
A. Payment on a Reasonable Cost Basis
Skilled nursing facilities (SNFs) are paid on the basis of
reasonable cost as defined by section 1861(v)(1) of the Social Security
Act (the Act). Under this section, the Secretary is also authorized to
establish limits on the allowable costs incurred by providers of health
care services, such as SNFs, in furnishing care to Medicare
beneficiaries. The limits are based on estimates of the costs necessary
for the efficient delivery of needed health services. Implementing
regulations appear at 42 CFR 413.30.
Sections 1861(v)(1)(A), (v)(1)(E), (v)(7), and 1888 of the Act
provide authority for the payment of routine service costs to SNFs.
Section 1888 of the Act provides for the following:
Separate cost limits for hospital-based and freestanding
SNFs.
Cost limits for freestanding SNFs are to be set at 112
percent of the mean inpatient routine service costs for freestanding
SNFs in urban and rural areas respectively.
Cost limits for hospital-based SNFs are to be set at the
freestanding limit plus 50 percent of the difference between 112
percent of mean per diem hospital-based inpatient routine service costs
for urban and rural SNFs, respectively, and the freestanding limit.
For cost reporting periods beginning before October 1,
1993, cost differences between hospital-based and freestanding SNFs
attributable to excess overhead allocations resulting from Medicare
payment principles are recognized as an add-on to the cost limit for
hospital-based SNFs, as determined by the Secretary. Section
13503(a)(3) of the Omnibus Budget Reconciliation Act of 1993 (Pub. L.
103-66) eliminated this add-on for cost reporting periods beginning on
or after October 1, 1993.
B. Legislation
On April 7, 1986, the Consolidated Omnibus Budget Reconciliation
Act of 1985 (Pub. L. 99-272) was enacted. Section 9126(a) of Public Law
99-272 added a new section (d) to section 1888 of the Act to require
the establishment of prospectively determined payment rates for routine
services furnished by certain SNFs. (Technical changes to section
1888(d) of the Act were subsequently made in sections 1895(b)(7)(A) and
(b)(7)(B) of the Tax Reform Act of 1986 (Pub. L. 99-514).)
In response to a strong interest by Congress in beneficiary access
to SNF care, HCFA conducted a study of SNF payment on a reasonable cost
basis. The first results of this study were reported to Congress in
1985 (See Health Care Financing Review, Fall 1986, Vol. 8, No. 1). This
study showed that it was widely believed that the current payment
system contributed to the limited access to care and that the reporting
burden involved plus the time delay in determining exact payment
amounts inherent in this system due to retrospective payment
adjustments may have discouraged facilities that would have had a low
Medicare patient load from furnishing services to Medicare
beneficiaries. A change was needed to increase beneficiary access to
SNF services by easing the reporting burden for low volume SNFs. In
enacting section 9126(a) of Public Law 99-272, Congress made this
change possible.
Section 1888(d) of the Act provides that the prospectively
determined payment rate is optional for the eligible SNFs, and it is to
be determined on a per diem basis for the cost of furnishing inpatient
routine services and associated capital-related costs. As specified in
the Conference Committee Report accompanying Public Law 99-272 (H.R.
Rep. No. 453, 99th Cong., 2nd Sess. 480 (1985)), the rates paid to
proprietary SNFs were to include a component for return on equity
related to routine service costs.
The specific provisions of section 9126 of Public Law 99-272 are as
follows:
Requirements for Eligibility To Receive SNF Prospectively
Determined Payment Rate: Maximum Medicare Inpatient Days
Under section 1888(d)(1) of the Act, SNFs that had fewer than 1,500
Medicare inpatient days in one cost reporting period have the option of
being paid on the basis of a prospectively determined payment rate in
the following cost reporting period.
Determining the Amount of Payment for Routine Services
Section 1888(d)(2) of the Act requires that the amount of payment
under the SNF prospectively determined payment rate system be
determined on a per diem basis. However, it may not exceed the limit on
routine service costs set forth in section 1888(a) of the Act with
respect to the facility, adjusted to take into account average capital-
related costs with respect to the type and location of the facility.
The limit used for this purpose is the applicable routine service cost
limit in effect when the provider elects to be paid a prospectively
determined payment rate.
For SNFs located in an urban area, the prospectively determined
payment amount is equal to 105 percent of the mean of the per diem
reasonable routine service and routine capital-related costs of
services for SNFs in urban areas within the same census region. The
mean per diem is determined without regard to the limitations of
section 1888(a) of the Act and is adjusted for different area wage
levels.
For SNFs located in a rural area, the prospectively determined
payment amount is equal to 105 percent of the mean of the per diem
reasonable routine service and routine capital-related costs of covered
services for SNFs in rural areas within the same census region. The
mean per diem is determined without regard to the limitations of
section 1888(a) of the Act and is adjusted for different area wage
levels.
Determining Area Prospectively Determined Payment Rates
Section 1888(d)(3) of the Act requires that, for purposes of
determining SNF prospectively determined payment rates, urban and rural
areas be determined in the same manner as for purposes of section
1888(a) of the Act (that is, the provisions governing the SNF cost
limits). It further requires that the term ``region'' have the same
meaning as that under section 1886(d)(2)(D) of the Act. That section
defines ``region'' for purposes of the inpatient hospital prospective
payment system as one of the nine census divisions, comprising the 50
States and the District of Columbia, that are established by the Bureau
of the Census for statistical and reporting purposes. Since rates must
be determined on a regional basis, eligibility is limited to SNFs
within the areas for which rates are available.
