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Rule2021-16309

Medicare Program; Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities; Updates to the Quality Reporting Program and Value-Based Purchasing Program for Federal Fiscal Year 2022; and Technical Correction to Long-Term Care Facilities Physical Environment Requirements

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Published

August 4, 2021

Effective

October 1, 2021

Issuing agencies

Health and Human Services DepartmentCenters for Medicare & Medicaid Services

Abstract

This final rule updates the payment rates used under the prospective payment system (PPS) for skilled nursing facilities (SNFs) for fiscal year (FY) 2022. In addition, the final rule includes a forecast error adjustment for FY 2022, updates the diagnosis code mappings used under the Patient Driven Payment Model (PDPM), rebases and revises the SNF market basket, implements a recently-enacted SNF consolidated billing exclusion along with the required proportional reduction in the SNF PPS base rates, and includes a discussion of a PDPM parity adjustment. In addition, the final rule includes updates for the SNF Quality Reporting Program (QRP) and the SNF Value-Based Purchasing (VBP) Program, including a policy to suppress the use of the SNF readmission measure for scoring and payment adjustment purposes in the FY 2022 SNF VBP Program because we have determined that circumstances caused by the public health emergency for COVID-19 have significantly affected the validity and reliability of the measure and resulting performance scores. We are also finalizing a technical correction to the physical environment requirements that Long-Term Care facilities must meet in order to participate in the Medicare and Medicaid programs.

Full Text

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[Federal Register Volume 86, Number 147 (Wednesday, August 4, 2021)]
[Rules and Regulations]
[Pages 42424-42525]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-16309]

[[Page 42423]]

Vol. 86

Wednesday,

No. 147

August 4, 2021

Part IV

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 411, 413, 483, et al.

Medicare Program; Prospective Payment System and Consolidated Billing
for Skilled Nursing Facilities; Updates to the Quality Reporting
Program and Value-Based Purchasing Program for Federal Fiscal Year
2022; and Technical Correction to Long-Term Care Facilities Physical
Environment Requirements; Final Rule

Federal Register / Vol. 86, No. 147 / Wednesday, August 4, 2021 /
Rules and Regulations

[[Page 42424]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 411, 413, 483 and 489

[CMS-1746-F]
RIN 0938-AU36

Medicare Program; Prospective Payment System and Consolidated
Billing for Skilled Nursing Facilities; Updates to the Quality
Reporting Program and Value-Based Purchasing Program for Federal Fiscal
Year 2022; and Technical Correction to Long-Term Care Facilities
Physical Environment Requirements

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule updates the payment rates used under the
prospective payment system (PPS) for skilled nursing facilities (SNFs)
for fiscal year (FY) 2022. In addition, the final rule includes a
forecast error adjustment for FY 2022, updates the diagnosis code
mappings used under the Patient Driven Payment Model (PDPM), rebases
and revises the SNF market basket, implements a recently-enacted SNF
consolidated billing exclusion along with the required proportional
reduction in the SNF PPS base rates, and includes a discussion of a
PDPM parity adjustment. In addition, the final rule includes updates
for the SNF Quality Reporting Program (QRP) and the SNF Value-Based
Purchasing (VBP) Program, including a policy to suppress the use of the
SNF readmission measure for scoring and payment adjustment purposes in
the FY 2022 SNF VBP Program because we have determined that
circumstances caused by the public health emergency for COVID-19 have
significantly affected the validity and reliability of the measure and
resulting performance scores. We are also finalizing a technical
correction to the physical environment requirements that Long-Term Care
facilities must meet in order to participate in the Medicare and
Medicaid programs.

DATES: These regulations are effective on October 1, 2021.

FOR FURTHER INFORMATION CONTACT:
Penny Gershman, (410) 786-6643, for information related to SNF PPS
clinical issues.
Anthony Hodge, (410) 786-6645, for information related to
consolidated billing, and payment for SNF-level swing-bed services.
John Kane, (410) 786-0557, for information related to the
development of the payment rates and case-mix indexes, and general
information.
Kia Burwell, (410) 786-7816, for information related to the wage
index.
Heidi Magladry, (410) 786-6034, for information related to the
skilled nursing facility quality reporting program.
Lang Le, (410) 786-5693, for information related to the skilled
nursing facility value-based purchasing program.
Kristin Shifflett, (410) 786-4133, for information related to the
long-term care conditions of participation.

SUPPLEMENTARY INFORMATION:

Availability of Certain Tables Exclusively Through the Internet on the
CMS Website

As discussed in the FY 2014 SNF PPS final rule (78 FR 47936),
tables setting forth the Wage Index for Urban Areas Based on CBSA Labor
Market Areas and the Wage Index Based on CBSA Labor Market Areas for
Rural Areas are no longer published in the Federal Register. Instead,
these tables are available exclusively through the internet on the CMS
website. The wage index tables for this final rule can be accessed on
the SNF PPS Wage Index home page, at <a href="http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html">http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html</a>.
Readers who experience any problems accessing any of these online
SNF PPS wage index tables should contact Kia Burwell at (410) 786-7816.
To assist readers in referencing sections contained in this
document, we are providing the following Table of Contents.

Table of Contents

I. Executive Summary
A. Purpose
B. Summary of Major Provisions
C. Summary of Cost and Benefits
D. Advancing Health Information Exchange
II. Background on SNF PPS
A. Statutory Basis and Scope
B. Initial Transition for the SNF PPS
C. Required Annual Rate Updates
III. Analysis and Responses to Public Comments on the FY 2022 SNF
PPS Proposed Rule
A. General Comments on the FY 2022 SNF PPS Proposed Rule
IV. SNF PPS Rate Setting Methodology and FY 2022 Update
A. Federal Base Rates
B. SNF Market Basket Update
C. Case-Mix Adjustment
D. Wage Index Adjustment
E. SNF Value-Based Purchasing Program
F. Adjusted Rate Computation Example
V. Additional Aspects of the SNF PPS
A. SNF Level of Care--Administrative Presumption
B. Consolidated Billing
C. Payment for SNF-Level Swing-Bed Services
D. Revisions to the Regulation Text
VI. Other SNF PPS Issues
A. Changes to SNF PPS Wage Index
B. Technical Updates to PDPM ICD-10 Mappings
C. Recalibrating the PDPM Parity Adjustment
VII. Skilled Nursing Facility (SNF) Quality Reporting Program (QRP)
VIII. Skilled Nursing Facility Value-Based Purchasing Program (SNF
VBP)
IX. Long-Term Care Facilities: Physical Environment Requirements
X. Collection of Information Requirements
XI. Economic Analyses
A. Regulatory Impact Analysis
B. Regulatory Flexibility Act Analysis
C. Unfunded Mandates Reform Act Analysis
D. Federalism Analysis
E. Reducing Regulation and Controlling Regulatory Costs
F. Congressional Review Act
G. Regulatory Review Costs

I. Executive Summary

A. Purpose

This final rule updates the SNF prospective payment rates for
fiscal year (FY) 2022 as required under section 1888(e)(4)(E) of the
Social Security Act (the Act). It also responds to section
1888(e)(4)(H) of the Act, which requires the Secretary to provide for
publication of certain specified information relating to the payment
update (see section II.C. of this final rule) in the Federal Register,
before the August 1 that precedes the start of each FY. As discussed in
section VI.A. of this final rule, it will also rebase and revise the
SNF market basket index, including updating the base year from 2014 to
2018. As discussed in section V.D. of this final rule, it also makes
revisions in the regulation text to exclude from SNF consolidated
billing certain blood clotting factors and items and services related
to the furnishing of such factors effective for items and services
furnished on or after October 1, 2021, as required by the Consolidated
Appropriations Act, 2021 (Pub. L. 116-260, enacted December 27, 2020),
as well as certain other conforming revisions. In addition, as required
under section 1888(e)(4)(G)(iii) of the Act, as added by section 103(b)
of the BBRA 1999, we provide for a proportional reduction in the Part A
SNF PPS base rates to account for this exclusion, as described in
section IV.B.6. of this final rule. We also make changes to the code
mappings used under the SNF PPS for classifying patients into case-mix

[[Page 42425]]

groups. Additionally, this final rule includes a forecast error
adjustment for FY 2022. This final rule also includes a discussion of a
PDPM parity adjustment. Finally, this final rule also updates
requirements for the Skilled Nursing Facility Quality Reporting Program
(SNF QRP) and the Skilled Nursing Facility Value-Based Purchasing
Program (SNF VBP), including a policy to suppress the use of the SNF
readmission measure for scoring and payment adjustment purposes in the
FY 2022 SNF VBP Program because we have determined that circumstances
caused by the public health emergency for COVID-19 have significantly
affected the validity and reliability of the measure and resulting
performance scores.

B. Summary of Major Provisions

In accordance with sections 1888(e)(4)(E)(ii)(IV) and (e)(5) of the
Act, the Federal rates in this final rule reflect an update to the
rates that we published in the SNF PPS final rule for FY 2021 (85 FR
47594, August 5, 2020). We are also rebasing and revising the SNF
market basket index, including updating the base year from 2014 to
2018. This final rule includes revisions to the regulation text to
exclude from SNF consolidated billing certain blood clotting factors
and items and services related to the furnishing of such factors
effective for items and services furnished on or after October 1, 2021,
as required by the Consolidated Appropriations Act, 2021, as well as
certain conforming revisions. We are also making a required reduction
in the SNF PPS base rates to account for this new exclusion. This final
rule includes revisions to the International Classification of
Diseases, Version 10 (ICD-10) code mappings used under PDPM to classify
patients into case-mix groups. Additionally, this final rule includes a
forecast error adjustment for FY 2022. This final rule also includes a
discussion of a PDPM parity adjustment, used to implement PDPM in a
budget neutral manner.
This final rule updates requirements for the SNF QRP, including the
adoption of two new measures beginning with the FY 2023 SNF QRP: The
SNF Healthcare Associated Infections (HAI) Requiring Hospitalization
measure; and the COVID-19 Vaccination Coverage among Healthcare
Personnel (HCP) measure. The COVID-19 Vaccination Coverage among HCP
measure requires that SNFs use the Centers for Disease Control and
Prevention (CDC)/National Healthcare Safety Network (NHSN) to submit
data on the measure. We are also finalizing our proposal to modify the
denominator for the Transfer of Health Information to the Patient--Post
Acute Care (PAC) measure. Finally, we are finalizing our proposal to
revise the number of quarters used for publicly reporting certain SNF
QRP measures due to the public health emergency (PHE).
Additionally, we are finalizing several updates for the SNF VBP
Program including a policy to suppress the Skilled Nursing Facility 30-
Day All-Cause Readmission Measure (SNFRM) for the FY 2022 SNF VBP
Program Year for scoring, adjusting and codifying the policy at Sec.
413.338(g). We are also updating the Phase One Review and Corrections
policy to implement a claims ``snapshot'' policy which aligns the
review and corrections policy for the SNF VBP Program with the review
and corrections policy we use in other value-based purchasing programs
and codifying the policy at Sec. 413.338(e)(1) of our regulations. We
are also making a technical update to the instructions for a SNF to
request an extraordinary circumstances exception and codifying that
update at Sec. 413.338(d)(4)(ii) of our regulations. In addition, we
are finalizing a technical correction to the physical environment
requirements for LTC facilities by revising Sec. 483.90(d)(1) and
adding Sec. 483.90(d)(3).

C. Summary of Cost and Benefits
[GRAPHIC] [TIFF OMITTED] TR04AU21.218

D. Advancing Health Information Exchange

The Department of Health and Human Services (HHS) has a number of
initiatives designed to encourage and support the adoption of
interoperable health information technology and to promote nationwide
health information exchange to improve health care and patient access
to their health information.
To further interoperability in post-acute care settings, CMS and
the Office of the National Coordinator for Health Information
Technology (ONC) participate in the Post-Acute Care Interoperability
Workgroup (PACIO) (<a href="https://pacioproject.org/">https://pacioproject.org/</a>) to facilitate
collaboration with industry stakeholders to develop FHIR standards.
These standards could support the exchange and reuse of patient
assessment data derived from the minimum data set (MDS), inpatient
rehabilitation facility patient assessment instrument (IRF-PAI), long
term care hospital continuity assessment record and evaluation (LCDS),
outcome and assessment information set (OASIS), and other sources. The
PACIO Project has focused on FHIR implementation guides for functional
status, cognitive status and new use cases on advance directives and
speech, and language pathology. We encourage post-acute care (PAC)
provider and health information technology (IT) vendor participation as
these efforts advance.
The CMS Data Element Library (DEL) continues to be updated and
serves as the authoritative resource for PAC assessment data elements
and their associated mappings to health IT standards such as Logical
Observation Identifiers Names and Codes (LOINC) and Systematized
Nomenclature of Medicine Clinical Terms (SNOMED). The DEL furthers CMS'
goal of data standardization and interoperability. When combined with
digital information systems that capture and maintain these coded
elements, their standardized clinical content can reduce

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provider burden by supporting the exchange of standardized healthcare
data; supporting provider exchange of electronic health information for
care coordination, person-centered care; and supporting real-time, data
driven, clinical decision making. Standards in the Data Element Library
(<a href="https://del.cms.gov/DELWeb/pubHome">https://del.cms.gov/DELWeb/pubHome</a>) can be referenced on the CMS
website and in the ONC Interoperability Standards Advisory (ISA). The
2021 ISA is available at <a href="https://www.healthit.gov/isa">https://www.healthit.gov/isa</a>.
The 21st Century Cures Act (Cures Act) (Pub. L. 114-255, enacted
December 13, 2016) requires HHS to take new steps to enable the
electronic sharing of health information ensuring interoperability for
providers and settings across the care continuum. The Cures Act
includes a trusted exchange framework and common agreement (TEFCA)
provision \1\ that will enable the nationwide exchange of electronic
health information across health information networks and provide an
important way to enable bi-directional health information exchange in
the future. For more information on current developments related to
TEFCA, we refer readers to <a href="https://www.healthit.gov/topic/interoperability/trusted-exchange-framework-and-common-agreement">https://www.healthit.gov/topic/interoperability/trusted-exchange-framework-and-common-agreement</a> and
<a href="https://rce.sequoiaproject.org/">https://rce.sequoiaproject.org/</a>.
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\1\ ONC, Draft 2 Trusted Exchange Framework and Common
Agreement, <a href="https://www.healthit.gov/sites/default/files/page/2019-04/FINALTEFCAQTF41719508version.pdf">https://www.healthit.gov/sites/default/files/page/2019-04/FINALTEFCAQTF41719508version.pdf</a>.
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The ONC final rule entitled ``21st Century Cures Act:
Interoperability, Information Blocking, and the ONC Health IT
Certification Program'' (85 FR 25642) published in the May 1, 2020,
Federal Register (hereinafter referred to as ``ONC Cures Act Final
Rule'') established policies related to information blocking as
authorized under section 4004 of the 21st Century Cures Act.
Information blocking is generally defined as a practice by a health IT
developer of certified health IT, health information network, health
information exchange, or health care provider that, except as required
by law or specified by the HHS Secretary as a reasonable and necessary
activity, is likely to interfere with access, exchange, or use of
electronic health information. The definition of information blocking
includes a knowledge standard, which is different for health care
providers than for health IT developers of certified health IT and
health information networks or health information exchanges. A
healthcare provider must know that the practice is unreasonable, as
well as likely to interfere with access, exchange, or use of electronic
health information. To deter information blocking, health IT developers
of certified health IT, health information networks and health
information exchanges whom the HHS Inspector General determines,
following an investigation, have committed information blocking, are
subject to civil monetary penalties of up to $1 million per violation.
Appropriate disincentives for health care providers are expected to be
established by the Secretary through future rulemaking. Stakeholders
can learn more about information blocking at <a href="https://www.healthit.gov/curesrule/final-rule-policy/information-blocking">https://www.healthit.gov/curesrule/final-rule-policy/information-blocking</a>. ONC has posted
information resources including fact sheets (<a href="https://www.healthit.gov/curesrule/resources/fact-sheets">https://www.healthit.gov/curesrule/resources/fact-sheets</a>), frequently asked questions (<a href="https://www.healthit.gov/curesrule/resources/information-blocking-faqs">https://www.healthit.gov/curesrule/resources/information-blocking-faqs</a>), and
recorded webinars (<a href="https://www.healthit.gov/curesrule/resources/webinars">https://www.healthit.gov/curesrule/resources/webinars</a>).
We invite providers to learn more about these important
developments and how they are likely to affect SNFs.

II. Background on SNF PPS

A. Statutory Basis and Scope

As amended by section 4432 of the Balanced Budget Act of 1997 (BBA
1997) (Pub. L. 105-33, enacted August 5, 1997), section 1888(e) of the
Act provides for the implementation of a PPS for SNFs. This methodology
uses prospective, case-mix adjusted per diem payment rates applicable
to all covered SNF services defined in section 1888(e)(2)(A) of the
Act. The SNF PPS is effective for cost reporting periods beginning on
or after July 1, 1998, and covers all costs of furnishing covered SNF
services (routine, ancillary, and capital-related costs) other than
costs associated with approved educational activities and bad debts.
Under section 1888(e)(2)(A)(i) of the Act, covered SNF services include
post-hospital extended care services for which benefits are provided
under Part A, as well as those items and services (other than a small
number of excluded services, such as physicians' services) for which
payment may otherwise be made under Part B and which are furnished to
Medicare beneficiaries who are residents in a SNF during a covered Part
A stay. A comprehensive discussion of these provisions appears in the
May 12, 1998 interim final rule (63 FR 26252). In addition, a detailed
discussion of the legislative history of the SNF PPS is available
online at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/Legislative_History_2018-10-01.pdf">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/Legislative_History_2018-10-01.pdf</a>.
Section 215(a) of the Protecting Access to Medicare Act of 2014
(PAMA) (Pub. L. 113-93, enacted April 1, 2014) added section 1888(g) to
the Act requiring the Secretary to specify an all-cause all-condition
hospital readmission measure and an all-condition risk-adjusted
potentially preventable hospital readmission measure for the SNF
setting. Additionally, section 215(b) of PAMA added section 1888(h) to
the Act requiring the Secretary to implement a VBP program for SNFs.
Finally, section 2(c)(4) of the IMPACT Act amended section 1888(e)(6)
of the Act, which requires the Secretary to implement a QRP for SNFs
under which SNFs report data on measures and resident assessment data.

B. Initial Transition for the SNF PPS

Under sections 1888(e)(1)(A) and (e)(11) of the Act, the SNF PPS
included an initial, three-phase transition that blended a facility-
specific rate (reflecting the individual facility's historical cost
experience) with the Federal case-mix adjusted rate. The transition
extended through the facility's first 3 cost reporting periods under
the PPS, up to and including the one that began in FY 2001. Thus, the
SNF PPS is no longer operating under the transition, as all facilities
have been paid at the full Federal rate effective with cost reporting
periods beginning in FY 2002. As we now base payments for SNFs entirely
on the adjusted Federal per diem rates, we no longer include adjustment
factors under the transition related to facility-specific rates for the
upcoming FY.

C. Required Annual Rate Updates

Section 1888(e)(4)(E) of the Act requires the SNF PPS payment rates
to be updated annually. The most recent annual update occurred in a
final rule that set forth updates to the SNF PPS payment rates for FY
2021 (85 FR 47594, August 5, 2020).
Section 1888(e)(4)(H) of the Act specifies that we provide for
publication annually in the Federal Register the following:
<bullet> The unadjusted Federal per diem rates to be applied to
days of covered SNF services furnished during the upcoming FY.
<bullet> The case-mix classification system to be applied for these
services during the upcoming FY.
<bullet> The factors to be applied in making the area wage
adjustment for these services.

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Along with other revisions discussed later in this preamble, this
final rule provides the required annual updates to the per diem payment
rates for SNFs for FY 2022.

III. Analysis and Responses to Public Comments on the FY 2022 SNF PPS
Proposed Rule

In response to the publication of the FY 2022 SNF PPS proposed
rule, we received 338 public comments from individuals, providers,
corporations, government agencies, private citizens, trade
associations, and major organizations. The following are brief
summaries of each proposed provision, a summary of the public comments
that we received related to that proposal, and our responses to the
comments.

