Home/Federal/Federal Register/2022-16457

Rule2022-16457

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 2023; Changes to the Requirements for the Director of Food and Nutrition Services and Physical Environment Requirements in Long-Term Care Facilities

Primary source

Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.

Published

August 3, 2022

Effective

October 1, 2022

Issuing agencies

Health and Human Services DepartmentCenters for Medicare & Medicaid Services

Abstract

This final rule updates payment rates; forecast error adjustments; diagnosis code mappings; the Patient Driven Payment Model (PDPM) parity adjustment; the SNF Quality Reporting Program (QRP); and the SNF Value-Based Purchasing (VBP) Program. It also establishes a permanent cap policy to smooth the impact of year-to-year changes in SNF payments related to changes in the SNF wage index. We also announce the application of a risk adjustment for the SNF Readmission Measure for COVID-19 beginning in FY 2023. We are finalizing changes to the long-term care facility fire safety provisions referencing the National Fire Protection Association (NFPA)[supreg] Life Safety Code, and Director of Food and Nutrition Services requirements.

Full Text

<html>
<head>
<title>Federal Register, Volume 87 Issue 148 (Wednesday, August 3, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 148 (Wednesday, August 3, 2022)]
[Rules and Regulations]
[Pages 47502-47619]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-16457]

[[Page 47501]]

Vol. 87

Wednesday,

No. 148

August 3, 2022

Part II

Department of Health and Human Services

-----------------------------------------------------------------------

Centers for Medicare & Medicaid Services

-----------------------------------------------------------------------

42 CFR Parts 413 and 483

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
2023; Changes to the Requirements for the Director of Food and
Nutrition Services and Physical Environment Requirements in Long-Term
Care Facilities; Final Rule

Federal Register / Vol. 87, No. 148 / Wednesday, August 3, 2022 /
Rules and Regulations

[[Page 47502]]

-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 413 and 483

[CMS-1765-F and CMS-3347-F]
RIN 0938-AU76 and 0938-AT36

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 2023; Changes to the Requirements for the Director of Food and
Nutrition Services and Physical Environment Requirements in Long-Term
Care Facilities

AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of
Health and Human Services (HHS).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule updates payment rates; forecast error
adjustments; diagnosis code mappings; the Patient Driven Payment Model
(PDPM) parity adjustment; the SNF Quality Reporting Program (QRP); and
the SNF Value-Based Purchasing (VBP) Program. It also establishes a
permanent cap policy to smooth the impact of year-to-year changes in
SNF payments related to changes in the SNF wage index. We also announce
the application of a risk adjustment for the SNF Readmission Measure
for COVID-19 beginning in FY 2023. We are finalizing changes to the
long-term care facility fire safety provisions referencing the National
Fire Protection Association (NFPA)[supreg] Life Safety Code, and
Director of Food and Nutrition Services requirements.

DATES: These regulations are effective on October 1, 2022.

FOR FURTHER INFORMATION CONTACT: <a href="/cdn-cgi/l/email-protection#cf9f8b9f828faca2bce1a7a7bce1a8a0b9">[email&#160;protected]</a> for issues related to
the SNF PPS.
Heidi Magladry, (410) 786-6034, for information related to the
skilled nursing facility quality reporting program.
Alexandre Laberge, (410) 786-8625, for information related to the
skilled nursing facility value-based purchasing program.
Kristin Shifflett, <a href="/cdn-cgi/l/email-protection#a6edd4cfd5d2cfc888d5cecfc0c0cac3d2d2e6c5cbd588ceced588c1c9d0">[email&#160;protected]</a>, and Cameron
Ingram, <a href="/cdn-cgi/l/email-protection#b0f3d1ddd5c2dfde9ed9ded7c2d1ddf0d3ddc39ed8d8c39ed7dfc6">[email&#160;protected]</a>, for information related to the LTC
requirements for 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="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html">https://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 2023 SNF
PPS Proposed Rule
A. General Comments on the FY 2023 SNF PPS Proposed Rule
IV. SNF PPS Rate Setting Methodology and FY 2023 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. Permanent Cap on Wage Index Decreases
B. Technical Updates to PDPM ICD-10 Mappings
C. Recalibrating the PDPM Parity Adjustment
D. Request for Information: Infection Isolation
VII. Skilled Nursing Facility Quality Reporting Program (SNF QRP)
A. Background and Statutory Authority
B. General Considerations Used for the Selection of Measures for
the SNF QRP
C. SNF QRP Quality Measure Beginning With the FY 2025 SNF QRP
D. SNF QRP Quality Measures Under Consideration for Future
Years: Request for Information (RFI)
E. Overarching Principles for Measuring Equity and Healthcare
Quality Disparities across CMS Quality Programs--Request for
Information (RFI)
F. Inclusion of the CoreQ: Short Stay Discharge Measure in a
Future SNF QRP Program Year--Request for Information (RFI)
G. Form, Manner, and Timing of Data Submission Under the SNF QRP
H. Policies Regarding Public Display of Measure Data for the SNF
QRP
VIII. Skilled Nursing Facility Value-Based Purchasing Program (SNF
VBP)
A. Statutory Background
B. SNF VBP Program Measures
C. SNF VBP Performance Period and Baseline Period
D. Performance Standards
E. SNF VBP Performance Scoring
F. Adoption of a Validation Process for the SNF VBP Program
Beginning With the FY 2023 Program Year
G. SNF Value-Based Incentive Payments for FY 2023
H. Public Reporting on the Provider Data Catalog website
I. Requests for Comment Related to Future SNF VBP Program
Expansion Policies
IX. Changes to the Requirements for the Director of Food and
Nutrition Services and Physical Environment Requirements in Long-
Term (LTC) Facilities and Summary of Public Comments and Responses
to the Request for Information on Revising the Requirements for
Long-Term Care Facilities to Establish Mandatory Minimum Staffing
Levels
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. Regulatory Review Costs

I. Executive Summary

A. Purpose

This final rule updates the SNF prospective payment rates for
fiscal year (FY) 2023, 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. In addition,
this final rule includes requirements for the Skilled Nursing Facility
Quality Reporting Program (SNF QRP) and the Skilled Nursing Facility
Value-Based Purchasing Program (SNF VBP), including adopting new
quality measures for the SNF VBP Program and finalizing several updates
to the Program's scoring methodology.

[[Page 47503]]

The SNF QRP adopts one new measure to promote patient safety, begins
collection of information which will improve the quality of care for
all SNF patients, and revises associated regulation text. We are
revising the qualification requirements for the Director of Food and
Nutrition Services and revising requirements for life safety from fire
for long-term care facilities that previously used the Fire Safety
Evaluation System (FSES) to demonstrate compliance with provisions of
the Life Safety Code (LSC).

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 will reflect an update to the
rates that we published in the SNF PPS final rule for FY 2022 (86 FR
42424, August 4, 2021). In addition, the final rule includes a forecast
error adjustment for FY 2023, updates to the diagnosis code mappings
used under the Patient Driven Payment Model (PDPM), and includes a
recalibration of the PDPM parity adjustment. This final rule also
establishes a permanent cap policy to smooth the impact of year-to-year
changes in SNF payments related to changes in the SNF wage index.
This final rule finalizes requirements for the SNF QRP, including
the adoption of one new measure beginning with the FY 2024 SNF QRP: the
Influenza Vaccination Coverage among Healthcare Personnel (HCP) (NQF
#0431) measure. We are also revising the compliance date for the
Transfer of Health Information measures and certain standardized
patient assessment data elements. In addition, we are revising
regulation text that pertains to data submission requirements for the
SNF QRP.
We are also 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 2023 SNF VBP Program Year
for scoring and payment adjustment purposes. We are also adding two new
measures to the SNF VBP Program beginning with the FY 2026 SNF VBP
program year and one new measure beginning with the FY 2027 program
year. We are also finalizing several updates to the scoring methodology
beginning with the FY 2026 program year. We are also revising our
regulation text in accordance with our proposals.
In addition, we are finalizing LTC facilities LSC changes in Sec.
483.90(a) to allow older exiting facilities to continue to use the 2001
FSES mandatory values when determining compliance for containment,
extinguishment, and people movement requirements as set out in the LSC.
Older facilities who may not meet the FSES requirements previously used
the 2000 LSC FSES will be allowed to remain in compliance with the
older FSES without incurring substantial expenses to change their
construction types, while maintaining resident and staff safety.
Additionally, we are finalizing changes to the requirements for the
Director of Food and Nutrition Services in LTC facilities in Sec.
483.60. We are revising the required qualifications for a director of
food and nutrition services to provide that those with several years of
experience performing as the director of food and nutrition services in
a facility can continue to do so. Specifically, we have added to the
current requirements that individuals with 2 or more years of
experience in the position of a director of food and nutrition services
and who have also completed a minimum course of study in food safety
that includes topics integral to managing dietary operations (such as,
but not limited to: foodborne illness, sanitation procedures, food
purchasing/receiving, etc.) can continue to qualify as a director of
food and nutrition services. This will help address concerns related to
costs associated with training for existing staff and the potential
need to hire new staff.

C. Summary of Cost and Benefits
[GRAPHIC] [TIFF OMITTED] TR03AU22.001

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 digital 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) to facilitate collaboration with interested parties
to develop Health Level Seven International[supreg] (HL7) Fast
Healthcare Interoperability Resource[supreg] (FHIR) standards. These
standards could support the exchange and reuse of patient assessment
data derived from the post-acute care (PAC) setting assessment tools,
such as the minimum data set (MDS), inpatient rehabilitation facility -
patient assessment instrument (IRF-PAI), Long-Term Care Hospital (LTCH)
continuity assessment record and evaluation (CARE) Data Set (LCDS),
outcome and assessment information set (OASIS), and other
sources.1 2 The PACIO Project has focused on HL7 FHIR
implementation guides for: functional status, cognitive status and new
use cases on advance directives, re-assessment timepoints, and Speech,
language, swallowing, cognitive communication and hearing (SPLASCH)
pathology.\3\ We encourage PAC provider

[[Page 47504]]

and health IT vendor participation as the efforts advance.
---------------------------------------------------------------------------

\1\ HL7 FHIR Release 4. Available at <a href="https://www.hl7.org/fhir/">https://www.hl7.org/fhir/</a>.
\2\ HL7 FHIR. PACIO Functional Status Implementation Guide.
Available at <a href="https://paciowg.github.io/functional-status-ig/">https://paciowg.github.io/functional-status-ig/</a>.
\3\ PACIO Project. Available at <a href="http://pacioproject.org/about/">http://pacioproject.org/about/</a>.
---------------------------------------------------------------------------

The CMS Data Element Library (DEL) continues to be updated and
serves as a 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).\4\ The DEL furthers CMS' goal of data
standardization and interoperability. Standards in the DEL can be
referenced on the CMS website and in the ONC Interoperability Standards
Advisory (ISA). The 2022 ISA is available at <a href="https://www.healthit.gov/isa/sites/isa/files/inline-files/2022-ISA-Reference-Edition.pdf">https://www.healthit.gov/isa/sites/isa/files/inline-files/2022-ISA-Reference-Edition.pdf</a>.
---------------------------------------------------------------------------

\4\ Centers for Medicare & Medicaid Services. Newsroom. Fact
sheet: CMS Data Element Library Fact Sheet. June 21, 2018. Available
at <a href="https://www.cms.gov/newsroom/fact-sheets/cms-data-element-library-fact-sheet">https://www.cms.gov/newsroom/fact-sheets/cms-data-element-library-fact-sheet</a>.
---------------------------------------------------------------------------

The 21st Century Cures Act (Cures Act) (Pub. L. 114-255, enacted
December 13, 2016) required HHS and ONC to take steps to promote
adoption and use of electronic health record (EHR) technology.\5\
Specifically, section 4003(b) of the Cures Act required ONC to take
steps to advance interoperability through the development of a Trusted
Exchange Framework and Common Agreement aimed at establishing full
network-to network exchange of health information nationally. On
January 18, 2022, ONC announced a significant milestone by releasing
the Trusted Exchange Framework \6\ and Common Agreement Version 1.\7\
The Trusted Exchange Framework is a set of non-binding principles for
health information exchange, and the Common Agreement is a contract
that advances those principles. The Common Agreement and the Qualified
Health Information Network Technical Framework Version 1 (incorporated
by reference into the Common Agreement) establish the technical
infrastructure model and governing approach for different health
information networks and their users to securely share clinical
information with each other, all under commonly agreed to terms. The
technical and policy architecture of how exchange occurs under the
Common Agreement follows a network-of-networks structure, which allows
for connections at different levels and is inclusive of many different
types of entities at those different levels, such as health information
networks, healthcare practices, hospitals, public health agencies, and
Individual Access Services (IAS) Providers.\8\ For more information, 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>.
---------------------------------------------------------------------------

\5\ Sections 4001 through 4008 of Public Law 114-255. Available
at <a href="https://www.govinfo.gov/content/pkg/PLAW-114publ255/html/PLAW-114publ255.htm">https://www.govinfo.gov/content/pkg/PLAW-114publ255/html/PLAW-114publ255.htm</a>.
\6\ The Trusted Exchange Framework (TEF): Principles for Trusted
Exchange (Jan. 2022). Available at <a href="https://www.healthit.gov/sites/default/files/page/2022-01/Trusted_Exchange_Framework_0122.pdf">https://www.healthit.gov/sites/default/files/page/2022-01/Trusted_Exchange_Framework_0122.pdf</a>.
\7\ Common Agreement for Nationwide Health Information
Interoperability Version 1 (Jan. 2022). Available at <a href="https://www.healthit.gov/sites/default/files/page/2022-01/Common_Agreement_for_Nationwide_Health_Information_Interoperability_Version_1.pdf">https://www.healthit.gov/sites/default/files/page/2022-01/Common_Agreement_for_Nationwide_Health_Information_Interoperability_Version_1.pdf</a>.
\8\ The Common Agreement defines Individual Access Services
(IAS) as ``with respect to the Exchange Purposes definition, the
services provided utilizing the Connectivity Services, to the extent
consistent with Applicable Law, to an Individual with whom the QHIN,
Participant, or Subparticipant has a Direct Relationship to satisfy
that Individual's ability to access, inspect, or obtain a copy of
that Individual's Required Information that is then maintained by or
for any QHIN, Participant, or Subparticipant.'' The Common Agreement
defines ``IAS Provider'' as: ``Each QHIN, Participant, and
Subparticipant that offers Individual Access Services.'' See Common
Agreement for Nationwide Health Information Interoperability Version
1, at 7 (Jan. 2022), <a href="https://www.healthit.gov/sites/default/files/page/2022-01/Common_Agreement_for_Nationwide_Health_Information_Interoperability_Version_1.pdf">https://www.healthit.gov/sites/default/files/page/2022-01/Common_Agreement_for_Nationwide_Health_Information_Interoperability_Version_1.pdf</a>.
---------------------------------------------------------------------------

We invited providers to learn more about these important
developments and how they are likely to affect SNFs.
Comment: We received one comment on the information provided in
this section. The commenter expressed support for efforts across HHS to
advance health information technology exchange and encouraged use of a
standard set of data by providers and health IT vendors, including
efforts through the PACIO project. The commenter also noted a recent
National Academies report describing technology barriers for PAC
settings due to not being eligible for previous incentives to purchase
technology certified under the ONC Health IT Certification Program. The
commenter supported recommendations in the report for HHS to pursue
financial incentives for post-acute care settings to adopt certified
health information technology in order to enable health information
exchange.
Response: We will take this comment into consideration as we
coordinate with Federal partners, including ONC, on interoperability
initiatives, and to inform future rulemaking.