Notification Required
Under section 1888(d)(4) of the Act, the Secretary is required to
establish the prospectively determined payment rates for each Federal
fiscal year, at least 90 days prior to the beginning of that fiscal
year. The law also requires an SNF to notify the Secretary of its
intention to be paid a prospectively determined payment rate no later
than 30 days before the beginning of the cost reporting period for
which the request is made.
Cost Report Simplification
Under section 1888(d)(5) of the Act, the Secretary is required to
provide for a simplified cost report to be filed by SNFs being paid
under prospectively determined payment rates. This cost report must
require only the cost information necessary for determining
prospectively determined payment rates in accordance with section
1888(d)(2) of the Act and reasonable costs of ancillary services.
Payment for Ancillary Services
Section 1888(d)(6) of the Act provides that, in the case of an SNF
receiving prospectively determined payment rates, the Secretary may pay
for ancillary services on a reasonable charge basis, rather than on a
cost basis, if the Secretary determines that a reasonable charge basis
provides an equitable level of payment and eases the SNF's reporting
burden.
Costs of Implementing Nursing Home Reform Provisions
Section 1888(d)(7) of the Act requires that the computation of the
rates of payment take into account the additional costs of implementing
nursing home reform provisions (including the costs of conducting nurse
aide training and competency evaluation programs). In the manual
issuances effective on or after October 1, 1989, we have allowed for an
adjustment to the prospectively determined payment rates to account for
these additional costs. However, this adjustment is necessary only if
the cost data used to develop the prospectively determined payment
rates were compiled from cost reporting periods that began prior to
October 1, 1990, the effective date of the nursing home reform
provisions. In the future, when later cost report data reflect these
additional costs, the resulting prospectively determined payment rates
will automatically include these costs and an adjustment will not be
necessary. Therefore, we believe that it is not necessary to implement
this provision in the proposed regulations.
In addition, section 9311(a) of the Omnibus Budget Reconciliation
Act of 1986 (Pub. L. 99-509), which was enacted on October 21, 1986,
amended section 1815 of the Act to identify situations in which we are
to provide (or continue to provide) payment on a periodic interim
basis. Section 1815(e)(2)(C) of the Act specifically directs that
periodic interim payments be made available to facilities furnishing
extended care services, including facilities being paid on a reasonable
cost basis as well as those being paid prospectively determined payment
rates.
Section 1815(e)(2) of the Act provides that periodic interim
payments be made under the standards established under Sec. 405.454(j)
of the regulations (now redesignated as Sec. 413.64(h); see 51 FR
34790, September 30, 1986). Section 413.64(h)(2) sets forth the
requirements that providers of health care services (such as SNFs) must
meet in order to qualify for periodic interim payments. The
requirements concern the level of a provider's estimated annual
Medicare payment, whether a Medicare cost report has been filed, and
recordkeeping and financial matters.
While SNFs that elect prospectively determined payment rates may
qualify for periodic interim payments, we note that electing a bill-by-
bill payment method has the advantage of providing a payment amount for
routine services under prospectively determined payment rates that
would not create the need for retroactive payment adjustments. Such
adjustments would be necessary under the periodic interim payment
method and are the source of some criticism under payment on a
reasonable cost basis.
On August 10, 1993, Public Law 103-66 was enacted. Section 13503(c)
of Public Law 103-66 amended section 1861(v)(1)(B) of the Act to
eliminate the provision for payment for a return on equity for services
furnished by proprietary SNFs on or after October 1, 1993. Also, we
note that section 13503(b) states that the Secretary may not change the
amount of any prospectively determined payment rate paid to a SNF under
section 1888(d) of the Act for services furnished during cost reporting
periods beginning during FYs 1994 and 1995, except as necessary to take
into account the elimination of the return on equity provision.
C. Manual Issuance
As noted above, section 1888(d) of the Act, as enacted by section
9126(a) of Public Law 99-272, provides for the optional prospectively
determined payment rate system for SNF routine services. In order to
provide the public with information on the rates as soon as possible
and to implement the prospectively determined rates, we issued sections
2820 through 2822 of Chapter 28 of the Provider Reimbursement Manual
(HCFA Pub. 15-1) in August 1986.
In the manual transmittal, we provided guidelines for implementing
per diem prospectively determined payment rates for SNF routine
services. The rates were effective for cost reporting periods beginning
on or after October 1, 1986, but before October 1, 1987. Additional
transmittals were issued providing rates for subsequent cost reporting
periods. The provisions of Chapter 28 of the Provider Reimbursement
Manual closely adhere to the requirements of section 1888(d) of the
Act, as described below. In calculating the prospectively determined
payment rates announced in the manual transmittals, we used the most
recent data available at that time.
The provisions of Chapter 28 of the Provider Reimbursement Manual
are as follows:
Eligibility Criteria
We stipulated the statutory criterion that an SNF may choose to be
paid under the prospectively determined payment rate option for general
inpatient routine services if the facility had, in its immediately
preceding cost reporting period, fewer than 1,500 Medicare patient
days.
Classification Criteria
For prospectively determined payment rate purposes, we grouped SNFs
by census region, and by urban area or rural area designation within
the region. As required by section 1888(d)(3) of the Act and as stated
above, the term ``region'' means one of the nine census divisions,
comprising the fifty States and the District of Columbia. The term
``urban area'' means an area within a Metropolitan Statistical Area
(MSA) (as defined by the Office of Management and Budget (OMB)). The
term ``rural area'' means any area outside an urban area.