A. General Comments on the FY 2022 SNF PPS Proposed Rule

In addition to the comments we received on specific proposals
contained within the proposed rule (which we address later in this
final rule), commenters also submitted the following, more general,
observations on the SNF PPS and SNF care generally. A discussion of
these comments, along with our responses, appears below.
Comment: Commenters submitted numerous comments and recommendations
that are outside the scope of the proposed rule addressing a number of
different policies, including the Coronavirus disease 2019 (COVID-19)
pandemic. This included comments on the flexibilities provided to SNFs
during the PHE, specifically through the waivers issued under sections
1135 and 1812(f) of the Act. Commenters also expressed concerns about
the substantial additional costs due to the PHE that would be permanent
due to changes in patient care, infection control staff and equipment,
personal protective equipment (PPE), reporting requirements, increased
wages, increased food prices, and other necessary costs. Some
commenters who received CARES Act Provider Relief funds indicated that
those funds were not enough to cover these costs. Additionally, a few
commenters from rural areas stated that their facilities were heavily
impacted from the additional costs, particularly the need to raise
wages, and that this could affect patients' access to care.
Response: We greatly appreciate these comments and suggestions for
revisions to policies under the SNF PPS. However, because these
comments are outside the scope of the current rulemaking, we are not
addressing them in this final rule. We may take them under
consideration in future rulemaking.

IV. SNF PPS Rate Setting Methodology and FY 2022 Update

A. Federal Base Rates

Under section 1888(e)(4) of the Act, the SNF PPS uses per diem
Federal payment rates based on mean SNF costs in a base year (FY 1995)
updated for inflation to the first effective period of the PPS. We
developed the Federal payment rates using allowable costs from
hospital-based and freestanding SNF cost reports for reporting periods
beginning in FY 1995. The data used in developing the Federal rates
also incorporated a Part B add-on, which is an estimate of the amounts
that, prior to the SNF PPS, would be payable under Part B for covered
SNF services furnished to individuals during the course of a covered
Part A stay in a SNF.
In developing the rates for the initial period, we updated costs to
the first effective year of the PPS (the 15-month period beginning July
1, 1998) using a SNF market basket index, and then standardized for
geographic variations in wages and for the costs of facility
differences in case mix. In compiling the database used to compute the
Federal payment rates, we excluded those providers that received new
provider exemptions from the routine cost limits, as well as costs
related to payments for exceptions to the routine cost limits. Using
the formula that the BBA 1997 prescribed, we set the Federal rates at a
level equal to the weighted mean of freestanding costs plus 50 percent
of the difference between the freestanding mean and weighted mean of
all SNF costs (hospital-based and freestanding) combined. We computed
and applied separately the payment rates for facilities located in
urban and rural areas, and adjusted the portion of the Federal rate
attributable to wage-related costs by a wage index to reflect
geographic variations in wages.

B. SNF Market Basket Update

1. SNF Market Basket Index
Section 1888(e)(5)(A) of the Act requires us to establish a SNF
market basket index that reflects changes over time in the prices of an
appropriate mix of goods and services included in covered SNF services.
Accordingly, we have developed a SNF market basket index that
encompasses the most commonly used cost categories for SNF routine
services, ancillary services, and capital-related expenses. In the SNF
PPS final rule for FY 2018 (82 FR 36548 through 36566), we rebased and
revised the market basket index, which included updating the base year
from FY 2010 to 2014. In the proposed rule, we proposed to rebase and
revise the market basket index and update the base year from 2014 to
2018. See section VI.A. of this final rule for more information.
The SNF market basket index is used to compute the market basket
percentage change that is used to update the SNF Federal rates on an
annual basis, as required by section 1888(e)(4)(E)(ii)(IV) of the Act.
This market basket percentage update is adjusted by a forecast error
correction, if applicable, and then further adjusted by the application
of a productivity adjustment as required by section 1888(e)(5)(B)(ii)
of the Act and described in section IV.B.2.d. of this final rule.
We proposed a FY 2022 SNF market basket percentage of 2.3 percent
based on IGI's fourth quarter 2020 forecast of the proposed 2018-based
SNF market basket (before application of the forecast error adjustment
and productivity adjustment). We also proposed that if more recent data
subsequently become available (for example, a more recent estimate of
the market basket and/or the productivity adjustment), we would use
such data, if appropriate, to determine the FY 2022 SNF market basket
percentage change, labor-related share relative importance, forecast
error adjustment, or productivity adjustment in the SNF PPS final rule.
Since the proposed rule, we have updated the FY 2022 market basket
percentage increase based on IGI's second quarter 2021 forecast with
historical data through the first quarter of 2021. The FY 2022 growth
rate of the 2018-based SNF market basket is estimated to be 2.7
percent.
In section IV.B.2.e. of this final rule, we discuss the 2 percent
reduction applied to the market basket update for those SNFs that fail
to submit measures data as required by section 1888(e)(6)(A) of the
Act.
2. Use of the SNF Market Basket Percentage
Section 1888(e)(5)(B) of the Act defines the SNF market basket
percentage as the percentage change in the SNF market basket index from
the midpoint of the previous FY to the midpoint of the current FY. For
the Federal rates set forth in this final rule, we use the percentage
change in the SNF market basket index to compute the update factor for
FY 2022. This factor is based on the FY 2022 percentage increase in the
2018-based SNF market basket index reflecting routine, ancillary, and
capital-related expenses.

[[Page 42428]]

As stated previously, in the proposed rule, the SNF market basket
percentage update was estimated to be 2.3 percent for FY 2022 based on
IGI's fourth quarter 2020 forecast. For this final rule, based on IGI's
second quarter 2021 forecast with historical data through the first
quarter of 2021, the FY 2022 growth rate of the 2018-based SNF market
basket is estimated to be 2.7 percent.
A discussion of the comments received on applying the FY 2022 SNF
market basket percentage increase to the SNF PPS rates, along with our
responses, may be found below.
Comment: Several commenters stated their support for the proposed
FY 2022 payment update of 1.3 percent reflecting the proposed market
basket update, the productivity adjustment, and the forecast error
adjustment. A few commenters, while noting appreciation for the 1.3
percent update, also noted that it is very low in comparison to the
increased costs they are facing as a result of the COVID-19 pandemic
and that many facilities are already operating on thin margins.
Response: The proposed FY 2022 SNF payment update of 1.3 percent
reflected the forecast available at that time of the market basket
update, productivity adjustment, and forecast error. As stated in the
proposed rule, we proposed to use the most recent forecast of data
available to determine the final FY 2022 SNF payment update. The
current estimate of final FY 2022 SNF payment update is 1.2 percent
based on the IGI second quarter 2021 forecast of the 2018-based SNF
market basket update (2.7 percent), reduced by the productivity
adjustment (0.7 percentage point), and the application of the FY 2020
forecast error adjustment (-0.8 percentage point). For this final rule,
we have incorporated the most recent historical data and forecasts
provided by IHS Global Inc., including experience during the PHE, in
order to capture the price and wage pressures facing SNFs in FY 2022.
By incorporating the most recent estimates available of the market
basket update and productivity adjustment, we believe these data
reflect the best available projection of input price inflation faced by
SNFs for FY 2022, adjusted for economy-wide productivity, which is
required by statute.
Comment: The Medicare Payment Advisory Commission (MedPAC)
commented that they recommend that the Congress eliminate the update to
SNF payments for FY 2022. Moreover, MedPAC stated that the aggregate
Medicare margin for freestanding SNFs in 2019 was 11.3 percent, the
20th consecutive year that this margin has exceeded 10 percent. MedPAC
further stated that the projected margin for FY 2022 indicated that
while payments might need to be reduced to more closely align them with
the cost to treat beneficiaries, they also understand that the lasting
impacts of COVID-19 on SNFs are uncertain which is why they proceeded
cautiously in recommending no update rather than reductions to
payments.
Response: We appreciate MedPAC's recommendation on the SNF annual
update factor and the uncertainty for SNFs posed by the PHE. However,
we are required to update SNF PPS payments by the market basket update,
as required by section 1888(e)(4)(E)(ii)(IV) of the Act, and then
further adjust the market basket update by the application of a
productivity adjustment, as required by section 1888(e)(5)(B)(ii) of
the Act. This productivity-adjusted market basket percentage update is
further adjusted by a forecast error correction, if applicable.
After considering the comments received on the FY 2022 SNF market
basket update factor, we are finalizing the update factor of 2.7
percent to the SNF PPS base rates for FY 2022 (prior to the application
of the forecast error adjustment and productivity adjustment, which are
discussed below).
3. Forecast Error Adjustment
As discussed in the June 10, 2003 supplemental proposed rule (68 FR
34768) and finalized in the August 4, 2003 final rule (68 FR 46057
through 46059), Sec. 413.337(d)(2) provides for an adjustment to
account for market basket forecast error. The initial adjustment for
market basket forecast error applied to the update of the FY 2003 rate
for FY 2004, and took into account the cumulative forecast error for
the period from FY 2000 through FY 2002, resulting in an increase of
3.26 percent to the FY 2004 update. Subsequent adjustments in
succeeding FYs take into account the forecast error from the most
recently available FY for which there is final data, and apply the
difference between the forecasted and actual change in the market
basket when the difference exceeds a specified threshold. We originally
used a 0.25 percentage point threshold for this purpose; however, for
the reasons specified in the FY 2008 SNF PPS final rule (72 FR 43425),
we adopted a 0.5 percentage point threshold effective for FY 2008 and
subsequent FYs. As we stated in the final rule for FY 2004 that first
issued the market basket forecast error adjustment (68 FR 46058), the
adjustment will reflect both upward and downward adjustments, as
appropriate.
For FY 2020 (the most recently available FY for which there is
final data), the forecasted or estimated increase in the SNF market
basket index was 2.8 percent, and the actual increase for FY 2020 is
2.0 percent, resulting in the actual increase being 0.8 percentage
point lower than the estimated increase. Accordingly, as the difference
between the estimated and actual amount of change in the market basket
index exceeds the 0.5 percentage point threshold, under the policy
previously described (comparing the forecasted and actual increase in
the market basket), the FY 2022 market basket percentage change of 2.7
percent, based on the IGI second quarter 2021 forecast, would be
adjusted downward to account for the forecast error correction of 0.8
percentage point, resulting in a SNF market basket percentage change of
1.2 percent after reducing the market basket update by the productivity
adjustment of 0.7 percentage point, discussed below.
In the FY 2022 SNF PPS proposed rule, we noted that we may consider
modifying this forecast error methodology in future rulemaking. We
invited comments and feedback on this issue, in particular on the
possibility of, in future rulemaking, either eliminating the forecast
error adjustment, or raising the threshold for the forecast error from
0.5 percent to 1.0 percent.
Table 2 shows the forecasted and actual market basket increases for
FY 2020.

[[Page 42429]]

[GRAPHIC] [TIFF OMITTED] TR04AU21.219

The following is a summary of the public comments received on the
potential revisions to the forecast error adjustment and our responses:
Comment: Several commenters provided feedback on potentially
modifying the SNF forecast error threshold in future rulemaking. Some
commenters requested that the forecast error threshold remain the same
at 0.5 percentage point. Other commenters requested that the forecast
error threshold be increased to 1.0 percentage point in order to
provide greater stability and certainty for year-to-year payments,
while others requested that it be eliminated. One commenter recommended
retaining the forecast error adjustment for the next three fiscal years
at 0.5 percentage point and to then move to an alternative approach
that would use a cumulative rolling projected forecast error
calculation before triggering the forecast error threshold.
Response: We appreciate the commenters' responses and viewpoints on
the forecast error threshold and will take them into consideration for
future rulemaking.
Comment: Some commenters further stated that while they generally
support the forecast error concept for the SNF PPS, given the scale of
the COVID-19 disruption that occurred in FY 2020 and the associated
atypical claims, they have concerns about the reliability and timing of
the proposed 0.8 percentage point forecast error adjustment. Commenters
stated that they believe CMS did not provide transparency in what is
driving the variance between the estimated and actual 2020 market
basket update and, therefore, they did not have an opportunity to
comment on the data used to explain the variance. They stated that the
industry experience in 2020 was that labor costs in particular were
much higher than expected. A few commenters specifically requested that
CMS eliminate the forecast error adjustment for FY 2022.
Response: The PHE presented many challenges to SNFs and as more
complete data covering the full impact of the PHE become available we
plan to monitor the information as it pertains to future rate updates
and forecast error adjustments.
Pertaining to the forecast error, CMS publishes the forecasts of
the market baskets (including SNF) on the CMS website (<a href="https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketData">https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketData</a>) on a quarterly
basis. Additionally, as stated on the CMS website, providers can also
email <a href="/cdn-cgi/l/email-protection#aeeae0e6fdeecdc3dd80c6c6dd80c9c1d8"><span class="__cf_email__" data-cfemail="91d5dfd9c2d1f2fce2bff9f9e2bff6fee7">[email&#160;protected]</span></a> for further information on the market baskets.
For the FY 2020 SNF market basket forecast error, this quarterly
information was indicating that the error was likely to exceed the
threshold of 0.5 percentage point. The final FY 2020 forecast error was
only recently able to be computed using historical data through the
third quarter of 2020, and this information was provided in the
proposed rule. In response to commenters, we are providing a detailed
breakdown of the contribution of the major market basket categories to
the 0.8-percentage point forecast error: 0.4 percentage point is due to
lower compensation price growth, 0.2 percentage point is due to lower
Fuel, Oil, and Gas prices, and 0.2 percentage point is due to lower
pharmaceutical prices. As stated in section VI.A. of this final rule,
the SNF market basket is a Laspeyres-type price index that measures the
prices associated with providing skilled nursing care services to
Medicare beneficiaries. Cost growth is a function of price (such as the
growth in average hourly wages) and quantity (such as increases in
labor hours). Any changes in the quantity or mix of goods and services
(that is, intensity) purchased over time relative to a base period are
not measured annually, these are reflected when the market basket is
rebased (such as our proposal to rebase the SNF market basket to 2018).
Commenters interested in the detailed 2014-based SNF market basket
methodology and its underlying public data sources may refer to the FY
2018 SNF PPS final rule (82 FR 36548 through 36565).
After consideration of the comments discussed above, we are
finalizing the application of the proposed forecast error adjustment
without modification. As stated above, based on IGI's second quarter
2021 forecast with historical data through the first quarter of 2021,
the updated FY 2022 growth rate of the 2018-based SNF market basket is
estimated to be 2.7 percent. Applying the forecast error adjustment for
FY 2022 results in an adjusted FY 2022 market basket update factor of
1.9 percent, which is then further reduced by the productivity
adjustment discussed below.
4. Productivity Adjustment
Section 1888(e)(5)(B)(ii) of the Act, as added by section 3401(b)
of the Patient Protection and Affordable Care Act (Affordable Care Act)
(Pub. L. 111-148, enacted March 23, 2010) requires that, in FY 2012 and
in subsequent FYs, the market basket percentage under the SNF payment
system (as described in section 1888(e)(5)(B)(i) of the Act) is to be
reduced annually by the productivity adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act. Section 1886(b)(3)(B)(xi)(II) of the
Act, in turn, defines the productivity adjustment to be equal to the
10-year moving average of changes in annual economy-wide, private
nonfarm business multifactor productivity (MFP) (as projected by the
Secretary for the 10-year period ending with the applicable FY, year,
cost-reporting period, or other annual period). The U.S. Department of
Labor's Bureau of Labor Statistics (BLS) publishes the official measure
of private nonfarm business MFP. We refer readers to the BLS website at
<a href="http://www.bls.gov/mfp">http://www.bls.gov/mfp</a> for the BLS historical published MFP data.
A complete description of the MFP projection methodology is
available on our website at <a href="http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html">http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html</a>. We note that,
effective with FY 2022 and forward, we are changing the name of this
adjustment to refer to it as the

[[Page 42430]]

``productivity adjustment,'' rather than the ``MFP adjustment.'' This
change in terminology results in a title more consistent with the
statutory language described in section 1886(b)(3)(B)(xi)(II) of the
Act.
a. Incorporating the Productivity Adjustment Into the Market Basket
Update
Per section 1888(e)(5)(A) of the Act, the Secretary shall establish
a SNF market basket index that reflects changes over time in the prices
of an appropriate mix of goods and services included in covered SNF
services. Section 1888(e)(5)(B)(ii) of the Act, added by section
3401(b) of the Affordable Care Act, requires that for FY 2012 and each
subsequent FY, after determining the market basket percentage described
in section 1888(e)(5)(B)(i) of the Act, the Secretary shall reduce such
percentage by the productivity adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act. Section 1888(e)(5)(B)(ii) of the Act
further states that the reduction of the market basket percentage by
the productivity adjustment may result in the market basket percentage
being less than zero for a FY, and may result in payment rates under
section 1888(e) of the Act being less than such payment rates for the
preceding fiscal year. Thus, if the application of the productivity
adjustment to the market basket percentage calculated under section
1888(e)(5)(B)(i) of the Act results in a productivity-adjusted market
basket percentage that is less than zero, then the annual update to the
unadjusted Federal per diem rates under section 1888(e)(4)(E)(ii) of
the Act would be negative, and such rates would decrease relative to
the prior FY.
Based on the data available for the FY 2022 SNF PPS proposed rule,
the estimated 10-year moving average of changes in MFP for the period
ending September 30, 2022 was 0.2 percentage point. However, for this
final rule, based on IGI's second quarter 2021 forecast, the estimated
10-year moving average of changes in MFP for the period ending
September 30, 2022 is 0.7 percentage point.
Consistent with section 1888(e)(5)(B)(i) of the Act and Sec.
413.337(d)(2), as discussed previously, the market basket percentage
for FY 2022 for the SNF PPS is based on IGI's second quarter 2021
forecast of the SNF market basket percentage, which is estimated to be
2.7 percent. This market basket percentage is then lowered by 0.8
percentage point, due to application of the forecast error adjustment
discussed above. Finally, as discussed above, we are applying a 0.7
percentage point productivity adjustment to the FY 2022 SNF market
basket percentage. The resulting productivity-adjusted FY 2022 SNF
market basket update is, therefore, equal to 1.2 percent, or 2.7
percent less 0.8 percentage point to account for forecast error and
less 0.7 percentage point to account for the productivity adjustment.
5. Market Basket Update Factor for FY 2022
Sections 1888(e)(4)(E)(ii)(IV) and (e)(5)(i) of the Act require
that the update factor used to establish the FY 2022 unadjusted Federal
rates be at a level equal to the market basket index percentage change.
Accordingly, we determined the total growth from the average market
basket level for the period of October 1, 2020 through September 30,
2021 to the average market basket level for the period of October 1,
2021 through September 30, 2022. This process yields a percentage
change in the 2018-based SNF market basket of 2.7 percent.
As further explained in section IV.B.2.c. of this final rule, as
applicable, we adjust the market basket percentage change by the
forecast error from the most recently available FY for which there is
final data and apply this adjustment whenever the difference between
the forecasted and actual percentage change in the market basket
exceeds a 0.5 percentage point threshold in absolute terms. Since the
forecasted FY 2020 SNF market basket percentage change exceeded the
actual FY 2020 SNF market basket percentage change (FY 2020 is the most
recently available FY for which there is historical data) by more than
the 0.5 percentage point threshold, we proposed to adjust the FY 2022
market basket percentage change downward by the forecast error
correction. Applying the -0.8 percentage point forecast error
correction results in an adjusted FY 2022 SNF market basket percentage
change of 1.9 percent (2.7 percent market basket update less 0.8
percentage point forecast error adjustment).
Section 1888(e)(5)(B)(ii) of the Act requires us to reduce the
market basket percentage change by the productivity adjustment (10-year
moving average of changes in MFP for the period ending September 30,
2022) which is estimated to be 0.7 percentage point, as described in
section IV.B.2.d. of this final rule. Thus, we apply a net SNF market
basket update factor of 1.2 percent in our determination of the FY 2022
SNF PPS unadjusted Federal per diem rates, which reflects a market
basket increase factor of 2.7 percent, less the 0.8 percent forecast
error correction and less the 0.7 percentage point productivity
adjustment.
In the proposed rule, we noted that if more recent data become
available (for example, a more recent estimate of the SNF market basket
and/or MFP), we would use such data, if appropriate, to determine the
FY 2022 SNF market basket percentage change, labor-related share
relative importance, forecast error adjustment, or productivity
adjustment in the FY 2022 SNF PPS final rule. Since more recent data
did become available since the proposed rule, as outlined above, we
have updated the various adjustment factors described through this
section accordingly.
We also noted that section 1888(e)(6)(A)(i) of the Act provides
that, beginning with FY 2018, SNFs that fail to submit data, as
applicable, in accordance with sections 1888(e)(6)(B)(i)(II) and (III)
of the Act for a fiscal year will receive a 2.0 percentage point
reduction to their market basket update for the fiscal year involved,
after application of section 1888(e)(5)(B)(ii) of the Act (the
productivity adjustment) and section 1888(e)(5)(B)(iii) of the Act (the
1 percent market basket increase for FY 2018). In addition, section
1888(e)(6)(A)(ii) of the Act states that application of the 2.0
percentage point reduction (after application of section
1888(e)(5)(B)(ii) and (iii) of the Act) may result in the market basket
index percentage change being less than zero for a fiscal year, and may
result in payment rates for a fiscal year being less than such payment
rates for the preceding fiscal year. Section 1888(e)(6)(A)(iii) of the
Act further specifies that the 2.0 percentage point reduction is
applied in a noncumulative manner, so that any reduction made under
section 1888(e)(6)(A)(i) of the Act applies only to the fiscal year
involved, and that the reduction cannot be taken into account in
computing the payment amount for a subsequent fiscal year.
6. Unadjusted Federal Per Diem Rates for FY 2022
As discussed in the FY 2019 SNF PPS final rule (83 FR 39162), in FY
2020 we implemented a new case-mix classification system to classify
SNF patients under the SNF PPS, the PDPM. As discussed in section
V.B.1. of that final rule (83 FR 39189), under PDPM, the unadjusted
Federal per diem rates are divided into six components, five of which
are case-mix adjusted components (Physical Therapy (PT), Occupational
Therapy (OT), Speech-Language Pathology (SLP), Nursing, and Non-Therapy
Ancillaries (NTA)), and