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.
Finally, section 111 of the Consolidated Appropriations Act, 2021 (CAA)
updated section 1888(h) of the Act, authorizing the Secretary to apply
up to nine additional measures to the VBP program for SNFs.

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

[[Page 47505]]

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
2022 (86 FR 42424, August 4, 2021).
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.
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 2023.

III. Analysis and Responses to Public Comments on the FY 2023 SNF PPS
Proposed Rule

In response to the publication of the FY 2023 SNF PPS proposed
rule, we received 6,970 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 2023 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 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 of the
Act and coverage flexibility provided under section 1812(f) of the Act.
Commenters also expressed concerns about the substantial additional
costs due to the PHE that they were concerned 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: 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.
Comment: We received a number of comments related to monitoring
Medicare Advantage Organizations (MAOs). These commenters referred to a
recent OIG report, which discussed how some MAOs have reportedly denied
or delayed beneficiary access to SNF services. These commenters
encouraged CMS to review the requirements and policies surrounding the
payment and practices of MAOs.
Response: 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.
Comment: One commenter requested that we consider including
recreational therapy time provided to SNF residents by recreational
therapists as part of the calculation of the resident's RUG-IV therapy
classification or as part of determining the number of restorative
nursing services provided to the resident.
Response: We appreciate the commenter raising this issue, but we do
not believe there is sufficient evidence at this time regarding the
efficacy of recreational therapy interventions or, more notably, data
which would substantiate a determination of the effect on payment of
such interventions, as such services were not considered separately, as
were physical, occupational and speech-language pathology services,
when RUG-IV was being developed. That is, we note that Medicare Part A
originally paid for institutional care in various provider settings,
including SNF, on a reasonable cost basis, but now makes payment using
PPS methodologies, such as the SNF PPS. To the extent that one of these
SNFs furnished recreational therapy to its inpatients under the
previous, reasonable cost methodology, the cost of the services would
have been included in the base payments when SNF PPS payment rates were
derived. Under the PPS methodology, Part A makes a comprehensive
payment for the bundled package of items and services that the facility
furnishes during the course of a Medicare-covered stay. This package
encompasses nearly all services that the beneficiary receives during
the course of the stay--including any medically necessary recreational
therapy--and payment for such services is included within the
facility's comprehensive SNF PPS payment for the covered Part A stay
itself.
Comment: One commenter encouraged CMS to monitor the use of
concurrent and group therapy under PDPM and identify any facilities
that are consistently exceeding the established group and concurrent
therapy limit. This commenter referred to reports by their members to
disregard the established limit on these therapy modalities, as well as
the impact of the PHE on the provision of group and concurrent therapy.
Response: We continue to monitor all aspects of payment and service
provision under PDPM. Should we discover any outliers in the provision
of group and concurrent therapy that consistently exceed the
established limit on these therapy modalities, we will refer such
outliers for administrative action.

IV. SNF PPS Rate Setting Methodology and FY 2023 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

[[Page 47506]]

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 SNF PPS final rule for FY 2022 (86 FR
42444 through 42463), we rebased and revised the market basket index,
which included updating the base year from 2014 to 2018.
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.4. of this final rule.
As outlined in the proposed rule, we proposed a FY 2023 SNF market
basket percentage of 2.8 percent based on IHS Global Inc.'s (IGI's)
fourth quarter 2021 forecast of the 2018-based SNF market basket
(before application of the forecast error adjustment and productivity
adjustment). We also proposed that if more recent data subsequently
became 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 2023 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 2023 market basket
percentage increase based on IGI's second quarter 2022 forecast with
historical data through the first quarter of 2022. The FY 2023 growth
rate of the 2018-based SNF market basket is estimated to be 3.9
percent.
In section IV.B.5. of this final rule, we discussed 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 outlined in this final rule, we use the percentage
change in the SNF market basket index to compute the update factor for
FY 2023. This factor is based on the FY 2023 percentage increase in the
2018-based SNF market basket index reflecting routine, ancillary, and
capital-related expenses. As stated previously, in the proposed rule,
the SNF market basket percentage update was estimated to be 2.8 percent
for FY 2023 based on IGI's fourth quarter 2021 forecast. For this final
rule, based on IGI's second quarter 2022 forecast with historical data
through the first quarter of 2022, the FY 2023 growth rate of the 2018-
based SNF market basket is estimated to be 3.9 percent.
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 2021 (the most recently available FY for which there is
final data), the forecasted or estimated increase in the SNF market
basket index was 2.2 percent, and the actual increase for FY 2021 is
3.7 percent, resulting in the actual increase being 1.5 percentage
point higher 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 2023 market basket percentage
change of 3.9 percent would be adjusted upward to account for the
forecast error correction of 1.5 percentage point, resulting in a SNF
market basket percentage change of 5.1 percent after reducing the
market basket update by the productivity adjustment of 0.3 percentage
point, discussed later in this section of the preamble.
Table 2 shows the forecasted and actual market basket increases for
FY 2021.

[[Page 47507]]

[GRAPHIC] [TIFF OMITTED] TR03AU22.002

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 productivity for the U.S. We note that previously the productivity
measure referenced in section 1886(b)(3)(B)(xi)(II) of the Act was
published by BLS as private nonfarm business multifactor productivity.
Beginning with the November 18, 2021 release of productivity data, BLS
replaced the term multifactor productivity (MFP) with total factor
productivity (TFP). BLS noted that this is a change in terminology only
and will not affect the data or methodology. As a result of the BLS
name change, the productivity measure referenced in section
1886(b)(3)(B)(xi)(II) of the Act is now published by BLS as private
nonfarm business total factor productivity. However, as mentioned
previously in this section, the data and methods are unchanged. We
refer readers to the BLS website at <a href="http://www.bls.gov">www.bls.gov</a> for the BLS historical
published TFP data.
A complete description of the TFP projection methodology is
available on our website at <a href="https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch">https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch</a>. In addition, in the FY
2022 SNF final rule (86 FR 42429) we noted that, effective with FY 2022
and forward, we are changing the name of this adjustment to refer to it
as the ``productivity adjustment,'' rather than the ``MFP adjustment.''
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 2023 SNF PPS proposed rule,
the proposed productivity adjustment (the 10-year moving average of
changes in annual economy-wide private nonfarm business TFP for the
period ending September 30, 2023) was projected to be 0.4 percentage
point. However, for this final rule, based on IGI's second quarter 2022
forecast, the estimated 10-year moving average of changes in annual
economy-wide private nonfarm business TFP for the period ending
September 30, 2023 is 0.3 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 2023 for the SNF PPS is based on IGI's second quarter 2022
forecast of the SNF market basket percentage, which is estimated to be
3.9 percent. This market basket percentage is then increased by 1.5
percentage point, due to application of the forecast error adjustment
discussed earlier in this section of the preamble. Finally, as
discussed earlier in this section of the preamble, we are applying a
0.3 percentage point productivity adjustment to the FY 2023 SNF market
basket percentage. The resulting productivity-adjusted FY 2023 SNF
market basket update is, therefore, equal to 5.1 percent, or 3.9
percent plus 1.5 percentage point to account for forecast error and
less 0.3 percentage point to account for the productivity adjustment.
5. Market Basket Update Factor for FY 2023
Sections 1888(e)(4)(E)(ii)(IV) and (e)(5)(i) of the Act require
that the update factor used to establish the FY 2023 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, 2021 through September 30,
2022 to the average market basket level for the period of October 1,
2022 through September 30, 2023. This process yields a percentage
change in the 2018-based SNF market basket of 3.9 percent.
As further explained in section IV.B.3. 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
actual FY 2021 SNF market basket percentage change exceeded the
forecasted FY 2021 SNF market basket percentage change (FY 2021 is the
most recently available FY for which there is historical data) by

[[Page 47508]]

more than the 0.5 percentage point threshold, we are adjusting the FY
2023 market basket percentage change upward by the forecast error
correction. Applying the 1.5 percentage point forecast error correction
results in an adjusted FY 2023 SNF market basket percentage change of
5.4 percent (3.9 percent market basket update plus 1.5 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 annual economy-wide private nonfarm
business TFP for the period ending September 30, 2023) which is
estimated to be 0.3 percentage point, as described in section IV.B.4.
of this final rule. Thus, we apply a net SNF market basket update
factor of 5.1 percent in our determination of the FY 2023 SNF PPS
unadjusted Federal per diem rates, which reflects a market basket
increase factor of 3.9 percent, plus the 1.5 percentage point forecast
error correction and less the 0.3 percentage point productivity
adjustment.
As outlined in the proposed rule, we noted that if more recent data
became available (for example, a more recent estimate of the SNF market
basket and/or productivity adjustment), we would use such data, if
appropriate, to determine the FY 2023 SNF market basket percentage
change, labor-related share relative importance, forecast error
adjustment, or productivity adjustment in the FY 2023 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.
A discussion of the public comments received on the FY 2023 SNF
market basket percentage increase to the SNF PPS rates, along with our
responses, may be found below.
Comment: One commenter supported and appreciated the proposed
increase in Medicare rates as a result of the market basket and
forecast error adjustment. Several commenters supported the increase
and urged CMS to use the most recent economic data as it becomes
available in finalizing the payment update to capture the significant
cost increases and inflation being felt by the long-term care sector
and across the economy. However, multiple commenters raised concerns
about whether rising costs, and costs of labor, in particular, are
being sufficiently accounted for in the SNF market basket. One
commenter urged CMS to discuss in the final rule how the agency will
account for these increased costs. One commenter shared that their
State wage survey of nursing facilities, which is used to inform their
Medicaid inflation adjustment each year, indicates a 14.8 percent
increase in nursing compensation (a composite of employee and agency
staff) from 2022 to 2023, along with non-nursing compensation growth of
7.3 percent.
Commenters were concerned that CMS' use of the historical
Employment Cost Index (ECI) for Wages and Salaries for Private Industry
Workers in Nursing Care Facilities to measure the price growth of wages
and salaries may not be accurately capturing employment costs in
nursing homes, or otherwise not in a timely manner. They stated that
the quarterly updates of the price proxies do not address changes in
staffing levels, changes in the occupational mix, increases in the use
of contract labor or travel nurses, or other drivers of wage rate
growth such as labor market tightness and consumer inflation.
One commenter calculated notable differences in Medicare Cost
Report Direct Care Wage Data and the labor component of market basket
updates, which they estimated to be about 6 percent between 1998 and
2021. The commenter suggested spreading an adjustment for this
difference into the update equally over a 2 to 3-year period. In
addition, they requested that CMS develop a methodology to account for
rapidly escalating labor costs in a more timely fashion than the
current price proxy calculation method captures. The commenter also
noted faster growth of the BLS Current Employment Statistics (CES)
average hourly earnings (AHE) series for Production and Non-Supervisory
Nursing care facility employees (without seasonality adjustment),
compared to the ECI for Wages and Salaries for Private Industry Workers
in Nursing Care Facilities.
One commenter requested that CMS provide a labor-related market
basket price add-on due to workforce shortages and other challenges not
addressed by the current market basket methodology.
Response: We recognize the challenges facing SNFs in operating
during a high inflationary environment. Due to SNF payments under PPS
being set prospectively, we rely on a projection of the SNF market
basket that reflects both recent historical trends, as well as forecast
expectations over the next roughly 18 months. The forecast error for a
market basket update is calculated as the actual market basket increase
for a given year, less the forecasted market basket increase. Due to
the uncertainty regarding future price trends, forecast errors can be
both positive and negative. We are confident that the forecast error
adjustments built into the SNF market basket update factor will account
for these discrepancies over time.
In the FY 2023 SNF PPS proposed rule, we proposed a 2018-based SNF
market basket increase of 2.8 percent based on IGI's fourth quarter
2021 forecast with historical data through third quarter 2021. For this
final rule, based on IGI's second quarter 2022 forecast with historical
data through first quarter 2022 we are finalizing a 2018-based SNF
market basket increase of 3.9 percent, which is the highest market
basket update we have implemented in a final rule since the beginning
of the SNF PPS. The 3.9-percent increase reflects forecasted
compensation price growth of 4.2 percent (which is approximately 2
percentage points higher than the 10-year historical average price
growth for compensation), reflecting increased wage pressures due to
various economic and industry-specific factors. Additionally, the FY
2023 productivity-adjusted SNF market basket update of 3.6 percent (3.9
percent less 0.3 percentage point) will be increased by the FY 2021
forecast error adjustment of 1.5 percentage point for a total FY 2023
update of 5.1 percent (3.6 percent plus 1.5 percentage points). A
forecast error