Adjustment of SNF Cost Data by Wage Index
We adjust the labor portion of the prospectively determined payment
rate to account for area wage differences through the application of an
appropriate wage index.
The labor-related costs are those costs in the market basket that
change with local wage variations. This method of adjusting labor-
related costs is the same as that used in implementing the current SNF
limits. The wage index values are the same as those used to compute the
SNF limits in effect for the same period as the prospectively
determined payment rates.
Use of SNF Market Basket Index
We based the prospectively determined payment rate on reported
costs, adjusted for actual and projected cost increases by applying the
SNF market basket index. The methodology of applying this index is the
same as that described in our October 7, 1992 notice of SNF limits (57
FR 46177). Capital costs are not adjusted for inflation because
depreciation is fixed on a straight line basis, capital-related
interest is long term fixed rate debt and, where appropriate, return on
equity can fluctuate from year to year. We cannot predict the amount or
direction of fluctuations in equity.
Ancillary Services
For SNFs electing to receive payment under prospectively determined
payment rates, ancillary services are paid on the basis of reasonable
cost with retroactive adjustment based on an annual cost report.
II. Discussion of Proposed Regulations
We stated in the original manual transmittal discussed above that
we planned to pursue rulemaking to establish a framework in regulations
for payment to SNFs under prospectively determined payment rates.
Below, we describe proposed regulations that would be effective for
revising the prospectively determined payment rates for the Federal
fiscal year that begins at least 30 days after the publication of a
final rule. In the interim, we will continue to update the
prospectively determined payment rates through Chapter 28 of the
Provider Reimbursement Manual.
We are proposing to add a new Subpart I, Optional Prospectively
Determined Payment Rates for Certain Skilled Nursing Facilities, to 42
CFR part 413. This new subpart would set forth regulations that are
consistent with the statutory changes to section 1888 of the Act made
by provisions in Public Laws 99-272, 99-514, and 103-66.
A. General Provisions
We are proposing to add new Sec. 413.300 to introduce the contents
of Subpart I. This section would broadly list the conditions and
procedures for making prospectively determined payments to qualifying
SNFs. In new Sec. 413.302, we would provide definitions of the terms
``area wage level'', ``census region'', ``routine operating costs'',
``routine capital-related costs'', and ``urban'' and ``rural'' areas as
described above.
B. Eligibility Criteria
We are proposing to add new Sec. 413.304 to describe the
eligibility criteria specified in section 1888(d)(1) of the Act. SNFs
that furnished fewer than 1,500 Medicare covered inpatient days in a
cost reporting period as reported on the Medicare cost report would be
allowed the option of being paid on the basis of prospectively
determined payment rates during the next cost reporting period. If an
SNF's preceding Medicare cost reporting period was shorter than a full
calendar year, it must have had an average daily Medicare census (that
is, the total Medicare inpatient days divided by the total number of
inpatient days) for the period of not greater than 4.1 to qualify for
prospectively determined payment. This figure was determined by
dividing 1,499 (that is, the largest number of Medicare inpatient days
fewer than 1,500) by the number of days in a calendar year. If there is
no preceding cost reporting period for which an SNF was approved for
Medicare participation, we propose that the SNF would automatically
qualify for prospectively determined payment.
C. Approval Process
In the new Sec. 413.308, we would establish rules to govern the
process by which SNFs may request and be approved for payment under the
prospectively determined payment rate option. Under section 1888(d) of
the Act, we are required to establish the prospectively determined
payment rates at least 90 days prior to the beginning of each Federal
fiscal year (that is, by July 1 of each year). An SNF may request to
receive prospectively determined payments by notifying its fiscal
intermediary of its intention at least 30 days prior to the beginning
of the cost reporting period for which the request is made. The
intermediary would notify the SNF as to whether the SNF qualifies for
the option.
In most cases, a final count of Medicare inpatient days cannot be
made for a cost reporting period prior to the beginning of the next
cost reporting period. Therefore, the intermediary's initial
determination of provider eligibility would be a tentative approval or
disapproval. The final determination would be made once a count of the
total Medicare inpatient days in the preceding cost reporting period is
available. We would provide that the intermediary notify the SNF of the
final determination within 10 working days after the data necessary to
make the determination are available. If tentative approval was given
and the final determination is that the SNF does not qualify to be paid
on the basis of a prospectively determined payment rate, the
intermediary will adjust payments to reflect payment on a reasonable
cost basis.
For a newly certified SNF with no preceding cost reporting period,
the election must be made within 30 days of its notification of
approval to participate in Medicare.
The election by the SNF and any approval by the intermediary would
be effective for only one cost reporting period at a time. We would
also specify that once an election has been made and approved and the
cost reporting period has begun, the SNF may not revoke its election
for that period. Each SNF electing to receive a prospectively
determined payment rate would agree to accept that rate prior to the
start of the cost reporting period, regardless of what its final costs
for the period would be. Under this proposed rule, the provider has
traded the opportunity for any retroactive adjustments for the
opportunity to operate at a profit and the foreknowledge of a specified
rate. To allow a provider to reverse its election would entirely defeat
the purpose and the philosophy of a prospectively determined payment
program.
D. Basis of Payment
We propose to add new Sec. 413.310 to set forth the basis of
payment to be used for routine service costs, capital-related costs,
and return on equity (for services furnished before October 1, 1993),
as well as for ancillary service costs, as specified in sections 1888
(d)(2) and (d)(6) of the Act. We would specify the following:
Prospectively determined payment is in lieu of payment on
a reasonable cost basis for routine services.