[[Page 42431]]

one of which is a non-case-mix component, as existed under the previous
RUG-IV model. We proposed to use the SNF market basket, adjusted as
described previously, to adjust each per diem component of the Federal
rates forward to reflect the change in the average prices for FY 2022
from the average prices for FY 2021. We proposed to further adjust the
rates by a wage index budget neutrality factor, described later in this
section. Further, in the past, we used the revised OMB delineations
adopted in the FY 2015 SNF PPS final rule (79 FR 45632, 45634), with
updates as reflected in OMB Bulletin Nos. 15-01 and 17-01, to identify
a facility's urban or rural status for the purpose of determining which
set of rate tables would apply to the facility. As discussed in the FY
2021 SNF PPS proposed and final rules, we adopted the revised OMB
delineations identified in OMB Bulletin No. 18-04 (available at <a href="https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf">https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf</a>) to
identify a facility's urban or rural status effective beginning with FY
2021.
For FY 2022, we note there is an additional adjustment to the
unadjusted per diem base rates. Specifically, section 134 in Division
CC of the Consolidated Appropriations Act, 2021 included a provision
amending section 1888(e)(2)(A)(iii) of the Act so as to add ``blood
clotting factors indicated for the treatment of patients with
hemophilia and other bleeding disorders . . . and items and services
related to the furnishing of such factors under section 1842(o)(5)(C)''
to the list of items and services excludable from the Part A SNF PPS
per diem payment, effective for items and services furnished on or
after October 1, 2021. We discuss this provision further in section
V.B. of this final rule.
Section 1888(e)(4)(G)(iii) of the Act further requires that the
Secretary ``provide for an appropriate proportional reduction in
payments so that . . . the aggregate amount of such reductions is equal
to the aggregate increase in payments attributable to the exclusion''
of the services from the Part A PPS per diem rates under section
1888(e)(2)(A)(iii) of the Act.
In the FY 2001 rulemaking cycle (65 FR 19202 and 46792), we
established a methodology for computing such offsets in response to
similar targeted consolidated billing exclusions added to section
1888(e)(2)(A)(iii) Act by section 103 of BBRA 1999. This methodology
resulted in a reduction of 5 cents ($0.05) in the unadjusted urban and
rural rates, using the identical data as used to establish the Part B
add-on for a sample of approximately 1,500 SNFs from the 1995 base
period. However, because this methodology relied on data from 1995, we
proposed a new methodology based on updated data (as discussed below)
to apply the offsets required for the exclusion of the blood clotting
factors and items and services related to the furnishing of such
factors under section 1842(o)(5)(C) of the Act (referred to
collectively as the blood clotting factor exclusion), as specified
under the Consolidated Appropriations Act, 2021. As we noted in the
proposed rule, we believe the use of the updated data will more
accurately capture the actual cost of these factors, as using updated
utilization data would reflect new types of blood clotting factors
introduced in recent years and changes in utilization patterns of blood
clotting factors since 1995.
The methodology for calculating the blood clotting factor exclusion
offset as set forth in the proposed rule consists of five steps. In the
first step, we begin with the total number of SNF utilization days for
beneficiaries who have any amount of blood clotting factor (BCF) use in
FY 2020. While we recognize the potential effects of the PHE for COVID-
19 on SNF utilization during 2020, we believe we should use FY 2020
data because it is the most recent data available, and thus would best
reflect the latest types of blood clotting factors and the most recent
changes in utilization patterns; also, the FY 2020 data is the only
data available that reflects utilization under the PDPM model rather
than the RUG-IV model. However, in light of the potential impact of the
PHE for COVID-19 on SNF utilization, particularly as it relates to
those patients admitted with COVID-19 or whose stays utilized a PHE-
related waiver (for example, the waiver which removes the requirement
for a three-day prior inpatient hospital stay in order to receive SNF
Part A coverage), we believe it is appropriate to use a subset of the
full FY 2020 SNF population which excludes patients diagnosed with
COVID-19 and those stays which utilized a PHE-related waiver. We
discuss this concept in more detail in relation to the recalibration of
the PDPM parity adjustment, discussed in section VI.C. of this final
rule. As further explained below, we would note that using this subset
population has very little impact on the result of the methodology
described below. Throughout the discussion below, the term ``SNF
beneficiary'' refers to beneficiaries in the FY 2020 subset population
described above.
Since BCF use has historically been subject to SNF consolidated
billing and its usage cannot be observed on billed SNF claims, this
methodology resorts to claims from other settings to approximate BCF
utilization in SNFs. Specifically, BCF use as well as items and
services related to the furnishing of such factors under section
1842(o)(5)(C) of the Act are identified by checking if any of the
Healthcare Common Procedure Coding System (HCPCS) codes listed in the
Act, including J7170, J7175, J7177-J7183, J7185-J7190, J7192-J7195,
J7198-J7203, J7205, and J7207-J7211, are recorded on outpatient claims,
which are claims submitted by institutional outpatient providers (such
as a hospital outpatient department), or carrier claims, which are fee-
for-service claims submitted by professional practitioners, such as
physicians, physician assistants, clinical social workers, and nurse
practitioners, and by some organizational providers, such as free-
standing facilities. A SNF beneficiary with any BCF use is defined as a
SNF beneficiary with at least one matched outpatient or carrier claim
for blood clotting factors in FY 2020. To calculate the number of SNF
utilization days for beneficiaries who have any amount of BCF use in FY
2020, we sum up the corresponding SNF utilization days of SNF
beneficiaries with BCF use in FY 2020 (84 beneficiaries), which is
3,317 total utilization days.
In the second step, we estimate the BCF payment per day per SNF
beneficiary with any BCF use in FY 2020, which would include payment
for the BCFs and items and services related to the furnishing of such
factors under section 1842(o)(5)(C) of the Act. There are no direct
payment data to track BCF use in SNFs since BCF use currently is
bundled within the Part A per diem payment. Therefore, we rely on
payment in outpatient and carrier claims as a proxy for this step.
Instead of calculating BCF payment per day for SNF beneficiaries in a
SNF stay, we estimate the BCF payment per day for SNF beneficiaries
outside of their SNF and inpatient stays, under the assumption that BCF
payment per day for SNF beneficiaries is similar during and outside of
SNF stays. Outpatient or carrier claims for BCF use that overlap with a
SNF stay or an inpatient stay of a SNF beneficiary are excluded to
ensure that BCF-related payment is fully captured in Part B claims
instead of partially paid through Part A. Overlapping claims are
identified when the outpatient claim ``From'' date or the carrier claim
expense date fall within a SNF or inpatient stay's admission and
discharge date window. The total BCF payment for SNF beneficiaries' BCF
use

[[Page 42432]]

observed through Part B claims in FY 2020 was $4,843,551. Next, to
determine the corresponding utilizations days for SNF beneficiaries'
BCF use, we need to carve out their utilization days in a SNF or
inpatient setting for these target beneficiaries. We first determine
the total SNF and inpatient utilization days for these beneficiaries in
FY 2020, which totals 5,408. Next, we determine the total days that the
beneficiaries with BCF use were not in a SNF or inpatient stay, which
is 365 (for days in the year) multiplied by the number of SNF
beneficiaries with BCF use (84), less the total SNF and inpatient
utilization days for these beneficiaries (5,408), which is 20,142.
Finally, we estimated the BCF payment per day, which is the total BCF
payment observed in outpatient and carrier claims ($4,843,551) divided
by the total days the beneficiaries were not in a SNF or inpatient
setting (20,142). Thus, we calculate the BCF payment per day per SNF
beneficiary to be $240.
In the third step, we calculate the percentage of SNF payment
associated with BCF usage. We multiply the estimated BCF payment per
day ($240 as determined in step 2) by the total SNF utilization days
for SNF beneficiaries with BCF use in FY 2020 (3,317 as determined in
step 1). This yields an estimated BCF payment for SNF beneficiaries in
the study population of $797,640. Next, we divide this by the total SNF
payment for the study population during FY 2020 ($22,636,345,868) to
yield the percentage of SNF payment associated with BCF use, which we
estimate to be 0.00352 percent.
In the fourth step, we calculate the urban and rural base rate
reductions, by multiplying the proposed FY 2022 urban/rural base rates
by the percentage of SNF payment associated with clotting factor use
determined in step 3 (0.00352 percent). In the case of the proposed
urban base rate of $434.95, this yields an urban base rate deduction of
$0.02, which we would apply as a $0.01 reduction to the proposed FY
2022 NTA base rate and a $0.01 reduction to the proposed FY 2022
nursing base rate. In the case of the proposed rural base rate of
$450.37, this yields a rural base rate deduction of $0.02, which we
would apply as a $0.01 reduction to the proposed FY 2022 NTA base rates
and a $0.01 reduction to the proposed FY 2022 nursing base rate. We
would apply the reduction to the NTA and nursing base rates because BCF
is a type of NTA and nursing resources are required to furnish this
medication.
In step five, for purposes of impact analysis, we calculate the
budget impact of the base rate reductions to be $782,785. We estimate
the budget impact by multiplying the total FY2022 SNF baseline
($34,211,000,000) by the percentage of SNF payment for clotting factor
(0.00352 percent). This results in a total reduction in SNF spending of
$1.2 million. To compare the result of this methodology to that which
would have resulted from using the full FY 2020 SNF population, we note
that if we had used the full FY 2020 SNF population, the resultant
impact would be a reduction in SNF spending of $1.5 million, which
represents 0.004551 percent of total payments made under the SNF PPS.
Given that these figures are so close as to result in the same two cent
reduction in the FY 2022 SNF PPS unadjusted per diem rates, and given
the reasons for using the subset population discussed in section VI.C.
of this final rule, we believe it is appropriate to use this subset
population as the basis for the calculations described throughout this
section.
We apply these rate reductions to the NTA and nursing components of
the unadjusted Federal urban and rural per diem rate as shown in Tables
4 and 5.
Table 3 displays the methodology and figures used to calculate
these rate reductions.
BILLING CODE 4120-01-P

[[Page 42433]]

[GRAPHIC] [TIFF OMITTED] TR04AU21.220

The comments we received on the proposed methodology to adjust the
SNF PPS base rates in response to the recent blood clotting factor
exclusion, along with our responses, appear below.
Comment: Several commenters noted support for the proposed
methodology for adjusting the base rates to remove the costs associated
with Blood Clotting Factor (BCF)-related services from the Part A
consolidated billing per diem payment that resulted in a proposed
0.00352 percent adjustment. A commenter noted that this methodology is
preferable to the alternative methodology that would result in a
0.004551 percent adjustment.
Response: We thank the commenters for their support. Accordingly,
we are finalizing, as proposed, the methodology for reducing the base
rates to remove the costs associated with Blood Clotting Factor (BCF)-
related services.
Tables 4 and 5 reflect the updated unadjusted Federal rates for FY
2022, prior to adjustment for case-mix. The rates in Tables 4 and 5
include the reductions calculated in Table 3 for blood clotting factor
use.
[GRAPHIC] [TIFF OMITTED] TR04AU21.221

[GRAPHIC] [TIFF OMITTED] TR04AU21.222

BILLING CODE 4120-01-C

[[Page 42434]]

C. Case-Mix Adjustment

Under section 1888(e)(4)(G)(i) of the Act, the Federal rate also
incorporates an adjustment to account for facility case-mix, using a
classification system that accounts for the relative resource
utilization of different patient types. The statute specifies that the
adjustment is to reflect both a resident classification system that the
Secretary establishes to account for the relative resource use of
different patient types, as well as resident assessment data and other
data that the Secretary considers appropriate. In the FY 2019 final
rule (83 FR 39162, August 8, 2018), we finalized a new case-mix
classification model, the PDPM, which took effect beginning October 1,
2019. The previous RUG-IV model classified most patients into a therapy
payment group and primarily used the volume of therapy services
provided to the patient as the basis for payment classification, thus
creating an incentive for SNFs to furnish therapy regardless of the
individual patient's unique characteristics, goals, or needs. PDPM
eliminates this incentive and improves the overall accuracy and
appropriateness of SNF payments by classifying patients into payment
groups based on specific, data-driven patient characteristics, while
simultaneously reducing the administrative burden on SNFs.
As we noted in the FY 2021 SNF PPS final rule (85 FR 47600), we
continue to monitor the impact of PDPM implementation on patient
outcomes and program outlays. We hope to release information in the
future that relates to these issues, though we provide some of this
information in section VI.C. of this final rule. We also continue to
monitor the impact of PDPM implementation as it relates to our
intention to ensure that PDPM is implemented in a budget neutral
manner, as discussed in the FY 2020 SNF PPS final rule (84 FR 38734).
In section VI.C. of this final rule, we discuss the methodology to
recalibrate the PDPM parity adjustment as appropriate to ensure budget
neutrality, as we did after the implementation of RUG-IV in FY 2011.
The PDPM uses clinical data from the MDS to assign case-mix
classifiers to each patient that are then used to calculate a per diem
payment under the SNF PPS, consistent with the provisions of section
1888(e)(4)(G)(i) of the Act. As discussed in section V.A. of this final
rule, the clinical orientation of the case-mix classification system
supports the SNF PPS's use of an administrative presumption that
considers a beneficiary's initial case-mix classification to assist in
making certain SNF level of care determinations. Further, because the
MDS is used as a basis for payment, as well as a clinical assessment,
we have provided extensive training on proper coding and the timeframes
for MDS completion in our Resident Assessment Instrument (RAI) Manual.
As we have stated in prior rules, for an MDS to be considered valid for
use in determining payment, the MDS assessment should be completed in
compliance with the instructions in the RAI Manual in effect at the
time the assessment is completed. For payment and quality monitoring
purposes, the RAI Manual consists of both the Manual instructions and
the interpretive guidance and policy clarifications posted on the
appropriate MDS website at <a href="http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/NursingHomeQualityInits/MDS30RAIManual.html">http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/NursingHomeQualityInits/MDS30RAIManual.html</a>.
Under section 1888(e)(4)(H) of the Act, each update of the payment
rates must include the case-mix classification methodology applicable
for the upcoming FY. The FY 2022 payment rates set forth in this final
rule reflect the use of the PDPM case-mix classification system from
October 1, 2021, through September 30, 2022. The case-mix adjusted PDPM
payment rates for FY 2022 are listed separately for urban and rural
SNFs, in Tables 6 and 7 with corresponding case-mix values.
Given the differences between the previous RUG-IV model and PDPM in
terms of patient classification and billing, it was important that the
format of Tables 6 and 7 reflect these differences. More specifically,
under both RUG-IV and PDPM, providers use a Health Insurance
Prospective Payment System (HIPPS) code on a claim to bill for covered
SNF services. Under RUG-IV, the HIPPS code included the three-character
RUG-IV group into which the patient classified as well as a two-
character assessment indicator code that represented the assessment
used to generate this code. Under PDPM, while providers still use a
HIPPS code, the characters in that code represent different things. For
example, the first character represents the PT and OT group into which
the patient classifies. If the patient is classified into the PT and OT
group ``TA'', then the first character in the patient's HIPPS code
would be an A. Similarly, if the patient is classified into the SLP
group ``SB'', then the second character in the patient's HIPPS code
would be a B. The third character represents the Nursing group into
which the patient classifies. The fourth character represents the NTA
group into which the patient classifies. Finally, the fifth character
represents the assessment used to generate the HIPPS code.
Tables 6 and 7 reflect the PDPM's structure. Accordingly, Column 1
of Tables 6 and 7 represents the character in the HIPPS code associated
with a given PDPM component. Columns 2 and 3 provide the case-mix index
and associated case-mix adjusted component rate, respectively, for the
relevant PT group. Columns 4 and 5 provide the case-mix index and
associated case-mix adjusted component rate, respectively, for the
relevant OT group. Columns 6 and 7 provide the case-mix index and
associated case-mix adjusted component rate, respectively, for the
relevant SLP group. Column 8 provides the nursing case-mix group (CMG)
that is connected with a given PDPM HIPPS character. For example, if
the patient qualified for the nursing group CBC1, then the third
character in the patient's HIPPS code would be a ``P.'' Columns 9 and
10 provide the case-mix index and associated case-mix adjusted
component rate, respectively, for the relevant nursing group. Finally,
columns 11 and 12 provide the case-mix index and associated case-mix
adjusted component rate, respectively, for the relevant NTA group.
Tables 6 and 7 do not reflect adjustments which may be made to the
SNF PPS rates as a result of the SNF VBP Program, discussed in section
IV.D. of this final rule, or other adjustments, such as the variable
per diem adjustment. Further, in the past, we used the revised OMB
delineations adopted in the FY 2015 SNF PPS final rule (79 FR 45632,
45634), with updates as reflected in OMB Bulletin Nos, 15-01 and 17-01,
to identify a facility's urban or rural status for the purpose of
determining which set of rate tables would apply to the facility. As
discussed in the FY 2021 SNF PPS final rule (85 FR 47594), we adopted
the revised OMB delineations identified in OMB Bulletin No. 18-04
(available at <a href="https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf">https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf</a>) to identify a facility's urban or rural status
effective beginning with FY 2021.