[[Page 47509]]

for FY 2022 cannot be calculated until historical data through third
quarter 2022 are available; if there is a FY 2022 forecast error and a
similar update approach is used for FY 2024, then a forecast error
adjustment would be applied to the FY 2024 SNF PPS payment update.
Section 1888(e)(5)(A) of the Act states the Secretary shall
establish a skilled nursing facility market basket index that reflects
changes over time in the prices of an appropriate mix of goods and
services included in covered skilled nursing facility services. The
2018-based 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 measured. For the
compensation cost weight in the 2018-based SNF market basket (which
includes salaried and contract labor employees), we use the ECI for
wages and salaries and benefits for nursing care facilities to proxy
the price increase of SNF labor. The ECI (published by the BLS)
measures the change in the hourly labor cost to employers, independent
of the influence of employment shifts among occupations and industry
categories. Therefore, we believe the ECI for nursing care facilities,
which only reflects the price change associated with the labor used to
provide SNF care and appropriately does not reflect other factors that
might affect labor costs, is an appropriate measure to use in the SNF
market basket.
We acknowledge the commenters' concerns regarding the ECI being
based on 2012 occupational distribution. Our analysis of the 2021 BLS
Occupational Employment Statistics data, the most recent data available
(published at <a href="https://www.bls.gov/oes/">https://www.bls.gov/oes/</a>), shows that the salary
(estimated as the product of employment and average annual salary)
distribution by occupation for skilled nursing care facilities (NAICS
6231) is similar to the BLS OES data for 2012. Specifically, we found
that the healthcare occupational distribution among the major
occupations--registered nurses (16 percent in 2021), licensed practical
and vocational nurses (16 percent), nursing assistants (25 percent),
and therapists (4 percent)--were notably similar between 2012 and 2021.
Additionally, we found the split between healthcare (70 percent in
2021) and nonhealthcare (30 percent) salaries by occupation to be
virtually unchanged.
We also recognize the commenters' concerns regarding the need for
increased reliance on the use of contract labor and travel nurses due
to the overall tightness in the labor market and the more specific
labor constraints of healthcare staff in particular. The compensation
cost weight of the SNF market basket includes expenses for wages and
salaries, employee benefits, and contract labor, with the contract
labor expenses apportioned to the Wages and Salaries and Employee
Benefits cost category weights. We analyzed the 2020 Medicare Cost
Report (MCR) data and found the Compensation cost weight decreased
slightly from 60.2 percent in 2018 to 59.8 percent in 2020. This was
due to a decrease in the Contract Labor cost weight from 7.5 percent in
2018 to 6.8 percent in 2020 offset by a 0.3 percentage point increase
in employed wages and salaries and benefits combined. Our analysis
found that while there was an increase in the contract nursing staff
hours, there was an offsetting decrease in the use of contract therapy
staff hours. We will continue to analyze the MCR data, including the
2021 data when available, and assess the appropriateness of rebasing
and revising the SNF market basket. Any rebasing or revising of the SNF
market basket, if deemed necessary, would be proposed in future
rulemaking and subject to public comments.
Regarding commenters' request that CMS consider other methods and
data sources to calculate the final rule market basket update by
exercising administrative authority, we note that we did not propose to
use other methods or data sources to calculate the final market basket
update for FY 2023, and therefore, we are not finalizing such an
approach for this final rule. Further, while the Secretary has the
discretion under the statute to establish the methodology for
determining the appropriate mix of goods and services that comprise the
SNF market basket, the statute requires the SNF PPS payment rates to be
annually updated by the SNF market basket percentage change. As
discussed in section IV.B.1. of this final rule, the market basket used
to update SNF PPS payments has been rebased and revised over the
history of the SNF PPS to reflect more recent data on SNF cost
structures, and we believe it continues to appropriately reflect SNF
cost structures. Consistent with our proposal, we have used more recent
data to calculate a final SNF market basket update of 5.1 percent for
FY 2023. Additionally, MedPAC did a full analysis of payment adequacy
for SNF providers in its March 2022 Report to Congress (<a href="https://www.medpac.gov/wp-content/uploads/2022/03/Mar22_MedPAC_ReportToCongress_Ch7_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2022/03/Mar22_MedPAC_ReportToCongress_Ch7_SEC.pdf</a>) and determined that, even
considering the cost increases that have occurred as a result of the
PHE associated with the COVID-19 pandemic, payments to SNFs continue to
be adequate.
Comment: One commenter recommended that CMS convene a technical
expert panel to discuss a more long-range approach to collecting and
imputing appropriate and timely data for market basket labor update
calculations, in an attempt to encompass factors not captured by
currently available price proxies.
Response: We are open to hearing from interested parties about any
data or analyses available to achieve the shared goal of ensuring that
the SNF market basket price proxies are technically appropriate. As
required by statute, any proposed changes to improve and/or update the
SNF market basket occur through the rulemaking process and interested
parties have an opportunity to publicly comment and make
recommendations regarding the appropriateness of proposed changes.
Comment: One commenter stated that CMS should update the SNF market
basket more frequently than every 4 to 5 years. The commenter noted
that the SNF market basket uses a 2018 base year to measure the labor
vs. non-labor cost inputs of 2018, which was prior to the pandemic and
related significant labor cost increases.
Response: We note that while there is no official schedule for
updating the market baskets, we typically attempt to rebase a market
basket every 4 to 5 years since we have found that the cost weights are
relatively stable over time. As the commenter acknowledged, the SNF
market basket was last rebased in the FY 2022 SNF final rule using 2018
Medicare cost reports (86 FR 42444 through 42463), the most recent year
of complete data available at the time of the rebasing. As described in
that final rule, the primary data source for the major cost weights
(Wages and Salaries, Employee Benefits, Contract Labor, Pharmaceutical,
Malpractice, Capital-related, and Home Office) for the 2018-based SNF
market basket are the MCRs for freestanding SNFs (CMS Form 2540-10, OMB
NO. 0938-0463). We also indicated in the FY 2022 SNF final rule that we
planned to review the 2020 MCR data as soon as complete information was
available, to ensure the market basket relative cost shares are still
appropriate.

[[Page 47510]]

Our analysis of the MCR data for 2019 and 2020 showed little change
in the reported cost weights with the exception of the Pharmaceuticals
cost weight in 2020. The Pharmaceuticals cost weight (including the
adjustment for Medicaid dual-eligible drug costs) decreased
approximately one percentage point from 7.5 percent in 2018 to 6.4
percent in 2020. The decrease in the Pharmaceuticals cost weight is
stemming from the estimated Part D drug costs per day for dual-eligible
Medicare beneficiaries, which decreased in 2020 as a result of an
increase in the proportion of generic drugs. More detail regarding this
adjustment is described in the FY 2022 SNF PPS rule (86 FR 42447). The
2020 Medicare cost report data also indicates that the Compensation
cost weight is slightly lower at 59.8 percent, compared to the 2018-
based SNF market basket with 60.2 percent. MCR data for 2021 are
incomplete at this time. Given that the changes to the Compensation
cost weight for 2020 are minimal and it is unclear whether changes in
the cost weights are temporary as a result of the PHE, we continue to
believe it is premature at this time to use more recent MCR data to
derive a rebased and revised SNF market basket. We will continue to
monitor these data, and any necessary changes to the SNF market basket
will be proposed in future rulemaking.
Comment: One commenter expressed concern about the proposed 0.4
percent reduction for productivity and asked CMS in the final rule to
further elaborate on the specific productivity gains that are the basis
for this proposed market basket offset. The commenter stated that the
productivity adjustment contradicts their members' PHE experiences of
actual losses in productivity during the pandemic.
Response: Section 1888(e)(5)(B)(ii) of the Act requires the
application of a productivity adjustment to the SNF market basket
update. As required by statute, the FY 2023 productivity adjustment is
derived based on the 10-year moving average of changes in annual
economy-wide private nonfarm business TFP for the period ending FY
2023, which is currently projected to be 0.3 percent.
Comment: One commenter stated that they do not support the
triggering of automatic forecast error adjustments. They expressed
concern that automatic forecast corrections would, in some years,
result in making payment increases on top of the statutory increases to
the payment rates, despite the industry having sizeable average
Medicare margins. The commenter also noted that eliminating the
automatic adjustments would result in more stable updates and
consistency across settings because CMS does not apply automatic
forecast error adjustments to any other market baskets. They noted that
although CMS is required by statute to update the payment rates each
year by the estimated change in the market basket index, it is not
required to make automatic forecast error corrections.
Response: When forecast error adjustments for the SNF market basket
were introduced in the FY 2004 SNF PPS final rule (68 FR 46035), we
indicated the goal was ``to pay the appropriate amount, to the correct
provider, for the proper service, at the right time''. We note that
since implementation, forecast errors have generally been relatively
small and clustered near zero and that for FY 2008 and subsequent
years, we increased the threshold at which adjustments are triggered
from 0.25 to 0.5 percentage point. Our intent in raising the threshold
was to distinguish typical statistical variances from more major
unanticipated impacts, such as unforeseen disruptions of the economy
(such as occurred during the recent PHE) or unexpected inflationary
patterns (either at lower or higher than anticipated rates).
Comment: One commenter stated that the market basket update
reflects the actual cost of delivering services and it should not be
used to justify the severity of the parity adjustment.
Response: We are required to update SNF PPS payments annually by
the market basket update as required under section
1888(e)(4)(E)(ii)(IV) and (e)(5)(B) of the Act, as amended by section
53111 of the BBA 2018. We refer readers to section VI.C for a full
discussion of the need for and the implementation of the parity
adjustment.
6. Unadjusted Federal Per Diem Rates for FY 2023
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 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 2023 from the average prices for FY 2022. 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 Office of Management and Budget (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.
Tables 3 and 4 reflect the updated unadjusted Federal rates for FY
2023, prior to adjustment for case-mix.
[GRAPHIC] [TIFF OMITTED] TR03AU22.003

[[Page 47511]]

[GRAPHIC] [TIFF OMITTED] TR03AU22.004

Commenters submitted the following comments related to the proposed
unadjusted federal per diem rates for FY 2021. A discussion of these
comments, along with our responses, appears below.
Comment: One commenter stated that the case mix adjusted rates
shown in Tables 5 and 6 for PT, OT, SLP and nursing rates are higher in
urban areas than rural areas and noted this may be driving inequities
and labor shortages between rural and urban nursing homes.
Response: We disagree with the commenter's statement that the case-
mix adjusted rates for the PT, OT and SLP components are higher in
urban than rural areas as shown in Tables 5 and 6. Additionally, the
Federal per diem rates were established separately for urban and rural
areas using allowable costs from FY 1995 cost reports, and therefore,
account for and reflect the relative costs differences between urban
and rural facilities. We note that the SNF PPS payment rates are
updated annually by an increase factor that reflects changes over time
in the prices of an appropriate mix of goods and services included in
the covered SNF services and a portion of these rates are further
adjusted by a wage index to reflect geographic variations in wages. We
will continue to monitor our SNF payment policies to ensure they
reflect as accurately as possible the current costs of care in the SNF
setting.
Accordingly, after considering the comments received, for the
reasons specified in this final rule and in the FY 2023 SNF PPS
proposed rule, we are finalizing the unadjusted federal per diem rates
set forth in Tables 3 and 4.

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.
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 IV.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="https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/NursingHomeQualityInits/MDS30RAIManual.html">https://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 2023 payment rates set forth in this
proposed rule reflect the use of the PDPM case-mix classification
system from October 1, 2022, through September 30, 2023. The case-mix
adjusted PDPM payment rates for FY 2023 are listed separately for urban
and rural SNFs, in Tables 5 and 6 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 5 and 6 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 5 and 6 reflect the PDPM's structure. Accordingly, Column 1
of Tables 5 and 6 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

[[Page 47512]]

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 5 and 6 do not reflect adjustments which may be made to the
SNF PPS rates as a result of the SNF VBP Program, discussed in section
VII. 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.
As we noted in the FY 2022 SNF PPS final rule (86 FR 42434), we
continue to monitor the impact of PDPM implementation on patient
outcomes and program outlays. Because of this analysis, in section V.C.
of the proposed rule, we proposed to recalibrate the PDPM parity
adjustment discussed in the FY 2020 SNF PPS final rule (84 FR 38734).
Following the methodology of this proposed change, Tables 5 and 6
incorporate the recalibration of the PDPM parity adjustment.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR03AU22.005

[[Page 47513]]

[GRAPHIC] [TIFF OMITTED] TR03AU22.006

BILLING CODE 4120-01-C

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 proposed to continue
this practice for FY 2023, 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 2023, the updated wage data are for hospital cost reporting
periods beginning on or after October 1, 2018 and before October 1,
2019 (FY 2019 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. 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. Therefore,
as discussed in the proposed rule, in the absence of a SNF-specific
wage index, we believe the use of the pre-reclassified and pre-floor
hospital wage data (without the occupational mix adjustment) continue
to be an appropriate and reasonable proxy for the SNF PPS.

[[Page 47514]]

In addition, we proposed to continue to use 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 Core-Based Statistical Areas (CBSAs) as a
reasonable proxy. For FY 2023, 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 there (for example, due to the
close proximity 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 urban areas within the State to serve as a reasonable proxy for the
wage index of that urban CBSA. For FY 2023, the only urban area without
wage index data available is CBSA 25980, Hinesville-Fort Stewart, GA.
The wage index applicable to FY 2023 is set forth in Tables A and B
available on the CMS website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html">https://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. For FY 2023 and subsequent years, we proposed
to apply a permanent 5 percent cap on any decreases to a provider's
wage index from its wage index in the prior year, regardless of the
circumstances causing the decline, which was further discussed in
section V.A. of the proposed rule.
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 and for
these reasons we did not make such a proposal for FY 2023.
The wage index applicable to FY 2023 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>.
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

[[Page 47515]]

Repair Services; All Other: Labor-Related Services; and a proportion of
Capital-Related expenses. Effective beginning FY 2022 (86 FR 42437), we
rebased and revised 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 beginning in
FY 2022 is discussed in detail in the FY 2022 SNF PPS final rule (86 FR
42424).
We calculate the labor-related relative importance from the SNF
market basket, and it approximates the labor-related portion of the
total costs after taking into account historical and projected price
changes between the base year and FY 2023. 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 2023 than the base year weights
from the SNF market basket. We calculate the labor-related relative
importance for FY 2023 in four steps. First, we compute the FY 2023
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 2023 price index level for that cost category by the
total market basket price index level. Third, we determine the FY 2023
relative importance for each cost category by multiplying this ratio by
the base year (2018) weight. Finally, we add the FY 2023 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 2023
labor-related relative importance.
For the proposed rule, the labor-related share for FY 2023 was
based on IGI's fourth quarter 2021 forecast of the 2018-based SNF
market basket with historical data through third quarter 2021. As
outlined in the proposed rule, we noted that if more recent data became
available (for example, a more recent estimate of the labor-related
share relative importance) we would use such data if appropriate for
the SNF final rule. For this final rule, we base the labor-related
share for FY 2023 on IGI's second quarter 2022 forecast, with
historical data through the first quarter 2022. Table 7 summarizes the
labor-related share for FY 2023, based on IGI's second quarter 2022
forecast of the 2018-based SNF market basket, compared to the labor-
related share that was used for the FY 2022 SNF PPS final rule.
[GRAPHIC] [TIFF OMITTED] TR03AU22.007

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 2023
labor-related share percentage provided in Table 7. 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 interested parties 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 2023 (Federal rates
effective October 1, 2022), we apply an adjustment to fulfill the
budget neutrality requirement. We meet this requirement by multiplying
each of the components of the

[[Page 47516]]

unadjusted Federal rates by a budget neutrality factor, equal to the
ratio of the weighted average wage adjustment factor for FY 2022 to the
weighted average wage adjustment factor for FY 2023. For this
calculation, we would use the same FY 2021 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
2023 set forth in the proposed rule was 1.0011.
We noted that if more recent data became 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 wage adjustment
factor for FY 2023. Based on this updated information, the budget
neutrality factor for FY 2023 is 1.0005.
The following is a summary of the public comments we received on
the proposed revisions to the Wage Index Adjustment and our responses.
Comment: Several commenters recommended that CMS develop a SNF-
specific wage index utilizing SNF wage data rather than relying on
hospital wage data. Most of these commenters recommended CMS utilize
BLS data, while one commenter recommended CMS focus on Payroll-Based
Journaling (PBJ) data.
Response: We appreciate the commenters' suggestion that we develop
a SNF-specific wage index utilizing SNF wage data instead of hospital
wage data while considering the use of BLS and PBJ data. We note that,
consistent with the discussion published most recently in the FY 2021
SNF PPS final rule (86 FR 42436 through 42439), and in further detail
in the FY 2019 SNF PPS final rule (83 FR 39172 through 39178) to these
recurring comments, 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 BLS data and PBJ 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.
Comment: Several comments suggested that CMS revise the SNF wage
index to adopt the same geographic reclassification and rural floor
polices that are used to adjust the IPPS wage index.
Response: We note that until the development of a SNF-specific wage
index, the SNF PPS does not account for geographic reclassification
under section 315 of the Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554, enacted
December 21, 2000).
With regard to implementing a rural floor under the SNF PPS, we do
not believe it would be prudent at this time to adopt such a policy,
particularly because MedPAC has repeatedly recommended eliminating the
rural floor policy from the calculation of the IPPS wage index. For
example, Chapter 3 of MedPAC's March 2013 Report to Congress on
Medicare Payment Policy, available at <a href="http://www.medpac.gov/docs/default-source/reports/mar13_ch03.pdf">http://www.medpac.gov/docs/default-source/reports/mar13_ch03.pdf</a>, notes on page 65 that, in 2007,
MedPAC had recommended eliminating these special wage index adjustments
and adopting a new wage index system to avoid geographic inequities
that can occur due to current wage index policies (Medicare Payment
Advisory Commission 2007b)). If we adopted the rural floor policy at
this time, the SNF PPS wage index could become vulnerable to problems
similar to those MedPAC identified in its March 2013 Report to
Congress.
Furthermore, as we do not have an SNF-specific wage index, we are
unable to determine the degree, if any, to which a geographic
reclassification adjustment or a rural floor policy under the SNF PPS
would be appropriate. The rationale for our current wage index policies
was most recently published in the FY 2022 SNF PPS final rule (86 FR
42436) and previously described in the FY 2016 SNF PPS final rule (80
FR 45401 through 46402).
After consideration of public comments, we are finalizing our
proposal to continue to use the updated pre-reclassification and pre-
floor IPPS wage index data to develop the FY 2023 SNF PPS wage index.