The routine operating component of the prospectively
determined payment rate excluding capital cost, and excluding return on
equity (if applicable) may not exceed the amount of the provider's
routine service cost limit determined under Sec. 413.30 that is in
effect when the provider elects to be paid a prospectively determined
payment rate.
E. Methodology for Calculating Rates
We are proposing to add new Sec. 413.312 to establish the
methodology for determining the prospectively determined payment rates
as specified in sections 1888 (d)(2) and (d)(6) of the Act. Under these
sections of the Act, mean per diem routine operating costs, capital-
related costs, and, for proprietary SNFs, return on equity for services
furnished before October 1, 1993, are determined separately for SNFs
located in urban areas and those in rural areas for the nine census
regions. To reflect those statutory provisions, the basic methodology
discussed below would be established in regulations. This methodology
would be used to establish the prospectively determined payment rates
each year. The rates would be published in the Federal Register as
described in Sec. 413.320. Amendments to the regulations would be
proposed to implement changes to the basic methodology described in
Secs. 413.312 through 413.314.
The capital-related portion of the per diem rate would be
calculated from the SNF's capital costs as reported on the Medicare
cost report. The capital-related portion includes both direct and
indirect capital costs allocated to routine services. A per diem
capital amount would be determined by dividing each SNF's capital-
related costs by its inpatient days. A group mean would be computed and
the mean multiplied by 105 percent.
For services furnished before October 1, 1993, the return on equity
portion of the per diem rate would be calculated using the return on
equity from each proprietary SNF's cost report. The current allowable
return on equity is equal to 100 percent of the average rate of
interest of public debt obligations issued by the Federal Hospital
Insurance Trust Fund. For cost reporting periods beginning prior to
October 1, 1985, the allowable return on equity was equal to 150
percent of the average rate. Therefore, the return on equity data from
cost reports for periods beginning prior to October 1, 1985 must be
adjusted and is multiplied by 67 percent to reflect the decrease in the
rate of return on equity. (The 67 percent represents the ratio of 100
percent to 150 percent. When future updates of the prospectively
determined payment rates use later cost report data that include the
current allowable return on equity, this adjustment would no longer be
needed.) The per diem would then be determined by dividing the SNF's
adjusted return on equity by its inpatient days. A group mean would be
determined and each group mean multiplied by 105 percent to determine
that portion of the rate.
F. Determining Routine Per Diem Rate
In Sec. 413.314, we describe proposed methodology for determining
the routine per diem rate for an SNF. We explain that the per diem rate
would be composed of a routine operating portion, a capital-related
cost portion applicable to routine services, and, for proprietary SNFs,
a return on equity portion for services furnished before October 1,
1993. The labor-related costs of the routine operating portion would be
adjusted to reflect area wage differences. The total rate would be
adjusted by using a factor based on the projected increase in the
market basket index to reflect a different cost reporting period if an
SNF's cost reporting period is other than October 1 through September
30.
We would also provide that the prospectively determined payment
rate, excluding capital, and excluding return on equity (if applicable)
may not exceed the amount of an SNF's routine service cost limit that
is in effect when the provider elects to be paid a prospective payment
rate.
In developing the proposed prospectively determined payment rates,
we considered: a rate for freestanding facilities based on freestanding
SNF cost data and a rate for hospital-based facilities based on
hospital-based SNF cost data; and a single rate (for urban and rural
locations, respectively) based on combined freestanding and hospital-
based SNF cost data. The current and the proposed single prospectively
determined payment rates are based on combined freestanding and
hospital-based SNF cost data. We believe that the proposed methodology
of basing the prospectively determined payment rates on combined
freestanding and hospital-based SNF cost data is consistent with and
represents the most accurate reading of section 1888(d)(2)(B) of the
Act. We are especially interested in receiving public comments on the
proposed methodology.
G. Determining Payment Amount for Ancillary Services
In searching for a way to implement section 1888(d)(6) of the Act
and bring ancillary services under the prospectively determined payment
rate system, we considered a number of different payment methodologies.
We determined that only one methodology could clearly fit the
requirement for a method for determining payment rates prospectively
based on reasonable charges. This method would develop reasonable
charge payment screens applicable to ancillary services furnished by
all SNFs in a particular area. These payment screens would function
similarly to current Medicare reasonable charge based fee schedule
amounts. However, we have no data at this time upon which to base
payment screens that would provide an equitable level of payment, as
required under 1888(d)(6) of the Act.
We also considered the following alternative payment methodologies,
some of which may not be consistent with the reasonable charge
methodology intended by the statute, while others clearly are not based
on charges. However, we believe that it may be beneficial to discuss
and solicit comments on these methodologies in this proposed rule.
Currently, ancillary payments are determined by applying the
provider's cost-to-charge ratio to ancillary charges. One method we
considered was establishing an average total cost-to-charge ratio for
urban and rural areas within each census area. This ratio could be used
by all SNFs within the geographic area and could be applied to the
charges for all services. While this would be a simplified approach, we
do not believe that it would provide appropriate payment in all cases.
It would not account for the wide variation among SNFs in the kinds of
services furnished, or the wide variations in the providers' cost-to-
charge ratios. It could also discriminate against those SNFs furnishing
more resource-intensive ancillary services and could encourage
substituting low cost services for more costly services. Some of these
problems could be ameliorated by the use of a separate ratio for each
service. We did not review the data for this option because we do not
believe this payment methodology meets the statutory requirements.