[[Page 42435]]

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[[Page 42436]]

[GRAPHIC] [TIFF OMITTED] TR04AU21.224

D. Wage Index Adjustment

Section 1888(e)(4)(G)(ii) of the Act requires that we adjust the
Federal rates to account for differences in area wage levels, using a
wage index that the Secretary determines appropriate. Since the
inception of the SNF PPS, we have used hospital inpatient wage data in
developing a wage index to be applied to SNFs. We continue this
practice for FY 2022, as we continue to believe that in the absence of
SNF-specific wage data, using the hospital inpatient wage index data is
appropriate and reasonable for the SNF PPS. As explained in the update
notice for FY 2005 (69 FR 45786), the SNF PPS does not use the hospital
area wage index's occupational mix adjustment, as this adjustment
serves specifically to define the occupational categories more clearly
in a hospital setting; moreover, the collection of the occupational
wage data under the inpatient prospective payment system (IPPS) also
excludes any wage data related to SNFs. Therefore, we believe that
using the updated wage data exclusive of the occupational mix
adjustment continues to be appropriate for SNF payments. As in previous
years, we would continue to use the pre-reclassified IPPS hospital wage
data, without applying the occupational mix, rural floor, or
outmigration adjustment, as the basis for the SNF PPS wage index. For
FY 2022, the updated wage data are for hospital cost reporting periods
beginning on or after October 1, 2017 and before October 1, 2018 (FY
2018 cost report data).
We note that section 315 of the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-
554, enacted December 21, 2000) authorized us to establish a geographic
reclassification procedure that is specific to SNFs, but only after
collecting the data necessary to establish a SNF PPS wage index that is
based on wage data from nursing homes. However, to date, this has
proven to be unfeasible due to the volatility of existing SNF wage data
and the significant amount of resources that would be required to
improve the quality of the data. More specifically, auditing all SNF
cost reports, similar to the process used to audit inpatient hospital
cost reports for purposes of the IPPS wage index, would place a burden
on providers in terms of recordkeeping and completion of the cost
report worksheet. In addition, adopting such an approach would require
a significant commitment of resources by CMS and the Medicare
Administrative Contractors, potentially far in excess of those required
under the IPPS given that there are nearly five times as many SNFs as
there are inpatient hospitals. Therefore, while we continue to believe
that the development of such an audit process could improve SNF cost
reports in such a manner as to permit us to establish a SNF-specific
wage index, we do not believe this undertaking is feasible at this
time.
In the proposed rule, we proposed to continue using the same
methodology discussed in the SNF PPS final rule for FY 2008 (72 FR
43423) to address those geographic areas in which there are no
hospitals, and thus, no hospital wage index data on which to base the
calculation of the FY 2022 SNF PPS wage index. For rural geographic
areas that do not have hospitals and, therefore, lack hospital wage
data on which to base an area wage adjustment, we proposed to continue
using the average wage index from all contiguous

[[Page 42437]]

Core-Based Statistical Areas (CBSAs) as a reasonable proxy. For FY
2022, there are no rural geographic areas that do not have hospitals,
and thus, this methodology will not be applied. For rural Puerto Rico,
we proposed not to apply this methodology due to the distinct economic
circumstances that exist there (for example, due to the close proximity
to one another of almost all of Puerto Rico's various urban and non-
urban areas, this methodology would produce a wage index for rural
Puerto Rico that is higher than that in half of its urban areas);
instead, we would continue using the most recent wage index previously
available for that area. For urban areas without specific hospital wage
index data, we proposed that we would use the average wage indexes of
all of the urban areas within the state to serve as a reasonable proxy
for the wage index of that urban CBSA. For FY 2022, the only urban area
without wage index data available is CBSA 25980, Hinesville-Fort
Stewart, GA.
The wage index applicable to FY 2022 is set forth in Tables A and B
available on the CMS website at <a href="http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html">http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html</a>.
In the SNF PPS final rule for FY 2006 (70 FR 45026, August 4,
2005), we adopted the changes discussed in OMB Bulletin No. 03-04 (June
6, 2003), which announced revised definitions for MSAs and the creation
of micropolitan statistical areas and combined statistical areas. In
adopting the CBSA geographic designations, we provided for a 1-year
transition in FY 2006 with a blended wage index for all providers. For
FY 2006, the wage index for each provider consisted of a blend of 50
percent of the FY 2006 MSA-based wage index and 50 percent of the FY
2006 CBSA-based wage index (both using FY 2002 hospital data). We
referred to the blended wage index as the FY 2006 SNF PPS transition
wage index. As discussed in the SNF PPS final rule for FY 2006 (70 FR
45041), after the expiration of this 1-year transition on September 30,
2006, we used the full CBSA-based wage index values.
In the FY 2015 SNF PPS final rule (79 FR 45644 through 45646), we
finalized changes to the SNF PPS wage index based on the newest OMB
delineations, as described in OMB Bulletin No. 13-01, beginning in FY
2015, including a 1-year transition with a blended wage index for FY
2015. OMB Bulletin No. 13-01 established revised delineations for
Metropolitan Statistical Areas, Micropolitan Statistical Areas, and
Combined Statistical Areas in the United States and Puerto Rico based
on the 2010 Census, and provided guidance on the use of the
delineations of these statistical areas using standards published in
the June 28, 2010 Federal Register (75 FR 37246 through 37252).
Subsequently, on July 15, 2015, OMB issued OMB Bulletin No. 15-01,
which provided minor updates to and superseded OMB Bulletin No. 13-01
that was issued on February 28, 2013. The attachment to OMB Bulletin
No. 15-01 provided detailed information on the update to statistical
areas since February 28, 2013. The updates provided in OMB Bulletin No.
15-01 were based on the application of the 2010 Standards for
Delineating Metropolitan and Micropolitan Statistical Areas to Census
Bureau population estimates for July 1, 2012 and July 1, 2013 and were
adopted under the SNF PPS in the FY 2017 SNF PPS final rule (81 FR
51983, August 5, 2016). In addition, on August 15, 2017, OMB issued
Bulletin No. 17-01 which announced a new urban CBSA, Twin Falls, Idaho
(CBSA 46300) which was adopted in the SNF PPS final rule for FY 2019
(83 FR 39173, August 8, 2018).
As discussed in the FY 2021 SNF PPS final rule (85 FR 47594), we
adopted the revised OMB delineations identified in OMB Bulletin No. 18-
04 (available at <a href="https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf">https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf</a>) beginning October 1, 2020, including a 1-year
transition for FY 2021 under which we applied a 5 percent cap on any
decrease in a hospital's wage index compared to its wage index for the
prior fiscal year (FY 2020). The updated OMB delineations more
accurately reflect the contemporary urban and rural nature of areas
across the country, and the use of such delineations allows us to
determine more accurately the appropriate wage index and rate tables to
apply under the SNF PPS.
As we previously stated in the FY 2008 SNF PPS proposed and final
rules (72 FR 25538 through 25539, and 72 FR 43423), this and all
subsequent SNF PPS rules and notices are considered to incorporate any
updates and revisions set forth in the most recent OMB bulletin that
applies to the hospital wage data used to determine the current SNF PPS
wage index. We note that on March 6, 2020, OMB issued Bulletin No. 20-
01, which provided updates to and superseded OMB Bulletin No. 18-04
that was issued on September 14, 2018. The attachments to OMB Bulletin
No. 20-01 provided detailed information on the updates (available on
the web at <a href="https://www.whitehouse.gov/wp-content/uploads/2020/03/Bulletin-20-01.pdf">https://www.whitehouse.gov/wp-content/uploads/2020/03/Bulletin-20-01.pdf</a>). In the FY 2021 SNF PPS final rule (85 FR 47611),
we stated that we intended to propose any updates from OMB Bulletin No.
20-01 in the FY 2022 SNF PPS proposed rule. After reviewing OMB
Bulletin No. 20-01, we have determined that the changes in OMB Bulletin
20-01 encompassed delineation changes that do not impact the CBSA-based
labor market area delineations adopted in FY 2021. Therefore, while we
proposed to adopt the updates set forth in OMB Bulletin No. 20-01
consistent with our longstanding policy of adopting OMB delineation
updates, we noted that specific wage index updates would not be
necessary for FY 2022 as a result of adopting these OMB updates.
The proposed wage index applicable to FY 2022 is set forth in
Tables A and B and is available on the CMS website at <a href="http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html">http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html</a>.
Once calculated, we would apply the wage index adjustment to the
labor-related portion of the Federal rate. Each year, we calculate a
revised labor-related share, based on the relative importance of labor-
related cost categories (that is, those cost categories that are labor-
intensive and vary with the local labor market) in the input price
index. In the SNF PPS final rule for FY 2018 (82 FR 36548 through
36566), we finalized a proposal to revise the labor-related share to
reflect the relative importance of the 2014-based SNF market basket
cost weights for the following cost categories: Wages and Salaries;
Employee Benefits; Professional Fees: Labor-Related; Administrative and
Facilities Support Services; Installation, Maintenance, and Repair
Services; All Other: Labor-Related Services; and a proportion of
Capital-Related expenses. Effective beginning FY 2022, as discussed in
section VI.A.4. of this final rule, for FY 2022, we are rebasing and
revising the labor-related share to reflect the relative importance of
the 2018-based SNF market basket cost weights for the following cost
categories: Wages and Salaries; Employee Benefits; Professional fees:
Labor-related; Administrative and Facilities Support services;
Installation, Maintenance, and Repair services; All Other: Labor-
Related Services; and a proportion of Capital-Related expenses. The
methodology for calculating the labor-related portion for FY 2022 is
discussed in section VI.A. of this final rule.
We calculate the labor-related relative importance from the SNF
market basket, and it approximates the labor-related

[[Page 42438]]

portion of the total costs after taking into account historical and
projected price changes between the base year and FY 2022. The price
proxies that move the different cost categories in the market basket do
not necessarily change at the same rate, and the relative importance
captures these changes. Accordingly, the relative importance figure
more closely reflects the cost share weights for FY 2022 than the base
year weights from the SNF market basket. We calculate the labor-related
relative importance for FY 2022 in four steps. First, we compute the FY
2022 price index level for the total market basket and each cost
category of the market basket. Second, we calculate a ratio for each
cost category by dividing the FY 2022 price index level for that cost
category by the total market basket price index level. Third, we
determine the FY 2022 relative importance for each cost category by
multiplying this ratio by the base year (2018) weight. Finally, we add
the FY 2022 relative importance for each of the labor-related cost
categories (Wages and Salaries; Employee Benefits; Professional Fees:
Labor-Related; Administrative and Facilities Support Services;
Installation, Maintenance, and Repair Services; All Other: Labor-
related services; and a portion of Capital-Related expenses) to produce
the FY 2022 labor-related relative importance.
For the proposed rule, the labor-related share for FY 2022 was
based on IGI's fourth quarter 2020 forecast of the proposed 2018-based
SNF market basket with historical data through third quarter 2020. For
this final rule, we based the labor-related share for FY 2022 on IGI's
second quarter 2021 forecast, with historical data through the first
quarter 2021. Table 8 summarizes the labor-related share for FY 2022,
based on IGI's second quarter 2021 forecast of the 2018-based SNF
market basket with historical data through first quarter 2021, compared
to the labor-related share that was used for the FY 2021 SNF PPS final
rule.
[GRAPHIC] [TIFF OMITTED] TR04AU21.225

To calculate the labor portion of the case-mix adjusted per diem
rate, we would multiply the total case-mix adjusted per diem rate,
which is the sum of all five case-mix adjusted components into which a
patient classifies, and the non-case-mix component rate, by the FY 2022
labor-related share percentage provided in Table 8. The remaining
portion of the rate would be the non-labor portion. Under the previous
RUG-IV model, we included tables which provided the case-mix adjusted
RUG-IV rates, by RUG-IV group, broken out by total rate, labor portion
and non-labor portion, such as Table 9 of the FY 2019 SNF PPS final
rule (83 FR 39175). However, as we discussed in the FY 2020 final rule
(84 FR 38738), under PDPM, as the total rate is calculated as a
combination of six different component rates, five of which are case-
mix adjusted, and given the sheer volume of possible combinations of
these five case-mix adjusted components, it is not feasible to provide
tables similar to those that existed in the prior rulemaking.
Therefore, to aid stakeholders in understanding the effect of the
wage index on the calculation of the SNF per diem rate, we have
included a hypothetical rate calculation in Table 9.
Section 1888(e)(4)(G)(ii) of the Act also requires that we apply
this wage index in a manner that does not result in aggregate payments
under the SNF PPS that are greater or less than would otherwise be made
if the wage adjustment had not been made. For FY 2022 (Federal rates
effective October 1, 2021), we apply an adjustment to fulfill the
budget neutrality requirement. We meet this requirement by multiplying
each of the components of the unadjusted Federal rates by a budget
neutrality factor, equal to the ratio of the weighted average wage
adjustment factor for FY 2021 to the weighted average wage adjustment
factor for FY 2022. For this calculation, we would use the same FY 2020
claims utilization data for both the numerator and denominator of this
ratio. We define the wage adjustment factor used in this calculation as
the labor portion of the rate component multiplied by the wage index
plus the non-labor portion of the rate component. The proposed budget
neutrality factor for FY 2022 as set forth in the proposed rule was
0.9999.
In the proposed rule, we noted that if more recent data become
available (for example, revised wage data), we would use such data, as
appropriate, to determine the wage index budget neutrality factor in
the SNF PPS final rule. Since the proposed rule, we have updated the
weighted average wage

[[Page 42439]]

adjustment factor for FY 2022. Based on this updated information, the
budget neutrality factor for FY 2022 is 1.0006.
The following is a summary of the public comments received on the
proposed revisions to the Wage Index Adjustment and our responses:
Comment: Several commenters recommended that we consider creating a
SNF-specific wage index utilizing the SNF cost report, as opposed to
continuing to rely on hospital data as the basis for the SNF wage
index. Commenters requested the SNF wage data analysis and access to
needed hospital and SNF cost report wage data to conduct their own
analysis towards assisting us in refining the current SNF wage index
methodology. Additionally, one commenter requested to meet with CMS to
discuss these ideas, while another commenter would like to provide more
feedback.
Response: We appreciate the commenter's suggestion as to the
development of a SNF specific wage index. However, to date, the
development of a SNF-specific wage index has proven to be unfeasible
due to the volatility of existing SNF wage data and the significant
amount of resources that would be required to improve the quality of
that data. We note that, consistent with the preceding discussion in
this final rule as well as our previous responses to these recurring
SNF-specific wage index comments (most recently published in the FY
2019 SNF PPS final rule (83 FR 39172 through 39173)), developing such a
wage index would require a resource-intensive audit process similar to
that used for IPPS hospital data, to improve the quality of the SNF
cost report data in order for it to be used as part of this analysis.
We also discussed in the FY 2019 SNF PPS why utilizing concepts such as
trimming methods, BLS data, occupational mix, Payroll Based Journal,
and rural floor are unfeasible or not applicable to SNF policy. We
continue to believe that in the absence of the appropriate SNF-specific
wage data, using the pre-reclassified, pre-rural floor hospital
inpatient wage data (without the occupational mix adjustment) is
appropriate and reasonable for the SNF PPS.
Regarding the request for data, we will consider the comments and
examine what data could be released that would assist stakeholders in
understanding both the volatility of the SNF wage data and the issues
with using this data to develop a SNF-specific wage index. As always,
we encourage and welcome dialogue with stakeholders regarding this, or
any other, issues related to SNF payments under Medicare.
Comment: We received several comments that were outside the scope
of the FY 2022 SNF PPS proposed rule. Specifically, commenters
appreciated that, in the SNF PPS final rule for FY 2021, CMS recognized
the need for a transitional policy in the form of a 5 percent cap on
any decease in a SNF's wage index in adopting the OMB delineations
updated in OMB Bulletin 18-04. However, these commenters also expressed
that a 1-year cap is not sufficient to offset the enormous cuts
scheduled for FY 2022, thus requesting an extension to the 5 percent
cap transition.
Response: We thank the commenters for bringing this issue to our
attention. We note that at times when changes to the wage index occur,
those changes may result in large and potentially unpredictable impacts
on Medicare payments that impact providers. These changes may arise
from changes to wage index areas due to updates related to decennial
census data, changes to wage index areas due to updates related to
revised OMB delineations. While we consider how best to address these
potential scenarios in a consistent and thoughtful manner, we reiterate
that our policy principles with regard to the wage index are to use the
most updated data and information available and provide that data and
information, as well as any approaches to addressing these potential
scenarios, through notice and comment rulemaking.
After considering the comments received, for the reasons set forth
in this final rule and in the FY 2022 SNF PPS proposed rule, we are
finalizing our proposal to adopt the revised OMB delineations contained
in OMB Bulletin 18-04 as proposed, without modification.

E. SNF Value-Based Purchasing Program

Beginning with payment for services furnished on October 1, 2018,
section 1888(h) of the Act requires the Secretary to reduce the
adjusted Federal per diem rate determined under section 1888(e)(4)(G)
of the Act otherwise applicable to a SNF for services furnished during
a fiscal year by 2 percent, and to adjust the resulting rate for a SNF
by the value-based incentive payment amount earned by the SNF based on
the SNF's performance score for that fiscal year under the SNF VBP
Program. To implement these requirements, we finalized in the FY 2019
SNF PPS final rule the addition of Sec. 413.337(f) to our regulations
(83 FR 39178).
Please see section VIII. of this final rule for a further
discussion of our policies for the SNF VBP Program.

F. Adjusted Rate Computation Example

Tables 9, 10, and 11 provide examples generally illustrating
payment calculations during FY 2022 under PDPM for a hypothetical 30-
day SNF stay, involving the hypothetical SNF XYZ, located in Frederick,
MD (Urban CBSA 23244), for a hypothetical patient who is classified
into such groups that the patient's HIPPS code is NHNC1. Table 9 shows
the adjustments made to the Federal per diem rates (prior to
application of any adjustments under the SNF VBP Program as discussed
previously) to compute the provider's case-mix adjusted per diem rate
for FY 2022, based on the patient's PDPM classification, as well as how
the variable per diem (VPD) adjustment factor affects calculation of
the per diem rate for a given day of the stay. Table 10 shows the
adjustments made to the case-mix adjusted per diem rate from Table 9 to
account for the provider's wage index. The wage index used in this
example is based on the FY 2022 SNF PPS wage index that appears in
Table A available on the CMS website at <a href="http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html">http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html</a>. Finally, Table
11 provides the case-mix and wage index adjusted per-diem rate for this
patient for each day of the 30-day stay, as well as the total payment
for this stay. Table 11 also includes the VPD adjustment factors for
each day of the patient's stay, to clarify why the patient's per diem
rate changes for certain days of the stay. As illustrated in Table 9,
SNF XYZ's total PPS payment for this particular patient's stay would
equal $20,532.52.

[[Page 42440]]

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[GRAPHIC] [TIFF OMITTED] TR04AU21.227

[[Page 42441]]

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V. Additional Aspects of the SNF PPS

A. SNF Level of Care--Administrative Presumption

The establishment of the SNF PPS did not change Medicare's
fundamental requirements for SNF coverage. However, because the case-
mix classification is based, in part, on the beneficiary's need for
skilled nursing care and therapy, we have attempted, where possible, to
coordinate claims review procedures with the existing resident
assessment process and case-mix classification system discussed in
section IV.C. of this final rule. This approach includes an
administrative presumption that utilizes a beneficiary's correct
assignment, at the outset of the SNF stay, of one of the case-mix
classifiers designated for this purpose to assist in making certain SNF
level of care determinations.
In accordance with Sec. 413.345, we include in each update of the
Federal payment rates in the Federal Register a discussion of the
resident classification system that provides the basis for case-mix
adjustment. We also designate those specific classifiers under the
case-mix classification system that represent the required SNF level of
care, as provided in 42 CFR 409.30. This designation reflects an
administrative presumption that those beneficiaries who are correctly
assigned one of the designated case-mix classifiers on the initial
Medicare assessment are automatically classified as meeting the SNF
level of care definition up to and including the assessment reference
date (ARD) for that assessment.
A beneficiary who does not qualify for the presumption is not
automatically classified as either meeting or not meeting the level of
care definition, but instead receives an individual determination on
this point using the existing administrative criteria. This presumption
recognizes the strong likelihood that those beneficiaries who are
correctly assigned one of the designated case-mix classifiers during
the immediate post-hospital period would require a covered level of
care, which would be less likely for other beneficiaries.
In the July 30, 1999 final rule (64 FR 41670), we indicated that we
would announce any changes to the guidelines for Medicare level of care
determinations related to modifications in the case-mix classification
structure. The FY 2018 final rule (82 FR 36544) further specified that
we would henceforth disseminate the standard description of the
administrative presumption's designated groups via the SNF PPS website
at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/
SNFPPS/

[[Page 42442]]

index.html (where such designations appear in the paragraph entitled
``Case Mix Adjustment''), and would publish such designations in
rulemaking only to the extent that we actually intend to propose
changes in them. Under that approach, the set of case-mix classifiers
designated for this purpose under PDPM was finalized in the FY 2019 SNF
PPS final rule (83 FR 39253) and is posted on the SNF PPS website
(<a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/index.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/index.html</a>), in the paragraph entitled ``Case Mix Adjustment.''
However, we note that this administrative presumption policy does
not supersede the SNF's responsibility to ensure that its decisions
relating to level of care are appropriate and timely, including a
review to confirm that any services prompting the assignment of one of
the designated case-mix classifiers (which, in turn, serves to trigger
the administrative presumption) are themselves medically necessary. As
we explained in the FY 2000 SNF PPS final rule (64 FR 41667), the
administrative presumption is itself rebuttable in those individual
cases in which the services actually received by the resident do not
meet the basic statutory criterion of being reasonable and necessary to
diagnose or treat a beneficiary's condition (according to section
1862(a)(1) of the Act). Accordingly, the presumption would not apply,
for example, in those situations where the sole classifier that
triggers the presumption is itself assigned through the receipt of
services that are subsequently determined to be not reasonable and
necessary. Moreover, we want to stress the importance of careful
monitoring for changes in each patient's condition to determine the
continuing need for Part A SNF benefits after the ARD of the initial
Medicare assessment.