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 further discussion
of our policies for the SNF VBP Program.

F. Adjusted Rate Computation Example

Tables 8 through 10 provide examples generally illustrating payment
calculations during FY 2023 under PDPM for a hypothetical 30-day SNF
stay, involving the hypothetical SNF XYZ, located in Frederick, MD
(Urban CBSA 23224), for a hypothetical patient who is classified into
such groups that the patient's HIPPS code is NHNC1. Table 8 shows the
adjustments made to the Federal per diem rates (prior to application of
any adjustments under the SNF VBP Program as discussed previously and
taking into account the proposed parity adjustment discussed in section
VI.C. of this final rule) to compute the provider's case-mix adjusted
per diem rate for FY 2023, 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 9
shows the adjustments made to the case-mix adjusted per diem rate from
Table 8 to account for the provider's wage index. The wage index used
in this example is based on the FY 2023 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
10 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 10 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 8,
SNF XYZ's total PPS payment for this particular patient's stay would
equal $20,821.69.
BILLING CODE 4120-01-P

[[Page 47517]]

[GRAPHIC] [TIFF OMITTED] TR03AU22.008

[GRAPHIC] [TIFF OMITTED] TR03AU22.009

[[Page 47518]]

[GRAPHIC] [TIFF OMITTED] TR03AU22.010

BILLING CODE 4120-01-C

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 47519]]

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 Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act
of 1999 (BBRA 1999) (Pub. L. 106-113, enacted November 29, 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 CAA 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. 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.
In the proposed rule, we specifically solicited 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. In the proposed rule, 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

[[Page 47520]]

in question, as well as their rationale for requesting that the
identified HCPCS code(s) be excluded.
In the proposed rule, we noted that the original BBRA amendment and
the CAA 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 CAA, July 1, 2020), as
subsequently modified by the Secretary. In addition, as noted in this
section of the preamble, the statute (sections 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.
Accordingly, 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, 2022). 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 we received on
the proposed revisions to Consolidated Billing and our responses.
Comment: One commenter stated that consolidated billing exclusions
remain inadequate and should be revised. The commenter stated that
there continue to be outlier drug costs that need to be considered for
exclusion from consolidated billing. The commenter stated that certain
classes of drugs considered ``Specialty'' drugs are the largest
exposure items for SNFs and need to be evaluated by CMS. The commenter
further stated that many pharmaceutical therapies in use today were not
in existence at the time that consolidated billing PPDs were created.
Therefore, they cannot be considered ``included'' within the Medicare A
FFS rate.
Response: As we noted in the proposed rule, sections
1888(e)(2)(A)(iii)(II) through (VI) of the Act give the Secretary
authority to identify additional items and services for exclusion only
within the categories of items and services described in the statute.
Accordingly, it is beyond the statutory authority of CMS to exclude
services that do not fit these categories, or to create additional
categories of excluded services. Such changes would require
Congressional action.
Comment: A commenter requested that CMS to consider agents that
have evolving indications for use for different malignancies. In
particular, the commenter requested consideration for both Leuprolide
Acetate (HCPCS J9217) as well as Denosumab (HCPCS J0897) which
previously was indicated as an osteoporosis medication but now has
broader uses. The commenter also requested continued consideration of
covering expensive antibiotics in Skilled Nursing Facilities as part of
a Part A covered stay. The commenter stated that use of antibiotics
such as ceftolozane 50 mg and tazobactam 25 mg (HCPCS J0695) are
prohibitively expensive for facilities to cover outside of SNF
consolidated billing and limit beneficiaries' abilities to access these
skilled rehab services.
Response: For the reasons discussed previously in prior rulemaking,
the particular drugs cited in these comments remain subject to
consolidated billing. In the case of leuprolide acetate, we have
addressed this when suggested in past rulemaking cycles, most recently
in the SNF PPS final rules for FY 2019 (83 FR 39162, August 8, 2018)
and FY 2015 (79 FR 45642, August 5, 2014). In those rules, we explained
that this drug is unlikely to meet the criterion of ``low probability''
specified in the BBRA. With regard to denosumab, it would similarly be
unlikely to meet the criterion of ``low probability.'' One of the
indications for treatment is for bone metastases from solid tumors such
as bone or prostate cancer. This can occur in up to 70 to 90 percent of
patients with breast or prostate cancer.
With regard to the suggestion that CMS should exclude antibiotics,
we note again that it is beyond the statutory authority of CMS to
exclude services that do not fit the categories for exclusion defined
by statute, or to create additional categories of excluded services.
Such changes would require Congressional action.

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="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>.

D. Revisions to the Regulation Text

We proposed to make certain revisions in the regulation text
itself. Specifically, we proposed to revise Sec. 413.337(b)(4) and add
new paragraphs (b)(4)(i) through (iii). These proposed revisions
reflect that the application of the wage index would be made on the
basis of the location of the facility in an urban or rural area as
defined in Sec. 413.333, and that starting on October 1, 2022, we
would apply a cap on decreases to the wage index such that

[[Page 47521]]

the wage index applied to a SNF is not less than 95 percent of the wage
index applied to that SNF in the prior FY, as discussed in section
VI.A. of this final rule.
We did not receive public comments specific to the proposed
revisions to the regulation text, and therefore, we are finalizing as
proposed. We discuss comments received on the wage index cap policy
itself in section VI.A. of this final rule.

VI. Other SNF PPS Issues

A. Permanent Cap on Wage Index Decreases

As outlined in section III.D. of the proposed rule, we proposed and
finalized temporary transition policies in the past to mitigate
significant changes to payments due to changes to the SNF PPS wage
index. Specifically, for FY 2015 (79 FR 45644 through 45646), we
implemented a 50/50 blend for all geographic areas consisting of the
wage index values computed using the then-current OMB area delineations
and the wage index values computed using new area delineations based on
OMB Bulletin No. 13-01. In FY 2021 (85 FR 47594, 47617), we implemented
a 1-year transition to mitigate any negative effects of wage index
changes by applying a 5 percent cap on any decrease in a SNF's wage
index from the final wage index from FY 2020. We explained that we
believed the 5-percent cap would provide greater transparency and would
be administratively less complex than the prior methodology of applying
a 50/50 blended wage index. We indicated that no cap would be applied
to the reduction in the wage index for FY 2022, and we noted that this
transition approach struck an appropriate balance by providing a
transition period to mitigate the resulting short-term instability and
negative impacts on providers and time for them to adjust to their new
labor market area delineations and wage index values.
In the FY 2022 final rule (86 FR 42424, 42439), commenters
recommended that CMS extend the transition period adopted in the FY
2021 SNF PPS final rule so that SNFs could offset the cuts scheduled
for FY 2022. Although, we acknowledged that certain changes to wage
index policy could affect Medicare payment. In addition, we reiterated
that our policy principles with regard to the wage index include
generally using the most current data and information available and
providing that data and information, as well as any approaches to
addressing any significant effects on Medicare payments resulting from
these potential scenarios around SNF payment volatility, in notice and
comment rulemaking. We did not propose to modify the transition policy
that was finalized in the FY 2021 SNF PPS final rule, and therefore,
did not extend the transition period for FY 2022. With these policy
principles in mind for this FY 2023 proposed rule, we considered how
best to address commenters' concerns discussed in the FY 2022 final
rule around SNF payment volatility; that is, scenarios in which changes
to wage index policy may significantly affect Medicare payments.
In the past, we have established transition policies of limited
duration to phase in significant changes to labor market. In taking
this approach in the past, we have sought to strike an appropriate
balance between maintaining the accuracy of the overall labor market
area wage index system and mitigating short-term instability and
negative impacts on providers due to wage index changes. In accordance
with the requirements of the SNF PPS wage index regulations at Sec.
413.337(a)(1), we use an appropriate wage index based on the best
available data, including the best available labor market area
delineations, to adjust SNF PPS payments for wage differences. We have
previously stated that, because the wage index is a relative measure of
the value of labor in prescribed labor market areas, we believe it is
important to implement new labor market area delineations with as
minimal a transition as is reasonably possible. However, we recognize
that changes to the wage index have the potential to create instability
and significant negative impacts on certain providers even when labor
market areas do not change. In addition, year-to-year fluctuations in
an area's wage index can occur due to external factors beyond a
provider's control, such as the COVID-19 public health emergency (PHE).
For an individual provider, these fluctuations can be difficult to
predict. So, we also recognize that predictability in Medicare payments
is important to enable providers to budget and plan their operations.
In light of these considerations, we proposed a permanent approach
to smooth year-to-year changes in providers' wage indexes. We proposed
a policy that we believe increases the predictability of SNF PPS
payments for providers, and mitigates instability and significant
negative impacts to providers resulting from changes to the wage index.
As previously discussed, we believed applying a 5-percent cap on
wage index decreases for FY 2021 provided greater transparency and was
administratively less complex than prior transition methodologies. In
addition, we believed this methodology mitigated short-term instability
and fluctuations that can negatively impact providers due to wage index
changes. Lastly, we have noted that we believed the 5-percent cap we
applied to all wage index decreases for FY 2021 provided an adequate
safeguard against significant payment reductions related to the
adoption of the revised CBSAs. However, we recognize there are
circumstances that a 1-year mitigation policy, like the one adopted for
FY 2021, would not effectively address future years where providers
continue to be negatively affected by significant wage index decreases.
Typical year-to-year variation in the SNF PPS wage index has
historically been within 5 percent, and we expect this will continue to
be the case in future years. For FY 2023, the provider level impact
analysis indicates that approximately 97 percent of SNFs will
experience a wage index change within 5 percent. Because providers are
usually experienced with this level of wage index fluctuation, we
believe applying a 5-percent cap on all wage index decreases each year,
regardless of the reason for the decrease, would effectively mitigate
instability in SNF PPS payments due to any significant wage index
decreases that may affect providers in any year. We believe this
approach would address concerns about instability that commenters
raised in the FY 2022 SNF PPS rule. Additionally, as noted in the
proposed rule, we believe that applying a 5-percent cap on all wage
index decreases would support increased predictability about SNF PPS
payments for providers, enabling them to more effectively budget and
plan their operations. Lastly, because applying a 5-percent cap on all
wage index decreases would represent a small overall impact on the
labor market area wage index system we believe it would ensure the wage
index is a relative measure of the value of labor in prescribed labor
market wage areas. As outlined in detail in section XI.A.4. of the
proposed rule, we estimated that applying a 5-percent cap on all wage
index decreases will have a very small effect on the wage index budget
neutrality factor for FY 2023. Because the wage index is a measure of
the value of labor (wage and wage-related costs) in a prescribed labor
market area relative to the national average, we anticipate that in the
absence of proposed policy changes most providers will not experience
year-to-year wage index