We considered a method of paying for ancillary services on the
basis of estimated cost with no retroactive cost settlement. Payment
would be based on current charges converted to estimated cost, using
the cost-to-charge ratio from the cost report for the most recent 12-
month cost reporting period for which a Notice of Amount of Program
Reimbursement (NPR) has been issued. From that cost report, we would
obtain the cost-to-charge ratio (not to exceed 1.0) for each ancillary
cost center and multiply the ratio by the same cost center's ancillary
charges in the period for which the election to receive prospectively
determined payment is made. The average cost-to-charge ratio (not to
exceed 1.0) for the urban and rural area within each census region
would be used if, for any reason, there is no prior year period for
which an NPR has been issued. Capital cost would also be reflected in
the cost-to-charge ratio; therefore, no additional capital payment
would be made. This methodology would be used to determine payment
under both Part A and Part B of Medicare. All applicable coinsurance
and deductibles would continue to be applied.
While this approach does present some positive features, it could
be problematic. First, this method is not consistent with the statutory
requirement that ancillary services be paid on the basis of either
actual cost or reasonable charges. In addition, it is possible that
there would be a wide variation between estimated cost and actual cost.
However, as in a prior approach, we did not review the data for this
option because we do not believe this payment methodology meets the
statutory requirements.
We considered two methodologies for establishing a prospective per
diem rate for ancillary services. The rate would be based on historical
cost report data, as follows:
Develop a flat average per diem in the aggregate for all
ancillary services, by location; or
Develop an average by ancillary service equal to 105
percent of the appropriate group mean, by location.
While both of these approaches would have the advantage of being
easy to administer and informing the provider precisely how much it
would be paid, there are some problems with implementing an average per
diem cost based rate. First, neither approach meets the alternative
statutory methodology of payment for ancillary services on the basis of
reasonable charges. The first approach would also not recognize the
wide variations in the types of ancillary services provided by
different SNFs. Neither approach would take into consideration the fact
that, with respect to SNFs, ancillary services may be provided by
outside suppliers. Either approach could also act as a disincentive to
providing resource-intensive services, or in some cases, any ancillary
services. The historical data used in either approach do not take into
account any changes, especially increases, in patient acuity levels
that could impact on the utilization of current ancillary services.
We considered a facility specific prospectively determined per diem
payment for ancillary services subject to an adjustable limit. Both the
payment amount and the adjustable limit would be based on historical
cost data. Therefore, in addition to not meeting the mandate for an
alternate methodology of payment on the basis of reasonable charges,
the historical data do not account for changes in utilization of
ancillary services due to increases in patient acuity.
We considered one methodology even though it does not meet the
alternate prospective methodology of payment on the basis of reasonable
charges but does meet the requirement of 1861(v)(1)(A). That is,
similar to the current routine cost limit system, we would make
payments for ancillary services not to exceed 105 percent of the
appropriate group mean for SNFs by location. Since this payment could
not be prospectively determined, we did not consider incorporating this
methodology into this proposed notice.
Finally, we considered developing a case-mix adjusted per diem
payment for ancillary services. HCFA is currently studying the
feasibility of a case-mix type payment system for Medicare SNFs. The
data to develop a case-mix adjusted ancillary cost per diem are not
currently available.
In reviewing these various methodologies for payment of ancillary
costs, we are interested in a methodology that would be easy to apply
and that would result in payment commensurate with the services
provided. We also would prefer to adopt a methodology that recognizes
the wide variation in services among SNFs. We were unable to develop a
methodology based on available data that met these requirements. We
therefore are soliciting comments on any of the methodologies described
above or any additional methodologies not mentioned.
Until such time as a methodology can be developed, ancillary
services would continue to be paid on the basis of reasonable costs.
H. Publication of Rates
In new Sec. 413.320, we would provide that HCFA will update the
routine prospectively determined payment rates in a Federal Register
notice published no later than July 1 of each year. In the notices, we
would establish the rates for routine services under the prospectively
determined payment rate system.
I. Simplified Cost Report
All Medicare providers with low Medicare utilization have had, at
the intermediary's discretion, the option of filing less than a full
Medicare cost report. This option would continue to be available to
those SNFs that qualify for it.
In addition, in new Sec. 413.321, we would provide that a
simplified cost report would be filed by certain SNFs receiving a
prospectively determined rate. At this time, a simplified form is
available only for freestanding SNFs. The simplified form is not
applicable to hospital-based SNFs or SNFs that are a part of a health
care complex. Another simplified form to be used by those facilities
will be available in the future.
The new simplified cost report requires inputting only the cost
information necessary for determining prospective payment rates. The
report employs a simplified method of cost finding to be used in lieu
of the cost finding methods described in Sec. 413.24(d). This method is
specified in the instructions for Form-HCFA 2540S, contained in
sections 3000-3027.3 of Part 2 of the Provider Reimbursement Manual. We
are also proposing to change Sec. 413.24(d) to clarify that the cost
finding provisions of that regulation do not apply to those SNFs that
qualify for the simplified method of cost finding. In addition,
Sec. 413.24(h) would be revised to clarify that the waiver of full cost
reporting for low program utilization also applies to providers filing
a simplified cost report.
III. Impact Statement
Unless the Secretary certifies that a proposed rule would not have
a significant economic impact on a substantial number of small
entities, we generally prepare a regulatory flexibility analysis that
is consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601
through 612). For purposes of the RFA, we consider SNFs as small
entities.