B. Consolidated Billing

Sections 1842(b)(6)(E) and 1862(a)(18) of the Act (as added by
section 4432(b) of the BBA 1997) require a SNF to submit consolidated
Medicare bills to its Medicare Administrative Contractor (MAC) for
almost all of the services that its residents receive during the course
of a covered Part A stay. In addition, section 1862(a)(18) of the Act
places the responsibility with the SNF for billing Medicare for
physical therapy, occupational therapy, and speech-language pathology
services that the resident receives during a noncovered stay. Section
1888(e)(2)(A) of the Act excludes a small list of services from the
consolidated billing provision (primarily those services furnished by
physicians and certain other types of practitioners), which remain
separately billable under Part B when furnished to a SNF's Part A
resident. These excluded service categories are discussed in greater
detail in section V.B.2. of the May 12, 1998 interim final rule (63 FR
26295 through 26297).
A detailed discussion of the legislative history of the
consolidated billing provision is available on the SNF PPS website at
<a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/Legislative_History_2018-10-01.pdf">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/Legislative_History_2018-10-01.pdf</a>. In particular, section
103 of the BBRA 1999 amended section 1888(e)(2)(A)(iii) of the Act by
further excluding a number of individual high-cost, low probability
services, identified by HCPCS codes, within several broader categories
(chemotherapy items, chemotherapy administration services, radioisotope
services, and customized prosthetic devices) that otherwise remained
subject to the provision. We discuss this BBRA 1999 amendment in
greater detail in the SNF PPS proposed and final rules for FY 2001 (65
FR 19231 through 19232, April 10, 2000, and 65 FR 46790 through 46795,
July 31, 2000), as well as in Program Memorandum AB-00-18 (Change
Request #1070), issued March 2000, which is available online at
<a href="http://www.cms.gov/transmittals/downloads/ab001860.pdf">www.cms.gov/transmittals/downloads/ab001860.pdf</a>.
As explained in the FY 2001 proposed rule (65 FR 19232), the
amendments enacted in section 103 of the BBRA 1999 not only identified
for exclusion from this provision a number of particular service codes
within four specified categories (that is, chemotherapy items,
chemotherapy administration services, radioisotope services, and
customized prosthetic devices), but also gave the Secretary the
authority to designate additional, individual services for exclusion
within each of these four specified service categories. In the proposed
rule for FY 2001, we also noted that the BBRA 1999 Conference report
(H.R. Rep. No. 106-479 at 854 (1999) (Conf. Rep.)) characterizes the
individual services that this legislation targets for exclusion as
high-cost, low probability events that could have devastating financial
impacts because their costs far exceed the payment SNFs receive under
the PPS. According to the conferees, section 103(a) of the BBRA 1999 is
an attempt to exclude from the PPS certain services and costly items
that are provided infrequently in SNFs. By contrast, the amendments
enacted in section 103 of the BBRA 1999 do not designate for exclusion
any of the remaining services within those four categories (thus,
leaving all of those services subject to SNF consolidated billing),
because they are relatively inexpensive and are furnished routinely in
SNFs.
As we further explained in the final rule for FY 2001 (65 FR
46790), and as is consistent with our longstanding policy, any
additional service codes that we might designate for exclusion under
our discretionary authority must meet the same statutory criteria used
in identifying the original codes excluded from consolidated billing
under section 103(a) of the BBRA 1999: They must fall within one of the
four service categories specified in the BBRA 1999; and they also must
meet the same standards of high cost and low probability in the SNF
setting, as discussed in the BBRA 1999 Conference report. Accordingly,
we characterized this statutory authority to identify additional
service codes for exclusion as essentially affording the flexibility to
revise the list of excluded codes in response to changes of major
significance that may occur over time (for example, the development of
new medical technologies or other advances in the state of medical
practice) (65 FR 46791).
Effective with items and services furnished on or after October 1,
2021, section 134 in Division CC of the Consolidated Appropriations
Act, 2021 (Pub. L. 116-260) has established an additional category of
excluded codes in section 1888(e)(2)(A)(iii)(VI) of the Act, for
certain blood clotting factors for the treatment of patients with
hemophilia and other bleeding disorders along with items and services
related to the furnishing of such factors under section 1842(o)(5)(C)
of the Act. The specific factors, and items and services related to the
furnishing of such factors, excluded under this provision are those
identified, as of July 1, 2020, by HCPCS codes J7170, J7175, J7177-
J7183, J7185-J7190, J7192-J7195, J7198-J7203, J7205, and J7207-J7211.
Like the provisions enacted in the BBRA 1999, new section
1888(e)(2)(A)(iii)(VI) of the Act gives the Secretary the authority to
designate additional items and services for exclusion within the
category of items and services described in that section. Section
1888(e)(4)(G)(iii) of the Act further requires that for any services
that are unbundled from consolidated billing under section
1888(e)(2)(A)(iii) of the Act (and, thus, become qualified for separate
payment under Part B), there must also be a corresponding proportional
reduction made in aggregate SNF payments under Part A. Accordingly,
using the methodology described in section III.B.6. of the proposed
rule (see also section IV.B.6. of this final rule), we proposed to make
a

[[Page 42443]]

proportional reduction of $0.02 in the unadjusted urban and rural rates
to reflect these new exclusions, effective for items and services
furnished on or after October 1, 2021.
In the proposed rule, we specifically invited public comments
identifying HCPCS codes in any of these five service categories
(chemotherapy items, chemotherapy administration services, radioisotope
services, customized prosthetic devices, and blood clotting factors)
representing recent medical advances that might meet our criteria for
exclusion from SNF consolidated billing. We noted that we may consider
excluding a particular service if it meets our criteria for exclusion
as specified previously. We requested that commenters identify in their
comments the specific HCPCS code that is associated with the service in
question, as well as their rationale for requesting that the identified
HCPCS code(s) be excluded.
We noted that the original BBRA amendment and the Consolidated
Appropriations Act, 2021 identified a set of excluded items and
services by means of specifying individual HCPCS codes within the
designated categories that were in effect as of a particular date (in
the case of the BBRA 1999, July 1, 1999, and in the case of the
Consolidated Appropriations Act, 2021, July 1, 2020), as subsequently
modified by the Secretary. In addition, as noted above, the statute
(section 1888(e)(2)(A)(iii)(II) through (VI) of the Act) gives the
Secretary authority to identify additional items and services for
exclusion within the categories of items and services described in the
statute, which are also designated by HCPCS code. Designating the
excluded services in this manner makes it possible for us to utilize
program issuances as the vehicle for accomplishing routine updates to
the excluded codes to reflect any minor revisions that might
subsequently occur in the coding system itself, such as the assignment
of a different code number to a service already designated as excluded,
or the creation of a new code for a type of service that falls within
one of the established exclusion categories and meets our criteria for
exclusion (for example, J7212, ``factor viia (antihemophilic factor,
recombinant)-jncw (sevenfact), 1 microgram'', which became effective on
January 1, 2021 and would fall in the blood clotting factor exclusion
category).
Accordingly, we noted that in the event that we identify through
the current rulemaking cycle any new services that would actually
represent a substantive change in the scope of the exclusions from SNF
consolidated billing, we would identify these additional excluded
services by means of the HCPCS codes that are in effect as of a
specific date (in this case, October 1, 2021). By making any new
exclusions in this manner, we could similarly accomplish routine future
updates of these additional codes through the issuance of program
instructions. The latest list of excluded codes can be found on the SNF
Consolidated Billing website at <a href="https://www.cms.gov/Medicare/Billing/SNFConsolidatedBilling">https://www.cms.gov/Medicare/Billing/SNFConsolidatedBilling</a>.
The following is a summary of the public comments received on the
proposed revisions to Consolidated Billing and our responses:
Comment: Several commenters noted support for the exclusion of
blood clotting factors (BCFs) and related items and services from
consolidated billing. Commenters stated that the exclusion of these
services from consolidated billing will increase care to beneficiaries
with BCF disorders.
Response: We thank these commenters for their support. In
accordance with this support and the legislative mandate to exclude
BCFs from consolidated billing, we are finalizing the exclusion of BCFs
as proposed.
Comment: One commenter suggested the addition of two HCPCS codes to
the list of BCF-related services that are excluded from consolidated
billing: J7204 (effective as of 7/1/2020) and J7212 (effective as of 1/
1/2021). The commenter stated that these two J Codes also represent
treatments for people with hemophilia--J7204 is for hemophilia A and
J7212 is for hemophilia A or B with inhibitors.
Response: Upon review, we agree with the commenter and we have
determined that HCPCS codes J7204 and J7212 should be excluded from
consolidated billing. HCPCS code J7212 was not created until January 1,
2021, after Division CC, section 134 of the Consolidated Appropriations
Act of 2001 (CAA) (Pub. L. 116-260, enacted on December 27, 2000) had
been enacted, and the statutory exclusion designates codes that were
identified as of July 1, 2020. HCPCS code J7204 was added on July 1,
2020; by contrast, the immediately adjacent codes of J7203 and J7205
had already been added much earlier, in 2019 and 2016, respectively.
Accordingly, HCPCS codes J7204 and J7212 were not included in the
statutory code range provided in the aforementioned legislation.
However, as we stated in the proposed rule, section 1888(e)(2)(A)(iii)
(VI) of the Act gives the Secretary authority to identify any
additional blood clotting factors for exclusion. We further stated that
we will utilize program issuances as the vehicle for making such
routine updates to the list of excluded codes. In fact, we used J7212
as an example of a new code that we would designate through the
issuance of program instructions. Accordingly, the new exclusions for
HCPCS codes J7204 and J7212 will appear in a forthcoming consolidated
billing update, with an effective date of October 1, 2021, the date
that the statutory exclusion for BCFs takes effect.
Comment: One commenter requested us to consider a particular
chemotherapy drug, RIABNI<SUP>TM</SUP> (rituximab-arrx), HCPCS code
Q5123, that the commenter recommended as meeting the criteria for
exclusion from consolidated billing. The commenter stated the drug
meets the ``high-cost, low probability'' criteria for exclusion,
represents a change in medical technology, and already has its own
HCPCS code.
Response: We agree with the commenter and have determined that the
drug described by HCPCS code Q5123 does qualify for exclusion. Its cost
is comparable to other excluded chemotherapy drugs and it is rarely
administered to SNF inpatients. Thus, it meets the ``high-cost, low
probability'' standard in the SNF setting, as discussed in the BBRA
1999 Conf. Report. Furthermore, since it is a newly assigned code, the
omission of this particular code from the original statutory code range
would not indicate an intent for it to remain bundled. Accordingly,
this new exclusion will appear in a forthcoming consolidated billing
update.
Comment: One commenter encouraged CMS to exclude erythropoietin
(EPO) when given for non-dialysis use. The commenter stated that
currently CMS excludes erythropoietin (EPO) when given for dialysis,
but not for other uses.
Response: We note that we have responded previously to comments
regarding the use of EPO for non-dialysis purposes, including in the FY
2004 (68 FR 46059-62, August 4, 2003), FY 2006 (70 FR 45048-50, August
4, 2005), and FY 2008 (72 FR 43430-32, August 3, 2007) final rules. As
we have noted previously in this final rule and in previous responses
to comments on this issue in the past, section 1888(e)(2)(A)(iii) of
the Act authorizes us to identify additional services for exclusion
only within those particular service categories that it has designated
for this purpose, and does not give us the authority to exclude other
services which, though they may be related, fall

[[Page 42444]]

outside of the specified service categories themselves. Thus, while
anti-emetics, for example, are commonly administered in conjunction
with chemotherapy, they are not themselves inherently chemotherapeutic
in nature and, consequently, do not fall within the excluded
chemotherapy category designated in the section 1888(e)(2)(A)(iii)(II)
of the Act. With regard to EPO, we additionally note that among the
service categories that section 1888(e)(2)(A)(ii) of the Act already
specifies as being excluded from SNF consolidated billing are items and
services described in section 1861(s)(2)(O) of the Act--that is, EPO
that is furnished to dialysis patients competent to use the such drug
without medical or other supervision, and does not provide for coverage
in any other, non-dialysis situations, such as chemotherapy. This means
the exclusion under the consolidated billing provision for EPO falls
within this scope.
Comment: One commenter reiterated the same set of comments that
they had submitted in previous rulemaking cycles, noting the importance
of continuing to exclude certain customized prosthetic devices from
consolidated billing, and urging the exclusion of orthotics as well.
The commenter also recommended the following four HCPCS codes for
exclusion: L5000--Partial foot, shoe insert with longitudinal arch, toe
filler; L5010--Partial foot, molded socket, ankle height, with toe
filler; L5020--Partial foot, molded socket, tibial tubercle height,
with toe filler; and L5987--All lower extremity prosthesis, shank foot
system with vertical loading pylon.
Response: We refer to the previous discussions in the FY 2018 SNF
PPS final rule (82 FR 36547) and FY 2017 SNF PPS final rule (81 FR
51986, August 5, 2016) regarding our decision not to adopt the
recommendations for excluding orthotics as a class along with
prosthetic codes L5010, L5020, and L5987. As we explained, it is our
longstanding position that if a particular prosthetic code was already
in existence as of the BBRA enactment date but was not designated in
the BBRA for exclusion, this meant that it was intended to remain
within the SNF PPS bundle. This would apply to all four of the
prosthetic codes (L5000, L5010, L5020, and L5987) cited in the current
comment.
Comment: One commenter encouraged CMS to address whether monoclonal
antibody infusions for treatment of COVID-19 will be excluded from
consolidated billing after the end of the COVID-19 PHE, to continue
efforts to combat the infection in facilities.
Response: We appreciate the commenter's concern. However, as
previously described in this rule, section 1888(e)(2)(A) of the Act
authorizes us to identify additional services for exclusion from the
consolidated billing requirements only within those particular service
categories that it has designated for this purpose, and does not give
us the authority to exclude other services which fall outside of the
specified service categories themselves. Monoclonal antibody infusions
do not fall within one of the specified service categories.

C. Payment for SNF-Level Swing-Bed Services

Section 1883 of the Act permits certain small, rural hospitals to
enter into a Medicare swing-bed agreement, under which the hospital can
use its beds to provide either acute- or SNF-level care, as needed. For
critical access hospitals (CAHs), Part A pays on a reasonable cost
basis for SNF-level services furnished under a swing-bed agreement.
However, in accordance with section 1888(e)(7) of the Act, SNF-level
services furnished by non-CAH rural hospitals are paid under the SNF
PPS, effective with cost reporting periods beginning on or after July
1, 2002. As explained in the FY 2002 final rule (66 FR 39562), this
effective date is consistent with the statutory provision to integrate
swing-bed rural hospitals into the SNF PPS by the end of the transition
period, June 30, 2002.
Accordingly, all non-CAH swing-bed rural hospitals have now come
under the SNF PPS. Therefore, all rates and wage indexes outlined in
earlier sections of this final rule for the SNF PPS also apply to all
non-CAH swing-bed rural hospitals. As finalized in the FY 2010 SNF PPS
final rule (74 FR 40356 through 40357), effective October 1, 2010, non-
CAH swing-bed rural hospitals are required to complete an MDS 3.0
swing-bed assessment which is limited to the required demographic,
payment, and quality items. As discussed in the FY 2019 SNF PPS final
rule (83 FR 39235), revisions were made to the swing bed assessment to
support implementation of PDPM, effective October 1, 2019. A discussion
of the assessment schedule and the MDS effective beginning FY 2020
appears in the FY 2019 SNF PPS final rule (83 FR 39229 through 39237).
The latest changes in the MDS for swing-bed rural hospitals appear on
the SNF PPS website at <a href="http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/index.html">http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/index.html</a>.

D. Revisions to the Regulation Text

In the proposed rule, we proposed to make certain revisions in the
regulation text itself. Specifically, we proposed to redesignate
current 42 CFR 411.15(p)(2)(xvii) and 489.20(s)(17) to Sec. Sec.
411.15(p)(2)(xviii) and 489.20(s)(18), respectively, and to update the
regulation text at Sec. Sec. 411.15(p)(2)(xvii) and 489.20(s)(17) to
reflect the recently-enacted exclusion from SNF consolidated billing at
section 1888(e)(2)(A)(iii)(VI) of the Act effective for items and
services furnished on or after October 1, 2021. Specifically, proposed
revised Sec. Sec. 411.15(p)(2)(xvii) and 489.20(s)(17) would reflect
the exclusion of certain blood clotting factors for the treatment of
patients with hemophilia and other bleeding disorders (identified by
designated HCPCS codes in effect as of July 1, 2020, as subsequently
modified by CMS), and items and services related to the furnishing of
such factors, and would allow for the exclusion of any additional blood
clotting factors identified by CMS and items and services related to
the furnishing of such factors. In addition, we proposed to make
conforming changes to the regulation text at Sec. Sec.
411.15(p)(2)(xiii) through (xvi) and 489.20(s)(13) through (16) to
reflect the authority that has always existed for CMS to make updates
to the list of excluded codes as provided in section
1888(e)(2)(A)(iii)(II) through (V) of the Act, and as discussed in
section IV.C. of the proposed rule.
The following is a summary of the public comment received on the
proposed revisions to the regulation text and our response:
Comment: One commenter noted support for the regulation text
revisions.
Response: We thank the commenter for their support. We did not
receive any other comments on the proposed revisions to the regulation
text, and therefore, we are finalizing the revisions as proposed.

VI. Other SNF PPS Issues

A. Rebasing and Revising the SNF Market Basket

Section 1888(e)(5)(A) of the Act requires the Secretary to
establish a market basket index that reflects the changes over time in
the prices of an appropriate mix of goods and services included in
covered SNF services. Accordingly, we have developed a SNF market
basket index that encompasses the most commonly used cost categories
for SNF routine services, ancillary

[[Page 42445]]

services, and capital-related expenses. We use the SNF market basket
index, adjusted in the manner described in section III.B. of this final
rule, to update the SNF PPS per diem rates and to determine the labor-
related share on an annual basis.
The SNF market basket is a fixed-weight, Laspeyres-type price
index. A Laspeyres price index measures the change in price, over time,
of the same mix of goods and services purchased in the base period. Any
changes in the quantity or mix of goods and services (that is,
intensity) purchased over time relative to a base period are not
measured.
The index itself is constructed in three steps. First, a base
period is selected (the base period is 2018) and total base period
expenditures are estimated for a set of mutually exclusive and
exhaustive spending categories and the proportion of total costs that
each category represents is calculated. These proportions are called
cost or expenditure weights. Second, each expenditure category is
matched to an appropriate price or wage variable, referred to as a
price proxy. In nearly every instance, these price proxies are derived
from publicly available statistical series that are published on a
consistent schedule (preferably at least on a quarterly basis).
Finally, the expenditure weight for each cost category is multiplied by
the level of its respective price proxy. The sum of these products
(that is, the expenditure weights multiplied by their price levels) for
all cost categories yields the composite index level of the market
basket in a given period. Repeating this step for other periods
produces a series of market basket levels over time. Dividing an index
level for a given period by an index level for an earlier period
produces a rate of growth in the input price index over that timeframe.
Effective for cost reporting periods beginning on or after July 1,
1998, we revised and rebased our 1977 routine costs input price index
and adopted a total expenses SNF input price index using FY 1992 as the
base year. In the FY 2002 SNF PPS final rule (66 FR 39582), we rebased
and revised the market basket to a base year of FY 1997. In the FY 2008
SNF PPS final rule (72 FR 43425), we rebased and revised the market
basket to a base year of FY 2004. In the FY 2014 SNF PPS final rule (78
FR 47939), we revised and rebased the SNF market basket, which included
updating the base year from FY 2004 to FY 2010. Lastly, in the FY 2018
SNF PPS final rule (82 FR 36548), we revised and rebased the SNF market
basket, which included updating the base year from FY 2010 to FY 2014.
In the FY 2022 SNF PPS proposed rule (86 FR 19969 through 19984) we
proposed to rebase and revise the market basket updating the base year
from 2014 to 2018. Below is our methodology, as well as responses to
comments.
Effective for FY 2022 and subsequent fiscal years, we will rebase
and revise the market basket to reflect 2018 Medicare-allowable total
cost data (routine, ancillary, and capital-related) from freestanding
SNFs and to revise applicable cost categories and price proxies used to
determine the market basket. Medicare-allowable costs are those costs
that are eligible to be paid under the SNF PPS. For example, the SNF
market basket excludes home health agency (HHA) costs as these costs
would be paid under the HHA PPS, and therefore, these costs are not SNF
PPS Medicare-allowable costs. We will maintain our policy of using data
from freestanding SNFs, which represent about 93 percent of the total
SNFs shown in Table 12. We believe using freestanding Medicare cost
report (MCR) data, as opposed to the hospital-based SNF MCR data, for
the cost weight calculation is most appropriate because of the
complexity of hospital-based data and the representativeness of the
freestanding data. Because hospital-based SNF expenses are embedded in
the hospital cost report, any attempt to incorporate data from
hospital-based facilities requires more complex calculations and
assumptions regarding the ancillary costs related to the hospital-based
SNF unit. We believe the use of freestanding SNF cost report data is
technically appropriate for reflecting the cost structures of SNFs
serving Medicare beneficiaries.
We will use 2018 as the base year as we believe that the 2018 MCRs
represent the most recent, complete set of MCR data available to
develop cost weights for SNFs at the time of rulemaking. We believe it
is important to regularly rebase and revise the SNF market to reflect
more recent data. Historically, the cost weights change minimally from
year to year as they represent percent of total costs rather than cost
levels; however, given the COVID-19 PHE, we will continue to monitor
the upcoming MCR data to see if a more frequent rebasing schedule is
necessary than our recent historical precedent of about every 4 years.
The 2018 Medicare cost reports are for cost reporting periods beginning
on and after October 1, 2017 and before October 1, 2018. While these
dates appear to reflect fiscal year data, we note that a Medicare cost
report that begins in this timeframe is generally classified as a
``2018 cost report''. For example, we found that of the available 2018
Medicare cost reports for SNFs, approximately 7 percent had an October
1, 2017 begin date, approximately 70 percent of the reports had a
January 1, 2018 begin date, and approximately 12 percent had a July 1,
2018 begin date. For this reason, we are defining the base year of the
market basket as ``2018-based'' instead of ``FY 2018-based''.
Comment: Several commenters supported the rebasing and revising of
the market basket, stating that a relevant market basket is a
fundamental requirement for a well-functioning PPS. One commenter
appreciated the proposed rebasing and revising of the SNF market basket
as proposed and further stated that the use of the 2018 data is more
reflective of current costs of providing services compared to 2014
data. Several commenters also supported CMS' plans to monitor and
revise and rebase more frequently.
Response: We appreciate the commenters' support of the rebasing and
revising of the SNF market basket and note that we plan to review the
2020 Medicare cost report data as soon as complete information is
available to assess any impact of the PHE on the market basket relative
cost shares. Any changes to the market basket would be proposed in
rulemaking and will be subject to public comments.
We proposed to develop cost category weights for the 2018-based SNF
market basket in two stages. First, we proposed to derive eight major
expenditures or cost weights from the 2018 MCR data (CMS Form 2540-10,
OMB NO. 0938-0463) for freestanding SNFs: Wages and Salaries; Employee
Benefits; Contract Labor; Pharmaceuticals; Professional Liability
Insurance; Home Office/Related Organization Contract Labor; Capital-
related; and a residual ``All Other''. These are the same cost
categories calculated using the 2014 MCR data for the 2014-based SNF
market basket. The residual ``All Other'' category would reflect all
remaining costs that are not captured in the other seven cost
categories. Second, we proposed to divide the residual ``All Other''
cost category into more detailed subcategories, using U.S. Department
of Commerce Bureau of Economic Analysis' (BEA) 2012 Benchmark Input-
Output (I-O) ``use table before redefinitions, purchaser's value'' for
the Nursing and Community Care Facilities industry (NAICS 623A00) aged
to 2018 using applicable price proxy growth for each category of costs.
Furthermore, we proposed to continue to use the same overall
methodology as was used for the 2014-based SNF market basket to