[[Page 47522]]

declines greater than 5 percent in any given year. As noted in the
proposed rule, we also believe that when the 5-percent cap would be
applied under this proposal, it is likely that it would be applied
similarly to all SNFs in the same labor market area, as the hospital
average hourly wage data in the CBSA (and any relative decreases
compared to the national average hourly wage) would be similar. While
this policy may result in SNFs in a CBSA receiving a higher wage index
than others in the same area (such as situations when delineations
change), we believe the impact would be temporary. Therefore, we
anticipate that the impact to the wage index budget neutrality factor
in future years would continue to be minimal.
The Secretary has broad authority to establish appropriate payment
adjustments under the SNF PPS, including the wage index adjustment. As
discussed earlier in this section, the SNF PPS regulations require us
to use an appropriate wage index based on the best available data. For
the reasons discussed earlier in this section, we believe that a 5-
percent cap on wage index decreases would be appropriate for the SNF
PPS. Therefore, for FY 2023 and subsequent years, we proposed to apply
a permanent 5-percent cap on any decrease to a provider's wage index
from its wage index in the prior year, regardless of the circumstances
causing the decline. That is, we proposed that SNF's wage index for FY
2023 would not be less than 95 percent of its final wage index for FY
2022, regardless of whether the SNF is part of an updated CBSA, and
that for subsequent years, a provider's wage index would not be less
than 95 percent of its wage index calculated in the prior FY. This
means, if a SNF's prior FY wage index is calculated with the
application of the 5-percent cap, then the following year's wage index
would not be less than 95 percent of the SNF's capped wage index in the
prior FY. For example, if a SNF's wage index for FY 2023 is calculated
with the application of the 5-percent cap, then its wage index for FY
2024 would not be less than 95 percent of its capped wage index in FY
2023. Lastly, we proposed that a new SNF would be paid the wage index
for the area in which it is geographically located for its first full
or partial FY with no cap applied, because a new SNF would not have a
wage index in the prior FY. As we outlined in the proposed rule, we
believe this proposed methodology would maintain the SNF PPS wage index
as a relative measure of the value of labor in prescribed labor market
areas, increase the predictability of SNF PPS payments for providers,
and mitigate instability and significant negative impacts to providers
resulting from significant changes to the wage index. In section XI. of
the proposed rule, we estimated the impact to payments for providers in
FY 2023 based on this proposed policy. We also noted that we would
examine the effects of this policy on an ongoing basis in the future in
order to assess its continued appropriateness.
Subject to the aforementioned proposal becoming final, we also
proposed to revise the regulation text at Sec. 413.337(a)(1) to
provide that starting October 1, 2022, we would apply a cap on
decreases to the wage index such that the wage index applied is not
less than 95 percent of the wage index applied to that SNF in the prior
year.
We invited public comments on this proposal. The following is a
summary of the comments we received on the proposed permanent cap on
wage index decreases and our responses.
Comment: MedPAC expressed support for the 5-percent permanent cap
on wage index decreases policy, but recommended that the 5-percent cap
limit should apply to both increases and decreases in the wage index
because they stated that no provider should have its wage index value
increase or decrease by more than 5 percent.
Response: We appreciate MedPAC's suggestion that the cap on wage
index changes of more than 5 percent should also be applied to
increases in the wage index. However, as we discussed in the FY 2023
SNF PPS proposed rule (87 FR 22735), one purpose of the proposed policy
is to help mitigate the significant negative impacts of certain wage
index changes. Likewise, we explained that we believe that applying a
5-percent cap on all wage index decreases would support increased
predictability about SNF PPS payments for providers, enabling them to
more effectively budget and plan their operations. That is, we proposed
to cap decreases because we believe that a provider would be able to
more effectively budget and plan when there is predictability about its
expected minimum level of SNF PPS payments in the upcoming fiscal year.
We did not propose to limit wage index increases, because we do not
believe such a policy would enable SNFs to more effectively budget and
plan their operations. So, we believe it is appropriate for providers
that experience an increase in their wage index value to receive the
full benefit of their increased wage index value.
Comment: A few commenters requested that CMS retroactively apply
the 5 percent cap policy to the FY 2022 wage index.
Response: In the FY 2021 SNF PPS rulemaking cycle, CMS proposed and
finalized a one-time, 1-year transition policy to mitigate the effects
of adopting OMB delineations updated in OMB Bulletin 18-04. In the FY
2023 SNF PPS proposed rule we did not propose to modify the one-time
transition policy that was finalized in the FY 2021 SNF PPS final rule,
nor did we propose to extend the transition period for FY 2022. We have
historically implemented 1-year transitions, as discussed in the FY
2006 (70 FR 45026) and FY 2015 (79 FR 45644) final rules, to address
CBSA changes due to substantial updates to OMB delineations. Our policy
principles, as noted in the FY 2022 final rule (86 FR 42439), with
regard to the wage index are to use the most updated data and
information available. Therefore, the FY 2023 wage index policy
proposal is prospective and is designed to mitigate any significant
decreases beginning in FY 2023, not retroactively.
Comment: A number of commenters suggested the 5-percent cap be
applied in a non-budget neutral manner.
Response: The statute at section 1888(e)(4)(G)(ii) of the Act
requires that adjustments for geographic variations in labor costs for
a FY are made in a budget-neutral. We are required to apply the
permanent 5-percent cap policy in a budget-neutral manner.
Comment: A commenter recommended the percentage cap be lower than
the proposed 5-percent stating they found that most wage indices do not
swing by 5-percent.
Response: We appreciate the commenter's suggestion that the
permanent cap percentage should be lower than 5-percent. However, as we
discussed in the proposed rule, for FY 2023, the provider level impact
analysis indicates that approximately 97 percent of SNFs will
experience a wage index change within 5 percent. Because providers are
usually experienced with this level of wage index fluctuation, we
believe applying a 5-percent cap on all wage index decreases each year,
regardless of the reason for the decrease, would effectively mitigate
instability in SNF PPS payments due to any significant wage index
decreases that may affect providers in any year.
Comment: One commenter was opposed to the implementation of the
permanent 5-percent cap on wage index decreases at this time, stating
that the industry struggled prior to the PHE.
Response: We appreciate the concern with implementing the permanent
5-percent cap on wage index decreases.

[[Page 47523]]

However, as we discussed in the proposed rule, we believe moving
forward with the permanent cap on wage index decreases would
effectively mitigate instability in SNF PPS payments due to any
significant wage index decreases that may affect providers in any year.
After consideration of the comments we received, we are finalizing
the proposed permanent 5-percent cap on wage index decreases for the
SNF PPS, beginning in FY 2023.

B. Technical Updates to PDPM ICD-10 Mappings

In the FY 2019 SNF PPS final rule (83 FR 39162), we finalized the
implementation of the Patient Driven Payment Model (PDPM), effective
October 1, 2019. The PDPM utilizes International Classification of
Diseases, Version 10 (ICD-10) codes in several ways, including to
assign patients to clinical categories under several PDPM components,
specifically the PT, OT, SLP and NTA components. The ICD-10 code
mappings and lists used under PDPM are available on the PDPM website at
<a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/PDPM">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/PDPM</a>.
Each year, the ICD-10 Coordination and Maintenance Committee, a
Federal interdepartmental committee that is chaired by representatives
from the National Center for Health Statistics (NCHS) and by
representatives from CMS, meets biannually and publishes updates to the
ICD-10 medical code data sets in June of each year. These changes
become effective October 1 of the year in which these updates are
issued by the committee. The ICD-10 Coordination and Maintenance
Committee also can make changes to the ICD-10 medical code data sets
effective on April 1 of each year.
In the FY 2020 SNF PPS final rule (84 FR 38750), we outlined the
process by which we maintain and update the ICD-10 code mappings and
lists associated with the PDPM, as well as the SNF Grouper software and
other such products related to patient classification and billing, to
ensure that they reflect the most up to date codes possible. Beginning
with the updates for FY 2020, we apply nonsubstantive changes to the
ICD-10 codes included on the PDPM code mappings and lists through a
subregulatory process consisting of posting updated code mappings and
lists on the PDPM website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/PDPM">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/PDPM</a>. Such nonsubstantive changes are
limited to those specific changes that are necessary to maintain
consistency with the most current ICD-10 medical code data set. On the
other hand, substantive changes, or those that go beyond the intention
of maintaining consistency with the most current ICD-10 medical code
data set, will be proposed through notice and comment rulemaking. For
instance, changes to the assignment of a code to a comorbidity list or
other changes that amount to changes in policy are considered
substantive changes for which we would undergo notice and comment
rulemaking.
We proposed several changes to the PDPM ICD-10 code mappings and
lists. We note that, in the case of any diagnoses that are either
currently mapped to ``Return to Provider'' or that we proposed to
classify into this category, this is not intended to reflect any
judgment on the importance of recognizing and treating these
conditions, but merely that there are more specific diagnoses than
those mapped to ``Return to Provider'' or that we do not believe that
the diagnosis should serve as the primary diagnosis for a Part-A
covered SNF stay. Our proposed changes were as follows:
On October 1, 2021, D75.839 ``Thrombocytosis, unspecified,'' took
effect and was mapped to the clinical category of ``Cardiovascular and
Coagulations.'' However, there are more specific codes to indicate why
a patient with thrombocytosis would require SNF care. If the cause is
unknown, the SNF could use D47.3, ``Essential (hemorrhagic)
thrombocythemia'' or D75.838, ``other thrombocytosis'' which is a new
code that took effect on October 1, 2021. Further, elevated platelet
count without other symptoms is not reason enough for SNF skilled care
so this would not be used as a primary diagnosis. For this reason, we
proposed to change the assignment of D75.839 to ``Return to Provider.''
On October 1, 2021, D89.44, ``Hereditary alpha tryptasemia'' went
into effect and was mapped to the clinical category, ``Medical
Management.'' However, this is not a diagnosis that would be treated as
a primary condition in the SNF, rather it would be treated in the
outpatient setting. Therefore, we proposed to change the assignment of
D89.44 to ``Return to Provider.''
On October 1, 2021, F32.A, ``Depression, unspecified'' went into
effect and was mapped to ``Medical Management.'' However, there are
more specific codes that would more adequately capture the diagnosis of
depression. Further, as we noted in the proposed rule, while we believe
that SNFs serve an important role in providing services to those
beneficiaries suffering from mental illness, the SNF setting is not the
setting that would be most appropriate to treat a patient whose primary
diagnosis is depression. For this reason, we proposed to change the
assignment of F32.A to ``Return to Provider.''
On October 1, 2021, G92.9, ``Unspecified toxic encephalopathy''
took effect and was mapped to the clinical category of ``Acute
Neurologic.'' However, there are more specific codes that should be
used to describe encephalopathy treated in a SNF. Therefore, we
proposed to change the assignment of G92.9 to ``Return to Provider.''
On October 1, 2021, M54.50, ``Low back pain, unspecified'' went
into effect and was mapped to the clinical category of ``Non-surgical
Orthopedic/Musculoskeletal.'' However, if low back pain were the
primary diagnosis, the SNF should have a greater understanding of what
is causing the pain. There are more specific codes to address this
condition. Therefore, we proposed to change the assignment of M54.50 to
``Return to Provider.''
In the FY 2022 proposed rule (86 FR 19984 through 19985), we
proposed to reclassify K20.81, ``Other esophagitis with bleeding,''
K20.91, ``Esophagitis, unspecified with bleeding,'' and K21.01,
``Gastro-esophageal reflux disease with esophagitis, with bleeding''
from ``Return to Provider'' to ``Medical Management.'' Our rationale
for the change was a recognition that these codes represent these
esophageal conditions with more specificity than originally considered
because of the bleeding that is part of the conditions and that they
would more likely be found in SNF patients. We received one comment
suggesting additional changes to similar ICD-10 code mappings and
comorbidity lists that at the time were outside the scope of
rulemaking. This commenter suggested that we consider remapping the
following similar diagnosis codes that frequently require SNF skilled
care, from ``Return to Provider'' to ``Medical Management'': K22.11,
``Ulcer of esophagus with bleeding;'' K25.0, ``Acute gastric ulcer with
hemorrhage;'' K25.1, ``Acute gastric ulcer with perforation;'' K25.2,
``Acute gastric ulcer with both hemorrhage and perforation;'' K26.0,
``Acute duodenal ulcer with hemorrhage;'' K26.1, ``Acute duodenal ulcer
with perforation;'' K26.2, ``Acute duodenal ulcer with both hemorrhage
and perforation;'' K27.0 ``Acute peptic ulcer, site unspecified with
hemorrhage;'' K27.1, ``Acute peptic ulcer, site unspecified with
perforation;''

[[Page 47524]]

K27.2, ``Acute peptic ulcer, site unspecified with both hemorrhage and
perforation;'' K28.0, ``Acute gastrojejunal ulcer with hemorrhage;''
K28.1, ``Acute gastrojejunal ulcer with perforation;'' K28.2, ``Acute
gastrojejunal ulcer with both hemorrhage and perforation;'' and K29.01,
``Acute gastritis with bleeding.'' Upon review of these codes, we
recognize that they represent conditions with more specificity than
originally considered because of the bleeding (or perforation) that is
part of the conditions and that they would more likely be found in SNF
patients.'' Therefore, we proposed to remap these ICD-10 codes to
``Medical Management.''
We also received a comment requesting we consider remapping M62.81,
``Muscle weakness (generalized)'' from ``Return to Provider'' to ``Non-
orthopedic Surgery'' with the rationale that there is currently no
sequela or late-effects ICD-10 code available when patients require
skilled nursing and therapy due to late effects of resolved infections
such as pneumonia or urinary tract infections. We considered the
request and determined that muscle weakness (generalized) is
nonspecific and if the original condition is resolved, but the
resulting muscle weakness persists because of the known original
diagnosis, there are more specific codes that exist that would account
for why the muscle weakness is on-going, such as muscle wasting or
atrophy. Therefore, we did not propose this specific remapping. This
commenter also requested that that we consider remapping R62.7, ``Adult
failure to thrive'' from ``Return to Provider'' to ``Medical
Management.'' According to this commenter, physicians often diagnose
adult failure to thrive when a resident has been unable to have oral
intake sufficient for survival. Typically, this diagnosis is appended
when the physician has determined that a feeding tube should be
considered to provide sufficient intake for survival. According to the
commenter, it would then appropriately become the primary diagnosis for
a skilled stay. We considered this request and believe that R6.2 is a
nonspecific code and SNF primary diagnoses should be coded to the
highest level of specificity. If the patient has been unable to have
oral intake, the primary diagnosis (for example, Ulcerative Colitis)
for admission to a SNF should explain why the patient is unable to have
oral intake sufficient for survival. Therefore, we did not propose this
specific remapping.
We solicited comments on the proposed substantive changes to the
ICD-10 code mappings discussed previously in this section, as well as
comments on additional substantive and non-substantive changes that
commenters believe are necessary. We received public comments on these
proposals. The following is a summary of the comments we received and
our responses.
Comment: Several commenters supported the proposed changes to the
PDPM ICD-10 mappings. Some commenters expressed concerns with the
proposed reclassification of certain conditions from a given clinical
category to a Return to Provider status. For example, some commenters
stated that, in the case of code F32.A (Depression, unspecified), this
may be the most appropriate diagnosis, based on the information
provided in the medical record. These commenters also stated that while
it may be appropriate to remap code D75.839 to Return to Provider, they
do not believe the more specific codes discussed in the proposed rule
for this condition would be appropriate. Similarly, some commenters
opposed remapping code D89.44 to Return to Provider, as skilled care
may be necessary to treat the symptoms associated with this condition.
Response: We appreciate the support for these proposed changes.
Regarding the comments related to the potential lack of additional
documentation to support more specific diagnoses, ICD 10 coding
guidance indicates to code with the highest specificity. The suggestion
of codes, D47.3 and D75.838, was given to provide examples of more
specific coding that could potentially be used if appropriate. SNF
primary diagnoses should be coded to the highest level of specificity.
By the time a person is in the SNF, the reason for thrombocytosis,
should be known and since ICD 10 guidelines state that coding should be
to the highest specificity, the reason for thrombocytosis could be
listed as the principal diagnosis. Additionally, our goal is to ensure
that Medicare beneficiaries receive the best care in the appropriate
place. If a patient requires treatment in a facility for the primary
reason of depression, Not Otherwise Specified (NOS), then their
Medicare benefits provide access to treatment in an inpatient
psychiatric hospital so that the type of depression, as well as
treatment can be determined by specialists in the field. We remind
commenters that the ICD-10 mapping reflects diagnoses which may be used
as the primary diagnosis for a Part-A covered stay, not merely for a
comorbidity associated with the patient's care. For conditions like
D89.44 (Hereditary Alpha Tryptasemia), if there are symptoms or
manifestations of this condition that require skilled care, then those
symptoms should be provided as the primary diagnosis for the SNF stay,
rather than the underlying condition which, often times, may be treated
using oral medications.
Comment: Some commenters stated that CMS should reconsider mapping
code M62.81 (Muscle weakness, generalized) and R62.7 (Adult failure to
thrive) to a clinical category, as these conditions may serve as the
source of treatment to maintain the patient's existing functional
status before further decline.
Response: We considered this request and continue to believe that
muscle weakness (generalized) is nonspecific and if the original
condition is resolved, but the resulting muscle weakness persists
because of the known original diagnosis, there are more specific codes
that exist that would account for why the muscle weakness is on-going.
This symptom, without any specification of the etiology or severity, is
not a reason for daily skilled care in a SNF. Patients with generalized
weakness should obtain a more specific diagnosis causing the
generalized weakness. The specific diagnosis should be used to develop
an appropriate care plan can for the patient. Similarly, in the case of
a failure to thrive, this diagnosis is nonspecific and does not suggest
the interventions needed to care for the patient, thus it should not be
used as a reason for SNF admission. It may indicate that the patient's
condition has not been thoroughly investigated which would be needed to
develop an appropriate treatment plan.
Comment: Several commenters recommended that CMS consider revising
the PDPM ICD-10 mapping to reclassify certain humeral fracture codes.
These commenters highlighted that certain select encounter codes for
humeral fracture are permitted to be coded under the current ICD-10
mapping, but not other encounter codes. The commenters suggested that
all the encounter codes associated with these fracture codes be
included in the appropriate clinical category.
Response: We appreciate the commenters' suggestion and agree that
the various encounter codes should be treated in the same manner. We
will examine the specific codes suggested to determine the most
efficient manner for addressing this discrepancy.
Comment: Several commenters raised concerns with areas of
discordance between the PDPM ICD-10 mapping