Medicare payments to SNFs comprise only about 5.3 percent of total
SNF revenues and this rule would only have a small impact on those
revenues. Moreover, the purpose of this rule is to ease the compliance
burden for small entities, and we believe the rule would have a
positive impact on small entities.
Also, section 1102(b) of the Act requires the Secretary to prepare
a regulatory impact statement if a proposed rule may have a significant
economic impact on the operations of a substantial number of small
rural hospitals. Such an analysis must conform to the provisions of
section 603 of the RFA. With the exception of hospitals located in
certain rural counties adjacent to urban areas, for purposes of section
1102(b) of the Act, we define a small rural hospital as a hospital with
fewer than 50 beds.
We have determined, and the Secretary certifies, that this proposed
rule would not have a significant effect on the operations of a
substantial number of small entities or on small rural hospitals.
Therefore, we have not prepared a regulatory flexibility analysis or an
analysis of the effects of this rule on small rural hospitals.
In accordance with the provisions of Executive Order 12866 this
regulation was not reviewed by the Office of Management and Budget.
IV. Response to Comments
A. Public Comment
Because of the large number of items of correspondence we normally
receive on FR documents published for comment, we are not able to
acknowledge or respond to them individually. We will consider all
comments we receive by the date and time specified in the DATES section
of this preamble, and, if we proceed with a subsequent document, we
will respond to the comments in the preamble to that document.
B. Paperwork Reduction Act
Section 413.308 of this proposed rule contains information
collection requirements. As required by section 3504(h) of the
Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3511), we have
submitted a copy of this proposed rule to the Executive Office of
Management and Budget (EOMB) for its review of these information
collection requirements. Total public reporting burden for this
collection of information is estimated to be 1,200 hours during the
first 12-month period that the rule would be in effect. A notice will
be published in the Federal Register after approval is obtained.
Organizations and individuals desiring to submit comments on the
information collection requirements should direct them to the OMB
official whose name appears in the ADDRESSES section of this preamble.
List of Subjects in 42 CFR Part 413
Health facilities, Kidney diseases, Medicare, Puerto Rico,
Reporting and recordkeeping requirements.
For the reason set out in the preamble 42 CFR part 413 is proposed
to be amended as follows:
A. The title of part 413 is amended to read as follows:
PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED
PAYMENT RATES FOR SKILLED NURSING FACILITIES
B. Part 413 is amended as follows:
1. The authority citation for part 413 continues to read as
follows:
Authority: Secs. 1102, 1814(b), 1815, 1833 (a), (i), and (n),
1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act (42
U.S.C. 1302, 1395f(b), 1395g, 1395l (a), (i), and (n), 1395x(v),
1395hh, 1395rr, 1395tt, and 1395ww); sec. 104(c) of Public Law 100-
360 as amended by sec. 608(d)(3) of Public Law 100-485 (42 U.S.C.
1395ww (note)); sec. 101(c) of Public Law 101-234 (42 U.S.C. 1395ww
(note)); and sec. 13503 of Public Law 103-66 (42 U.S.C. 1395ww
(note)).
Subpart A--Introduction and General Rules
2. In Sec. 413.1, a new paragraph (g) is added to read as follows:
Sec. 413.1 Introduction.
* * * * *
(g) Prospectively determined payment rates for low Medicare volume
SNFs. Rules governing requests by SNFs for prospectively determined
payment rates under section 1888(d) of the Act are set forth in subpart
I of this part.
Subpart B--Accounting Records and Reports
3. In Sec. 413.24 the introductory text of paragraph (d), and
paragraph (h), are revised to read as follows:
Sec. 413.24 Adequate cost data and cost finding.
* * * * *
(d) Cost finding methods. After the close of the accounting period,
providers must use one of the following methods of cost finding to
determine the actual costs of services furnished during that period.
These provisions do not apply to SNFs that elect and qualify for
prospectively determined payment rates under subpart I of this part for
cost reporting periods beginning on or after October 1, 1986. For the
special rules that are applicable to those SNFs, see Sec. 413.321. For
cost reporting periods beginning after December 31, 1971, providers
using the departmental method of cost apportionment must use the step-
down method described in paragraph (d)(1) of this section or an ``other
method'' described in paragraph (d)(2) of this section. For cost
reporting periods beginning after December 31, 1971, providers using
the combination method of cost apportionment must use the modified cost
finding method described in paragraph (d)(3) of this section. Effective
for cost reporting periods beginning on or after October 1, 1980, HHAs
not based in hospitals or SNFs must use the step-down method described
in paragraph (d)(1) of this section. (HHAs based in hospitals or SNFs
must use the method applicable to the parent institution.) However, an
HHA not based in a hospital or SNF that received less than $35,000 in
Medicare payment for the immediately preceding cost reporting period,
and for whom this payment represented less than 50 percent of the total
operating cost of the agency, may use a simplified version of the step-
down method, as specified in instuctions for the cost report issued by
HCFA.
* * * * *
(h) Waiver of full or simplified cost reporting for low program
utilization--(1) If the provider has had low utilization of covered
services by Medicare beneficiaries (as determined by the intermediary)
and has received correspondingly low interim payments for the cost
reporting period, the intermediary may waive a full cost report or the
simplified cost report described in Sec. 413.321 if it decides that it
can determine, without a full or simplified report, the reasonable cost
of covered services provided during that period.
(2) If a full or simplified cost report is waived, the provider
must submit within the same time period required for full or simplified
cost reports:
(i) The cost reporting forms prescribed by HCFA for this situation;
and
(ii) Any other financial and statistical data the intermediary
requires.