[[Page 42446]]

develop the capital related cost weights of the 2018-based SNF market
basket.
1. Development of Cost Categories and Weights
a. Use of Medicare Cost Report Data To Develop Major Cost Weights
In order to create a market basket that is representative of
freestanding SNF providers serving Medicare patients and to help ensure
accurate major cost weights (which is the percent of total Medicare-
allowable costs, as defined below), we proposed to apply edits to
remove reporting errors and outliers. Specifically, the SNF MCRs used
to calculate the market basket cost weights exclude any providers that
reported costs less than or equal to zero for the following categories:
Total facility costs (Worksheet B, part 1, column 18, line 100); total
operating costs (Worksheet B, part 1, column 18, line 100 less
Worksheet B, part 2, column 18, line 100); Medicare general inpatient
routine service costs (Worksheet D, part 1, column 1, line 1); and
Medicare PPS payments (Worksheet E, part 3, column 1, line 1). We also
limited our sample to providers that had a MCR reporting period that
was between 10 and 14 months. The final sample used included roughly
13,500 MCRs (about 90 percent of the universe of SNF MCRs for 2018).
The sample of providers is representative of the national universe of
providers by region, by ownership-type (proprietary, nonprofit, and
government), and by urban/rural status. Additionally, for all of the
major cost weights, except Home Office/Related Organization Contract
Labor costs, the data are trimmed to remove outliers (a standard
statistical process) by: (1) Requiring that major expenses (such as
Wages and Salaries costs) and total Medicare-allowable costs are
greater than zero; and (2) excluding the top and bottom 5 percent of
the major cost weight (for example, Wages and Salaries costs as a
percent of total Medicare-allowable costs). We note that missing values
are assumed to be zero, consistent with the methodology for how missing
values are treated in the 2014-based market basket methodology.
For the Home Office/Related Organization Contract Labor cost
weight, we proposed to first exclude providers whose Home Office/
Related Organization Contract Labor costs are greater than Medicare-
allowable total costs and then apply a trim that excludes those
reporters with a Home Office/Related Organization Contract Labor cost
weight above the 99th percentile. This allows providers with no Home
Office/Related Organization Contract Labor costs to be included in the
Home Office/Related Organization Contract Labor cost weight calculation
. If we were to trim the top and bottom Home Office/Related
Organization Contract Labor cost weight, we would exclude providers
with a zero cost weight and the MCR data (Worksheet S-2 line 45)
indicate that not all SNF providers have a home office. Providers
without a home office would report administrative costs that might
typically be associated with a home office in the Wages and Salaries
and Employee Benefits cost weights, or in the residual ``All-Other''
cost weight if they purchased these types of services from external
contractors. We believe the trimming methodology that excludes those
who report Home Office costs above the 99th percentile is appropriate
as it removes extreme outliers while also allowing providers with zero
Home Office/Related Organization Contract Labor costs to be included in
the Home Office/Related Organization Contract Labor cost weight
calculation.
The trimming process is done individually for each cost category so
that providers excluded from one cost weight calculation are not
automatically excluded from another cost weight calculation. We note
that these trimming methods are the same types of edits performed for
the 2014-based SNF market basket, as well as other PPS market baskets
(including but not limited to the IPPS market basket and HHA market
basket). We believe this trimming process improves the accuracy of the
data used to compute the major cost weights by removing possible data
misreporting.
The final weights of the 2018-based SNF market basket are based on
weighted means. For example, the aggregate Wages and Salaries cost
weight, after trimming, is equal to the sum of total Medicare-allowable
wages and salaries of all providers divided by the sum of total
Medicare-allowable costs for all providers in the sample. This
methodology is consistent with the methodology used to calculate the
2014-based SNF market basket cost weights and other PPS market basket
cost weights. We note that for each of the cost weights, we evaluated
the distribution of providers and costs by region, by ownership-type,
and by urban/rural status. For all of the cost weights, with the
exception of the PLI (which is discussed in more detail later), the
trimmed sample was nationally representative.
For all of the cost weights, we use Medicare-allowable total costs
as the denominator (for example, Wages and Salaries cost weight = Wages
and Salaries costs divided by Medicare-allowable total costs).
Medicare-allowable total costs were equal to total costs (after
overhead allocation) from Worksheet B part I, column 18, for lines 30,
40 through 49, 51, 52, and 71 plus estimated Medicaid drug costs, as
defined below. We included estimated Medicaid drug costs in the
pharmacy cost weight, as well as the denominator for total Medicare-
allowable costs. This is the same methodology used for the 2014-based
SNF market basket. The inclusion of Medicaid drug costs was finalized
in the FY 2008 SNF PPS final rule (72 FR 43425 through 43430), and for
the same reasons set forth in that final rule, we proposed to continue
to use this methodology in the 2018-based SNF market basket.
We describe the detailed methodology for obtaining costs for each
of the eight cost categories determined from the Medicare Cost Report
below. The methodology used in the 2014-based SNF market basket can be
found in the FY 2018 SNF PPS final rule (82 FR 36548 through 36555).
(1) Wages and Salaries: To derive Wages and Salaries costs for the
Medicare-allowable cost centers, we proposed first to calculate total
facility wages and salaries costs as reported on Worksheet S-3, part
II, column 3, line 1. We then proposed to remove the wages and salaries
attributable to non-Medicare-allowable cost centers (that is, excluded
areas), as well as a portion of overhead wages and salaries
attributable to these excluded areas. Excluded area wages and salaries
are equal to wages and salaries as reported on Worksheet S-3, part II,
column 3, lines 3, 4, and 7 through 11 plus nursing facility and non-
reimbursable salaries from Worksheet A, column 1, lines 31, 32, 50, and
60 through 63.
Overhead wages and salaries are attributable to the entire SNF
facility; therefore, we proposed to include only the proportion
attributable to the Medicare-allowable cost centers. We proposed to
estimate the proportion of overhead wages and salaries attributable to
the non-Medicare-allowable costs centers in two steps. First, we
proposed to estimate the ratio of excluded area wages and salaries (as
defined above) to non-overhead total facility wages and salaries (total
facility wages and salaries (Worksheet S-3, part II, column 3, line 1)
less total overhead wages and salaries (Worksheet S-3, Part III, column
3, line 14)). Next, we proposed to multiply total overhead wages and
salaries by the ratio computed in step 1. We excluded providers whose
excluded areas wages and salaries were greater than total facility
wages and salaries and/or their

[[Page 42447]]

excluded area overhead wages and salaries were greater than total
facility wages and salaries (about 50 providers). This is similar to
the methodology used to derive Wages and Salaries costs in the 2014-
based SNF market basket. For the 2014-based SNF market basket, we
estimated the proportion of overhead wages and salaries that is
attributable to the non-Medicare allowable costs centers (that is,
excluded areas) by multiplying the ratio of excluded area wages and
salaries (as defined above) to total wages and salaries as reported on
Worksheet S-3, Part II, column 3, line 1 by total overhead wages and
salaries as reported on Worksheet S-3, Part III, column 3, line 14.
(2) Employee Benefits: Medicare-allowable employee benefits are
equal to total facility benefits as reported on Worksheet S-3, part II,
column 3, lines 17 through 19 minus non-Medicare-allowable (that is,
excluded area) employee benefits and minus a portion of overhead
benefits attributable to these excluded areas. Excluded area employee
benefits are derived by multiplying total excluded area wages and
salaries (as defined above in the `Wages and Salaries' section) times
the ratio of total facility benefits to total facility wages and
salaries. This ratio of benefits to wages and salaries is defined as
total facility benefit costs to total facility wages and salary costs
(as reported on Worksheet S-3, part II, column 3, line 1). Likewise,
the portion of overhead benefits attributable to the excluded areas is
derived by multiplying overhead wages and salaries attributable to the
excluded areas (as defined in the `Wages and Salaries' section) times
the ratio of total facility benefit costs to total facility wages and
salary costs (as defined above). Similar to the Wages and Salaries cost
weight, we excluded providers whose excluded areas benefits were
greater than total facility benefits and/or their excluded area
overhead benefits were greater than total facility benefits (zero
providers were excluded because of this edit). This is similar to the
methodology used to derive Employee Benefits costs in the 2014-based
SNF market basket.
(3) Contract Labor: We proposed to derive Medicare-allowable
contract labor costs from Worksheet S-3, part II, column 3, line 14,
which reflects costs for contracted direct patient care services (that
is, nursing, therapeutic, rehabilitative, or diagnostic services
furnished under contract rather than by employees and management
contract services). This is the same methodology used to derive the
Contract Labor costs in the 2014-based SNF market basket.
(4) Pharmaceuticals: We proposed to calculate pharmaceuticals costs
using the non-salary costs from the Pharmacy cost center (Worksheet B,
part I, column 0, line 11 less Worksheet A, column 1, line 11) and the
Drugs Charged to Patients' cost center (Worksheet B, part I, column 0,
line 49 less Worksheet A, column 1, line 49). Since these drug costs
were attributable to the entire SNF and not limited to Medicare-
allowable services, we proposed to adjust the drug costs by the ratio
of Medicare-allowable pharmacy total costs (Worksheet B, part I, column
11, for lines 30, 40 through 49, 51, 52, and 71) to total pharmacy
costs from Worksheet B, part I, column 11, line 11. Worksheet B, part I
allocates the general service cost centers, which are often referred to
as ``overhead costs'' (in which pharmacy costs are included) to the
Medicare-allowable and non-Medicare-allowable cost centers. This
adjustment was made for those providers who reported Pharmacy cost
center expenses. Otherwise, we assumed the non-salary Drugs Charged to
Patients costs were Medicare-allowable. Since drug costs for Medicare
patients are included in the SNF PPS per diem rate, a provider with
Medicare days should have also reported costs in the Drugs Charged to
Patient cost center. We found a small number of providers (roughly 60)
did not report Drugs Charged to Patients' costs despite reporting
Medicare days (an average of about 2,600 Medicare days per provider),
and therefore, these providers were excluded from the Pharmaceuticals
cost weight calculations. This is similar to the methodology used for
the 2014-based SNF market basket.
Second, as was done for the 2014-based SNF market basket, we
proposed to continue to adjust the drug expenses reported on the MCR to
include an estimate of total Medicaid drug costs, which are not
represented in the Medicare-allowable drug cost weight. As stated
previously in this section, the 2018-based SNF market basket reflects
total Medicare-allowable costs (that is, total costs for all payers for
those services reimbursable under the SNF PPS). For the FY 2006-based
SNF market basket (72 FR 43426), commenters noted that the total
pharmaceutical costs reported on the MCR did not include pharmaceutical
costs for dual-eligible Medicaid patients as these were directly
reimbursed by Medicaid. Since all of the other cost category weights
reflect expenses associated with treating Medicaid patients (including
the compensation costs for dispensing these drugs), we made an
adjustment to include these Medicaid drug expenses so the market basket
cost weights would be calculated consistently.
Similar to the 2014-based SNF market basket, we proposed to
estimate Medicaid drug costs based on data representing dual-eligible
Medicaid beneficiaries. Medicaid drug costs are estimated by
multiplying Medicaid dual-eligible drug costs per day times the number
of Medicaid days as reported in the Medicare-allowable skilled nursing
cost center (Worksheet S-3, part I, column 5, line 1) in the SNF MCR.
Medicaid dual-eligible drug costs per day (where the day represents an
unduplicated drug supply day) were estimated using 2018 Part D claims
for those dual-eligible beneficiaries who had a Medicare SNF stay
during the year. The total drug costs per unduplicated day for 2018 of
$24.48 represented all drug costs (including the drug ingredient cost,
the dispensing fee, vaccine administration fee and sales tax) incurred
during the 2018 calendar year for those dual-eligible beneficiaries who
had a SNF Medicare stay during that 2018 calendar year. Therefore, they
include drug costs incurred during a Medicaid SNF stay occurring in the
2018 calendar year. By comparison, the 2014-based SNF market basket
also relied on data from the Part D claims, which yielded a dual-
eligible Medicaid drug cost per day of $19.62 for 2014.
We continue to believe that Medicaid dual-eligible beneficiaries
are a reasonable proxy for the estimated drug costs per day incurred by
Medicaid patients staying in a skilled nursing unit under a Medicaid
stay. The skilled nursing unit is the Medicare-allowable unit in a SNF,
which encompasses more skilled nursing and rehabilitative care compared
to a nursing facility or long-term care unit. We believe that Medicaid
patients receiving this skilled nursing care would on average have
similar drug costs per day to dual-eligible Medicare beneficiaries who
have received Medicare skilled nursing care in the skilled nursing care
unit during the year. We note that our previous analysis of the Part D
claims data showed that Medicare beneficiaries with a SNF stay during
the year have higher drug costs than Medicare patients without a SNF
stay during the year. Also, in 2018, dual-eligible beneficiaries with a
SNF stay during the year had drug costs per day of $24.48, which were
approximately two times higher than the drug costs per day of $13.19
for nondual-eligible beneficiaries with a SNF Part A stay during the
year.
The Pharmaceuticals cost weight using only 2018 MCR data (without
the

[[Page 42448]]

inclusion of the Medicaid dual-eligible drug costs) is 2.6 percent,
compared to the proposed Pharmaceuticals cost weight (including the
adjustment for Medicaid dual-eligible drug costs) of 7.5 percent. The
2014-based SNF market basket had a Pharmaceuticals cost weight using
only 2014 MCR data without the inclusion of the Medicaid dual-eligible
drug costs of 2.9 percent and a total Pharmaceuticals cost weight of
7.3 percent. Therefore, the 0.2 percentage point increase in the
Pharmaceuticals cost weight is a result of a 0.5-percentage point
increase in the Medicaid dual-eligible drug cost weight (reflecting the
25 percent increase in the Medicaid dual-eligible drug costs per day
between 2014 and 2018) and a 0.3-percentage point decrease in the MCR
drug cost weight. The decrease in the MCR drug cost weight was
consistent, in aggregate, across urban and rural status SNFs as well as
across for-profit, government, and nonprofit ownership type SNFs.
(5) Professional Liability Insurance: We proposed to calculate the
professional liability insurance (PLI) costs from Worksheet S-2 of the
MCRs as the sum of premiums; paid losses; and self-insurance (Worksheet
S-2, Part I, columns 1 through 3, line 41). This was the same
methodology used to derive the Professional Liability costs for the
2014-based SNF market basket.
About 60 percent of SNFs (about 8,000) reported professional
liability costs. After trimming, about 7,200 (reflecting about 850,000
Skilled Nursing unit beds) were included in the calculation of the PLI
cost weight for the 2018-based SNF market basket. These providers
treated roughly 870,000 Medicare beneficiaries and had a Medicare
length of stay (LOS) of 33 days, a skilled nursing unit occupancy rate
of 80 percent, and an average skilled nursing unit bed size of 125
beds, which are all consistent with the national averages. We also
verified that this sample of providers are representative of the
national distribution of providers by ownership-type and urban/rural
status. We note that the sample of providers is less consistent with
the national distribution of providers by region; however, we performed
a sensitivity analysis where the PLI cost weight was reweighted based
on the national regional distribution and the impacts were less than a
0.1 percentage point on the cost weight.
We note that based on prior comments during the rebasing of the
2014-based SNF market basket, we reviewed in detail the AON 2018
Professional and General Liability Benchmark for Long Term Care
Providers \2\ that examines professional liability and general
liability claim costs for long term care providers (including skilled
nursing facility beds as well as independent living, assisted living,
home health care, and rehabilitation facilities, representing about
186,000 long term care beds). This study, although informative, was not
appropriate for calculating a PLI cost weight as it represents more
than just SNFs serving Medicare patients and captures claim losses as
opposed to PLI costs (premiums, paid losses, and self-insurance)
incurred during a cost reporting year. We note that only 13 percent of
providers reported PLI paid losses or PLI self-insurance costs on the
MCR while over 90 percent of providers reported PLI premiums indicating
that the majority of losses incurred by Medicare participating SNFs
will be covered by insurance premiums paid over time. Our comparison of
the MCR data to the AON study for those select states' data provided
did show consistencies between the average state PLI costs per bed
relative to the national average (as measured by the MCR) and AON's
loss per occupied bed relative to national values indicating that
states with higher losses per occupied bed have higher PLI costs per
total bed.
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\2\ <a href="https://www.aon.com/risk-services/thought-leadership/report-2018-long-term-care.jsp">https://www.aon.com/risk-services/thought-leadership/report-2018-long-term-care.jsp</a>.
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We believe the MCR data continues to be the most appropriate data
source to calculate the PLI cost weight for the 2018-based SNF market
basket as it is representative of SNFs serving Medicare beneficiaries
and reflects PLI costs (premiums, paid losses, and self-insurance)
incurred during the provider's cost reporting year.
(6) Capital-Related: We proposed to derive the Medicare-allowable
capital-related costs from Worksheet B, part II, column 18 for lines
30, 40 through 49, 51, 52, and 71. This is the same methodology to
derive capital-related costs used in the 2014-based SNF market basket.
(7) Home Office/Related Organization Contract Labor Costs: We
proposed to calculate Medicare-allowable Home Office/Related
Organization Contract Labor costs to be equal to data reported on
Worksheet S-3, part II, column 3, line 16. We note that for the 2014-
based SNF market basket we also used Worksheet S-3, part II, column 3,
line 16 (Home office salaries & wage related costs) to determine these
expenses; however, we referred to this category as Home Office Contract
Labor Costs. The instructions for this data state ``enter the salaries
and wage related costs (as defined on lines 17 and 18 below) paid to
personnel who are affiliated with a home office and/or related
organization, who provide services to the SNF and/or NF, and whose
salaries are not included on Worksheet A, column 1,'' and therefore, we
are referring to this cost category as Home Office/Related Organization
Contract Labor costs. Furthermore, for this rebasing we no longer
adjusted these expenses by the ratio of Medicare allowable operating
costs to total facility operating costs as done for the 2014-based SNF
market basket as the instructions indicate these expenses are for the
SNF and NF units.
About 7,000 providers (about 53 percent) in 2018 reported having a
home office (as reported on Worksheet S-2, part I, line 45); a lower
share of providers than those in the 2014-based SNF market basket. As
discussed in section VI.A.1. of this final rule, providers without a
home office can incur these expenses directly by having their own
staff, for which the costs would be included in the Wages and Salaries
and Employee Benefits cost weights. Alternatively, providers without a
home office could also purchase related services from external
contractors for which these expenses would be captured in the residual
``All-Other'' cost weight. For this reason, unlike the other major cost
weights described previously, we did not exclude providers that did not
report Home Office/Related Organization Contract Labor costs. We note
that this is similar to the methodology that was used for other PPS
market baskets such as the 2017-based LTCH market basket (85 FR 58911).
(8) All Other (residual): The ``All Other'' cost weight is a
residual, calculated by subtracting the major cost weights (Wages and
Salaries, Employee Benefits, Contract Labor, Pharmaceuticals,
Professional Liability Insurance, Capital-Related, and Home Office/
Related Organization Contract Labor) from 100.
Table 12 shows the major cost categories and their respective cost
weights as derived from the 2018 Medicare cost reports.