[[Page 47525]]

and the Medicare Code Edits (MCE) listing used by Medicare
Administrative Contractors (MACs) when evaluating the primary diagnosis
codes listed on claims. These commenters referred to instances when
claims were denied for including a primary diagnosis code that may be
found in the PDPM ICD-10 mapping as a valid code but is not accepted by
the MACs. These commenters recommended that CMS seek to align these two
code lists.
Response: We appreciate commenters raising this concern. While
outside the scope of this rule, we intend to consult with MACs on this
issue to determine an appropriate path forward.
After consideration of public comments, we finalize the proposed
changes to the PDPM ICD-10 mappings, as proposed.

C. Recalibrating the PDPM Parity Adjustment

1. Background
On October 1, 2019, we implemented the Patient Driven Payment Model
(PDPM) under the SNF PPS, a new case-mix classification model that
replaced the prior case-mix classification model, the Resource
Utilization Groups, Version IV (RUG-IV). As discussed in the FY 2019
SNF PPS final rule (83 FR 39256), as with prior system transitions, we
proposed and finalized implementing PDPM in a budget neutral manner.
This means that the transition to PDPM, along with the related policies
finalized in the FY 2019 SNF PPS final rule, were not intended to
result in an increase or decrease in the aggregate amount of Medicare
Part A payment to SNFs. We believe ensuring parity is integral to the
process of providing ``for an appropriate adjustment to account for
case mix'' that is based on appropriate data in accordance with section
1888(e)(4)(G)(i) of the Act. Section V.I. of the FY 2019 SNF PPS final
rule (83 FR 39255 through 39256) discusses the methodology that we used
to implement PDPM in a budget neutral manner. Specifically, we
multiplied each of the PDPM case-mix indexes (CMIs) by an adjustment
factor that was calculated by comparing total payments under RUG-IV
using FY 2017 claims and assessment data (the most recent final claims
data available at the time) to what we expected total payments would be
under PDPM based on that same FY 2017 claims and assessment data. In
the FY 2020 SNF PPS final rule (84 FR 38734 through 38735), we
finalized an updated standardization multiplier and parity adjustment
based on FY 2018 claims and assessment data. This analysis resulted in
an adjustment factor of 1.46, by which all the PDPM CMIs were
multiplied so that total estimated payments under PDPM would be equal
to total actual payments under RUG-IV, assuming no changes in the
population, provider behavior, and coding. By multiplying each CMI by
1.46, the CMIs were inflated by 46 percent to achieve budget
neutrality.
We used a similar type of parity adjustment in FY 2011 when we
transitioned from RUG-III to RUG-IV. As discussed in the FY 2012 SNF
PPS final rule (76 FR 48492 through 48500), we observed that once
actual RUG-IV utilization data became available, the actual RUG-IV
utilization patterns differed significantly from those we had projected
using the historical data that grounded the RUG-IV parity adjustment.
We then used actual FY 2011 RUG-IV utilization data to recalibrate the
RUG-IV parity adjustment and decreased the nursing CMIs for all RUG-IV
therapy groups from an adjustment factor of 61 percent to an adjustment
factor of 19.84 percent, while maintaining the original 61 percent
total nursing CMI increase for all non-therapy RUG-IV groups. As a
result of this recalibration, FY 2012 SNF PPS rates were reduced by
12.5 percent, or $4.47 billion, in order to achieve budget neutrality
under RUG-IV prospectively.
Since PDPM implementation, we have closely monitored SNF
utilization data to determine if the parity adjustment finalized in the
FY 2020 SNF PPS final rule (84 FR 38734 through 38735) provided for a
budget neutral transition between RUG-IV and PDPM as intended. Similar
to what occurred in FY 2011 with RUG-IV implementation, we observed
significant differences between the expected SNF PPS payments and case-
mix utilization based on historical data, and the actual SNF PPS
payments and case-mix utilization under PDPM, based on FY 2020 and FY
2021 utilization data. As discussed in the FY 2022 SNF PPS final rule
(86 FR 42466 through 42469), we initially estimated that PDPM may have
inadvertently triggered a significant increase in overall payment
levels under the SNF PPS of approximately 5 percent and that
recalibration of the parity adjustment may be warranted.
Following the methodology utilized in calculating the initial PDPM
parity adjustment, we would typically use claims and assessment data
for a given year to classify patients under both the current system and
the prior system to compare aggregate payments and determine an
appropriate adjustment factor to achieve parity. However, we
acknowledged that the typical methodology for recalibrating the parity
adjustment may not provide an accurate recalibration under PDPM for
several reasons. First, the ongoing COVID-19 PHE has had impacts on
nursing home care protocols and many other aspects of SNF operations
that affected utilization data in FY 2020 and FY 2021. Second, given
the significant differences in payment incentives and patient
assessment requirements between RUG-IV and PDPM, using the same
methodology that we have used in the past to calculate a recalibrated
PDPM parity adjustment could lead to a potential overcorrection in the
recalibration.
In the FY 2022 SNF PPS proposed rule (86 FR 19987 through 19989),
we solicited comments from interested parties on a potential
methodology for recalibrating the PDPM parity adjustment to account for
these potential effects without compromising the accuracy of the
adjustment. After considering the feedback and recommendations
received, summarized in the FY 2022 SNF PPS final rule (86 FR 42469
through 42471), we proposed an updated recalibration methodology and
presented results from our data monitoring efforts to provide
transparency on our efforts to parse out the effects of PDPM
implementation from the effects of the COVID-19 PHE in section V.C.2.d.
of the proposed rule. We solicited comments on this proposal for
recalibrating the PDPM parity adjustment to ensure that PDPM is
implemented in a budget neutral manner, as originally intended. We
received public comments on these proposals. The following is a summary
of the comments we received and our responses.
Comment: Some commenters noted that they understood the need to
implement PDPM in a budget neutral manner, but requested that CMS
reconsider the necessity of the parity adjustment. These commenters
stated that it was unreasonable to expect a budget-neutral transition
given the ``new normal'' that includes the impacts of COVID-19 and
questioned the appropriateness of comparing a pre-COVID-19 RUG-IV
system to a COVID-19 era PDPM system. Other commenters stated that even
if the COVID-19 PHE had not occurred, it was unreasonable to expect a
budget-neutral transition given that PDPM encourages providers to put a
greater emphasis on capturing all patient characteristics. That is,
while providers have always treated and considered such highly
individualized characteristics, commenters noted that these were not
necessarily captured by the MDS under the previous RUG-IV

[[Page 47526]]

payment system and were underrepresented in the data. Therefore,
commenters disagreed with the notion that an overpayment is occurring
between the PDPM model and RUG-IV model; rather, they stated the
increased cost is an appropriate reflection of better capturing of
patient complexities on the MDS.
Response: We believe there were significant changes in the coding
of patient acuity directly following PDPM implementation and before the
COVID-19 PHE that would have warranted a parity adjustment. In section
V.C.2.d. of the proposed rule, we described numerous changes observed
in the data that demonstrate the different impacts of PDPM
implementation and the COVID-19 PHE on reported patient clinical
acuity. For example, commenters stated that limitations regarding
visitation and other infection control protocols due to the PHE led to
higher levels of mood distress, cognitive decline, functional decline,
compromised skin integrity, change in appetite, and weight loss
requiring diet modifications among the non-COVID-19 population.
However, our data show that many of these metrics had already exhibited
clear changes concurrent with PDPM implementation and well before the
start of the COVID-19 PHE. For example, the data showed an average of 4
percent of stays with depression and 5 percent of stays with a
swallowing disorder in the fiscal year prior to PDPM implementation (FY
2019). In the 3 months directly following PDPM implementation and
before the start of the COVID-19 PHE (October 2019 through December
2019), these averages increased to 11 percent of stays with depression
and 17 percent of stays with a swallowing disorder.
The parity adjustment is meant to correct for the very changes in
coding intensity of patient characteristics that these commenters
describe, and similar changes in provider behavior and coding in
response to payment incentives have occurred in past transitions from
one payment system to another. As discussed in the FY 2012 SNF PPS
final rule (76 FR 48492 through 48500), we implemented a similar type
of parity adjustment in 2011 after observing a large difference between
expected and actual utilization patterns in the transition from the
RUG-III to RUG-IV payment system. As with prior system transitions, we
proposed and finalized implementing PDPM in a budget neutral manner in
the FY 2019 SNF PPS final rule (83 FR 39256). This meant that the
transition to PDPM was not intended to result in an increase or
decrease in the aggregate amount of Medicare Part A payment to SNFs.
Comment: Some commenters pointed to unintended consequences of
implementing the parity adjustment on Medicare beneficiaries and other
residents. Medicare's reimbursement rates for SNF care are higher than
those of other payers such as Medicaid, and therefore, are a crucial
support for an otherwise financially challenged SNF industry,
particularly given the ongoing COVID-19 PHE. Any decrease to those
rates would be acutely detrimental, especially to smaller, independent
providers serving low-income populations, possibly resulting in
facility closures and decreased access to care for beneficiaries.
Response: We remind commenters that Medicare Part A payments under
the SNF PPS are solely intended to reflect the costs of providing care
to beneficiaries covered under Medicare Part A and are not intended to
augment payments from other payers that may be lower than Medicare Part
A payment rates.
After consideration of public comments, we are finalizing our
proposal to recalibrate the PDPM parity adjustment to ensure that PDPM
is implemented in a budget neutral manner, as originally intended.
2. Methodology for Recalibrating the PDPM Parity Adjustment
a. Effect of COVID-19 Public Health Emergency
FY 2020 was a year of significant change under the SNF PPS. In
addition to implementing PDPM on October 1, 2019, a national COVID-19
PHE was declared beginning January 27, 2020. With the announcement of
the COVID-19 PHE, and under authority granted us by section 1812(f) of
the Act, we issued two temporary modifications to the limitations of
section 1861(i) of the Act beginning March 1, 2020, that affected SNF
coverage. The 3-day prior hospitalization modification allows a SNF to
furnish Medicare Part A services without requiring a 3-day qualifying
hospital stay, and the benefit period exhaustion modification allows a
one-time renewal of benefits for an additional 100 days of Part A SNF
coverage without a 60-day break in a spell of illness. These COVID-19
PHE-related modifications allow coverage for beneficiaries who would
not typically be able to access the Part A SNF benefit, such as
community and long-term care nursing home patients without a prior
qualifying hospitalization.
We acknowledged that the COVID-19 PHE had significant impacts on
nursing home care protocols and many other aspects of SNF operations.
For months, infection and mortality rates were high among nursing home
residents. Additionally, facilities were often unable to access testing
and affordable personal protective equipment (PPE) and were effectively
closed to visitors and barred from conducting communal events to help
control infections (March 2021 MedPAC Report to Congress, 204,
available at <a href="https://www.medpac.gov/wp-content/uploads/2021/10/mar21_medpac_report_ch7_sec.pdf">https://www.medpac.gov/wp-content/uploads/2021/10/mar21_medpac_report_ch7_sec.pdf</a>). As described in the FY 2022 SNF PPS
final rule (86 FR 42427), many commenters voiced concerns about
additional costs due to the COVID-19 PHE that could be permanent due to
changes in patient care, infection control staff and equipment,
personal protective equipment, 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 additional 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.
However, we noted that the relevant issue for a recalibration of
the PDPM parity adjustment is whether or not the COVID-19 PHE caused
changes in the SNF case-mix distribution. In other words, the issue is
whether patient classification, or the relative percentages of
beneficiaries in each PDPM group, was different than what it would have
been if not for the COVID-19 PHE. The parity adjustment addresses only
to the transition between case-mix classification models (in this case,
from RUG-IV to PDPM) and is not intended to include other unrelated SNF
policies such as the market basket increase, which is intended to
capture the change over time in the input prices for skilled nursing
facility services described previously. A key aspect of our
recalibration methodology, described in further detail later in this
section, involved parsing out the impacts of the COVID-19 PHE and the
PHE-related modifications from those that occurred solely, or at least
principally, due to the implementation of PDPM.
b. Effect of PDPM Implementation
As discussed in the FY 2022 SNF PPS final rule (86 FR 42467), we
presented evidence that the transition to PDPM impacted certain aspects
of SNF patient classification and care provision prior to the beginning
of the COVID-19 PHE.