4. A new subpart I is added to read as follows:
Subpart I--Prospectively Determined Payment Rates for Skilled Nursing
Facilities
Sec.
413.300 Basis and scope.
413.302 Definitions.
413.304 Eligibility for prospectively determined payment rates.
413.308 Rules governing election of prospectively determined
payment rates.
413.310 Basis of payment.
413.312 Methodology for calculating rates.
413.314 Determining payment amounts: Routine per diem rate.
413.316 Determining payment amounts: Ancillary services.
413.320 Publication of prospectively determined payment rates or
amounts.
413.321 Simplified cost reports for SNFs.
Subpart I--Prospectively Determined Payment Rates for Skilled
Nursing Facilities
Sec. 413.300 Basis and scope.
(a) Basis. This subpart implements section 1888(d) of the Act,
which provides for optional prospectively determined payment rates for
qualified SNFs.
(b) Scope. This subpart sets forth the eligibility criteria an SNF
must meet to qualify, the process governing election of prospectively
determined payment rates, and the basis and methodology for determining
prospectively determined payment rates.
Sec. 413.302 Definitions.
For purposes of this subpart--
Area wage level means the average wage per hour for all
classifications of employees as reported by health care facilities
within a specified area.
Census region means one of the nine census divisions, comprising
the fifty States and the District of Columbia, established by the
Bureau of the Census for statistical and reporting purposes.
Routine capital-related costs means the capital-related costs,
allowable for Medicare purposes (as described in subpart G of this
part), that are allocated to the SNF participating inpatient routine
service cost center as reported on the Medicare cost report.
Routine operating costs means the cost of regular room, dietary,
and nursing services, and minor medical and surgical supplies for which
a separate charge is not customarily made. It does not include the
costs of ancillary services, capital-related costs, or, where
appropriate, return on equity.
Rural area means any area outside an urban area in a census region.
Urban area means a Metropolitan Statistical Area (MSA) or New
England County Metropolitan Area (NECMA), as defined by the Office of
Management and Budget, or a New England county deemed to be an urban
area, as listed in Sec. 412.62(f)(ii)(B) of this chapter.
Sec. 413.304 Eligibility for prospectively determined payment rates.
(a) General rule. An SNF may receive a prospectively determined
payment rate for a cost reporting period only if it had fewer than
1,500 Medicare covered inpatient days as reported on a Medicare cost
report in its immediately preceding cost reporting period. This
criterion applies even if the SNF received a prospectively determined
payment rate during the preceding cost reporting period.
(b) Less than a full cost reporting period. If the cost reporting
period that precedes an SNF's request for prospectively determined
payment is not a full cost reporting period, the SNF may receive
prospectively determined payment rates only if the average daily
Medicare census for the period (Medicare inpatient days divided by the
total number of days in the cost reporting period) is not greater than
4.1.
(c) Newly-participating SNFs. An SNF may receive prospectively
determined payment rates for its first cost reporting period for which
it is approved to participate in Medicare.
Sec. 413.308 Rules governing election of prospectively determined
payment rates.
(a) Requirements. An SNF must notify its intermediary at least 30
calendar days before the beginning of the cost reporting period for
which it requests to receive such payment that it elects prospectively
determined payment rates. A separate request must be made for each cost
reporting period for which an SNF seeks prospective payment. A newly
participating SNF with no preceding cost reporting period must make its
election within 30 days of its notification of approval to participate
in Medicare.
(b) Intermediary notice. After evaluating an SNF's request for
prospectively determined payment rates, the intermediary notifies the
SNF in writing as to whether the SNF meets any of the eligibility
criteria described in Sec. 413.304. The intermediary must notify the
SNF of its determination within 10 working days after it receives all
the data necessary to make the determination. The intermediary's
determination is limited to one cost reporting period.
(c) Prohibition against revocation. An SNF may not revoke its
request after it has received final determination of eligibility from
the intermediary and the cost reporting period has begun.
Sec. 413.310 Basis of payment.
(a) Method of payment. Under the prospectively determined payment
rate system, a qualified SNF receives a per diem payment of a
predetermined rate for inpatient services furnished to Medicare
beneficiaries. Each SNF's routine per diem payment rate is determined
according to the methodology described in Sec. 413.312 and is based on
various components of SNF costs.
(b) Payment in full. The payment rate represents payment in full
for routine services as described in Sec. 413.314 (subject to
applicable coinsurance as described in subpart G of part 409 of this
title). Payment is made in lieu of payment on a reasonable cost basis
for routine services.
Sec. 413.312 Methodology for calculating rates.
(a) Data used--(1) To calculate the prospectively determined
payment rates, HCFA uses:
(i) The SNF cost data that were used to develop the applicable
routine service cost limits;
(ii) A wage index to adjust for area wage differences; and
(iii) The most recent projections of increases in the costs from
the SNF market basket index.
(2) In the annual schedule of rates published in the Federal
Register under the authority of Sec. 413.320, HCFA announces the wage
index and the annual percentage increases in the market basket used in
the calculation of the rates.
(b) Calculation of per diem rate--(1) Routine operating component
of rate--(i) Adjusting cost report data. The SNF market basket index is
used to adjust the routine operating cost from the SNF cost report to
reflect cost increases occurring between cost reporting periods
represented in the data collected and the midpoint of the initial cost
reporting period to which the payment rates apply.