[[Page 42449]]

[GRAPHIC] [TIFF OMITTED] TR04AU21.229

Compared to the 2014-based SNF market basket, the Wages and
Salaries cost weight and the Employee Benefits cost weight as
calculated directly from the Medicare cost reports decreased by 0.2
percentage point and 0.7 percentage point, respectively. The Contract
Labor cost weight increased 0.7 percentage point and so in aggregate,
the Compensation cost weight decreased 0.2 percentage point.
As we did for the 2014-based SNF market basket (82 FR 36555), we
proposed to allocate contract labor costs to the Wages and Salaries and
Employee Benefits cost weights based on their relative proportions
under the assumption that contract labor costs are comprised of both
wages and salaries and employee benefits. The contract labor allocation
proportion for wages and salaries is equal to the Wages and Salaries
cost weight as a percent of the sum of the Wages and Salaries cost
weight and the Employee Benefits cost weight. Using the 2018 Medicare
cost report data, this percentage is 84 percent (1 percentage point
higher than the percent in the 2014-based SNF market basket);
therefore, we proposed to allocate approximately 84 percent of the
Contract Labor cost weight to the Wages and Salaries cost weight and 16
percent to the Employee Benefits cost weight.
Table 13 shows the Wages and Salaries and Employee Benefits cost
weights after contract labor allocation for the 2018-based SNF market
basket and the 2014-based SNF market basket.
[GRAPHIC] [TIFF OMITTED] TR04AU21.230

b. Derivation of the Detailed Operating Cost Weights
To further divide the ``All Other'' residual cost weight estimated
from the 2018 Medicare cost report data into more detailed cost
categories, we proposed to use the 2012 Benchmark I-O ``Use Tables/
Before Redefinitions/Purchaser Value'' for Nursing and Community Care
Facilities industry (NAICS 623A00), published by the Census Bureau's,
Bureau of Economic Analysis (BEA). These data are publicly available at
<a href="http://www.bea.gov/industry/io_annual.htm">http://www.bea.gov/industry/io_annual.htm</a>. The BEA Benchmark I-O data
are generally scheduled for publication every 5 years with 2012 being
the most recent year for which data is available. The 2012 Benchmark I-
O data are derived from the 2012 Economic Census and are the building
blocks for BEA's economic accounts; therefore, they represent the most
comprehensive and complete set of data on the economic processes or
mechanisms by which output is produced and distributed.\3\ BEA also
produces Annual I-O estimates. However, while based on a similar
methodology, these estimates are less comprehensive and provide less
detail than benchmark data. Additionally, the annual I-O data are
subject to revision once benchmark data become available. For these
reasons, we proposed to inflate the 2012 Benchmark I-O data aged
forward to 2018 by applying the annual price changes from the
respective price proxies to the appropriate market basket cost
categories that are obtained from the 2012 Benchmark I-O data. Next,
the relative shares of the cost shares that each cost category
represents to the total residual I-O costs are calculated. These
resulting 2018 cost shares of the I-O data are applied to the ``All
Other'' residual cost weight to obtain detailed cost weights for the
residual costs for the 2018-based SNF market basket. For example, the
cost for Food: Direct Purchases represents 11.3 percent of the sum of
the ``All Other'' 2012 Benchmark I-O Expenditures inflated to 2018.
Therefore, the Food: Direct Purchases cost weight is 2.5 percent of the
2018-based SNF market basket (11.3 percent x 22.3 percent = 2.5
percent). For the 2014-based SNF market basket (82 FR 36553), we used a
similar methodology utilizing the 2007 Benchmark I-O data (aged to
2014).
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\3\ <a href="http://www.bea.gov/papers/pdf/IOmanual_092906.pdf">http://www.bea.gov/papers/pdf/IOmanual_092906.pdf</a>.
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Using this methodology, we proposed to derive 19 detailed SNF
market basket cost category weights from the 2018-based SNF market
basket ``All Other'' residual cost weight (22.3 percent). These
categories are: (1) Fuel: Oil and Gas; (2) Electricity and Other Non-
Fuel Utilities; (3) Food: Direct Purchases; (4) Food: Contract
Services; (5) Chemicals; (6) Medical Instruments and Supplies; (7)
Rubber and Plastics; (8) Paper and Printing Products; (9) Apparel; (10)
Machinery and Equipment; (11) Miscellaneous Products; (12)

[[Page 42450]]

Professional Fees: Labor-Related; (13) Administrative and Facilities
Support Services; (14) Installation, Maintenance, and Repair Services;
(15) All Other: Labor-Related Services; (16) Professional Fees:
Nonlabor-Related; (17) Financial Services; (18) Telephone Services; and
(19) All Other: Nonlabor-Related Services. The 2014-based SNF market
basket had separate cost categories for Postage services and Water and
Sewerage. Due to the small weights (less than 0.1 percentage point), we
proposed that Postage costs be included in the All Other: Non-labor-
Related Services and Water and Sewerage costs be included in the
Electricity and Other Non-Fuel Utilities category. We note that the
machinery and equipment expenses are for equipment that is paid for in
a given year and not depreciated over the asset's useful life.
Depreciation expenses for moveable equipment are accounted for in the
capital component of the 2018-based SNF market basket (described in
section IV.A.1.c. of this final rule).
c. Derivation of the Detailed Capital Cost Weights
Similar to the 2014-based SNF market basket, we further divided the
Capital-related cost weight into: Depreciation, Interest, Lease and
Other Capital-related cost weights.
We calculated the depreciation cost weight (that is, depreciation
costs excluding leasing costs) using depreciation costs from Worksheet
S-2, column 1, lines 20 and 21. Since the depreciation costs reflect
the entire SNF facility (Medicare and non-Medicare-allowable units), we
used total facility capital costs (Worksheet B, Part I, Column 18, line
100) as the denominator. This methodology assumes that the depreciation
of an asset is the same regardless of whether the asset was used for
Medicare or non-Medicare patients. This methodology yielded
depreciation costs as a percent of capital costs of 25.3 percent for
2018. We then apply this percentage to the 2018-based SNF market basket
Medicare-allowable Capital-related cost weight of 8.2 percent, yielding
a Medicare-allowable depreciation cost weight (excluding leasing
expenses, which is described in more detail below) of 2.1 percent. To
further disaggregate the Medicare-allowable depreciation cost weight
into fixed and moveable depreciation, we proposed to use the 2018 SNF
MCR data for end-of-the-year capital asset balances as reported on
Worksheet A-7. The 2018 SNF MCR data showed a fixed/moveable split of
86/14. The 2014-based SNF market basket, which utilized the same data
from the 2014 MCRs, had a fixed/moveable split of 83/17.
We also derived the interest expense share of capital-related
expenses from 2018 SNF MCR data, specifically from Worksheet A, column
2, line 81. Similar to the depreciation cost weight, we calculated the
interest cost weight using total facility capital costs. This
methodology yielded interest costs as a percent of capital costs of
22.8 percent for 2018. We then apply this percentage to the 2018-based
SNF market basket Medicare-allowable Capital-related cost weight of 8.2
percent, yielding a Medicare-allowable interest cost weight (excluding
leasing expenses) of 1.9 percent. As done with the last rebasing (82 FR
36556), we proposed to determine the split of interest expense between
for-profit and not-for-profit facilities based on the distribution of
long-term debt outstanding by type of SNF (for-profit or not-for-
profit/government) from the 2018 SNF MCR data. We estimated the split
between for-profit and not-for-profit interest expense to be 25/75
percent compared to the 2014-based SNF market basket with 27/73
percent.
Because the detailed data were not available in the MCRs, we used
the most recent 2017 Census Bureau Service Annual Survey (SAS) data to
derive the capital-related expenses attributable to leasing and other
capital-related expenses. The 2014-based SNF market basket used the
2014 SAS data. We note that we proposed to use the 2017 SAS data
because the Census Bureau no longer publishes these detailed capital-
related expenses effective for 2018.
Based on the 2017 SAS data, we determined that leasing expenses are
62 percent of total leasing and capital-related expenses costs. In the
2014-based SNF market basket, leasing costs represent 63 percent of
total leasing and capital-related expenses costs. We then apply this
percentage to the 2018-based SNF market basket residual Medicare-
allowable capital costs of 4.2 percent derived from subtracting the
Medicare-allowable depreciation cost weight and Medicare-allowable
interest cost weight from the 2018-based SNF market basket of total
Medicare-allowable capital cost weight (8.2 percent-2.1 percent-1.9
percent = 4.2 percent). This produces the 2018-based SNF Medicare-
allowable leasing cost weight of 2.6 percent and all-other capital-
related cost weight of 1.6 percent.
Lease expenses are not broken out as a separate cost category in
the SNF market basket, but are distributed among the cost categories of
depreciation, interest, and other capital-related expenses, reflecting
the assumption that the underlying cost structure and price movement of
leasing expenses is similar to capital costs in general. As was done
with past SNF market baskets and other PPS market baskets, we assumed
10 percent of lease expenses are overhead and assigned them to the
other capital-related expenses cost category. This is based on the
assumption that leasing expenses include not only depreciation,
interest, and other capital-related costs but also additional costs
paid to the lessor. We distributed the remaining lease expenses to the
three cost categories based on the proportion of depreciation,
interest, and other capital-related expenses to total capital costs,
excluding lease expenses.
Table 14 shows the capital-related expense distribution (including
expenses from leases) in the 2018-based SNF market basket and the 2014-
based SNF market basket.

[[Page 42451]]

[GRAPHIC] [TIFF OMITTED] TR04AU21.231

Table 15 presents the 2018-based SNF market basket and the 2014-
based SNF market basket.
BILLING CODE 4120-01-P

[[Page 42452]]

[GRAPHIC] [TIFF OMITTED] TR04AU21.232

BILLING CODE 4120-01-C
2. Price Proxies Used To Measure Operating Cost Category Growth
After developing the 27 cost weights for the 2018-based SNF market
basket, we selected the most appropriate wage and price proxies
currently available to represent the rate of change for each
expenditure category. With four

[[Page 42453]]

exceptions (three for the capital-related expenses cost categories and
one for PLI), we base the wage and price proxies on Bureau of Labor
Statistics (BLS) data, and group them into one of the following BLS
categories:
<bullet> Employment Cost Indexes. Employment Cost Indexes (ECIs)
measure the rate of change in employment wage rates and employer costs
for employee benefits per hour worked. These indexes are fixed-weight
indexes and strictly measure the change in wage rates and employee
benefits per hour. ECIs are superior to Average Hourly Earnings (AHE)
as price proxies for input price indexes because they are not affected
by shifts in occupation or industry mix, and because they measure pure
price change and are available by both occupational group and by
industry. The industry ECIs are based on the 2012 NAICS and the
occupational ECIs are based on the 2000 and 2010 Standard Occupational
Classification System (SOC).
<bullet> Producer Price Indexes. Producer Price Indexes (PPIs)
measure the average change over time in the selling prices received by
domestic producers for their output. The prices included in the PPI are
from the first commercial transaction for many products and some
services (<a href="https://www.bls.gov/ppi/">https://www.bls.gov/ppi/</a>).
<bullet> Consumer Price Indexes. Consumer Price Indexes (CPIs)
measure the average change over time in the prices paid by urban
consumers for a market basket of consumer goods and services (<a href="https://www.bls.gov/cpi/">https://www.bls.gov/cpi/</a>). CPIs are only used when the purchases are similar to
those of retail consumers rather than purchases at the producer level,
or if no appropriate PPIs are available.
We evaluated the price proxies using the criteria of reliability,
timeliness, availability, and relevance. Reliability indicates that the
index is based on valid statistical methods and has low sampling
variability. Widely accepted statistical methods ensure that the data
were collected and aggregated in a way that can be replicated. Low
sampling variability is desirable because it indicates that the sample
reflects the typical members of the population. (Sampling variability
is variation that occurs by chance because only a sample was surveyed
rather than the entire population.) Timeliness implies that the proxy
is published regularly, preferably at least once a quarter. The market
baskets are updated quarterly, and therefore, it is important for the
underlying price proxies to be up-to-date, reflecting the most recent
data available. We believe that using proxies that are published
regularly (at least quarterly, whenever possible) helps to ensure that
we are using the most recent data available to update the market
basket. We strive to use publications that are disseminated frequently,
because we believe that this is an optimal way to stay abreast of the
most current data available. Availability means that the proxy is
publicly available. We prefer that our proxies are publicly available
because this will help ensure that our market basket updates are as
transparent to the public as possible. In addition, this enables the
public to be able to obtain the price proxy data on a regular basis.
Finally, relevance means that the proxy is applicable and
representative of the cost category weight to which it is applied. The
CPIs, PPIs, and ECIs that we have proposed meet these criteria.
Therefore, we believe that they continue to be the best measure of
price changes for the cost categories to which they would be applied.
Table 20 lists all price proxies for the 2018-based SNF market
basket. Below is a detailed explanation of the price proxies used for
each operating cost category.
<bullet> Wages and Salaries: We proposed to use the ECI for Wages
and Salaries for Private Industry Workers in Nursing Care Facilities
(NAICS 6231; BLS series code CIU2026231000000I) to measure price growth
of this category. NAICS 623 includes facilities that provide a mix of
health and social services, with many of the health services being
largely some level of nursing services. Within NAICS 623 is NAICS 6231,
which includes nursing care facilities primarily engaged in providing
inpatient nursing and rehabilitative services. These facilities, which
are most comparable to Medicare-certified SNFs, provide skilled nursing
and continuous personal care services for an extended period of time,
and therefore, have a permanent core staff of registered or licensed
practical nurses. This is the same index used in the 2014-based SNF
market basket.
<bullet> Employee Benefits: We proposed to use the ECI for Benefits
for Nursing Care Facilities (NAICS 6231) to measure price growth of
this category. The ECI for Benefits for Nursing Care Facilities is
calculated using BLS's total compensation (BLS series ID
CIU2016231000000I) for nursing care facilities series and the relative
importance of wages and salaries within total compensation. We believe
this constructed ECI series is technically appropriate for the reason
stated above in the Wages and Salaries price proxy section. This is the
same index used in the 2014-based SNF market basket.
<bullet> Electricity and Other Non-Fuel Utilities: We proposed to
use the PPI Commodity for Commercial Electric Power (BLS series code
WPU0542) to measure the price growth of this cost category as
Electricity costs account for 93 percent of these expenses. This is the
same index used for the Electricity cost category in the 2014-based SNF
market basket. As previously noted, we proposed to include Water and
Sewerage costs within the Electricity and Other Non-Fuel Utilities cost
category, and to no longer use the CPI All Urban for Water and Sewerage
Maintenance as we did for the 2014-based SNF market basket, due to the
small size of this estimated cost weight (less than 0.1 percent).
Comment: One commenter noted that CMS is proposing to include water
and sewerage costs in the Electricity and Other Non-Fuel utilities cost
weight and to no longer use the CPI All Urban for Water and Sewerage
Maintenance. They expressed concern stating that many SNFs have
invested in waste-water monitoring systems as a result of COVID-19.
Response: We recognize the commenter's concern but as stated above,
the most recent year of Benchmark I-O data we have available to derive
the detailed cost weights for the SNF market basket is 2012, with the
data generally scheduled for publication every 5 years. Based on these
data, the cost weight associated with Water and Sewerage costs is less
than 0.1 percent, and therefore, we do not believe a separate cost
category is appropriate. We will continue to monitor new data for SNFs
as it becomes available, including any new Benchmark I-O data, and will
propose a rebasing or revising of the SNF market basket cost weights as
appropriate.
<bullet> Fuel: Oil and Gas: We proposed to change the proxy used
for the Fuel: Oil and Gas cost category. Our analysis of the Bureau of
Economic Analysis' 2012 Benchmark I-O data for Nursing and Community
Care Facilities shows approximately 96 percent of SNF Fuel: Oil and Gas
expenses are for Petroleum Refineries (NAICS 324110), Natural gas
(NAICS 221200), and Other Petroleum and Coal Products Manufacturing
(NAICS 324190). We proposed to create a blended index based on those
three NAICS chemical expenses listed above that account for 96 percent
of SNF chemical expenses. We proposed to create this blend based on
each NAICS' expenses as a share of their sum. Therefore, we proposed a
blended proxy of 61 percent of the PPI Industry for Petroleum
Refineries (BLS series code PCU32411-32411), 7 percent of the PPI

[[Page 42454]]

Commodity for Natural Gas (BLS series code WPU0531), and 32 percent of
the PPI for Other Petroleum and Coal Products manufacturing (BLS series
code PCU32419-32419).
The 2014-based SNF market basket also used a blended chemical proxy
that was based on 2007 Benchmark I-O data. We believe our proposed
Fuel: Oil and Gas blended index for the 2018-based SNF market basket is
technically appropriate as it reflects more recent data on SNFs
purchasing patterns. Table 16 provides the weights for the 2018-based
blended chemical index and the 2014-based blended chemical index.
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<bullet> Professional Liability Insurance: We proposed to use the
CMS Hospital Professional Liability Insurance Index to measure price
growth of this category. We were unable to find a reliable data source
that collects SNF-specific PLI data. Therefore, we proposed to use the
CMS Hospital Professional Liability Index, which tracks price changes
for commercial insurance premiums for a fixed level of coverage,
holding non-price factors constant (such as a change in the level of
coverage). This is the same index used in the 2014-based SNF market
basket. We believe this is an appropriate proxy to measure the price
growth associated of SNF PLI as it captures the price inflation
associated with other medical institutions that serve Medicare
patients.
<bullet> Pharmaceuticals: We proposed to use the PPI Commodity for
Pharmaceuticals for Human Use, Prescription (BLS series code
WPUSI07003) to measure the price growth of this cost category. This is
the same index used in the 2014-based SNF market basket.
<bullet> Food: Wholesale Purchases: We proposed to use the PPI
Commodity for Processed Foods and Feeds (BLS series code WPU02) to
measure the price growth of this cost category. This is the same index
used in the 2014-based SNF market basket.
<bullet> Food: Retail Purchase: We proposed to use the CPI All
Urban for Food Away From Home (All Urban Consumers) (BLS series code
CUUR0000SEFV) to measure the price growth of this cost category. This
is the same index used in the 2014-based SNF market basket.
<bullet> Chemicals: For measuring price change in the Chemicals
cost category, we proposed to use a blended PPI composed of the
Industry PPIs for Other Basic Organic Chemical Manufacturing (NAICS
325190) (BLS series code PCU32519-32519), Soap and Cleaning Compound
Manufacturing (NAICS 325610) (BLS series code PCU32561-32561), and
Other Miscellaneous Chemical Product Manufacturing (NAICS 325998) (BLS
series code PCU325998325998).
Using the 2012 Benchmark I-O data, we found that these three NAICS
industries accounted for approximately 96 percent of SNF chemical
expenses. The remaining 4 percent of SNF chemical expenses are for
three other incidental NAICS chemicals industries such as Paint and
Coating Manufacturing. We proposed to create a blended index based on
those three NAICS chemical expenses listed above that account for 96
percent of SNF chemical expenses. We proposed to create this blend
based on each NAICS' expenses as a share of their sum. These expenses
as a share of their sum are listed in Table 17.
The 2014-based SNF market basket also used a blended chemical proxy
that was based on 2007 Benchmark I-O data. We believe our proposed
chemical blended index for the 2018-based SNF market basket is
technically appropriate as it reflects more recent data on SNFs
purchasing patterns. Table 17 provides the weights for the 2018-based
blended chemical index and the 2014-based blended chemical index.
[GRAPHIC] [TIFF OMITTED] TR04AU21.234

<bullet> Medical Instruments and Supplies: We proposed to change
the proxy used for the Medical Instruments and Supplies cost weight.
The 2012 Benchmark I-O data shows 46 percent of medical instruments and
supply costs are for Surgical and medical instrument manufacturing
costs (NAICS 339112) and 54 percent are for Surgical appliance and
supplies manufacturing costs (NAICS 339113). To proxy the price changes
associated with NAICS 339112, we proposed using the PPI--Commodity--
Surgical and medical instruments (BLS series code WPU1562). This the
same price proxy we used in the 2014-based SNF market basket. To proxy
the price changes associated with NAICS 339113, we proposed to use 50
percent for the PPI--Commodity--Medical and surgical