[[Page 47527]]

For example, our data showed that SNF patients received an average of
approximately 93 therapy minutes per utilization day in FY 2019.
Between October 2019 and December 2019, the 3 months after PDPM
implementation and before the onset of the COVID-19 PHE, the average
number of therapy minutes SNF patients received per day dropped to
approximately 68 minutes per utilization day, a decrease of
approximately 27 percent. Given this reduction in therapy provision
since PDPM implementation, we found that using patient assessment data
collected under PDPM would lead to a significant underestimation of
what RUG-IV case-mix and payments would have been (for example, the
Ultra-High and Very-High Rehabilitation assignments are not nearly as
prevalent using PDPM-reported data), which would in turn lead to an
overcorrection in the parity adjustment. Additionally, there were
significant changes in the patient assessment schedule such as the
removal of the Change of Therapy Other Medicare Required Assessment
(COT-OMRA). Without having an interim assessment between the 5-day
assessment and the patient's discharge from the facility, we were
unable to determine if the RUG-IV group into which the patient
classified on the 5-day assessment changed during the stay, or if the
patient continued to receive an amount of therapy services consistent
with the initial RUG-IV classification.
Therefore, given the significant differences in payment incentives
and patient assessment requirements between RUG-IV and PDPM, using the
same methodology that we have used in the past to calculate a
recalibrated PDPM parity adjustment could lead to a potential
overcorrection in the recalibration. In the FY 2022 SNF PPS proposed
rule (86 FR 19988), we described an alternative recalibration
methodology that used FY 2019 RUG-IV case-mix distribution as a proxy
for what total RUG-IV payments would have been absent PDPM
implementation. We believed that this methodology provided a more
accurate representation of what RUG-IV payments would have been, were
it not for the changes precipitated by PDPM implementation, than using
data reported under PDPM to reclassify these patients under RUG-IV. We
solicited comments from interested parties on this aspect of our
potential methodology for recalibrating the PDPM parity adjustment and
they were generally receptive to this approach, as described in the FY
2022 SNF PPS final rule (86 FR 42468 through 42470).
c. FY 2022 SNF PPS Proposed Rule Potential Parity Adjustment
Methodology and Comments
In the FY 2022 SNF PPS proposed rule (86 FR 19986 through 19987),
we presented a potential methodology that attempted to account for the
effects of the COVID-19 PHE by removing those stays with a COVID-19
diagnosis and those stays using a PHE-related modification from our
data set, and we solicited comment on how interested parties believed
the COVID-19 PHE affected the distribution of patient case-mix in ways
that were not sufficiently captured by our subset population
methodology. According to our data analysis, 10 percent of SNF stays in
FY 2020 and 17 percent of SNF stays in FY 2021 included a COVID-19 ICD-
10 diagnosis code either as a primary or secondary diagnosis, while 17
percent of SNF stays in FY 2020 and 27 percent of SNF stays in FY 2021
utilized a PHE-related modification (with the majority of these cases
using the prior hospitalization modification), as identified by the
presence of a ``Disaster Relief (DR)'' condition code on the SNF claim.
As compared to prior years, when approximately 98 percent of SNF
beneficiaries had a qualifying prior hospital stay, approximately 86
percent and 81 percent of SNF beneficiaries had a qualifying prior
hospitalization in FY 2020 and FY 2021, respectively. These general
statistics are important, as they highlight that while the PHE for
COVID-19 certainly impacted many aspects of nursing home operations,
the large majority of SNF beneficiaries entered into Part A SNF stays
in FY 2020 and FY 2021 as they would have in any other year; that is,
without using a PHE-related modification, with a prior hospitalization,
and without a COVID-19 diagnosis.
Moreover, as discussed FY 2022 SNF PPS proposed rule (86 FR 19988),
we found that even after removing those using a PHE-related
modification and those with a COVID-19 diagnosis from our data set, the
observed inadvertent increase in SNF payments since PDPM was
implemented was approximately the same. To calculate expected total
payments under RUG-IV, we used the percentage of stays in each RUG-IV
group in FY 2019 and multiplied these percentages by the total number
of FY 2020 days of service. We then multiplied the number of days for
each RUG-IV group by the RUG-IV per diem rate, which we obtained by
inflating the FY 2019 SNF PPS RUG-IV rates by the FY 2020 market basket
update factor. The total payments under RUG-IV also accounted for the
human immunodeficiency virus/acquired immunodeficiency syndrome (HIV/
AIDS) add-on of a 128 percent increase in the PPS per diem payment
under RUG-IV, and a provider's FY 2020 urban or rural status. To
calculate the actual total payments under PDPM, we used data reported
on FY 2020 claims. Specifically, we used the Health Insurance
Prospective Payment System (HIPPS) code on the SNF claim to identify
the patient's case-mix assignment and associated CMIs, utilization days
on the claim to calculate stay payments and the variable per diem
adjustment, the presence of an HIV diagnosis on the claim to account
for the PDPM AIDS add-on of 18 percent to the nursing component and the
highest point value (8 points) to the NTA component, and a provider's
urban or rural status. Using this approach, and as described in the FY
2022 SNF PPS final rule (86 FR 42468 through 42469), we initially
estimated a 5.3 percent increase in aggregate spending under PDPM as
compared to expected total payments under RUG-IV for FY 2020 when
considering the full SNF population, and a 5 percent increase in
aggregate spending under PDPM for FY 2020 when considering the subset
population. This finding suggested that a large portion of the changes
observed in SNF utilization are due to PDPM and not the PHE for COVID-
19, as the ``new'' population of SNF beneficiaries (that is, COVID-19
patients and those using a PHE-related modification) did not appear to
be the main cause of the increase in SNF payments after implementation
of PDPM. Although these results are similar, we believed it would be
more appropriate to pursue a potential recalibration using the subset
population.
As described in the FY 2022 SNF PPS final rule (86 FR 42469 through
42471), some commenters agreed with our approach, stating that our
subset population was a reasonable method to account for the effect of
the COVID-19 PHE, and made a few suggestions for improvements. They
stated that our analysis may have undercounted COVID-19 patients
because there was no COVID-19 specific diagnosis code available before
April 2020 and a shortage of tests at the beginning of the PHE led to
SNFs being unable to report COVID-19 cases. To address these issues,
commenters suggested that CMS consider using non-specific respiratory
diagnoses or depression as proxies for COVID-19 cases. While we
considered this option, we believed that such a change would
overestimate the population to be excluded due to the

[[Page 47528]]

non-specific nature of those diagnoses. Additionally, because we did
not provide our COVID-19 population definition in the FY 2022 SNF PPS
proposed or final rules, commenters were concerned that our methodology
did not include COVID-19 diagnoses from the Minimum Data Set (MDS)
patient assessments in addition to SNF claims. Commenters were also
concerned that we did not exclude transitional stays resulting from
CMS' instruction to assess all patients anew in October 2019 using the
PDPM MDS assessment, even though some patients were in the middle or
end of their Medicare Part A coverage. We addressed these concerns by
sharing a revised COVID-19 population definition in section V.C.2.d. of
the proposed rule.
However, many commenters expressed concern that our subset
population methodology would not accurately represent what the SNF
patient case-mix would look like outside of the COVID-19 PHE
environment, stating that data collected during the PHE was entirely
too laden with COVID-19 related effects on the entire SNF population to
be utilized and pointing to multiple reasons for greater clinical
acuity even among our subset population. For example, because elective
surgeries were halted, those admitted were the most compromised who
could not be cared for at home. Additionally, limitations regarding
visitation and other infection control protocols led to higher levels
of mood distress, cognitive decline, functional decline, compromised
skin integrity, change in appetite, and weight loss requiring diet
modifications. In response to these comments, we conducted
comprehensive data analysis and monitoring to identify changes in
provider behavior and payments since implementing PDPM and presented a
revised parity adjustment methodology in section V.C.2.d. of the
proposed rule that we believed more accurately accounted for these
changes while excluding the effect of the COVID-19 PHE on the SNF
population.
d. FY 2023 SNF PPS Proposed Parity Adjustment Methodology
As outlined in section V.C.2.d. of the proposed rule, we proposed a
revised methodology for the calculating the parity adjustment that
considers the comments received in response to the potential
methodology described in the FY 2022 SNF PPS proposed rule (86 FR 19986
through 19987). In response to the comments received about the subset
population methodology, we modified our definition of COVID-19, which
we derived from the Centers for Disease Control and Prevention (CDC)
coding guidelines, to align with the definition used by publicly
available datasets from CMS's Office of Enterprise Data and Analytics
(OEDA) and found no significant impact on our calculations. For the FY
2022 SNF proposed rule, we defined the COVID-19 population to include
stays that have either the interim COVID-19 code B97.29 recorded as a
primary or secondary diagnosis in addition to one of the symptom codes
J12.89, J20.8, J22, or J80, or the new COVID-19 code U07.1 recorded as
a primary or secondary diagnosis on their SNF claims or MDS 5-day
admission assessments. For the FY 2023 SNF proposed rule, we defined
the COVID-19 population to include stays that have the interim COVID-19
code B97.29 from January 1, 2020 to March 31, 2020 or the new COVID-19
code U07.1 from April 1, 2020 onward recorded as a primary or secondary
diagnosis on their SNF claims, MDS 5-day admission assessments, or MDS
interim payment assessments. Both FY 2022 and FY 2023 definitions of
the COVID-19 population excluded transitional stays. We noted that we
found no significant impact on our calculations, as the COVID-19
population definition change only increased the stay count of our
subset population by less than 1 percent.
In response to the comments described previously and based on
additional data collection through FY 2021, we identified a
recalibration methodology that we believed better accounted for COVID-
19 related effects. We proposed to use the same type of subset
population discussed in the FY 2022 SNF PPS proposed rule (86 FR
19960), which excluded stays that either used a section 1812(f) of the
Act modification or that included a COVID-19 diagnosis, with a 1-year
``control period'' derived from both FY 2020 and FY 2021 data.
Specifically, we used 6 months of FY 2020 data from October 2019
through March 2020 and 6 months of FY 2021 data from April 2021 through
September 2021 (which our data suggests were periods with relatively
low COVID-19 prevalence) to create a full 1-year period with no
repeated months to account for seasonality effects. As shown in Table
11, we believed this combined approach provided the most accurate
representation of what the SNF case-mix distribution would look like
under PDPM outside of a COVID-19 PHE environment. While using the
subset population method alone for FY 2020 and FY 2021 data results in
differences of 0.31 percent and 0.40 percent between the full and
subset populations, respectively, introducing the control period closed
the gap between the full and subset population adjustment factors to
0.02 percent, suggesting that the control period captures additional
COVID-19 related effects on patient acuity that the subset population
method alone does not. Accordingly, the combined methodology of using
the subset population with data from the control period resulted in the
lowest parity adjustment factor. Table 12 shows that while using the
subset population method would lead to a 4.9 percent adjustment factor
($1.6 billion) using FY 2020 data and a 5.3 percent adjustment factor
($1.8 billion) using FY 2021 data, introducing the control period
reduced the adjustment factor to 4.6 percent ($1.5 billion). We note
that these estimates are revised from those provided in the FY 2023 SNF
PPS proposed rule, based on a more recent SNF baseline budget estimate
provided by the CMS Office of the Actuary. The robustness of the
control period approach was further demonstrated by the fact that using
data from the control period, with either the full or subset
population, would lead to approximately the same parity adjustment
factor of 4.58 percent as compared to 4.6 percent.

[[Page 47529]]

[GRAPHIC] [TIFF OMITTED] TR03AU22.011

[GRAPHIC] [TIFF OMITTED] TR03AU22.012

Our data analysis and monitoring efforts provided further support
for the accuracy and appropriateness of a 4.6 percent parity adjustment
factor, as we have identified numerous changes that demonstrate the
different impacts of PDPM implementation and the COVID-19 PHE on
reported patient clinical acuity. As described earlier, commenters
stated that limitations regarding visitation and other infection
control protocols due to the PHE led to higher levels of mood distress,
cognitive decline, functional decline, compromised skin integrity,
change in appetite, and weight loss requiring diet modifications among
the non-COVID-19 population. However, our data showed that most of
these metrics, with the exception of functional decline and compromised
skin integrity, had already exhibited clear changes concurrent with
PDPM implementation and well before the start of the COVID-19 PHE. For
example, in regard to higher levels of mood distress and cognitive
decline, we observed an average of 4 percent of stays with depression
and 40 percent of stays with cognitive impairment, with an average mood
score of 1.9, in the fiscal year prior to PDPM implementation (FY
2019). In the 3 months directly following PDPM implementation and
before the start of the COVID-19 PHE (October 2019 to December 2019),
these averages increased to 11 percent of stays with depression and 44
percent of stays with cognitive impairment, with an average mood scale
of 2.9. As for change in appetite and weight loss requiring diet
modifications, we observed an average of 15 percent of stays with any
SLP comorbidity, 5 percent of stays with a swallowing disorder, and 22
percent of stays with a mechanically altered diet in FY 2019. In the 3
months directly following PDPM implementation, these averages increased
to 19 percent of stays with any SLP comorbidity, 17 percent of stays
with a swallowing disorder, and 25 percent of stays with a mechanically
altered diet. Notably, we also observed that the percentage of stays
with a swallowing disorder that did not also receive a mechanically
altered diet increased from 1 percent in FY 2019 to 5 percent in the 3
months directly following PDPM implementation. While many of these
metrics increased further after the start of the COVID-19 PHE, they
remained elevated at around their post-PDPM implementation levels even
during periods of low COVID-19 prevalence. As a result, our parity
adjustment calculations remained much the same even during months when
rates of COVID-19 cases were quite low, suggesting that patient case
mix classification has stabilized independent of the ongoing COVID-19
PHE.
Another reason that commenters cited to explain the greater
clinical acuity among the subset population is that, because elective
surgeries were halted, patients who were admitted were more severely
ill and could not be treated at home. We acknowledged that the subset
population methodology, or any method predicated on data from the
COVID-19 PHE period, may not accurately represent what SNF patient
case-mix would look like outside of the COVID-19 PHE environment
because while we could remove data that we believed were due to COVID-
19 impacts, it was more difficult to add data back in that was missing
due to the COVID-19 PHE.
However, we believed that the addition of the control period to the
subset population methodology helped to resolve this issue. For
example, there likely would have been more joint replacements were it
not for the COVID-19 PHE. Our data showed that the rate of major joint
replacement or spinal surgery decreased from 7.6 percent of stays in FY
2019, to 5.5 percent of stays in FY 2021, to 5.2 percent of stays in FY
2022. Similarly, rates of orthopedic surgery decreased from 9.1 percent
of stays in FY 2019, to 9.0 percent of stays in FY 2021, to 8.8 percent
of stays in FY 2022. Using the control period, which excluded the
periods of highest COVID-19 prevalence and lowest rates of elective
surgeries, we arrived at rates of 6.4 percent of stays with major joint
replacement or spinal surgery, and 9.5 percent of stays with orthopedic
surgery. Therefore, as we noted in section V.C.2.d. the proposed rule,
we believed that using the control period would be a closer
representation of SNF patient case-mix outside of a COVID-19 PHE
environment than using either FY 2021 or FY 2022 data alone.
Given the results of our data analyses, we proposed adopting the
methodology based upon the subset population during the control period
and lowering the PDPM parity adjustment factor from 46 percent to 38
percent for each of the PDPM case-mix adjusted components if we were to
implement the 4.6 percent parity adjustment factor in FY 2023. We noted
that the parity adjustment would be calculated and applied at a
systemic level to all facilities paid under the SNF PPS, and there may
be variation between facilities based on their unique patient
population, share of non-case-