(ii) Calculating a per diem cost. For each SNF, an adjusted routine
operating per diem cost is computed by dividing the adjusted routine
operating cost (see paragraph (b)(1)(i) of this section) by the SNF's
total patient days.
(iii) Adjusting for wage levels--(A) The SNF's adjusted per diem
routine operating cost calculated under paragraph (b)(1)(ii) of this
section is then divided into labor-related and nonlabor-related
portions.
(B) The labor-related portion is obtained by multiplying the SNF's
adjusted per diem routine operating cost by a percentage that
represents the labor-related portion of cost from the market basket.
This percentage is published when the revised rates are published as
described in Sec. 413.320.
(C) The labor-related portion of each SNF's per diem cost is
divided by the wage index applicable to the SNF's geographic location
to arrive at the adjusted labor-related portion of routine cost.
(iv) Group means. SNFs are grouped by urban or rural location by
census region. Separate means of adjusted labor-related and nonlabor
routine operating costs for each SNF group are established in
accordance with the SNF's region and urban or rural location. For each
group, the mean labor-related and mean nonlabor-related per diem
routine operating costs are multiplied by 105 percent.
(2) Computation of routine capital-related cost. (i) The SNF
routine capital-related cost for both direct and indirect capital costs
allocated to routine services, as reported on the Medicare cost report,
is obtained for each SNF in the data base.
(ii) For each SNF, the per diem capital-related cost is calculated
by dividing the SNF's routine capital costs by its inpatient days.
(iii) SNFs are grouped by urban and rural location by census
region, and mean per diem routine capital-related cost is determined
for each group.
(iv) Each group mean per diem capital-related cost is multiplied by
105 percent.
(3) Computation of return on owner's equity for services furnished
before October 1, 1993--(i) Each proprietary SNF's Medicare return on
equity is obtained from its cost report and the portion attributable to
the routine service cost is determined as described in Sec. 413.157.
(ii) For each proprietary SNF, per diem return on equity is
calculated by dividing the routine cost related return on equity
determined under paragraph (b)(3)(i) of this section by the SNF's total
Medicare inpatient days.
(iii) Separate group means are computed for per diem return on
equity of proprietary SNFs, based on regional and urban or rural
classification.
(iv) Each group mean is multiplied by 105 percent.
Sec. 413.314 Determining payment amounts: Routine per diem rate.
(a) General rule. An SNF that elects to be paid under the
prospectively determined payment rate system is paid a per diem rate
for inpatient routine services. This rate is adjusted to reflect area
wage differences and the cost reporting period beginning date (if
necessary) and is subject to the limitation described below.
(b) Per diem rate. The prospectively determined payment rate for
each urban and rural area in each census region is comprised of the
following:
(1) A routine operating component, which is divided into:
(i) A labor-related portion adjusted by the appropriate wage index;
and
(ii) A nonlabor-related portion.
(2) A routine capital-related cost portion.
(3) For proprietary SNFs only, a portion that is based on the
return on owner's equity related to routine cost, applicable only for
services furnished before October 1, 1993.
(c) Adjustment for cost reporting period. (1) If a facility has a
cost reporting period beginning after the beginning of the Federal
fiscal year, the intermediary increases the labor-related and nonlabor-
related portions of the prospective payment rate that would otherwise
apply to the SNF by an adjustment factor. Each factor represents the
projected increase in the market basket index for a specific 12-month
period. The factors are used to account for inflation in costs for cost
reporting periods beginning after October 1. Adjustment factors are
published in the annual notice of prospectively determined payment
rates described in Sec. 413.320.
(2) If a facility uses a cost reporting period that is not 12
months in duration, the intermediary must obtain a special adjustment
factor from HCFA for the specific period.
(d) Limitation of prospectively determined payment rate. The per
diem prospectively determined payment rate for an SNF, excluding
capital-related costs and excluding return on equity for services
furnished prior to October 1, 1993, may not exceed the individual SNF's
routine service cost limit. Under Sec. 413.30, the routine service cost
limit is the limit determined without regard to exemptions, exceptions,
or retroactive adjustments, and is the actual limit in effect when the
provider elects to be paid a prospectively determined payment rate.
Sec. 413.316 Determining payment amounts: Ancillary services.
Ancillary services are paid on the basis of reasonable cost in
accordance with section 1861(v)(1) of the Act and Sec. 413.53.
Sec. 413.320 Publication of prospectively determined payment rates or
amounts.
At least 90 days prior to the beginning of a Federal fiscal year to
which revised prospectively determined payment rates are to be applied,
HCFA publishes a notice in the Federal Register:
(a) Establishing the prospectively determined payment rates for
routine services; and
(b) Explaining the basis on which the prospectively determined
payment rates are calculated.
Sec. 413.321 Simplified cost report for SNFs.
SNFs electing to be paid under the prospectively determined payment
rate system may file a simplified cost report. The cost report contains
a simplified method of cost finding to be used in lieu of cost methods
described in Sec. 413.24(d). This method is specified in the
instructions for Form HCFA-2540S, contained in sections 3000-3027.3 of
part 2 of the Provider Reimbursement Manual. This form may not be used
by hospital-based SNFs or SNFs that are part of a health care complex.
Those SNFs must file a cost report that reflects the shared services
and administrative costs of the hospital and any other related
facilities in the health care complex.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance).
Dated: March 29, 1994.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
Dated: May 24, 1994.
Donna E. Shalala,
Secretary.
[FR Doc. 94-13506 Filed 6-7-94; 8:45 am]
BILLING CODE 4120-01-P