[[Page 42455]]

appliances and supplies (BLS series code WPU1563) and 50 percent for
the PPI Commodity data for Miscellaneous products-Personal safety
equipment and clothing (BLS series code WPU1571). The latter price
proxy would reflect personal protective equipment including but not
limited to face shields and protective clothing. The 2012 Benchmark I-O
data does not provide specific expenses for personal protective
equipment (which would be reflected in the NAICS 339113 expenses);
however, we recognize that this category reflects costs faced by SNFs.
In absence of any specific cost data on personal protective equipment,
we proposed to include the PPI Commodity data for Miscellaneous
products-Personal safety equipment and clothing (BLS series code
WPU1571) in the blended proxy for Medical Instruments and Supplies cost
category with a weight of 27 percent (that is, 50 percent of the NAICS
339113 expenses as a percent of the sum of NAICS 339113 and NAICS
339112 expenses from the I-O).
The 2014-based SNF market basket used a blend composed of 60
percent of the PPI Commodity for Medical and Surgical Appliances and
Supplies (BLS series code WPU1563) and 40 percent of the PPI Commodity
for Surgical and Medical Instruments (BLS series code WPU1562). Table
18 provides the proposed Medical Instruments and Supplies cost weight
blended price proxy.
[GRAPHIC] [TIFF OMITTED] TR04AU21.235

Comment: One commenter appreciated CMS' proposal to modify the
Medical Instruments and Supplies proxy to reflect personal protective
equipment.
Response: We appreciate the commenter's support and recognize the
need to reflect the prices of medical instruments and supplies
purchased by SNFs.
<bullet> Rubber and Plastics: We proposed to use the PPI Commodity
for Rubber and Plastic Products (BLS series code WPU07) to measure
price growth of this cost category. This is the same index used in the
2014-based SNF market basket.
<bullet> Paper and Printing Products: We proposed to use the PPI
Commodity for Converted Paper and Paperboard Products (BLS series code
WPU0915) to measure the price growth of this cost category. This is the
same index used in the 2014-based SNF market basket.
<bullet> Apparel: We proposed to use the PPI Commodity for Apparel
(BLS series code WPU0381) to measure the price growth of this cost
category. This is the same index used in the 2014-based SNF market
basket.
<bullet> Machinery and Equipment: We proposed to use the PPI
Commodity for Machinery and Equipment (BLS series code WPU11) to
measure the price growth of this cost category. This is the same index
used in the 2014-based SNF market basket.
<bullet> Miscellaneous Products: For measuring price change in the
Miscellaneous Products cost category, we proposed to use the PPI
Commodity for Finished Goods less Food and Energy (BLS series code
WPUFD4131). Both food and energy are already adequately represented in
separate cost categories and should not also be reflected in this cost
category. This is the same index used in the 2014-based SNF market
basket.
<bullet> Professional Fees: Labor-Related: We proposed to use the
ECI for Total Compensation for Private Industry Workers in Professional
and Related (BLS series code CIU2010000120000I) to measure the price
growth of this category. This is the same index used in the 2014-based
SNF market basket.
<bullet> Administrative and Facilities Support Services: We
proposed to use the ECI for Total Compensation for Private Industry
Workers in Office and Administrative Support (BLS series code
CIU2010000220000I) to measure the price growth of this category. This
is the same index used in the 2014-based SNF market basket.
<bullet> Installation, Maintenance and Repair Services: We proposed
to use the ECI for Total Compensation for All Civilian Workers in
Installation, Maintenance, and Repair (BLS series code
CIU1010000430000I) to measure the price growth of this new cost
category. This is the same index used in the 2014-based SNF market
basket.
<bullet> All Other: Labor-Related Services: We proposed to use the
ECI for Total Compensation for Private Industry Workers in Service
Occupations (BLS series code CIU2010000300000I) to measure the price
growth of this cost category. This is the same index used in the 2014-
based SNF market basket.
<bullet> Professional Fees: NonLabor-Related: We proposed to use
the ECI for Total Compensation for Private Industry Workers in
Professional and Related (BLS series code CIU2010000120000I) to measure
the price growth of this category. This is the same index used in the
2014-based SNF market basket.
<bullet> Financial Services: We proposed to use the ECI for Total
Compensation for Private Industry Workers in Financial Activities (BLS
series code CIU201520A000000I) to measure the price growth of this cost
category. This is the same index used in the 2014-based SNF market
basket.
<bullet> Telephone Services: We proposed to use the CPI All Urban
for Telephone Services (BLS series code CUUR0000SEED) to measure the
price growth of this cost category. This is the same index used in the
2014-based SNF market basket.
<bullet> All Other: NonLabor-Related Services: We proposed to use
the CPI All Urban for All Items Less Food and Energy (BLS series code
CUUR0000SA0L1E) to measure the price growth of this cost category. This
is the same index used in the 2014-based SNF market basket. As
previously noted, we proposed to include Postage costs within the All
Other: NonLabor-Related Services cost category, and to no

[[Page 42456]]

longer use the CPI All Urban for Postage as we did for the 2014-based
SNF market basket, due to the small size of this estimated cost weight
(less than 0.1 percent).
3. Price Proxies Used To Measure Capital Cost Category Growth
We proposed to apply the same capital price proxies as were used in
the 2014-based SNF market basket, with the exception of the For-profit
interest cost category, and below is a detailed explanation of the
price proxies used for each capital cost category. We also proposed to
continue to vintage weight the capital price proxies for Depreciation
and Interest to capture the long-term consumption of capital. This
vintage weighting method is the same method that was used for the 2014-
based SNF market basket and is described below.
<bullet> Depreciation--Building and Fixed Equipment: We proposed to
use the BEA Chained Price Index for Private Fixed Investment in
Structures, Nonresidential, Hospitals and Special Care (BEA Table
5.4.4. Price Indexes for Private Fixed Investment in Structures by
Type). This BEA index is intended to capture prices for construction of
facilities such as hospitals, nursing homes, hospices, and
rehabilitation centers. This is the same index used in the 2014-based
SNF market basket.
<bullet> Depreciation--Movable Equipment: We proposed to use the
PPI Commodity for Machinery and Equipment (BLS series code WPU11). This
price index reflects price inflation associated with a variety of
machinery and equipment that would be utilized by SNFs, including but
not limited to medical equipment, communication equipment, and
computers. This is the same index used in the 2014-based SNF market
basket.
<bullet> Nonprofit Interest: We proposed to use the average yield
on Municipal Bonds (Bond Buyer 20-bond index). This is the same index
used in the 2014-based SNF market basket.
<bullet> For-Profit Interest: For the For-Profit Interest cost
category, we proposed to use the iBoxx AAA Corporate Bond Yield index
instead of the Moody's AAA Corporate Bond Yield index that was used for
the 2014-based SNF market basket. Effective for December 2020, the
Moody's AAA Corporate Bond series is no longer available for use under
license to IGI, the nationally-recognized economic and financial
forecasting firm with whom we contract to forecast the components of
the market baskets and MFP. Therefore, we proposed to replace the price
proxy for the For-Profit interest cost category. We compared the iBoxx
AAA Corporate Bond Yield index with the Moody's AAA Corporate Bond
Yield index and found that the average growth rates in the two series
were similar. Over the historical time period of FY 2000 to FY 2020,
the 4-quarter percent change moving average growth in the iBoxx series
was approximately 0.1 percentage point higher, on average, than the
Moody's AAA corporate Bond Yield index.
<bullet> Other Capital: Since this category includes fees for
insurances, taxes, and other capital-related costs, we proposed to use
the CPI for Rent of Primary Residence (BLS series code CUUS0000SEHA),
which would reflect the price growth of these costs. This is the same
index used in the 2014-based SNF market basket.
We believe that these price proxies are the most appropriate
proxies for SNF capital costs that meet our selection criteria of
relevance, timeliness, availability, and reliability.
As stated above, we proposed to continue to vintage weight the
capital price proxies for Depreciation and Interest to capture the
long-term consumption of capital. To capture the long-term nature, the
price proxies are vintage-weighted; and the vintage weights are
calculated using a two-step process. First, we determine the expected
useful life of capital and debt instruments held by SNFs. Second, we
identify the proportion of expenditures within a cost category that is
attributable to each individual year over the useful life of the
relevant capital assets, or the vintage weights.
We rely on Bureau of Economic Analysis (BEA) fixed asset data to
derive the useful lives of both fixed and movable capital, which is the
same data source used to derive the useful lives for the 2014-based SNF
market basket. The specifics of the data sources used are explained
below.
a. Calculating Useful Lives for Moveable and Fixed Assets
Estimates of useful lives for movable and fixed assets for the
2018-based SNF market basket are 9 and 26 years, respectively. These
estimates are based on three data sources from the BEA: (1) Current-
cost average age; (2) historical-cost average age; and (3) industry-
specific current cost net stocks of assets.
BEA current-cost and historical-cost average age data by asset type
are not available by industry but are published at the aggregate level
for all industries. The BEA does publish current-cost net capital
stocks at the detailed asset level for specific industries. There are
64 detailed movable assets (including intellectual property) and there
are 32 detailed fixed assets in the BEA estimates. Since we seek
aggregate useful life estimates applicable to SNFs, we developed a
methodology to approximate movable and fixed asset ages for nursing and
residential care services (NAICS 623) using the published BEA data. For
the 2018 SNF market basket, we use the current-cost average age for
each asset type from the BEA fixed assets Table 2.9 for all assets and
weight them using current-cost net stock levels for each of these asset
types in the nursing and residential care services industry, NAICS
6230. (For example, nonelectro medical equipment current-cost net stock
(accounting for about 35 percent of total moveable equipment current-
cost net stock in 2018) is multiplied by an average age of 4.7 years.
Current-cost net stock levels are available for download from the BEA
website at <a href="https://apps.bea.gov/iTable/index_FA.cfm">https://apps.bea.gov/iTable/index_FA.cfm</a>. We then aggregate
the ``weighted'' current-cost net stock levels (average age multiplied
by current-cost net stock) into moveable and fixed assets for NAICS
6230. We then adjust the average ages for moveable and fixed assets by
the ratio of historical-cost average age (Table 2.10) to current-cost
average age (Table 2.9).
This produces historical cost average age data for movable
(equipment and intellectual property) and fixed (structures) assets
specific to NAICS 6230 of 4.7 and 13.1 years for 2018, respectively.
The average age reflects the average age of an asset at a given point
in time, whereas we want to estimate a useful life of the asset, which
would reflect the average over all periods an asset is used. To do
this, we multiply each of the average age estimates by two to convert
to average useful lives with the assumption that the average age is
normally distributed (about half of the assets are below the average at
a given point in time, and half above the average at a given point in
time). This produces estimates of likely useful lives of 9.49 and 26.19
years for movable and fixed assets, which we round to 9 and 26 years,
respectively. We proposed an interest vintage weight time span of 24
years, obtained by weighting the fixed and movable vintage weights (26
years and 9 years, respectively) by the fixed and movable split (86
percent and 14 percent, respectively). This is the same methodology
used for the 2014-based SNF market basket, which had useful lives of 23
years and 10 years for fixed and moveable assets, respectively. We
estimate that the impact of revising the

[[Page 42457]]

useful lives had a minor impact on the average historical growth rate
of the 2018-based SNF market basket total aggregate capital cost price
proxy. Over the FY 2016 to FY 2020 time period, the percent change
moving average in the total aggregate capital cost price proxy was
about 0.06 percentage point higher, on average, based on the 2018-based
SNF market basket compared to the 2014-based SNF market basket.
b. Constructing Vintage Weights
Given the expected useful life of capital (fixed and moveable
assets) and debt instruments, we must determine the proportion of
capital expenditures attributable to each year of the expected useful
life for each of the three asset types: Building and fixed equipment,
moveable equipment, and interest. These proportions represent the
vintage weights. We were not able to find a historical time series of
capital expenditures by SNFs. Therefore, we approximated the capital
expenditure patterns of SNFs over time, using alternative SNF data
sources. For building and fixed equipment, we used the stock of beds in
nursing homes from the National Nursing Home Survey (NNHS) conducted by
the National Center for Health Statistics (NCHS) for 1962 through 1999.
For 2000 through 2010, we extrapolated the 1999 bed data forward using
a 5-year moving average of growth in the number of beds from the SNF
MCR data. For 2011 to 2014, we extrapolate the 2010 bed data forward
using the average growth in the number of beds over the 2011 to 2014
time period. For 2015 to 2018, we proposed to extrapolate the 2014 bed
data forward using the average growth in the number of beds over the
2015 to 2018 time period. We then used the change in the stock of beds
each year to approximate building and fixed equipment purchases for
that year. This procedure assumes that bed growth reflects the growth
in capital-related costs in SNFs for building and fixed equipment. We
believe that this assumption is reasonable because the number of beds
reflects the size of a SNF, and as a SNF adds beds, it also likely adds
fixed capital.
As was done for the 2014-based SNF market basket (as well as prior
market baskets), we proposed to estimate moveable equipment purchases
based on the ratio of ancillary costs to routine costs. The time series
of the ratio of ancillary costs to routine costs for SNFs measures
changes in intensity in SNF services, which are assumed to be
associated with movable equipment purchase patterns. The assumption
here is that as ancillary costs increase compared to routine costs, the
SNF caseload becomes more complex and would require more movable
equipment. The lack of movable equipment purchase data for SNFs over
time required us to use alternative SNF data sources. A more detailed
discussion of this methodology was published in the FY 2008 SNF final
rule (72 FR 43428). We believe the resulting two time series,
determined from beds and the ratio of ancillary to routine costs,
reflect real capital purchases of building and fixed equipment and
movable equipment over time.
To obtain nominal purchases, which are used to determine the
vintage weights for interest, we converted the two real capital
purchase series from 1963 through 2018 determined above to nominal
capital purchase series using their respective price proxies (the BEA
Chained Price Index for Nonresidential Construction for Hospitals &
Special Care Facilities and the PPI for Machinery and Equipment). We
then combined the two nominal series into one nominal capital purchase
series for 1963 through 2018. Nominal capital purchases are needed for
interest vintage weights to capture the value of debt instruments.
Once we created these capital purchase time series for 1963 through
2018, we averaged different periods to obtain an average capital
purchase pattern over time: (1) For building and fixed equipment, we
averaged 31, 26-year periods; (2) for movable equipment, we averaged
48, 9-year periods; and (3) for interest, we averaged 33, 24-year
periods. We calculate the vintage weight for a given year by dividing
the capital purchase amount in any given year by the total amount of
purchases during the expected useful life of the equipment or debt
instrument. To provide greater transparency, we posted on the CMS
market basket website at <a href="http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html">http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html</a>, an illustrative spreadsheet that contains an
example of how the vintage-weighted price indexes are calculated.
The vintage weights for the 2018-based SNF market basket and the
2014-based SNF market basket are presented in Table 19.
BILLING CODE 4120-01-P

[[Page 42458]]

[GRAPHIC] [TIFF OMITTED] TR04AU21.236

BILLING CODE 4120-01-C
Comment: Many commenters stated that COVID-19 has required SNFs to
make significant changes in operations resulting in much higher
operating costs as a result of increased labor, PPE, janitorial, and
capital costs. They stated the new cost levels were permanent and noted
that the 2018 data used to rebase the market basket would not reflect
these cost levels. They recommended CMS account for these increased
costs in the market basket.
Several commenters requested that CMS explore the temporary use of
more heavily-weighted market basket elements to account for COVID-19
influenced cost increases, especially for both in-house and contract
labor costs and capital costs. To account for the change in labor
costs, some commenters recommended that CMS make an adjustment to the
labor-related price proxy to account for the increase in wages and
salaries and contract labor costs. One commenter recommended that CMS
use the Payroll-Based Journal (PBJ) data and examine the wage rate
differential between Agency and Employed Nurses/Aides using the labor
data reported on Schedule S-3 Part V of the SNF Medicare cost reports.
The commenter recommended that the greater proportion of Agency staff
in the PBJ data when combined with the price differential between
Employed vs Agency staff would result in an increase in the price proxy
for labor (with labor being roughly 70 percent of costs).
One commenter listed testing of staff as one of the largest
unbudgeted and unreimbursed costs for nursing homes. They stated that
staff testing costs vary widely based on the size of the facility,
types of tests used, and laboratory charges and on average have cost
about 100 per week per staff member tested. Some commenters stated that
some PPE allotments were provided by state and local governments;
however, the amounts were inconsequential in comparison with the needs.
Some commenters further requested that CMS consider additional under-
detected costs due to room-sharing by more than one COVID-19 positive
patient which was required by space constraints and/or isolation room
shortages.
One commenter also recommended CMS inflate the capital costs noting
that SNFs have incurred increased costs to reduce the spread of COVID-
19 by investing in fresh air intake systems, air purification systems,
and new heating ventilation and air conditions systems. They also cited
additional costs

[[Page 42459]]

incurred in 2020 to invest in improved wireless technology and
ultraviolet light. One commenter suggested that the capital costs
should also reflect the increased costs of replacing and/or updating
older facilities and the construction of larger facilities which would
better position nursing facilities for any future pandemic situations.
Response: We appreciate the commenter's concern regarding the
impact of COVID-19 on SNF costs. We reiterate that the SNF market
basket is a fixed-weight, Laspeyres-type price index that measures the
change in price, over time, of the same mix of goods and services
purchased in the base period. Any changes in the quantity or mix of
goods and services (that is, intensity) purchased over time relative to
a base period are not reflected. Changes in costs are taken into
consideration and reflected when the market basket is rebased and the
cost weights are revised to reflect the most recent cost structure. CMS
proposed to rebase and revise the SNF market basket for FY 2022 since
it has been 4 years since the last rebasing. The SNF market basket cost
weights rely on the data reported on the Medicare cost reports, which
provide the most comprehensive expense data available for the universe
of SNFs. We proposed to use the data reported for 2018 because it is
the most recent year of complete data available at the time of
performing the analysis for the proposed SNF rule.
We understand that the COVID-19 pandemic has resulted in
unanticipated challenges to SNF providers and all other healthcare
provider settings. We note that the market basket updates account for
the expected changes in the input prices, including labor, medical
supplies, other products (including PPE), and capital. The price
proxies take into account the changes in the expected prices of these
good and services. The rates are set prospectively which requires
forecasting the expected inflation pressures. The FY 2022 SNF payment
update is based on the most recent forecast of expected price pressures
that SNF providers will face in FY 2022. Additionally, the SNF payment
update formula includes a forecast error adjustment if the difference
between the historical SNF market basket growth and projected SNF
market basket growth exceeds the forecast error threshold (in absolute
terms). As discussed in section IV.B.3 of this final rule, the forecast
error for FY 2020 is -0.8 percentage point indicating the SNF market
basket update factor was higher than the actual SNF market basket
growth. The same analysis will be considered for FY 2021 once
historical data is available.
We also note that while the overall operating expenses may have
been impacted for providers in 2020, the market basket cost share
weights are based on the relative shares of expenses by category. CMS
would need to have a dataset that would provide expenditure levels for
all categories of expenses to determine the relative shares of each
cost category and there is not a comprehensive set of 2020 cost data
for SNF providers available at this time. It would be inappropriate to
only make adjustments to select costs as suggested by the commenters.
As stated previously, we plan to review the 2020 Medicare cost report
data as soon as complete information is available to ensure the market
basket relative cost shares are still appropriate.
Finally, we respectfully disagree that the capital cost weight in
the market basket should reflect future costs of replacing and/or
updating older facilities and the construction of larger facilities in
order to better position nursing facilities for any future pandemic
situations. The market basket cost weights are based on actual expenses
that SNF facilities incur and reported on the Medicare cost reports.
After consideration of public comments, we are finalizing the 2018-
based SNF market basket as proposed. Table 20 shows all the price
proxies for the finalized 2018-based SNF market basket.
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BILLING CODE 4120-01-C
4. Labor-Related Share
We define the labor-related share (LRS) as those expenses that are
labor-intensive and vary with, or are influenced by, the local labor
market. Each year, we calculate a revised labor-related share based on
the relative importance of labor-related cost categories in the input
price index. Effective for FY 2022, we proposed to revise and update
the labor-related share to reflect the relative importance of the 2018-
based SNF market basket cost categories that we believe are labor-
intensive and vary with, or are influenced by, the local labor market.
For the 2018-based SNF market basket these are: (1) Wages and Salaries
(including allocated contract labor costs as described above); (2)
Employee Benefits (including allocated contract labor costs as
described above); (3) Professional fees: Labor-related; (4)
Administrative and Facilities Support Services; (5) Installation,
Maintenance, and Repair Services; (6) All Other: Labor-Related
Services; and (7) a proportion of capital-related expenses. We proposed
to continue to include a proportion of capital-related expenses because
a portion of these expenses are deemed to be labor-intensive and vary
with, or are influenced by, the local labor market. For example, a
proportion of construction costs for a medical building would be

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