[[Page 47530]]

mix component payment, and urban or rural status. We invited comments
on the methodology outlined in section V.C.2.d. of the proposed rule
for recalibrating the PDPM parity adjustment, as well as the findings
of our analysis described throughout section V.C.2. of the proposed
rule.
To assist commenters in providing comments on this issue, we also
posted a file on the CMS website at <a href="https://www.cms.gov/medicare/medicare-fee-for-service-payment/snfpps">https://www.cms.gov/medicare/medicare-fee-for-service-payment/snfpps</a>, which provided the FY 2019 RUG
IV case-mix distribution and calculation of total payments under RUG-
IV, as well as PDPM case-mix utilization data at the case mix group and
component level to demonstrate the calculation of total payments under
PDPM.
We invited comments on our proposed combined methodology of using
the subset population and data from the control period for the purposes
of calculating the recalibrated parity adjustment factor. The following
is a summary of the comments we received and our responses.
Comment: A few commenters provided comments in relation to the
proposed methodology for calculating the parity adjustment. Some
commenters noted our proposed methodology to be a reasonable and much
improved approach compared to the approach proposed in FY 2022 SNF PPS
proposed rule, as our revised methodology addresses many of the key
issues raised by interested parties (86 FR 42469 through 42471).
However, one commenter suggested removing August and September 2021
due to the Delta variant. Another commenter suggested a modified
control period to eliminate April and May 2021 as patients and
healthcare personnel were still in the process of receiving the initial
dose of the COVID-19 vaccine, and August and September 2021 due to
early phase of the Delta variant surge. The commenter also provided
analysis regarding COVID-19 spillover effects, which they defined as
effects that occur in non-COVID-19 patient CMIs when MDS patient
assessment patterns change from what would have occurred if not for the
pandemic, using the percentage change over time in various patient
clinical and zip-code level demographic characteristics, the latter
used as proxies for the demographics of the SNF population in a
particular zip code. The commenter stated that some metrics, such as
HCC risk scores, English proficiency, educational level, and poverty
level returned to or dropped below pre-COVID-19 PHE baseline levels,
suggesting that the revised parity adjustment factor is adequate to
account for COVID-19 spillover effects. However, the commenter also
stated that other metrics, such as PDPM component CMI trends; MDS items
for respiratory failure, pressure ulcers, and depression; and claim
items for age, race, dual, and disability status did not return to pre-
COVID-19 PHE baseline levels, suggesting that the revised parity
adjustment factor may not be adequate to account for COVID-19 spillover
effects. Based on these findings, the commenters stated that they
believed that there are COVID-19 spillover effects that remain despite
CMS's improved parity adjustment approach, and they recommended that
CMS further evaluate the data to exclude the months of April, May,
August, and September 2021 from the parity adjustment calculations, as
discussed above. The commenter also stated that modifying the control
period in this way would mitigate most of the remaining spillover
effects and would result in an additional 0.1 to 0.2 percent reduction
below the proposed 4.6 percent parity adjustment amount.
Response: We note that many of the differences shown in the data
the commenter provided are quite small (some less than a small fraction
of 1 percent) and could be attributed to the continuation of the impact
of PDPM implementation or regular year-to-year variations in the
composition of the SNF population (or zip-code level population more
generally), rather than true COVID-19 spillover effects. We also note
that the commenter did not consider data from before PDPM
implementation to support what they believe should be a more
appropriate parity adjustment factor, as they used data from October
2019 to February 2020 to define their ``pre-pandemic'' study
population.
In contrast, the data analyses we presented earlier in the preamble
show significant changes in the coding of patient case mix concurrent
with PDPM implementation. For example, in the year prior to PDPM
implementation (FY 2019), we observed an average of 4 percent of stays
coded with depression and 5 percent of stays coded with a swallowing
disorder. In the 3 months directly following PDPM implementation and
before the start of the COVID-19 PHE (October 2019 to December 2019),
these averages increased to 11 percent of stays coded with depression
and 17 percent of stays coded with a swallowing disorder. While these
and other clinical metrics increased in acuity after the start of the
COVID 19 PHE in January 2020, they remained elevated at around their
immediate post-PDPM implementation levels even during periods of low
COVID-19 prevalence. As a result, our parity adjustment calculations
remained much the same even during months when rates of COVID-19 cases
were quite low, suggesting that the 4.6 percent parity adjustment
factor captures the effect of PDPM implementation and excludes the
effects of the COVID-19 PHE.
Moreover, we believe that it is important to have an adequate and
representative amount of time in both 2020 and 2021 upon which to
calculate a parity adjustment factor, rather than choosing specific
months that would result in the lowest possible parity adjustment
factor. Our analysis of Medicare Part A data from SNFs in April, May,
August, and September 2021 show that these were months of low COVID-19
prevalence in SNFs compared to other months in FY 2020 and FY 2021. We
intentionally chose 6 months of FY 2020 data from October 2019 through
March 2020 and 6 months of FY 2021 data from April 2021 through
September 2021, which our Medicare Part A monitoring data showed were
periods with the lowest COVID-19 prevalence in SNFs, to create a full
1-year period with no repeated months to account for seasonality
effects. While we used less than a year of data in calculating the
recalibration of the RUG-IV parity adjustment when transitioning
between RUG-III and RUG-IV in FY 2012 (76 FR 48493), that change was
between two payment models that were, in several ways, very similar
(for example, the relationship between therapy intensity and payment
classification). This time, in light of the significant differences
between the PDPM and the RUG-IV payment models, in addition to the
impact of the COVID-19 PHE, we believe it is necessary to use a full
year of data.
After consideration of these public comments, we are finalizing a
parity adjustment factor of 4.6 percent using the combined subset
population and control period methodology, as proposed. As discussed
later in section VI.C.4. of this final rule, we are finalizing the
implementation of the parity adjustment with a 2-year phase-in period,
which means that, for each of the PDPM case-mix adjusted components, we
would lower the PDPM parity adjustment factor from 46 percent to 42
percent in FY 2023 and we would further lower the PDPM parity
adjustment factor from 42 percent to 38 percent in FY 2024.

[[Page 47531]]

3. Methodology for Applying the Recalibrated PDPM Parity Adjustment
As discussed in the FY 2022 SNF PPS proposed rule (86 FR 19988), we
believed it would be appropriate to apply the recalibrated parity
adjustment across all PDPM CMIs in equal measure, as the initial
increase to the PDPM CMIs to achieve budget neutrality was applied
equally, and therefore, this method would properly implement and
maintain the integrity of the PDPM classification methodology as it was
originally designed. Tables 5 and 6 in section III.C. of the proposed
rule set forth what the PDPM CMIs and case-mix adjusted rates would be
if we apply the recalibration methodology in equal measure in FY 2023.
We acknowledged that we received several comments in response to
last year's rule objecting to this approach given that our data
analysis, presented in Table 23 of the FY 2022 SNF PPS proposed rule
(86 FR 19987), showed significant increases in the average CMI for the
SLP, Nursing, and NTA components for both the full and subset FY 2020
populations as compared to what was expected, with increases of 22.6
percent, 16.8 percent, and 5.6 percent, respectively, for the full FY
2020 SNF population. As described in the FY 2022 SNF PPS final rule (86
FR 42471), some commenters disagreed with adjusting the CMIs across all
case-mix adjusted components in equal measure, suggesting that this
approach would harm patient care by further reducing PT and OT therapy
minutes. Instead, the commenters recommended a targeted approach that
focuses the parity adjustment on the SLP, Nursing, and NTA components
in proportion to how they are driving the unintended increase observed
under PDPM.
We considered these comments, but believe that it would be most
appropriate to propose applying the parity adjustment across all
components equally. First, as described earlier, the initial increase
to the PDPM CMIs to achieve budget neutrality was applied across all
components, and therefore, it would be appropriate to implement a
revision to the CMIs in the same way. Second, the reason we did not
observe the same magnitude of change in the PT and OT components is
that, in designing the PDPM payment system, the data used to help
determine what payment groups SNF patients would classify into under
PDPM was collected under the prior payment model (RUG-IV), which
included incentives that encouraged significant amounts of PT and OT.
Given that PT and OT were furnished in such high amounts under RUG-IV,
we had already assumed that a significant portion of patients would be
classified into the higher paying PT and OT groups corresponding to
having a Section GG function score of 10 to 23. Therefore, this left
little room for additional increases in PT and OT classification after
PDPM implementation. In other words, the PT and OT components results
were as expected according to the original design of PDPM, while the
SLP, Nursing, and NTA results were not.
However, to fully explore the alternative targeted approach that
commenters suggested, we updated our analysis of the average CMI by
PDPM component from Table 23 of the FY 2022 SNF PPS proposed rule (86
FR 19987) and found that a similar pattern still holds when comparing
the expected average CMIs for FY 2019 and the expected actual CMIs for
the subset population during the control period. Table 13 shows
significant increases in average case-mix of 18.6 percent for the SLP
component and the 10.8 percent for the Nursing component, a moderate
increase of 3.0 percent for the NTA component, and a slight increase of
0.4 percent for the PT and OT components, respectively. We also
provided Table 14 to show the potential impact of applying the 4.6
percent PDPM parity adjustment factor to the PDPM CMIs in a targeted
manner in FY 2023, instead of an equal approach as presented in Tables
5 and 6 in section III.C. of the proposed rule. We invited comments on
whether interested parties believe a targeted approach is preferable to
our proposed equal approach.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR03AU22.013

[[Page 47532]]

[GRAPHIC] [TIFF OMITTED] TR03AU22.014

BILLING CODE 4120-01-C
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: A few commenters supported our proposal to apply the
parity adjustment evenly over all CMIs for all case-mix groups, the
same approach that was taken when the original adjustment was
implemented. One commenter stated that the targeted approach, which
results in a larger reduction for some CMIs than others, may have
unintended adverse effects on some facilities and that an equally
distributed percentage reduction would have a more equitable impact on
all facilities. Another commenter believed an equal approach would be
the least disruptive policy implementation, rather than set a precedent
for potential future changes to the individual CMI components. The
commenter also added that regardless of which CMIs are reduced,
facilities are still receiving a single per-diem payment. A third
commenter agreed that, in the absence of re-designing the PDPM payment
model from the ground-up based on observed PDPM CMIs, the adoption of
an even distribution for the parity adjustment would best maintain the
stability of the PDPM payment model. A fourth commenter strongly
opposed a targeted approach to all categories, believing that SLP
services were undervalued in the RUG-IV system and utilization of SLP
services appropriately meets beneficiary needs under PDPM, but were not
previously reported since there were no financial incentives for SNFs
to report SLP services under RUG-IV.
Two commenters supported a targeted approach and expressed concern
about a reduction in payment for the PT and OT components, given that
the majority of increased spending is not attributed to these
components, leading to a reduction in PT and OT services. The
commenters urged CMS to use the data to adjust PDPM in an accurate and
precise manner, rather than simply reducing every CMI.
Response: We agree that applying the parity adjustment equally
across all PDPM CMIs would be the most equitable and least disruptive
policy implementation, rather than set a precedent for potential future
changes to the individual CMI components. We also agree that regardless
of which CMIs are reduced, facilities are still receiving a single per-
diem payment and a reduction in the PT and OT CMIs should not impact
the provision of these services, as the main driver for determining the
appropriate provision of these services should the unique
characteristics, goals, or needs, of each SNF patient. As we stated in
the FY 2020 SNF PPS final rule (84 FR 38748), financial motives should
not override the clinical judgment of a therapist or therapy assistant
or pressure a therapist or therapy assistant to provide less than
appropriate therapy.
After consideration of public comments, we are finalizing the
application of the parity adjustment equally across all components, as
proposed.

[[Page 47533]]

4. Delayed and Phased Implementation
As we noted in the FY 2012 SNF PPS final rule (76 FR 48493), we
believe it is imperative that we act in a well-considered but expedient
manner once excess payments are identified, as we did in FY 2012.
However, we acknowledged that applying a reduction in payments without
time to prepare could create a financial burden for providers,
particularly considering the ongoing COVID-19 PHE. Therefore, in the FY
2022 SNF PPS proposed rule (86 FR 19988 through 19990), we solicited
comments on two potential mitigation strategies to ease the transition
to prospective budget neutrality: delayed implementation and phased
implementation. We noted that for either of these options, the
adjustment would be applied prospectively, and the CMIs would not be
adjusted to account for deviations from budget neutrality in years
before the payment adjustments are implemented.
A delayed implementation strategy would mean that we would
implement the reduction in payment in a later year than the year the
reduction is finalized. For example, considering the 4.6 percent
reduction discussed previously in this preamble, if this reduction is
finalized in FY 2023 with a 1-year delayed implementation, this would
mean that the full 4.6 percent reduction will be applied prospectively
to the PDPM CMIs in FY 2024. By comparison, a phased implementation
strategy would mean that the amount of the reduction would be spread
out over some number of years. For example, if we were to implement a
2-year phase-in period to the 4.6 percent reduction discussed
previously in the proposed rule with no delayed implementation, this
would mean that the PDPM CMIs would be reduced by 2.3 percent in the
first year of implementation in FY 2023 and then reduced by the
remaining 2.3 percent in the second and final year of implementation in
FY 2024. We could also use a combination of both mitigation strategies,
such as a 1-year delayed implementation with a 2-year phase-in period,
would mean that the PDPM CMIs would be reduced by 2.3 percent in the
first year of implementation in FY 2024 and then reduced by the
remaining 2.3 percent in the second and final year of implementation in
FY 2025.
In the FY 2022 SNF PPS proposed rule (86 FR 19988 through 19990),
we solicited comments on the possibility of combining the delayed and
phased implementation approaches and what interested parties believed
would be appropriate to appropriately mitigate the impact of the
reduction in SNF PPS payments. As described in the FY 2022 SNF PPS
final rule (86 FR 42470 through 42471), most commenters supported
combining both mitigation strategies of delayed implementation of 2
years and a gradual phase-in of no more than 1 percent per year. MedPAC
supported delayed implementation, but did not believe a phased-in
approach was warranted given the high level of aggregate payment to
SNFs. Further, MedPAC's March 2022 Report to Congress (available at
<a href="https://www.medpac.gov/wp-content/uploads/2022/03/Mar22_MedPAC_ReportToCongress_Ch7_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2022/03/Mar22_MedPAC_ReportToCongress_Ch7_SEC.pdf</a>) has found that since 2000,
the aggregate Medicare margin for freestanding SNFs has consistently
been above 10 percent each year. In 2020, the aggregate Medicare margin
was 16.5 percent, a sizable increase from 11.9 percent in 2019.
Additionally, the aggregate Medicare margin in 2020 increased to an
estimated 19.2 percent when including Federal relief funds for the
COVID-19 PHE (March 2022 MedPAC Report to Congress, 251-252). Given
these high Medicare margins, we did not believe that a delayed
implementation or a phase-in approach was needed. Rather, these
mitigation strategies would continue to pay

[…truncated; see source link]

View on FederalRegister.gov →Plain-text source

Indexed from Federal Register on August 3, 2022.

This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.